================================================================================
As filed with the Securities and Exchange Commission on March 20, 1998
Registration Statement No. 333-
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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 charter)
--------------------------------------------
DELAWARE 59-3284026
- ------------------------ --------------------------------------
(State of Incorporation) (I.R.S. Employer Identification Number)
5901 East Fowler Avenue
Tampa, FL 33617-2362
(813) 984-8801
(Address and telephone number of
principal executive offices)
---------------------------------
Joseph V. Gatti, Esq.
Arter & Hadden LLP
1801 K Street, N.W., Suite 400K
Washington, DC 20006
(202) 775-4442
Fax: (202) 857-0172
----------------------------------
(Name, address and telephone number
of agent for service)
-----------------------------------
Please send copies of communications to:
Thomas Middleton
IMC Mortgage Company
5901 East Fowler Avenue
Tampa, FL 33617-2362
(813) 984-2533
Fax: (813) 984-2593
---------------------------------------
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. |_|
Pursuant to Rule 429 under the Securities Act of 1933, the Prospectus filed
as part of this Registration Statement may be used in connection with the
securities covered by Registration Statements No. 333-24455 and 333-31197.
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================================================
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>
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Home Equity Loan Asset $1,000,000.00** 100% $1,000,000.00 $295.00***
Backed Certificates and Notes
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</TABLE>
* Estimated solely for purposes of calculating the registration fee.
** In addition to the amount being registered hereto, pursuant to Rule 429,
$645,242,786.86 is being carried forward from Registration Statement No.
333-24455 and $404,200,228.61 is being carried forward from Registration
Statement No. 333-31197, for which a filing fee was paid equal to
$195,528.12 and $122,484.92, respectively.
*** Registration fee was wired on March 19, 1998.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a),
may determine.
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<PAGE>
This registration statement registers up to $1,000,000 of mortgage asset
backed certificates and notes 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 and notes
("Securities"). The prospectus is accompanied by three forms of prospectus
supplement describing each of the structures that are expected to be employed by
the Registrant for the issuance of certificates and notes. As described in the
Prospectus, each transaction may have Classes of Securities 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).
<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 of Prospectus**; The
Seller**; Risk Factors**
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
of Prospectus; The Trusts;
Description of the Securities;
Servicing of Mortgage Loans;
The Pooling and Servicing
Agreement; The Indenture; and
Federal Income Tax
Consequences**
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
</TABLE>
- --------------------------
* Answer negative or item inapplicable.
** To be completed from time to time by Prospectus Supplement.
<PAGE>
PROSPECTUS
Subject to Completion, Dated March __, 1998
Home Equity Loan Asset Backed Certificates
Home Equity Loan Asset Backed Notes
(Issuable in Series)
IMC Securities, Inc.
(Depositor)
This Prospectus relates to Home Equity Loan Asset Backed Certificates (the
"Certificates") and Home Equity Loan Asset Backed Notes (the "Notes" and
together with the Certificates, the "Securities") to be issued from time to time
in one or more series (each, a "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 Securities 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 (including financial guaranty insurance policies and surety
bonds), guaranties, letters of credit or similar types of credit support or
enhancement as more particularly described in the related Prospectus Supplement.
One or more classes of Securities 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 Securities 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 Securities
of such Series, in each case as specified in the related Prospectus Supplement.
Interest on each class of Securities 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 Securities.
Distributions on the Securities 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 Securities. An
affiliate of the Depositor may make or obtain for the benefit of the Securities
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 Securities.
The yield on Securities will be affected by the rate of payment of
principal (including prepayments) of mortgage assets in the related Trust. Each
Series of Securities will be subject to early termination under the
circumstances described herein and in the related Prospectus Supplement.
If specified in a Prospectus Supplement for a Series of Certificates, one
or more elections 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 "Federal Income Tax Consequences"
herein and in the related Prospectus Supplement.
It is a condition to the issuance of the Securities that the Securities be
rated in not less than the fourth highest rating category by a nationally
recognized rating organization.
See "Risk Factors" beginning on page 7 herein and in the related Prospectus
Supplement for a discussion of significant matters affecting investments in the
Securities.
See "ERISA Considerations" herein and in the related Prospectus Supplement
for a discussion of restrictions on the acquisition of Securities 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 Securities.
THE ASSETS OF A TRUST ARE THE SOLE SOURCE OF PAYMENTS ON THE RELATED
SECURITIES. THE SECURITIES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE
DEPOSITOR, ANY SERVICER, ANY MASTER SERVICER, ANY ORIGINATOR, ANY TRUSTEE, ANY
INDENTURE TRUSTEE, ANY OWNER TRUSTEE OR ANY OF THEIR AFFILIATES, EXCEPT AS SET
FORTH HEREIN AND IN THE RELATED PROSPECTUS SUPPLEMENT. NEITHER THE SECURITIES
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, ANY INDENTURE TRUSTEE, ANY OWNER
TRUSTEE OR ANY OF THEIR AFFILIATES, EXCEPT AS SET FORTH IN THE RELATED
PROSPECTUS SUPPLEMENT.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR ANY RELATED PROSPECTUS
SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Offers of the Securities 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 Securities nor can there by any assurance
that one will develop or if it does develop, that it will provide the Owners of
the Securities with liquidity or will continue for the life of the Securities.
- -------------------------------------------------------------------------------
Retain this Prospectus for future reference. This Prospectus may not be
used to consummate sales of Securities unless accompanied by a Prospectus
Supplement.
The date of this Prospectus is ________________ __, 1998.
Information contained herein is subject to completion or amendment. A
registration statement relating to these Securities has been filed with the
Securities and Exchange Commission. These Securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This preliminary prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
Securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such State.
<PAGE>
AVAILABLE INFORMATION
The representative has filed a Registration Statement under the Securities
Act of 1933, as amended (the "1933 Act"), with the Securities and Exchange
Commission (the "Commission") with respect to the Securities. The Registration
Statement and amendments thereof and to the exhibits thereto, as well as such
reports and other information, are available for inspection without charge at
the public reference facilities maintained by the Commission at its Public
Reference Section 450 Fifth Street, N.W., Washington, D.C. 20549, and at its
Regional Offices located as follows: New York Regional Office, 7 World Trade
Center, 13th Floor, New York, New York 10048; and Chicago Regional Office,
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of the Registration Statement and amendments thereof and
exhibits thereto may be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates
and electronically through the Commission's Electronic Data Gathering, Analysis
and Retrieval system at the Commission's Web site (http://www.sec.gov).
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any accompanying
Prospectus Supplement with respect hereto do not constitute an offer to sell or
a solicitation of an offer to buy any securities other than the Securities
offered hereby and thereby nor an offer of the Securities to any person in any
state or other jurisdiction in which such offer would be unlawful. The delivery
of this Prospectus at any time does not imply that information herein is correct
as of any time subsequent to its date.
REPORTS TO OWNERS
Periodic and annual reports concerning any Securities and the related Trust
will be provided to the persons in whose names the Securities are registered
(the "Owners"). See "The Pooling and Servicing Agreement - Reports", "The
Indenture - Indenture Trustee's Annual Report" and "- Reports by Indenture
Trustee to Note Owners" herein. If specified in the related Prospectus
Supplement, a Series of Securities may be issuable in book-entry form. In such
event, the related Securities will be registered in the name of a Clearing
Agency (as defined herein) and, therefore, the Clearing Agency will be the Owner
for purposes hereof. All reports will be provided to the Clearing Agency, which
in turn will provide such reports to its Clearing Agency Participants (as
defined herein). Such Clearing Agency Participants will then forward such
reports to the beneficial owners of Securities. See "Description of the
Securities - Book Entry Registration" herein. The Depositor will file or cause
to be filed with the Commission such periodic reports with respect to each Trust
as are required under the Exchange Act and the rules and regulations of the
Commission thereunder. It is the Depositor's intent to suspend filing such
reports as soon as such reports are no longer statutorily required.
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., 5901 East Fowler Avenue, Tampa, Florida
33617-2362 (telephone number (813) 984-8801).
The Prospectus Supplement or Current Report on Form 8-K relating to the
Securities of each Series to be offered hereunder will, among other things, set
forth with respect to such Securities, as appropriate: (i) a description of the
class or classes of Securities and the interest rate or method of determining
the rate or the amount of interest, if any, to be paid
<PAGE>
to each such class; (ii) the aggregate principal amount and Payment Dates
relating to such Series and, if applicable, the initial and final scheduled
Payment Dates for each class; (iii) information as to the assets comprising the
Trust, including the general characteristics of the Trust Assets included
therein and, if applicable, the insurance policies, surety bonds, guarantees,
letters of credit, reserve funds, cash accounts, reinvestment income or other
instruments or agreements included in the Trust or otherwise, and the amount and
source of any reserve account or cash account; (iv) the circumstances, if any,
under which the Trust may be subject to early termination; (v) the methods used
to calculate the amount of principal to be distributed with respect to each
class of Securities; (vi) the order of application of distributions to each of
the classes within such Series, whether sequential, pro rata, or otherwise;
(vii) additional information with respect to the method of distribution of such
Securities; (viii) whether one or more REMIC elections will be made and
designation of the regular interests and residual interests; (ix) the aggregate
original percentage ownership interest in the Trust to be evidenced by each
class of Securities; (x) information as to the Trustee or Indenture Trustee;
(xi) information as to the nature and extent of subordination with respect to
any class of Securities that is subordinate in right of payment to any other
class; and (xii) information as to the Master Servicer, if any.
Until 90 days after the date of each Prospectus Supplement, all dealers
effecting transactions in the Securities covered by such Prospectus Supplement,
whether or not participating in the distribution thereof, may be required to
deliver such Prospectus Supplement and this Prospectus. This is in addition to
the obligations of dealers to deliver a Prospectus Supplement and the Prospectus
when acting as underwriters of the Securities covered by such Prospectus
Supplement and with respect to their unsold allotments or subscriptions.
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY OF PROSPECTUS................................................... 1
RISK FACTORS............................................................ 7
DESCRIPTION OF THE SECURITIES........................................... 11
General............................................................ 11
Classes of Securities.............................................. 12
Distributions of Principal and Interest............................ 13
Book Entry Registration............................................ 15
List of Owners of Securities....................................... 15
THE TRUSTS.............................................................. 16
Mortgage Loans..................................................... 16
Mortgage-Backed Securities......................................... 18
Other Mortgage Securities.......................................... 19
CREDIT ENHANCEMENT...................................................... 19
SERVICING OF MORTGAGE LOANS............................................. 24
Payments on Mortgage Loans......................................... 24
Advances........................................................... 25
Collection and Other Servicing Procedures.......................... 25
Primary Mortgage Insurance......................................... 27
Standard Hazard Insurance.......................................... 27
Title Insurance Policies........................................... 28
Claims Under Primary Mortgage Insurance Policies and
Standard Hazard Insurance Policies; Other
Realization Upon Defaulted Loan................................ 28
Servicing Compensation and Payment of Expenses..................... 28
Master Servicer.................................................... 29
THE POOLING AND SERVICING AGREEMENT..................................... 29
Assignment of Mortgage Assets...................................... 29
Evidence as to Compliance.......................................... 31
The Trustee........................................................ 31
Administration of the Security Account............................. 32
Reports............................................................ 33
Forward Commitments; Pre-Funding................................... 33
Servicer Events of Default......................................... 34
Rights Upon Servicer Event of Default.............................. 34
Amendment.......................................................... 34
Termination........................................................ 35
THE INDENTURE........................................................... 35
General............................................................ 35
Modification of Indenture ......................................... 35
Note Events of Default............................................. 36
Rights Upon Note Events of Default................................. 37
List of Note Owners................................................ 37
Annual Compliance Statement........................................ 37
Indenture Trustee's Annual Report.................................. 38
Satisfaction and Discharge of Indenture............................ 38
Redemption of Notes................................................ 38
Reports by Indenture Trustee to Note Owners........................ 38
Limitation on Suits................................................ 38
The Sale and Servicing Agreement................................... 38
USE OF PROCEEDS......................................................... 39
THE DEPOSITOR........................................................... 39
CERTAIN LEGAL ASPECTS OF THE MORTGAGE
ASSETS............................................................. 40
General............................................................ 40
Foreclosure........................................................ 41
Enforceability of Certain Provisions............................... 44
Soldiers' and Sailors' Civil Relief Act............................ 46
LEGAL INVESTMENT MATTERS................................................ 46
ERISA CONSIDERATIONS.................................................... 47
FEDERAL INCOME TAX CONSEQUENCES......................................... 48
Federal Income Tax Consequences For REMIC
Securities..................................................... 49
Taxation of Regular Securities..................................... 50
Taxation of Residual Securities.................................... 55
Treatment of Certain Items of REMIC Income
and Expense.................................................... 57
Tax-Related Restrictions on Transfer of Residual
Securities..................................................... 59
Sale or Exchange of a Residual Security............................ 61
Taxes That May Be Imposed on the REMIC Pool........................ 61
Liquidation of the REMIC Pool...................................... 62
Administrative Matters............................................. 62
Limitations on Deduction of Certain Expenses....................... 63
Taxation of Certain Foreign Investors.............................. 63
Backup Withholding................................................. 64
Reporting Requirements............................................. 64
Federal Income Tax Consequences for Securities as to
Which No REMIC Election Is Made................................ 65
Standard Securities................................................ 65
Premium and Discount............................................... 66
Stripped Securities................................................ 68
Reporting Requirements and Backup Withholding...................... 71
Taxation of Certain Foreign Investors.............................. 71
Debt Certificates.................................................. 71
Notes.............................................................. 73
Taxation of Certificates Classified as Partnership
Interests...................................................... 73
Federal Income Tax Consequences For FASIT
Securities..................................................... 73
PLAN OF DISTRIBUTION.................................................... 74
RATINGS................................................................. 75
LEGAL MATTERS........................................................... 75
FINANCIAL INFORMATION................................................... 75
INDEX TO LOCATION OF PRINCIPAL DEFINED
TERMS..............................................................A-1
<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 Securities and to
the Pooling and Servicing Agreement or the Indenture and the Trust Agreement
which will be prepared in connection with each Series of Securities. 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. An index indicating where certain capitalized terms used
herein are defined appears on Appendix A hereto.
Securities................. Home Equity Loan Asset Backed Certificates (the
"Certificates") and Home Equity Loan Asset Backed
Notes (the "Notes" and together with the
Certificates, the "Securities"), issuable from
time to time in Series, in fully registered form
or book entry only form, in authorized
denominations, as described in the Prospectus
Supplement. Each Security will represent a
beneficial ownership interest in a trust (a
"Trust") created from time to time pursuant to a
pooling and servicing agreement (a "Pooling and
Servicing Agreement") or trust agreement (a "Trust
Agreement" and together with a Pooling and
Servicing Agreement an "Agreement"). Securities
evidencing a debt obligation of a Trust will be
issued pursuant to a trust indenture (each, an
"Indenture").
The Depositor.............. IMC Securities, Inc. (the "Depositor") is a
Delaware corporation. The Depositor's principal
executive offices are located at 5901 East Fowler
Avenue, Tampa, Florida 33617-2362; telephone
number (813) 984-8801. 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 Securities.
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 Securities.
Trustees................... The trustee (the "Trustee") for each Series of
Certificates will be specified in the related
Prospectus Supplement. The owner trustee (the
"Owner Trustee") and the indenture trustee (the
"Indenture Trustee") for each Series of Notes will
be specified in the related Prospectus Supplement.
Issuer of Notes............. With respect to each Series of Notes, the issuer
(the "Issuer") will be the Depositor or an owner
trust established by it for the purpose of issuing
such Series of Notes. Each such owner trust will
be created pursuant to a Trust Agreement between
the Depositor, acting as depositor, and the Owner
Trustee. Each Series of Notes will represent
indebtedness of the Issuer and will be issued
pursuant to an Indenture between the Issuer and
the Trustee whereby the Issuer will pledge the
related Trust to secure the Notes under the lien
of the Indenture. As to each Series of Notes where
the Issuer is an owner trust, the ownership of the
1
<PAGE>
evidenced by certificated or noncertificated
interests (the "Equity Certificates") issued under
the Trust Agreement, which, unless otherwise
specified in the Prospectus Supplement, are not
offered hereby. The Notes will represent
nonrecourse obligations solely of the Issuer, and
the proceeds of the related Trust will be the sole
source of payments on the Notes, except as
described herein under "Credit Enhancement" and 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 or guaranteed by Federal Home Loan
Mortgage Corporation ("FHLMC") or Fannie Mae
("Fannie Mae") 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
(including financial guaranty insurance policies
and surety bonds), guaranties, letters of credit
or similar types of credit support or enhancement
as described in the related Prospectus Supplement.
The related Prospectus Supplement for a Series of
Securities will describe the Mortgage Assets to be
included in the Trust for such Series.
The Securities.............. The Securities of any Series may be issued in one
or more classes, as specified in the Prospectus
Supplement. One or more classes of Securities 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 Securities 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 Securities of such Series throughout the lives
of the Securities or during specified periods;
(iv) may be entitled to receive such distributions
only after the occurrence
2
<PAGE>
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
Securities 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 Securities, and no payments
being made thereon until certain other classes of
the Series have been paid in full; and (viii) as
to Securities 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 Securities............. The related Prospectus Supplement will specify (i)
whether distributions on the Securities 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 holders of the Securities (the
"Owners"); (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 Securities of the class entitled
thereto.
The aggregate original principal balance of the
Securities will equal the aggregate distributions
allocable to principal that such Securities will
be entitled to receive; the Securities will have
an aggregate original principal 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 Securities 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
"Subsequent Transfer 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 Securities are issued.
Any Subsequent Transfer Agreement will require
that any Mortgage Loans so transferred conform to
the requirements specified in such Subsequent
Transfer Agreement. If a Subsequent Transfer
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
Securities 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 25%
of the
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aggregate principal amount of the Securities
offered pursuant to the related Prospectus
Supplement. Each Subsequent Transfer 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 Securities as specified in the
related Prospectus Supplement.
Optional Termination........ The Servicer, the Seller, the Depositor, or, if
specified in the related Prospectus Supplement,
the Owners of a related class of Securities or a
credit enhancer may at their respective options
effect early retirement of a Series of Securities
through the purchase of the Mortgage Assets in the
related Trust. See "The Pooling and Servicing
Agreement - Termination" and "The Indenture -
Redemption of Notes" 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 Securities by soliciting
competitive bids for the purchase of the assets of
the related Trust or otherwise. See "Pooling and
Servicing Agreement - Termination" and "The
Indenture - Rights Upon Note Events of Default"
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 Securities of the related Series, to
amounts deemed to be recoverable from late
payments or liquidation proceeds, to specified
periods or to any 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" herein.
Credit Enhancement.......... If specified in the related Prospectus Supplement,
a Series of Securities, 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
overcollateralization, 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. Credit Enhancement also may be
provided in the form of subordination of one or
more classes of Securities in a Series under which
losses are first allocated to any Subordinated
Securities up to a specified limit. The protection
against losses afforded by any such Credit
Enhancement will be limited as described in the
related Prospectus Supplement. See "Credit
Enhancement" herein.
Book Entry Registration..... Securities of one or more classes of a Series may
be issued in book entry form ("Book Entry
Securities") 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
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Securities 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 Securities
("Beneficial Owners") other than Clearing Agency
Participants may be effected only through Clearing
Agency Participants. All references to the Owners
of Securities 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 Securities - Book Entry
Registration" herein.
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") or financial asset
securitization investment trust ("FASIT") under
the Internal Revenue Code of 1986, as amended (the
"Code"), or, if no REMIC or FASIT election is
made, whether the Securities are considered to be
debt obligations, Standard Securities, Stripped
Securities or Partnership Interests. The related
Prospectus Supplement for each Series of
Securities will specify whether a REMIC or FASIT
election will be made. See "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 Securities
could give rise to a transaction prohibited or
otherwise impermissible under ERISA or the Code.
Certain classes of Securities may not be
transferred unless the Trustee or the Indenture
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 prohibited transaction
provisions of ERISA and the Code and will not
subject the Trustee or the Indenture Trustee, the
Depositor or the Servicer to additional
obligations. See "Description of the Securities -
General" herein and "ERISA Considerations" herein
and in the related Prospectus Supplement.
Legal Investment Matters.... Securities that constitute "mortgage related
securities" under the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA") will be so
described in the related Prospectus Supplement.
Securities 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 Securities will be applied to the
simultaneous purchase of the Mortgage Assets
included in the related Trust (or to reimburse the
amounts previously used
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to effect such purchase), the costs of carrying
the Mortgage Assets until sale of the Securities
and to pay other expenses. See "Use of Proceeds"
herein.
Rating...................... It is a condition to the issuance of each class of
Securities that each class of the Securities of
such Series be rated by one or more of Moody's
Investors Service, Inc. ("Moody's"), Standard &
Poor's Ratings Services, a division of the
McGraw-Hill Companies ("Standard & Poor's"), Duff
& Phelps Credit Rating Co. ("DCR") and Fitch IBCA,
Inc.("Fitch" and each of Fitch, Moody's, DCR and
Standard & Poor's, a "Rating Agency") in one of
their four highest rating categories; provided,
however, that one or more classes of Subordinated
Securities and Residual Securities need not be so
rated. A security rating is not a recommendation
to buy, sell or hold securities and may be subject
to revision or withdrawal at any time. No person
is obligated to maintain any rating on any
Security, and, accordingly, there can be no
assurance that the ratings assigned to any class
of Securities upon initial issuance thereof will
not be lowered or withdrawn by a Rating Agency at
any time thereafter. If a rating of any class of
Securities of a Series is revised or withdrawn,
the liquidity of such class of Securities may be
adversely affected. In general, the ratings
address credit risk and do not represent any
assessment of the likelihood or rate of principal
prepayments. See "Risk Factors" herein and
"Ratings" in the related Prospectus Supplement.
Risk Factors................ Investment in the Securities 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.
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RISK FACTORS
Prospective investors should consider, among other things, the following
risk factors in connection with the purchase of the Securities:
Limited Liquidity. There will be no market for the Securities 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 Securities of such Series. The
market value of the Securities will fluctuate with changes in prevailing rates
of interest. Consequently, the sale of Securities in any market that may develop
may be at a discount from the Securities' par value or purchase price. Owners of
Securities generally have no right to request redemption of Securities, and the
Securities are subject to redemption only under the limited circumstances
described in the related Prospectus Supplement. In addition, the Securities will
not be listed on any securities exchange.
Declining Real Estate Market; Geographic Concentration. 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 Securities will not represent an interest in or
obligation of the Depositor. The Securities of each Series will not be insured
or guaranteed by any government agency or instrumentality, the Depositor, any
Servicer or the Seller.
Prepayment Considerations; Optional Termination. The prepayment experience
on Mortgage Loans constituting or underlying the Mortgage Assets will affect the
average life of each class of Securities 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. In
addition, investors in the Securities should be aware that the Servicer, the
Seller, or, if specified in the related Prospectus Supplement, the Owners of a
Class of Securities or a credit enhancer may at their respective options effect
early retirement of a Series of Securities through the purchase of Mortgage
Assets from the related Trust. See "The Pooling and Servicing Agreement -
Termination" and "The Indenture - Redemption of Notes" herein.
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 Assets. Owners of Securities 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 Securities), for the
payment of principal of, and interest on, that Series of Securities. If the
assets comprising the Trust are insufficient to make payments on such
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Securities, 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 Securities of a Series in the priority specified in the related
Prospectus Supplement, a deficiency may have a disproportionately greater effect
on the Securities 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.
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.
See "Credit Enhancement" herein. 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 or the Indenture Trustee, as applicable, may be permitted
to reduce, terminate or substitute all or a portion of the Credit Enhancement
for any Series of Securities, if the applicable rating agencies indicate that
the then-current rating thereof will not be adversely affected.
Original Issue Discount. All the Compound Interest Securities and Stripped
Securities that are entitled only to interest distributions will be, and certain
of the other Securities may be, issued with original issue discount for federal
income tax purposes. An Owner of a Security 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 Securities
generally will be treated as original issue discount for this purpose. Moreover,
the calculation of original issue discount on REMIC Securities (as defined
herein) is subject to uncertainties because of the lack of guidance from the
Internal Revenue Service under applicable statutory provisions. See "Federal
Income Tax Consequences - Federal Income Tax Consequences for REMIC Securities,"
"- Taxation of Regular Securities - Variable Rate Regular Securities,"
"- Federal Income Tax Consequences for Securities as to Which No REMIC Election
Is Made - Standard Securities," "- Premium and Discount" and "- Stripped
Securities" herein.
Book Entry Registration. Because transfers and pledges of Book Entry
Securities may be effected only through book entries at a Clearing Agency
through Clearing Agency Participants, the liquidity of the secondary market for
Book Entry Securities may be reduced to the extent that some investors are
unwilling to hold Securities in book entry form in the name of Clearing Agency
Participants and the ability to pledge Book Entry Securities may be limited due
to lack of a physical certificate. Beneficial Owners of Book Entry Securities
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 Securities 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 Securities may be impaired.
The Status of the Mortgage Assets in the Event of Bankruptcy of the Seller.
The Seller and the Depositor intend that the transfers of the Mortgage Assets
from the Seller to the Depositor, and in turn to the applicable Trust,
constitute sales rather than pledges to secure indebtedness for insolvency
purposes. If, however, the Seller were to become a debtor under the federal
bankruptcy code, it is possible that a creditor, trustee-in-bankruptcy or
receiver of the Seller may argue that the sale thereof by the 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 Securities.
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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.
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.
State and Federal Regulations. Applicable state laws generally regulate
interest rates and other charges, require certain disclosures and require
licensing of the Seller and the Servicer. In addition, most states have other
laws, public policies and general principles of equity relating to the
protection of consumers, unfair and deceptive practices and practices which may
apply to the origination, servicing and collection of the Mortgage Loans. See
"Certain Legal Aspects of the Mortgage Assets" herein.
The Mortgage Loans may also be subject to federal laws, including: (i) the
Truth in Lending Act and Regulation Z promulgated thereunder, which require
certain disclosures to the borrowers regarding the terms of the Mortgage Loans;
(ii) the Equal Credit Opportunity Act and Regulation B promulgated thereunder,
which prohibit discrimination on the basis of age, race, color, sex, religion,
marital status, national origin, receipt of public assistance or the exercise of
any right under the Consumer Credit Protection Act, in the extension of credit;
(iii) the Real Estate Settlement Procedures Act and Regulation X promulgated
thereunder, which require certain disclosures to borrowers regarding the
settlement and servicing of the Mortgage Loans; (iv) the Fair Credit Reporting
Act, which regulates the use and reporting of information related to the
borrower's credit experience; and (v) the Federal Trade Commission Preservation
of Consumer's Claims and Defense Rule, 16 C.F.R. Part 433, regarding the
preservation of a consumer's rights.
It is possible that some of the Mortgage Loans will be subject to the
Riegle Community Development and Regulatory Improvement Act of 1994 (the "Riegle
Act") which incorporates the Home Ownership and Equity Protection Act of 1994.
The Riegle Act amended the Truth in Lending Act, which in turn led to certain
additional provisions being added to Regulation Z, the implementing regulation
of the Truth in Lending Act. These provisions impose additional disclosure and
other requirements on creditors with respect to non-purchase money mortgage
loans with high interest rates on high up-front fees and changes. In general,
mortgage loans within the purview of the Riegle Act have annual percentage rates
over 10% greater than the yield on Treasury Securities of comparable maturity
and/or fees and points which exceed the greater of 8% of the total loan amount
or $400. The provisions of the Riegle Act apply on a mandatory basis to all
mortgage loans originated on or after October 1, 1995. The provisions can impose
specific statutory liabilities upon creditors who fail to comply with their
provisions and may affect the enforceability of the related loans. In addition,
any assignee of the creditor would generally be subject to all claims and
defenses that the consumer could assert against the creditor, including, without
limitation, the right to rescind the mortgage loan.
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 Servicer to collect all or part of the principal of
or interest on the Mortgage Loans, may entitle the borrower to a refund of
amounts previously paid
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and, in addition, could subject the Servicer to damages and administrative
sanctions. If the Servicer is unable to collect all or part of the principal or
interest on any Mortgage Loans because of a violation of the aforementioned
laws, public policies or general principles of equity, distributions or payments
to Owners of realized proceeds of the assets in the related Trust may be
delayed, or such proceeds may not be sufficient to repay all amounts owed to
Owners. Furthermore, depending upon whether damages and sanctions are assessed
against the Servicer, such violations may have a material impact upon the
financial ability of the Servicer to continue to act in such capacity or the
ability of the Depositor or the Issuer to withdraw or replace Mortgage Loans if
such violation breaches a representation or warranty contained in the related
Pooling and Servicing Agreement, Sale and Servicing Agreement or Indenture, as
applicable.
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.
Limited Nature of Ratings. It is a condition to the issuance of the
Securities that each class of offered Securities be rated in one of the four
highest rating categories by one or more of Moody's, Standard & Poor's DCR or
Fitch. See "Summary of Prospectus-Ratings" herein. A security rating is not a
recommendation to buy, sell or hold securities and may be subject to revision or
withdrawal at any time. No person is obligated to maintain the rating on any
Security, and, accordingly, there can be no assurance that the ratings assigned
to any class of Securities on the date on which such Securities are initially
issued will not be lowered or withdrawn by a Rating Agency at any time
thereafter. In the event any rating is revised or withdrawn, the liquidity of
the related Securities may be adversely affected. Issuance of any of the
Securities in book-entry form may reduce the liquidity of such Securities in the
secondary trading market because investors may be unwilling to purchase
Securities for which they cannot obtain physical certificates. The rating of
Securities 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 Securities would likely result in a reduction in
the rating of the Securities. The rating of Securities credit enhanced through
subordination or reserve amounts will depend on the actual performance of the
related Mortgage Loans, and a reduction in such rating could occur if defaults
and losses on the related Mortgage Loans exceed the rate assumed in determining
the original level of crdit enhancement. Reduction of a rating would adversely
affect the market value and possibly the liquidity of the related Securities.
See "Ratings" in the Prospectus Supplement.
Funds Available for Redemptions at the Request of Note Owners. With respect
to any Series of Notes for which the related Prospectus Supplement provides for
redemptions of such Notes at the request of Note Owners, there can be no
assurance that amounts available for such redemptions for such Notes will be
sufficient to permit such Notes to be redeemed within a reasonable time after
redemption is requested, for reasons including the following:
(i) Scheduled principal payments on the related Mortgage Loans
generally will be minimal in the early years and will increase in the
later years of such Mortgage Loans. As a result, funds available to be
applied to redemptions at the request of Note Owners, may be expected
to be limited in the early years and to increase during the later years
of each Series. Accordingly, the availability of funds for
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redemptions of Notes of any Series at the request of Note Owners will
depend largely upon the rates of prepayment of the related Mortgage
Loans.
(ii) Prepayments of principal on Mortgage Loans are less
likely to occur during periods of higher interest rates when it is more
likely that requests for redemption by Note Owners will be made. During
periods in which prevailing interest rates are higher than the interest
rate paid on Notes that may be redeemed at the request of Note Owners,
greater numbers of such Notes are expected to be tendered for
redemption in order to take advantage of the higher interest rates
payable on other investments then available. During such periods, there
will likely also be a reduction in the rate of prepayments on the
related Mortgage Loans, thus limiting the funds available to satisfy
requested redemption by Note Owners.
(iii) As specified in the related Prospectus Supplement,
certain Note Owners, such as personal representatives of deceased Note
Owners, may have certain priorities as to redemption at the request of
Note Owners.
DESCRIPTION OF THE SECURITIES
Each Trust will be created pursuant to an Agreement entered into among the
Depositor, the Trustee or Indenture Trustee, the Owner Trustee, if any, the
Master Servicer, if any, and the Servicer. The provisions of each Agreement will
vary depending upon the nature of the Securities to be issued thereunder and the
nature of the related Trust. Securities which represent beneficial interests in
the Trust will be issued pursuant to the Pooling and Servicing Agreement similar
to the form filed as an Exhibit to the Registration Statement of which this
Prospectus is a part. Securities which represent debt obligations of the Trust
will be issued pursuant to an Indenture between the Trust and the Indenture
Trustee. The following summaries and the summaries set forth under "The Pooling
and Servicing Agreement" and "The Indenture" describe certain provisions
relating to each Series of Securities. The Prospectus Supplement for a Series of
Securities will describe the specific provisions relating to such Series. The
Depositor will provide Owners of Securities, without charge, on written request
a copy of the Pooling and Servicing Agreement or the Indenture and the Trust
Agreement, as applicable, for the related Series. Requests should be addressed
to IMC Securities, Inc., 5901 East Fowler Avenue, Tampa, Florida 33617-2362. The
Pooling and Servicing Agreement or the Indenture and the Trust Agreement, as
applicable, relating to a Series of Securities will be filed with the Securities
and Exchange Commission within 15 days after the date of issuance of such Series
of Securities (the "Delivery Date").
The Securities 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 Securities and
will not be entitled to payments in respect of the assets included in any other
trust fund established by the Depositor. The Securities will not represent
obligations of the Depositor, the Trustee or the Indenture Trustee, the Owner
Trustee, if any, the Master Servicer, if any, any Servicer or any affiliate
thereof and will not be guaranteed by any governmental agency. See "The Trusts"
herein.
The Mortgage Assets relating to a Series of Securities 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 Securities of such Series.
General
The Securities of each Series will be issued either in book entry form or
in fully registered form. The Securities of a given Series will evidence
undivided beneficial interests in the assets of the related Trust specified in
the related Prospectus Supplement. The Notes of a given Series will represent
non-recourse obligations of the related Issuer, secured by the assets in the
related Trust, and the proceeds of such assets will be in the sole source of
payments on such Notes. The minimum original denomination of each class of
Securities will be specified in
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the related Prospectus Supplement. The original "Security Principal Balance" of
each Security will equal the aggregate distributions or payments allocable to
principal to which such Security is entitled and distributions allocable to
interest on each Security that is not entitled to distributions allocable to
principal will be calculated based on the "Notional Principal Balance" of such
Security. The Notional Principal Balance of a Security 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 Securities, the Securities of each Series will be transferable and
exchangeable on a "Security Register" to be maintained at the corporate trust
office or such other office or agency maintained for such purposes by the
Trustee or the Indenture Trustee, as applicable. The Trustee or the Indenture
Trustee, as applicable, will be appointed initially as the "Security Registrar"
and no service charge will be made for any registration of transfer or exchange
of Securities, 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 Securities
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 Securities 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 or the Indenture
Trustee and the Depositor that the purchase of Securities 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 or the Indenture Trustee, the Servicer or
the Depositor to any obligation or liability in addition to those undertaken in
the Pooling and Servicing Agreement or the Indenture, as applicable.
As to each Series of Certificates, 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
"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 Securities 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 Securities 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 Securities
Each Series of Securities 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 Securities and (ii) interest on such
Securities. If specified in the Prospectus Supplement, one or more classes of a
Series of Securities may evidence beneficial ownership interests in separate
groups of assets included in the related Trust.
The Securities will have an aggregate original Security Principal Balance
equal to or less than 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 or
paid, as specified in the related Prospectus Supplement, 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
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in the Prospectus Supplement. The original Security Principal Balance (or
Notional Principal Balance) of the Securities of a Series and the interest rate
on the classes of such Securities will be determined in the manner specified in
the Prospectus Supplement.
Each class of Securities 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 "Security Interest Rate"). One or more classes
of Securities may provide for interest that accrues but is not currently payable
("Compound Interest Securities"). With respect to any class of Compound Interest
Securities, any interest that has accrued but is not paid on a given Payment
Date will be added to the aggregate Security Principal Balance of such class of
Securities on that Payment Date.
A Series of Securities 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 Securities 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 Securities may include one or more Classes of Scheduled
Amortization Securities and Companion Securities. "Scheduled Amortization
Securities" are Securities 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 Securities" are Securities 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 Securities on such Payment Date. Because of the manner of
application of payments of principal to Companion Securities, the weighted
average lives of Companion Securities 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 Securities of such Series.
One or more Series of Securities may constitute Series of "Special
Allocation Securities", which may include Senior Securities, Subordinated
Securities, Priority Securities and Non-Priority Securities. As specified in the
related Prospectus Supplement for a Series of Special Allocation Securities, the
timing and/or priority of payments of principal and/or interest may favor one or
more classes of Securities over one or more other classes of Securities. 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 Securities in a Series may be comprised of one or more
classes of Senior Securities having a priority in right to distributions of
principal and interest over one or more classes of Subordinated Securities, as a
form of Credit Enhancement. See "Credit Enhancement Subordination" herein.
Typically, the Subordinated Securities will carry a rating by the rating
agencies lower than that of the Senior Securities. In addition, one or more
classes of Securities ("Priority Securities") may be entitled to a priority of
distributions of principal or interest from assets in the Trust over another
class of Securities ("Non-Priority Securities"), but only after the exhaustion
of other Credit Enhancement applicable to such Series. The Priority Securities
and Non-Priority Securities nonetheless may be within the same rating category.
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 Securities are
registered (the "Owners") at the close of business on the dates specified in the
Prospectus Supplement (each, a "Record Date"). With respect to Securities other
than Book Entry Securities, distributions
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will be made by check or money order mailed to the person entitled thereto at
the address appearing in the Security Register or, if specified in the
Prospectus Supplement, in the case of Securities that are of a certain minimum
denomination as specified in the Prospectus Supplement, upon written request by
the Owner of a Security, 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 Securities (other than Book Entry Securities)
will be made only upon presentation and surrender of the Securities at the
office or agency of the Trustee specified in the notice of such final
distribution. With respect to Book Entry Securities, 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 Securities of
the related Series (the "Security 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 Security Account and may be available to make payments on the
Securities of the applicable Series on the next succeeding Payment Date or pay
after amounts owed by the Trust.
Distributions of Interest. Unless otherwise specified in the Prospectus
Supplement relating to a given Series of Securities, each Class of Certificates
may bear interests at a different Security Interest Rate, which may be fixed or
adjustable. All of the Notes of a given Series will bear interest at the same
rate, which may be fixed or adjustable (the "Note Rate"). Interest will accrue
on the aggregate Security Principal Balance (or, in the case of Securities
entitled only to distributions allocable to interest, the aggregate Notional
Principal Balance (as defined below)) of each class of Securities entitled to
interest from the date, at the applicable Security Interest Rate and for the
periods (each, an "Interest Accrual Period") specified in the Prospectus
Supplement. The aggregate Security Principal Balance of any class of Securities
entitled to distributions of principal will be the aggregate original Security
Principal Balance of such class of Securities, reduced by all distributions
allocable to principal, and, in the case of Compound Interest Securities,
increased by all interest accrued but not then distributable on such Compound
Interest Securities. With respect to a class of Securities 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 Securities.
To the extent funds are available therefor, interest accrued during each
Interest Accrual Period on each class of Securities entitled to interest (other
than a class of Compound Interest Securities) will be distributable on the
Payment Dates specified in the Prospectus Supplement until the aggregate
Security Principal Balance of the Securities of such class has been distributed
in full or, in the case of Securities entitled only to distributions allocable
to interest, until the aggregate Notional Principal Balance of such Securities
is reduced to zero or for the period of time designated in the Prospectus
Supplement. Distributions of interest on each class of Compound Interest
Securities will commence only after the occurrence of the events specified in
the Prospectus Supplement and, prior to such time, the aggregate Security
Principal Balance (or Notional Principal Balance) of such class of Compound
Interest Securities, will increase on each Payment Date by the amount of
interest that accrued on such class of Compound Interest Securities 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 Securities
will thereafter accrue interest on its outstanding Security 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 Securities on
each Payment Date will be calculated and the manner in which such amount will be
allocated among the classes of Securities entitled to distributions of
principal.
One or more classes of Securities 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 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 Securities relative to the interests
evidenced by the other Securities.
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Unscheduled Distributions. The Securities 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
Securities 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 Security
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 Securities 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 Securities on the next Payment Date and will
include interest at the applicable Security 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 Securities would have been made on the next Payment Date except as otherwise
stated in the related Prospectus Supplement, and, with respect to Securities 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
or the Indenture Trustee prior to the date of such distribution.
Book Entry Registration
Securities may be issued as Book Entry Securities 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 Securities 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 Securities.
Purchasers and other Beneficial Owners may not hold Book Entry Securities
directly but may hold, transfer or pledge their ownership interest in the
Securities only through Clearing Agency Participants. Furthermore, Beneficial
Owners will receive all payments of principal and interest with respect to the
Securities and, if applicable, may request redemption of Securities, only
through the Clearing Agency and the Clearing Agency Participants. Beneficial
Owners will not be registered Owners of Securities or be entitled to receive
definitive certificates representing their ownership interest in the Securities
except under the limited circumstances, if any, described in the related
Prospectus Supplement. See "Risk Factors - Book Entry Registration" herein.
If Securities of a Series are issued as Book Entry Securities, 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 Securities of such Series, and to receive and transmit requests
for redemption with respect to such Securities. Clearing Agency Participants
with whom Beneficial Owners have accounts with respect to such Book Entry
Securities 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 Securities and will not possess physical certificates, a
method will be provided whereby Beneficial Owners may receive payments, transfer
their interests, submit redemption requests and receive the reports provided
herein.
List of Owners of Securities
Upon written request of a specified number or percentage interests of
Owners of Securities of record of a Series of Securities for purposes of
communicating with other Owners of Securities with respect to their rights as
Owners of Securities, the Trustee or the Indenture Trustee will afford such
Owners access during business hours
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to the most recent list of Owners of Securities of that Series held by the
Trustee or the Indenture Trustee. With respect to Book Entry Securities, the
only named Owner on the Security Register will be the Clearing Agency.
The Pooling and Servicing Agreement or the Indenture, as applicable, will
not provide for the holding of any annual or other meetings of Owners of
Securities.
THE TRUSTS
The Trust for a Series of Securities will consist of: (i) the Mortgage
Assets (subject, if specified in the related Prospectus Supplement, to certain
exclusions, such as a portion of the mortgage interest rate being retained by
the Seller and not sold to the Trust) received on and after the related Cut-Off
Date; (ii) all payments (subject, if specified in the related 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 Security Interest 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 or the Indenture Trustee, the
Depositor and the Servicer under any insurance policies, hazard insurance or
surety bonds 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 Securities 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 Securities
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
Securities. A copy of the Pooling and Servicing Agreement or the Indenture, the
Sale and Servicing Agreement and the Trust Agreement, as applicable, with
respect to each Series of Securities will be attached to the Form 8-K and will
be available for inspection at the corporate trust office of the Trustee or the
Indenture Trustee specified in the related Prospectus Supplement. A schedule of
the Mortgage Assets relating to each Series of Securities, will be attached to
the related Pooling and Servicing Agreement or Sale and Servicing Agreement, as
applicable delivered to the Trustee or the Indenture Trustee upon delivery of
such Securities.
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 classifications 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.
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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 Securities
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 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.
(e) Another type of mortgage loan described in the Prospectus
Supplement.
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 or
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paid, as specified in the related Prospectus Supplement, 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 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 Fannie Mae 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 Securities 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 Securities 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 Securities 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
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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, single-family mortgage loans on real property or mortgage-backed
securities, including residual interests in issuances of collateralized mortgage
obligations or mortgage pass-through certificates. Any 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 Securities 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 Securities or with respect to the assets
in the related Trust. Credit Enhancement may be in the form of (i) the
subordination of one or more classes of the Securities of such Series, (ii) the
establishment of one or more Reserve Funds, (iii) 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 (iv) 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 Securities 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
Securities 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 Securities. 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 Owners that an amount equal to each full and completed insured
payment will be received by an agent of the Trustee or the Indenture Trustee, as
applicable (an "Insurance Paying Agent"), on behalf of Owners, for distribution
by the Trustee or the Indenture Trustee, as applicable, to each Owner. 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 Owners 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.
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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 Securities on any specified date.
Subject to the terms of the related Pooling and Servicing Agreement or Sale
and Servicing Agreement, as applicable, the Financial Guaranty Insurer may be
subrogated to the rights of Owners to receive payments under the Securities 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 Securities
of such Series (the "Subordinated Securities") may be paid to one or more other
classes of such Series (the "Senior Securities") under the circumstances and to
the extent provided in the Prospectus Supplement. If specified in the Prospectus
Supplement, delays in receipt of scheduled payments on the Mortgage Assets and
losses on defaulted Mortgage Assets will be borne first by the various classes
of Subordinated Securities and thereafter by the various classes of Senior
Securities, 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 Securities
or at any time, the aggregate losses in respect of defaulted Mortgage Assets
which must be borne by the Subordinated Securities by virtue of subordination
and the amount of the distributions otherwise distributable to the Subordinated
Securities that will be distributable to Owners of Senior Securities 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
Securities or, if applicable, were to exceed the specified maximum amount,
Owners of Senior Securities could experience losses on the Securities.
In addition to or in lieu of the foregoing, all or any portion of
distributions otherwise payable to Subordinated Securities 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 Securities 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 Securities at the times and under the
circumstances specified in the Prospectus Supplement.
If specified in the Prospectus Supplement, various classes of Subordinate
Securities and Subordinated Securities may themselves be subordinate in their
right to receive certain distributions to other classes of Senior and
Subordinated Securities, respectively, through a cross-support mechanism or
otherwise.
As between classes of Senior Securities and as between classes of
Subordinated Securities, 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 Securities, payments with respect to Senior
Securities 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 Securities 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 Securities. This acceleration feature
creates, with respect to the Mortgage Loans or groups thereof,
overcollateralization which results from the excess of the
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aggregate principal balance of the related Mortgage Loans, or a group thereof,
over the principal balance of the related class of Securities. Such acceleration
may continue for the life of the related Securities, 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 Securities. In
such case, Credit Enhancement may be provided by a cross-support feature which
may require that distributions be made with respect to Securities evidencing
beneficial ownership of one or more asset groups prior to distributions to
Subordinated Securities 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 Securities. If 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 or the Indenture Trustee under the related
Pooling and Servicing Agreement or Sale and Servicing Agreement, as applicable,
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 Securities 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 Securities 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
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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
Securities 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 Securities, 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.
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.
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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.
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 or the Indenture Trustee, as applicable. 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 Securities, 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 or the Indenture Trustee, as applicable, such letter of credit will be
irrevocable. Any instrument deposited therein will name the Trustee or the
Indenture Trustee, as applicable, as a beneficiary and will be issued by an
entity acceptable to each rating agency that rates the Securities. 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 Securities 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 Securities, or for such other purpose as is
specified in such Prospectus Supplement. Such arrangements may include
agreements under which Owners of Securities are entitled to receive amounts
deposited in various accounts held by the Trustee or the Indenture Truste, as
applicable, upon the terms specified in the Prospectus Supplement. Such
arrangements
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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 Securities, 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 related Pooling and
Servicing Agreement or any Sale and Servicing Agreement (a "Sale and Servicing
Agreement") entered into among the Seller, the Servicer, the Depositor, the
Issuer and the Indenture Trustee. The Prospectus Supplement for each Series will
specify the servicer and the master servicer, if any, for such Series.
The Depositor will require that the Servicer have adequate servicing
experience, where appropriate, and financial stability, generally including a
net worth requirement of no less than $10,000,000 (to be specified in the
related Pooling and Servicing Agreement or Sale and Servicing Agreement) as well
as satisfaction of certain other criteria. The Servicer is required to be a
Fannie Mae-approved servicer of conventional mortgage loans.
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 or the Indenture
Trustee, as applicable, 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 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 related Pooling and Servicing Agreement or Sale and Servicing
Agreement, as applicable. 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 Pooling and Servicing Agreement or the Sale and Servicing
Agreement, as applicable, for the entire term of such Mortgage Loan unless such
Pooling and Servicing Agreement or Sale and Servicing 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 or the Indenture
Trustee, as applicable, 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 Sale and Servicing Agreement.
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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
Securities.
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 or the Indenture
Trustee, as applicable, 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 related
Pooling and Servicing Agreement or Sale and Servicing 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 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 Pooling and Servicing
Agreement or Sale and Servicing Agreement, as applicable.
Collection and Other Servicing Procedures
Each Servicer will service the Mortgage Loans pursuant to guidelines
established in the related Pooling and Servicing Agreement or Sale and Servicing
Agreement, as applicable.
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
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deposited in the Security Account when realized and will be distributed to
Owners of Securities 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.
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.
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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
Pooling and Servicing Agreement or Sale and Servicing Agreement, as applicable,
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 as would
be required by Fannie Mae 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.
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Title Insurance Policies
The Pooling and Servicing Agreements and the Sale and Servicing 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 or the Indenture Trustee, as applicable.
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 related Pooling and Servicing Agreement or Sale and Servicing
Agreement, as applicable. 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 Pooling and Servicing Agreement or
the Sale and Servicing Agreement, as applicable. 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 any
excess proceeds. Any amounts remaining in the Security Account after such
foreclosure or liquidation and attributable to such Mortgage Loan will be
distributed to Owners of the Securities.
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 Securities 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,
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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 Securities. Customary servicing functions with respect to
Mortgage Loans constituting the Mortgage Pool will be provided by the Servicer
directly or through one or more SubServicers 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 Pooling
and Servicing Agreement or the Sale and Servicing Agreement, as applicable, 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
backup 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 Pooling and Servicing Agreement
or the Sale and Servicing Agreement, as applicable, 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 Pooling and Servicing Agreement or Sale and Servicing
Agreement, as applicable. The Master Servicer will be compensated for the
performance of its services and duties under each Pooling and Servicing
Agreement or Sale and Servicing Agreement as specified in the related Prospectus
Supplement.
THE POOLING AND SERVICING AGREEMENT
The following summary describes certain provisions which will be common to
each Pooling and Servicing Agreement. The summary does not purport to be
complete and is subject to the provisions of a particular Pooling and Servicing
Agreement. Material terms of a specific Pooling and Servicing Agreement will be
further described in the related Prospectus Supplement.
Assignment of Mortgage Assets
Assignment of the Mortgage Loans. At the time of issuance of the
Securities, 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
Securities to the Depositor in exchange for the Mortgage Loans. Each Mortgage
Loan will be identified in a schedule appearing as an exhibit to the Pooling and
Servicing 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 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.
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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 Pooling and Servicing 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 Securities, 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 Securities, 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 Securities, 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 Securities, 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 Securities 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.
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
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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 Security 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 Securities 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.
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 Pooling and Servicing 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 Fannie Mae 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 Securities. In the event of such appointment, all rights,
powers, duties and obligations conferred or imposed upon the Trustee by the
Pooling and Servicing Agreement shall be conferred or imposed upon the Trustee
and such separate trustee or co-trustee jointly, or, in any jurisdiction in
which the Trustee shall be incompetent or unqualified to perform certain acts,
singly upon such separate trustee or co-trustee who shall exercise and perform
such rights, powers, duties and obligations solely at the direction of the
Trustee.
The Trustee will make no representations as to the validity or sufficiency
of the Pooling and Servicing Agreement, the Securities 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 Securities or
the related assets,
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or amounts deposited in the Security 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 Pooling and
Servicing 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 Pooling and Servicing 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
Pooling and Servicing 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 Security Account
The Pooling and Servicing Agreement will require that the Security 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
Securities, 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 Security Account is limited to United States government
securities and other investments acceptable to the rating agencies rating such
Series of Securities, and may include one or more Securities of a Series
("Eligible Investments"). If so specified in the related Prospectus Supplement,
a Security 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 Security Account as additional compensation. The
Servicer will deposit in the Security 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 Pooling and Servicing Agreement to be deposited in the
Security Account;
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(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
Security Account from any Credit Enhancement for the related Series;
and
(ix) all other amounts required to be deposited in the
Security Account pursuant to the related Pooling and Servicing
Agreement.
Reports
Concurrently with each distribution on the Securities, 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 Security Principal Balance of each class
of the Securities after giving effect to distributions on such Payment
Date;
(iv) the aggregate Security Principal Balance of any class of
Compound Interest Securities 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 Securities that was distributed to other classes of
Securities;
(vi) if any class of Securities 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 (in the case of Book Entry Securities, the
above described statement and such annual information will be sent to the
Clearing Agency, which will provide such reports to the Clearing Agency
Participants in accordance with its procedures).
Forward Commitments; Pre-Funding
The Trustee of a Trust may enter into a Subsequent Transfer Agreement for
the transfer of additional Mortgage Loans to such Trust following the date on
which such Trust is established and the related Securities are issued. The
Trustee of a Trust may enter into Subsequent Transfer 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 Subsequent Transfer Agreement will require that
any Mortgage Loans so transferred to a Trust conform to the requirements
specified in such Subsequent Transfer Agreement. If a Subsequent Transfer
Agreement is to be utilized, the related Trustee will be required to deposit
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in the 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 Securities 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 25% of the aggregate principal amount of
the Securities offered pursuant to the related Prospectus Supplement. Each
Subsequent Transfer 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 Subsequent Transfer 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 Securities as specified in the related Prospectus Supplement.
Servicer Events of Default
"Events of Default" under the Pooling and Servicing 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 Securities
evidencing interests aggregating not less than 25% of the affected class of
Securities; 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 Pooling and Servicing Agreement
remains unremedied by the Servicer, the Trustee, or Owners of Securities may
terminate all the rights and obligations of the Servicer under the Pooling and
Servicing Agreement, whereupon the Trustee or Master Servicer, if any, or a new
Servicer appointed pursuant to the Pooling and Servicing Agreement, will succeed
to all the responsibilities, duties and liabilities of the Servicer under the
Pooling and Servicing 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 Pooling and Servicing Agreement to act as successor to the
Servicer under the Pooling and Servicing 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 Securities will not have any right under the Pooling and
Servicing Agreement to institute any proceeding with respect to the Pooling and
Servicing Agreement, unless they previously have given to the Trustee written
notice of default and unless the Owners of the percentage of the Securities
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
A Pooling and Servicing Agreement generally may be amended by the
Depositor, the Servicer and the Trustee, without the consent of the Owners of
the Securities, 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
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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 such amendment will not adversely affect in any material respect the
interests of any Owners of Securities of that Series. Any such amendment shall
be deemed not to adversely affect in any material respect any Owner if there is
delivered to the Trustee written notification from each Rating Agency that such
amendment will not cause such Rating Agency to reduce its then current rating
assigned to any Class of the Securities of such Series. 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 Security without
the consent of the Owner of such Security, (ii) adversely affect in any material
respect the interests of the Owners of any class of Securities in any manner
other than as described in (i), without the consent of the Owners of Securities
of such class evidencing not less than a majority of the interests of such class
or (iii) reduce the aforesaid percentage of Securities of any class required to
consent to any such amendment, without the consent of the Owners of all
Securities 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 Pooling and Servicing Agreement will terminate upon the payment as required
by the Pooling and Servicing Agreement of all amounts held by the Servicer or in
the Security Account and required to be paid to them pursuant to the Pooling and
Servicing 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 Securities or all remaining
assets in the Trust. The Pooling and Servicing Agreement will establish the
repurchase price for the assets in the Trust and the allocation of such purchase
price among the classes of Securities. The exercise of such right will effect
early retirement of the Securities 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 Pooling and Servicing Agreement
continue beyond the expiration of 21 years from the death of the survivor of
certain persons named in the Pooling and Servicing Agreement. The Trustee will
give written notice of termination of Pooling and Servicing the Agreement to
each Owner, and the final distribution will be made only upon surrender and
cancellation of the Securities at an office or agency of the Trustee specified
in such notice of termination.
THE INDENTURE
General
Each Series of Notes will be issued pursuant to an Indenture to be entered
into between the related Issuer and the related Trustee. Where provisions or
terms used in a particular Indenture differ from those provided herein, a
description of such provisions or terms will be included in the related
Prospectus Supplement.
The following summaries describe certain provisions of the Indenture not
described elsewhere in this Prospectus. Where particular provisions or terms
used in the Indenture are referred to, the actual provisions (including
definitions of terms) are incorporated by reference as part of such summaries.
The description set forth below is subject to modification in the Prospectus
Supplement for a Series of Notes to describe the terms and provisions of the
particular Indenture relating to such Series of Notes.
Modification of Indenture
With the consent of the holders of not less than a majority of the
aggregate principal amount of the outstanding Notes of any Series issued under
an Indenture, the related Indenture Trustee and the related Issuer may
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execute a supplemental indenture to add provisions to, or change in any manner
or eliminate any provisions of, the Indenture with respect to such Series or
modify (except as provided below) in any manner the rights of the holders of
such Notes.
Without the consent of the holders of the Notes of such Series affected
thereby, however, no supplemental indenture shall (a) change the Payment Date of
the principal of, or interest on, any Note of such series or reduce the
principal amount thereof the Note Rate specified thereon, change the provisions
relating to the application of collections on, or the proceeds of the Mortgage
Assets to the payment of principal of or interest on the Notes, or change any
place of payment where, or the coin or currency in which, any Note of such
Series or any interest thereon is payable, or impair the right to institute suit
for the enforcement of certain provisions of the Indenture regarding payment,
(b) reduce the percentage of the aggregate principal amount of the outstanding
Notes of such Series, the consent of the holders of which is required for any
such a supplemental indenture, or the consent of the holders of which is
required for any waiver of compliance with certain provisions of the Indenture
or of certain defaults thereunder and their consequences as provided for in the
Indenture, (c) reduce the percentage of the aggregate principal amount of the
outstanding Notes of any Series to direct the Issuer to liquidate upon a Note
Event of Default (as described below), (d) modify or alter the provisions for
the Indenture except to increase any percentage specified therein or to provide
that certain other provisions of the Indenture cannot be modified or waived
without the consent of the holder of each outstanding Note affected thereby, (e)
modify any of the provisions of the Indenture in such manner as to affect the
calculation of the amount any payment of the interest and principal due on any
Note on any Payment Date or to affect the rights of the holders of Notes of such
Series to the benefits of any provisions for the mandatory redemption of the
Notes of such Series contained therein, or (f) permit the creation of any lien
ranking prior to or on the parity with the lien of the Indenture with respect to
any part of the property subject to a lien under the Indenture or terminate the
lien of the Indenture on any property at any time subject thereto or deprive the
holder of any Note of such Series of the security afforded by the lien of the
Indenture.
The related Issuer and the respective Indenture Trustee may also enter into
supplemental indentures, without obtaining the consent of the Owners of the
Notes of such Series, to cure ambiguities or make minor corrections, to evidence
the succession of another person to the Issuer or the acceptance of a successor
trustee, each in accordance with the Indenture, and to do such other things as
would not adversely affect the interests of the Owners of the Notes of such
Series.
Note Events of Default
Unless otherwise specified in the Prospectus Supplement relating to a given
Series of Notes, a "Note Event of Default" with respect to any Series of Notes
will be defined in the respective Indenture under which such Notes are issued
as: (a) unless otherwise specified in the Prospectus Supplement for such Series,
a default in the payment of interest on any Note of such Series when due and
payable; (b) unless otherwise specified in the Prospectus Supplement for such
Series, a default in the payment of principal on any Note of such Series when
due and payable; (c) a default in the observance of any covenants or agreements
of the Issuer made in the Indenture or any representations and warranties of the
Issuer made in the Indenture, the Sale and Servicing Agreement or certain other
documents, and the continuation of any such default for a specified period after
notice to the related Issuer by the Indenture Trustee or to the related Issuer
and the Indenture Trustee by the holders of at least 25% in principal amount of
the Notes of such Series then outstanding; (d) a default in the observance of
any covenants and agreements of the Depositor made in the Trust Agreement or any
representations and warranties of the Depositor made in the Trust Agreement and
the continuation of any such default for a specified period after notice to the
related Issuer by the Indenture Trustee or to the related Issuer and the
Indenture Trustee by the holders of at least 25% in principal amount of the
Notes of such Series then outstanding; or (e) certain events of bankruptcy,
insolvency, receivership or reorganization of the related Issuer, whether
voluntary or involuntary.
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Rights Upon Note Events of Default
Unless otherwise specified in the Prospectus Supplement relating to a given
Series of Notes, in case a Note Event of Default should occur and be continuing
with respect to a Series of Notes, the Indenture Trustee may, and on request of
holders of not less than a majority in principal amount of the Notes of such
Series then outstanding shall, declare the principal of such Series of Notes to
be due and payable. Such declaration may under certain circumstances be
rescinded by the holders of a majority in principal amount of the Notes of such
Series then outstanding.
If, following a Note Event of Default, a Series of Notes has been declared
to be due and payable, the holders representing a majority in principal amount
of the Notes may, by written notice to the Issuer and Indenture Trustee, rescind
and annul the acceleration of the maturity of such Notes if the Issuer has paid
or deposited with the Indenture Trustee a sum sufficient to pay: (i) all
payments of principal of and interest on all Notes and all other amounts that
would then be due upon such Notes if the Note Event of Default giving rise to
such acceleration had not occurred; (ii) all sums paid or advanced by the
Indenture Trustee and the reasonable compensation, expenses, disbursements and
advances of the Indenture Trustee and its agents and counsel; and (iii) all Note
Events of Default, other than the nonpayment of the principal of the Notes that
has become due solely by such acceleration, have been cured or waived.
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee, in case a Note Event of Default shall occur and be
continuing, the Indenture Trustee may and at the direction of the holders of the
Notes representing a majority in principal amount of the Notes shall, upon
receipt of satisfactory indemnity and assurances, do one or more of the
following: (i) institute proceedings in its own name and as trustee of an
express trust for the collection of all amounts then payable on the Notes or
under the Indenture, whether by declaration or otherwise, enforce any judgment
obtained, and collect from the Issuer and any other obligor upon such Notes
moneys adjudged due; (ii) institute proceedings from time to time for the
complete or partial foreclosure of the Indenture with respect to the Mortgage
Assets; (iii) exercise any remedies of a secured party under the UCC and take
any other appropriate action to protect and enforce the rights and remedies of
the Indenture Trustee or the holders of the Notes; and (iv) sell the Mortgage
Assets or any portion thereof or rights or interest therein in a commercially
reasonable manner, at one or more public or private sales called and conducted
in any manner permitted by law; provided, however, that the Indenture Trustee
may not sell or otherwise liquidate the Mortgage Assets following a Note Event
of Default, unless (A) all holders of the Notes consent thereto, (B) the
proceeds of such sale or liquidation distributable to the holders of the Notes
are sufficient to discharge in full all amounts then due and unpaid upon such
Notes for principal and interest or (C) the Indenture Trustee determines that
the Mortgage Assets will not continue to provide sufficient funds for the
payment of principal of and interest on the Notes as they would have become due
if the Notes had not been declared due and payable, and the Indenture Trustee
obtains the consent of holders of 66-2/3% in principal amount of the Notes.
List of Note Owners
Unless otherwise specified in the Prospectus Supplement relating to a given
Series of Notes, three or more holders of the Notes of any Series (each of whom
has owned a Note of such Series for at lease six months) may, by written request
to the Indenture Trustee, obtain access to the list of all Note Owners of such
Series maintained by the Indenture Trustee for the purpose of communicating with
other such Note Owners with respect to their rights under the Indenture. The
Indenture Trustee may elect not to afford the requesting Note Owners access to
the list of Note Owners if it agrees to mail the desired communication or proxy,
on behalf of the requesting Note Owners, to all Note Owners.
Annual Compliance Statement
The related Issuer will be required to file annually with the Indenture
Trustee a written statement as to the fulfillment of its obligations under the
Indenture.
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Indenture Trustee's Annual Report
The Indenture Trustee will be required to mail each year to all Owners of
Notes a brief report relating to its eligibility and qualifications to continue
as the Indenture Trustee under the Indenture, any amounts advanced by it under
the Indenture, the amount, interest rate and maturity date of certain
indebtedness owing by the related Issuer to it in the Indenture Trustee's
individual capacity, the property and funds physically held by the Indenture
Trustee as such, any release, or release and substitution, of property subject
to the lien of the Indenture that has not been previously reported, any
additional Series of Notes not previously reported and any action taken by it
which materially affects the Notes and which has not been previously reported.
Satisfaction and Discharge of Indenture
The Indenture will be discharged with respect to the assets securing the
Notes of a Series upon the delivery to the Indenture Trustee for cancellation of
all of the Notes of such Series or, with certain limitations, upon deposit with
the Indenture Trustee of funds sufficient for the payment in full of all of the
Notes of such Series.
Redemption of Notes
To the extent provided in the related Prospectus Supplement, the Notes of
any Series may be (i) redeemed at the request of holders of such Notes; (ii)
redeemed at the option of the related Issuer or another party specified in the
related Prospectus Supplement; or (iii) subject to special redemption under
certain circumstances. The circumstances and terms under which the Notes of a
Series may be redeemed will be described in the related Prospectus Supplement.
Reports by Indenture Trustee to Note Owners
On each Payment Date, the Indenture Trustee will send a report to each Note
Owner setting forth, among other things, the amount of such payment representing
interest, the amount thereof, if any, representing principal and the outstanding
principal amount of an individual Note after giving effect to the payments made
on such Payment Date.
Limitation on Suits
Unless otherwise specified in the Prospectus Supplement relating to a given
Series of Notes, no Note Owners of any Series will have any right to institute
any proceedings with respect to the Indenture unless (1) such holder has
previously given written notice to the Indenture Trustee of a continuing Note
Event of Default with respect to such Series; (2) the holders of at least 25% in
principal amount of the Notes of such Series then outstanding have made written
requests to the Indenture Trustee to institute proceedings in respect to such
Note Event of Default in its own name as Indenture Trustee; (3) such holders
have offered to the Indenture Trustee reasonable indemnity satisfactory to it
against the costs, expenses and liabilities to be incurred in compliance with
such request; (4) for a specified period after its receipt of such notice,
request and offer of indemnity the Indenture Trustee has failed to institute any
proceedings; and (5) no direction inconsistent with such written request has
been given to the Indenture Trustee during such period by the holders of not
less than a majority in principal amount of the Notes of such Series then
outstanding.
The Sale and Servicing Agreement
General. The conveyance and servicing of the Mortgage Loans related to the
issuance of a Series of Notes will be pursuant to a Sale and Servicing Agreement
to be entered into between the Issuer, the Seller, the Servicer, the Depositor
and the Indenture Trustee. Where provisions or terms used in a particular Sale
and Servicing Agreement differ from those provided herein, a description of such
provisions or terms will be included in the related Prospectus Supplement.
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Assignment of Mortgage Assets. The Mortgage Loans to be included in the
related Trust will be assigned to the Indenture Trustee on behalf of the holders
of the Notes pursuant to provisions included in the related Sale and Servicing
Agreement that are substantially the same as and the Indenture Trustee with
respect to the Mortgage Loans so conveyed will be substantially similar to,
those described under "The Pooling and Servicing Agreement - Assignment of
Mortgage Assets" herein.
Evidence as to Compliance. The Indenture Trustee will receive an opinion
from a firm of independent public accountants regarding the servicing of the
Mortgage Loans which is substantially the same as described under "The Pooling
and Servicing Agreement - Evidence as to Compliance" herein.
The Indenture Trustee. The Indenture Trustee will be subject to rights and
duties under the Sale and Servicing Agreement substantially the same as those of
the Trustee described under "The Pooling and Servicing Agreement - The Trustee."
Administration of the Security Account. The Sale and Servicing Agreement
will require that a Security Account be maintaind and used in substantially the
same manner as described under "The Pooling and Servicing Agreement -
Administration of the Security Account."
Reports. The Sale and Servicing Agreement will provide that holders of the
Notes will receive reports substantially the same as those described under "The
Pooling and Servicing Agreement - Reports."
Forward Commitments; Pre-Funding. Under the Sale and Servicing Agreement,
the Indenture Trustee of a Trust may enter into Subsequent Transfer Agreements
for the transfer of additional Mortgage Loans to such Trust following the date
on which such Trust is established and the related Notes are issued in
substantially the same manner as described under "The Pooling and Servicing
Agreement - Forward Committments; Pre-Funding."
Servicer Events of Default. The "Events of Default" under the Sale and
Servicing Agreement will be substantially the same as those described under "The
Pooling and Servicing Agreement - Servicer Events of Default."
Rights Upon Servicer Event of Default. The rights upon an Event of Default
under the Sale and Servicing Agreement will be substantially the same as
described under "The Pooling and Servicing Agreement - Rights Upon Servicer
Event of Default."
USE OF PROCEEDS
Substantially all the net proceeds to be received from the sale of each
Series of Securities 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 establishment of any Reserve Fund or
Pre-Funding Account the costs of carrying such Mortgage Assets until sale of the
Securities 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. The Depositor will not receive any fees or other commissions in
connection with its acquisition of Mortgage Assets or its sale of such Mortgage
Assets to the Trust.
Neither the Depositor nor any of its affiliates will insure or guarantee
the Securities of any Series.
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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.
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
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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 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
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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 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
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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 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.
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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 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
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"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 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 any Pooling and Servicing Agreement or Sale and Servicing
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 or the Indenture Trustee, as applicable, 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
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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 Securities.
LEGAL INVESTMENT MATTERS
The Securities 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 Securities 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 Securities. 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
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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 bookentry
form.
Investors should consult their own legal advisors in determining whether
and to what extent the Securities 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 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 Securities, 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 Securities, an
investment in the Securities 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.
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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 or the Indenture Trustee, as applicable, for any
Series of Securities 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
Securities 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
Securities.
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 Securities,
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 Securities must make its
own determination as to whether the general and the specific 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 Securities 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 Securities 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.
FEDERAL INCOME TAX CONSEQUENCES
The following is based upon the opinion of Arter & Hadden LLP, special
counsel to the Depositor ("Special Counsel"), with respect to the material
federal income tax consequences of the purchase, ownership and disposition of
Securities. Opinions of counsel are not binding on the IRS, however, and there
is no assurance that the IRS could not challenge successfully the opinions of
counsel. 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, as well as final regulations
concerning REMICs (the "REMIC Regulations") and final regulations under Sections
1271 through 1273 and 1275 of the Code concerning debt instruments (the "OID
Regulations"). The Depositor intends to rely on the OID Regulations for all
Securities 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 Securities. 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 Securities.
The Prospectus Supplement for each Series of Securities will discuss any special
tax consideration applicable to any class of Securities of such Series, and the
discussion below is qualified by any such discussion in the related Prospectus
Supplement.
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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 Securities, 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 Securities
General. With respect to a particular Series of Securities, 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,
Securities of a Series as to which one or more REMIC elections are made are
referred to as "REMIC Securities" and will consist of one or more classes of
"Regular Securities" and one class of "Residual Securities" in the case of each
REMIC Pool. Qualification as a REMIC requires ongoing compliance with certain
conditions. With respect to each Series of REMIC Securities, Special Counsel 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 Securities 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 Securities will be considered to be "residual interests" in the
REMIC Pool. The Prospectus Supplement for each Series of Securities 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.
Status of REMIC Securities. REMIC Securities 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 Securities 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 Securities 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 Securities 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
Securities 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 Securities,
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 Securities held by a regulated
investment company will not constitute "government securities" within the
meaning of Code Section 851(b)(4)(A)(i). REMIC Securities held by certain
financial institutions will constitute an "evidence of indebtedness" within the
meaning of Code Section 582(c)(i). REMIC Securities 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).
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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
Securities) 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 Securities 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 Securities 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 Securities
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 Securities 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 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 Securities
General. Payments received by holders of Regular Securities 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 Security will be treated as
ordinary income to a holder of the Regular Security (the "Regular Owner") as
they accrue, and principal payments on a Regular Security will be treated as a
return of capital to the extent of the Regular Owner's basis in the Regular
Security allocable thereto. Regular Owners must use the accrual method of
accounting with regard to Regular Securities, regardless of the method of
accounting otherwise used by such Regular Owners.
Original Issue Discount. Regular Securities may be issued with "original
issue discount" within the meaning of Code Section 1273(a). Holders of any class
of Regular Securities 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 Owner's income in any taxable year
will be computed as described below.
Each Regular Security (except to the extent described below with respect to
a Regular Security 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 Owner or by random lot (a "Retail Class
Security")) will be treated as a single installment obligation for purposes of
determining the original issue discount includible in a Regular Owner's income.
The total amount of original issue discount on a Regular Security is the excess
of the "stated redemption price at maturity" of the Regular Security over its
"issue price." The issue price of a Regular Security is the first price at which
a substantial amount of Regular Securities of that class are first sold to the
public. The
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Depositor will determine original issue discount by including the amount paid by
an initial Regular Owner for accrued interest that relates to a period prior to
the issue date of the Regular Security in the issue price of a Regular Security
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 Security always
includes the original principal amount of the Regular Security, 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 reasonable legal remedies
exist to compel timely payment or the debt instrument otherwise provides terms
and conditions that make the likelihood of late payment (other than a late
payment that occurs within a reasonable grace period) or nonpayment a remote
contingency. 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 or the likelihood of late
payment or nonpayment is a remote contingency, 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 Securities 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
Securities 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 Security 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
Security technically do not constitute qualified stated interest. In such case a
special 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 Security 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 Owners should consult their own tax
advisors to determine the issue price and stated redemption price at maturity of
a Regular Security.
Under a de minimis rule, original issue discount on a Regular Security 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 Security multiplied by
the weighted average maturity of the Regular Security. For this purpose, the
weighted maturity of the Regular Security 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 Security and the denominator of
which is the stated redemption price at maturity of the Regular Security.
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 Securities (the "Prepayment Assumption"). The Prepayment Assumption with
respect to a Series of Regular Securities 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 Security, the
Regular Owner 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 Security accrued during an accrual period for each day on which he
holds the Regular Security, including the date of purchase but excluding the
date of disposition. Although not free from doubt, the
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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 Security, 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
Security. For a Regular Security, 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 Security as of the end of that accrual
period that are included in the Regular Security's stated redemption price at
maturity and (b) the distributions made on the Regular Security during the
accrual period that are included in the Regular Security's stated redemption
price at maturity over (ii) the adjusted issue price of the Regular Security 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 Security 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 Security at the beginning of any accrual
period equals the issue price of the Regular Security, increased by the
aggregate amount of original issue discount with respect to the Regular Security
that accrued in all prior accrual periods and reduced by the amount of
distributions included in the Regular Security's stated redemption price at
maturity that were made on the Regular Security 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 Owner generally will
increase to take into account prepayments on the Regular Securities 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 Securities are
redetermined by treating the Regular Securities as reissued on the date of the
change for an amount equal to the adjusted issue price of the Regular
Securities. To the extent specified in the applicable Prospectus Supplement, an
increase in prepayments on the Mortgage Assets with respect to a Series of
Regular Securities can result in both a change in the priority of principal
payments with respect to certain classes of Regular Securities and either an
increase or decrease in the daily portions of original issue discount with
respect to such Regular Securities.
A purchaser of a Regular Security 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 Security. 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 Security 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 Security who purchased the Regular Security 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 Security
(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 Security is expected to be reduced to zero under the Prepayment
Assumption.
A Owner 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.
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Variable Rate Regular Securities. Regular Securities 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 Security). 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 Security to be significantly less or
more than the overall expected return on the Regular Security 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 Security and is based on objective financial
information or economic information; however, a objective rate does not include
a rate based on information that is in the control of the issuer or that is
unique to the circumstances of a related party. 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) 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.
The application of the OID Regulations to variable rate debt instruments is
limited and may not apply to some Regular Securities having variable rates. In
that event, the provisions of regulations issued on June 11, 1996, applicable to
instruments having contingent payments, may apply to those Regular Securities.
The application of those provisions to instruments such as variable rate Regular
Securities is subject to varying interpretations. Prospective purchasers of
variable rate Regular Securities are advised to consult their tax advisers
concerning the tax treatment of such Regular Securities.
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Market Discount. A purchaser of a Regular Security 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 Security (i) is exceeded by the stated
redemption price at maturity of the Regular Security or (ii) in the case of a
Regular Security having original issue discount, is exceed by the sum of the
issue price of such Regular Security plus any original issue discount that would
have previously accrued thereon if held by an original Regular Owner (who
purchased the Regular Security at its issue price), in either case less any
prior distributions included in the stated redemption price at maturity of such
Regular Security. 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 Security 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 Security
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 Security as ordinary
income to the extent of the market discount accrued to the date of disposition
under one of the foregoing methods, less any accrued market discount previously
reported as ordinary income as partial 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 Security 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 Security 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 Security is disposed of. As
an alternative to the inclusion of market discount in income on the foregoing
basis, the Regular Owner may elect to include market discount in income
currently as it accrues in all market discount instruments acquired by such
Regular Owner 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 Security 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
Security multiplied by the weighted average maturity of the Regular Security
(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 Security 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 Owner holds such Regular Security as a "capital asset"
within the meaning of Code Section 1221, the Regular Owner 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 Securities.
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
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obligations such as the Regular Securities. The IRS recently published final
regulations (the "Premium Regulations") covering the amortization of bond
premiums. The Premium Regulations describe the constant yield method for
amortizing premium and provide the Regular Owner may offset the premium against
corresponding interest income only as that interest income is taken into account
under the Regular Owner's method of accounting. For instruments that may be
called or prepaid prior to maturity, a Regular Owner will be deemed to exercise
its option and an issuer will be deemed to exercise its redemption right in a
manner that maximizes the Regular Owner's yield. The Premium Regulations are
effective for debt instruments acquired on or after March 2, 1998. A Regular
Owner may elect to amortize bond premium under the Premium Regulations for 1998,
with the election applying to all the Regular Owner's debt instruments held on
January 1, 1998. Purchasers who pay a premium for their Regular Securities
should consult their tax advisors regarding the election to amortize premium and
the method to be employed.
Sale or Exchange of Regular Securities. If a Regular Owner sells or
exchanges a Regular Security, the Regular Owner will recognize gain or loss
equal to the difference, if any, between the amount received and his adjusted
basis in the Regular Security. The adjusted basis of a Regular Security
generally will equal the cost of the Regular Security 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 Security and reduced by
amounts included in the stated redemption price at maturity of the Regular
Security 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 Security realized by an investor who holds the Regular Security as a
capital asset will be capital gain or loss. Gain from the disposition of a
Regular Security 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 Security 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 includible in the gross income of such holder with respect to
the Regular Security. In addition, gain or loss recognized from the sale of a
Regular Security by certain banks or thrift institutions will be treated as
ordinary income or loss pursuant to Code Section 582(c). Net capital gains of
individuals are subject to varying tax rates depending upon the holding period
of the Regular Security.
Taxation of Residual Securities
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 Securities ("Residual Owners")
and will not be taxed separately to the REMIC Pool. The daily portions of REMIC
taxable income or net loss of a Residual Owner 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
Owners in proportion to their respective holdings of Residual Securities 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 taxexempt
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 Securities, 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 Owners
report their pro rata share of taxable income or net loss of the REMIC Pool will
continue until there are no Securities of any class of the related Series
outstanding.
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The taxable income recognized by a Residual Owner 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 Securities, on the other hand. Because of the way REMIC taxable
income is calculated, a Residual Owner 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 Owners 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 Owner 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 Securities 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
Securities. When there is more than one class of Regular Securities that
distribute principal sequentially, this mismatching of income and deductions is
particularly likely to occur in the early years following issuance of the
Regular Securities when distributions in reduction of principal are being made
in respect of earlier maturing classes of Securities 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 Securities 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 Securities, may
increase over time as distributions in reduction of principal are made on the
lower yielding classes of Regular Securities, 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 Owners 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 of such
mismatching of income and deductions described in this paragraph, if present
with respect to a Series of Securities, may have a significant adverse effect
upon the Residual Owners aftertax rate of return. In addition, a Residual
Owner's taxable income during certain periods may exceed the income reflected by
such Owner 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 Securities.
Basis and Losses. The amount of any net loss of the REMIC Pool that may be
taken into account by the Residual Owner is limited to the adjusted basis of the
Residual Security as of the close of the quarter (or time of disposition of the
Residual Security if earlier), determined without taking into account the net
loss for the quarter. The initial adjusted basis of a purchaser of a Residual
Security is the amount paid for such Residual Security. Such adjusted basis will
be increased by the amount of taxable income of the REMIC Pool reportable by the
Residual Owner and decreased by the amount of loss of the REMIC Pool reportable
by the Residual Owner. 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
Owner as to whom such loss was disallowed and may be used by such Residual Owner
only to offset any income generated by the same REMIC Pool. Residual Owners
should consult their tax advisors about other limitations on the deductibility
of net losses that may apply to them.
A Residual Owner will not be permitted to amortize directly the cost of
its Residual Security 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 Securities over their life.
However, in view of the possible acceleration of the income of Residual Owners
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 Securities.
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If a Residual Security 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
Securities 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 Owner
(other than an original holder) in the Residual Security is greater than the
corresponding portion of the REMIC Pool's basis in the Mortgage Assets, the
Residual Owner 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 Securities" 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 Security should
be aware that final regulations (the "Mark to Market Regulations") relating to
the requirement that a securities dealer mark to market securities held for sale
to customers apply to all securities of a dealer, except to the extent that the
dealer has specifically identified a security as held for investment. The Mark
to Market Regulations provide that for purposes of this mark to market
requirement, a Residual Security acquired after January 4, 1995, is not treated
as a security and thus may not be marked to market.
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 Securities as described above under "Taxation of
Regular Securities - Original Issue Discount" and "Variable Rate Regular
Securities," 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 Securities - 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 Securities 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
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above under "Taxation of Regular Securities - 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.
Limitations on Offset or Exemption of REMIC Income; Excess Inclusions. A
portion of the income allocable to a Residual Security (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 Owner, (ii) will be treated as "unrelated business taxable income"
within the meaning of Code Section 512 if the Residual Owner 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 Owner that is a foreign investor, as
further discussed in "Taxation of Certain Foreign Investors - Residual
Securities" below. Except as discussed below with respect to excess inclusions
from Residual Securities without "significant value." Members of an affiliated
group are treated as one corporation for purposes of applying the limitation on
offset of excess inclusion income. The Small Business Protection Act of 1996
(the "1996 Act") eliminated a special rule that permitted thrift institutions to
use net operating losses and other allowable deductions to offset their excess
inclusion income from Residual Securities with significant value for taxable
years beginning after December 31, 1995 (subject to exceptions for certain
certificates held continuously since November 1, 1995). The 1996 Act also
provides new rules affecting the determination of alternative maximum taxable
income ("AMTI") of a Residual Owner. First, AMTI is calculated without regard to
the special rule that taxable income cannot be less than excess inclusion income
for the year. Second, AMTI cannot be less than excess inclusion income for the
year. Finally, any AMTI net operating loss deduction is computed without regard
to excess inclusion income. These new rules are effective for tax years
beginning after December 31, 1986, unless a Residual Owner elects to have the
rules apply only to tax years ending after August 20, 1996.
Except as discussed in the following paragraph, with respect to excess
inclusions from Residual Securities without "significant value," for any
Residual Owner, the excess inclusion for any calendar quarter is the excess, if
any, of (i) the income of such Residual Owner for that calendar quarter from its
Residual Security over (ii) the sum of the "daily accruals" (as defined below)
for all days during the calendar quarter on which the Residual Owner holds such
Residual Security. For this purpose, the daily accruals with respect to a
Residual Security 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 Security at the beginning of the calendar quarter
and 120 percent of the "Federal long-term rate" in effect at the time the
Residual Security is issued. For this purposes the "adjusted issue price" of a
Residual Security at the beginning of any calendar quarter equals the issue
price of the Residual Security (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 Security 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 Security will be treated as an excess inclusion if the
Residual Securities 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 Securities do not have significant value. Under the REMIC
Regulations, the Residual Securities will have significant value if: (i) the
aggregate of the issue prices of the Residual Securities is at least two percent
of the aggregate issue prices of all Regular Securities and Residual Securities
in the REMIC and (ii) the anticipated weighted average life of
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the Residual Securities 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 Security
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 Security based on the
relevant prepayment assumption and expected reinvestment income. The anticipated
weighted average life of a Residual Security 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 Security 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.
Under Treasury regulations to be promulgated, a portion of the dividends
paid by a REIT which owns a Residual Security are to be designated as excess
inclusions in an amount corresponding to the Residual Security'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 Security 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 Securities
Disqualified Organizations. If legal title or beneficial interest in a
Residual Security 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 Security for periods after the transfer and (ii) the highest marginal
federal corporate income tax rate. The REMIC Regulations provide that the
anticipated excess inclusions 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 Security and whose term
ended on the close of the last quarter in which excess inclusion was expected to
accrue with respect to the Residual Security. Such a tax generally would be
imposed on the transferor of the Residual Security, 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 Security 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 Security and the transferor pays income tax at the highest corporate
rate on the excess inclusion for the period the Residual Security 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 Security 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 the Pass-Through 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 Security, the
Pass-Through Entity does not have actual knowledge that such affidavit is false.
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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 Securities will provide that
neither legal title nor beneficial interest in a Residual Security 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 purchasing such Residual Securities 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 Security with respect to a Series will have
a legend referring to such restrictions on transfer, and each Residual Owner
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 Securities are disregarded, in which case the transferor
continues to be treated as the owner of the Residual Securities and thus
continues to be subject to tax on its allocable portion of the net income of the
REMIC Pool. Under the REMIC Regulations, a transfer of a Noneconomic Residual
Interest (defined below) to a Residual Owner (other than a Residual Owner 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 Security to state as part of
the affidavit
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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 Security, and
(iv) intends to pay any and all taxes associated with holding the Residual
Security 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 Security 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 Security 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 Security back to a U.S.
Person, the transfer will 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 Securities may provide
that a Residual Security 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 Security
Upon the sale or exchange of a Residual Security, the Residual Owner 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 Securities -
Basis and Losses") of such Residual Owner in such Residual Security at the time
of the sale or exchange. In addition to reporting the taxable income of the
REMIC Pool, a Residual Owner will have taxable income to the extent that any
cash distribution to the Residual Owner 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 Security. It is possible that the
termination of the REMIC Pool may be treated as a sale or exchange of a Residual
Owner's Residual Security, in which case, if the Residual Owner has an adjusted
basis in the Residual Security remaining when the Residual Owner's interest in
the REMIC Pool terminates, and if the Residual Owner holds such Residual
Security as a capital asset under Code Section 1221, then the Residual Owner
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 Securities. Consequently,
losses on dispositions of Residual Securities will be disallowed where the
seller of the Residual Security, during the period beginning six months before
the sale or disposition of the Residual Security 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 Security.
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 Owners,
but rather will be taxed directly to the REMIC Pool at a 100% rate. Prohibited
transactions
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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
Securities as a result of a default on qualified mortgages or to facilitate a
cleanup call (generally, an optional termination to save administrative costs
when no more than a small percentage of the Regular Securities 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 Mortgage-Backed Securities was not created to avoid prohibited
transaction rules.
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 Owner, (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 three 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
Securities and Residual Owners 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 Owner 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 Owners
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 Treasury
regulations do not permit the Depositor to act as tax matters person in its
capacity as agent of
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the Residual Owners, the Residual Owner chosen by the Residual Owners 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 Security 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 Securities for the
entire calendar year. Otherwise, each holder of a Residual Security is required
to treat items on its return consistently with their treatment on the REMIC
Pool's return, unless the holder of a Residual Security either files a statement
identifying the inconsistency or establishes that the inconsistency resulted
from incorrect information received from the REMIC Pool. The Internal Revenue
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 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 Securities 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 Securities 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 Securities, as well as holders of
Residual Securities, where such Regular Securities are issued in a manner that
is similar to passthrough certificates in a fixed investment trust. In general,
such allocable portion will be determined based on the ratio that a REMIC
Owner's income, determined on a daily basis, bears to the income of all holders
of Regular Securities and Residual Securities with respect to a REMIC Pool. As a
result, individuals, estates or trusts holding REMIC Securities (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 Securities 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 Securities.
Taxation of Certain Foreign Investors
Regular Securities. Interest, including original issue discount,
distributable to Regular Owners 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 Security 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 Security is effectively connected with the conduct
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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 Security. The term "Non-U.S. Person" means any person who is not a
U.S. Person.
Residual Securities. The Conference Committee Report to the 1986 Act
indicates that amounts paid to Residual Owners 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 Owners qualify as "portfolio interest," subject to the conditions
described in "Regular Securities" 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 Security 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
Owner 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 Securities -
Limitations on Offset or Exemption of REMIC Income; Excess Inclusions." If the
amounts paid to Residual Owners 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 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 Security 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 Securities - 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 Securities.
On October 6, 1997, the IRS issued final regulations which could have an
effect on the United States' taxation of foreign investors in Regular Securities
or Residual Securities. The regulations would apply to payments after December
31, 1999. Investors who are Non-U.S. Persons should consult their own tax
advisors regarding the specific tax consequences to them of owning Residual
Securities.
Backup Withholding
Distributions made on the Regular Securities, and proceeds from the sale of
the Regular Securities 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 Owner 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 Security, or such Owner is otherwise an exempt
recipient under applicable provisions of the Code. Any amounts to be withheld
from distribution on the Regular Securities would be refunded by the Internal
Revenue Service or allowed as a credit against the Regular Owner'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 noncharitable trusts, and partnerships who are either holders of record of
Regular Securities or beneficial owners who own Regular Securities through a
broker or middleman as nominee. All brokers, nominees and all other non-exempt
holders of record of Regular Securities (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
Securities. Holders through nominees must request such information from the
nominee. Treasury regulations provide that information necessary to compute the
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accrual of any market discount on the Regular Securities 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 Owner 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 Owners,
furnished annually, if applicable, to holders of Regular Securities, 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 Owners, furnished annually to holders of Regular
Securities, 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 Securities,"
above."
Federal Income Tax Consequences for Securities as to Which No REMIC Election Is
Made
Special Counsel is of the opinion that if a Trust does not elect REMIC or
FASIT status and is not treated as a partnership, and if the Securities are not
treated as debt for federal tax purposes, the tax consequences to the Owners
will be as described below.
Standard Securities
General. If no election is made to treat a Trust (or a segregated pool of
assets therein) with respect to a Series of Securities 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 Securities of a Series, and where such Securities are not
designated as Debt Certificates, as described under "Debt Certificates,"as
Stripped Securities, as described below under "Stripped Securities" or as
Partnership Interests described under "Taxation of Securities Classified as
Partnership Interests,"the holder of each such "Standard Security" 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 Security 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 Owner of a Security 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 Owner's method of
accounting. A Owner 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 Securities, either directly or indirectly through certain
passthrough 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
Securities, directly or indirectly through a passthrough entity, may have
aggregate taxable income in excess of the aggregate amount of cash received on
such Securities with respect to interest at the passthrough rate on such
Securities 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.
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Moreover, where there is fixed retained yield with respect to the Mortgage
Assets underlying a Series of Securities 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 Securities" and "Premium and Discount -
Recharacterization of Servicing Fees,"respectively.
Tax Status. Subject to the discussion below, Special Counsel is of the
opinion that:
1. A Standard Security 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
Security is of the type described in such section.
2. A Standard Security 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 Security
is of the type described in such section.
3. A Standard Security 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 Security 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 buydown 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 buydown 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, Owners are urged to consult
their own tax advisors concerning the effects of such arrangements on the
characterization of such Owner's investment for federal income tax purposes.
Premium and Discount
Owners 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 Securities or thereafter.
Premium. The treatment of premium incurred upon the purchase of a Security
will be determined generally as described above under "- Taxation of Regular
Securities - Premium."
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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 an Owner'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 an Owner 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 the issue price and the original principal amount of such
Mortgage Assets (i.e., points) will be includible by such holder.
Market Discount. Owners 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 Securities - 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 Securities, 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 Owners 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 an Owner, except that the
income reported by a cash method holder may
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be slightly accelerated. See "Stripped Securities" 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 Owners to purchase an
undivided interest in the Mortgage Assets. In such event, the present value of
such additional payments might be included in the Owner's basis in such
undivided interests for purposes of determining whether the Security was
acquired at a discount, at par, or at a premium. Under this alternative, Owners
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. Owners 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 Securities. Upon sale or exchange of a Security, a
Owner 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 Security. In general, the aggregate adjusted
basis will equal the Owner's cost for the Security, increased by the amount of
any income previously reported with respect to the Security and decreased by the
amount of any losses previously reported with respect to the Security 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 Security was held as a
capital asset.
Stripped Securities
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, Securities that are subject to those rules will be referred to as
"Stripped Securities." The Securities 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 Securities - Recharacterization of the
Servicing Fees" above) and (iii) a class of Securities 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 Security (a "Stripped Owner") 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 Security'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 Securities - Recharacterization of Servicing Fees." For this purpose
the servicing fees will be allocated to the Stripped Securities in proportion to
the respective offering price of each class (or subclass) of Stripped
Securities. The holder of a Stripped Security generally will be entitled to a
deduction each year in respect of the servicing fees, as described above under
"- Federal Income Tax Consequences for Securities as to Which No REMIC Election
is Made - Standard Securities - 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
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(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 Securities
for federal income tax purposes is not clear in certain respects at this time,
particularly where such Stripped Securities are issued with respect to a Trust
containing variablerate 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 Security 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 Securities 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 Security 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 Security 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 Security would be treated as stated
interest under the original issue discount rules. Further, the regulations
provide that the purchaser of such a Stripped Security 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 Security 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 Securities - Taxation of Regular Securities -
Market Discount,"without regard to the de minimis rule therein.
Status of Stripped Securities. No specific legal authority exists as to
whether the character of the Stripped Securities, 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 Securities
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 Securities 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 Securities as to Which
No REMIC Election is Made" and "- Standard Securities - Tax Status" above.
Original Issue Discount. Except as described above under "- General," each
Stripped Security 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 Security 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 Owner in any taxable year likely will be computed generally as
described above under "Federal Income Tax Consequences for REMIC Securities -
Taxation of Regular Securities - Original Issue Discount" and "- Variable
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Rate Regular Securities." However, with the apparent exception of a Stripped
Security issued with de minimis original issue discount, as described above
under "- General,"the issue price of a Stripped Security 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
Security to such Stripped Owner, 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 Owner'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 Owner's Stripped Security. While the matter is not free from
doubt, the holder of a Stripped Security 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 Security 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 Securities 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 Security under such rules depends on whether the aggregate amount
of principal payments, if any, to be made on the Stripped Security 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 Security. 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 Security. Such payments of
interest would be includible in the Stripped Owner's gross income in the taxable
year in which the amounts become fixed. If the aggregate amount of principal
payments to be made on the Stripped Security 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 Security, while amounts received in excess of the
applicable Federal rate, as applied to the adjusted basis of the Stripped
Security, 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 Securities.
Sale or Exchange of Stripped Securities. Sale or exchange of a Stripped
Security prior to its maturity will result in gain or loss equal to the
difference, if any, between the amount received and the Stripped Owner's
adjusted basis in such Stripped Security, as described above under "Federal
Income Tax Consequences for REMIC Securities - Taxation of Regular Securities -
Sale or Exchange of Regular Securities." To the extent that a subsequent
purchaser's purchase price is exceeded by the remaining payments on the Stripped
Securities, 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 Owner other
than by original Stripped Owner 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 Securities. Where an investor
purchases more than one class of Stripped Securities, it is currently unclear
whether for federal income tax purposes such classes of Stripped Securities
should be treated separately or aggregated for purposes of the rules described
above.
Because of these possible varying characterizations of Stripped Securities
and the resultant differing treatment of income recognition, Stripped Owners are
urged to consult their own tax advisors regarding the proper treatment of
Stripped Securities for federal income tax purposes.
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Reporting Requirements and Backup Withholding
The Trustee or the Indenture Trustee, as applicable, will furnish, within a
reasonable time after the end of each calendar year, to each Owner or Stripped
Owner at any time during such year, such information (prepared on the basis
described above) as the Trustee or the Indenture Trustee, as applicable, deems
to be necessary or desirable to enable such Owners to prepare their federal
income tax returns. Such information will include the amount of original issue
discount accrued on Securities held by persons other than Owners exempted from
the reporting requirements. The amounts required to be reported by the Trustee
or the Indenture Trustee, as applicable, may not be equal to the proper amount
of original issue discount required to be reported as taxable income by an
Owner, other than an original Owner. The Trustee or the Indenture Trustee, as
applicable, will also file such original issue discount information with the
Internal Revenue Service. If an Owner fails to supply an accurate taxpayer
identification number or if the Secretary of the Treasury determines that a
Owner 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 Security 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 Owner on the sale
or exchange of such a Security also will be subject to federal income tax at the
same rate.
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 Securities."
Owners should be aware that the IRS issued final regulations on October
20, 1997 which could affect the United States' taxation of foreign investors in
Securities. The regulations would apply to payments after December 31, 1999.
Investors who are non-U.S. Persons should consult their own tax advisors
regarding the specific tax consequences to them of owning Securities.
Debt Certificates
General. Certain Certificates ("Debt Certificates") may be issued with the
intention to treat them, for federal income tax purposes, either as (i)
non-recourse debt of the Depositor secured by the related Mortgage Assets, in
which case the related Trust will constitute only a security device which
constitutes a collateral arrangement for the issuance of secured debt and not an
entity for federal income tax purposes or (ii) debt of a partnership, in which
case the related Trust will constitute a partnership for federal income tax
purposes. Special Counsel is of the opinion that (unless otherwise limited in
the related Prospectus Supplement), for federal income tax purposes, assuming
compliance with all the provisions of the related Indenture, (i) Debt
Certificates will be characterized as debt issued by, and not equity in, the
related Trust and (ii) the related Trust will not be characterized as an
association (or publicly traded partnership within the meaning of Code Section
7704) taxable as a corporation or as a taxable mortgage pool within the meaning
of Code Section 7701(i). Since different criteria are used to determine the
non-tax accounting treatment of the issuance of Debt Certificates, however, the
Depositor expects to treat such transactions, for financial accounting purposes,
as a transfer of an ownership interest in the related Mortgage Assets to the
related Trust and not as the issuance of debt obligations. In this regard, it
should be noted that the IRS has issued a notice stating that, upon examination,
it will scrutinize instruments treated as debt for federal income tax purposes
but as equity for regulatory, rating agency or financial accounting purposes to
determine if their purported status as debt for federal income tax purposes is
appropriate.
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Assuming, as Special Counsel advises, that Debt Certificates will be treated as
indebtedness for federal income tax purposes, holders of Debt Certificates,
using their method of tax accounting, will follow the federal income tax
treatment hereinafter described.
Original Issue Discount. It is likely that the Debt Certificates will be
treated as having been issued with "original issue discount" within the meaning
of Code Section 1273(a) because interest payments on the Debt Certificates may,
in the event of certain shortfalls, be deferred for periods exceeding one year.
As a result, interest payments may not be considered "qualified stated interest"
payments.
In general, a holder of a Debt Certificate having original issue discount
must include original issue discount in ordinary income as it accrues in advance
of receipt of the cash attributable to the discount, regardless of the method of
accounting otherwise used. The amount of original issue discount on a Debt
Certificate will be computed generally as described under "- Federal Income Tax
Consequences for REMIC Securities" and "Taxation of Regular Securities -
Original Issue Discount" and "- Variable Rate Regular Securities." The Depositor
intends to report any information required with respect to the Debt Certificates
based on the OID Regulations.
Market Discount. A purchaser of a Debt Certificate may be subject to the
market discount rules of Code Sections 1276 through 1278. In general, "market
discount" is the amount by which the stated redemption price at maturity (or, in
the case of a Debt Certificate issued with original issue discount, the adjusted
issue price) of the Debt Certificate exceeds the purchaser's basis in a Debt
Certificate. The holder of a Debt Certificate that has market discount generally
will be required to include accrued market discount in ordinary income to the
extent payments includible in the stated redemption price at maturity of such
Debt Certificate are received. The amount of market discount on a Debt
Certificate will be computed generally as described under "Federal Income Tax
Consequences for REMIC Securities" and "- Taxation of Regular Securities -
Market Discount."
Premium. A Debt Certificate purchased at a cost greater than its currently
outstanding stated redemption price at maturity is considered to be purchased at
a premium. A holder of a Debt Certificate who holds a Debt Certificate as a
"capital asset" within the meaning of Code Section 1221 may elect under Code
Section 171 to amortize the premium under the constant interest method. That
election will apply to all premium obligations that the holder of a Debt
Certificate acquires on or after the first day of the taxable year for which the
election is made, unless the IRS permits the revocation of the election. In
addition, it appears that the same rules that apply to the accrual of market
discount on installment obligations are intended to apply in amortizing premium
on installment obligations such as the Debt Certificates. The treatment of
premium incurred upon the purchase of a Debt Certificate will be determined
generally as described above under "- Taxation of Regular Securities - Premium."
Sale or Exchange of Debt Certificates. If a holder of a Debt Certificate
sells or exchanges a Debt Certificate, the holder of a Debt Certificate will
recognize gain or loss equal to the difference, if any, between the amount
received and the holder of a Debt Certificate's adjusted basis in the Debt
Certificate. The adjusted basis in the Debt Certificate generally will equal its
initial cost, increased by any original issue discount or market discount
previously included in the seller's gross income with respect to the Debt
Certificate and reduced by the payments previously received on the Debt
Certificate, other than payments of qualified stated interest, and by any
amortized premium.
In general, except as described above with respect to market discount, and
except for certain financial institutions subject to Code Section 582(c), any
gain or loss on the sale or exchange of a Debt Certificate recognized by an
investor who holds the Debt Certificate as a capital asset (within the meaning
of Code Section 1221), will be capital gain or loss and will be longterm or
shortterm depending on whether the Debt Certificate has been held for more than
one year. For corporate taxpayers, there is no preferential rate afforded to
long-term capital gains. For individual taxpayers, net capital gains are subject
to varying tax rates depending upon the holding period of the Debt Certificates.
72
<PAGE>
Backup Withholding. Holders of Debt Certificates will be subject to backup
withholding rules identical to those applicable to REMIC Regular Securities. See
"- Federal Income Tax Consequences For REMIC Securities" and "Backup
Withholding."
Tax Treatment of Foreign Investors. Holders of Debt Certificates who are
foreign investors will be subject to taxation in the same manner as foreign
holders of REMIC Regular Securities. See "- Federal Income Tax Consequences For
REMIC Securities Taxation of Certain Foreign Investors Regular Securities."
Notes
With respect to those Securities issued as Notes, no regulations, published
rulings or judicial decisions exist that discuss the characterization for
federal income tax purposes of instruments with terms substantially the same as
the Notes. However, Special Counsel is of the opinion that (unless otherwise
limited in the related Prospectus Supplement), for federal income tax purposes,
assuming compliance with all the provisions of the related Indenture, (i) Notes
will be characterized as debt issued by, and not equity in, the related Trust
and (ii) the related Trust will not be characterized as an association (or
publicly traded partnership within the meaning of Code Section 7704) taxable as
a corporation or as a taxable mortgage pool within the meaning of Code Section
7701(i). Assuming, as Special Counsel advises, that Notes are treated as
indebtedness for federal income tax purposes, holders of Notes, using their
method of tax accounting, will follow the same federal income tax treatment as
Debt Certificates, as described above under "Federal Income Tax Consequences
Federal Income Tax Consequences for Securities as to Which No REMIC Election Is
Made - Debt Certificates."
For federal income tax purposes, (i) Notes held by a thrift institution
taxed as a "mutual savings bank" or "domestic building and loan association"
will not represent interests in "qualifying real property loans" within the
meaning of Code Section 593(d)(1); (ii) Notes held by a thrift institution taxed
as a domestic building and loan association will not constitute "loans ...
secured by an interest in real property" within the meaning of Code Section
7701(a)(19)(C)(v); (iii) interest on Notes held by a real estate investment
trust will not be treated as "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); (iv) Notes held be a real estate investment trust will not
constitute "real estate assets" or "Government securities" within the meaning of
Code Section 856(c)(5)(A); and (v) Notes held by a regulated investment company
will not constitute "Government securities" within the meaning of Code Section
851(b)(4)(A)(i).
Taxation of Certificates Classified as Partnership Interests
Certain Trusts may be treated as partnerships for Federal income tax
purposes. In such event, the Trusts may issue Securities characterized as
"Partnership Interests" as discussed in the related Prospectus Supplement. With
respect to such Series of Partnership Interests, Special Counsel 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 or taxable mortgage pool for federal income tax purposes. The
related Prospectus Supplement will also cover any material federal income tax
consequences applicable to the Owners.
Federal Income Tax Consequences For FASIT Securities
With respect to a particular Series of Securities, an election may be made
to treat the Trust or one or more trusts or segregated pools of assets therein
as one or more FASITs within the meaning of Code Section 860L. A Trust or a
portion or portions thereof as to which one or more FASIT elections will be made
will be referred to as a "FASIT Pool." For purposes of this discussion,
Securities of a Series as to which one or more FASIT elections are made are
referred to as "FASIT Securities" and will consist of one or more classes of
"FASIT Regular Securities" and one "Ownership Interest Security" in the case of
each FASIT Pool. Qualification as a FASIT requires ongoing compliance with
certain conditions. With respect to each Series of FASIT Securities, Special
Counsel has advised the Depositor that in their opinion (unless otherwise
limited in the related Prospectus Supplement), assuming (i) the making of an
appropriate election, (ii) compliance with all provisions of the related
73
<PAGE>
Indenture and (iii) compliance with the applicable provisions of the law,
including any amendments to the Code or applicable Treasury regulations
thereunder, each FASIT Pool will qualify as a FASIT. In such case, the FASIT
Regular Securities will be considered to be "regular interests" in the FASIT
Pool and generally will be treated for federal income tax purposes as if they
were newly originated debt instruments, and the Ownership Interest Security will
be considered to be the "ownership interest" in the FASIT Pool. The Prospectus
Supplement for each Series of Securities will indicate whether one or more FASIT
elections with respect to the related Trust will be made and will also cover any
material federal income tax consequences applicable to the holders of FASIT
Securities.
PLAN OF DISTRIBUTION
Securities 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 Securities,
including the public offering or purchase price of each class of Securities 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 Securities 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 Securities 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 Securities 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 Securities, Underwriters may receive
compensation from the Depositor or from purchasers of the Securities in the form
of discounts, concessions or commissions. Underwriters and dealers participating
in the distribution of the Securities may be deemed to be underwriters in
connection with such Securities, and any discounts or commissions received by
them from the Depositor and any profit on the resale of Securities 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 Securities 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 Securities 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.
74
<PAGE>
RATINGS
Each class of Securities of a Series will be rated at their initial
issuance in one of the four highest categories by at least one Rating Agency.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning Rating
Agency. No person is obligated to maintain the rating on any Security, and,
accordingly, there can be no assurance that the ratings assigned to a Security
upon initial issuance will not be lowered or withdrawn by a Rating Agency at any
time thereafter. In general, ratings address credit risk and do not represent
any assessment of the likelihood or rate of principal prepayments.
LEGAL MATTERS
Certain legal matters relating to the validity of the issuance of the
Securities of each Series including insolvency issues and certain federal income
tax matters concerning the Securities will be passed upon for the Depositor by
Arter & Hadden LLP, Washington, D.C.
FINANCIAL INFORMATION
A Trust will be formed with respect to each Series of Securities. No Trust
will have any assets or obligations prior to the issuance of the related Series
of Securities. No Trust will engage in any activities other 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.
Although the Notes of any Series will represent obligations of the related
Issuer, such obligations will be nonresource and the proceeds of the assets
included in the related Trust will be the sole source of payments on the Notes
of such Series. The Issuer for any Series of Notes will not have, nor be
expected in the future to have, any significant assets available for payments on
such Series of Notes other than the assets included in the related Trust.
Accordingly, the investment characteristics of a Series of Notes will be
determined by the assets included in the related Trust and will not be affected
by the identity of the obligor with respect to such Series of Notes.
Accordingly, no capitalization information or any historical or pro forma ratio
of earnings to fixed charges or any other financial information with respect to
any trust, partnership, limited liability company or corporation formed for the
purpose of issuing a Series of Notes has been or will be included herein or in
the related Prospectus Supplement.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
75
<PAGE>
APPENDIX A
INDEX TO LOCATION OF PRINCIPAL DEFINED TERMS
Page
1986 Act............................................................... 50
1996 Act............................................................... 58
Agreement.............................................................. 1
AMTI................................................................... 58
Applicable Accounting Standards........................................ 31
Balloon Loans.......................................................... 7
Beneficial Owners...................................................... 5
BIF.................................................................... 32
Book Entry Registration................................................ 12
Book Entry Securities.................................................. 4
Certificates........................................................... 1
Clearing Agency........................................................ 4
Clearing Agency Participants........................................... 5
Code................................................................... 5
Companion Securities................................................... 13
Compound Interest Securities........................................... 13
Cooperative Loans...................................................... 16
Cooperatives........................................................... 2
Credit Enhancement..................................................... 4
Credit Enhancer........................................................ 10
Custodial Account...................................................... 24
Cut-Off Date........................................................... 12
DCR.................................................................... 6
Debt Certificates...................................................... 71
Defective Mortgage Loan................................................ 31
Delivery Date.......................................................... 11
Deposit Date........................................................... 31
Depositor.............................................................. 1
Disqualified Organization.............................................. 60
DOL.................................................................... 47
Eligible Investments................................................... 32
Equity Certificates.................................................... 2
ERISA.................................................................. 5
Events of Default...................................................... 34
FASIT.................................................................. 5
FASIT Pool............................................................. 73
FASIT Regular Securities............................................... 73
FASIT Securities....................................................... 73
FDIC................................................................... 24
FHLMC.................................................................. 2
Financial Guaranty Insurance Policy.................................... 19
Financial Guaranty Insurer............................................. 19
Fitch.................................................................. 6
FNMA................................................................... 2
Garn-St. Germain Act................................................... 45
GNMA................................................................... 2
Indenture.............................................................. 1
Indenture Trustee...................................................... 1
Insurance Paying Agent................................................. 19
Insurance Proceeds..................................................... 24
Insured Payment........................................................ 19
Interest Accrual Period................................................ 14
Issuer................................................................. 1
Liquidation Proceeds................................................... 24
Loan-to-Value Ratio.................................................... 18
Mark to Market Regulations............................................. 57
Master Servicer........................................................ 1
MBS.................................................................... 2
MBS Agreement.......................................................... 18
MBS Issuer............................................................. 18
MBS Servicer........................................................... 18
MBS Trustee............................................................ 18
Monthly Advance........................................................ 25
Moody's................................................................ 6
Mortgage Assets........................................................ 2
Mortgage Loans......................................................... 2
Mortgage Notes......................................................... 16
Mortgage Pool Insurance Policy......................................... 21
Mortgage Rates......................................................... 17
Mortgaged Properties................................................... 16
Mortgages.............................................................. 16
Mortgage-Backed Securities............................................. 2
Mortgagors............................................................. 24
NCUA................................................................... 24
Non-Priority Securities................................................ 13
Non-U.S. Person........................................................ 64
Noneconomic Residual Interest.......................................... 60
Nonrecoverable Advance................................................. 25
Note Event of Default.................................................. 36
Note Rate.............................................................. 14
Notes.................................................................. 1
Notional Principal Balance............................................. 14
OID Regulations........................................................ 48
Original Value......................................................... 18
OTS.................................................................... 45
Owner Trustee.......................................................... 1
Owners................................................................. 3
Ownership Interest Security............................................ 73
Partnership Interests.................................................. 73
Pass-Through Entity.................................................... 60
Pass-Through Rate...................................................... 3
Payment Date........................................................... 13
Plans.................................................................. 47
Policy Statement....................................................... 46
Pool Insurer........................................................... 21
Pooling and Servicing Agreement........................................ 1
Premium Regulations.................................................... 55
Prepayment Assumption.................................................. 51
Pre-Funding Account.................................................... 3
Principal Balance...................................................... 17
Principal Prepayments.................................................. 14
Priority Securities.................................................... 13
PTE 83-1............................................................... 47
Rating Agency.......................................................... 6
REIT................................................................... 49
REMIC.................................................................. 5
REMIC Pool............................................................. 49
REMIC Regulations...................................................... 48
REMIC Securities....................................................... 49
Record Date............................................................ 13
Regular Owner.......................................................... 50
Regular Securities..................................................... 49
Relief Act............................................................. 10
Remittance Date........................................................ 25
Remittance Rate........................................................ 25
Reserve Fund........................................................... 23
Residual Owners........................................................ 55
Residual Securities.................................................... 49
Retail Class Security.................................................. 50
Riegle Act............................................................. 9
SAIF................................................................... 32
Sale and Servicing Agreement........................................... 24
Scheduled Amortization Securities...................................... 13
Securities............................................................. 1
Securities Interest Rate............................................... 13
Security Account....................................................... 14
Security Principal Balance............................................. 12
Security Register...................................................... 12
Security Registrar..................................................... 12
Seller................................................................. 1
Senior Securities...................................................... 20
Servicer............................................................... 1
SMMEA.................................................................. 5
Special Allocation Securities.......................................... 13
Special Counsel........................................................ 48
Special Hazard Insurance Policy........................................ 22
Special Hazard Insurer................................................. 22
Standard & Poor's...................................................... 6
Standard Certificate................................................... 65
Stripped Owner......................................................... 68
A-1
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Page
----
Stripped Securities................................................... 68
Subordinated Securities............................................... 20
Subsequent Transfer Agreement......................................... 3
Thrift Institution.................................................... 49
TMP................................................................... 50
Trust................................................................. 1
Trust Agreement....................................................... 1
Trustee............................................................... 1
U.S. Person........................................................... 61
UCC................................................................... 42
Underwriters.......................................................... 74
A-2
<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..................... $295.00
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 to the Form S-3, Registration No. 333-4911 filed by the Registrant
on May 30, 1996) 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.
II-i
<PAGE>
Item 16. Exhibits.
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.
4.2 ** -- Form of Indenture.
5.1 ** -- Opinion of Arter & Hadden LLP regarding the legality
of the securities (Asset Backed Certificates and
Asset Backed Notes).
8.1 ** -- Opinion of Arter & Hadden LLP regarding tax matters.
10.1 ** -- Form of Sale and Servicing Agreement.
10.2 ** -- Form of Trust Agreement.
23.1 ** -- Consent of Arter & Hadden LLP (included as part of
Exhibit 5.1, 5.2 and 8.1).
24.1 ** -- Powers of Attorney (included on the signature page
of this Registration Statement).
25.1 *** -- Form T-1 Statement of Eligibility of the Indenture
Trustee.
99.1 ** -- Form of Prospectus Supplement (Certificates -
Insured Transaction).
99.2 ** -- Form of Prospectus Supplement (Certificates - Senior
/Subordinate Transaction).
99.3 ** -- Form of Prospectus Supplement (Notes).
- -----------------
* Incorporated by reference from the filing of May 30, 1996 made by the
Registrant on Form S-3, Registration No. 333-4911.
** Filed herewith.
*** To be filed by amendment.
II-ii
<PAGE>
Item 17. Undertakings
A. 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 facts 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, represent a fundamental change in the information set
forth in this Registration Statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which is
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement;
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in 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, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed or furnished to
the Commission 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.
B. Undertaking pursuant to Securities Exchange Act of 1934.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing
of the Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to
section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in this Registration Statement shall be
deemed to be a new
II-iii
<PAGE>
Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
C. Undertaking for Equity Offerings.
The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements
certificates in such denominations and registered in such names as
required by the underwriter to permit prompt delivery to each
purchaser.
D. 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 Securities Act of 1933 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 Securities Act of 1933 and will be governed
by the final adjudication of such issue.
E. 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 of 1933 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.
F. Undertaking pursuant to the Trust Indenture Act of 1939.
The undersigned Registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the Indenture Trustee to
act under subsection (a) of Section 310 of the Trust Indenture Act
("Act") in accordance with the rules and regulations prescribed by the
Securities and Exchange Commission under Section 305(b)(2) of the Act.
[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 18th day of March,
1998.
IMC SECURITIES INC.
By: /S/ George Nicholas
--------------------
Name: George Nicholas
Title: Chairman, Chief Executive Officer
and Assistant Secretary
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
- ------------------- Chairman, Chief Executive Officer and March 18, 1998
George Nicholas Assistant Secretary
/s/ Thomas Middleton
- ------------------- Chief Operating Officer March 18, 1998
Thomas Middleton Chief Financial Officer),
Assistant Secretary and Director
/s/ Timothy Griffin
- ------------------- Director March 18, 1998
Timothy Griffin
/s/ Mitchell W. Legler
- ------------------- Director March 18, 1998
Mitchell W. Legler
- ------------------- Director
Charles Hedrick
<PAGE>
EXHIBIT INDEX
Location of Exhibit
Exhibit in Sequential
Number Description of Document Numbering System
- ------ ----------------------
4.2 Form of Indenture
5.1 Opinion of Arter & Hadden LLP regarding
the legality of the securities (Asset-Backed
Certificates and Asset-Backed Notes)
8.1 Opinion of Arter & Hadden LLP regarding
tax matters
10.1 Form of Sale and Servicing Agreement
10.2 Form of Trust Agreement
23.1 Consent of Arter & Hadden LLP (included as
part of Exhibit 5.1, 5.2 and 8.1)
24.1 Powers of Attorney (included on signature
page)
99.1 Form of Prospectus Supplement (Certificates
- Insured Transaction)
99.2 Form of Prospectus Supplement (Certificates
- Senior/Subordinate Transaction)
99.3 Form of Prospectus Supplement (Notes)
Exhibit 4.2
INDENTURE
between
IMC HOME EQUITY LOAN OWNER TRUST 199_-_,
as Issuer
and
_________________,
as Indenture Trustee
Dated as of ______________, 199__
IMC HOME EQUITY LOAN OWNER TRUST 199_-_
Adjustable Rate Home Equity Loan Asset Backed Notes, Series 199_-_
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE.........................................................1
SECTION 1.1........................................................................................1
SECTION 1.2 Incorporation by Reference of Trust Indenture Act.....................................7
SECTION 1.3 Rules of Construction.................................................................7
ARTICLE II
THE NOTES...........................................................................................8
SECTION 2.1 Form...................................................................................8
SECTION 2.2 Execution, Authentication, Delivery and Dating.........................................8
SECTION 2.3 Registration; Registration of Transfer and Exchange....................................9
SECTION 2.4 Mutilated, Destroyed, Lost or Stolen Notes............................................10
SECTION 2.5 Persons Deemed Owners.................................................................11
SECTION 2.6 Payment of Principal and Interest; Defaulted Interest.................................11
SECTION 2.7 Cancellation..........................................................................11
SECTION 2.8 Authentication of Notes...............................................................12
SECTION 2.9 Release of Collateral.................................................................12
SECTION 2.10 Book-Entry Notes......................................................................12
SECTION 2.11 Notices to Clearing Agency............................................................13
SECTION 2.12 Definitive Notes......................................................................13
SECTION 2.13 Tax Treatment.........................................................................14
ARTICLE III
COVENANTS..........................................................................................14
SECTION 3.1 Payment of Principal and Interest.....................................................14
SECTION 3.2 Maintenance of Office or Agency.......................................................14
SECTION 3.3 Money for Payments To Be Held in Trust................................................14
SECTION 3.4 Existence.............................................................................16
SECTION 3.5 Protection of Collateral..............................................................16
SECTION 3.6 Annual Opinions as to Collateral......................................................17
SECTION 3.7 Performance of Obligations; Servicing of Home Equity Loans............................17
SECTION 3.8 Negative Covenants....................................................................18
SECTION 3.9 Annual Statement as to Compliance.....................................................19
SECTION 3.10 Covenants of the Issuer...............................................................20
SECTION 3.11 Reserved..............................................................................20
SECTION 3.12 Restricted Payments...................................................................20
SECTION 3.13 Treatment of Notes as Debt for Tax Purposes...........................................20
SECTION 3.14 Notice of Events of Default...........................................................20
SECTION 3.15 Further Instruments and Acts..........................................................20
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ARTICLE IV
SATISFACTION AND DISCHARGE..........................................................................20
SECTION 4.1 Satisfaction and Discharge of Indenture...............................................20
SECTION 4.2 Application of Trust Money............................................................21
SECTION 4.3 Repayment of Moneys Held by Paying Agent..............................................21
ARTICLE V
REMEDIES............................................................................................22
SECTION 5.1 Events of Default.....................................................................22
SECTION 5.2 Acceleration of Maturity; Rescission and Annulment....................................23
SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by Indenture Trustee.............24
SECTION 5.4 Remedies; Priorities..................................................................26
SECTION 5.5 Optional Preservation of the Collateral...............................................27
SECTION 5.6 Limitation of Suits...................................................................27
SECTION 5.7 Unconditional Rights of Owners To Receive Principal and Interest......................28
SECTION 5.8 Restoration of Rights and Remedies....................................................28
SECTION 5.9 Rights and Remedies Cumulative........................................................28
SECTION 5.10 Delay or Omission Not a Waiver........................................................28
SECTION 5.11 Control by Owners.....................................................................29
SECTION 5.12 Waiver of Past Defaults...............................................................29
SECTION 5.13 Undertaking for Costs.................................................................29
SECTION 5.14 Waiver of Stay or Extension Laws......................................................30
SECTION 5.15 Action on Notes.......................................................................30
SECTION 5.16 Performance and Enforcement of Certain Obligations....................................30
ARTICLE VI
THE INDENTURE TRUSTEE...............................................................................31
SECTION 6.1 Duties of Indenture Trustee...........................................................31
SECTION 6.2 Rights of Indenture Trustee...........................................................32
SECTION 6.3 Individual Rights of Indenture Trustee................................................32
SECTION 6.4 Indenture Trustee's Disclaimer........................................................33
SECTION 6.5 Notice of Defaults....................................................................33
SECTION 6.6 Reports by Indenture Trustee to Owners................................................33
SECTION 6.7 Compensation and Indemnity............................................................33
SECTION 6.8 Replacement of Indenture Trustee......................................................33
SECTION 6.9 Successor Indenture Trustee by Merger.................................................35
SECTION 6.10 Appointment of Co-Indenture Trustee or Separate Indenture Trustee.....................36
SECTION 6.11 Eligibility; Disqualification.........................................................37
SECTION 6.12 Preferential Collection of Claims Against Issuer......................................37
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ARTICLE VII
OWNERS' LISTS AND REPORTS..........................................................................37
SECTION 7.1 Issuer To Furnish Indenture Trustee Names and Addresses of Owners....................37
SECTION 7.2 Preservation of Information; Communications to Owners................................37
SECTION 7.3 Reports by Issuer....................................................................37
SECTION 7.4 Reports by Indenture Trustee.........................................................38
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES...............................................................39
SECTION 8.1 Collection of Money..................................................................39
SECTION 8.2 Accounts; Distributions..............................................................39
SECTION 8.3 General Provisions Regarding Accounts................................................40
SECTION 8.4 Servicer's Monthly Statements........................................................40
SECTION 8.5 Release of Collateral................................................................40
SECTION 8.6 Opinion of Counsel...................................................................41
ARTICLE IX
SUPPLEMENTAL INDENTURES............................................................................41
SECTION 9.1 Supplemental Indentures Without Consent of Owners....................................41
SECTION 9.2 Supplemental Indentures with Consent of Owners.......................................42
SECTION 9.3 Execution of Supplemental Indentures.................................................43
SECTION 9.4 Effect of Supplemental Indenture.....................................................44
SECTION 9.5 Conformity with Trust Indenture Act..................................................44
SECTION 9.6 Reference in Notes to Supplemental Indentures........................................44
SECTION 9.7 Amendments to Trust Agreement........................................................44
ARTICLE X
REDEMPTION OF NOTES................................................................................44
SECTION 10.1 Redemption. .........................................................................44
SECTION 10.2 Form of Redemption Notice............................................................45
SECTION 10.3 Notes Payable on Redemption Date; Provision for Payment of Indenture
Trustee and Note Insurer.............................................................45
ARTICLE XI
MISCELLANEOUS......................................................................................46
SECTION 11.1 Compliance Certificates and Opinions, etc............................................46
SECTION 11.2 Form of Documents Delivered to Indenture Trustee.....................................46
SECTION 11.3 Acts of Owners.......................................................................47
SECTION 11.4 Notices, etc., to Indenture Trustee, Issuer, Rating Agencies and Note
Insurer..............................................................................47
SECTION 11.5 Notices to Owners; Waiver............................................................48
SECTION 11.6 [RESERVED]...........................................................................48
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SECTION 11.7 Conflict with Trust Indenture Act....................................................48
SECTION 11.8 Effect of Headings and Table of Contents.............................................48
SECTION 11.9 Successors and Assigns...............................................................48
SECTION 11.10 Separability.........................................................................48
SECTION 11.11 Benefits of Indenture................................................................48
SECTION 11.12 Legal Holidays.......................................................................49
SECTION 11.13 Governing Law........................................................................49
SECTION 11.14 Counterparts.........................................................................49
SECTION 11.15 Recording of Indenture...............................................................49
SECTION 11.16 Trust Obligation.....................................................................49
SECTION 11.17 No Petition..........................................................................49
SECTION 11.18 Inspection...........................................................................50
SECTION 11.19 Grant of Owner Rights to Note Insurer................................................50
SECTION 11.20 Third Party Beneficiary..............................................................50
SECTION 11.21 Suspension and Termination of Note Insurer's Rights..................................50
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EXHIBITS
SCHEDULE A - Schedule of Home Equity Loans
EXHIBIT A - Form of Note
<PAGE>
INDENTURE (this "Indenture" or this "Agreement") dated as of
______________, 199__, between IMC HOME EQUITY LOAN OWNER TRUST 199__-__, a
Delaware business trust (the "Issuer"), and ________________, a _____________
corporation, as trustee and not in its individual capacity (the "Indenture
Trustee").
Each party agrees as follows for the benefit of the other party and for
the equal and ratable benefit of the Owners of the Notes and the Note Insurer.
GRANTING CLAUSE
Subject to the terms of this Indenture, the Issuer hereby Grants to the
Indenture Trustee on the Closing Date, as Indenture Trustee for the benefit of
the Owners of the Notes and the Note Insurer, all of the Issuer's right, title
and interest in and to: (i) the Trust Estate; (ii) all right, title and interest
of the Issuer in the Sale and Servicing Agreement (including the Issuer's right
to cause the Seller to repurchase Home Equity Loans from the Issuer under
certain circumstances described therein); (iii) all present and future claims,
demands, causes of action and choses in action in respect of any or all of the
foregoing and all payments on or under and all proceeds of every kind and nature
whatsoever in respect of any or all of the foregoing, including all proceeds of
the conversion thereof, voluntary or involuntary, into cash or other liquid
property, all cash proceeds, accounts, accounts receivable, notes, drafts,
acceptances, chattel paper, checks, deposit accounts, insurance proceeds,
condemnation awards, rights to payment of any and every kind and other forms of
obligations and receivables, instruments and other property which at any time
constitute all or part of or are included in the proceeds of any of the
foregoing; (iv) all funds on deposit from time to time in the Accounts
(including the Note Account) and (v) all other property of the Trust from time
to time (collectively, the "Collateral").
The foregoing Grant is made in trust to secure the payment of principal
of and interest on, and any other amounts owing in respect of, the Notes,
equally and ratably without prejudice, priority or distinction, and to secure
compliance with the provisions of this Indenture, all as provided in this
Indenture.
The Indenture Trustee, as Indenture Trustee on behalf of the Owners of
the Notes and the Note Insurer, acknowledges such Grant, accepts the trusts
hereunder and agrees to perform its duties required in this Indenture to the
best of its ability to the end that the interests of the Owners of the Notes and
the Note Insurer may be adequately and effectively protected. The Indenture
Trustee agrees and acknowledges that the Files will be held by the Custodian, as
agent of the Indenture Trustee, in trust, for the use and benefit of the Issuer,
the Note Insurer and all present and future Owners of the Notes in Tampa,
Florida. The Indenture Trustee further agrees and acknowledges that each other
item of Collateral that is physically delivered to the Indenture Trustee will be
held by the Indenture Trustee in New York, New York.
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1 (a) Definitions. Except as otherwise specified herein or as the
context may otherwise require, the following terms have the respective meanings
set forth below for all purposes of this Indenture.
"Act": The meaning specified in Section 11.3(a) hereof.
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"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
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.
"Authorized Officer": With respect to the Issuer, any officer of the
Owner Trustee who is authorized to act for the Owner Trustee in matters relating
to the Issuer and who is identified on the list of Authorized Officers delivered
by the Owner Trustee to the Indenture Trustee on the Closing Date (as such list
may be modified or supplemented from time to time thereafter).
"Book-Entry Notes": A beneficial interest in the Notes, the ownership
and transfer of which shall be made through book entries by a Clearing Agency as
described in Section 2.10.
"Book-Entry Owner": With respect to a Book-Entry Note, the Person who
is the beneficial owner of such Book-Entry Note, as reflected on the books of
the Clearing Agency or on the books of a Person maintaining an account with such
Clearing Agency (directly as a Clearing Agency Participant or as an indirect
participant, in each case in accordance with the rules of such Clearing Agency).
"Business Day": Any day other than a Saturday, Sunday or a day on which
commercial banking institutions in The City of New York, Tampa, Florida, the
city in which the Corporate Trust Office is located or the city in which the
principal office of the Note Insurer is located are authorized or obligated by
law or executive order to be closed.
"Certificate of Trust": The certificate of trust of the Issuer
substantially in the form of Exhibit A to the Trust Agreement.
"Clearing Agency": An organization registered as a "clearing agency"
pursuant to Section 17A of the Exchange Act.
"Clearing Agency Participant": A broker, dealer, bank, other financial
institution or other Person for whom from time to time a Clearing Agency effects
book-entry transfers and pledges of securities deposited with the Clearing
Agency.
"Closing Date": _________, 199__.
"Code": The Internal Revenue Code of 1986, as amended from time to
time, and the Treasury Regulations promulgated thereunder.
"Collateral": The meaning specified in the Granting Clause of this
Indenture.
"Corporate Trust Office": The principal office of the Indenture Trustee
at which at any particular time its corporate trust business shall be
administered, which office at date of execution of this Agreement is located at
______________, _______, New York, New York, Attention: Structured Financial
Services, or at such other address as the Indenture Trustee may designate from
time to time by notice to the Owners and the Issuer, or the principal corporate
trust office of any successor Indenture Trustee at the address designated by
such successor Indenture Trustee by notice to the Owners, the Note Insurer and
the Issuer.
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"Default": Any occurrence that is, or with notice or the lapse of time
or both would become, an Event of Default.
"Definitive Notes": The meaning specified in Section 2.12.
"Depositor": IMC Securities, Inc., a Delaware corporation.
"Event of Default": The meaning specified in Section 5.1 hereof.
"Exchange Act": The Securities Exchange Act of 1934, as amended.
"Final Payment Date": _________,_____.
"Grant": To mortgage, pledge, bargain, sell, warrant, alienate, remise,
release, convey, assign, transfer, create, and grant a lien upon and a security
interest in and right of set-off against, deposit, set over and confirm pursuant
to this Indenture. A Grant of the Collateral or of any other agreement or
instrument shall include all rights, powers and options (but none of the
obligations) of the granting party thereunder, including the immediate and
continuing right to claim for, collect, receive and give receipt for principal
and interest payments in respect of the Collateral and all other moneys payable
thereunder, to give and receive notices and other communications, to make
waivers or other agreements, to exercise all rights and options, to bring
Proceedings in the name of the granting party or otherwise, and generally to do
and receive anything that the granting party is or may be entitled to do or
receive thereunder or with respect thereto.
"Indenture Trustee": ________________, a _____________ corporation, as
Indenture Trustee under this Indenture, or any successor Indenture Trustee under
this Indenture.
"Independent": When used with respect to any specified Person, that the
Person (a) is in fact independent of the Issuer, any other obligor on the Notes,
the Depositor, the Seller and any Affiliate of any of the foregoing Persons, (b)
does not have any direct financial interest or any material indirect financial
interest in the Issuer, any such other obligor, the Depositor, the Seller or any
Affiliate of any of the foregoing Persons and (c) is not connected with the
Issuer, any such other obligor, the Depositor, the Seller or any Affiliate of
any of the foregoing Persons as an officer, employee, promoter, underwriter,
trustee, partner, director or person performing similar functions.
"Independent Certificate": A certificate or opinion to be delivered to
the Indenture Trustee under the circumstances described in, and otherwise
complying with, the applicable requirements of Section 11.1, made by an
Independent appraiser or other expert appointed by an Issuer Order and approved
by the Indenture Trustee in the exercise of reasonable care, and such opinion or
certificate shall state that the signer has read the definition of "Independent"
in this Indenture and that the signer is Independent within the meaning thereof.
"Issuer": IMC Home Equity Loan Owner Trust 199__-__ until a successor
replaces it and, thereafter, means the successor and, for purposes of any
provision contained herein and required by the TIA, each other obligor on the
Notes.
"Issuer Order" and "Issuer Request": A written order or request signed
in the name of the Issuer by any one of its Authorized Officers and delivered to
the Indenture Trustee.
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"Moody's": Moody's Investor Service, Inc., or any successor thereto.
"Note": The Issuer's Adjustable Rate Home Equity Loan Asset Backed
Notes, Series 199_-_, substantially in the Form of Exhibit A hereto.
"Note Register" and "Note Registrar": The respective meanings specified
in Section 2.3.
"Officer's Certificate": A certificate signed by any Authorized Officer
of the Issuer, under the circumstances described in, and otherwise complying
with, the applicable requirements of Section 11.1, and delivered to the
Indenture Trustee.
"Opinion of Counsel": One or more written opinions of counsel who may,
except as otherwise expressly provided in this Indenture, be employees of or
counsel to the Issuer and who shall be satisfactory to the Indenture Trustee and
the Note Insurer, and which opinion or opinions shall be addressed to the
Indenture Trustee, as Indenture Trustee, and the Note Insurer and shall comply
with any applicable requirements of Section 11.1 and shall be in form and
substance satisfactory to the Indenture Trustee and the Note Insurer.
"Outstanding": With respect to any Note and as of the date of
determination, any Note theretofore authenticated and delivered under this
Indenture except:
(i) Notes theretofore canceled by the Note Registrar or
delivered to the Note Registrar for cancellation;
(ii) Notes or portions thereof the payment for which money in
the necessary amount has been theretofore deposited with the Indenture
Trustee or any Paying Agent in trust for the Owners of such Notes
(provided, however, that if such Notes are to be redeemed, notice of
such redemption has been duly given pursuant to this Indenture or
provision for such notice has been made, satisfactory to the Indenture
Trustee);
(iii) Notes in exchange for or in lieu of which other Notes
have been authenticated and delivered pursuant to this Indenture unless
proof satisfactory to the Indenture Trustee is presented that any such
Notes are held by a bona fide purchaser; provided, that in determining
whether the Owners of the requisite Outstanding Amount of the Notes
have given any request, demand, authorization, direction, notice,
consent, or waiver hereunder or under any Operative Document, Notes
owned by the Issuer, any other obligor upon the Notes, the Depositor,
the Seller or any Affiliate of any of the foregoing Persons shall be
disregarded and deemed not to be Outstanding, except that, in
determining whether the Indenture Trustee shall be protected in relying
upon any such request, demand, authorization, direction, notice,
consent, or waiver, only Notes that the Indenture Trustee knows to be
so owned shall be so disregarded. Notes so owned that have been pledged
in good faith may be regarded as Outstanding if the pledgee establishes
to the satisfaction of the Indenture Trustee the pledgee's right so to
act with respect to such Notes and that the pledgee is not the Issuer,
any other obligor upon the Notes, the Depositor, the Seller or any
Affiliate of any of the foregoing Persons;
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(iv) Notes alleged to have been destroyed, lost or stolen for
which replacement Notes have been issued as provided for in Section 2.4
thereof; and
(v) Notes as to which the Indenture Trustee has made the final
distribution thereon, whether or not such Notes are ever returned to
the Indenture Trustee.
"Outstanding Amount": The aggregate principal amount of all Notes that
are Outstanding at the date of determination.
"Owner": The Person in whose name a Note is registered on the Note
Register; provided that the exercise of any rights of such Owner under this
Indenture shall at all times be subject to Section 11.19 hereto.
"Owner Trustee": ____________________, not in its individual capacity
but solely as Owner Trustee under the Trust Agreement, or any successor Owner
Trustee under the Trust Agreement.
"Paying Agent": The Indenture Trustee or any other Person that meets
the eligibility standards for the Indenture Trustee specified in Section 6.11
and is authorized by the Issuer to make payments to and distributions from the
Note Account, including payment of principal of or interest on the Notes on
behalf of the Issuer.
"Payment Date": The 20th day of any month or if such day is not a
Business Day, the next Business Day thereafter, commencing in _________ 199__.
"Predecessor Note": With respect to any particular Note, every previous
Note evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purpose of this definition, any Note authenticated
and delivered under Section 2.4 in lieu of a mutilated, lost, destroyed or
stolen Note shall be deemed to evidence the same debt as the mutilated, lost,
destroyed or stolen Note.
"Proceeding": Any suit in equity, action at law or other judicial or
administrative proceeding.
"Rating Agency": Either or both of (i) Standard & Poor's or (ii)
Moody's. If no such organization or successor is any longer in existence,
"Rating Agency" shall be a nationally recognized statistical rating organization
or other comparable Person designated by the Note Insurer, notice of which
designation shall be given to the Issuer, the Depositor, the Indenture Trustee,
the Owner Trustee and the Servicer.
"Rating Agency Condition": With respect to any action to which a Rating
Agency Condition applies, that each Rating Agency shall have been given 10 days
(or such shorter period as is acceptable to each Rating Agency) prior notice
thereof and that each of the Rating Agencies shall have notified the Depositor,
the Seller, the Servicer, the Note Insurer and the Issuer in writing that such
action will not result in a reduction or withdrawal of the then current rating
of the Notes.
"Record Date": With respect to any Payment Date, the last Business Day
immediately preceding such Payment Date.
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"Redemption Price": In the case of a redemption of the Notes pursuant
to Section 10.1, an amount equal to the unpaid principal amount of the Notes
redeemed plus accrued and unpaid interest thereon at the Note Rate to but
excluding the Redemption Date, plus any Available Funds Cap Carry-Forward
Amounts plus any unpaid Trust Fees and Expenses and all other amounts owed to
the Note Insurer pursuant to the Insurance Agreement.
"Registered Owner": The Person in whose name a Note is registered on
the Note Register on the applicable Record Date.
"Responsible Officer": With respect to the Indenture Trustee, any
officer within the Corporate Trust Office of the Indenture Trustee, including
any Vice President, Assistant Vice President, Assistant Treasurer, Assistant
Secretary or any other officer of the Indenture Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also, with respect to a particular matter, any other officer to whom such matter
is referred because of such officer's knowledge of and familiarity with the
particular subject.
"Sale and Servicing Agreement": The Sale and Servicing Agreement dated
as of ______________ __________, 199__, among the Issuer, IMC Securities, Inc.,
as Depositor, IMC Mortgage Company, as Seller and Servicer, and the Indenture
Trustee, as Indenture Trustee.
"Securities Act": The Securities Act of 1933, as amended.
"Seller": IMC Mortgage Company, in its capacity as seller under the
Sale and Servicing Agreement, and its successor in interest.
"Servicer": IMC Mortgage Company, in its capacity as servicer under the
Sale and Servicing Agreement, and any Successor Servicer thereunder.
"Standard & Poor's": Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc.
"State": Any one of the 50 States of the United States of America or
the District of Columbia.
"Successor Servicer": The meaning specified in Section 3.7(e).
"Trust Estate": The assets subject to this Agreement, the Sale and
Servicing Agreement and the Trust Agreement and assigned to the Trust, which
assets consist of (a) the Home Equity Loans listed in Schedule I to the Sale and
Servicing Agreement, including the related Files that the Seller and the
Depositor cause to be delivered to the Indenture Trustee, all payments of
principal received, collected or otherwise recovered after the Cut-Off Date for
each Home Equity Loan (other than any principal payments due thereon on or prior
to the Cut-Off Date), all payments of interest accruing on each Home Equity Loan
after the CutOff Date therefor (other than any interest payments due thereon on
or prior to the Cut-Off Date) and all other proceeds received in respect of such
Home Equity Loans, (b) the Note Insurance Policy, (c) any Insurance Policies,
(d) all cash, instruments or other property held or required to be deposited in
the Principal and Interest Account, the Note Account, the Available Funds Cap
Carry Forward Amount Account, and the Policy Payments Account, including all
investments made with funds in such accounts (but not including any income on
funds deposited in, or investments made with funds deposited in, the Principal
and Interest
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Account, which income shall belong to and be for the account of the Servicer,
and not including any income on funds deposited in, or investments made with
funds deposited in, the Note Account or Available Funds Cap Carry-Forward Amount
Account, or the Capitalized Interest Account, which income shall belong to and
be for the account of the Issuer), (e) the Issuer's rights under the Sale and
Servicing Agreement, and (f) all proceeds of the conversion, voluntary or
involuntary, of any of the foregoing into cash or other liquid assets,
including, without limitation, all insurance proceeds and condemnation awards.
"Trust Indenture Act" or "TIA": The Trust Indenture Act of 1939, as
amended, as in force on the date hereof, unless otherwise specifically provided.
"UCC": Unless the context otherwise requires, the Uniform Commercial
Code, as in effect in the relevant jurisdiction, as amended from time to time.
(b) Except as otherwise specified herein or as the context may
otherwise require, for all purposes of this Indenture capitalized terms used but
not otherwise defined herein have the respective meanings set forth in the Sale
and Servicing Agreement or, if not defined therein, in the Trust Agreement.
SECTION 1.2 Incorporation by Reference of Trust Indenture Act. Whenever
this Indenture refers to a provision of the TIA, the provision is incorporated
by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"indenture security Owner" means an Owner.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Indenture
Trustee.
"obligor" on the Indenture securities means the Issuer and any other
obligor on the Indenture securities.
All other TIA terms used in this Indenture that are defined in the TIA,
defined by TIA reference to another statute or defined by Commission rule have
the meaning assigned to them by such definitions.
SECTION 1.3 Rules of Construction. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting
principles as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation;
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(v) words in the singular include the plural and words in the
plural include the singular; and
(vi) any agreement, instrument or statute defined or referred
to herein or in any instrument or certificate delivered in connection
herewith means such agreement, instrument or statute as from time to
time amended, modified or supplemented (as provided in such agreements)
and includes (in the case of agreements or instruments) references to
all attachments thereto and instruments incorporated therein;
references to a Person are also to its permitted successors and
assigns.
ARTICLE II
THE NOTES
SECTION 2.1 Form. The Notes shall be designated as the "IMC Adjustable
Rate Home Equity Loan Asset Backed Notes, Series 199__-__" and, together with
the Indenture Trustee's certificate of authentication, shall be in substantially
the form set forth in Exhibit A hereto, with such appropriate insertions,
omissions, substitutions and other variations as are required or permitted by
this Indenture, and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may,
consistently herewith, be determined by the officers executing such Notes, as
evidenced by their execution thereof. Any portion of the text of any Note may be
set forth on the reverse thereof, with an appropriate reference thereto on the
face of the Note.
The Definitive Notes shall be typewritten, printed, lithographed or
engraved or produced by any combination of these methods, all as determined by
the officers executing such Notes, as evidenced by their execution of such
Notes.
The terms of the Notes set forth in Exhibit A are part of the terms of
this Indenture.
The Notes may be marked as temporary, and any Note being so marked may
be cancelled and destroyed for substitution by a replacement Note, subject to
the provisions of Section 2.2.
SECTION 2.2 Execution, Authentication, Delivery and Dating. The Notes
shall be executed on behalf of the Issuer by an Authorized Officer of the Owner
Trustee. The signature of any such Authorized Officer on the Notes may be manual
or facsimile.
Notes bearing the manual or facsimile signature of individuals who were
at any time Authorized Officers of the Owner Trustee shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
Subject to the satisfaction of the conditions set forth in Section 2.8,
the Indenture Trustee shall authenticate and deliver Notes for original issue in
an aggregate principal amount of $_____________. The aggregate principal amount
of Notes Outstanding at any time may not exceed such amount.
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The Notes that are authenticated and delivered by the Indenture Trustee
to or upon the order of the Issuer on the Closing Date shall be dated _________,
199__. All other Notes that are authenticated after the Closing Date for any
other purpose under this Indenture shall be dated the date of their
authentication. The Notes shall be issuable as registered Notes in the minimum
denomination of $25,000 and integral multiples of $1,000 in excess thereof.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Indenture Trustee by the manual signature of one of its
authorized signatories, and such certificate upon any Note shall be conclusive
evidence, and the only evidence, that such Note has been duly authenticated and
delivered hereunder.
SECTION 2.3 Registration; Registration of Transfer and Exchange. The
Issuer shall cause to be kept a register (the "Note Register") in which, subject
to such reasonable regulations as it may prescribe, the Issuer shall provide for
the registration of Notes and the registration of transfers of Notes. The
Indenture Trustee initially shall be the "Note Registrar" for the purpose of
registering Notes and transfers of Notes as herein provided. Upon any
resignation of any Note Registrar, the Issuer shall promptly appoint a successor
or, if it elects not to make such an appointment, assume the duties of Note
Registrar.
If a Person other than the Indenture Trustee is appointed by the Issuer
as Note Registrar with the consent of the Note Insurer, the Issuer will give the
Indenture Trustee prompt written notice of the appointment of such Note
Registrar and of the location, and any change in the location, of the Note
Register, and the Indenture Trustee shall have the right to inspect the Note
Register at all reasonable times and to obtain copies thereof, and the Indenture
Trustee and the Note Insurer shall have the right to rely upon a certificate
executed on behalf of the Note Registrar by an Authorized Officer thereof as to
the names and addresses of the Owners of the Notes and the principal amounts and
number of such Notes.
Upon surrender for registration of transfer of any Note at the office
or agency of the Issuer to be maintained as provided in Section 3.2, the Issuer
shall execute, and the Indenture Trustee shall authenticate and the Owner shall
obtain from the Indenture Trustee, in the name of the designated transferee or
transferees, one or more new Notes in any authorized denominations, of a like
aggregate principal amount.
At the option of any Owner, Notes owned by such Owner may be exchanged
for other Notes in any authorized denominations, of a like aggregate principal
amount, upon surrender of the Notes to be exchanged at such office or agency.
Whenever any Notes are so surrendered for exchange, the Issuer shall execute,
and the Indenture Trustee shall authenticate and the Owner shall obtain from the
Indenture Trustee, the Notes which the Owner making the exchange is entitled to
receive.
All Notes issued upon any registration of transfer or exchange of Notes
shall be the valid obligations of the Issuer, evidencing the same debt, and
entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
exchange shall be duly endorsed by, or be accompanied by a written instrument of
transfer in form satisfactory to the Indenture Trustee duly executed by the
Owner thereof or such Owner's attorney duly authorized in writing, with such
signature guaranteed by an "eligible guarantor institution" meeting the
requirements of the Note Registrar, which requirements include membership or
participation in the Securities Transfer Agent's Medallion Program
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("STAMP") or such other "signature guarantee program" as may be determined by
the Note Registrar in addition to, or in substitution for, STAMP, all in
accordance with the Exchange Act.
No service charge shall be made to an Owner for any registration of
transfer or exchange of Notes, but the Issuer may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 2.4 or Section 9.6 not involving any transfer.
The preceding provisions of this Section notwithstanding, the Issuer
shall not be required to make and the Note Registrar need not register transfers
or exchanges of Notes selected for redemption or of any Note for a period of 15
days preceding the due date for any payment with respect to such Note.
SECTION 2.4 Mutilated, Destroyed, Lost or Stolen Notes. If (i) any
mutilated Note is surrendered to the Indenture Trustee, or the Indenture Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Note, and (ii) there is delivered to the Indenture Trustee such security or
indemnity as may be required by it to hold the Issuer, the Note Insurer and the
Indenture Trustee harmless, then, in the absence of notice to the Issuer, the
Note Registrar or the Indenture Trustee that such Note has been acquired by a
bona fide purchaser, the Issuer shall execute, and upon its request the
Indenture Trustee shall authenticate and deliver, in exchange for or in lieu of
any such mutilated, destroyed, lost or stolen Note, a replacement Note;
provided, however, that if any such destroyed, lost or stolen Note, but not a
mutilated Note, shall have become or within seven days shall be due and payable,
or shall have been called for redemption, instead of issuing a replacement Note,
the Issuer may pay such destroyed, lost or stolen Note when so due or payable or
upon the Redemption Date without surrender thereof. If, after the delivery of
such replacement Note or payment of a destroyed, lost or stolen Note pursuant to
the proviso to the preceding sentence, a bona fide purchaser of the original
Note in lieu of which such replacement Note was issued presents for payment such
original Note, the Issuer, the Note Insurer and the Indenture Trustee shall be
entitled to recover such replacement Note (or such payment) from the Person to
whom it was delivered or any Person taking such replacement Note from such
Person to whom such replacement Note was delivered or any assignee of such
Person, except a bona fide purchaser, and shall be entitled to recover upon the
security or indemnity provided therefor to the extent of any loss, damage, cost
or expense incurred by the Issuer, the Note Insurer or the Indenture Trustee in
connection therewith.
Upon the issuance of any replacement Note under this Section, the
Issuer may require the payment by the Owner of such Note, other than the Note
Insurer, of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto and any other reasonable expenses (including
the fees and expenses of the Indenture Trustee) connected therewith.
Every replacement Note issued pursuant to this Section in replacement
of any mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Issuer, whether or not the mutilated,
destroyed, lost or stolen Note shall be at any time enforceable by anyone, and
shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
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 Notes.
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SECTION 2.5 Persons Deemed Owners. Prior to due presentment for
registration of transfer of any Note, the Issuer, the Note Insurer, the
Indenture Trustee and any agent of the Issuer, the Note Insurer or the Indenture
Trustee may treat the Person in whose name any Note is registered (as of the day
of determination) as the owner of such Note for the purpose of receiving
payments of principal of and interest, if any, on such Note and for all other
purposes whatsoever, whether or not such Note be overdue, and none of the
Issuer, the Note Insurer, the Indenture Trustee or any agent of the Issuer or
the Indenture Trustee shall be affected by notice to the contrary.
SECTION 2.6 Payment of Principal and Interest; Defaulted Interest.
(a) The Notes shall accrue interest at the Note Rate as set forth in
the Sale and Servicing Agreement, and such interest shall be payable on each
Payment Date as specified therein, subject to Section 3.1 hereof. Any
installment of interest or principal, if any, payable on any Note that is
punctually paid or duly provided for by the Issuer on the applicable Payment
Date shall be paid to the Person in whose name such Note (or one or more
Predecessor Notes) is registered on the Record Date by check mailed first-class
postage prepaid to such Person's address as it appears on the Note Register on
such Record Date, except that, unless Definitive Notes have been issued pursuant
to Section 2.12, with respect to Notes registered on the Record Date in the name
of the nominee of the Clearing Agency (initially, such nominee to be Cede &
Co.), payment will be made by wire transfer in immediately available funds to
the account designated by such nominee and except for the final installment of
principal payable with respect to such Note on a Payment Date or on the
applicable Final Payment Date (and except for the Redemption Price for any Note
called for redemption pursuant to Section 10.1), which shall be payable as
provided below. The funds represented by any such checks returned undelivered
shall be held in accordance with Section 3.3.
(b) The principal of each Note shall be payable in installments on each
Payment Date as provided in the Sale and Servicing Agreement and the form of the
Notes set forth in Exhibit A. Notwithstanding the foregoing, the entire unpaid
principal amount of the Notes shall be due and payable, if not previously paid,
on the earlier of (i) the Final Payment Date, (ii) the Redemption Date or (iii)
the date on which an Event of Default shall have occurred and be continuing, if
the Indenture Trustee or the Owners of Notes representing not less than a
majority of the Outstanding Amount of the Notes have declared the Notes to be
immediately due and payable in the manner provided in Section 5.2. All principal
payments on the Notes shall be made pro rata to the Owners. The Indenture
Trustee shall notify the Person in whose name a Note is registered at the close
of business on the Record Date preceding the Payment Date on which the Issuer
expects that the final installment of principal of and interest on such Note
will be paid. Such notice shall be mailed or transmitted by facsimile prior to
such final Payment Date and shall specify that such final installment will be
payable only upon presentation and surrender of such Note and shall specify the
place where such Note may be presented and surrendered for payment of such
installment. A copy of such form of notice shall be sent to the Note Insurer by
the Indenture Trustee. Notices in connection with redemptions of Notes shall be
mailed to Owners as provided in Section 10.2.
SECTION 2.7 Cancellation. All Notes surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Indenture Trustee, be delivered to the Indenture Trustee
and shall be promptly canceled by the Indenture Trustee. The Issuer may at any
time deliver to the Indenture Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Issuer may have acquired in any
manner whatsoever, and all Notes so delivered shall be promptly canceled by the
Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange for
any Notes canceled as provided in this Section, except as expressly permitted by
this Indenture. All canceled Notes may be held or disposed of by the Indenture
Trustee in accordance with its standard retention or disposal policy as in
effect at the time, unless the Issuer shall direct by an Issuer Order that they
be destroyed or
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returned to it; provided, that such Issuer Order is timely and the Notes have
not been previously disposed of by the Indenture Trustee.
SECTION 2.8 Authentication of Notes. The Notes may be authenticated by
the Indenture Trustee upon Issuer Request.
SECTION 2.9 Release of Collateral.
(a) Subject to subsections (b) and (c) hereof, Section 11.1 hereof and
the terms of the Operative Documents, the Indenture Trustee shall release
property from the lien of this Indenture only upon receipt of an Issuer Request
accompanied by an Officer's Certificate, an Opinion of Counsel and Independent
Certificates in accordance with TIA Sections 314(c) and 314(d)(l) or an Opinion
of Counsel in lieu of such Independent Certificates to the effect that the TIA
does not require any such Independent Certificates.
(b) The Servicer, on behalf of the Issuer, shall be entitled to obtain
a release from the lien of this Indenture for any Home Equity Loan and the
related Property at any time (i) after a payment by the Seller or the Issuer of
the Loan Purchase Price of the Home Equity Loan, (ii) after a Qualified
Replacement Mortgage is substituted for such Home Equity Loan and payment of the
Substitution Amount if any, (iii) after liquidation of the Home Equity Loan in
accordance with Section 4.13 of the Sale and Servicing Agreement and the deposit
of all Liquidation Proceeds thereon in the Principal and Interest Account, or
(iv) upon the termination of a Home Equity Loan (due to, among other causes, a
prepayment in full of the Home Equity Loan and sale or other disposition of the
related Property), if the Issuer delivers to the Indenture Trustee and the Note
Insurer an Issuer Request (A) identifying the Home Equity Loan and the related
Property to be released, (B) requesting the release thereof, (C) setting forth
the amount deposited in the Principal and Interest Account with respect thereto,
and (D) certifying that the amount deposited in the Principal and Interest
Account (x) equals the Loan Purchase Price of the Home Equity Loan, in the event
a Home Equity Loan and the related Property are being released from the lien of
this Indenture pursuant to item (i) above, (y) equals the Substitution Amount
related to the Qualified Replacement Mortgage and the Home Equity Loan being
released from the lien of this Indenture pursuant to item (ii) above, or (z)
equals the entire amount of recoveries received with respect to such Home Equity
Loan and the related Property in the event of a release from the lien of this
Indenture pursuant to items (iii) or (iv) above.
(c) The Indenture Trustee shall, if requested in writing by the
Servicer, temporarily release or cause the Custodian to temporarily release to
the Servicer the File pursuant to the provisions of Section 4.14 of the Sale and
Servicing Agreement upon compliance by the Servicer of the provisions thereof
provided that the Indenture Trustee's File shall have been stamped to signify
the Issuer's pledge to the Indenture Trustee under this Indenture.
SECTION 2.10 Book-Entry Notes. The Notes, upon original issuance, will
be issued in the form of typewritten Notes representing the Book-Entry Notes, to
be delivered to The Depository Trust Company, the initial Clearing Agency, by,
or on behalf of, the Issuer. The Book-Entry Notes shall be registered initially
on the Note Register in the name of Cede & Co., the nominee of the initial
Clearing Agency, and no Owner of any Note will receive a definitive Note
representing such Book-Entry Owner's interest in such Note, except as provided
in Section 2.12. Unless and until definitive, fully registered Notes (the
"Definitive Notes") have been issued to such Book-Entry Owners pursuant to
Section 2.12:
(i) the provisions of this Section shall be in full force and
effect;
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(ii) the Note Registrar, the Note Insurer and the Indenture
Trustee shall be entitled to deal with the Clearing Agency for all
purposes of this Indenture (including the payment of principal of and
interest on the Notes and the giving of instructions or directions
hereunder) as the sole Owner of the Notes, and shall have no obligation
to the Book-Entry Owners;
(iii) to the extent that the provisions of this Section
conflict with any other provisions of this Indenture, the provisions of
this Section shall control;
(iv) the rights of Book-Entry Owners shall be exercised only
through the Clearing Agency and shall be limited to those established
by law and agreements between such Book-Entry Owners and the Clearing
Agency and/or the Clearing Agency Participants. Unless and until
Definitive Notes are issued pursuant to Section 2.12, the initial
Clearing Agency will make book-entry transfers among the Clearing
Agency Participants and receive and transmit payments of principal of
and interest on the Notes to such Clearing Agency Participants; and
(v) whenever this Indenture requires or permits actions to be
taken based upon instructions or directions of Owners of Notes
evidencing a specified percentage of the Outstanding Amount of the
Notes, the Clearing Agency shall be deemed to represent such percentage
only to the extent that it has received instructions to such effect
from Book-Entry Owners and/or Clearing Agency Participants owning or
representing, respectively, such required percentage of the beneficial
interest in the Notes and has delivered such instructions to the
Indenture Trustee.
SECTION 2.11 Notices to Clearing Agency. Whenever a notice or other
communication to the Owners is required under this Indenture, unless and until
Definitive Notes shall have been issued to such Book-Entry Owners pursuant to
Section 2.12, the Indenture Trustee shall give all such notices and
communications specified herein to be given to Owners of the Notes to the
Clearing Agency, and shall have no obligation to such Book-Entry Owners.
SECTION 2.12 Definitive Notes. If (i) the Clearing Agency is no longer
willing or able to properly discharge its responsibilities with respect to the
Book-Entry Notes and the Issuer is unable to locate a qualified successor, (ii)
the Issuer at its option advises the Indenture Trustee in writing that it elects
to terminate the book-entry system through the Clearing Agency or (iii) after
the occurrence of an Event of Default, Owners of the Book-Entry Notes
representing beneficial interests aggregating at least a majority of the
Outstanding Amount of such Notes advise the Clearing Agency in writing that the
continuation of a book-entry system through the Clearing Agency is no longer in
the best interests of such Book-Entry Owners, then the Clearing Agency shall
notify all Book-Entry Owners and the Indenture Trustee of the occurrence of such
event and of the availability of Definitive Notes to Book-Entry Owners
requesting the same. Upon surrender to the Indenture Trustee of the typewritten
Notes representing the Book-Entry Notes by the Clearing Agency, accompanied by
registration instructions, the Issuer shall execute and the Indenture Trustee
shall authenticate the Definitive Notes in accordance with the instructions of
the Clearing Agency. None of the Issuer, the Note Registrar, the Note Insurer or
the Indenture Trustee shall be liable for any delay in delivery of such
instructions and may conclusively rely on, and shall be protected in relying on,
such instructions. Upon the issuance of Definitive Notes, the Indenture Trustee
shall recognize the Owners of the Definitive Notes as Owners.
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SECTION 2.13 Tax Treatment. The Issuer has entered into this Indenture,
and the Notes will be issued, with the intention that, for federal, state and
local income, single business and franchise tax purposes, the Notes will qualify
as indebtedness of the Issuer secured by the Collateral. The Issuer, by entering
into this Indenture, and each Owner, by its acceptance of a Note (and each
Book-Entry Owner by its acceptance of an interest in the applicable Book-Entry
Note), agree to treat the Notes for federal, state and local income, single
business and franchise tax purposes as indebtedness of the Issuer.
ARTICLE III
COVENANTS
SECTION 3.1 Payment of Principal and Interest. The Issuer will duly and
punctually pay (or will cause to be duly and punctually paid) the principal of
and interest, if any, on the Notes in accordance with the terms of the Notes and
this Indenture. Without limiting the foregoing, subject to and in accordance
with Section 8.2(c), on each Payment Date the Issuer will cause to be
distributed all amounts on deposit in the Note Account deposited or retained
therein pursuant to the Sale and Servicing Agreement for the benefit of the
Notes, to the Owners and the Note Insurer. Amounts properly withheld under the
Code by any Person from a payment to any Owner of interest and/or principal
shall be considered as having been paid by the Issuer to such Owner for all
purposes of this Indenture.
The Notes shall be non-recourse obligations of the Issuer and shall be
limited in right of payment to amounts available from the Collateral and any
amounts received by the Indenture Trustee under the Note Insurance Policy in
respect of the Notes, as provided in this Indenture and the Sale and Servicing
Agreement. The Issuer shall not otherwise be liable for payments on the Notes.
If any other provision of this Indenture shall be deemed to conflict with the
provisions of this Section 3.1, the provisions of this Section 3.1 shall
control.
SECTION 3.2 Maintenance of Office or Agency. The Issuer will maintain
in the Borough of Manhattan, The City of New York, an office or agency where
Notes may be surrendered for registration of transfer or exchange, and where
notices and demands to or upon the Issuer in respect of the Notes and this
Indenture may be served. The Issuer will give prompt written notice to the
Indenture Trustee and the Note Insurer of the location, and of any change in the
location, of any such office or agency. If at any time the Issuer shall fail to
maintain any such office or agency or shall fail to furnish the Indenture
Trustee with the address thereof, such surrenders, notices and demands may be
made or served at the Corporate Trust Office, and the Issuer hereby appoints the
Indenture Trustee as its agent to receive all such surrenders, notices and
demands.
SECTION 3.3 Money for Payments To Be Held in Trust. As provided in
Section 8.2 (a ) and (b), all payments of amounts due and payable with respect
to any Notes that are to be made from amounts withdrawn from the Principal and
Interest Account or retained in the Note Account pursuant to Section 8.2(c)
shall be made on behalf of the Issuer by the Indenture Trustee or by the Paying
Agent, and no amounts so withdrawn from the Principal and Interest Account or
retained in the Note Account for payments of Notes shall be paid over to the
Issuer except as provided in this Section.
On or before the third Business Day preceding each Payment Date and
Redemption Date, the Indenture Trustee shall deposit or cause to be deposited in
the Note Account an aggregate sum sufficient to pay the amounts due on such
Payment Date under the Notes, such sum to be held in trust for the benefit of
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the Persons entitled thereto.
Subject to the prior consent of the Note Insurer, any Paying Agent
shall be appointed by Issuer Order with written notice thereof to the Indenture
Trustee and the Note Insurer. Any Paying Agent appointed by the Issuer shall be
a Person who would be eligible to be Indenture Trustee hereunder as provided in
Section 6.11. The Issuer shall not appoint any Paying Agent (other than the
Indenture Trustee) which is not, at the time of such appointment, a Designated
Depository Institution.
The Issuer will cause each Paying Agent to execute and deliver to the
Indenture Trustee an instrument in which such Paying Agent shall agree with the
Indenture Trustee (and if the Indenture Trustee acts as Paying Agent, it hereby
so agrees), subject to the provisions of this Section, that such Paying Agent
will:
(i) hold all sums held by it for the payment of amounts due
with respect to the Notes 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
Owners as herein provided;
(ii) give the Indenture Trustee and the Note Insurer notice of
any default by the Issuer (or any other obligor upon the Notes) of
which it has actual knowledge in the making of any payment required to
be made with respect to the Notes;
(iii) at any time during the continuance of any such default,
upon the written request of the Indenture Trustee, forthwith pay to the
Indenture Trustee all sums so held in trust by such Paying Agent;
(iv) immediately resign as a Paying Agent and forthwith pay to
the Indenture Trustee all sums held by it in trust for the payment of
Notes if at any time it ceases to meet the standards required to be met
by a Paying Agent at the time of its appointment; and
(v) comply with all requirements of the Code with respect to
the withholding from any payments made by it on any Notes of any
applicable withholding taxes imposed thereon and with respect to any
applicable reporting requirements in connection therewith; provided,
however, that with respect to withholding and reporting requirements
applicable to original issue discount (if any) on the Notes, the Issuer
shall have first provided the calculations pertaining thereto to the
Indenture Trustee.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by Issuer
Order direct any Paying Agent to pay to the Indenture Trustee all sums held in
trust by such Paying Agent, such sums to be held by the Indenture 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 Indenture Trustee, such Paying
Agent shall be released from all further liability with respect to such money.
Subject to applicable laws with respect to escheat of funds or
abandoned property, any money held by the Indenture Trustee or any Paying Agent
in trust for the payment of any amount due with respect to any Note and
remaining unclaimed for two years after such amount has become due and payable
shall be
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discharged from such trust and be paid to the Issuer on Issuer Request; and the
Owner of such Note shall thereafter, as an unsecured general creditor, look only
to the Issuer for payment thereof (but only to the extent of the amounts so paid
to the Issuer), and all liability of the Indenture Trustee or such Paying Agent
with respect to such trust money shall thereupon cease; provided, however, that
the Indenture Trustee or such Paying Agent, before being required to make any
such repayment, shall at the expense and direction of the Issuer cause to be
published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in The City of New
York, notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such publication,
any unclaimed balance of such money then remaining will be repaid to the Issuer.
The Indenture Trustee shall also adopt and employ, at the expense and direction
of the Issuer, any other reasonable means of notification of such repayment
(including, but not limited to, mailing notice of such repayment to Owners whose
Notes have been called but have not been surrendered for redemption or whose
right to or interest in moneys due and payable but not claimed is determinable
from the records of the Indenture Trustee or of any Paying Agent, at the last
address of record for each such Owner).
SECTION 3.4 Existence.
(a) Subject to subsection (b) of this Section 3.4, the Issuer will keep
in full effect its existence, rights and franchises as a business trust under
the laws of the State of Delaware (unless it becomes, or any successor Issuer
hereunder is or becomes, organized under the laws of any other State or of the
United States of America, in which case the Issuer will keep in full effect its
existence, rights and franchises under the laws of such other jurisdiction) and
will obtain and preserve its qualification to do business in each jurisdiction
in which such qualification is or shall be necessary to protect the validity and
enforceability of this Indenture, the Notes and the Collateral.
(b) Any successor to the Owner Trustee appointed pursuant to Section
10.2 of the Trust Agreement shall be the successor Owner Trustee under this
Indenture without the execution or filing of any paper, instrument or further
act to be done on the part of the parties hereto.
(c) Upon any consolidation or merger of or other succession to the
Owner Trustee, the Person succeeding to the Owner Trustee under the Trust
Agreement may exercise every right and power of the Owner Trustee under this
Indenture with the same effect as if such Person had been named as the Owner
Trustee herein.
SECTION 3.5 Protection of Collateral. The Issuer will from time to time
and upon the direction of the Note Insurer execute and deliver all such
supplements and amendments hereto and all such financing statements,
continuation statements, instruments of further assurance and other instruments,
and will take such other action necessary or advisable to:
(i) provide further assurance with respect to the Grant of all
or any portion of the Collateral;
(ii) maintain or preserve the lien and security interest (and
the priority thereof) of this Indenture or carry out more effectively
the purposes hereof;
(iii) perfect, publish notice of or protect the validity of
any Grant made or to be made by this Indenture;
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(iv) enforce any rights with respect to the Collateral; or
(v) preserve and defend title to the Collateral and the rights
of the Indenture Trustee, the Owners and the Note Insurer in such
Collateral against the claims of all persons and parties.
SECTION 3.6 Annual Opinions as to Collateral. On or before December 15
in each calendar year, beginning in 199__, the Issuer shall furnish to the
Indenture Trustee and the Note Insurer an Opinion of Counsel either stating
that, in the opinion of such counsel, such action has been taken with respect to
the recording, filing, re-recording and refiling of this Indenture, any
indentures supplemental hereto and any other requisite documents and with
respect to the execution and filing of any financing statements and continuation
statements as is necessary to maintain the lien and security interest created by
this Indenture and reciting the details of such action or stating that in the
opinion of such counsel no such action is necessary to maintain such lien and
security interest. Such Opinion of Counsel shall also describe the recording,
filing, re-recording and refiling of this Indenture, any indentures supplemental
hereto and any other requisite documents and the execution and filing of any
financing statements and continuation statements that will, in the opinion of
such counsel, be required to maintain the lien and security interest of this
Indenture until December 15 of the following calendar year.
SECTION 3.7 Performance of Obligations; Servicing of Home Equity Loans.
(a) The Issuer will not take any action and will use its best efforts
not to permit any action to be taken by others that would release any Person
from any of such Person's material covenants or obligations under any instrument
or agreement included in the Collateral or that would result in the amendment,
hypothecation, subordination, termination or discharge of, or impair the
validity or effectiveness of, any such instrument or agreement, except as
expressly provided in this Indenture, the Sale and Servicing Agreement or such
other instrument or agreement.
(b) Subject to the prior consent of the Note Insurer, the Issuer may
contract with or otherwise obtain the assistance of other Persons to assist it
in performing its duties under this Indenture, and any performance of such
duties by a Person identified to the Indenture Trustee and the Note Insurer in
an Officer's Certificate of the Issuer shall be deemed to be action taken by the
Issuer. Initially, the Issuer has contracted with the Servicer to assist the
Issuer in performing its duties under this Indenture.
(c) The Issuer will punctually perform and observe all of its
obligations and agreements contained in this Indenture, the Operative Documents
and in the instruments and agreements included in the Collateral, including but
not limited to (i) filing or causing to be filed all UCC financing statements
and continuation statements required to be filed by the terms of this Indenture
and the Sale and Servicing Agreement and (ii) recording or causing to be
recorded all Mortgages, Assignments of Mortgage, all intervening Assignments of
Mortgage and all assumption and modification agreements required to be recorded
by the terms of the Sale and Servicing Agreement, in accordance with and within
the time periods provided for in this Indenture and/or the Sale and Servicing
Agreement, as applicable. Except as otherwise expressly provided therein, the
Issuer shall not waive, amend, modify, supplement or terminate any Operative
Document or any provision thereof without the consent of the Indenture Trustee,
the Note Insurer, and the Owners of at least a majority of the Outstanding
Amount of the Notes.
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(d) If the Issuer shall have knowledge of the occurrence of a Servicer
Termination Event under the Sale and Servicing Agreement, the Issuer shall
promptly notify the Indenture Trustee, the Note Insurer and the Rating Agencies
thereof, and shall specify in such notice the action, if any, the Issuer is
taking with respect of such default. If such Servicer Termination Event shall
arise from the failure of the Servicer to perform any of its duties or
obligations under the Sale and Servicing Agreement with respect to the Home
Equity Loans, the Issuer shall take all reasonable steps available to it to
remedy such failure.
(e) As promptly as possible after the giving of notice of termination
to the Servicer of the Servicer's rights and powers pursuant to Section 4.20 of
the Sale and Servicing Agreement, the Issuer, upon the prior written consent of
or upon the direction of the Note Insurer, shall appoint a successor servicer
(the "Successor Servicer") in accordance with the provisions of Section 4.20 of
the Sale and Servicing Agreement.
(f) Upon any termination of the Servicer's rights and powers pursuant
to the Sale and Servicing Agreement, the Issuer shall promptly notify the
Indenture Trustee and the Note Insurer. As soon as a Successor Servicer is
appointed pursuant to Section 4.20 of the Sale and Servicing Agreement, the
Issuer shall notify the Indenture Trustee of such appointment, specifying in
such notice the name and address of such Successor Servicer.
(g) Without derogating from the absolute nature of the assignment
granted to the Indenture Trustee under this Indenture or the rights of the
Indenture Trustee hereunder, the Issuer agrees (i) that it will not, without the
prior written consent of the Indenture Trustee and the Note Insurer, or, if a
Note Insurer Default has occurred and is continuing, the Owners of at least a
majority in Outstanding Amount of the Notes, amend, modify, waive, supplement,
terminate or surrender, or agree to any amendment, modification, supplement,
termination, waiver or surrender of, the terms of any Collateral (except to the
extent otherwise provided in the Sale and Servicing Agreement) or the Operative
Documents, or waive timely performance or observance by the Servicer or the
Seller under the Sale and Servicing Agreement; and (ii) that any such amendment
shall not (A) increase or reduce in any manner the amount of, or accelerate or
delay the timing of, distributions that are required to be made for the benefit
of the Owners or (B) reduce the aforesaid percentage of the Notes that is
required to consent to any such amendment, without the consent of the Owners of
all the outstanding Notes. If any such amendment, modification, supplement or
waiver shall be so consented to by the Indenture Trustee and the Note Insurer,
the Issuer agrees, promptly following a request by the Indenture Trustee or the
Note Insurer to do so, to execute and deliver, in its own name and at its own
expense, such agreements, instruments, consents and other documents as the
Indenture Trustee or the Note Insurer may deem necessary or appropriate in the
circumstances.
SECTION 3.8 Negative Covenants. So long as any Notes are Outstanding,
the Issuer shall not:
(i) except as expressly permitted by this Indenture, the
Loan Sale Agreement or the Sale and Servicing
Agreement, sell, transfer, exchange or otherwise
dispose of any of the properties or assets of the
Issuer, including those included in the Collateral,
unless directed to do so by the Indenture Trustee or
the Note Insurer;
(ii) claim any credit on, or make any deduction from the
principal or interest payable in respect of, the
Notes (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 the taxes levied or assessed upon any part of the
Collateral;
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(iii) engage in any business or activity other than as
permitted by the Trust Agreement or other than in
connection with, or relating to, the issuance of
Notes pursuant to this Indenture, or amend the Trust
Agreement as in effect on the Closing Date other than
in accordance with Section 11.1 thereof,
(iv) issue debt obligations under any other indenture;
(v) incur or assume any indebtedness or guaranty any
indebtedness of any Person, except for such
indebtedness as may be incurred by the Issuer in
connection with the issuance of the Notes pursuant to
this Indenture;
(vi) dissolve or liquidate in whole or in part or merge or
consolidate with any other Person;
(vii) (A) permit the validity or effectiveness of this
Indenture to be impaired, or permit the lien of this
Indenture to be amended, hypothecated, subordinated,
terminated or discharged, or permit any Person to be
released from any covenants or obligations with
respect to the Notes under this Indenture except as
may be expressly permitted hereby, (B) permit any
lien, charge, excise, claim, security interest,
mortgage or other encumbrance (other than the lien of
this Indenture) to be created on or extend to or
otherwise arise upon or burden the Collateral or any
part thereof or any interest therein or the proceeds
thereof (other than tax liens, mechanics' liens and
other liens that arise by operation of law, in each
case on any of the Properties and arising solely as a
result of an action or omission of the related
Mortgagor) or (C) permit the lien of this Indenture
not to constitute a valid first priority (other than
with respect to any such tax, mechanics' or other
lien) security interest in the Collateral;
(viii) take any other action or fail to take any action
which may cause the Issuer to be taxable as (a) an
association pursuant to Section 7701 of the Code and
the corresponding regulations or (b) as a taxable
mortgage pool pursuant to Section 7701(i) of the Code
and the corresponding regulations.
SECTION 3.9 Annual Statement as to Compliance. The Issuer will deliver
to the Indenture Trustee and the Note Insurer, within 120 days after the end of
each fiscal year of the Issuer (commencing with the fiscal year 199__), an
Officer's Certificate stating, as to the Authorized Officer signing such
Officer's Certificate, that:
(i) a review of the activities of the Issuer during such
year and of its performance under this Indenture has
been made under such Authorized Officer's
supervision; and
(ii) to the best of such Authorized Officer's knowledge,
based on such review, the Issuer has complied with
all conditions and covenants under the Indenture
throughout such year, or, if there has been a default
in its compliance with any such condition or
covenant, specifying each such default known to such
Authorized Officer and the nature and status thereof.
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SECTION 3.10 Covenants of the Issuer. All covenants of the Issuer in
the Indenture are covenants of the Issuer and are not covenants of the Owner
Trustee. The Owner Trustee is, and any successor Owner Trustee under the Trust
Agreement will be, entering into this Indenture solely as Owner Trustee under
the Trust Agreement and not in its respective individual capacity, and in no
case whatsoever shall the Owner Trustee or any such successor Owner Trustee be
personally liable on, or for any loss in respect of, any of the statements,
representations, warranties or obligations of the Issuer hereunder, as to all of
which the parties hereto agree to look solely to the property of the Issuer.
SECTION 3.11 Reserved.
SECTION 3.12 Restricted Payments. The Issuer shall not, directly or
indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to the Owner Trustee or any owner of a beneficial interest in the
Issuer or otherwise with respect to any ownership or equity interest or security
in or of the Issuer or to the Servicer, (ii) redeem, purchase, retire or
otherwise acquire for value any such ownership or equity interest or security or
(iii) set aside or otherwise segregate any amounts for any such purpose;
provided, however, that the Issuer may make, or cause to be made, distributions
to the Servicer, the Indenture Trustee, the Owner Trustee, the Note Insurer, the
Owners and the Certificateholders as contemplated by, and to the extent funds
are available for such purpose under, the Sale and Servicing Agreement or the
Trust Agreement. The Issuer will not, directly or indirectly, make or cause to
be made payments to or distributions from the Principal and Interest Account
except in accordance with this Indenture and the Operative Documents.
SECTION 3.13 Treatment of Notes as Debt for Tax Purposes. The Issuer
shall treat the Notes as indebtedness for all federal, state and local income
and franchise tax purposes.
SECTION 3.14 Notice of Events of Default. The Issuer shall give the
Indenture Trustee, the Note Insurer and the Rating Agencies prompt written
notice of each Event of Default hereunder, each default on the part of the
Servicer or the Seller of its obligations under the Sale and Servicing Agreement
and each default on the part of the Depositor or the Seller of its obligations
under the Loan Sale Agreement.
SECTION 3.15 Further Instruments and Acts. Upon request of the
Indenture Trustee or the Note Insurer, the Issuer will execute and deliver such
further instruments and do such further acts as may be reasonably necessary or
proper to carry out more effectively the purpose of this Indenture.
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.1 Satisfaction and Discharge of Indenture. This Indenture
shall cease to be of further effect with respect to the Notes (except as to (i)
rights of registration of transfer and exchange, (ii) substitution of mutilated,
destroyed, lost or stolen Notes, (iii) rights of Owners to receive payments of
principal thereof and interest thereon, (iv) Sections 3.3, 3.4, 3.5, 3.8 and
3.10 hereof, (v) the rights, obligations and immunities of the Indenture Trustee
hereunder (including the rights of the Indenture Trustee under Section 6.7 and
the obligations of the Indenture Trustee under Section 4.2) and (vi) the rights
of Owners as beneficiaries hereof with respect to the property so deposited with
the Indenture Trustee payable to all or any of them), and the Indenture Trustee,
on demand of and at the expense of the Issuer, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture with respect to the
Notes,
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when all of the following have occurred:
(A) either
(1) all Notes theretofore authenticated and delivered (other than (i)
Notes that have been destroyed, lost or stolen and that have been replaced or
paid as provided in Section 2.4 and (ii) Notes for whose payment money has
theretofore been deposited in trust or segregated and held in trust by the
Issuer and thereafter repaid to the Issuer or discharged from such trust, as
provided in Section 3.3) have been delivered to the Indenture Trustee for
cancellation; or
(2) all Notes not theretofore delivered to the Indenture Trustee for
cancellation
a. have become due and payable,
b. are to be called for redemption within one year under
arrangements satisfactory to the Indenture Trustee for the giving of notice of
redemption by the Indenture Trustee in the name, and at the expense, of the
Issuer, and the Issuer, in the case of a. or b. above, has irrevocably deposited
or caused to be irrevocably deposited with the Indenture Trustee cash or direct
obligations of or obligations guaranteed by the United States of America (which
will mature prior to the date such amounts are payable), in trust for such
purpose, in an amount sufficient to pay and discharge the entire indebtedness on
such Notes not theretofore delivered to the Indenture Trustee for cancellation
when due to the Final Payment Date or Redemption Date (if Notes shall have been
called for redemption pursuant to Section 10.1), as the case may be;
(B) the later of (a) eighteen months after payment in full of all
outstanding obligations under the Notes, (b) the payment in full of all unpaid
Trust Fees and Expenses and all sums owing to the Note Insurer under the
Insurance Agreement and (c) the date on which the Issuer has paid or caused to
be paid all other sums payable hereunder by the Issuer; and
(C) the Issuer has delivered to the Indenture Trustee an Officer's
Certificate, an Opinion of Counsel and (if required by the TIA or the Indenture
Trustee) an Independent Certificate from a firm of certified public accountants,
each meeting the applicable requirements of Section 11.1 and, subject to Section
11.2, each stating that all conditions precedent herein provided for relating to
the satisfaction and discharge of this Indenture with respect to the Notes have
been complied with.
SECTION 4.2 Application of Trust Money. All moneys deposited with the
Indenture Trustee pursuant to Sections 3.3 and 4.3 hereof shall be held in trust
and applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent, as the
Indenture Trustee may determine, to the Owners of the Notes for the payment or
redemption of which such moneys have been deposited with the Indenture Trustee,
of all sums due and to become due thereon for principal and interest; but such
moneys need not be segregated from other funds except to the extent required
herein or in the Sale and Servicing Agreement or required by law.
SECTION 4.3 Repayment of Moneys Held by Paying Agent. In connection
with the satisfaction and discharge of this Indenture with respect to the Notes,
all moneys then held by any Paying Agent other than the Indenture Trustee under
the provisions of this Indenture with respect to such Notes shall, upon
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demand of the Issuer, be paid to the Indenture Trustee to be held and applied
according to Section 3.3 and thereupon such Paying Agent shall be released from
all further liability with respect to such moneys.
ARTICLE V
REMEDIES
SECTION 5.1 Events of Default. "Event of Default,"wherever used herein,
means any one of the following events (whatever the reason for such Event of
Default 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):
(a) default in the payment of any interest on any Note when the same
becomes due and payable (it being understood that any Available Funds Cap Carry
Forward Amount does not constitute interest due and payable); or
(b) default in the payment of the principal of or any installment of
the principal of any Note when the same becomes due and payable; or
(c) default in the observance or performance of any covenant or
agreement of the Issuer made in this Indenture (other than a covenant or
agreement, a default in the observance or performance of which is elsewhere in
this Section specifically dealt with), or any representation or warranty of the
Issuer made in this Indenture, the Insurance Agreement, the Sale and Servicing
Agreement or in any certificate or other writing delivered pursuant hereto or in
connection herewith proving to have been incorrect in any material respect as of
the time when the same shall have been made, and such default shall continue or
not be cured, or the circumstance or condition in respect of which such
misrepresentation or warranty was incorrect shall not have been eliminated or
otherwise cured, for a period of 30 days after there shall have been given, by
registered or certified mail, to the Issuer by the Indenture Trustee or to the
Issuer and the Indenture Trustee by the Owners of at least 25% of the
Outstanding Amount of the Notes, a written notice specifying such default or
incorrect representation or warranty and requiring it to be remedied and stating
that such notice is a notice of Default hereunder; or
(d) default in the observance or performance of any covenant or
agreement of the Depositor made in the Trust Agreement or any representation or
warranty of the Depositor made in the Trust Agreement, proving to have been
incorrect in any material respect as of the time when the same shall have been
made, and such default shall continue or not be cured, or the circumstance or
condition in respect of which such misrepresentation or warranty was incorrect
shall not have been eliminated or otherwise cured, for a period of 30 days after
there shall have been given, by registered or certified mail, to the Issuer by
the Indenture Trustee or to the Issuer and the Indenture Trustee by the Owners
of at least [25%] of the Outstanding Amount of the Notes, a written notice
specifying such default or incorrect representation or warranty and requiring it
to be remedied and stating that such notice is a notice of Default hereunder;
(e) the filing of a decree or order for relief by a court having
jurisdiction in the premises in respect of the Issuer or any substantial part of
the Collateral in an involuntary case under any applicable federal or state
bankruptcy, insolvency or other similar law now or hereafter in effect, or
appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of the Issuer or for any substantial part of the Collateral, or
ordering the winding-up or liquidation of the Issuer's affairs, and such
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decree or order shall remain unstayed and in effect for a period of 60
consecutive days; or
(f) the commencement by the Issuer of a voluntary case under any
applicable federal or state bankruptcy, insolvency or other similar law now or
hereafter in effect, or the consent by the Issuer to the entry of an order for
relief in an involuntary case under any such law, or the consent by the Issuer
to the appointment or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Issuer or for any
substantial part of the Collateral, or the making by the Issuer of any general
assignment for the benefit of creditors, or the failure by the Issuer generally
to pay its debts as such debts become due, or the taking of any action by the
Issuer in furtherance of any of the foregoing.
The Issuer shall deliver to the Indenture Trustee and the Note Insurer,
within five days after the occurrence thereof, written notice in the form of an
Officer's Certificate of any event which with the giving of notice and the lapse
of time would become an Event of Default under clauses (c) and (d) above, its
status and what action the Issuer is taking or proposes to take with respect
thereto.
SECTION 5.2 Acceleration of Maturity; Rescission and Annulment. If an
Event of Default should occur and be continuing, then and in every such case the
Indenture Trustee, at the direction or upon the prior written consent of the
Note Insurer or the Owners of Notes representing not less than a majority of the
Outstanding Amount of the Notes may, with the prior written consent of the Note
Insurer, declare all the Notes to be immediately due and payable, by a notice in
writing to the Issuer (and to the Indenture Trustee if given by Owners), and
upon any such declaration the unpaid principal amount of such Notes, together
with accrued and unpaid interest thereon through the date of acceleration, shall
become immediately due and payable.
At any time after such declaration of acceleration of maturity has been
made and before a judgment or decree for payment of the money due has been
obtained by the Indenture Trustee as hereinafter in this Article V provided, the
Note Insurer or the Owners of Notes representing a majority of the Outstanding
Amount of the Notes, with the prior written consent of the Note Insurer, by
written notice to the Issuer and the Indenture Trustee, may rescind and annul
such declaration and its consequences if:
(a) the Issuer has paid or deposited with the Indenture Trustee a sum
sufficient to pay:
(i) all payments of principal of and interest on all
Notes and all other amounts that would then be due
hereunder or upon such Notes if the Event of Default
giving rise to such acceleration had not occurred;
and
(ii) all sums paid or advanced by the Indenture Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Indenture Trustee
and its agents and counsel; and
(iii) all Events of Default, other than the nonpayment of
the principal of the Notes that has become due solely
by such acceleration, have been cured or waived as
provided in Section 5.12.
No such rescission shall affect any subsequent default or impair any
right consequent thereto.
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SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by
Indenture Trustee.
(a) The Issuer covenants that if (i) default is made in the payment of
any interest on any Note when the same becomes due and payable, and such default
continues for a period of five days, or (ii) default is made in the payment of
the principal of or any installment of the principal of any Note when the same
becomes due and payable, the Issuer will, upon demand of the Indenture Trustee
and at the direction of the Note Insurer, pay to the Indenture Trustee, for the
benefit of the Owners of the Notes and the Note Insurer, the whole amount then
due and payable on such Notes for principal and interest, with interest upon the
overdue principal and, to the extent payment at such rate of interest shall be
legally enforceable, upon overdue installments of interest at the rate borne by
the Notes and in addition thereto such further amount as shall be sufficient to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Indenture Trustee and
the Note Insurer and their respective agents and counsel.
(b) In case the Issuer shall fail forthwith to pay such amounts upon
such demand, the Indenture Trustee, in its own name and as trustee of an express
trust, shall at the direction of the Note Insurer, and if a Note Insurer Default
has occurred and is continuing, the Indenture Trustee may, in its discretion,
and shall at the direction of the Owners of the Notes representing a majority of
the Outstanding Amount of the Notes, institute a Proceeding for the collection
of the sums so due and unpaid, and may prosecute such Proceeding to judgment or
final decree, and may enforce the same against the Issuer or other obligor upon
such Notes and collect in the manner provided by law out of the property of the
Issuer or other obligor upon such Notes, wherever situated, the moneys adjudged
or decreed to be payable.
(c) If an Event of Default occurs and is continuing, the Indenture
Trustee shall, at the direction of the Note Insurer, and if a Note Insurer
Default has occurred and is continuing, the Indenture Trustee may and shall at
the direction of the Owners of the Notes representing a majority of the
Outstanding Amount of the Notes, as more particularly provided in Section 5.4,
in its discretion, proceed to protect and enforce its rights and the rights of
the Note Insurer and the Owners, by such appropriate Proceedings as the
Indenture Trustee shall deem most effective to protect and enforce any such
rights, whether for the specific enforcement of any covenant or agreement in
this Indenture or in aid of the exercise of any power granted herein, or to
enforce any other proper remedy or legal or equitable right vested in the
Indenture Trustee by this Indenture or by law.
(d) In case there shall be pending, relative to the Issuer or any other
obligor upon the Notes or any Person having or claiming an ownership interest in
the Collateral, Proceedings under Title 11 of the United States Code or any
other applicable federal or state bankruptcy, insolvency or other similar law,
or in case a receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been appointed for or
taken possession of the Issuer or its property or such other obligor or Person,
or in case of any other comparable judicial Proceedings relative to the Issuer
or other obligor upon the Notes, or to the creditors or property of the Issuer
or such other obligor, the Indenture Trustee, irrespective of whether the
principal of any Notes shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Indenture Trustee shall
have made any demand pursuant to the provisions of this Section, shall be
entitled and empowered, upon the direction of the Note Insurer, by intervention
in such Proceedings or otherwise:
(i) to file and prove a claim or claims for the whole
amount of principal and interest owing and unpaid in
respect of the Notes and to file such other papers
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or documents as may be necessary or advisable in
order to have the claims of the Indenture Trustee
(including any claim for reasonable compensation to
the Indenture Trustee, each predecessor Indenture
Trustee and the Note Insurer, and their respective
agents, attorneys and counsel, and for reimbursement
of all expenses and liabilities incurred, and all
advances made, by the Indenture Trustee and each
predecessor Indenture Trustee (except as a result of
negligence or bad faith), the Note Insurer and of the
Owners allowed in such Proceedings;
(ii) unless prohibited by applicable law and regulations,
to vote on behalf of the Owners of Notes in any
election of a trustee, a standby trustee or Person
performing similar functions in any such Proceedings;
(iii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to
distribute all amounts received with respect to the
claims of the Owners, the Note Insurer and the
Indenture Trustee on their behalf; and
(iv) to file such proofs of claim and other papers or
documents as may be necessary or advisable in order
to have the claims of the Indenture Trustee, the Note
Insurer or the Owners of Notes allowed in any
judicial proceedings relative to the Issuer, its
creditors and its property; and any trustee,
receiver, liquidator, custodian or other similar
official in any such Proceeding is hereby authorized
by each of such Owners and the Note Insurer to make
payments to the Indenture Trustee and, in the event
that the Indenture Trustee shall consent to the
making of payments directly to such Owners and the
Note Insurer, to pay to the Indenture Trustee such
amounts as shall be sufficient to cover reasonable
compensation to the Indenture Trustee, each
predecessor Indenture Trustee and their respective
agents, attorneys and counsel, and all other expenses
and liabilities incurred, and all advances made, by
the Indenture Trustee and each predecessor Indenture
Trustee except as a result of negligence or bad
faith.
(e) Nothing herein contained shall be deemed to authorize the Indenture
Trustee to authorize or consent to or vote for or accept or adopt on behalf of
any Owner or the Note Insurer any plan of reorganization, arrangement,
adjustment or composition affecting the Notes or the rights of any Owner thereof
or the Note Insurer or to authorize the Indenture Trustee to vote in respect of
the claim of any Owner in any such proceeding except, as aforesaid, to vote for
the election of a trustee in bankruptcy or similar Person.
(f) All rights of action and of asserting claims under this Indenture,
or under any of the Notes, may be enforced by the Indenture Trustee without the
possession of any of the Notes or the production thereof in any trial or other
Proceedings relative thereto, and any such action or Proceedings instituted by
the Indenture Trustee shall be brought in its own name as trustee of an express
trust, and any recovery of judgment, subject to the payment of the expenses,
disbursements and compensation of the Indenture Trustee, each predecessor
Indenture Trustee and their respective agents and attorneys, shall be for the
ratable benefit of the Owners of the Notes and the Note Insurer.
(g) In any Proceedings brought by the Indenture Trustee (and also any
Proceedings involving the interpretation of any provision of this Indenture to
which the Indenture Trustee shall be a party), the
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Indenture Trustee shall be held to represent all the Owners, and it shall not be
necessary to make any Owner a party to any such Proceedings.
SECTION 5.4 Remedies; Priorities.
(a) If an Event of Default shall have occurred and be continuing, the
Indenture Trustee shall, at the direction of the Note Insurer, and if a Note
Insurer Default has occurred and is continuing, the Indenture Trustee may and at
the direction of the Owners of the Notes representing a majority of the
Outstanding Amount of the Notes shall, upon receipt of satisfactory indemnity
and assurances, do one or more of the following (subject to Section 5.5):
(i) institute Proceedings in its own name and as trustee
of an express trust for the collection of all amounts
then payable on the Notes or under this Indenture
with respect thereto, whether by declaration or
otherwise, enforce any judgment obtained, and collect
from the Issuer and any other obligor upon such Notes
moneys adjudged due;
(ii) institute Proceedings from time to time for the
complete or partial foreclosure of this Indenture
with respect to the Collateral;
(iii) exercise any remedies of a secured party under the
UCC and take any other appropriate action to protect
and enforce the rights and remedies of the Indenture
Trustee, the Note Insurer or the Owners; and
(iv) sell the Collateral or any portion thereof or rights
or interest therein in a commercially reasonable
manner, at one or more public or private sales called
and conducted in any manner permitted by law;
provided, however, that the Indenture Trustee may not
sell or otherwise liquidate the Collateral following
an Event of Default, unless (A) the Owners of 100% of
the Outstanding Amount of the Notes consent thereto,
(B) the proceeds of such sale or liquidation
distributable to the Owners are sufficient to
discharge in full all amounts then due and unpaid
upon such Notes for principal and interest or (C) the
Indenture Trustee determines that the Collateral will
not continue to provide sufficient funds for the
payment of principal of and interest on the Notes as
they would have become due if the Notes had not been
declared due and payable, and the Indenture Trustee
obtains the consent of Owners of 66-2/3% of the
Outstanding Amount of the Notes. In determining such
sufficiency or insufficiency with respect to clauses
(B) and (C), the Indenture Trustee may, but need not,
obtain and rely upon an opinion of an Independent
investment banking or accounting firm of national
reputation as to the feasibility of such proposed
action and as to the sufficiency of the Collateral
for such purpose.
(b) If the Indenture Trustee collects any money or property pursuant to
this Article V, it shall pay out the money or property in the following order:
FIRST: to the Indenture Trustee for the Indenture Trustee Fee then due
and any costs or expenses incurred by it in connection with the enforcement of
the remedies provided for in this Article V and to the Owner Trustee for the
Owner Trustee Fee then due;
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SECOND: to the Note Insurer for the Premium Amount then due and unpaid;
THIRD: to the Servicer for the Servicing Fee then due and unpaid;
FOURTH: to Owners for amounts due and unpaid on the Notes for Current
Interest (including any premium), pro rata, according to the amounts due and
payable on the Notes for interest (including any premium);
FIFTH: to Owners of the Notes for amounts due and unpaid on the Notes
for principal, pro rata;
SIXTH: to the Note Insurer for any amounts then due and payable under
the Insurance Agreement; and
SEVENTH: to Owners of the Notes for any Available Funds Cap Carry
Forward Amount then unpaid; and
EIGHT: to the Owner Trustee, for any amounts to be distributed, pro
rata, to the Certificateholders.
The Indenture Trustee may fix a record date and payment date for any
payment to be made to the Owners pursuant to this Section. At least 15 days
before such record date, the Indenture Trustee shall mail to each Owner, the
Note Insurer and the Issuer a notice that states the record date, the payment
date and the amount to be paid.
SECTION 5.5 Optional Preservation of the Collateral. If the Notes have
been declared to be due and payable under Section 5.2 following an Event of
Default and such declaration and its consequences have not been rescinded and
annulled, the Indenture Trustee may, but need not, elect to maintain possession
of the Collateral. It is the desire of the parties hereto and the Owners that
there be at all times sufficient funds for the payment of principal of and
interest on the Notes, and the Indenture Trustee shall take such desire into
account when determining whether or not to maintain possession of the
Collateral. In determining whether to maintain possession of the Collateral, the
Indenture Trustee may, but need not, obtain and rely upon an opinion of an
Independent investment banking or accounting firm of national reputation as to
the feasibility of such proposed action and as to the sufficiency of the
Collateral for such purpose.
SECTION 5.6 Limitation of Suits. No Owner of any Note shall have any
right to institute any Proceeding, judicial or otherwise, with respect to this
Indenture or for the appointment of a receiver or trustee, or for any other
remedy hereunder for so long as a Note Insurer Default has not occurred or is
not continuing and if a Note Insurer Default has occurred and is continuing,
unless:
(a) such Owner has previously given written notice to the
Indenture Trustee of a continuing Event of Default;
(b) the Owners of not less than 25% of the Outstanding Amount
of the Notes have made written request to the Indenture Trustee to
institute such Proceeding in respect of such Event of Default in its
own name as Indenture Trustee hereunder;
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(c) such Owner or Owners have offered to the Indenture Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in complying with such request;
(d) the Indenture Trustee for 60 days after its receipt of
such notice, request and offer of indemnity has failed to institute
such Proceedings; and
(e) no direction inconsistent with such written request has
been given to the Indenture Trustee during such 60-day period by the
Owners of a majority of the Outstanding Amount of the Notes.
It is understood and intended that no one or more Owners of Notes shall
have any right in any manner whatever by virtue of, or by availing of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Owners of Notes or to obtain or to seek to obtain priority or preference
over any other Owners or to enforce any right under this Indenture, except in
the manner herein provided.
In the event the Indenture Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Owners of Notes,
each representing less than a majority of the Outstanding Amount of the Notes,
the Indenture Trustee in its sole discretion may determine what action, if any,
shall be taken, notwithstanding any other provisions of this Indenture.
SECTION 5.7 Unconditional Rights of Owners To Receive Principal and
Interest. Notwithstanding any other provisions in this Indenture, the Owner of
any Note shall have the right, which is absolute and unconditional, to receive
payment of the principal of and interest, if any, on such Note on or after the
respective Final Payment Date thereof expressed in such Note or in this
Indenture (or, in the case of redemption, on or after the Redemption Date) and
to institute suit for the enforcement of any such payment, and such right shall
not be impaired without the consent of such Owner.
SECTION 5.8 Restoration of Rights and Remedies. If the Indenture
Trustee, the Note Insurer or any Owner has instituted any Proceeding to enforce
any right or remedy under this Indenture and such Proceeding has been
discontinued or abandoned for any reason or has been determined adversely to the
Indenture Trustee, the Note Insurer or to such Owner, then and in every such
case the Issuer, the Indenture Trustee, the Note Insurer and the Owners shall,
subject to any determination in such Proceeding, be restored severally and
respectively to their former positions hereunder, and thereafter all rights and
remedies of the Indenture Trustee and the Owners shall continue as though no
such Proceeding had been instituted.
SECTION 5.9 Rights and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Indenture Trustee, the Note 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. 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.
SECTION 5.10 Delay or Omission Not a Waiver. No delay or omission of
the Indenture Trustee, the Note Insurer or any Owner of any Note to exercise any
right or remedy accruing upon any Default or Event of Default shall impair any
such right or remedy or constitute a waiver of any such Default or Event of
Default or an acquiescence therein. Every right and remedy given by this Article
V or by law to the
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Indenture Trustee, the Note Insurer or to the Owners may be exercised from time
to time, and as often as may be deemed expedient, by the Indenture Trustee, the
Note Insurer or by the Owners, as the case may be, subject, in each case,
however, to the right of the Note Insurer to control any such right and remedy,
except as provided in Section 11.21.
SECTION 5.11 Control by Owners. The Owners of a majority of the
Outstanding Amount of the Notes shall have the right to direct the time, method
and place of conducting any Proceeding for any remedy available to the Indenture
Trustee with respect to the Notes or exercising any trust or power conferred on
the Indenture Trustee; provided that:
(a) such direction shall not be in conflict with any rule of law or
with this Indenture;
(b) subject to the express terms of Section 5.4, any direction to the
Indenture Trustee to sell or liquidate the Collateral shall be by Owners of
Notes representing not less than 100% of the Outstanding Amount of the Notes;
(c) if the conditions set forth in Section 5.5 have been satisfied and
the Indenture Trustee elects to retain the Collateral pursuant to such Section,
then any direction to the Indenture Trustee by Owners of Notes representing less
than 100% of the Outstanding Amount of the Notes to sell or liquidate the
Collateral shall be of no force and effect; and
(d) the Indenture Trustee may take any other action deemed proper by
the Indenture Trustee that is not inconsistent with such direction.
Notwithstanding the rights of the Note Insurer and the Owners set forth
in this Section, subject to Section 6.1, the Indenture Trustee need not take any
action that it determines might involve it in liability or might materially
adversely affect the rights of any Owners not consenting to such action.
SECTION 5.12 Waiver of Past Defaults. Prior to the declaration of the
acceleration of the maturity of the Notes as provided in Section 5.2, the Owners
of Notes representing not less than a majority of the Outstanding Amount of the
Notes may waive any past Default or Event of Default and its consequences except
a Default (a) in the payment of principal of or interest on any of the Notes or
(b) in respect of a covenant or provision hereof that cannot be modified or
amended without the consent of the Note Insurer or the Owner of each Note, as
applicable. In the case of any such waiver, the Issuer, the Indenture Trustee,
the Note Insurer and the Owners of the Notes shall be restored to their former
positions and rights hereunder, respectively; but no such waiver shall extend to
any subsequent or other Default or impair any right consequent thereto.
Upon any such waiver, such Default shall cease to exist and be deemed
to have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured and not to have occurred, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or Event of Default or impair any right consequent thereto.
SECTION 5.13 Undertaking for Costs. All parties to this Indenture
agree, and each Owner of any Note by such Owner's acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture, or in any suit
against the Indenture Trustee for any action taken, suffered or omitted by it as
Indenture Trustee, the filing by any
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party litigant in such suit of an undertaking to pay the costs of such suit, and
that such court may in its discretion assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in such suit, having due
regard to the merits and good faith of the claims or defenses made by such party
litigant; but the provisions of this Section shall not apply to (a) any suit
instituted by the Indenture Trustee or the Note Insurer, (b) any suit instituted
by any Owner, or group of Owners, in each case holding in the aggregate more
than 10% of the Outstanding Amount of the Notes or (c) any suit instituted by
any Owner for the enforcement of the payment of principal of or interest on any
Note on or after the respective due dates expressed in such Note and in this
Indenture (or, in the case of redemption, on or after the Redemption Date).
SECTION 5.14 Waiver of Stay or Extension Laws. The Issuer covenants (to
the extent that it may lawfully do so) that it will not at any time insist upon,
or plead or in any manner whatsoever, claim or take the benefit or advantage of,
any stay or extension law wherever enacted, now or at any time hereafter in
force, that may affect the covenants or the performance of this Indenture; and
the Issuer (to the extent that it may lawfully do so) hereby expressly waives
all benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Indenture
Trustee, but will suffer and permit the execution of every such power as though
no such law had been enacted.
SECTION 5.15 Action on Notes. The Indenture Trustee's right to seek and
recover judgment on the Notes or under this Indenture shall not be affected by
the seeking, obtaining or application of any other relief under or with respect
to this Indenture. Neither the lien of this Indenture nor any rights or remedies
of the Indenture Trustee or the Owners shall be impaired by the recovery of any
judgment by the Indenture Trustee against the Issuer or by the levy of any
execution under such judgment upon any portion of the Collateral or upon any of
the assets of the Issuer. Any money or property collected by the Indenture
Trustee shall be applied in accordance with Section 5.4(b).
SECTION 5.16 Performance and Enforcement of Certain Obligations.
(a) Promptly following a request from the Indenture Trustee to do so,
the Issuer shall take all such lawful action as the Indenture Trustee may
request to compel or secure the performance and observance by the Depositor, the
Seller and the Servicer, as applicable, of each of their obligations to the
Issuer under or in connection with the Sale and Servicing Agreement or by the
Depositor or the Seller of their respective obligations under or in connection
with the Loan Sale Agreement, and to exercise any and all rights, remedies,
powers and privileges lawfully available to the Issuer under or in connection
with the Sale and Servicing Agreement to the extent and in the manner directed
by the Indenture Trustee, including the transmission of notices of default on
the part of the Depositor, the Seller or the Servicer thereunder and the
institution of legal or administrative actions or proceedings to compel or
secure performance by the Depositor, the Seller or the Servicer of each of their
obligations under the Sale and Servicing Agreement.
(b) If an Event of Default has occurred and is continuing, the
Indenture Trustee may, and at the written direction (which direction shall be in
writing or by telephone, confirmed in writing promptly thereafter) of the Owners
of 66-2/3% of the Outstanding Amount of the Notes shall, exercise all rights,
remedies, powers, privileges and claims of the Issuer against the Depositor, the
Seller or the Servicer under or in connection with the Sale and Servicing
Agreement, or against the Depositor or the Seller under or in connection with
the Loan Sale Agreement, including the right or power to take any action to
compel or secure performance or observance by the Depositor, the Seller or the
Servicer, as the case may be, of each of their obligations to the Issuer
thereunder and to give any consent, request, notice, direction, approval,
extension, or waiver under the Sale and Servicing Agreement or the Loan Sale
Agreement, as the case may be, and any right of the Issuer to take such action
shall be suspended.
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ARTICLE VI
THE INDENTURE TRUSTEE
SECTION 6.1 Duties of Indenture Trustee.
(a) If an Event of Default of which a Responsible Officer of the
Indenture Trustee shall have actual knowledge has occurred and is continuing,
the Indenture Trustee shall exercise the rights and powers vested in it by this
Indenture and use the same degree of care and skill in their exercise as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Indenture Trustee undertakes to perform such duties
and only such duties as are specifically set forth in this Indenture
and no implied covenants or obligations shall be read into this
Indenture against the Indenture Trustee; and
(ii) in the absence of bad faith on its part, the Indenture
Trustee may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon certificates
(or similar documents) or opinions furnished to the Indenture Trustee
and conforming to the requirements of this Indenture; however, the
Indenture Trustee shall examine the certificates (or similar documents)
and opinions to determine whether or not they conform to the
requirements of this Indenture; provided that the Indenture Trustee
shall not be responsible for the accuracy or content of any certificate
(or similar document) or opinion furnished to it pursuant to the terms
of this Indenture.
(c) The Indenture Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b)
of this Section;
(ii) the Indenture Trustee shall not be personally liable for
any error of judgment made in good faith by a Responsible Officer
unless it is proved that the Indenture Trustee was negligent in
ascertaining the pertinent facts; and
(iii) the Indenture Trustee shall not be personally liable
with respect to any action it takes or omits to take in good faith in
accordance with a direction received by it pursuant to Section 5.11 or
for exercising or omitting to exercise any trust or power conferred
upon the Indenture Trustee under this Indenture.
(d) Every provision of this Indenture that in any way relates to the
Indenture Trustee is subject to paragraphs (a), (b), (c) and (g) of this
Section.
(e) The Indenture Trustee shall not be liable for interest on any money
received by it except as the Indenture Trustee may agree in writing with the
Issuer and except to the extent of income or other gain on investments which are
deposits in or certificates of deposit of the Indenture Trustee in its
commercial capacity.
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(f) Money held in trust by the Indenture Trustee shall be segregated
from other funds except to the extent permitted by law or the terms of this
Indenture or the Sale and Servicing Agreement.
(g) No provision of this Indenture shall require the Indenture Trustee
to expend or risk its own funds or otherwise incur 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 to believe that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it; provided, however, that the Indenture Trustee shall
not refuse or fail to perform any of its duties hereunder solely as a result of
nonpayment of its normal fees and expenses and further provided that nothing in
this Section 6.1(g) shall be construed to limit the exercise by the Indenture
Trustee of any right or remedy permitted under this Indenture or otherwise in
the event of the Issuer's failure to pay the Indenture Trustee's fees and
expenses pursuant to Section 6.7. In determining that such repayment or
indemnity is not reasonably assured to it, the Indenture Trustee must consider
not only the likelihood of repayment or indemnity by or on behalf of the Issuer
but also the likelihood of repayment or indemnity from amounts payable to it
from the Collateral pursuant to Section 6.7.
(h) Every provision of this Indenture relating to the conduct of,
affecting the liability of or affording protection to the Indenture Trustee
shall be subject to the provisions of this Section and to the provisions of the
TIA.
SECTION 6.2 Rights of Indenture Trustee.
(a) The Indenture Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper person. The Indenture
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Indenture Trustee acts or refrains from acting, it may
require an Officer's Certificate or an Opinion of Counsel, which shall not be at
the expense of the Indenture Trustee. The Indenture Trustee shall not be liable
for any action it takes or omits to take in good faith in reliance on an
Officer's Certificate or Opinion of Counsel.
(c) The Indenture Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a custodian or nominee and the Indenture Trustee shall
not be responsible for any misconduct or negligence on the part of any such
agent or attorney or custodian appointed by the Indenture Trustee with due care.
(d) The Indenture Trustee shall not be liable for (i) any action it
takes or omits to take in good faith which it believes to be authorized or
within its rights or powers; provided, however, that such action or omission by
the Indenture Trustee does not constitute willful misconduct, negligence or bad
faith; or (ii) any willful misconduct or gross negligence on the part of the
Custodian.
SECTION 6.3 Individual Rights of Indenture Trustee. The Indenture
Trustee in its individual or any other capacity may become the owner or pledgee
of Notes and may otherwise deal with the Issuer or its Affiliates with the same
rights it would have if it were not Indenture Trustee. Any Paying Agent, Note
Registrar, co-registrar or co-paying agent may do the same with like rights.
However, the Indenture Trustee must comply with Sections 6.11 and 6.12.
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SECTION 6.4 Indenture Trustee's Disclaimer. The Indenture Trustee shall
not be responsible for and makes no representation as to the validity or
adequacy of this Indenture or the Notes, shall not be accountable for the
Issuer's use of the proceeds from the Notes, or responsible for any statement of
the Issuer in this Indenture or in any document issued in connection with the
sale of the Notes or in the Notes other than the Indenture Trustee's certificate
of authentication.
SECTION 6.5 Notice of Defaults. If a Default occurs and is continuing
and if it is known to a Responsible Officer of the Indenture Trustee, the
Indenture Trustee shall mail to the Note Insurer and each Owner notice of the
Default within 90 days after it occurs. Except in the case of a Default in
payment of principal of or interest on any Note (including payments pursuant to
the mandatory redemption provisions of such Note), the Indenture Trustee may
withhold the notice if and so long as a committee of its Responsible Officers in
good faith determines that withholding the notice is in the interests of Owners.
SECTION 6.6 Reports by Indenture Trustee to Owners. The Indenture
Trustee shall deliver to each Owner such information as may be required to
enable such Owner to prepare its federal and state income tax returns.
SECTION 6.7 Compensation and Indemnity. The Indenture Trustee shall
receive compensation for fees and reimbursement for expenses pursuant to Section
3.03(b)(i) and Section 3.03(b)(iv)(D) of the Sale and Servicing Agreement. The
Indenture Trustee and any director, officer, employee or agent of the Indenture
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 Indenture Trustee) in connection with the acceptance
or administration of its trusts hereunder or the Notes, 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 3.03(b)(i) of the
Sale and Servicing Agreement with respect to such amounts that are Indenture
Trustee Reimbursable Expenses and (B) Section 3.03(b)(iv)(D) with respect to the
remainder of such amounts, subject in the case of clause (B), to Section 6.1(g)
of this Indenture. The provisions of this Section 6.7 shall survive the
termination of this Indenture.
The Issuer's payment obligations to the Indenture Trustee pursuant to
this Section shall survive the discharge of this Indenture. When the Indenture
Trustee incurs expenses after the occurrence of a Default specified in Section
5.1(e) or (f) with respect to the Issuer, the expenses are intended to
constitute expenses of administration under Title 11 of the United States Code
or any other applicable federal or state bankruptcy, insolvency or similar law.
SECTION 6.8 Replacement of Indenture Trustee. No resignation or removal
of the Indenture Trustee and no appointment of a successor Indenture Trustee
shall become effective until the acceptance of appointment by the successor
Indenture Trustee pursuant to this Section. The Indenture Trustee may resign at
any time by so notifying the Issuer and the Note Insurer. The Owners of a
majority of the Outstanding Amount of the Notes (with the consent of the Note
Insurer) may remove the Indenture Trustee by so notifying the Indenture Trustee
and may appoint a successor Indenture Trustee. The Note Insurer (or the Issuer
upon the prior written consent of the Note Insurer) shall remove the Indenture
Trustee if:
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(a) the Indenture Trustee fails to comply with Section 6.11;
(b) the Indenture Trustee is adjudged a bankrupt or insolvent;
(c) a receiver or other public officer takes charge of the
Indenture Trustee or its property; or
(d) the Indenture Trustee otherwise becomes incapable of
acting.
If the Indenture Trustee resigns or is removed, or if a vacancy exists
in the office of Indenture Trustee for any reason (the Indenture Trustee in such
event being referred to herein as the retiring Indenture Trustee), the Issuer
shall promptly appoint a successor Indenture Trustee acceptable to the Note
Insurer. A successor Indenture Trustee shall deliver a written acceptance of its
appointment to the retiring Indenture Trustee, the Note Insurer and to the
Issuer. Thereupon the resignation or removal of the retiring Indenture Trustee
shall become effective, and the successor Indenture Trustee shall have all the
rights, powers and duties of the Indenture Trustee under this Indenture. The
successor Indenture Trustee shall mail a notice of its succession to the Owners.
The retiring Indenture Trustee shall promptly transfer all property held by it
as Indenture Trustee to the successor Indenture Trustee.
If a successor Indenture Trustee does not take office within 60 days
after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the Issuer or the Owners of a majority of the Outstanding
Amount of the Notes may petition any court of competent jurisdiction for the
appointment of a successor Indenture Trustee.
If the Indenture Trustee fails to comply with Section 6.11, any Owner
may petition any court of competent jurisdiction for the removal of the
Indenture Trustee and the appointment of a successor Indenture Trustee.
Notwithstanding the replacement of the Indenture Trustee pursuant to
this Section, the Issuer's obligations under Section 6.7 shall continue for the
benefit of the retiring Indenture Trustee.
SECTION 6.9 Successor Indenture Trustee by Merger. If the Indenture
Trustee consolidates with, merges or converts into, or transfers all or
substantially all its corporate trust business or assets to, another corporation
or banking association, the resulting, surviving or transferee corporation
without any further act shall be the successor Indenture Trustee; provided, that
such corporation or banking association shall be otherwise qualified and
eligible under Section 6.11. The Indenture Trustee shall provide the Note
Insurer and the Rating Agencies prior written notice of any such transaction.
In case at the time such successor or successors by merger, conversion
or consolidation to the Indenture Trustee shall succeed to the trusts created by
this Indenture any of the Notes shall have been authenticated but not delivered,
any such successor to the Indenture Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Indenture Trustee may authenticate such
Notes either in the name of any predecessor hereunder or in the name of the
successor to the Indenture Trustee; and in all such cases such certificates
shall have the full force which it is anywhere in the Notes or in this Indenture
provided that the certificate of the Indenture Trustee shall have.
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SECTION 6.10 Appointment of Co-Indenture Trustee or Separate Indenture
Trustee.
(a) Notwithstanding any other provisions of this Indenture, at any
time, for the purpose of meeting any legal requirement of any jurisdiction in
which any part of the Collateral may at the time be located, the Indenture
Trustee shall have the power, with the prior written consent of the Note
Insurer, and may execute and deliver all instruments to appoint one or more
Persons to act as a co-trustee or co-trustees, or separate trustee or separate
trustees, of all or any part of the Trust, and to vest in such Person or
Persons, in such capacity and for the benefit of the Owners, such title to the
Collateral, or any part hereof, and, subject to the other provisions of this
Section, such powers, duties, obligations, rights and trusts as the Indenture
Trustee may consider necessary or desirable. No co-trustee or separate trustee
hereunder shall be required to meet the terms of eligibility as a successor
trustee under Section 6.11 and no notice to Owners of the appointment of any
co-trustee or separate trustee shall be required under Section 6.8 hereof;
provided that the Indenture Trustee shall deliver notice of any such co-trustee
or separate trustee to the Note Insurer.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations
conferred or imposed upon the Indenture Trustee shall be
conferred or imposed upon and exercised or performed by the
Indenture 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
Indenture 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 the Indenture 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 Collateral 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 Indenture Trustee;
(ii) no trustee hereunder shall be personally liable
by reason of any act or omission of any other trustee
hereunder; and
(iii) the Indenture Trustee may at any time accept
the resignation of or remove any separate trustee or
co-trustee.
(c) Any notice, request or other writing given to the Indenture 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 Indenture and
the conditions of this Article VI. 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, jointly with the Indenture
Trustee, subject to all the provisions of this Indenture, specifically including
every provision of this Indenture relating to the conduct of, affecting the
liability of, or affording protection to, the Indenture Trustee. Every such
instrument shall be filed with the Indenture Trustee.
(d) Any separate trustee or co-trustee may at any time constitute the
Indenture 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 Indenture 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 Indenture Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
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SECTION 6.11 Eligibility; Disqualification. The Indenture Trustee shall
at all times satisfy the requirements of TIA Section 310(a). The Indenture
Trustee shall have a combined capital and surplus of at least $50,000,000 as set
forth in its most recent published annual report of condition and it or its
parent shall have a long-term debt rating of A3 or better by Moody's or shall
otherwise be acceptable to Moody's. The Indenture Trustee shall comply with TIA
Section 310(b), including the optional provision permitted by the second
sentence of TIA Section 310(b)(9); provided, however, that there shall be
excluded from the operation of TIA Section 310(b)(1) any indenture or indentures
under which other securities of the Issuer are outstanding if the requirements
for such exclusion set forth in TIA Section 310(b)(1) are met.
SECTION 6.12 Preferential Collection of Claims Against Issuer. The
Indenture Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). An Indenture Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated.
ARTICLE VII
OWNERS' LISTS AND REPORTS
SECTION 7.1 Issuer To Furnish Indenture Trustee Names and Addresses of
Owners. The Issuer will furnish or cause to be furnished to the Indenture
Trustee (a) not more than five days after each Record Date, a list, in such form
as the Indenture Trustee may reasonably require, of the names and addresses of
the Owners as of such Record Date, (b) at such other times as the Indenture
Trustee may request in writing, within 30 days after receipt by the Issuer of
any such request, a list of similar form and content as of a date not more than
10 days prior to the time such list is furnished; provided, however, that so
long as the Indenture Trustee is the Note Registrar, no such list shall be
required to be furnished.
SECTION 7.2 Preservation of Information; Communications to Owners.
(a) The Indenture Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of the Owners contained in the
most recent list furnished to the Indenture Trustee as provided in Section 7.1
and the names and addresses of Owners received by the Indenture Trustee in its
capacity as Note Registrar. The Indenture Trustee may destroy any list furnished
to it as provided in such Section 7.1 upon receipt of a new list so furnished.
(b) Owners may communicate pursuant to TIA Section 312(b) with other
Owners with respect to their rights under this Indenture or under the Notes.
(c) The Issuer, the Indenture Trustee and the Note Registrar shall have
the protection of TIA Section 312(c).
SECTION 7.3 Reports by Issuer. The Issuer shall:
(a) file with the Indenture Trustee and the Note Insurer, within 15
days after the Issuer is required to file the same with the Commission, copies
of the annual reports and of the information, documents and other reports (or
copies of such portions of any of the foregoing as the Commission may from time
to time by rules and regulations prescribe) that the Issuer may be required to
file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act;
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(b) file with the Indenture Trustee and the Note Insurer and the
Commission in accordance with the rules and regulations prescribed from time to
time by the Commission such additional information, documents and reports with
respect to compliance by the Issuer with the conditions and covenants of this
Indenture as may be required from time to time by such rules and regulations;
and
(c) supply to the Indenture Trustee (and the Indenture Trustee shall
transmit by mail to all Owners described in TIA Section 313(c)) such summaries
of any information, documents and reports required to be filed by the Issuer
pursuant to clauses (i) and (ii) of this Section 7.3(a) and by rules and
regulations prescribed from time to time by the Commission.
SECTION 7.4 Reports by Indenture Trustee. If required by TIA Section
313(a), within 60 days after each December 1, beginning with December 1, 199__,
the Indenture Trustee shall mail to the Note Insurer and to each Owner as
required by TIA Section 313(c) a brief report dated as of such date that
complies with TIA Section 313(a). The Indenture Trustee also shall comply with
TIA Section 313(b).
A copy of each report at the time of its mailing to Owners shall be
filed by the Indenture Trustee with the Commission and each securities exchange,
if any, on which the Notes are listed. The Issuer shall notify the Indenture
Trustee if and when the Notes are listed on any securities exchange.
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ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
SECTION 8.1 Collection of Money.
(a) General. Except as otherwise expressly provided herein, the
Indenture Trustee may demand payment or delivery of, and shall receive and
collect, directly and without intervention or assistance of any fiscal agent or
other intermediary, all money and other property payable to or receivable by the
Indenture Trustee pursuant to this Indenture. The Indenture Trustee shall apply
all such money received by it as provided in this Indenture. Except as otherwise
expressly provided in this Indenture, if any default occurs in the making of any
payment or performance under any agreement or instrument that is part of the
Collateral, the Indenture Trustee may, and upon written request of the Note
Insurer shall, take such action as may be appropriate to enforce such payment or
performance, including the institution and prosecution of appropriate
Proceedings. Any such action shall be without prejudice to any right to claim a
Default or Event of Default under this Indenture and any right to proceed
thereafter as provided in Article V.
(b) Claims Under Note Insurance Policy. The Notes will be insured by
the Note Insurance Policy pursuant to the terms set forth therein,
notwithstanding any provisions to the contrary contained in this Indenture or
the Sale and Servicing Agreement. All amounts received under the Note Insurance
Policy shall be used solely for the payment to Owners of Insured Payments.
SECTION 8.2 Accounts; Distributions.
(a) On or prior to the Closing Date, the Issuer shall cause the
Servicer to establish and maintain, in the name of the Indenture Trustee for the
benefit of the Owners and the Note Insurer, the Accounts as provided in the Sale
and Servicing Agreement. The Indenture Trustee shall deposit amounts into the
Accounts in accordance with the terms hereof and the Sale and Servicing
Agreement.
(b) On or before the Monthly Remittance Date prior to each Payment
Date, the Indenture Trustee shall withdraw from the Principal and Interest
Account the amounts specified in Section 3.03(a) of the Sale and Servicing
Agreement and will deposit such amount into the Note Account. No later than the
Business Day prior to each Payment Date, to the extent funds are available in
the Note Account, the Indenture Trustee shall either retain funds in the Note
Account or make the withdrawals from the Note Account and deposits into the
other Accounts for distribution on such Payment Date as required pursuant to
Section 3.03(b) of the Sale and Servicing Agreement.
(c) On each Payment Date and the Redemption Date, to the extent funds
are available in the Note Account, the Indenture Trustee shall make the
following distributions from the amounts on deposit in the Note Account in the
following order of priority (except as otherwise provided in Section 5.4(b)):
(i) to the Owners of the Notes, the Current Interest for
such Payment Date; provided, that if there are not
sufficient funds in the Note Account to pay the
entire amount of accrued and unpaid interest then due
on the Notes, the amount in the Note Account shall be
applied to the payment of such interest on the Notes
pro rata on the basis of the total such interest due
on the Notes; and
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(ii) to the Owners of the Notes, the Principal
Distribution Amount for such Payment Date.
(d) The Indenture Trustee shall make claims under the Note Insurance
Policy pursuant to Section 7.02 of the Sale and Servicing Agreement and in
accordance with the Note Insurance Policy. The Indenture Trustee shall deposit
any Insured Payment received from the Note Insurer in the Note Account. All
amounts received under the Note Insurance Policy shall be used solely for the
payment to Owners of principal and interest on the Notes.
SECTION 8.3 General Provisions Regarding Accounts.
(a) So long as no Default or Event of Default shall have occurred and
be continuing, all or a portion of the funds in the Accounts shall be invested
in Eligible Investments and reinvested by the Indenture Trustee at the direction
of the Seller in accordance with the provisions of Section 3.05 of the Sale and
Servicing Agreement. The Issuer will not direct the Indenture Trustee to make
any investment of any funds or to sell any investment held in any of the
Accounts unless the security interest Granted and perfected in such Account will
continue to be perfected in such investment or the proceeds of such sale, in
either case without any further action by any Person, and, in connection with
any direction to the Indenture Trustee to make any such investment or sale.
(b) Subject to Section 6.1(c), the Indenture Trustee shall not in any
way be held liable by reason of any insufficiency in any of the Accounts
resulting from any loss on any Eligible Investment included therein except for
losses attributable to the Indenture Trustee's failure to make payments on such
Eligible Investments issued by the Indenture Trustee, in its commercial capacity
as principal obligor and not as trustee, in accordance with their terms.
(c) If (i) the Seller shall have failed to give investment directions
for any funds on deposit in the Accounts to the Indenture Trustee by 11:00 a.m.
Eastern Time (or such other time as may be agreed by the Issuer and Indenture
Trustee) on any Business Day or (ii) a Default or Event of Default shall have
occurred and be continuing with respect to the Notes but the Notes shall not
have been declared due and payable pursuant to Section 5.2 or (iii) if such
Notes shall been declared due and payable following an Event of Default, amounts
collected or receivable from the Collateral are being applied in accordance with
Section 5.5 as if there had not been such a declaration, then the Indenture
Trustee shall, to the fullest extent practicable, invest and reinvest funds in
the Accounts in one or more Eligible Investments.
SECTION 8.4 Servicer's Monthly Statements. On each Payment Date (to the
extent it receives the supporting documentation from the Servicer on a timely
basis), the Indenture Trustee shall deliver the report required by Section 3.09
of the Sale and Servicing Agreement with respect to such Payment Date to the
Depositor, the Rating Agencies, and the Note Insurer.
SECTION 8.5 Release of Collateral.
(a) Subject to the payment of its fees and expenses pursuant to
Section 6.7, the Indenture Trustee may, and when required by the provisions of
this Indenture and the Sale and Servicing Agreement shall, execute instruments
to release property from the lien of this Indenture, or convey the Indenture
Trustee's interest in the same, in a manner and under circumstances that are not
inconsistent with the
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provisions of this Indenture. No party relying upon an instrument executed by
the Indenture Trustee as provided in this Article VIII shall be bound to
ascertain the Indenture Trustee's authority, inquire into the satisfaction of
any conditions precedent or see to the application of any moneys.
(b) The Indenture Trustee shall, at such time as there are no Notes
Outstanding and all sums due to the Note Insurer, the Indenture Trustee and the
Owner Trustee have been paid, release any remaining portion of the Collateral
that secured the Notes from the lien of this Indenture and release to the Issuer
or any other Person entitled thereto any funds then on deposit in the Accounts.
The Indenture Trustee shall release property from the lien of this Indenture
pursuant to this Subsection (b) only upon receipt of an Issuer Request
accompanied by an Officer's Certificate, an Opinion of Counsel and (if required
by the TIA) Independent Certificates in accordance with TIA Sections 314(c) and
314(d)(1) meeting the applicable requirements of Section 11.1.
SECTION 8.6 Opinion of Counsel. The Indenture Trustee and the Note
Insurer shall receive at least seven Business Days notice when requested by the
Issuer to take any action pursuant to Section 8.5(a), accompanied by copies of
any instruments involved, and the Indenture Trustee shall also require, as a
condition to such action, an Opinion of Counsel, in form and substance
satisfactory to the Indenture Trustee, stating the legal effect of any such
action, outlining the steps required to complete the same, and concluding that
all conditions precedent to the taking of such action have been complied with
and such action will not materially and adversely impair the security for the
Notes or the rights of the Owners in contravention of the provisions of this
Indenture; provided, however, that such Opinion of Counsel shall not be required
to express an opinion as to the fair value of the Collateral. Counsel rendering
any such opinion may rely, without independent investigation, on the accuracy
and validity of any certificate or other instrument delivered to the Indenture
Trustee in connection with any such action.
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.1 Supplemental Indentures Without Consent of Owners.
(a) Without the consent of the Owners of any Notes but with prior
notice to the Rating Agencies and with the prior written consent of the Note
Insurer, the Issuer and the Indenture Trustee, when authorized by an Issuer
Order, at any time and from time to time, may enter into one or more indentures
supplemental hereto (which shall conform to the provisions of the Trust
Indenture Act as in force at the date of the execution thereof), in form
satisfactory to the Indenture Trustee, for any of the following purposes:
(i) to correct or amplify the description of any property
at any time subject to the lien of this Indenture, or
better to assure, convey and confirm unto the
Indenture Trustee any property subject or required to
be subjected to the lien of this Indenture, or to
subject to the lien of this Indenture additional
property;
(ii) to evidence the succession, in compliance with the
applicable provisions hereof, of another person to
the Issuer, and the assumption by any such successor
of the covenants of the Issuer herein and in the
Notes contained;
(iii) to add to the covenants of the Issuer, for the
benefit of the Owners of the Notes, or to surrender
any right or power herein conferred upon the Issuer;
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(iv) to convey, transfer, assign, mortgage or pledge any
property to or with the Indenture Trustee;
(v) to cure any ambiguity, to correct or supplement any
provision herein or in any supplemental indenture
that may be inconsistent with any other provision
herein or in any supplemental indenture or to make
any other provisions with respect to matters or
questions arising under this Indenture or in any
supplemental indenture; provided, that such action
shall not adversely affect the interests of the
Owners of the Notes;
(vi) to evidence and provide for the acceptance of the
appointment hereunder by a successor trustee with
respect to the Notes and to add to or change any of
the provisions of this Indenture as shall be
necessary to facilitate the administration of the
trusts hereunder by more than one trustee, pursuant
to the requirements of Article VI;
(vii) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to
effect the qualification of the Indenture under the
TIA or under any similar federal statute hereafter
enacted and to add to the Indenture such other
provisions as may be expressly required by the TIA;
or
(viii) to modify or alter the provisions of the definition
of the term "Outstanding".
The Indenture Trustee is hereby authorized to join in the execution of
any such supplemental indenture and to make any further appropriate agreements
and stipulations that may be therein contained.
(b) The Issuer and the Indenture Trustee, with the prior written
consent of the Note Insurer, when authorized by an Issuer Order, may, upon
satisfaction of the Rating Agency Condition but without the consent of any of
the Owners , enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to, or changing in any manner or eliminating
any of the provisions of, this Indenture or of modifying in any manner the
rights of the Owners of the Notes under this Indenture; provided, however, that
such action shall not, as evidenced by (i) an Opinion of Counsel or (ii)
satisfaction of the Rating Agency Condition, adversely affect in any material
respect the interests of any Owner.
SECTION 9.2 Supplemental Indentures with Consent of Owners. The Issuer
and the Indenture Trustee, when authorized by an Issuer Order, also may, with
the prior consent of the Note Insurer and with the consent of the Owners of not
less than a majority of the Outstanding Amount of the Notes, by Act of such
Owners delivered to the Issuer and the Indenture Trustee, enter into an
indenture or indentures supplemental hereto for the purpose of adding any
provisions to, or changing in any manner or eliminating any of the provisions
of, this Indenture or of modifying in any manner the rights of the Owners of the
Notes under this Indenture; provided, however, that no such supplemental
indenture shall, without the consent of the Owner of each Note affected thereby
and the Note Insurer if affected thereby:
(a) change the date of payment of any installment of principal of or
interest on any Note, or reduce the principal amount thereof or, the Note Rate,
change the provisions of this Indenture relating to the application of
collections on, or the proceeds of the sale of, the Collateral to payment of
principal of or interest on the Notes, or change any place of payment where, or
the coin or currency in which, any Note or
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the interest thereon is payable, or impair the right to institute suit for the
enforcement of the provisions of this Indenture requiring the application of
funds available therefor, as provided in Article V, to the payment of any such
amount due on the Notes on or after the respective due dates thereof (or, in the
case of redemption, on or after the Redemption Date);
(b) reduce the percentage of the Outstanding Amount of the Notes, the
consent of the Owners of which is required for any such supplemental indenture,
or the consent of the Owners of which is required for any waiver of compliance
with certain provisions of this Indenture or certain defaults hereunder and
their consequences provided for in this Indenture;
(c) reduce the percentage of the Outstanding Amount of the Notes
required to direct the Indenture Trustee to direct the Issuer to sell or
liquidate the Collateral pursuant to Section 5.4;
(d) modify any provision of this Section except to increase any
percentage specified herein or to provide that certain additional provisions of
this Indenture or the Operative Documents cannot be modified or waived without
the consent of the Owner of each Note affected thereby;
(e) modify any of the provisions of this Indenture in such manner as to
affect the calculation of the amount of any payment of interest or principal due
on any Note on any Payment Date (including the calculation of any of the
individual components of such calculation) or to affect the rights of the Owners
of Notes to the benefit of any provisions for the mandatory redemption of the
Notes contained herein; or
(f) permit the creation of any lien ranking prior to or on a parity
with the lien of this Indenture with respect to any part of the Collateral or,
except as otherwise permitted or contemplated herein, terminate the lien of this
Indenture on any property at any time subject hereto or deprive the Owner of any
Note of the security provided by the lien of this Indenture.
The Indenture Trustee may in its discretion determine whether or not
any Notes would be affected by any supplemental indenture and any such
determination shall be conclusive upon the Owners of all Notes, whether
theretofore or thereafter authenticated and delivered hereunder. The Indenture
Trustee shall not be liable for any such determination made in good faith.
In connection with requesting the consent of the Owners pursuant to
this Section, the Indenture Trustee shall mail to the Owners of the Notes to
which such amendment or supplemental indenture relates a notice setting forth in
general terms the substance of such supplemental indenture. It shall not be
necessary for any Act of Owners under this Section to approve the particular
form of any proposed supplemental indenture, but it shall be sufficient if such
Act shall approve the substance thereof.
SECTION 9.3 Execution of Supplemental Indentures. In executing, or
permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modification thereby of the trusts created
by this Indenture, the Indenture Trustee shall be entitled to receive, and
subject to Sections 6.1 and 6.2, shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Indenture Trustee may, but shall
not be obligated to, enter into any such supplemental indenture that affects the
Indenture Trustee's own rights, duties, liabilities or immunities under this
Indenture or otherwise.
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SECTION 9.4 Effect of Supplemental Indenture. Upon the execution of any
supplemental indenture pursuant to the provisions hereof, this Indenture shall
be and shall be deemed to be modified and amended in accordance therewith with
respect to the Notes affected thereby, and the respective rights, limitations of
rights, obligations, duties, liabilities and immunities under this Indenture of
the Indenture Trustee, the Issuer and the Owners of the Notes shall thereafter
be determined, exercised and enforced hereunder subject in all respects to such
modifications and amendments, and all the terms and conditions of any such
supplemental indenture shall be and be deemed to be part of the terms and
conditions of this Indenture for any and all purposes.
SECTION 9.5 Conformity with Trust Indenture Act. Every amendment of
this Indenture and every supplemental indenture executed pursuant to this
Article IX shall conform to the requirements of the Trust Indenture Act as then
in effect so long as this Indenture shall then be qualified under the Trust
Indenture Act.
SECTION 9.6 Reference in Notes to Supplemental Indentures. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Indenture Trustee shall,
bear a notation in form approved by the Indenture Trustee as to any matter
provided for in such supplemental indenture. If the Issuer or the Indenture
Trustee shall so determine, new notes so modified as to conform, in the opinion
of the Indenture Trustee and the Issuer, to any such supplemental indenture may
be prepared and executed by the Issuer and authenticated and delivered by the
Indenture Trustee in exchange for Notes.
SECTION 9.7 Amendments to Trust Agreement. Subject to Section 11.1 of
the Trust Agreement, the Indenture Trustee shall, upon Issuer Order, consent to
any proposed amendment to the Trust Agreement or an amendment to or waiver of
any provision of any other document relating to the Trust Agreement, such
consent to be given without the necessity of obtaining the consent of the Owners
of any Notes upon satisfaction of the requirements under Section 11.1 of the
Trust Agreement.
Nothing in this Section shall be construed to require that any Person
obtain the consent of the Indenture Trustee to any amendment or waiver or any
provision of any document where the making of such amendment or the giving of
such waiver without obtaining the consent of the Indenture Trustee is not
prohibited by this Indenture or by the terms of the document that is the subject
of the proposed amendment or waiver.
ARTICLE X
REDEMPTION OF NOTES
SECTION 10.1 Redemption. The holders of a majority of the Percentage
Interests represented by the Certificates then outstanding may effect an early
redemption of the Notes on or after any Monthly Remittance Date after the
Redemption Date pursuant to Section 5.02 of the Sale and Servicing Agreement. If
the holders of the Certificates decline to exercise such option to purchase the
Collateral and redeem the Notes, the Note Insurer may do so as provided in
Section 5.02(c) of the Sale and Servicing Agreement. If the holders of the
Certificates decline to exercise such option to purchase the Collateral and
redeem the Notes, the Note Insurer may do so as provided in Section 5.02(c) of
the Sale and Servicing Agreement.
Any such redemption by the Holders of the Certificates or the Note
Insurer, as applicable, shall be accomplished by the Holders of the Certificates
or the Note Insurer, as applicable, depositing or causing to
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be deposited into the Principal and Interest Account by 10:00 A.M. New York City
time on the on the Monthly Remittance Date prior to the Redemption Date the
amount of the Redemption Price. On the Payment Date after the date that the
Redemption Price is deposited into the Principal and Interest Account, the
Redemption Price shall be transferred to the Note Account for distribution to
the Owners on the Redemption Date; and any amounts received with respect to the
Home Equity Loans and REO Properties subsequent to such transfer shall belong to
the Servicer or the Note Insurer, as applicable.
The Servicer or the Issuer shall furnish the Indenture Trustee, the
Rating Agencies and the Note Insurer notice of any such redemption in accordance
with Section 10.2 no later than 15 days prior to the Redemption Date.
SECTION 10.2 Form of Redemption Notice
(a) Notice of redemption under Section 10.1 shall be given by the
Indenture Trustee by first-class mail, postage prepaid, or by facsimile mailed
or transmitted not later than 10 days prior to the applicable Redemption Date to
each Owner of Notes, as of the close of business on the Record Date preceding
the applicable Redemption Date, at such Owner's address or facsimile number
appearing in the Note Register.
All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price; and
(iii) the place where such Notes are to be surrendered for
payment of the Redemption Price (which shall be the
office or agency of the Issuer to be maintained as
provided in Section 3.2).
Notice of redemption of the Notes shall be given by the Indenture
Trustee in the name of the Issuer and at the expense of the Servicer. Failure to
give notice of redemption, or any defect therein, to any Owner of any Note shall
not impair or affect the validity of the redemption of any other Note
SECTION 10.3 Notes Payable on Redemption Date; Provision for Payment of
Indenture Trustee and Note Insurer. The Notes or portions thereof to be redeemed
shall, following notice of redemption as required by Section 10.2 (in the case
of redemption pursuant to Section 10.1), on the Redemption Date become due and
payable at the Redemption Price and (unless the Issuer shall default in the
payment of the Redemption Price) no interest shall accrue on the Redemption
Price for any period after the date to which accrued interest is calculated for
purposes of calculating the Redemption Price. The Issuer may not redeem the
Notes unless, (i) all outstanding obligations under the Notes have been paid in
full and (ii) the Indenture Trustee has been paid all amounts to which it is
entitled hereunder and the Note Insurer has been paid all Reimbursement Amounts
to which it is entitled as of the applicable Redemption Date.
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ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Compliance Certificates and Opinions, etc.
Upon any application or request by the Issuer to the Indenture Trustee
to take any action under any provision of this Indenture, the Issuer shall
furnish to the Indenture Trustee (i) an Officer's Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with, and (ii) (if required by the TIA) an
Independent Certificate from a firm of certified public accountants meeting the
applicable requirements of this Section, 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 Indenture, no additional
certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate or
opinion has read or has caused to be read such covenant or condition and the
definitions herein relating thereto;
(2) 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
(3) a statement as to whether, in the opinion of each such signatory,
such condition or covenant has been complied with.
SECTION 11.2 Form of Documents Delivered to Indenture 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 Issuer may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such 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 such officer's
certificate or opinion is based are erroneous. Any such certificate of an
Authorized Officer or Opinion of Counsel may be based, insofar as it relates to
factual matters, upon a certificate or opinion of, or representations by, an
officer or officers of the Servicer, the Seller, the Issuer or the Depositor,
stating that the information with respect to such factual matters is in the
possession of the Servicer, the Seller, the Issuer or the Depositor, unless such
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.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be
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consolidated and form one instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Issuer
shall deliver any document as a condition of the granting of such application,
or as evidence of the Issuer's compliance with any term hereof, it is intended
that the truth and accuracy, at the time of the granting of such application or
at the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Indenture Trustee's right to rely upon the truth and
accuracy of any statement or opinion contained in any such document as provided
in Article VI.
SECTION 11.3 Acts of Owners.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by Owners
may be embodied in and evidenced by one or more instruments of substantially
similar tenor signed by such Owners in person or by agents duly appointed in
writing; and except as herein otherwise expressly provided such action shall
become effective when such instrument or instruments are delivered in writing to
the Indenture Trustee, and, where it is hereby expressly required, to the
Issuer. 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 Indenture and (subject to Section 6.1) conclusive in favor of
the Indenture Trustee and the Issuer, 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 in any manner that the Indenture Trustee
deems sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Owner of any Notes shall bind the Owner of every
Note issued upon the registration thereof or in exchange therefor or in lieu
thereof, in respect of anything done, omitted or suffered to be done by the
Indenture Trustee or the Issuer in reliance thereon, whether or not notation of
such action is made upon such Note.
SECTION 11.4 Notices, etc., to Indenture Trustee, Issuer, Rating
Agencies and Note Insurer. Any request, demand, authorization, direction,
notice, consent, waiver or Act of Owners or other documents provided or
permitted by this Indenture shall be in writing and if such request, demand,
authorization, direction, notice, consent, waiver or act of Owners is to be made
upon, given or furnished to or filed with:
(a) the Indenture Trustee by any Owner or by the Issuer shall be
sufficient for every purpose hereunder if made, given, furnished or filed in
writing to or with the Indenture Trustee at its Corporate Trust Office, or
(b) in the case of the Issuer, Rating Agencies or Note Insurer as
provided in Section 6.12 of the Sale and Servicing Agreement.
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SECTION 11.5 Notices to Owners; Waiver. Where this Indenture provides
for notice to Owners of any event, such notice shall be sufficiently given
(unless otherwise herein expressly provided) if in writing and mailed,
first-class, postage prepaid to each Owner affected by such event, at his
address as it appears on the Note Register, not later than the latest date, and
not earlier than the earliest date, prescribed for the giving of such notice. In
any case where notice to Owners is given by mail ,neither the failure to mail
such notice nor any defect in any notice so mailed to any particular Owner shall
affect the sufficiency of such notice with respect to other Owners, and any
notice that is mailed in the manner herein provided shall conclusively be
presumed to have been duly given.
Where this Indenture 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 Indenture Trustee
but such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such a 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 Indenture, then any manner of giving such
notice as shall be satisfactory to the Indenture Trustee shall be deemed to be a
sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies,
failure to give such notice shall not affect any other rights or obligations
created hereunder, and shall not under any circumstance constitute a Default or
Event of Default.
SECTION 11.6 [RESERVED].
SECTION 11.7 Conflict with Trust Indenture Act. If any provision hereof
limits, qualifies or conflicts with another provision hereof that is required to
be included in this Indenture by any of the provisions of the Trust Indenture
Act, such required provision shall control.
The provisions of TIA Sections 310 through 317 that impose duties on
any person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.
SECTION 11.8 Effect of Headings and Table of Contents. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
SECTION 11.9 Successors and Assigns. All covenants and agreements in
this Indenture and the Notes by the Issuer shall bind its successors and
assigns, whether so expressed or not. All agreements of the Indenture Trustee in
this Indenture shall bind its successors, co-trustees and agents.
SECTION 11.10 Separability. In case any provision in this Indenture or
in the Notes 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 11.11 Benefits of Indenture. Nothing in this Indenture or in
the Notes, express or implied, shall give to any Person, other than the parties
hereto and their successors hereunder, and the Owners, and any other party
secured hereunder, and any other Person with an ownership interest in any part
of the
47
<PAGE>
Collateral, any benefit or any legal or equitable right, remedy or claim under
this Indenture, except that the Note Insurer is an express third party
beneficiary to this Indenture as provided in Section 11.20.
SECTION 11.12 Legal Holidays. In any case where the date on which any
payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment 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 on the date on which nominally due, and no interest shall
accrue for the period from and after any such nominal date.
SECTION 11.13 Governing Law. THIS INDENTURE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 11.14 Counterparts. This Indenture 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 11.15 Recording of Indenture. If this Indenture is subject to
recording in any appropriate public recording offices, such recording is to be
effected by the Issuer and at its expense accompanied by an Opinion of Counsel
(which may be counsel to the Indenture Trustee or any other counsel reasonably
acceptable to the Indenture Trustee) to the effect that such recording is
necessary either for the protection of the Owners or any other Person secured
hereunder or for the enforcement of any right or remedy granted to the Indenture
Trustee under this Indenture.
SECTION 11.16 Trust Obligation. No recourse may be taken, directly or
indirectly, with respect to the obligations of the Issuer, the Owner Trustee or
the Indenture Trustee on the Notes or under this Indenture or any certificate or
other writing delivered in connection herewith or therewith, against (i) the
Indenture Trustee or the Owner Trustee in its individual capacity, (ii) any
owner of a beneficial interest in the Issuer or (iii) any partner, owner,
beneficiary, agent, officer, director, employee or agent of the Indenture
Trustee or the Owner Trustee in its individual capacity, any Owner of a
beneficial interest in the Issuer, the Owner Trustee or the Indenture Trustee or
of any successor or assign of the Indenture Trustee or the Owner Trustee in its
individual capacity, except as any such Person may have expressly agreed (it
being understood that the Indenture Trustee and the Owner Trustee have no such
obligations in their individual capacity) and except that any such partner,
owner or beneficiary shall be fully liable, to the extent provided by applicable
law, for any unpaid consideration for stock, unpaid capital contribution or
failure to pay any installment or call owing to such entity. For all purposes of
this Indenture, in the performance of any duties or obligations of the Issuer
hereunder, the Owner Trustee shall be subject to, and entitled to the benefits
of, the terms and provisions of Article VI, VII and VIII of the Trust Agreement.
SECTION 11.17 No Petition. The Indenture Trustee, by entering into this
Indenture, and each Owner, by accepting a Note, hereby covenant and agree that
they will not at any time institute against the Seller, the Servicer, the
Depositor or the Issuer, or join in any institution against the Seller, the
Servicer, the Depositor or the Issuer of, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings, or other proceedings under
any United States federal or state bankruptcy or similar law in connection with
any obligations relating to the Notes, this Indenture or any of the Operative
Documents.
48
<PAGE>
SECTION 11.18 Inspection. The Issuer agrees that, on reasonable prior
notice, it will permit any representative of the Indenture Trustee or the Note
Insurer, during the Issuer's normal business hours, to examine all the books of
account, records, reports and other papers of the Issuer, to make copies and
extracts therefrom, to cause such books to be audited by Independent certified
public accountants, and to discuss the Issuer's affairs, finances and accounts
with the Issuer's officers, employees, and Independent certified public
accountants, all at such reasonable times and as often as may be reasonably
requested. The Indenture Trustee shall and shall cause its representatives to
hold in confidence all such information except to the extent disclosure may be
required by law (and all reasonable applications for confidential treatment are
unavailing) and except to the extent that the Indenture Trustee may reasonably
determine that such disclosure is consistent with its obligations hereunder.
SECTION 11.19 Grant of Owner Rights to Note Insurer. In consideration
for the guarantee of the Notes by the Note Insurer pursuant to the Note
Insurance Policy, the Owners hereby grant to the Note Insurer the right to act
as the Owner of 100% of the outstanding Notes for the purpose of exercising the
rights of the Owners of the Notes hereunder, including the voting rights of such
Owners, but excluding those rights requiring the consent of all such Owners
under Section 9.2 and any rights of such Owners to distributions under Section
8.2 hereof; provided that the preceding grant of rights to the Note Insurer by
the Owners shall be subject to Section 11.21 hereof. The rights of the Note
Insurer to direct certain actions and consent to certain actions of the Owners
hereunder will terminate at such time as the Principal Balance has been reduced
to zero and the Note Insurer has been reimbursed for all Insured Payments and
any other amounts owed under the Note Insurance Policy and the Insurance
Agreement and the Note Insurer has no further obligation under the Note
Insurance Policy.
SECTION 11.20 Third Party Beneficiary. The parties hereto acknowledge
that the Note Insurer is an express third party beneficiary hereof entitled to
enforce any rights reserved to it hereunder as if it were actually a party
hereto.
SECTION 11.21 Suspension and Termination of Note Insurer's Rights.
(a) During the continuation of a Note Insurer Default, rights granted
or reserved to the Note Insurer hereunder shall vest instead in the Owners;
provided that the Note Insurer shall be entitled to any distributions in
reimbursement of the Reimbursement Amount, and the Note Insurer shall retain
those rights under Section 9.2 hereof to consent to any supplement to this
Indenture.
(b) At such time as either (i) the Note Principal Balance has been
reduced to zero or (ii) the Note Insurance Policy has been terminated following
a Note Insurer Default, and in either case of (i) or (ii) the Note Insurer has
been reimbursed for all Insured Payments and any other amounts owed under the
Note Insurance Policy and the Insurance Agreement t(and the Note Insurer no
longer has any obligation under the Note Insurance Policy, except for breach
thereof by the Note Insurer), then the rights and benefits granted or reserved
to the Note Insurer hereunder (including the rights to direct certain actions
and receive certain notices) shall terminate and the Owners shall be entitled to
the exercise of such rights and to receive such benefits of the Note Insurer
following such termination to the extent that such rights and benefits are
applicable to the Owners.
49
<PAGE>
IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused this
Indenture to be duly executed by their respective officers, thereunto duly
authorized and duly attested, all as of the day and year first above written.
IMC HOME EQUITY LOAN OWNER TRUST 199__-__
By: _____________________
not in its individual capacity but solely as Owner Trustee
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
- ----------------
as Indenture Trustee
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
50
<PAGE>
STATE OF ______________,
COUNTY OF __________
BEFORE ME, the undersigned authority, a Notary Public in and for said
county and state, on this day personally appeared ______________________, known
to me to be the person and officer whose name is subscribed to the foregoing
instrument and acknowledged to me that the same was the act of the said
______________________________, not in its individual capacity, but solely as
Owner Trustee on behalf of IMC HOME EQUITY LOAN OWNER TRUST 199__-__, a Delaware
business trust, and that such person executed the same as the act of said
business trust for the purpose and consideration therein expressed, and in the
capacities therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this day of _____________, 199__.
________________________________________________
Notary Public in and for the State of __________
(Seal)
My commission expires:
_______________________
51
<PAGE>
STATE OF NEW YORK
COUNTY OF NEW YORK
BEFORE ME, the undersigned authority, a Notary Public in and for said county and
state, on this day personally appeared ________________________, known to me to
be the person and officer whose name is subscribed to the foregoing instrument
and acknowledged to me that the same was the act of ________________, a
_______________ corporation, and that such person executed the same as the act
of said corporation for the purpose and consideration therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this day of ____________, 199__.
______________________________________________
Notary Public in and for the State of New York
(Seal)
My commission expires:
_______________________
52
<PAGE>
SCHEDULE A
Available Upon Request to the Indenture Trustee
<PAGE>
EXHIBIT A - Form of Note
Exhibit 5.1
March 20, 1998
IMC Securities, Inc.
5901 East Fowler Avenue
Tampa, FL 33617-2362
Re: IMC Securities, Inc.
Home Equity Loan Asset Backed Certificates
Home Equity Loan Asset Backed Notes
Registration Statement on Form S-3 - No. 333-____
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
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, IMC Mortgage Company (the "Seller"
and the "Servicer"), and a trustee (the "Trustee") to be identified in the
prospectus supplement for such series of Certificates and in respect of Home
Equity Loan Asset Backed Notes (the "Notes") which you plan to offer in series,
each series to be issued under a separate indenture (an "Indenture"), in
substantially the form set forth as an exhibit to the Registration Statement,
among a business trust formed by the Depositor (the "Issuer") and a trustee (the
"Indenture Trustee") to be identified in the prospectus supplement for such
series of Notes.
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
<PAGE>
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.
This opinion is limited to matters involving the Federal laws of the United
States of America, the laws of the State of New York, and to the extent relevant
to the opinions expressed herein, the General Corporation Law of the State of
Delaware. 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; and
3. When, in respect of a series of Notes, an Indenture has been duly
authorized by all necessary action and duly executed and delivered by the Issuer
and the Indenture Trustee for such series, such Indenture, will be a valid and
legally binding obligation of the Issuer; and
4. When an Indenture for a series of Notes has been duly authorized by
all necessary action and duly executed and delivered by the Issuer and the
Indenture Trustee for such series, and when the Notes of such series have been
duly executed and authenticated in accordance with the provisions of the
Indenture 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 Notes will be valid and binding
non-recourse obligations of the related Issuer, enforceable against the related
Issuer, in accordance with their terms.
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".
<PAGE>
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 LLP
----------------------
Arter & Hadden LLP
Exhibit 8.1
March 20, 1998
IMC Securities, Inc.
5901 East Fowler Avenue
Tampa, FL 33617-2362
Re: IMC Securities Inc.
Home Equity Loan Asset Backed Certificates
Home Equity Loan Asset Backed Notes
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 Certificates
(the "Certificates") and Home Equity Loan Asset Backed Notes (the "Notes") which
you plan to offer in series. Our opinions formed the basis for the description
of federal income tax consequences appearing under the heading "Federal Income
Tax Consequences" of the applicable prospectus supplement contained in the
Registration Statement. Assuming issuance of Certificates of a series and
assuming the federal income tax characterization of those Certificates as REMIC
interests, FASIT interests, standard interests, stripped interests or
partnership interests at that time, we confirm that the description under
"Federal Income Tax Consequences" in the prospectus of the federal income tax
consequences with respect to a series of Certificates presents our opinion of
the material tax issues relating to an investment in those Certificates.
Assuming issuance of Notes as indebtedness at that time, we confirm that the
description under "Federal Income Tax Consequences" in the prospectus of the
federal income tax consequences with respect to a series of Notes presents our
opinion of the material tax issues relating to an investment in those Notes.
<PAGE>
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 "Federal Income
Tax Consequences."
Very truly yours,
/s/ Arter & Hadden LLP
----------------------
Arter & Hadden LLP
Exhibit 10.1
SALE AND SERVICING AGREEMENT
Dated as of ___________
Among
IMC HOME EQUITY LOAN OWNER TRUST 199__-__,
as Issuer,
IMC SECURITIES, INC.,
as Depositor,
IMC MORTGAGE COMPANY,
as Seller and Servicer
and
_______________,
as Indenture Trustee
IMC HOME EQUITY LOAN OWNER TRUST 199__-__
ADJUSTABLE RATE HOME EQUITY LOAN ASSET BACKED NOTES, SERIES 199__-__
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION.......................................................................1
Section 1.01 Definitions............................................................................1
Section 1.02 Use of Words and Phrases..............................................................16
Section 1.03 Captions; Table of Contents...........................................................16
Section 1.04 Opinions..............................................................................16
ARTICLE II
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE DEPOSITOR, THE SERVICER AND THE SELLER;
COVENANT OF DEPOSITOR TO CONVEY HOME EQUITY LOANS.......................................................17
Section 2.01 Representations and Warranties of the Depositor.......................................17
Section 2.02 Representations and Warranties of the Servicer........................................19
Section 2.03 Representations and Warranties of the Seller..........................................21
Section 2.04 Covenants of Seller to Take Certain Actions with Respect to the Home Equity
Loans in Certain Situations...........................................................24
Section 2.05 Conveyance of the Home Equity Loans and Qualified Replacement Mortgages...............31
Section 2.06 Acceptance by Indenture Trustee; Certain Substitutions of Home
Equity Loans; Certification by Indenture Trustee......................................35
Section 2.07 Reserved..............................................................................36
Section 2.08 Custodian.............................................................................36
Section 2.09 Books and Records.....................................................................36
ARTICLE III
ACCOUNTS, DISBURSEMENTS AND RELEASES....................................................................37
Section 3.01 Reserved..............................................................................37
Section 3.02 Establishment of Accounts.............................................................37
Section 3.03 Flow of Funds.........................................................................37
Section 3.04 Reserved..............................................................................39
Section 3.05 Investment of Accounts................................................................39
Section 3.06 Payment of Trust Expenses.............................................................40
Section 3.07 Eligible Investments..................................................................40
Section 3.08 Accounting and Directions by Indenture Trustee........................................42
Section 3.09 Reports by Indenture Trustee to Owners and Note Insurer...............................42
Section 3.10 Reports by Indenture Trustee. .......................................................44
ARTICLE IV
SERVICING AND ADMINISTRATION
OF HOME EQUITY LOANS....................................................................................46
Section 4.01 Servicer and Sub-Servicers............................................................46
Section 4.02 Collection of Certain Home Equity Loan Payments.......................................47
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Page
----
Section 4.03 Sub-Servicing Agreements Between Servicer and Sub-Servicers...........................47
Section 4.04 Successor Sub-Servicers...............................................................48
Section 4.05 Liability of Servicer; Indemnification................................................48
Section 4.06 No Contractual Relationship Between Sub-Servicer, Indenture
Trustee or the Owners.................................................................48
Section 4.07 Assumption or Termination of Sub-Servicing Agreement by
Indenture Trustee............................................................49
Section 4.08 Principal and Interest Account........................................................49
Section 4.09 Delinquency Advances and Servicing Advances...........................................50
Section 4.10 Compensating Interest; Repurchase of Home Equity Loans................................51
Section 4.11 Maintenance of Insurance..............................................................52
Section 4.12 Due-on-Sale Clauses; Assumption and Substitution Agreements...........................52
Section 4.13 Realization Upon Defaulted Home Equity Loans; Workout of
Home Equity Loans............................................................53
Section 4.14 Indenture Trustee to Cooperate; Release of Files......................................54
Section 4.15 Servicing Compensation................................................................55
Section 4.16 Annual Statement as to Compliance.....................................................56
Section 4.17 Annual Independent Certified Public Accountants' Reports..............................56
Section 4.18 Access to Certain Documentation and Information Regarding
the Home Equity Loans........................................................56
Section 4.19 Assignment of Agreement...............................................................56
Section 4.20 Removal of Servicer; Retention of Servicer; Resignation of Servicer...................57
Section 4.21 Inspections by Note Insurer; Errors and Omissions Insurance...........................60
Section 4.22 Reserved..............................................................................60
Section 4.23 Adjustable Rate Home Equity Loans.....................................................60
ARTICLE V
TERMINATION......................................................................................................62
Section 5.01 Termination...........................................................................62
Section 5.02 Termination Upon Option of Holders of Certificates....................................62
Section 5.03 Disposition of Proceeds...............................................................62
ARTICLE VI
MISCELLANEOUS...........................................................................................63
Section 6.01 Acts of Owners........................................................................63
Section 6.02 Recordation of Agreement. ...........................................................63
Section 6.03 Duration of Agreement. ..............................................................63
Section 6.04 Successors and Assigns................................................................63
Section 6.05 Severability. .......................................................................63
Section 6.06 Governing Law; Submission to Jurisdiction.............................................63
Section 6.07 Counterparts. .......................................................................64
Section 6.08 Amendment.............................................................................64
Section 6.09 Specification of Certain Tax Matters. ...............................................65
Section 6.10 The Note Insurer......................................................................65
Section 6.11 Third Party Rights....................................................................65
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Section 6.12 Notices...............................................................................65
Section 6.13 Benefits of Agreement.................................................................67
Section 6.14 Legal Holidays........................................................................67
Section 6.15 Usury.................................................................................67
Section 6.16 No Petition...........................................................................68
ARTICLE VII
CERTAIN MATTERS REGARDING THE NOTE INSURER..............................................................69
Section 7.01 Trust Estate and Accounts Held for Benefit of the Note Insurer........................69
Section 7.02 Claims Upon the Policy; Policy Payments Account.......................................69
Section 7.03 Effect of Payments by the Note Insurer; Subrogation...................................70
Section 7.04 Notices to the Note Insurer...........................................................70
Section 7.05 Rights to the Note Insurer To Exercise Rights of Owners...............................71
</TABLE>
SCHEDULE I SCHEDULE OF HOME EQUITY LOANS
EXHIBIT A FORM OF CERTIFICATE RE: HOME EQUITY LOANS
PREPAID IN FULL AFTER CUT-OFF DATE
EXHIBIT B-1 FORM OF INDENTURE TRUSTEE'S RECEIPT
EXHIBIT B-2 FORM OF CUSTODIAN'S RECEIPT
EXHIBIT C FORM OF POOL CERTIFICATION
EXHIBIT D HOME EQUITY LOANS WITH DOCUMENT EXCEPTIONS
iii
<PAGE>
SALE AND SERVICING AGREEMENT dated as of ___________ by and among IMC
HOME EQUITY LOAN OWNER TRUST 199__-__, a Delaware business trust (the "Issuer"
or the "Trust"), IMC SECURITIES, INC., a Delaware corporation, in its capacity
as Depositor (the "Depositor"), IMC Mortgage Company, a Florida corporation in
its capacities as the Seller and the Servicer (respectively, the "Seller" or the
"Servicer") and _______________, a __________ ______ corporation, in its
capacity as the indenture trustee on behalf of the Owners of the Notes (the
"Indenture Trustee").
WHEREAS, the Issuer desires to purchase a pool of Home Equity Loans
which were originated or purchased by the Seller and sold to the Depositor in
the ordinary course of business of the Seller pursuant to the Loan Sale
Agreement;
WHEREAS, the Depositor is willing to sell such Home Equity Loans to the
Issuer;
WHEREAS, the Servicer has agreed to service the Home Equity Loans, in
accordance with the terms of this Agreement;
WHEREAS, _______________, is willing to serve in the capacity of
Indenture Trustee hereunder; and
WHEREAS, ____________________ (the "Note 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 Issuer, the Depositor, the Seller, the
Servicer, and the Indenture Trustee hereby agree as follows:
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 3.02 or
4.08 hereof.
"Accrual Period": With respect to any Payment Date, the period
commencing on the immediately preceding Payment Date (or the Closing Date in the
case of the first Payment Date) to and including the day prior to the current
Payment Date. Calculations of interest will be made on the basis of the actual
number of days elapsed in the related Accrual Period and a year of 360 days.
"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 Sale and Servicing Agreement, as it may be amended
from time to time, including the Exhibits and Schedules hereto.
<PAGE>
"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.
"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 for each of the twelve immediately
preceding Remittance Periods and the denominator of which is the Original
Aggregate Loan Balance.
"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 and the Servicer, initially including those individuals whose names
appear on the lists of Authorized Officers delivered at the Closing; with
respect to the Indenture 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 Indenture 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 3.02(b) hereof.
"Available Funds Cap Carry-Forward Amortization Amount": As of any
Payment Date, any amount distributed from the Available Funds Cap Carry-Forward
Amount Account on such Payment Date pursuant to Section 3.03(c) hereof.
"Available Funds Cap Carry-Forward Amount": As of any Payment Date, the
sum of (I) the excess, if any, of (A) the sum of (i) the aggregate of the
Available Funds Cap Carry-Forward Amounts for all prior Payment Dates and (ii)
the difference between (a) the amount of interest due on the Notes on the
immediately preceding Payment Date calculated at the Formula Note Rate
applicable on such date and (b) the amount of interest due on the Notes on the
immediately preceding Payment Date calculated at the Note Rate applicable on
such date over (B) all Available Funds Cap Carry-Forward Amortization Amounts
actually paid on all prior Payment Dates and (II) the product of (x) one-twelfth
of the Formula Note Rate on such Payment Date and (y) the amount described in
clause (I) of this definition.
"Available Funds Cap Carry-Forward Amount Account": The Available Funds
Cap Carry-Forward Amount Account established in accordance with Section 3.02
hereof and maintained by the Indenture Trustee.
"Available Funds Cap Rate": On each Payment Date the weighted average
of the Coupon Rates of the Home Equity Loans less ____% per annum.
"Available Funds Shortfall": As defined in Section 3.03(b)(ii)(A).
2
<PAGE>
"Backup Servicer": The Indenture Trustee shall initially serve as
Backup Servicer hereunder in the event of the termination of the Servicer,
subject to the right of the Indenture Trustee to assign such duties to a party
acceptable to the Note Insurer and the Owners of the majority of the Percentage
Interests of the Certificates.
"Business Day": Any day other than a Saturday, Sunday or a day on which
commercial banking institutions in The City of New York, Tampa, Florida, the
city in which the Corporate Trust Office is located or the city in which the
principal office of the Note Insurer is located are authorized or obligated by
law or executive order to be closed.
"Carry-Forward Amount": The sum of (x) the amount, if any, by which (i)
the Current Interest for the immediately preceding Payment Date exceeded (ii)
the amount of the actual distribution made to the Owners on such immediately
preceding Payment Date pursuant to Section 3.03(b)(iv)(B) hereof plus (y) 30
days' interest on such excess at the Note Rate.
"Certificate": Any one of the Certificates issued pursuant to the Trust
Agreement.
"Certificate Distribution Account": The Certificate Distribution
Account established in accordance with the Trust Agreement.
"Civil Relief Interest Shortfalls": With respect to any Remittance
Period, for any Home Equity Loans as to which there has been a reduction in the
amount of interest collectible thereon for the most recently ended Remittance
Period as a result of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended, the amount, if any, by which (i) interest collectible on such Home
Equity Loans during the most recently ended Remittance Period is less than (ii)
the sum of (a) one month's interest on the Loan Balance of such Home Equity
Loans at a rate equal to the Note Rate plus (b) the Servicing Fee and the Trust
Fees and Expenses for such Remittance Period.
"Closing Date": __________ __, 199_.
"Code": The Internal Revenue Code of 1986, as amended.
"Compensating Interest": As defined in Section 4.10(a) hereof.
"Corporate Trust Office": The principal office of the Indenture Trustee
at _______________, ______________________________, Attention: Corporate Trust
Office or the principal office of any successor Indenture Trustee hereunder.
"Coupon Rate": The rate of interest borne by each Mortgage Note from
time to time.
"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 Closing Date as a percentage of
the Original Aggregate Loan Balance.
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"Current Interest": With respect to any Payment Date, an amount equal
to the amount of interest accrued on the Note Principal Balance immediately
prior to such Payment Date during the related Accrual Period at the Note Rate
plus the Preference Amount owed to the Owners of the Notes as it relates to
interest previously paid on the Notes plus the Carry-Forward Amount; provided,
however, such amount will be reduced by the amount of any Civil Relief Interest
Shortfalls relating to Home Equity Loans.
"Custodial Agreement": The Custodial Agreement dated as of ___________
among the Custodian, the Issuer, the Indenture Trustee, the Depositor, the
Seller and the Servicer.
"Custodian": __________ ____, as Custodian on behalf of the Indenture
Trustee pursuant to the Custodial Agreement.
"Cut-Off Date": As of the close of business on ___________.
"Daily Collections": As defined in Section 4.08(c) hereof.
"Delinquency Advance": As defined in Section 4.09(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.
"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 Note
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 Indenture Trustee, (i) such institution shall
have a long-term debt rating of at least "A" by Standard & Poor's and "A2" by
Moody's, (ii) a short-term debt rating of at least "A-1" by Standard & Poor's
and (iii) the Servicer shall provide the Indenture Trustee and the Note Insurer
with a statement, which the Indenture 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": The 15th day of each month, or if such day is not
a Business Day, on the preceding Business Day, commencing in _________199___.
"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 Mortgage Note exclusive of any days of grace.
"Eligible Investments": Those investments so designated pursuant to
Section 3.07 hereof.
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"Excess Overcollateralization Amount": With respect to any Payment
Date, the excess, if any, of (x) the Overcollateralization Amount that would
apply on such Payment Date after taking into account the payment of the
Principal Distribution Amount on such Payment Date (except for any distributions
of Overcollateralization Reduction Amounts on such Payment Date), over (y) the
Specified Overcollateralization Amount for such Payment Date.
"Fannie Mae": Fannie Mae, a federally-chartered and privately-owned
corporation existing under the Federal National Mortgage Association Charter
Act, as amended, or any successor thereof.
"Fannie Mae Guide": Fannie Mae's Servicing Guide, as the same may be
amended by Fannie Mae from time to time, and the Servicer shall elect to apply
such amendments in accordance with Section 4.01 hereof.
"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 Indenture Trustee pursuant to
Section 2.05(b) 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 2.06(c) hereof.
"Final Payment Date": ____________, 20___.
"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.
"First Mortgage Loan": A Home Equity Loan which constitutes a first
priority mortgage lien with respect to any Property.
"Formula Note Rate": For any Payment Date, the rate determined by
clause (i) of the definition of "Note Rate" for such Payment Date.
"Highest Lawful Rate": As defined in Section 6.15 hereof.
"Home Equity Loans": Such home equity loans transferred and assigned to
the Trust pursuant to Section 2.05(a) and 2.07(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 Schedule of Home Equity
Loans. 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
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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 2.04(b)(x) hereof with respect to such home equity loan, shall
nevertheless be considered a "Home Equity Loan" for all purposes of this
Agreement.
"Indemnification Agreement": The Indemnification Agreement dated as of
___________,199___ among the Note Insurer, the Depositor, the Seller and the
Underwriters.
"Indenture": The Indenture, dated ___________, between the Issuer and
the Indenture Trustee.
"Indenture Trustee": _______________, a __________ ______ corporation,
the Corporate Trust Department of which is located on the date of execution of
this Agreement at ____________,_______, New York, NY 10001, not in its
individual capacity but solely as Indenture Trustee under the Indenture, and any
successor hereunder.
"Indenture Trustee Fee": The fee payable monthly to the Indenture
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.
"Indenture Trustee Reimbursable Expenses": Any amounts payable pursuant
to the second sentence of Section 6.7 of the Indenture provided that the
aggregate amounts payable as Indenture Trustee Reimbursable Expenses shall not
exceed $50,000.
"Insurance Agreement": The Insurance Agreement dated as of ___________,
among the Issuer, the Depositor, the Seller, the Servicer, the Indenture Trustee
and the Note Insurer, as such agreement may be amended from time to time.
"Insurance Policy": Any hazard, flood, title or primary mortgage
insurance policy relating to a Home Equity Loan plus any amount remitted under
Section 4.11 hereof.
"Insured Payment": As defined in the Note Insurance Policy.
"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, (ii) all Compensating Interest
paid by the Servicer on such Monthly Remittance Date, (iii) the portion of the
Substitution Amount relating to interest on the Home Equity Loans, (iv) the
portion of any Loan Purchase Price relating to interest on any Home Equity Loan
repurchased during the related Remittance Period and (v) the portion of Net
Liquidation Proceeds relating to interest.
"Issuer" or "Trust": IMC Home Equity Loan Owner Trust 199__-__, a
Delaware business trust.
"Late Payment Rate": For any Monthly Remittance Date, the rate of
interest as it is publicly announced by Citibank, N.A., at its principal office
in New York, New York as its prime rate (any change in such prime rate of
interest to be effective on the date such change is announced by Citibank,) plus
3%. The Late Payment Rate shall be computed on the basis of a year of 365 days
calculating the actual number of days elapsed. In no event shall the Late
Payment Rate exceed the maximum rate permissible under any applicable law
limiting interest rates.
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"LIBOR": With respect to any Accrual Period, the rate determined by the
Indenture Trustee on the related LIBOR Determination Date on the basis of the
British Bankers Association "Interest Settlement 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 Indenture 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 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 excluding payments of principal due on or prior to the Cut-Off
Date, whether or not received, 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 or prior to a Monthly Remittance Date pursuant to Section
2.03, 2.04, 2.06(b) or 4.10(b) hereof, 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 date 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 Sale Agreement": The Loan Sale Agreement dated as of ___________
between the Seller and the Depositor.
"Loan-to-Value Ratio": As of any particular date, the percentage
obtained by dividing the Appraised Value into the original principal balance of
the Mortgage Note relating to such Home Equity Loan.
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"London Business Day": Any day on which dealings in deposits of United
States dollars are transacted in the London interbank market.
"Monthly Distribution Amount": With respect to any Payment Date, the
sum of (x) Current Interest and (y) the Principal Distribution Amount for such
Payment Date.
"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 Mortgage Note.
"Monthly Remittance Amount": As of any Monthly Remittance Date, the sum
of (i) the Interest Remittance Amount for such Monthly Remittance Date and (ii)
the Principal Remittance Amount for such Monthly Remittance Date.
"Monthly Remittance Date": The 18th day of each month, or if such day
is not a Business Day, on the preceding Business Day, commencing in
_________199___.
"Monthly Reporting Date": The Determination Date.
"Moody's": Moody's Investors Service Inc. or any successor thereto.
"Mortgage": The mortgage, deed of trust or other instrument creating a
first lien on an estate in fee simple interest in real property securing a
Mortgage Note.
"Mortgage Note": The note or other evidence of indebtedness evidencing
the indebtedness of a Mortgagor under a Home Equity Loan.
"Mortgagor": The obligor on a Mortgage Note.
"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 3.03(b)(iii)
hereof.
"90-Day Delinquent Loan": With respect to any Determination Date
thereof, 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, three 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).
"90+ Delinquency Percentage (Rolling Six Month)": With respect to any
Determination Date thereof, the average of the percentage equivalents of the
fractions determined for each of the six immediately preceding Remittance
Periods the numerator of each of which is equal to the aggregate Loan Balance of
90- 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 Loans as of
the end of such Remittance Period.
"Note": Any one of the Notes substantially in the form attached to the
Indenture as Exhibit A.
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"Note Account": The segregated note account established in accordance
with Section 3.02(a) hereof and maintained at the Corporate Trust Office.
"Note Insurance Policy": The Note Guaranty Insurance Policy (number
_______) dated __________ __, 199_. issued by the Note Insurer to the Indenture
Trustee for the benefit of the Owners pursuant to which the Note Insurer
guarantees Insured Payments.
"Note Insurer": ____________________, a _________ insurance company and
any successor thereto, as issuer of the Note Insurance Policy.
"Note Insurer Default": The existence and continuance of any of the
following:
(a) the Note Insurer fails to make a payment required under
the Note 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 Note Insurer in
an involuntary case or proceeding under any applicable United States federal or
state bankruptcy, insolvency, rehabilitation, reorganization or other similar
law 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 90 consecutive days; or
(B) a final and nonappealable decree or order adjudging the Note 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 Note Insurer under any applicable United States federal or state
law, or appointing a custodian, receiver, liquidator, rehabilitator, assignee,
indenture trustee, sequestrator or other similar official of the Note Insurer or
of any substantial part of its property, or ordering the winding-up or
liquidation of its affairs or
(ii) the commencement by the Note 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
Note Insurer to the entry of a decree or order for relief in respect of the Note
Insurer in an involuntary case or proceeding under any applicable United States
federal or state bankruptcy, insolvency case or proceeding against the Note
Insurer, or the filing by the Note Insurer to the filing of such petition or to
the appointment of or the taking possession by a custodian, receiver,
liquidator, assignee, indenture trustee, sequestrator or similar official of the
Note Insurer or of any substantial part of its property, or the failure of the
Note Insurer to pay debts generally as they become due, or the admission by the
Note Insurer in writing of its inability to pay its debts generally as they
become due.
"Note Principal Balance": As of any time of determination, the Original
Note Principal Balance less the aggregate of all amounts actually distributed on
account of the Principal Distribution Amount pursuant to Section 3.03(b)(iv)
hereof with respect to principal thereon on all prior Payment Dates; provided,
however, that solely for purposes of determining the Note Insurer's rights, as
subrogee, the Note Principal Balance shall not be reduced by any principal
amount paid to the Owner thereof from Insured Payments.
"Note Rate": For any Payment Date, in any month up to and including the
month in which the Redemption Date occurs, the lesser of (i) LIBOR plus ___% per
annum and (ii) the Available Funds Cap Rate for such Payment Date and for any
month following the month in which the Redemption Date occurs, the lesser of (i)
LIBOR plus ___% per annum and (ii) the Available Funds Cap Rate for such Payment
Date.
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"Officer's Certificate": A certificate signed by any Authorized Officer
of any Person delivering such certificate and delivered to the Indenture
Trustee.
"Operative Documents": Collectively, this Agreement, the Loan Sale
Agreement, the Indenture, the Certificate of Trust, the Trust Agreement, the
Note Insurance Policy, the Notes, the Custodial Agreement, the Indemnification
Agreement and the Insurance Agreement.
"Original Aggregate Loan Balance": The aggregate Loan Balances of all
Initial Home Equity Loans as of the Cut-Off Date, which is $____________.
"Original Note Principal Balance": $____________.
"Overcollateralization Amount": As of any Payment Date, the excess, if
any, of (x) the aggregate Loan Balances of the Home Equity Loans as of the close
of business on the last day of the immediately proceeding Remittance Period over
(y) the Note Principal Balance for such Payment Date (after taking into account
the payment of the Principal Distribution Amount thereon (except for any
Overcollateralization Deficit and Overcollateralization Increase Amount) on such
Payment Date).
"Overcollateralization Deficiency Amount": With respect to any Payment
Date, the excess, if any, of (i) the Specified Overcollateralization Amount
applicable to such Payment Date over (ii) the Overcollateralization Amount
applicable to such Payment Date prior to taking into account the payment of any
Overcollateralization Increase Amounts on such Payment Date.
"Overcollateralization Deficit": With respect to any Payment Date, the
amount, if any, by which (x) the Note Principal Balance after taking into
account the payment of the Monthly Distribution Amount on such Payment Date
(without regard to any Insured Payment to be made on such Payment Date and
except for any Overcollateralization Deficit), exceeds (y) the aggregate Loan
Balances of the Home Equity Loans as of the close of business on the last day of
the related Remittance Period.
"Overcollateralization Increase Amount": With respect to any Payment
Date, the lesser of (i) the Overcollateralization Deficiency Amount as of such
Payment Date (after taking into account the payment of the Monthly Distribution
Amount on such Payment Date (except for any Overcollateralization Increase
Amount)) and (ii) the aggregate amount of Net Monthly Excess Cashflow pursuant
to Section 3.03(b)(iii)(A) on such Payment Date.
"Overcollateralization Reduction Amount": With respect to any Payment
Date, an amount equal to the lesser of (x) the Excess Overcollateralization
Amount for such Payment Date and (y) the Principal Remittance Amount for the
related Remittance Period.
"Owner": The Person in whose name a Note is registered in the Register,
and the Note Insurer, to the extent described in Sections 7.01 and 7.05.
"Owner Trustee": ____________________, as owner trustee under the Trust
Agreement, and any successor owner trustee under the Trust Agreement.
"Paying Agent": Initially, the Indenture Trustee, and thereafter, the
Indenture Trustee or any other Person that meets the eligibility standards for
the Paying Agent specified in Section 6.11 of the Indenture and is authorized by
the Indenture Trustee and the Depositor to make payments on the Certificates on
behalf of the Indenture Trustee.
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"Payment Date": Any date on which the Indenture Trustee is required to
make distributions to the Owners, which shall be the 20th day of each month or
if such day is not a Business Day, the next Business Day thereafter, commencing
in the month following the Closing Date. The first Payment Date will be
_________, 199__.
"Percentage Interest": With respect to the Notes, a fraction, expressed
as a decimal, the numerator of which is the Original Note Principal Balance
represented by such Note and the denominator of which is the aggregate Original
Note Principal Balance represented by all the Notes. With respect to the
Certificates, the portion evidenced thereby, expressed as a percentage, as
stated on the face of such Certificate, all of which shall total 100% with
respect to the Certificates.
"Person": Any individual, corporation, limited partnership,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Policy Payments Account": The policy payments account maintained by
the Indenture Trustee pursuant to Section 7.02(b) hereof.
"Preference Amount": With respect to the Notes means any amounts of
interest and principal included in previous distributions of the Monthly
Distribution Amount to the Owners of the Notes which are recoverable and sought
to be recovered as a voidable preference by a indenture trustee in bankruptcy
pursuant to the United States Bankruptcy Code (11 U.S.C.) as amended from time
to time in accordance with a final, nonappealable order of a court having
competent jurisdiction. Such amount will be paid in accordance with the terms of
the Note Insurance Policy.
"Preference Claim": As defined in Section 7.02(d) hereafter.
"Premium Amount": As defined in the Insurance Agreement.
"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 2.03, 2.04, 2.06(b) or 4.10(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
established and maintained by the Servicer pursuant to Section 4.08(a) hereof.
"Principal Distribution Amount": With respect to the Notes for any
Payment Date, the lesser of:
(a) the Total Available Funds plus any Insured Payment minus the
Current Interest and Trust Fees and Expenses for such Payment Date; and
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(b) the excess, if any, of (i) the sum of (without duplication):
(A) the Preference Amount with respect to principal
owed to the Owners of the Notes that remains unpaid as of such
Payment Date,
(B) the principal portion of all scheduled monthly
payments on the Home Equity Loans due on or prior to the
related Due Date thereof, to the extent actually received by
the Servicer during the related Remittance Period and any
Prepayments made by the Mortgagors and actually received by
the Servicer during the related Remittance Period,
(C) the Loan Balance of each Home Equity Loan 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 Servicer during
the related Remittance Period,
(D) any Substitution Amounts delivered by the Seller
on the related Monthly Remittance Date in connection with a
substitution of a Home Equity Loan (to the extent such
Substitution Amounts relate to principal), to the extent such
Substitution Amounts are actually received by the Servicer on
the related Remittance Date,
(E) all Net Liquidation Proceeds actually collected
by the Servicer with respect to the Home Equity Loans during
the related Remittance Period (to the extent such Net
Liquidation Proceeds relate to principal),
(F) the amount of any Overcollateralization Deficit
for such Payment Date,
(G) the principal portion of the proceeds received by
the Indenture Trustee from any termination of the Trust (to
the extent such proceeds related to principal),
(H) the amount of any Overcollateralization Increase
Amount for such Payment Date, to the extent of any Net Monthly
Excess Cashflow available for such purpose,
over
(ii) the amount of any Overcollateralization Reduction Amount
for such Payment Date.
"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 during the related Remittance Period,
(ii) the Loan Balance of each such Home Equity Loan that was purchased from the
Trust on or prior to such Monthly Remittance Date, to the extent such Loan
Balance was actually received by the Servicer, (iii) any Substitution Amounts
relating to principal delivered by the Seller in connection with a substitution
of a Home Equity Loan, to the extent such Substitution Amounts were actually
received by the Servicer on or prior to such Monthly Remittance Date, (iv) the
principal portion of all Net Liquidation Proceeds actually collected by the
Servicer with respect to such Home Equity Loans during the related Remittance
Period (to the extent such Net Liquidation Proceeds related to principal) and
(v) the amount of investment losses required to be deposited pursuant to
Sections 3.05(e) and 4.08(b).
"Property": The underlying property securing a Home Equity Loan.
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"Prospectus": The Depositor's Prospectus dated August 18, 1997
constituting part of the Registration Statement.
"Prospectus Supplement": The IMC Home Equity Loan Owner Trust 199__-__
Prospectus Supplement dated ___________,199___ to the Prospectus.
"Qualified Replacement Mortgage": A Home Equity Loan substituted for
another pursuant to Section 2.03, 2.04 and 2.06(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 __________ __, 199_. (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, (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, (ix) shall be an adjustable
rate Home Equity Loan (x) shall adjust based on the same index, have no lower
margin, have the same interval between adjustment dates and have a maximum
Coupon Rate no lower than, and a minimum Coupon Rate no higher than the Home
Equity Loan being replaced. In the event that one or more home equity loans are
proposed to be substituted for one or more Home Equity Loans, the Note Insurer
may allow the foregoing tests to be met on a weighted average basis or other
aggregate basis acceptable to the Note Insurer, as evidenced by a written
approval delivered to the Indenture Trustee by the Note Insurer, except that the
requirements of clauses (i), (iv) and (ix) 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.
"Redemption Date": The first Monthly Remittance Date on which the
aggregate Loan Balances of the Home Equity Loans has declined to less than
$____________.
"Redemption Date Pass-Through Rate": As of any date of determination
thereof, a rate equal to the sum of (a) the Note Rate and (b) any portion of the
Premium Amount and the Indenture Trustee Fee (calculated as a percentage of the
outstanding principal amount of the Notes) then accrued and outstanding.
"Reference Banks": Bankers Trust Company, Barclays Bank PLC and
National Westminster Bank PLC, provided that if any of the foregoing banks are
not suitable to serve as a Reference Bank, then any leading banks selected by
the Indenture Trustee which are engaged in transactions in Eurodollar deposits
in the international Eurocurrency market (i) with an established place of
business in London, (ii) not controlling, under the control of or under common
control with the Seller or any affiliate thereof, (iii) whose quotations are
included in the calculation of LIBOR appearing on Telerate Page 3750 on the
relevant LIBOR Determination Date and (iv) which have been designated as such by
the Indenture Trustee.
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"Register": The note register maintained by the Registrar in accordance
with Section 2.3 of the Indenture, in which the names of the Owners are set
forth.
"Registrar": The Indenture Trustee, acting in its capacity as Registrar
appointed pursuant to the Indenture, 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 Notes.
"Reimbursement Amount": As of any Payment Date, the sum of (x)(i) all
Insured Payments previously paid to the Indenture Trustee by the Note Insurer
and not previously repaid to the Note Insurer pursuant to Section 3.03(b)(ii)
hereof plus (ii) interest accrued on each such Insured Payment not previously
repaid calculated at the Late Payment Rate and (y)(i) any amounts then due and
owing to the Note Insurer under the Insurance Agreement (including, without
limitation, any unpaid Premium Amount relating to such Payment Date or an
earlier Payment Date) plus (ii) interest on such amounts at the Late Payment
Rate. The Note Insurer shall notify the Indenture Trustee, the Depositor and the
Seller of the amount of any Reimbursement Amount.
"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.
"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
3.03(b)(i), (ii), (iii) and (iv) hereof.
"Schedule of Home Equity Loans": The schedule of Home Equity Loans with
respect to the Home Equity Loans listing each Home Equity Loan to be conveyed on
the Closing Date. Such Schedule 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, 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 Mortgage Note, the property type, occupancy
status, Appraised Value and the original term-to-maturity thereof.
"Securities Act": The Securities Act of 1933, as amended.
"Seller": IMC Mortgage Company, a Florida corporation.
"Servicer": IMC Mortgage Company, a Florida corporation, and its
permitted successors and assigns.
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"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
------ ----------
__________ __, 199_ _ - __________ __, 199_ ____%
__________ __, 199_ _ - __________ __, 199_ ____%
__________ __, 199_ _ - __________ __, 199_ ____%
__________ __, 200_ _ - __________ __, 200_ ____%
__________ __, 200_ _ - and thereafer ____%
"Servicer Termination Event": As defined in Section 4.20(a) hereof.
"Servicer Termination Test": The Servicer Termination Test is satisfied
for any date of determination thereof, if (x) the 90+ 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 4.09(b) and Section 4.13(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 4.15 and equal to one
month's interest at ____% per annum of the then outstanding principal 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 4.20 hereof, the Servicing Fee shall be the amount as agreed
upon by the Indenture Trustee, the Note Insurer, the successor Servicer and the
Owners of a majority of the Percentage Interests of the Certificates, such
amount not to exceed ____% per annum.
"Specified Overcollateralization Amount": As defined in the Insurance
Agreement.
"Standard & Poor's": Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc. or any successor thereto.
"Sub-Servicer": Any Person with whom the Servicer has entered into a
Sub-Servicing Agreement and who satisfies any requirements set forth in Section
4.03 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 4.03.
"Substitution Amount": As defined in Section 2.03 hereof.
"Telerate Page 3750": The display designated as page "3750" on the Dow
Jones Telerate Capital Markets Report (or such other page as may replace page
3750 on that report for the purpose of displaying "Interest Settlement Rates" of
major banks).
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"Termination Price": As defined in Section 5.02(a) hereof.
"Total Available Funds": As defined in Section 3.02(b) hereof.
"Total Monthly Excess Cashflow": As defined in Section 3.03(b)(ii)
hereof.
"Total Monthly Excess Spread": With respect to any Payment Date, the
excess of (i) the aggregate of all interest which is collected on the Home
Equity Loans during the related Remittance Period (net of the Servicing Fee, the
Indenture Trustee Fee and the Indenture Trustee Reimbursable Expenses) plus (x)
any Delinquency Advances and (y) Compensating Interest paid by the Servicer for
such Remittance Period over (ii) the sum of the Current Interest and the Premium
Amount for such Payment Date.
"Trust" or "Issuer": IMC Home Equity Loan Owner Trust 199__-__, a
Delaware business trust.
"Trust Agreement": The Owner Trust Agreement dated as of ___________
between the Depositor and the Owner Trustee.
"Trust Estate": As defined in the Indenture.
"Trust Fees and Expenses": As of each Payment Date, an amount equal to
the Premium Amount, the Indenture Trustee Fee and any Indenture Trustee
Reimbursable Expenses.
"Underwriters": __________________ and __________________
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 Notes 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 Note Insurer
and the Indenture Trustee.
END OF ARTICLE I
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ARTICLE II
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE DEPOSITOR, THE SERVICER AND THE SELLER;
COVENANT OF DEPOSITOR TO CONVEY HOME EQUITY LOANS
Section 2.01 Representations and Warranties of the Depositor.
The Depositor hereby represents, warrants and covenants to the
Indenture Trustee, the Owner Trustee, the Issuer, the Seller, the Servicer, the
Note Insurer and the Owners that as of the Closing Date:
(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 and the other
Operative Documents to which it is a party 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.
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(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 that has not been set forth in the Registration Statement.
(h) Neither the Owner 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 Notes 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 has received fair consideration and reasonably
equivalent value in exchange for the sale of its interest in the Home Equity
Loans.
(l) The Depositor did not sell any interest in any Home Equity Loan
with an intent to hinder, delay or defraud any of its creditors.
(m) The Depositor is not insolvent, nor will it be made insolvent by
the sale of the Home Equity Loans, nor is the Depositor aware of any pending
insolvency.
(n) On the Closing Date, the Issuer will have good title to each Home
Equity Loan and such other items comprising the Trust Estate free and clear of
any lien.
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(o) No material adverse change affecting any security for the Notes has
occurred prior to delivery of and payment for the Notes.
(p) The Depositor is not in default under any agreement involving
financial obligations or on any outstanding obligation which would materially
adversely impact the financial condition or operations of the Depositor or legal
documents associated with the transaction contemplated by this Agreement.
(q) To the best knowledge of the Depositor, there has been no material
adverse change in any information submitted by the Depositor in writing to the
Note Insurer with respect to the transactions contemplated by this Agreement
(unless such information was subsequently supplemented in writing).
It is understood and agreed that the representations and warranties set
forth in this Section 2.01 shall survive delivery of the respective Home Equity
Loans to the Issuer.
Upon discovery by any of the Depositor, the Issuer, the Seller, the
Servicer, the Custodian, any Sub- Servicer, the Note Insurer, any Owner or the
Indenture Trustee (each, for purposes of this paragraph, a party) of a breach of
any of the representations and warranties set forth in this Section 2.01 which
materially and adversely affects the interests of the Owners or of the Note
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 respects; provided, however, that if the Depositor
can establish to the reasonable satisfaction of the Note 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 Note Insurer.
Section 2.02 Representations and Warranties of the Servicer.
The Servicer hereby represents, warrants and covenants to the
Depositor, the Issuer, the Owner Trustee, the Indenture Trustee, the Note
Insurer and the Owners that as of the Closing Date:
(a) The Servicer is a corporation duly organized and validly existing
and in good standing under the laws of the State of Florida, 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 have all requisite partnership or
corporate, as the case may be, power and authority to own and operate its or
their properties, to carry out its or their business as presently conducted and
as proposed to be conducted and to enter into and discharge its or their
obligations under this Agreement and the other Operative Documents to which the
Servicer is a party.
(b) The execution and delivery of this Agreement and any other
Operative Document to which it is a party by the Servicer and its performance
and compliance with the terms hereof and thereof have been duly authorized by
all necessary action on the part of the Servicer and will not violate the
Servicer's Articles 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 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.
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(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 or under the other Operative
Documents to which the Servicer is a party.
(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 any other Operative Document
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 the validity or the
enforceability of the Home Equity Loans or 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.
(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
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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
Fannie Mae guidelines.
(k) The transactions contemplated by this Agreement are in the ordinary
course of business of the Servicer.
(l) No material adverse change affecting any security for the Notes has
occurred prior to delivery of and payment for the Notes.
(m) The Servicer is not in default under any agreement involving
financial obligations or on any outstanding obligation which would materially
adversely impact the financial condition or operations of the Servicer or legal
documents associated with the transaction contemplated by this Agreement.
(n) To the best knowledge of the Servicer, there has been no material
adverse change in any information submitted by the Servicer in writing to the
Note Insurer with respect to the transactions contemplated by this Agreement
(unless such information was subsequently supplemented in writing).
It is understood and agreed that the representations and warranties set
forth in this Section 2.02 shall survive delivery of the Home Equity Loans to
the Issuer.
Upon discovery by any of the Depositor, the Seller, the Issuer, the
Custodian, any Sub-Servicer, the Note Insurer, any Owner or the Indenture
Trustee (each, for purposes of this paragraph, a party) of a breach of any of
the representations and warranties set forth in this Section 2.02 which
materially and adversely affects the interests of the Owners or of the Note
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 Note Insurer or by the
Indenture Trustee with the written consent of the Note Insurer pursuant to
Section 4.20 hereof; provided, however, that if the Servicer can establish to
the reasonable satisfaction of the Note 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 Note Insurer.
Section 2.03 Representations and Warranties of the Seller.
The Seller hereby represents, warrants and covenants to the Issuer, the
Depositor, the Owner Trustee, the Indenture Trustee, the Note Insurer and the
Owners that as of the Closing Date:
(a) The Seller is a corporation duly organized and validly existing and
in good standing 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.
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(b) The execution and delivery of this Agreement and the other
Operative Documents to which it is a party 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 Articles of
Incorporation and 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
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 Registration Statement 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
Registration Statement 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 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 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 that
has not been set forth in the Registration Statement.
(h) Upon the receipt of each Home Equity Loan (including the related
Mortgage Note) and other items of the Trust Estate by the Indenture Trustee, the
Issuer will have good title to such Home Equity Loan (including the related
Mortgage Note) and such other items of the Trust Estate free and clear of any
lien,
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charge, mortgage, encumbrance or rights of others, except as set forth in
Section 2.04(b)(ix) (other than liens which will be simultaneously released (and
except for the lien of the Indenture)).
(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 Notes
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 Owner 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.
(o) The Seller received fair consideration and reasonably equivalent
value in exchange for the sale of the interests in the Home Equity Loans.
(p) The Seller did not sell any interest in any Home Equity Loan with
any intent to hinder, delay or defraud any of its creditors.
(q) No material adverse change affecting any security for the Notes has
occurred prior to delivery of and payment for the Notes.
(r) The Seller is not in default under any agreement involving
financial obligations or on any outstanding obligation which would materially
adversely impact the financial condition or operations of the Seller or legal
documents associated with the transaction contemplated by this Agreement.
(s) To the best knowledge of the Seller, there has been no material
adverse change in any information submitted by the Seller in writing to the Note
Insurer with respect to the transactions contemplated by this Agreement (unless
such information was subsequently supplemented in writing).
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It is understood and agreed that the representations and warranties set
forth in this Section 2.03 shall survive delivery of the respective Home Equity
Loans to the Indenture Trustee.
Upon discovery by any of the Issuer, the Depositor, the Servicer, the
Custodian, any Sub-Servicer, any Owner, the Seller, the Note Insurer or the
Indenture Trustee (each, for purposes of this paragraph, a "party") of a breach
of any of the representations and warranties set forth in this Section 2.03
which materially and adversely affects the interests of the Owners or the
interests of the Note Insurer, the party discovering such breach shall give
prompt written notice to the other parties. The Seller hereby 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 or prior to the second 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 Issuer at the Loan Purchase Price, which
purchase price shall be delivered to the Servicer for deposit in the Principal
and Interest Account. The Seller shall deliver an Officer's Certificate to the
Indenture Trustee and the Note Insurer concurrently with the delivery of a
Qualified Replacement Mortgage pursuant to Sections 2.03, 2.04 and 2.06 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 Section 2.03, 2.04 or 2.06, as the
case may be) upon the occurrence of a default or imminent default with respect
to such Home Equity Loan.
Section 2.04 Covenants of Seller to Take Certain Actions with Respect
to the Home Equity Loans in Certain Situations.
(a) Upon the discovery by the Issuer, the Depositor, the Seller, the
Servicer, the Note Insurer, any Sub-Servicer, any Owner, the Custodian or the
Indenture Trustee that the representations and warranties set forth in clause
(b) below were untrue in any material respect as of the Closing Date with the
result that the interests of the Owners or of the Note 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 Note
Insurer, the Seller hereby covenants and warrants that it shall promptly cure
such breach in all material respects or subject to the last three sentences of
Section 2.03 it shall on or before 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 Note
Insurer that it is diligently pursuing remedial 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 Note Insurer. It is understood and agreed
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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 2.04 available to the Owners and the Indenture Trustee.
(b) The Seller hereby represents, warrants and covenants to the
Indenture Trustee, the Issuer, the Servicer, the Note Insurer and the Owners
that as of the Closing Date:
(i) The information with respect to each Home Equity Loan set
forth in the Schedule of Home Equity Loans is true and correct as of
the Cut-Off Date;
(ii) All the original or certified documentation set forth in
Section 2.05 (including all material documents related thereto) with
respect to each Home Equity Loan has been or will be delivered to
the Custodian on behalf of the Indenture Trustee on the Closing Date
or as otherwise provided in Section 2.05;
(iii) Each Home Equity Loan being transferred to the Trust is
secured by a Mortgage;
(iv) Each Property is improved by a single (one-to-four)
family residential dwelling (except for ____% of the Home Equity
Loans in the amount of $_______________), that are condominiums,
planned unit developments, townhouses, manufactured housing, or
multifamily residential, provided that no more than ____% of the
Properties are secured by manufactured homes, each of which is
considered to be real property under the applicable local law;
(v) As of the Cut-Off Date, no Home Equity Loan has a
Loan-to-Value Ratio in excess of ____%, except for ____ Home Equity
Loans in the amount of $___________ that had a Loan- to-Value Ratio
not greater than 100%;
(vi) Each Home Equity Loan is being serviced by the Servicer
in accordance with the terms of this Agreement;
(vii) The Mortgage Note related to each Home Equity Loan bears
a current Coupon Rate of at least ____% per annum;
(viii) Each Mortgage Note with respect to the 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 Mortgage Note on or before its maturity
date except for ___ Home Equity Loans in the amount of $__________
representing ____% of the aggregate Loan Balance of the Home Equity
Loans as of the Cut-Off Date, which may provide for a "balloon"
payment due at the end of the 15th year (except for __ Home Equity
Loans in the amount of $108,361, which provides for a "balloon"
payment at the end of the 10th year);
(ix) As of the Closing Date, each Mortgage is a valid and
subsisting first lien of record (or is in the process of being
recorded) on the Property as noted on Schedule I attached hereto
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
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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 Depositor to the Issuer herein
contemplated, the Depositor held good and indefeasible title to, and
was the sole owner of, each Home Equity Loan (including the related
Mortgage Note) 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 Issuer 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 and except for the
lien of the Indenture;
(xi) As of the opening of business on the Cut-Off Date, no
Home Equity Loan is 30 days or more Delinquent except that there are
___ Home Equity Loans with an outstanding aggregate Loan Balance of
$____________ that are 30 or more days Delinquent but not more than
59 days Delinquent;
(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 Mortgage Note or Mortgage, including the
obligation of the related Mortgagor to pay the unpaid principal of
or interest on such Mortgage 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;
(xvi) With respect to each Home Equity Loan either (a) an
attorney's opinion of title has been obtained but no lender's title
insurance policy has been obtained, 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
insuring the mortgagee's interest under the related Home Equity Loan
as the holder of a valid first 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 Closing Date, such policy is valid
and thereafter such policy shall continue in full force and effect
(provided that an attorney's opinion of title without a lender's
title insurance policy has been obtained with respect to no more
than 2% of the Original Aggregate Loan Balance);
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(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, (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, (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 Mortgage Note are the legal, valid and
binding obligation of the maker thereof and are enforceable in
accordance with their 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 Indenture 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 Indenture Trustee;
(xxi) As of the Closing Date, no more than ___% of the
aggregate Loan Balance of the Home Equity Loans 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 2.05 hereof, are
in the process of being recorded); each Mortgage and assignment of
Mortgage is in recordable form and is acceptable for recording under
the laws of the jurisdiction in which the property securing such
Mortgage is located;
(xxiii) The terms of each Mortgage 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 Note Insurer and which has been
delivered to the Indenture 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
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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 Mortgage 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 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 Schedule of Home Equity Loans. The consolidated principal amount
does not exceed the original principal amount of the related Home
Equity Loan. No Mortgage 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 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 Indenture Trust to the trustee under
the deed of trust, except in connection with a trustee's sale after
default by the related Mortgagor;
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(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) Other than with respect to the Delinquencies noted in
item (xi) hereof, there is no default, breach, violation or event of
acceleration existing under any Mortgage or the related Mortgage
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
Custodian;
(xxxvii) Reserved;
(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 and such Manual conforms in all material respects to the
description thereof set forth in the Prospectus Supplement;
(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 sale to the
Issuer by the Depositor on any basis intended to adversely affect
the Issuer;
(xli) No more than ____% of the aggregate Loan Balance of the
Home Equity Loans are secured by Properties that are non-owner
occupied Properties (i.e., investor-owned and vacation);
(xlii) The Depositor 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 Issuer 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
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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 Issuer 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 Home Equity Loans with
related Properties subject to ground leases does not exceed 1% of
the Original Aggregate Loan Balance;
(xlv) Reserved;
(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 Home Equity Loans was originated under the Seller's non-income
verification program;
(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;
(xlix) Neither the operation of any of the terms of each
Mortgage Note and each Mortgage nor the exercise of any right
thereunder will render either the Mortgage Note or the Mortgage
unenforceable, in whole or in part, nor subject it to any right of
rescission, set-off, counterclaim or defense, including, without
limitation, the defense of usury;
(l) Any adjustment to the Coupon Rate on a Home Equity Loan
has been legal, proper and in accordance with the terms of the
related Mortgage Note;
(li) No Home Equity Loan is subject to negative amortization;
and
(lii) As of the Cut-Off Date, the FTC holder regulation
provided in 16 C.F.R. Part 433 applies to none of the Home Equity
Loans.
(c) In the event that any Qualified Replacement Mortgage is delivered
by the Seller to the Trust pursuant to Section 2.03, Section 2.04 or Section
2.06 hereof, the Seller shall be obligated to take the actions described in
Section 2.04(a) with respect to such Qualified Replacement Mortgage upon the
discovery by any of the Owners, the Seller, the Servicer, the Note Insurer, any
Sub-Servicer, the Custodian or the Indenture 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 Note 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 Closing Date" 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 or the Depositor's
knowledge, such limitation shall not relieve the Seller of its repurchase
obligation under this Section and Section 2.05 hereof.
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(d) It is understood and agreed that the covenants set forth in this
Section 2.04 shall survive delivery of the respective Home Equity Loans
(including Qualified Replacement Mortgages) to the Indenture Trustee or the
Custodian.
(e) The Indenture 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 II or the eligibility of any Home Equity
Loan for the purpose of this Agreement.
Section 2.05 Conveyance of the Home Equity Loans and Qualified
Replacement Mortgages.
(a) On the Closing Date the Depositor, concurrently with the execution
and delivery hereof, transfers, assigns, sets over and otherwise conveys without
recourse, to the Issuer, all of its right, title and interest in and to the 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 Home Equity Loans set forth on the Schedule of Home Equity Loans to the
Issuer is absolute and is intended by all parties hereto to be treated as a sale
by the Depositor. Pursuant to the Indenture, the Issuer will pledge the Trust
Estate to the Indenture Trustee to be held on behalf of the Owners of the Notes.
In the event that such conveyance is deemed to be a loan, the parties
intend that the Depositor shall be deemed to have granted to the Issuer a
security interest in the Trust Estate, and that this Agreement shall constitute
a security agreement under applicable law.
In connection with the sale, transfer, assignment, and conveyance from
the Seller to the Depositor under the Loan Sale Agreement, 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 Home Equity Loans and the other property
described above as collateral. The characterization of the Seller as the 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 statements thereof and to take or cause to be taken such
actions and execute such documents as are necessary to perfect and protect the
Depositor's interest in the Trust Estate.
In connection with the sale, transfer, assignment, and conveyance from
the Depositor to the Issuer, the Depositor has filed, in the appropriate office
or offices in the States of Delaware and Florida a UCC-1 financing statement
executed by the Depositor as debtor, naming the Issuer as secured party and
listing the Home Equity Loans and the other property described above as
collateral. The characterization of the Depositor as a debtor and the Issuer 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 Issuer's, the Owners'
and the Note Insurer's interest in the Trust Estate.
In connection with the pledge of the Trust Estate from the Issuer to
the Indenture Trustee, on behalf of the Owners of the Notes, the Issuer has
filed, in the appropriate office or offices in the State of Delaware, a UCC-1
Financing Statement executed by the Issuer as debtor, naming the Indenture
Trustee, on behalf of the Owners of the Notes, as the secured party and listing
the Home Equity Loans and the other property
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described above as collateral. In connection with such filing, the Issuer 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 Indenture Trustee's interest in the Trust
Estate on behalf of the Owners of the Notes.
(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 and the Depositor agree to:
(i) deliver without recourse to the Custodian, on behalf of
the Indenture Trustee, on the Closing Date with respect to each Home
Equity Loan, (A) the original Mortgage Notes endorsed in blank or to
the order of _______________, as Indenture Trustee for the IMC
Adjustable Rate Home Equity Loan Asset Backed Notes, Series 199__-__
without recourse," (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
Issuer, 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 or retained by the
recording office;
(ii) cause, within 60 days following the Closing Date with
respect to the Home Equity Loans or assignments of the Mortgages to the
_______________, as the Indenture Trustee for the IMC Adjustable Rate
Home Equity Loan Asset Backed Notes, Series 199__-__ without recourse,"
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 until such information is
received; provided, further, that the Seller shall not be required to
record an assignment of a Mortgage if the Seller furnishes to the
Indenture Trustee and the Note Insurer, on or before the Closing Date,
with respect to the Home Equity Loans, at the Seller's expense, an
opinion of counsel with respect to the relevant jurisdiction that such
recording is not necessary to perfect the Indenture Trustee's interest
in the related Home Equity Loans (in form and substance satisfactory to
the Indenture Trustee, and the Note Insurer and the Rating Agencies);
provided further, however, notwithstanding the delivery of any legal
opinions, each assignment of Mortgage shall be recorded upon the
earliest to occur of: (i) reasonable direction by the Note Insurer or
(ii) the occurrence of a Servicer Termination Event;
(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 Indenture 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 Home Equity
Loans).
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Notwithstanding anything to the contrary contained in this Section
2.05, 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 Seller and the Depositor shall be
deemed to have satisfied their obligations hereunder upon delivery to the
Custodian, on behalf of the Indenture 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 this subsection (b), the Seller shall deliver to the
Custodian, on behalf of the Indenture 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 Indenture
Trustee shall make an immediate demand on the Seller to prepare such Mortgage
assignments, and shall inform the Note Insurer, in writing, of the Seller's
failure to prepare such Mortgage assignments. Thereafter, the Custodian, on
behalf of the Indenture Trustee shall cooperate in executing any documents
prepared by the Note Insurer and submitted to the Custodian, on behalf of the
Indenture Trustee in connection with this provision. Following the expiration of
the 60-day period referred to in clause (ii) of this subsection (b), 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
Indenture 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 Closing Date and has not provided to the
Custodian, on behalf of the Indenture Trustee a Mortgage assignment with
evidence of recording thereon relating to the assignment of such Mortgage to the
Indenture Trustee, the Custodian, on behalf of the Indenture 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 Closing Date. A copy of such notice shall be sent by the
Custodian, on behalf of the Indenture Trustee to the Note 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 contained in clause (xxii) of Section 2.04(b)
hereof; provided, however, that if as of the end of such 20th calendar month the
Seller demonstrates to the satisfaction of the Note 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 Indenture Trustee, the Seller continues to demonstrate to the
satisfaction of the Note 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 Indenture Trustee shall be retained in the related File.
All recording required pursuant to this Section 2.05 shall be
accomplished at the expense of the Seller.
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(c) In the case of Home Equity Loans which have been prepaid in full
after the Cut-Off Date and prior to the Closing Date, the Seller, in lieu of the
foregoing, will deliver within six (6) days after the Closing Date to the
Indenture Trustee a certification of an Authorized Officer in the form set forth
in Exhibit A.
(d) The Seller shall transfer, assign, set over and otherwise convey
without recourse, to the Depositor and the Depositor shall transfer, assign, set
over and otherwise convey without recourse, to Issuer all right, title and
interest of the Seller in and to any Qualified Replacement Mortgage delivered to
the Custodian, on behalf of the Indenture Trustee on behalf of the Issuer by the
Seller pursuant to Section 2.03, 2.04 or 2.06 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 lien of the Indenture
in connection with the conveyance of a Qualified Replacement Mortgage therefor,
the Indenture Trustee will transfer, assign, set over and otherwise convey
without recourse or representation, on the Seller's order, all of its and the
Issuer's 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 Issuer, the Seller agrees to (i) deliver without
recourse to the Custodian, on behalf of the Indenture Trustee on the date of
delivery of such Qualified Replacement Mortgage the original Mortgage Note
relating thereto, endorsed in blank or to the order of _______________, as
Indenture Trustee for IMC Adjustable Rate Home Equity Loan Asset Backed Notes,
Series 199__-__ without recourse," (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 Indenture Trustee within 15 days of receipt thereof
by the Seller (but in any event within 60 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
2.05(b)(i)(B), the other evidence of title in same required in Section
2.05(b)(i)(B).
(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 Indenture Trustee shall deliver on the date of conveyance of such
Qualified Replacement Mortgage and on the order of the Seller (i) the original
Mortgage 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.
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Section 2.06 Acceptance by Indenture Trustee; Certain Substitutions of
Home Equity Loans; Certification by Indenture Trustee.
(a) The Indenture Trustee agrees to execute and deliver and to cause
the Custodian to execute and deliver on the Closing Date an acknowledgment of
receipt of the items delivered by the Seller or the Depositor in the forms
attached as Exhibit B-1 and Exhibit B-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 Indenture Trustee,
as Indenture Trustee in trust upon and subject to the conditions set forth
herein and in the Indenture for the benefit of the Owners. The Indenture Trustee
agrees, for the benefit of the Owners, to cause the Custodian to review such
items within 45 days after the Closing Date (or, with respect to any document
delivered after the Closing Date, within 45 days of receipt and with respect to
any Qualified Replacement Mortgage, within 45 days after the assignment thereof)
and to deliver to the Depositor, the Seller, the Servicer, the Issuer and the
Note Insurer a certification in the form attached hereto as Exhibit C (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 2.05(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. Neither the Custodian on behalf of the Indenture Trustee, nor the
Indenture Trustee shall have any responsibility for reviewing any File except as
expressly provided in this subsection 2.06(a). Without limiting the effect of
the preceding sentence, in reviewing any File, the Custodian or the Indenture
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 Indenture 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. Neither the Custodian on behalf of the Indenture Trustee, nor
the Indenture Trustee shall be under any 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 Custodian or the Indenture 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 Indenture 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 behalf of the Indenture Trustee shall promptly
so notify the Depositor, the Seller, the Issuer, the Owners and the Note
Insurer. In performing any such review, the Custodian, on behalf of the
Indenture 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 2.05(b)(i) is limited solely to confirming that the documents listed in
Section 2.05(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
Indenture Trustee. If, however, within 90 days after such notice to it
respecting
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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 Note 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 Indenture Trustee also agrees to
cause the Custodian 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 Indenture Trustee and the
Servicer shall provide to the Note Insurer no less frequently than monthly
updated certifications indicating the then current status of exceptions, until
all such exceptions have been eliminated.
Section 2.07 Reserved.
Section 2.08 Custodian.
Notwithstanding anything to the contrary in this Agreement, the parties
hereto acknowledge that the functions of the Indenture Trustee with respect to
the custody, acceptance, inspection and release of the Files pursuant to
Sections 2.05, 2.06, 2.07 and 4.14 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.
Section 2.09 Books and Records.
The sale of each Home Equity Loan shall be reflected in the Depositor's
balance sheets and other financial statements as a sale of assets by the
Depositor under generally accepted accounting principles.
END OF ARTICLE II
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ARTICLE III
ACCOUNTS, DISBURSEMENTS AND RELEASES
Section 3.01 Reserved.
Section 3.02 Establishment of Accounts.
(a) The Depositor shall cause to be established on the Closing Date,
and the Indenture Trustee shall maintain, at the Corporate Trust Office, the
Note Account, and the Available Funds Cap Carry-Forward Amount Account each to
be held by the Indenture Trustee in the name of the Indenture Trustee, in trust
for the Owners of the IMC Adjustable Rate Home Equity Loan Asset Backed Notes,
Series 199__-__ and the Note Insurer as their interests may appear.
(b) On each Determination Date the Indenture Trustee shall determine
(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 Note Account (inclusive of any investment earnings on Eligible
Investments held in the Note Account) as of such date on such Payment Date
(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 included
in such amounts plus (y) any amounts of related Total Monthly Excess Cashflow to
be applied on such Payment Date. The amount described in clause (x) of the
preceding sentence with respect to each Payment Date is the "Available Funds"
and the sum of the amounts described in clauses (x) and (y) of the preceding
sentence with respect to each Payment Date is the "Total Available Funds."
Section 3.03 Flow of Funds.
(a) The Indenture Trustee shall deposit in the Note Account without
duplication, upon receipt, any Insured Payments from the Policy Payment Account
pursuant to Section 7.02(b) hereof, the proceeds of any liquidation of the
assets of the Trust, all remittances made to the Indenture Trustee pursuant to
Section 4.08(d)(ii) and the Monthly Remittance Amount remitted by the Servicer.
(b) With respect to funds on deposit in the Note Account, on each
Payment Date, the Indenture 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 Note Account, (A) to, itself, the Indenture Trustee Fee
and the Indenture Trustee Reimbursable Expenses, and (B)
provided that no Note Insurer Default has occurred and is
continuing the Premium Amount for such Payment Date shall be
paid to the Note Insurer;
(ii) second, on each Payment Date, the Indenture 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
Overcollateralization Reduction Amount with respect to such
Payment Date (such sum being the "Total Monthly Excess
Cashflow" with respect to such Payment Date) in the following
order of priority:
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(A) first, such Total Monthly Excess Cashflow shall be
allocated to the payment of the Principal
Distribution Amount pursuant to clause (b)(iv) below
(excluding any Overcollateralization Increase Amount)
in an amount equal to the amount, if any, by which
(x) the Principal Distribution Amount (excluding any
Overcollateralization Increase Amount) exceeds (y)
the Available Funds (net of the Current Interest and
the Trust Fees and Expenses) and shall be paid as
part of the Principal Distribution Amount pursuant to
clause (iv)(C) below (the amount of such difference
being the "Available Funds Shortfall"); and
(B) second, any portion of the Total Monthly Excess
Cashflow remaining after the allocations described in
clause (A) above shall be allocated to the payment to
the Note Insurer in respect of amounts owed on
account of any Reimbursement Amount pursuant to
clause (b)(iv)(A)(I).
(iii) third, the amount, if any, of the Total Monthly Excess
Cashflow on a Payment Date remaining after the allocations and
payments described in clause (ii) above (the "Net Monthly
Excess Cashflow" for such 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 Notes of an Overcollateralization Increase
Amount included in the Principal Distribution Amount,
which shall be retained pursuant to clause (iv)(C)
below, any Overcollateralization Deficiency Amount as
of such Payment Date;
(B) second, an amount equal to the lesser of (i) any
portion of the Net Monthly Excess Cashflow remaining
after the applications described in clause (A) and
(ii) the excess of (a) the Available Funds Cap
Carry-Forward Amount for such Payment Date over (b)
the amount then on deposit in the Available Funds Cap
CarryForward Amount Account shall be deposited into
the Available Funds Cap CarryForward Amount Account;
(C) third, any Net Monthly Excess Cashflow remaining
after the application described in clauses (A) and
(B) above shall be allocated to the payment to the
Servicer pursuant to clause (iv)(A)(II) below to the
extent of any unreimbursed Delinquency Advances and
unreimbursed Servicing Advances;
(iv) fourth, following the making by the Indenture Trustee of all
allocations, transfers and disbursements described above from
amounts (including any related Insured Payment) then on
deposit in the Note Account, the Indenture Trustee shall:
(A) distribute (I) to the Note Insurer the amounts
described in clause (ii)(B) above and (II) to the
Servicer the amounts described in clause (iii)(C)
above;
(B) retain in the Note Account, the Current Interest
(including the proceeds of any Insured Payments
relating to interest made by the Note Insurer);
(C) retain in the Note Account, the Principal
Distribution Amount (including the proceeds of any
Insured Payments relating to principal made by the
Note Insurer);
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(D) distribute to the Indenture Trustee, for the
reimbursement of expenses of the Indenture Trustee
not reimbursed pursuant to clause (b)(i) above which
expenses were incurred in connection with its duties
and obligations hereunder; and
(v) fifth, following the making by the Indenture Trustee of all
allocations, transfers and disbursements described above, the
Indenture Trustee shall distribute to the Certificate
Distribution Account, the Residual Net Monthly Excess
Cashflow, if any, for such Payment Date.
(c) On each Payment Date, the Indenture Trustee shall distribute to the
Owners, the amount, if any, then on deposit in the Available Funds Cap
Carry-Forward Amount Account.
(d) Notwithstanding any of the foregoing provisions, the aggregate
amounts distributed on all Payment Dates to the Owners of the Notes on account
of principal pursuant to clause (b)(iv)(C) shall not exceed the original Note
Principal Balance.
(e) Upon receipt of Insured Payments from the Note Insurer on behalf of
Owners of the Notes, the Indenture Trustee shall deposit such Insured Payments
in the Policy Payments Account. On each Payment Date, pursuant to Section
7.02(b) hereof, such amounts will be transferred from the Policy Payment Account
to the Note Account and the Indenture Trustee shall distribute such Insured
Payments, or the proceeds thereof in accordance with Section 3.03(b), to the
Owners of such Notes.
(f) The Indenture Trustee or Paying Agent shall (i) receive for each
Owner of the Notes any Insured Payment from the Note Insurer and (ii) disburse
the same to the Owners of the Notes as set forth in Section 3.03(b). Insured
Payments disbursed by the Indenture Trustee or Paying Agent from proceeds of the
Note Insurance Policy shall not be considered payment by the Trust, nor shall
such payments discharge the obligation of the Trust with respect to such Notes
and the Note Insurer shall be entitled to receive the Reimbursement Amount
pursuant to Section 3.03(b)(ii)(B) hereof. Nothing contained in this paragraph
shall be construed so as to impose duties or obligations on the Indenture
Trustee that are different from or in addition to those expressly set forth in
this Agreement.
Section 3.04 Reserved.
Section 3.05 Investment of Accounts.
(a) Consistent with any requirements of the Code, all or a portion of
any Account held by the Indenture Trustee for the benefit of the Owners shall be
invested and reinvested by the Indenture Trustee in trust for the benefit of the
Owners and the Note Insurer, as directed in writing by the Seller, in one or
more Eligible Investments bearing interest or sold at a discount. The bank
serving as Indenture 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 Indenture Trustee and sufficient uninvested funds are not available to make
such disbursement, the Indenture 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.
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(c) Subject to the terms of the Indenture, the Indenture Trustee shall
not in any way be held liable by reason of any insufficiency in any Account held
by the Indenture Trustee resulting from any loss on any Eligible Investment
included therein (except to the extent that the bank serving as Indenture
Trustee is the obligor thereon).
(d) The Indenture Trustee shall invest and reinvest funds in the
Accounts held by the Indenture Trustee, in accordance with the written
instructions delivered to the Indenture Trustee on the Closing Date, 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
Indenture Trustee then the Indenture Trustee shall invest in money market funds
described in Section 3.07(j) 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 Indenture 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 4.08(b) that the Servicer
contribute funds in an amount equal to such loss in the case of the Principal
and Interest Account.
Section 3.06 Payment of Trust Expenses.
(a) The Seller shall pay the amount of the expenses of the Trust (other
than payments of premiums to the Note Insurer) (including the Indenture
Trustee's fees and expenses not covered or paid by Section 3.03(b)(i) and
3.03(b)(iv)(D)), 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 Closing Date the reasonable
fees and expenses of counsel to the Indenture Trustee and the Owner Trustee.
(c) In the event the Depositor fails to do so, the Seller shall pay the
fees and expenses (including any "Expenses" (as defined in the Trust Agreement)
of the Owner Trustee.
Section 3.07 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 Fannie Mae 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;
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(e) Fannie Mae 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:
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
Indenture Trustee or an independent third party acting solely as agent
for the Indenture 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 Note
Insurer, and the Indenture 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 Indenture Trustee, and
c. A perfected first security interest under the Uniform
Commercial Code, or book entry procedures prescribed at 31 C.F.R. 306.1
et seq. or 31 CFR 350.0 et seq., in such securities is created for the
benefit of the Indenture Trustee, and
d. The repurchase agreement has a term of thirty days or less
and the Indenture 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 registered under the
Investment Company Act of 1940 whose shares are registered under the Securities
Act and rated AAAm or AAAm-G by Standard & Poor's and Aaa by Moody's; and
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(k) Any other investment permitted by each of the Rating Agencies and
the Note 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 3.08 Accounting and Directions by Indenture Trustee.
By 12:00 noon, New York time, on each Payment Date (or such earlier
period as shall be agreed by the Seller and the Indenture Trustee), the
Indenture Trustee shall notify (based solely on information provided to the
Indenture Trustee by the Servicer and upon which the Indenture Trustee may rely)
the Seller, the Depositor, each Owner and the Note 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):
(1) The aggregate amount on deposit in the Note Account as of
the related Determination Date;
(2) The Monthly Distribution Amount, on the next Payment Date;
(3) The amount of any Overcollateralization Increase Amount;
(4) The amount of any Insured Payment to be made by the Note
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 Monthly
Distribution Amount on such Payment Date in accordance with Section
3.03 hereof;
(6) The Note Principal Balance;
(7) The amount, if any, of any Realized Losses for the related
Remittance Period; and
(8) The amount of any Overcollateralization Reduction Amount.
Section 3.09 Reports by Indenture Trustee to Owners and Note Insurer.
(a) On the Business Day preceding each Payment Date the Indenture
Trustee shall transmit a report in writing to each Owner, the Owner Trustee, the
Note Insurer, Standard & Poor's and Moody's, which report shall contain the
following:
(i) the amount of the distribution with respect to such
Owners' Notes (based on a Note in the original principal amount of
$1,000);
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(ii) the amount of such Owner's distributions allocable to
principal, separately identifying the aggregate amount of any
Prepayments in full or other Prepayments or other recoveries of
principal included therein and any related Overcollateralization
Increase Amount;
(iii) the amount of such Owner's distributions allocable to
interest (based on a Note in the original principal amount of $1,000);
(iv) if the interest portion of the Monthly Distribution
Amount (net of any Insured Payment) paid to the Owners of the Notes on
such Payment Date was less than the Current Interest on such Payment
Date, the Carry Forward Amount resulting therefrom;
(v) the amount of any Insured Payment included in the amounts
distributed to the Owners of Notes on such Payment Date;
(vi) the principal amount of the Notes which will be
Outstanding and the aggregate Loan Balance after giving effect to any
payment of principal on such Payment Date;
(vii) the Overcollateralization Amount and
Overcollateralization 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;
(x) the weighted average Coupon Rate of the Home Equity Loans;
(xi) such other information as the Note Insurer or any Owner
may reasonably request with respect to Delinquent Home Equity Loans;
(xii) the weighted average gross margin of the Home Equity
Loan;
(xiii) the Loan Balance of each of the three largest Home
Equity Loans outstanding;
(xiv) the Note Rate; and
(xv) the Available Funds Cap Carry Forward Amortization
Amount, if any, and the Available Funds Cap Carry Forward Amount, if
any.
The Servicer shall provide to the Indenture Trustee the information
described in Section 4.08(d)(iii) and in clause (b) below to enable the
Indenture Trustee to perform its reporting obligations under this Section, and
such obligations of the Indenture 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 Indenture Trustee
pursuant to Section 4.08 hereof.
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(b) In addition, on the Business Day preceding each Payment Date the
Indenture Trustee will distribute to each Owner, the Owner Trustee, the Note
Insurer, Standard & Poor's and Moody's, together with the information described
in Subsection (a) preceding, the following information which is hereby required
to be prepared by the Servicer and furnished to the Indenture Trustee for such
purpose on or prior to the related Monthly Reporting Date:
(i) the number and aggregate principal balances of Home Equity
Loans (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 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 with respect to which foreclosure proceedings were commenced in
the immediately preceding calendar month;
(iii) the number of Mortgagors and the Loan Balances of (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, 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 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); and
(vii) the 90+ Delinquency Percentage (Rolling Six Month) and
the amount of 90-Day Delinquent Loans.
Section 3.10 Reports by Indenture Trustee.
(a) The Indenture Trustee shall report to the Depositor, the Seller,
the Note Insurer and each Owner, with respect to the amount on deposit in the
Note Account and the identity of the investments included therein, as the
Depositor, the Seller, any Owner or the Note Insurer may from time to time
reasonably request. Without limiting the generality of the foregoing, the
Indenture Trustee shall, at the reasonable request of the Issuer, the Seller,
any Owner or the Note Insurer transmit promptly to the Issuer, the Seller, any
Owner and the Note 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 Note Insurer if any Monthly Remittance Amount has not been
received by the Indenture Trustee when due.
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(b) The Indenture Trustee shall report to the Note 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 2.04(b) hereof are inaccurate.
END OF ARTICLE III
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ARTICLE IV
SERVICING AND ADMINISTRATION
OF HOME EQUITY LOANS
Section 4.01 Servicer and Sub-Servicers.
Acting directly or through one or more Sub-Servicers as provided in
Section 4.03, 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 Fannie Mae 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 Note 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 Fannie Mae Guide (as such provisions relate to
second lien mortgages); provided, however, that to the extent that such
standards, such obligations or the Fannie Mae Guide are amended by Fannie Mae
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 4.03 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 4.13 and 4.14, 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 Indenture Trustee to execute and deliver, and may
be authorized and empowered by the Indenture Trustee, to execute and deliver, on
behalf of itself, the Owners, the Issuer and the Indenture 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 Issuer
and Indenture Trustee, and (iii) to hold title to any Property upon such
foreclosure or deed in lieu of foreclosure on behalf of the Issuer and Indenture
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 Note Insurer, and provided further, however, that Section 4.13(a)
and Section 4.14(a) shall each constitute a revocable power of attorney from the
Issuer and Indenture 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 Indenture 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
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Indenture Trustee, (ii) a Servicer Termination Event or (iii) the termination of
the Notes. The Indenture Trustee shall execute 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 4.13 and 4.14, the Indenture 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 Indenture Trustee or the Issuer, the Servicer
shall send to the Indenture Trustee or the Issuer, 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 Indenture Trustee and the
Issuer 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 4.09(b) hereof.
Section 4.02 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 Fannie Mae 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
Mortgage 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
4.09(a) hereof.
Section 4.03 Sub-Servicing Agreements Between Servicer and
Sub-Servicers.
The Servicer may, with the prior written consent of the Note Insurer,
enter into Sub-Servicing Agreements for any servicing and administration of Home
Equity Loans with any institution which is acceptable to the Note 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
Indenture Trustee, the Owners, the Note 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
Notes). 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
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and not violate the provisions of this Agreement. Each Sub-Servicing Agreement
shall provide that the Indenture Trustee (if acting as successor Servicer) or
any other successor Servicer shall have the option to terminate such agreement
without payment of any fees if the original Servicer is terminated or resigns.
The Servicer shall deliver to the Indenture Trustee and the Note 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 4.04 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 4.03.
Section 4.05 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; provided, however, that 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 Issuer, the Indenture
Trustee, the Note Insurer, the Depositor 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 Issuer, the Indenture
Trustee, the Note 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 Issuer, the Indenture Trustee, the Depositor, the Note 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 Indenture Trustee and the
Note 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 Issuer, the
Servicer, the Indenture Trustee, the Depositor, the Note Insurer and/or Owner in
respect of such claim. The Indenture Trustee shall, in accordance with
instructions received from the Servicer, reimburse the Servicer only from
amounts otherwise distributable on the Notes 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 4.05(b) shall survive the termination of this Agreement and the payment
of the outstanding Notes.
Section 4.06 No Contractual Relationship Between Sub-Servicer,
Indenture 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 Indenture 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 4.07.
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Section 4.07 Assumption or Termination of Sub-Servicing Agreement by
Indenture 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 Indenture Trustee pursuant to Section 4.20, 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 Indenture Trustee without act or deed on part of the Indenture Trustee;
provided, however, that the Indenture Trustee (if acting as successor Servicer)
or any other successor Servicer may terminate the Sub-Servicer as provided in
Section 4.03.
The Servicer shall, upon the reasonable request of the Indenture
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 4.08 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
Indenture Trustee in trust for the benefit of the Owners of the IMC Adjustable
Rate Home Equity Loan Asset Backed Notes, Series 199__-__. 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 Indenture Trustee. The Servicer shall notify the
Indenture Trustee, the Note 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 up to the amount insured by the FDIC 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. 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 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
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Equity Loan immediately prior to liquidation, plus (II) accrued and unpaid
interest on such Home Equity Loan (net of the related 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, (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 Mortgage 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, only in the following priority and for the
following purposes:
(A) on each Monthly Remittance Date, to pay itself the related
Servicing Fees;
(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 4.09(a) for
unrecovered Delinquency Advances and for any excess interest collected from a
Mortgagor; and
(E) to clear and terminate the Principal and Interest Account
following the termination of the Trust pursuant to Article V.
(ii) The Servicer shall (a) remit to the Indenture Trustee for deposit
in the Note 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
Reporting Date, deliver to the Indenture Trustee and the Note Insurer, a monthly
servicing report 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 Indenture Trustee and the Note Insurer in writing on each
Monthly Reporting Date, 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 Indenture Trustee in writing
the information described in Section 4.08(d)(ii)(b) and in Section 4.09(b) to
enable the Indenture Trustee to perform its reporting requirements under Section
3.09.
Section 4.09 Delinquency Advances and Servicing Advances.
(a) On each Monthly Remittance Date, the Servicer shall be required to
remit to the Indenture Trustee for deposit to the Note 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
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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 that are not required to be distributed on
the Payment Date occurring during the month in which such reimbursement is made
(all or any portion of such amount to be replaced on future Monthly Remittance
Dates to the extent required for distribution) or as provided in Section
3.03(b)(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 Indenture Trustee and the Note Insurer; the Indenture Trustee shall promptly
furnish a copy of such notice to the Owners of the Notes; 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 4.13(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 3.03(b)(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
3.03(b)(iii)(C).
Section 4.10 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 in the Monthly Remittance Amount to be made available to the
Indenture 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
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enforcement proceedings have been brought by the Servicer pursuant to Section
4.13. Any such Home Equity Loan so purchased shall be purchased by the Servicer
on or prior to 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 Note Insurer of such repurchase. In all other
cases, the Servicer must notify the Note 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 Note Insurer; provided, that the
Note 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 Indenture Trustee as part of the Daily Collections remitted by the
Servicer to the Indenture Trustee.
Section 4.11 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 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 4.12 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
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maturity of the related Home Equity Loan under any "due-on-sale" clause
contained in the related Mortgage or Mortgage 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 Mortgage 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
Mortgage 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 Note 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 Indenture Trustee that any such
assumption or substitution agreement has been completed by forwarding to the
Indenture Trustee or to the Custodian on the Indenture Trustee's behalf the
original copy of such assumption or substitution agreement (indicating the File
to which it relates) which copy shall be added by the Indenture Trustee or by
the Custodian on the Indenture Trustee's behalf 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 4.13 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 Indenture 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 4.10(b). In connection with such
foreclosure or other 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 Fannie Mae 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 4.09(b) hereof.
The Servicer shall sell any REO Property within 23 months of its acquisition by
the Trust, at such price as the Servicer in good faith deems necessary to comply
with this covenant unless the Servicer obtains for the Note Insurer and the
Indenture Trustee, an opinion of counsel (the expense of which opinion shall be
a Servicing Advance) experienced in federal
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income tax matters acceptable to the Note Insurer and the Indenture Trustee,
addressed to the Note Insurer, the Indenture 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 the Trust. 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
Note Insurer.
(b) The Servicer shall determine, with respect to each defaulted Home
Equity Loan and in accordance with the procedures set forth in the Fannie Mae
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" and the Servicer shall promptly submit a Liquidation Report
(as defined in the Insurance Agreement) to the Note Insurer.
(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 Payment Date.
Notwithstanding anything set out in this Section 4.13(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.
(d) The Servicer shall provide written notice to the Indenture Trustee
and the Note Insurer prior to the execution of any modification, waiver or
amendment of any provision of any Home Equity Loan; provided that if the Note
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 Indenture 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.
(e) The Servicer has no intent to foreclose on any Mortgage based on
the delinquency characteristics as of the Closing Date; provided, that the
foregoing does not prevent the Servicer from initiating foreclosure proceedings
on any date hereafter if the facts and circumstances of such Mortgage including
delinquency characteristics in the Servicer's discretion so warrant such action.
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Section 4.14 Indenture 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 Indenture Trustee the Fannie Mae "Request for
Release of Documents" (Fannie Mae Form 2009). Upon receipt of such Request for
Release of Documents, the Custodian, on behalf of the Indenture 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 Indenture 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 Indenture Trustee and the
mortgagee under the Mortgage which secured the Mortgage 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 Indenture 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 Indenture Trustee, a satisfaction (or
assignment without recourse, if requested by the Person or Persons entitled
thereto) in form for execution by the Indenture Trustee with all requisite
information completed by the Servicer; in such event, the Custodian, on behalf
of the Indenture 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 prior written
consent of the Note 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 Mortgage 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 Mortgage Note on the
Cut-Off Date, or Subsequent Cut-Off Date, as applicable, and any increase in the
Loan-to-Value Ratio shall not exceed 5% unless approved in writing by the Note
Insurer; and (z) the lien priority of the related Mortgage is not affected. Upon
receipt by the Indenture 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 Indenture 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 Note Insurer and the Rating
Agencies if an application is approved under clause (y) above without approval
in writing by the Note Insurer.
Section 4.15 Servicing Compensation.
As compensation for its activities hereunder, the Servicer shall be
entitled to retain the amount of the related 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 4.08(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 4.20 hereof, in which case the successor Servicer
shall be entitled to such fees as are
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agreed upon by the Indenture Trustee, the Note Insurer, the successor Servicer
and the majority of the Percentage Interests of the 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 4.16 Annual Statement as to Compliance.
The Servicer, at its own expense, will deliver to the Indenture
Trustee, the Note Insurer, the Depositor, the Issuer, and the Rating Agencies,
on or before April 30 of each year, commencing in _____, 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.
The Servicer shall deliver to the Issuer, the Indenture Trustee, the
Note Insurer and the Rating Agencies, promptly after having obtained knowledge
thereof but in no event later than five Business Days thereafter, written notice
by means of an Officer's Certificate of any event which with the giving of
notice or the lapse of time would become a Servicer Termination Event.
Section 4.17 Annual Independent Certified Public Accountants' Reports.
On or before April 30 of each year, commencing in _____, the Servicer,
at its own expense (or if the Indenture 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 Issuer, the Indenture Trustee, the Note
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 Note Insurer stating that such firm has examined the
Servicer's overall servicing operations in accordance with the requirements of
the Uniform Single Attestation Procedure for Mortgage Bankers, and stating such
firm's conclusions relating thereto.
Section 4.18 Access to Certain Documentation and Information Regarding
the Home Equity Loans.
The Servicer shall provide to the Indenture Trustee, the Note 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.
Section 4.19 Assignment of Agreement.
Other than with respect to entering into Sub-Servicing Agreements
pursuant to Section 4.03 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 Indenture Trustee and the Note Insurer, which such
consent shall not be unreasonably withheld; provided, however, that any assignee
must meet the eligibility requirements set forth in Section 4.20(h) hereof for a
successor servicer.
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Section 4.20 Removal of Servicer; Retention of Servicer; Resignation of
Servicer.
(a) The Note Insurer or the Indenture Trustee (with the prior written
consent of the Note Insurer) (or, except in the case of item (vi) below, the
Owners, with the consent of the Note Insurer) may remove the Servicer upon the
occurrence of any of the following events (each a "Servicer Termination Event"):
(i) The Servicer shall (A) apply for or consent to the
appointment of a receiver, trustee, liquidator or custodian or similar
entity with respect to itself or its property, (B) admit in writing its
inability to pay its debts generally as they become due, (C) make a
general assignment for the benefit of creditors, (D) be adjudicated a
bankrupt or insolvent, (E) 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 (F) 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 material 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 Indenture Trustee or the
Note Insurer of said failure; provided, however, that if the Servicer
can demonstrate to the reasonable satisfaction of the Note Insurer that
it is diligently pursuing remedial action, then the cure period may be
extended with the written approval of the Note Insurer; or
(iv) The Servicer shall fail to cure any breach of any of its
representations and warranties set forth in Section 2.02 which
materially and adversely affects the interests of the Owners or the
Note Insurer for a period of sixty (60) days after the earlier of the
Servicer's discovery or receipt of notice thereof; provided, however,
that if the Servicer can demonstrate to the reasonable satisfaction of
the Note Insurer that it is diligently pursuing remedial action, then
the cure period may be extended with the written approval of the Note
Insurer; or
(v) The merger, consolidation or other combination of the
Servicer with or into any other entity, unless (A) the Servicer or an
Affiliate of the Servicer is the surviving entity of such combination
or (B) the surviving entity (I) is servicing at least $____________ of
home equity loans that are similar to the Home Equity Loans, (II) has
equity of not less than $10,000,000 (as determined in accordance with
generally acceptable account principles), (III) is consented to by the
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Note Insurer (such consent not to be unreasonably withheld) and (IV)
agrees to assume the Servicer's obligations thereunder; or
(vi) The failure of the Servicer (except the Indenture 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 December 31, March 31,
June 30 and September 30 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 4.20(b) shall
prohibit the Note Insurer or the Indenture Trustee from removing the Servicer
pursuant to Section 4.20(a). Notwithstanding the foregoing, the Note 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 Note Insurer upon written notice delivered to the Indenture
Trustee and the Servicer at least fifteen days prior to the expiration of the
related quarterly period.
(c) The Note Insurer agrees to use its best efforts to inform the
Indenture Trustee of any materially adverse information regarding the Servicer's
servicing activities that comes to the attention of the Note 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 Indenture Trustee and the Note Insurer at the expense of the
Servicer to such effect which shall be delivered to the Indenture Trustee and
the Note Insurer.
(e) No removal or resignation of the Servicer shall become effective
until the Indenture 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 Indenture 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.
(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 Indenture Trustee and remitted
directly and immediately to the Indenture Trustee or the successor Servicer.
(h) Upon removal or resignation of the Servicer, the Indenture Trustee
may (i) solicit bids for a successor servicer as described below or (ii) shall
appoint the Backup Servicer as Servicer. If the Indenture Trustee elects to
solicit bids for a successor Servicer, the Indenture Trustee agrees to act as
Backup Servicer
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during the solicitation process and shall assume all duties of the Servicer
(except as otherwise provided in this Agreement). The Indenture 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 Fannie Mae 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 Note Insurer), as
determined in accordance with generally accepted accounting principles and
acceptable to the Note 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 Indenture Trustee in its capacity as successor Servicer) so appointed shall
be the amount agreed to between the successor Servicer, the Note Insurer and the
majority of the Percentage Interests of the Certificates, (up to a maximum of
____% per annum on each Home Equity Loan) together with the other servicing
compensation in the form of assumption fees, late payment charges or otherwise
as provided in Sections 4.08 and 4.15; provided, however, that if the Indenture
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 Indenture
Trustee acts as successor Servicer then the Servicer agrees to pay to the
Indenture Trustee at such time that the Indenture Trustee becomes such successor
Servicer a set-up fee of twenty-five dollars ($25.00) for each Home Equity Loan
then included in the Trust Estate. The amount payable in excess of twenty-five
dollars ($25.00) per Home Equity Loan, if any, shall be payable to the successor
Servicer and reimbursable pursuant to Section 3.03(b)(iii)(C) hereof. The
Indenture Trustee shall be obligated to serve as successor Servicer whether or
not the fee described in this section is paid by the Servicer, but shall in any
event be entitled to receive, and to enforce payment of, such fee from the
Servicer.
(i) In the event the Indenture Trustee elects to solicit bids as
provided above, the Indenture 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 (h) above, together with the
other servicing compensation in the form of assumption fees, late payment
charges or otherwise as provided in Sections 4.08 and 4.15. Within thirty days
after any such public announcement, the Indenture 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 it will pay to obtain servicing. The Indenture
Trustee shall deduct from any sum received by the Indenture 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 Indenture Trustee
or the Trust from the Servicer shall be paid by the Indenture Trustee to the
Servicer at the time of such sale, transfer and assignment to the Servicer's
successor.
(j) The Indenture 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 Indenture Trustee and any
successor Servicer in effecting the termination of the Servicer's servicing
responsibilities and rights hereunder and shall promptly provide the Indenture
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 also transfer to the Indenture 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
Indenture Trustee nor any other successor Servicer shall be held liable by
reason of any failure to make, or any delay
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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 Servicer agrees to reimburse the Trust, the Owners and the Note
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 twenty-five dollars ($25.00) for each Home Equity Loan
then included in the Trust Estate. The amount payable in excess of twenty-five
dollars ($25.00) per Home Equity Loan, if any, shall be payable to the successor
Servicer and reimbursable pursuant to Section 3.03(b)(iii)(C) hereof.
(k) The Indenture 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
Indenture Trustee pursuant to Section 2.05(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 Indenture Trustee is acting as successor
Servicer, the Indenture Trustee shall only be required to make Delinquency
Advances (including the Delinquency Advances described in this clause (k)) if,
in the Indenture 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 Indenture Trustee shall give notice to the Note Insurer, the
Owners, the Owner Trustee, the Seller, Moody's and Standard & Poor's of the
occurrence of any event described in paragraph (a) above of which the Indenture
Trustee is aware.
Section 4.21 Inspections by Note Insurer; Errors and Omissions
Insurance.
(a) At any reasonable time and from time to time upon reasonable
notice, the Indenture Trustee, the Note Insurer, any Owner or the Issuer, 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 Indenture 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
Fannie Mae 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 Indenture Trustee shall promptly give such notice to the
Note Insurer, the Issuer and the Owners.
Section 4.22 Reserved.
Section 4.23 Adjustable Rate Home Equity Loans.
The Servicer shall enforce each Home Equity Loan in accordance with its
terms and shall timely calculate, record, report and apply all interest rate
adjustments in accordance with the related Mortgage Note. The Servicer's records
shall, at all times, reflect the then Coupon Rate and monthly payment and the
Servicer
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shall timely notify the Mortgagor of any changes to the Coupon Rate or the
Mortgagor's monthly payment. If the Servicer fails to make either a timely or
accurate adjustment to the Coupon Rate or monthly payment or to notify the
Mortgagor of such adjustments, upon the Servicer's discovery of such error and
such continued failure, the Servicer shall pay from its own funds any shortage.
If the Servicer's continued failure after notice thereof to make a scheduled
change affects the Trust's rights to make future adjustments under the terms of
such Home Equity Loan, the Servicer shall repurchase such Home Equity Loan in
accordance with the provisions of Article II hereof. Any amounts paid by the
Servicer pursuant to this Section shall not be an advance and shall not be
reimbursable from the proceeds of any Home Equity Loan.
END OF ARTICLE IV
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ARTICLE V
TERMINATION
Section 5.01 Termination.
This Agreement will terminate upon notice to the Indenture Trustee of
either: (a) the later of (i) the satisfaction and discharge of the Indenture
pursuant to Section 4.1 of the Indenture or (ii) the disposition of all funds
with respect to the last Home Equity Loan and the remittance of all funds due
hereunder and the payment of all amounts due and payable to the Indenture
Trustee, the Owner Trustee, the Issuer, the Custodian and the Note Insurer; or
(b) the mutual consent of the Servicer, the Seller, the Depositor, the Note
Insurer and all Owners in writing.
Section 5.02 Termination Upon Option of Holders of Certificates.
(a) On any Monthly Remittance Date after the Redemption Date, the
holders of a majority of the Percentage Interests represented by the
Certificates then Outstanding may effect early redemption or termination of the
Notes by providing notice thereof to the Indenture Trustee, Owner Trustee and
Note Insurer. Such holders may purchase the Trust Estate 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 Indenture Trustee) as of the day of
purchase minus amounts remitted from the Principal and Interest Account to the
Note 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 Redemption Date Pass-Through Rate, plus the Available Funds Cap
Carry-Forward Amount, if any, 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 plus all amounts owed to the Note Insurer pursuant to the Insurance
Agreement (such price, the "Termination Price") provided, that in any case such
price shall not be less than the then outstanding Note Principal Balance plus
all amounts owed to the Note Insurer pursuant to the Insurance Agreement. In
connection with such purchase, the Servicer shall remit to the Indenture Trustee
all amounts then on deposit in the Principal and Interest Account for deposit to
the Note Account, which deposit shall be deemed to have occurred immediately
preceding such purchase.
(b) Promptly following any purchase described in this Section 5.02, the
Indenture Trustee will release the Files to the holders of such Certificates or
otherwise upon their order, in a manner similar to that described in Section
4.14 hereof.
(c) If the holders of the Certificates decline to exercise the option
to purchase the Home Equity Loans and REO Properties remaining in the Trust
Estate pursuant to Section 5.02(a), then, provided that IMC Mortgage Company is
not then the Servicer, the Note Insurer may do so subject to terms set out in
Section 5.02.
Section 5.03 Disposition of Proceeds.
The Indenture Trustee shall, upon receipt thereof, deposit the proceeds
of any liquidation of the Trust Estate pursuant to this Article V to the Note
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 Indenture Trustee to the
Servicer from the proceeds of the Trust Estate.
END OF ARTICLE V
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ARTICLE VI
MISCELLANEOUS
Section 6.01 Acts of Owners.
Except as otherwise specifically provided herein, whenever Owner
action, consent or approval is required under this Agreement, such action,
consent or approval shall be deemed to have been taken or given on behalf of,
and shall be binding upon, all Owners if the Owners of the majority of the
Percentage Interest of the Notes agree to take such action or give such consent
or approval.
Section 6.02 Recordation of Agreement.
To the extent permitted by applicable law, this Agreement, or a
memorandum thereof if permitted under applicable law, is subject to recordation
in all appropriate public offices for real property records in all of the
counties or other comparable jurisdictions in which any or all of the Properties
are situated, and in any other appropriate public recording office or elsewhere,
such recordation to be effected by the Servicer at the Owners' expense on
direction of the Owners of the majority of the Percentage Interest of the Notes
or the Note Insurer, but only when accompanied by an opinion of counsel to the
effect that such recordation materially and beneficially affects the interests
of the Owners or is necessary for the administration or servicing of the Home
Equity Loans.
Section 6.03 Duration of Agreement.
This Agreement shall continue in existence and effect until terminated
as herein provided.
Section 6.04 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 6.05 Severability.
In case any provision in this Agreement or in the Notes 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 6.06 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 Note 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
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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, the Issuer, the Seller and the Servicer
hereby irrevocably appoints and designates the Indenture 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) above. Each of the Issuer, the Seller and the Servicer agrees that service
of such process upon the Indenture 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 Issuer, the Seller, the Servicer or the Note 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.
Section 6.07 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 6.08 Amendment.
(a) The Indenture Trustee, the Depositor, the Issuer, the Seller and
the Servicer, may at any time and from time to time, with the prior written
approval of the Note Insurer but without the giving of notice to or the receipt
of the consent of the Owners, amend this Agreement, and the Indenture Trustee
shall consent to the amendment for the purposes of (i) curing any ambiguity,
(ii) correcting or supplementing any provisions of this Agreement which are
inconsistent with any other provisions of this Agreement or adding provisions to
this Agreement which are not inconsistent with the provisions of this Agreement,
(iii) adding any other provisions with respect to matters or questions arising
under this Agreement, or (iv) for any other purpose, provided that such
amendment shall not adversely affect in any material respect any Owner. Any such
amendment shall be deemed not to adversely affect in any material respect any
Owner if there is delivered to the Indenture Trustee written notification from
each Rating Agency that such amendment will not cause such Rating Agency to
reduce its then current rating assigned to the Notes without regard to the Note
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 Note, (B) change the percentages of Percentage Interest which are
required to consent to any such amendments, without the consent of the Owners of
all Notes affected then outstanding or (C) which affects in any manner the terms
or provisions of the Note Insurance Policy.
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(b) This Agreement may also be amended from time to time by the Seller,
the Servicer, the Depositor and the Issuer by written agreement, with the prior
written consent of the Owners of the majority of the Percentage Interests in the
Notes and the Note Insurer, for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement,
or of modifying in any manner the rights of the Owners; provided, however, that
no such amendment shall (i) reduce in any manner the amount of, or delay the
timing of, collections of payments on Home Equity Loans or distributions which
are required to be made on any Note, without the consent of the holders of 100%
of the Notes, (ii) adversely affect in any material respect the interests of the
holders of the Notes in any manner other than as described in (i), without the
consent of the holders of 100% of the Notes, or (iii) reduce the percentage of
Notes, the holders of which are required to consent to any such amendment,
without the consent of the holders of 100% of the Notes.
(c) The Note 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.
Section 6.09 Specification of Certain Tax Matters.
Each Owner shall provide the Indenture Trustee with a completed and
executed From W-9 prior to purchasing a Note. The Indenture Trustee shall comply
with all requirements of the Code, and applicable state and local law, with
respect to the withholding from any distributions made to any Owner of any
applicable withholding taxes imposed thereon and with respect to any applicable
reporting requirements in connection therewith.
Section 6.10 The Note Insurer.
Any right conferred to the Note Insurer hereunder shall be suspended
and shall run to the benefit of the Owners during any period in which there
exists a Note Insurer Default; provided, that the right of the Note Insurer to
receive the Premium Amount shall not be suspended if such Note Insurer Default
was a default other than a default under clause (a) of the definition thereof.
At such time as the Notes are no longer Outstanding hereunder and the Note
Insurer has received all Reimbursement Amounts, the Note Insurer's rights
hereunder shall terminate.
Section 6.11 Third Party Rights.
The Indenture Trustee, the Seller, the Issuer, the Depositor, the
Servicer, and the Owners agree that the Note Insurer shall be deemed a
third-party beneficiary of this Agreement as if it were a party hereto.
Section 6.12 Notices.
All notices hereunder shall be given as follows, until any superseding
instructions are given to all other Persons listed below:
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The Indenture Trustee: The ____________________
------------,-------
----------, -- ------
---------------------------
(212) ___-____
(212) ___-____ - Fax
The Depositor: IMC Securities, Inc.
5901 East Fowler Avenue
Tampa, FL 33617-2362
(813) 984-8801
(813) 984-2595 - Fax
The Issuer: IMC Home Equity Loan Owner Trust 199__-__
c/o ____________________, as Owner Trustee
--------------------
-------------------- -------
--------------------------------------
Tel: (___) ___-____
Fax: (___) ___-____
The Servicer
and Seller: IMC Mortgage Company
5901 East Fowler Avenue
Tampa, FL 33617-2362
(813) 984-8801
(813) 984-2595 - Fax
The Note
Insurer: ____________________
--------------------
---------, ----------
--------------------------------------------
(-----------------------------------------
Series 199__-__)
Tel: (___) ___- ____
Fax(___) ___- ____
The Underwriters __________________
------------------
------
-------------------
------------------------
Tel: (___) ___-____
Fax: (___) ___-____
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------------------
-------------
--------------------
--------------------
Tel: (___) ___-____
Fax: (___)___-____
Moody's: Moody's Investors Service, Inc.
99 Church Street
New York, New York 10007
Attention: The Residential 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 6.13 Benefits of Agreement.
Nothing in this Agreement or in the Notes, expressed or implied, shall
give to any Person, other than the Owners, the Note Insurer and the parties
hereto and their successors hereunder, any benefit or any legal or equitable
right, remedy or claim under this Agreement.
Section 6.14 Legal Holidays.
In any case where the date of 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 (with the exception of any Monthly Remittance Date or any Monthly
Reporting Date) shall not be a Business Day, then (notwithstanding any other
provision of the Notes 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 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. In any case where the date of any
Monthly Remittance Date or any Monthly Reporting Date shall not be a Business
Day, then payment or mailing need not be made on such date, but must be made on
the preceding Business Day.
Section 6.15 Usury.
The amount of interest payable or paid on any Note 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
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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 Note exceeds the Highest Lawful Rate, the Trust stipulates that such excess
amount will be deemed to have been paid to the Owner of such Note as a result of
an error on the part of the Indenture 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 Indenture 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 Note, if any, remaining unpaid. In
addition, all sums paid or agreed to be paid to the Indenture Trustee for the
benefit of Owners of Notes 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 Notes.
Section 6.16 No Petition.
The Indenture Trustee, by entering into this Agreement, and each Owner,
by accepting a Note, hereby covenant and agree that they will not at any time
institute against the Seller, the Servicer, the Depositor or the Issuer, or join
in any institution against the Seller, the Servicer, the Depositor or the Issuer
of, any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings, or other proceedings under any United States federal or state
bankruptcy or similar law in connection with any obligations relating to the
Notes, this Agreement or any of the Operative Documents.
END OF ARTICLE VI
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ARTICLE VII
CERTAIN MATTERS REGARDING THE NOTE INSURER
Section 7.01 Trust Estate and Accounts Held for Benefit of the Note
Insurer.
The Indenture Trustee shall hold the Trust Estate for the benefit of
the related Owners and the Note Insurer and all references in this Agreement and
in the Notes to the benefit of Owners of the Notes shall be deemed to include
the Note Insurer. The Indenture Trustee shall cooperate in all reasonable
respects with any reasonable request by the Note Insurer for action to preserve
or enforce the Note Insurer's rights or interests under this Agreement and the
Notes.
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 Note Insurer, and all references in this Agreement to the benefit
of or actions on behalf of the Owners shall be deemed to include the Note
Insurer. Unless a Note Insurer Default exists, the Servicer shall not terminate
any Sub-Servicing Agreements without cause without the prior consent of the Note
Insurer.
Section 7.02 Claims Upon the Policy; Policy Payments Account.
(a) In the event that an Insured Payment becomes due pursuant
to the terms of the Note Insurance Policy, the Indenture Trustee shall submit a
Notice (in the form attached to such Note Insurance Policy) in accordance with
the terms of such Note Insurance Policy.
(b) The Indenture Trustee shall establish a separate special
purpose trust account for the benefit of the Owners of the Notes and the Note
Insurer referred to herein as the "Policy Payments Account" over which the
Indenture Trustee shall have exclusive control and sole right of withdrawal. The
Indenture Trustee shall deposit any amount paid under a Note Insurance Policy in
the Policy Payments Account and distribute such amount only for purposes of
payment to the Owners of the Notes 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 Seller, the Depositor, the Custodian, the
Indenture Trustee or the Trust. Amounts paid under the Note Insurance Policy
shall be transferred to the Note Account in accordance with the next succeeding
paragraph and disbursed by the Indenture Trustee to Owners of the Notes in
accordance with Section 3.03. 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 Notes 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 Notes pursuant to Section 3.08. Funds held in the
Policy Payments Account shall not be invested by the Indenture Trustee.
On any Payment Date with respect to which a claim has been
made under the Note Insurance Policy, the amount of funds received by the
Indenture Trustee as a result of any claim under the Note 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 Note Account and
applied by the Indenture Trustee, together with the other funds to be withdrawn
from the Note Account, directly to the payment in full of the Insured Payment
due on the Notes. Funds received by the Indenture Trustee as a result of any
claim under the Note Insurance Policy shall be deposited by the Indenture
Trustee in the Policy Payments Account and used solely for payment to the Owners
of the Notes may not be applied to satisfy any
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costs, expenses or liabilities of the Servicer, the Seller, the Depositor, the
Custodian, the Indenture 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 Note Insurer, pursuant to the instructions of the Note Insurer,
by the end of such Business Day.
(c) The Indenture Trustee shall keep a complete and accurate
record of the amount of interest and principal paid in respect of any Note from
moneys received under the Note Insurance Policy. The Note 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 Indenture Trustee.
(d) The Indenture Trustee shall promptly notify the Note
Insurer and the Fiscal Agent (as defined in the Note Insurance Policy) of any
proceeding or the institution of any action, of which an Authorized Officer of
the Indenture 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
Notes. Each Owner of a Note by its purchase of such Note, the Servicer and the
Indenture Trustee hereby agree that, the Note Insurer (so long as no Note
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 Note Insurer shall be subrogated to the
rights of the Servicer, the Indenture Trustee and each Owner of a Note 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 7.03 Effect of Payments by the Note Insurer; Subrogation.
Anything herein to the contrary notwithstanding, any payment
with respect to principal of or interest on any of the Notes which is made with
moneys received pursuant to the terms of the Note Insurance Policy shall not be
considered payment of such Notes 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 Notes within the meaning of Section 3.03. The Depositor, the Servicer and
the Indenture Trustee acknowledge, and each Owner by its acceptance of a Note
agrees, that without the need for any further action on the part of the Note
Insurer, the Depositor, the Servicer, the Indenture Trustee or the Registrar (a)
to the extent the Note Insurer makes payments, directly or indirectly, on
account of principal of or interest on any Notes to the Owners of such Notes,
the Note Insurer will be fully subrogated to the rights of such Owners to
receive such principal and interest from the Trust and (b) the Note 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 Indenture Trustee, the Seller, the Depositor and the
Servicer shall cooperate in all respects with any reasonable request by the Note
Insurer for action to preserve or enforce the Note Insurer's rights or interests
under this Agreement without limiting the rights or affecting the interests of
the Owners as otherwise set forth therein.
Section 7.04 Notices to the Note 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 Note Insurer.
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Section 7.05 Rights to the Note Insurer To Exercise Rights of Owners.
By accepting its Note, each Owner agrees that unless a Note
Insurer Default exists, the Note Insurer shall have the right to exercise all
rights of the Owners as specified under this Agreement without any further
consent of the Owners.
END OF ARTICLE VII
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IN WITNESS WHEREOF, the Issuer, the Depositor, the Seller, the Servicer
and the Indenture 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 HOME EQUITY LOAN
OWNER TRUST 199__-__
By: ____________________,
as Owner Trustee
By: _______________________
Title: _______________________
IMC SECURITIES, INC.,
as Depositor
By: _______________________
Title: _______________________
IMC MORTGAGE COMPANY,
as Servicer and Seller
By: _______________________
Title: _______________________
_______________,
as Indenture Trustee
By: _______________________
Title: _______________________
72
<PAGE>
STATE OF FLORIDA )
: ss.:
COUNTY OF HILLSBOROUGH )
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 IMC Mortgage Company, a Florida 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 DELAWARE )
: ss.:
COUNTY OF ____________ )
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 ____________________, a ______________
corporation described in and that executed the above instrument as Owner
Trustee; and that he/she signed his/her name thereto by order of the Board 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.
- -----------------------
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 __________
______ corporation described in and that executed the above instrument as
Indenture Trustee; and that he/she signed his/her name thereto by order of the
Board 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>
SCHEDULE I
SCHEDULE OF HOME EQUITY LOANS
A copy of this Schedule is maintained by the Indenture Trustee at the
Corporate Trust Office and by the Servicer.
<PAGE>
EXHIBIT A
FORM OF CERTIFICATE RE: HOME EQUITY LOANS
PREPAID IN FULL AFTER CUT-OFF DATE
CERTIFICATE RE: PREPAID LOANS
I, __________________________, _______________ of IMC Mortgage Company
("IMC"), hereby certify that between the "Cut-Off Date" (as defined in the Sale
and Servicing Agreement dated as of ___________ among IMC Securities, Inc., as
Depositor, IMC, as Seller and Servicer, IMC Home Equity Loan Owner Trust
199__-__, as Issuer and _______________, as Indenture Trustee) and the "Closing
Date," the following schedule of "Home Equity Loans" (each as defined in the
Sale and Servicing Agreement) have been prepaid in full.
Account Original Current Date Paid
Number Name Amount Balance Off
------ ---- ------ ------- ---
Dated: ___________ __, 199_.
IMC MORTGAGE COMPANY,
By: _____________________
Title: _____________________
A-1
<PAGE>
EXHIBIT B-1
INDENTURE TRUSTEE'S ACKNOWLEDGEMENT OF RECEIPT
_______________, in its capacity as Indenture Trustee (the "Indenture
Trustee") under that certain Sale and Servicing Agreement dated as of
___________ (the "Sale and Servicing Agreement") among IMC Securities, Inc., as
Depositor, IMC Mortgage Company, a Florida corporation, as seller and servicer
("IMC"), IMC Home Equity Loan Owner Trust 199__-__, as Issuer and
_______________, as Indenture Trustee, hereby acknowledges receipt of the
Insurance Policy (Policy No. ________) from ____________________ and all other
assets of the Trust Estate received by the Indenture Trustee as of the date
hereof.
The Indenture Trustee hereby additionally acknowledges that it shall
cause the Custodian (as defined in the Sale and Servicing Agreement) to review
such items as required by Section 2.06(a) of the Sale and Servicing Agreement.
_______________, as
Indenture Trustee
By: _______________________________
Name: _______________________________
Title: _______________________________
Dated: ___________ __, 199_.
B-1-1
<PAGE>
EXHIBIT B-2
CUSTODIAN'S ACKNOWLEDGEMENT OF RECEIPT
__________, ____, in its capacity as custodian (the "Custodian") under
the Custodial Agreement dated as of ___________ among the Custodian, IMC
Mortgage Company, as seller and servicer, IMC Securities, Inc., as Depositor,
IMC Home Equity Loan Owner Trust 199__-__, as Issuer and _______________, in its
capacity as Indenture Trustee (the "Indenture Trustee") under that certain Sale
and Servicing Agreement dated as of ___________ (the "Sale and Servicing
Agreement") among IMC Securities, Inc., as Depositor, IMC Mortgage Company, a
Delaware limited partnership, as seller and servicer ("IMC"), the Issuer, and
the Indenture Trustee hereby acknowledges receipt (subject to review as required
by Section 2.06(a) of the Sale and Servicing Agreement) of the items delivered
to it by IMC with respect to the Home Equity Loans pursuant to Section
2.05(b)(i) of the Sale and Servicing Agreement, except such items as are listed
on Exhibit D to the Sale and Servicing Agreement.
The Schedules of Home Equity Loans is attached to this Receipt.
The Custodian hereby additionally acknowledges that it shall review
such items as required by Section 2.06(a) of the Sale and Servicing Agreement
and shall otherwise comply with Section 2.06(b) and 2.06(c) of the Sale and
Servicing Agreement as required thereby.
_________, _____,
as custodian
By: _______________________________
Name: _______________________________
Title: _______________________________
Dated: ___________ __, 199_.
B-2-1
<PAGE>
EXHIBIT C
FORM OF POOL CERTIFICATION
POOL CERTIFICATION
WHEREAS, the undersigned is an Authorized Officer of __________, ____,
in its capacity as Custodian (the "Custodian") under the Custodial Agreement
dated ___________ between the Custodian, IMC Mortgage Company, as seller and
servicer, IMC Securities, Inc., as Depositor, IMC Home Equity Loan Owner Trust
199__-__, as Issuer and _______________, a __________ ______ corporation, acting
in its capacity as indenture trustee (the "Indenture Trustee") of a certain pool
of mortgage loans (the "Pool") heretofore conveyed in trust to the Indenture
Trustee, pursuant to that certain Sale and Servicing Agreement dated as of
___________ (the "Sale and Servicing Agreement") among IMC Securities, Inc., as
Depositor, IMC Mortgage Company, as Seller (the "Seller") and Servicer, IMC Home
Equity Loan Owner Trust 199__- __, as Issuer and the Indenture Trustee; and
WHEREAS, the Custodian is required, pursuant to Section 2.06(a) of the
Sale and Servicing Agreement, to review the Mortgage Files relating to the Pool
within a specified period following the Closing Date and to notify the Seller
promptly of any defects with respect to the Pool, and the Seller is required to
remedy such defects or take certain other action, all as set forth in Section
2.06(b) of the Sale and Servicing Agreement; and
WHEREAS, Section 2.06(a) of the Sale and Servicing Agreement requires
the Custodian to deliver this Pool Certification upon the satisfaction of
certain conditions set forth therein.
NOW, THEREFORE, the Custodian hereby certifies that it has determined
that all required documents (or certified copies of documents listed in Section
2.05 of the Sale and Servicing Agreement) have been executed or received, and
that such documents relate to the Home Equity Loans identified in the Schedule
of Home Equity Loans pursuant to Section 2.06(a) of the Sale and Servicing
Agreement or, in the event that such documents have not been executed and
received or do not so relate to such Home Equity Loans, any remedial action by
the Seller pursuant to Section 2.06(b) of the Sale and Servicing Agreement has
been completed. The Custodian makes no certification hereby, however, with
respect to any intervening assignments or assumption and modification
agreements.
__________, ____, as Custodian
By: _______________________________
Title: _______________________________
Dated: ___________ __, 199_.
C-1
<PAGE>
EXHIBIT D TO THE SALE AND SERVICING AGREEMENT
HOME EQUITY LOANS WITH DOCUMENT EXCEPTIONS
Loan Number Borrower Name Original Loan Exception
----------- ------------- ------------- ---------
D-1
Exhibit 10.2
TRUST AGREEMENT
between
IMC SECURITIES, INC.,
as Depositor
and
-----------------,
as Owner Trustee
Dated as of ________________
IMC HOME EQUITY LOAN OWNER TRUST 199__-__
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE.......................................................1
SECTION 1.1 Capitalized Terms...................................................................1
SECTION 1.2 Other Definitional Provisions.......................................................4
ARTICLE II
ORGANIZATION.....................................................................................5
SECTION 2.1 Name................................................................................5
SECTION 2.2 Office..............................................................................5
SECTION 2.3 Purpose and Powers..................................................................5
SECTION 2.4 Appointment of Owner Trustee........................................................6
SECTION 2.5 Initial Capital Contribution of the Owner Trust Estate..............................6
SECTION 2.6 Declaration of Trust................................................................6
SECTION 2.7 Liability of the Holders............................................................6
SECTION 2.8 Title to Trust Property.............................................................6
SECTION 2.9 Situs of Trust......................................................................7
SECTION 2.10 Representations and Warranties of the Depositor.....................................7
SECTION 2.11 Covenant of the Depositor...........................................................8
SECTION 2.12 Federal Income Tax Allocations......................................................8
ARTICLE III
THE CERTIFICATES.................................................................................9
SECTION 3.1 Initial Certificate Ownership.......................................................9
SECTION 3.2 Form of the Certificates............................................................9
SECTION 3.3 Execution, Authentication and Delivery..............................................9
SECTION 3.4 Registration; Registration of Transfer and Exchange of Certificates................10
SECTION 3.5 Mutilated; Destroyed; Lost or Stolen Certificates..................................10
SECTION 3.6 Persons Deemed Owners..............................................................11
SECTION 3.7 Access to List of Holders' Names and Addresses.....................................11
SECTION 3.8 Maintenance of Office For Surrenders...............................................12
SECTION 3.9 Appointment of Trust Paying Agent..................................................12
SECTION 3.10 Ownership by Depositor of the Depositor's Certificate..............................12
SECTION 3.11 Restriction on Transfers of Certificate............................................13
ARTICLE IV
ACTIONS BY OWNER TRUSTEE........................................................................16
SECTION 4.1 Prior Notice to Owners with Respect to Certain Matters.............................16
SECTION 4.2 Action by Holders with Respect to Certain Matters..................................18
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
SECTION 4.3 Action by Holders with Respect to Bankruptcy.......................................18
SECTION 4.4 Restrictions on Holders' Power.....................................................18
SECTION 4.5 Majority Control...................................................................18
ARTICLE V
APPLICATION OF OWNER TRUST ESTATE; CERTAIN DUTIES...............................................19
SECTION 5.1 Establishment of Certificate Distribution Account..................................19
SECTION 5.2 Application of Trust Funds.........................................................19
SECTION 5.3 Method of Payment..................................................................20
SECTION 5.4 Segregation of Moneys; No Interest.................................................20
SECTION 5.5 Accounting and Reports to the Certificateholders,
the Internal Revenue Service and Others.....................................20
SECTION 5.6 Signature on Returns; Tax Matters Partner..........................................20
ARTICLE VI
AUTHORITY AND DUTIES OF THE OWNER TRUSTEE.......................................................21
SECTION 6.1 General Authority..................................................................21
SECTION 6.2. General Duties.....................................................................21
SECTION 6.3 Action upon Instruction by Owners..................................................21
SECTION 6.4 No Duties Except as Specified in this Agreement, the Documents
or in Instructions..........................................................22
SECTION 6.5 No Action Except Under Specified Documents or Instructions.........................23
SECTION 6.6 Restrictions.......................................................................23
ARTICLE VII
CONCERNING THE OWNER TRUSTEE....................................................................24
SECTION 7.1 Acceptance of Trusts and Duties....................................................24
SECTION 7.2 Furnishing of Documents............................................................25
SECTION 7.3 Representations and Warranties of Owner Trustee....................................26
SECTION 7.4 Reliance; Advice of Counsel........................................................26
SECTION 7.5 Owner Trustee May Own Certificates and Notes.......................................27
SECTION 7.6 Licenses...........................................................................27
ARTICLE VIII
COMPENSATION OF OWNER TRUSTEE...................................................................28
SECTION 8.1 Owner Trustee's Fee and Expenses...................................................28
SECTION 8.2 Indemnification....................................................................28
SECTION 8.3 Payments to the Owner Trustee......................................................28
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE IX
TERMINATION OF TRUST AGREEMENT..................................................................29
SECTION 9.1 Termination of Trust Agreement....................................................29
SECTION 9.2 Reserved..........................................................................30
ARTICLE X
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES..........................................30
SECTION 10.1 Eligibility Requirements for Owner Trustee.......................................30
SECTION 10.2 Resignation or Removal of Owner Trustee..........................................30
SECTION 10.3 Successor Owner Trustee..........................................................31
SECTION 10.4 Merger or Consolidation of Owner Trustee.........................................31
SECTION 10.5 Appointment of Co-Trustee or Separate Trustee....................................32
ARTICLE XI
MISCELLANEOUS...................................................................................34
SECTION 11.1 Amendments Without Consent of Certificateholders or Owners
of the Notes...............................................................34
SECTION 11.2 Amendments With Consent of Certificateholders....................................34
SECTION 11.3 Form of Amendments...............................................................34
SECTION 11.4 No Legal Title to Owner Trust Estate.............................................35
SECTION 11.5 Limitations on Rights of Others..................................................35
SECTION 11.6 Notices..........................................................................35
SECTION 11.7 Severability.....................................................................36
SECTION 11.8 Counterparts.....................................................................36
SECTION 11.9 Successors and Assigns...........................................................36
SECTION 11.10 No Petition Covenant.............................................................36
SECTION 11.11 No Recourse......................................................................36
SECTION 11.12 Headings.........................................................................37
SECTION 11.13 Governing Law....................................................................37
SECTION 11.14 Reserved.........................................................................37
SECTION 11.15 Third-Party Beneficiary..........................................................37
SECTION 11.16 Suspension and Termination of Note Insurer's Rights..............................37
</TABLE>
iii
<PAGE>
TRUST AGREEMENT, dated as of ________________, between IMC SECURITIES,
INC., a Delaware corporation (the "Depositor") and _____________________, a
Delaware banking corporation, not in its individual capacity but solely as Owner
Trustee (the "Owner Trustee").
The Depositor and the Owner Trustee hereby agree as follows:
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1 Capitalized Terms. For all purposes of this Agreement, the
following terms shall have the meanings set forth below:
"Agreement" shall mean this Trust Agreement, as the same may
be amended and supplemented from time to time.
"Bankruptcy Action" shall have the meaning assigned to such
term in Section 4.1 hereof.
"Business Trust Statute" shall mean Chapter 38 of Title 12 of
I the Delaware Code, 12 Del. Code Section 3801 et seq., as the same may
be amended from time to time.
"Certificate" shall mean a certificate evidencing the
beneficial interest of a Certificateholder in the Trust, substantially
in the form attached hereto as Exhibit B-1.
"Certificate Distribution Account" shall have the meaning
assigned to such term in Section 5.1.
"Certificate of Trust" shall mean the Certificate of Trust in
the form of Exhibit A to be filed for the Trust pursuant to Section
3810(a) of the Business Trust Statute.
"Certificate Register" and "Certificate Registrar" shall mean
the register mentioned and the registrar appointed pursuant to Section
3.4.
"Certificateholder" or "Holder" shall mean a Person in whose
name a Certificate is registered.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and Treasury Regulations promulgated thereunder.
<PAGE>
"Corporate Trust Office" shall mean, with respect to the Owner
Trustee, the principal corporate trust office of the Owner Trustee
located at ________________ _____ _________________, _________,___
_______-____; or at such other address in the State of Delaware as the
Owner Trustee may designate by notice to the Owners and the Depositor,
or the principal corporate trust office of any successor Owner Trustee
(the address (which shall be in the State of Delaware) of which the
successor owner trustee will notify the Owners, the Holders and the
Depositor).
"Depositor" shall mean IMC Securities, Inc., a Delaware
Corporation.
"Depositor's Certificate" shall mean the Certificate in
substantially the form attached hereto as Exhibit B-2 representing a 1%
Percentage Interest of the Certificates that the Depositor is receiving
pursuant to Section 3.10.
"Expenses" shall have the meaning assigned to such term in
Section 8.2.
"Indenture" shall mean the Indenture, dated as of
________________, between the Issuer and the Indenture Trustee.
"Indenture Trustee" means _____________________, as Indenture
Trustee under the Indenture.
"Insurance Agreement" shall mean the Insurance Agreement,
dated as of ________________, among the Depositor, the Seller, the
Servicer, the Indenture Trustee and the Note Insurer.
"Issuer" shall mean IMC Home Equity Loan Owner Trust 199__-__,
the Delaware business trust created pursuant to this Agreement.
"Non-permitted Foreign Holder" shall have the meaning set
forth in Section 3.11.
"Non-U.S. Person" shall mean an individual, corporation,
partnership or other person other than 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.
"Note Insurer" shall mean __________________ and its
successors and assigns.
"Operative Documents" shall mean this Agreement, the Custodial
Agreement, the Indenture, the Insurance Agreement, the Loan Sale
Agreement, the Sale and Servicing Agreement and the other documents and
certificates delivered in connection therewith.
2
<PAGE>
"Owner" shall mean each holder of a Note.
"Owner Trust Estate" shall mean the Trust Estate (as defined
in the Indenture), including the contribution of $1 referred to in
Section 2.5 hereof.
"Owner Trustee" shall mean _____________________, a Delaware
banking corporation, not in its individual capacity but solely as owner
trustee under this Agreement, and any successor owner trustee
hereunder.
"Percentage Interest" shall mean with respect to each
Certificate, the percentage portion of all of the Certificates
evidenced thereby as stated on the face of such Certificate.
"Prospective Holder" shall have the meaning set forth in
Section 3.11(a).
"Rating Agency Condition" means, with respect to any action to
which a Rating Agency Condition applies, that each Rating Agency shall
have been given 10 days (or such shorter period as is acceptable to
each Rating Agency) prior notice thereof and that each of the Rating
Agencies shall have notified the Seller, the Servicer, the Note
Insurer, the Owner Trustee and the Issuer in writing that such action
will not result in a reduction or withdrawal of the then current rating
of the Notes.
"Record Date" shall mean as to each Payment Date the last
Business Day of the month immediately preceding the month in which such
Payment Date occurs.
"Sale and Servicing Agreement" shall mean the Sale and
Servicing Agreement dated as of the date hereof, among the Issuer, the
Depositor, the Seller, the Servicer and the Indenture Trustee.
"Secretary of State" shall mean the Secretary of State of the
State of Delaware.
"Treasury Regulations" shall mean regulations, including
proposed or temporary regulations, promulgated under the Code.
References herein to specific provisions of proposed or temporary
regulations shall include analogous provisions of final Treasury
Regulations or other successor Treasury Regulations.
"Trust" shall mean the trust established by this Agreement.
"Trust Paying Agent" shall mean the Indenture Trustee or any
successor in interest thereto or any other paying agent or co-paying
agent appointed pursuant to Section 3.9 and authorized by the Issuer to
make payments to and distributions from the Certificate Distribution
Account, including payment of principal of or interest on the
Certificates on behalf of the Issuer.
3
<PAGE>
SECTION 1.2 Other Definitional Provisions.
(a) Capitalized terms used herein and not otherwise defined herein have
the meanings assigned to them in the Sale and Servicing Agreement or, if not
defined therein, in the Indenture.
(b) All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other document
made or delivered pursuant hereto or thereto, accounting terms not defined in
this Agreement or in any such certificate or other document, and accounting
terms partly defined in this Agreement or in any such certificate or other
document to the extent not defined, shall have the respective meanings given to
them under generally accepted accounting principles. To the extent that the
definitions of accounting terms in this Agreement or in any such certificate or
other document are inconsistent with the meanings of such terms under generally
accepted accounting principles, the definitions contained in this Agreement or
in any such certificate or other document shall control.
(d) The words "hereof", "herein", "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; Section and Exhibit
references contained in this Agreement are references to Sections and Exhibits
in or to this Agreement unless otherwise specified; and the term "including"
shall mean "including without limitation".
(e) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as the feminine and neuter genders of such terms.
(f) Any agreement, instrument or statute defined or referred to herein
or in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
4
<PAGE>
ARTICLE II
ORGANIZATION
SECTION 2.1 Name. The Trust created hereby shall be known as "IMC Home
Equity Loan Owner Trust 199__-__", in which name the Owner Trustee may conduct
the business of the Trust, make and execute contracts and other instruments on
behalf of the Trust and sue and be sued on behalf of the Trust.
SECTION 2.2 Office. The office of the Trust shall be in care of the
Owner Trustee at the Corporate Trust Office or at such other address in Delaware
as the Owner Trustee may designate by written notice to the Certificateholders,
the Note Insurer, the Owners and the Depositor.
SECTION 2.3 Purpose and Powers. The purpose of the Trust is to engage
in the following activities:
(i) to issue the Notes pursuant to the Indenture and the
Certificates pursuant to this Agreement;
(ii) with the proceeds of the sale of the Notes and the
Certificates, to pay the organizational, start-up and transactional
expenses of the Trust and to pay the balance to the Depositor and the
Seller, as their interests may appear pursuant to the Sale and
Servicing Agreement;
(iii) to assign, grant, transfer, pledge, mortgage and convey
the Owner Trust Estate pursuant to the terms of the Indenture and to
hold, manage and distribute to the Certificateholders pursuant to the
terms of the Sale and Servicing Agreement any portion of the Owner
Trust Estate released from the lien of, and remitted to the Trust
pursuant to, the Indenture;
(iv) to enter into and perform its obligations under the
Operative Documents to which it is to be a party;
(v) to engage in those activities, including entering into
agreements, that are necessary, suitable or convenient to accomplish
the foregoing or are incidental thereto or connected therewith; and
(vi) subject to compliance with the Operative Documents, to
engage in such other activities as may be required in connection with
conservation of the assets of the Trust and the making of distributions
to the Certificateholders and the Owners of the Notes.
5
<PAGE>
The Trust is hereby authorized to engage in the foregoing activities
and shall not engage in any activity other than in connection with the foregoing
or other than as required or authorized by the terms of this Agreement or the
Operative Documents.
SECTION 2.4 Appointment of Owner Trustee. The Depositor hereby appoints
the Owner Trustee as trustee of the Trust effective as of the date hereof, to
have all the rights, powers and duties set forth herein. The Owner Trustee
hereby accepts its appointment subject to the terms and conditions hereof.
SECTION 2.5 Initial Capital Contribution of the Owner Trust Estate. The
Depositor hereby sells, assigns, transfers, conveys and sets over to the Owner
Trustee, as of the date hereof, the sum of $1. The Owner Trustee hereby
acknowledges receipt in trust from the Depositor, as of the date hereof, of the
foregoing contribution which shall constitute the initial Owner Trust Estate and
shall be deposited in the Certificate Distribution Account. The Depositor or the
Seller shall pay the organizational expenses of the Trust as they may arise or
shall, upon the request of the Owner Trustee, promptly reimburse the Owner
Trustee for any such expenses paid by the Owner Trustee.
SECTION 2.6 Declaration of Trust. The Owner Trustee hereby declares
that it shall hold the Owner Trust Estate in trust upon and subject to the
conditions set forth herein for the use and benefit of the Certificateholders,
subject to the obligations of the Trust under the Operative Documents. It is the
intention of the parties hereto that the Trust shall constitute a business trust
under the Business Trust Statute and that this Agreement shall constitute the
governing instrument of such business trust. Effective as of the date hereof,
the Owner Trustee shall have the rights, powers and duties set forth herein and
in the Business Trust Statute with respect to accomplishing the purposes of the
Trust. The Owner Trustee shall file the Certificate of Trust pursuant to the
Business Trust Statute with the Secretary of State.
SECTION 2.7 Liability of the Holders. No Certificateholder shall have
any personal liability for any liability or obligation of the Trust.
SECTION 2.8 Title to Trust Property.
(a) Subject to the Indenture, legal title to all of the Owner
Trust Estate shall be vested at all times in the Trust as a separate legal
entity except where applicable law in any jurisdiction requires title to any
part of the Owner Trust Estate to be vested in a trustee or trustees, in which
case title shall be deemed to be vested in the Owner Trustee, a co-trustee
and/or a separate trustee, as the case may be.
(b) The Certificateholders shall not have legal title to any
part of the Owner Trust Estate. No transfer by operation of law or otherwise of
any interest of the Certificateholders shall operate to terminate this Agreement
or the trusts hereunder or entitle any transferee to an accounting or to the
transfer to it of any part of the Owner Trust Estate.
6
<PAGE>
SECTION 2.9 Situs of Trust. The Trust shall be located and administered
in the State of Delaware. All bank accounts maintained by the Owner Trustee on
behalf of the Trust shall be located in the State of Delaware or the State of
New York. The Trust shall not have any employees; provided, however, that
nothing herein shall restrict or prohibit the Owner Trustee from having
employees within or without the State of Delaware. Payments shall be received by
the Trust only in Delaware or New York, and payments will be made by the Trust
only from Delaware or New York. The only office of the Trust shall be the
Corporate Trust Office in Delaware.
SECTION 2.10 Representations and Warranties of the Depositor. The
Depositor hereby represents and warrants to the Owner Trustee and the Note
Insurer that:
(a) The Depositor has been duly organized and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with power and authority to own its properties and to
conduct its business as such properties are presently owned and such
business is presently conducted.
(b) The Depositor is duly qualified to do business as a
foreign corporation in good standing, and has obtained all necessary
licenses and approvals in all jurisdictions in which the ownership or
lease of property or the conduct of its business requires such
qualifications.
(c) The Depositor has the power and authority to execute and
deliver this Agreement and to carry out its terms; the Depositor has
full power and authority to sell and assign the property to be sold and
assigned to and deposited with the Trust, and the Depositor has duly
authorized such sale and assignment to the Trust by all necessary
corporate action; and the execution, delivery and performance of this
Agreement have been duly authorized by the Depositor by all necessary
corporate action.
(d) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms of this Agreement do not
conflict with, result in any breach of any of the terms and provisions
of or constitute (with or without notice or lapse of time) a default
under, the certificate of incorporation or by-laws of the Depositor, or
any indenture, agreement or other instrument to which the Depositor is
a party or by which it is bound; nor result in the creation or
imposition of any lien upon any of its properties pursuant to the terms
of any such indenture, agreement or other instrument (other than
pursuant to the Operative Documents); nor violate any law or, to the
best of the Depositor's knowledge, any order, rule or regulation
applicable to the Depositor of any court or of any federal or state
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Depositor or any of its
properties.
(e) There are no proceedings or investigations pending or
notice of which has been received in writing before any court,
regulatory body, administrative agency or other
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governmental instrumentality having jurisdiction over the Depositor or
its properties: (i) asserting the invalidity of this Agreement, (ii)
seeking to prevent the consummation of any of the transactions
contemplated by this Agreement or (iii) seeking any determination or
ruling that might materially and adversely affect the performance by
the Depositor of its obligations under, or the validity or
enforceability of, this Agreement.
(f) The representations and warranties of the Depositor in
Section 2.01 of the Sale and Servicing Agreement are true and correct.
SECTION 2.11 Covenant of the Depositor. The Depositor covenants with
the Owner Trustee and the Note Insurer that during the continuance of this
Agreement it will comply in all respects with the provisions of its Certificate
of Incorporation in effect from time to time.
SECTION 2.12 Federal Income Tax Allocations. Net income of the Trust
for any month, as determined for Federal income tax purposes (and each item of
income, gain, loss and deduction entering into the computation thereof), shall
be allocated to the Certificateholders, pro rata.
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ARTICLE III
THE CERTIFICATES
SECTION 3.1 Initial Certificate Ownership. Upon the formation of the
Trust by the contribution by the Depositor pursuant to Section 2.5 and until the
issuance of the Certificates, the Depositor shall be the sole owner of the
Trust.
SECTION 3.2 Form of the Certificates.
(a) The Certificates shall be issued without a principal amount. The
Certificates shall be executed on behalf of the Trust by manual or facsimile
signature of an authorized signatory of the Owner Trustee. Certificates bearing
the manual or facsimile signatures of individuals who were, at the time when
such signatures shall have been affixed, authorized to sign on behalf of the
Trust shall be valid, notwithstanding that such individuals or any of them shall
have ceased to be so authorized prior to the authentication and delivery of such
Certificates or did not hold such offices at the date of authentication and
delivery of such Certificates.
(b) The Certificates shall be typewritten, printed, lithographed or
engraved or produced by any combination of these methods (with or without steel
engraved borders) all as determined by the authorized signatory of the Owner
Trustee or the Owner Trustee's authenticating agent executing such Certificates,
as evidenced by their execution of such Certificates.
(c) A transferee of a Certificate shall become a Certificateholder, and
shall be entitled to the rights and subject to the obligations of a
Certificateholder hereunder, upon such transferee's acceptance of a Certificate
duly registered in such transferee's name pursuant to Section 3.4.
SECTION 3.3 Execution, Authentication and Delivery. Concurrently with
the initial sale of the Home Equity Loans by the Depositor to the Trust pursuant
to the Sale and Servicing Agreement, the Owner Trustee shall execute, or cause
its authenticating agent to execute the Certificates representing 100% of the
Percentage Interests of the Trust to be executed on behalf of the Trust,
authenticated and delivered to or upon the written order of the Depositor,
signed by an Authorized Officer of the Depositor, without further corporate
action by the Depositor. No Certificate shall entitle its Holder to any benefit
under this Agreement, or shall be valid for any purpose, unless there shall
appear on such Certificate a certificate of authentication substantially in the
form set forth in Exhibit B-1, executed by the Owner Trustee or the Owner
Trustee's authenticating agent, by manual or facsimile signature. Such
authentication shall constitute conclusive evidence that such Certificate shall
have been duly authenticated and delivered hereunder. All Certificates shall be
dated the date of their authentication.
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SECTION 3.4 Registration; Registration of Transfer and Exchange of
Certificates.
The Certificate Registrar shall cause to be kept at its office or
agency in New York, New York, or at its designated agent, a Certificate Register
in which, subject to such reasonable regulations as it may prescribe, it shall
provide for the registration of Certificates and of transfers and exchanges of
Certificates as herein provided. Upon any resignation of a Certificate
Registrar, the Owner Trustee shall promptly appoint a successor or, if it elects
not to make such an appointment, assume the duties of the Certificate Registrar.
The Owner Trustee shall be the initial Certificate Registrar.
Subject to Section 3.11, upon surrender for registration of transfer of
any Certificate at the office or agency of the Owner Trustee maintained pursuant
to Section 3.8, the Owner Trustee shall execute, and the Owner Trustee or its
authenticating agent shall authenticate and deliver in the name of the
designated transferee or transferees, a new Certificate or Certificates of the
same Percentage Interest and dated the date of authentication by the Owner
Trustee or such authenticating agent.
At the option of a Certificateholder, Certificates may be exchanged for
other Certificates of a like aggregate Percentage Interest, upon surrender of
the Certificates to be exchanged at such office. Whenever any Certificates are
so surrendered for exchange, the Owner Trustee or its authenticating agent shall
execute, authenticate and deliver the Certificates which the Certificateholder
making the exchange is entitled to receive.
No service charge shall be made for any registration of transfer or
exchange of Certificates, but the Owner Trustee or the Certificate Registrar may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any registration of transfer or exchange of
Certificates.
All Certificates surrendered for registration of transfer or exchange
shall be marked "canceled" by the Owner Trustee.
The preceding provisions of this Section notwithstanding, the Owner
Trustee shall not make, and the Certificate Registrar shall not register
transfers or exchanges of Certificates for a period of 15 days preceding the due
date for any payment with respect to the Certificates.
SECTION 3.5 Mutilated; Destroyed; Lost or Stolen Certificates.
(a) If (i) any mutilated Certificate is surrendered to the Certificate
Registrar, or the Certificate Registrar receives evidence to its satisfaction of
the destruction, loss or theft of any Certificate, and (ii) there is delivered
to the Certificate Registrar, the Owner Trustee and the Trust such security or
indemnity as may be required by them to hold each of them harmless, then, in the
absence of notice to the Certificate Registrar or the Owner Trustee that such
Certificate has been acquired by a bona fide purchaser, the Owner Trustee shall
execute on behalf of the Trust and the
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Owner Trustee or the Owner Trustee's authenticating agent shall authenticate and
deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or
stolen Certificate, a replacement Certificate of a like Percentage Interest;
provided, however, that if any such destroyed, lost or stolen Certificate, but
not a mutilated Certificate, shall have become or within seven days shall be due
and payable, then instead of issuing a replacement Certificate the Owner Trustee
may pay such destroyed, lost or stolen Certificate when so due or payable.
(b) In connection with the issuance of any replacement Certificate
under this Section 3.5, the Owner Trustee or the Certificate Registrar may
require the payment by the Holder of such Certificate of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other reasonable expenses (including the fees and expenses of
the Owner Trustee and the Certificate Registrar) connected therewith.
(c) Any duplicate Certificate issued pursuant to this Section 3.5 in
replacement of any mutilated, destroyed, lost or stolen Certificate shall
constitute an original additional contractual obligation of the Trust, whether
or not the mutilated, destroyed, lost or stolen Certificate shall be found at
any time or be enforced by anyone, and shall be entitled to all the benefits of
this Agreement equally and proportionately with any and all other Certificates
duly issued hereunder.
(d) The provisions of this Section 3.5 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 3.6 Persons Deemed Owners. Prior to due presentation of a
Certificate for registration of transfer, the Owner Trustee, the Certificate
Registrar or any Paying Agent may treat the Person in whose name any Certificate
shall be registered in the Certificate Registrar as the owner of such
Certificate for the purpose of receiving distributions pursuant to Article V and
for all other purposes whatsoever, and neither the Owner Trustee, nor the
Certificate Registrar nor the Trust Paying Agent shall be affected by any notice
to the contrary.
SECTION 3.7 Access to List of Holders' Names and Addresses. The Owner
Trustee shall furnish or cause to be furnished to the Servicer and the
Depositor, within 15 days after receipt by the Owner Trustee of a request
therefor from the Servicer or the Depositor in writing, a list, in such form as
the Servicer or the Depositor may reasonably require, of the names and addresses
of the Certificateholders as of the most recent Record Date. If three or more
Certificateholders or one or more Holders of Certificates together evidencing a
Percentage Interest totaling not less than 25% apply in writing to the Owner
Trustee, and such application states that the applicants desire to communicate
with other Certificateholders with respect to their rights under this Agreement
or under the Certificates and such application is accompanied by a copy of the
communication that such applicants propose to transmit, then the Owner Trustee
shall, within five Business Days after the receipt of such application, afford
such applicants access during normal business hours to the current list of
Certificateholders. Each Certificateholder, by receiving and holding a
Certificate, shall be
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deemed to have agreed not to hold any of the Servicer, the Depositor, the
Certificate Registrar or the Owner Trustee accountable by reason of the
disclosure of its name and address, regardless of the source from which
information was derived.
SECTION 3.8 Maintenance of Office For Surrenders. The Owner Trustee
shall maintain an office or offices or agency or agencies where Certificates may
be surrendered for registration of transfer or exchange and where notices and
demands to or upon the Owner Trustee in respect of the Certificates and the
Operative Documents may be served. The Owner Trustee initially designates
_____________________ as its principal office for such purposes. The Owner
Trustee shall give prompt written notice to the Depositor and to the
Certificateholders and Owners of any change in the location of the Certificate
Register or any such office or agency.
SECTION 3.9 Appointment of Trust Paying Agent. The Owner Trustee hereby
appoints _____________________ as the Trust Paying Agent under this Agreement.
The Trust Paying Agent shall make distributions to Certificateholders from the
Certificate Distribution Account pursuant to Section 5.2 and shall report the
amounts of such distributions to the Owner Trustee and the Servicer. The Trust
Paying Agent shall have the revocable power to withdraw funds from the
Certificate Distribution Account for the purpose of making the distributions
referred to above. The Owner Trustee may revoke such power and remove the Trust
Paying Agent if the Owner Trustee determines in its sole discretion that the
Trust Paying Agent shall have failed to perform its obligations under this
Agreement in any material respect. If _____________________ shall no longer be
the Trust Paying Agent, the Owner Trustee shall appoint a successor to act as
Trust Paying Agent (which shall be a bank or trust company acceptable to the
Depositor, the Note Insurer and the Rating Agencies). The Owner Trustee shall
cause such successor Trust Paying Agent or any additional Trust Paying Agent
appointed by the Owner Trustee to execute and deliver to the Owner Trustee an
instrument in which such successor Trust Paying Agent or additional Trust Paying
Agent shall agree with the Owner Trustee that as Trust Paying Agent, such
successor Trust Paying Agent or additional Trust Paying Agent shall hold all
sums, if any, held by it for payment to the Certificateholders in trust for the
benefit of the Certificateholders entitled thereto until such sums shall be paid
to such Holders. The Trust Paying Agent shall return all unclaimed funds to the
Owner Trustee and upon removal of a Trust Paying Agent such Trust Paying Agent
shall also return all funds in its possession to the Owner Trustee. The
provisions of Article VI shall apply to the Owner Trustee also in its role as
Trust Paying Agent, for so long as the Owner Trustee shall act as Trust Paying
Agent and, to the extent applicable, to any other Trust Paying Agent (including
_____________________) appointed hereunder. Any reference in this Agreement to
the Trust Paying Agent shall include any co-paying agent unless the context
requires otherwise.
SECTION 3.10 Ownership by Depositor of the Depositor's Certificate. On
the Closing Date, the Depositor shall receive from the Trust and thereafter
shall retain beneficial and record ownership of the Depositor's Certificate
representing at least a 1% Percentage Interest of the Certificates. The
Depositor's Certificate shall be non-transferable. Any attempted transfer of any
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Depositor's Certificate shall be null and void. The Owner Trustee shall cause
the Depositor's Certificate issued to the Depositor to contain a legend
substantially to such effect.
SECTION 3.11 Restriction on Transfers of Certificate.
(a) Each prospective purchaser and any subsequent transferee of a
Certificate (each, a "Prospective Holder"), other than the Depositor or the
Seller, shall represent and warrant, in writing, to the Owner Trustee and the
Certificate Registrar and any of their respective successors that:
(i) Such Person is (A) a "qualified institutional buyer" as
defined in Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act"), and is aware that the seller of the Certificate may
be relying on the exemption from the registration requirements of the
Securities Act provided by Rule 144A and is acquiring such Certificate
for its own account or for the account of one or more qualified
institutional buyers for whom it is authorized to act, or (B) a Person
involved in the organization or operation of the Trust or an affiliate
of such Person within the meaning of Rule 3a-7 of the Investment
Company Act of 1940, as amended (including, but not limited to, the
Depositor or the Seller).
(ii) Such Person understands that the Certificate has not been
and will not be registered under the Securities Act and may be offered,
sold, pledged or otherwise transferred only to a person whom the seller
reasonably believes is (A) a qualified institutional buyer or (B) a
Person involved in the organization or operation of the Trust or an
affiliate of such Person, in a transaction meeting the requirements of
Rule 144A under the Securities Act and in accordance with any
applicable securities laws of any state of the United States.
(iii) Such Person understands that the Certificate bears a
legend to the following effect:
"THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
ANY STATE SECURITIES LAWS. THIS CERTIFICATE MAY BE DIRECTLY OR
INDIRECTLY OFFERED OR SOLD OR OTHERWISE DISPOSED OF (INCLUDING
PLEDGED) BY THE HOLDER HEREOF ONLY TO (I) A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE ACT, IN
A TRANSACTION THAT IS REGISTERED UNDER THE ACT AND APPLICABLE
STATE SECURITIES LAWS OR THAT IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE ACT PURSUANT TO RULE 144A OR (II) A PERSON
INVOLVED IN THE
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ORGANIZATION OR OPERATION OF THE TRUST OR AN AFFILIATE OF SUCH
A PERSON WITHIN THE MEANING OF RULE 3a-7 OF THE INVESTMENT
COMPANY ACT OF 1940, AS AMENDED (INCLUDING, BUT NOT LIMITED
TO, IMC SECURITIES, INC.) IN A TRANSACTION THAT IS REGISTERED
UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR THAT IS
EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH
LAWS. NO PERSON IS OBLIGATED TO REGISTER THIS CERTIFICATE
UNDER THE ACT OR ANY STATE SECURITIES LAWS."
(b) Each Prospective Holder, other than the Depositor or the Seller,
shall either:
(i) represent and warrant, in writing, to the Owner
Trustee and the Certificate Registrar and any of their
respective successors that (1) the Prospective Holder is not
an "employee benefit plan" within the meaning of Section 3(3)
of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or a "plan" within the meaning of Section
4975(e)(1) of the Code (any such plan or employee benefit
plan, a "Plan") and is not directly or indirectly purchasing
such Certificate on behalf of, as investment manager of, as
named fiduciary of, as trustee of, or with assets of a Plan,
or (2) either (I) the Prospective Holder is acquiring such
Certificate for its own account and no part of the assets used
to acquire such Certificate constitutes assets of a Plan, or
(II) the source of funds to be used to acquire such
Certificate is an "insurance company general account," within
the meaning of Prohibited Transaction Class Exemption 95-60,
60 Fed. Reg. 35925 (July 12, 1995) (the "Exemption"), and
there is no Plan with respect to which the amount of such
general account's reserves for the contract(s) held by or on
behalf of such Plan (determined under Section 807(d) of the
Code), together with the amount of the reserves of the
contract(s) held by or on behalf of any other Plans
(determined under section 807(d) of the Code) maintained by
the same employer (or an affiliate thereof as defined in
Section V(a)(1) of the Exemption) or by the same employee
organization, exceed 10% of the total of all liabilities of
such general account; or
(ii) furnish to the Owner Trustee and the Certificate
Registrar and any of their respective successors an opinion of
counsel acceptable to such persons that (A) the proposed
issuance or transfer of the Certificate to such Prospective
Holder will not cause any assets of the Trust to be deemed
assets of a Plan, or (B) the proposed issuance or transfer of
the Certificate will not cause the Owner Trustee or the
Certificate Registrar or any of their respective successors to
be a fiduciary of a Plan within the meaning of Section 3(21)
of ERISA and will not give rise to a transaction described in
Section 406 of ERISA or Section 4975(c)(1) of the Code for
which a statutory or administrative exemption is unavailable.
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(c) By its acceptance of a Certificate, each Prospective Holder agrees
and acknowledges that no legal or beneficial interest in all or any portion of
any Certificate may be transferred directly or indirectly to (i) an entity that
holds residual securities as nominee to facilitate the clearance and settlement
of such securities through electronic book-entry changes in accounts of
participating organizations (a "Book-Entry Nominee"), or (ii) an individual,
corporation, partnership or other person unless such transferee is not a
Non-U.S. Person (any such person being referred to herein as a "Non-permitted
Foreign Holder"), and any such purported transfer shall be void and have no
effect.
(d) The Owner Trustee shall not execute, and shall not countersign and
deliver, a Certificate in connection with any transfer thereof unless the
transferor shall have provided to the Owner Trustee a certificate, signed by the
transferee, that it is not a Book-Entry Nominee or a Non- permitted Foreign
Holder, which certificate shall contain the consent of the transferee to any
amendments of this Agreement as may be required to effectuate further the
foregoing restrictions on transfer of the Certificate to Book-Entry Nominees or
Non-permitted Foreign Holders, and an agreement by the transferee that it will
not transfer a Certificate without providing to the Owner Trustee a certificate
in the form provided above.
(e) The Certificates shall bear an additional legend referring to the
restrictions contained in paragraph (b) above.
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ARTICLE IV
ACTIONS BY OWNER TRUSTEE
SECTION 4.1 Prior Notice to Owners with Respect to Certain Matters. The
Owner Trustee shall not take action with respect to the following matters,
unless (i) the Owner Trustee shall have notified the Certificateholders and the
Note Insurer in writing of the proposed action at least 30 days before the
taking of such action, and (ii) neither the Certificateholders nor the Note
Insurer shall have notified the Owner Trustee in writing prior to the 30th day
after such notice is given that such Certificateholders or the Note Insurer have
withheld consent or provided alternative direction (any directions by the
Certificateholders shall require the prior consent of the Note Insurer):
(a) the initiation of any claim or lawsuit by the Trust
(except claims and law suits brought in connection with the collection
of the Home Equity Loans) or the compromise of any action, claim or
lawsuit brought by or against the Trust (except claims and law suits
brought in connection with the collection of the Home Equity Loans);
(b) the election by the Trust to file an amendment to the
Certificate of Trust, (except to the extent such amendment is required
under the Business Trust Statute);
(c) the amendment or other change to this Agreement or any
Operative Documents in circumstances where the consent of any Owner of
a Note or the Note Insurer is required;
(d) the amendment or other change to this Agreement or any
Operative Documents in circumstances where the consent of any Owner of
a Note or the Note Insurer is not required and such amendment
materially adversely affects the interest of the Certificateholders;
(e) the appointment pursuant to the Indenture of a successor
Note Registrar, Paying Agent or Indenture Trustee or pursuant to this
Agreement of a successor Certificate Registrar or Trust Paying Agent,
or the consent to the assignment by the Note Registrar, Paying Agent or
Indenture Trustee or Certificate Registrar or Trust Paying Agent of its
obligations under the Indenture or this Agreement, as applicable;
(f) the consent to the calling or waiver of any default of any
Operative Document;
(g) the consent to the assignment of the Indenture Trustee or
Servicer of their respective obligations under the Operative Document;
(h) except as provided in Article IX hereof, dissolve,
terminate or liquidate the Trust in whole or in part;
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(i) merge or consolidate the Trust with or into any other
entity, or convey or transfer all or substantially all of the Trust's
assets to any other entity;
(j) cause the Trust to incur, assume or guaranty any
indebtedness other than as set forth in this Agreement;
(k) do any act that conflicts with any other Operative
Document;
(l) do any act which would make it impossible to carry on the
ordinary business of the Trust as described in Section 2.3 hereof;
(m) confess a judgment against the Trust;
(n) possess Trust assets, or assign the Trust's right to
property, for other than a Trust purpose;
(o) cause the Trust to lend any funds to any entity; or
(p) change the Trust's purpose and powers from those set forth
in this Agreement.
In addition the Trust shall not commingle its assets with those of any
other entity. The Trust shall maintain its financial and accounting books and
records separate from those of any other entity. Except as expressly set forth
herein, the Trust shall pay its indebtedness and any operating expenses from its
own funds, and the Trust shall not pay the indebtedness, operating expenses or
liabilities of any other entity. The Trust shall maintain appropriate minutes or
other records of all appropriate actions and shall maintain its office separate
from the offices of the Depositor, the Seller and the Servicer.
The Owner Trustee shall not have the power, except upon the direction
of the Certificateholders with the consent of the Note Insurer, and to the
extent otherwise consistent with the Operative Documents, to (i) remove or
replace the Servicer or the Indenture Trustee, (ii) institute proceedings to
have the Trust declared or adjudicated a bankruptcy or insolvent, (iii) consent
to the institution of bankruptcy or insolvency proceedings against the Trust,
(iv) file a petition or consent to a petition seeking reorganization or relief
on behalf of the Trust under any applicable federal or state law relating to
bankruptcy, (v) consent to the appointment of a receiver, liquidator, assignee,
trustee, sequestrator (or any similar official) of the Trust or a substantial
portion of the property of the Trust, (vi) make any assignment for the benefit
of the Trust's creditors, (vii) cause the Trust to admit in writing its
inability to pay its debts generally as they become due, (viii) take any action,
or cause the Trust to take any action, in furtherance of any of the foregoing
(any of the above, a "Bankruptcy Action"). So long as the Indenture remains in
effect and no Note Insurer Default exists, no Certificateholder shall have the
power to take, and shall not take, any Bankruptcy Action with
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respect to the Trust or the Depositor or direct the Owner Trustee to take any
Bankruptcy Action with respect to the Trust or the Depositor.
SECTION 4.2 Action by Holders with Respect to Certain Matters. The
Owner Trustee shall not have the power, except upon the direction of the
Certificateholders and with the consent of the Note Insurer, to remove the
Servicer under the Sale and Servicing Agreement. The Owner Trustee shall take
the actions referred to in the preceding sentence only upon written instructions
signed by the Certificateholders and only after obtaining the consent of the
Note Insurer.
SECTION 4.3 Action by Holders with Respect to Bankruptcy. The Owner
Trustee shall not have the power to commence a voluntary proceeding in
bankruptcy relating to the Trust without the consent and approval of the Note
Insurer, the unanimous prior approval of all Certificateholders and the delivery
to the Owner Trustee by each such Certificateholder of a certificate certifying
that such Certificateholder reasonably believes that the Trust is insolvent.
SECTION 4.4 Restrictions on Holders' Power. The Certificateholders
shall not direct the Owner Trustee to take or refrain from taking any action if
such action or inaction would be contrary to any obligation of the Trust or the
Owner Trustee under this Agreement or any of the Operative Documents or would be
contrary to Section 2.3, nor shall the Owner Trustee be obligated to follow any
such direction, if given.
SECTION 4.5 Majority Control. Except as expressly provided herein any
action that may be taken or consent that may be given or withheld or written
notice delivered by the Certificateholders under this Agreement may be taken by
Holders of Certificates representing more than a majority of the Certificates.
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ARTICLE V
APPLICATION OF OWNER TRUST ESTATE; CERTAIN DUTIES
SECTION 5.1 Establishment of Certificate Distribution Account. The
Owner Trustee shall cause the Servicer, for the benefit of the
Certificateholders, to establish and maintain with _____________________ for the
benefit of the Owner Trustee a Trust Account which while the Trust Paying Agent
holds such Account shall be entitled "CERTIFICATE DISTRIBUTION ACCOUNT,
_____________________ AS TRUST PAYING AGENT, IN TRUST FOR THE IMC ADJUSTABLE
RATE HOME EQUITY LOAN ASSET BACKED CERTIFICATES, SERIES 199__-__." Funds shall
be deposited in the Certificate Distribution Account as required by the Sale and
Servicing Agreement.
All of the right, title and interest of the Owner Trustee in all funds
on deposit from time to time in the Certificate Distribution Account and in all
proceeds thereof shall be held for the benefit of the Certificateholders. Except
as otherwise expressly provided herein or in the Sale and Servicing Agreement,
the Certificate Distribution Account shall be under the sole dominion and
control of the Owner Trustee for the benefit of the Certificateholders.
SECTION 5.2 Application of Trust Funds.
(a) On each Payment Date, the Owner Trustee shall direct the Trust
Paying Agent to distribute to the Certificateholders from amounts on deposit in
the Certificate Distribution Account the distributions as provided in Section
3.03(b)(v) of the Sale and Servicing Agreement with respect to such Payment
Date.
(b) Reserved.
(c) In the event that any withholding tax is imposed on the Trust's
payment (or allocations of income) to a Certificateholder, such tax shall reduce
the amount otherwise distributable to the Certificateholder in accordance with
this Section. The Owner Trustee is hereby authorized and directed to retain from
amounts otherwise distributable to the Certificateholders sufficient funds for
the payment of any tax that is legally owed by the Trust (but such authorization
shall not prevent the Owner 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). The amount of any withholding tax imposed with
respect to a Certificateholder shall be treated as cash distributed to such
Holder at the time it is withheld by the Trust and remitted to the appropriate
taxing authority. If there is a possibility that withholding tax is payable with
respect to a distribution (such as a distribution to a non-U.S. Holder), the
Owner Trustee may in its sole discretion withhold such amounts in accordance
with this paragraph (c). In the event that a Certificateholder wishes to apply
for a refund of any such withholding tax, the Owner Trustee shall reasonably
cooperate with such Certificateholder in making such claim so long as such
Certificateholder agrees to reimburse the Owner Trustee for any out-of-pocket
expenses incurred.
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SECTION 5.3 Method of Payment. Distributions required to be made to
Certificateholders on any Payment Date shall be made to each Certificateholder
of record on the immediately preceding Record Date either by wire transfer, in
immediately available funds, to the account of such Certificateholder at a bank
or other entity having appropriate facilities therefor, if such
Certificateholder shall have provided to the Certificate Registrar appropriate
written instructions at least five Business Days prior to such Payment Date, or,
if not, by check mailed to such Certificateholder at the address of such
Certificateholder appearing in the Certificate Register.
SECTION 5.4 Segregation of Moneys; No Interest. Subject to Sections 5.1
and 5.2, moneys received by the Trust Paying Agent hereunder and deposited into
the Certificate Distribution Account will be segregated except to the extent
required otherwise by law and shall be invested in Eligible Investments maturing
no later than one Business Day prior to the related Payment Date at the
direction of the Depositor. The Trust Paying Agent shall not be liable for
payment of any interest or losses in respect of such moneys. Investment gains
shall be for the account of and paid to the Certificateholders.
SECTION 5.5 Accounting and Reports to the Certificateholders, the
Internal Revenue Service and Others. The Owner Trustee shall (a) maintain (or
cause to be maintained) the books of the Trust on a calendar year basis on the
accrual method of accounting, and such books shall be maintained separately from
those of any other entity and reflect the separate interest of the Trust, (b)
deliver to each Certificateholder, as may be required by the Code and applicable
Treasury Regulations, such information as may be required (including Schedule
K-1) to enable such Certificateholder to prepare its federal and state income
tax returns, (c) file such tax returns relating to the Trust (including a
partnership information return, IRS Form 1065), and make such elections as may
from time to time be required or appropriate under any applicable state or
federal statute or rule or regulation thereunder so as to maintain the Trust's
characterization as a partnership for federal income tax purposes, (d) cause
such tax returns to be signed in the manner required by law and (e) collect or
cause to be collected any withholding tax with respect to income or
distributions to Certificateholders. The Owner Trustee shall elect under Section
1278 of the Code to include in income currently any market discount that accrues
with respect to the Home Equity Loans. The Owner Trustee shall not make the
election provided under Section 754 of the Code.
SECTION 5.6 Signature on Returns; Tax Matters Partner.
(a) The Owner Trustee shall sign on behalf of the Trust the tax returns
of the Trust, unless applicable law requires a Certificateholder to sign such
documents, in which case such documents shall be signed by the Depositor.
(b) The Depositor shall be designated the "tax matters partner" of the
Trust pursuant to Section 6231(a)(7)(A) of the Code and applicable Treasury
Regulations.
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ARTICLE VI
AUTHORITY AND DUTIES OF THE OWNER TRUSTEE
SECTION 6.1 General Authority. The Owner Trustee is authorized and
directed to execute and deliver or cause to be executed and delivered the
Certificates and the Operative Documents to which the Trust is to be a party and
each certificate or other document attached as an exhibit to or contemplated by
the Operative Documents to which the Trust is to be a party and any amendment or
other agreement or instrument described in Article III, in each case, in such
form as the Depositor shall approve, as evidenced conclusively by the Owner
Trustee's execution thereof, and, on behalf of the Trust, to direct the
Indenture Trustee to authenticate and deliver the Notes in the aggregate
principal amount of $_____________. In addition to the foregoing, the Owner
Trustee is authorized, but shall not be obligated, to take all actions required
of the Trust, pursuant to the Operative Documents.
SECTION 6.2. General Duties. It shall be the duty of the Owner Trustee:
(a) to discharge (or cause to be discharged) all of its
responsibilities pursuant to the terms of this Agreement and the Operative
Documents to which the Trust is a party and to administer the Trust in the
interest of the Certificateholders, and in accordance with the provisions of
this Agreement; and
(b) to obtain and preserve, the Trust's qualification to do business in
each jurisdiction in which such qualification is or shall be necessary to
protect the validity and enforceability of the Indenture, the Notes, and each
other instrument and agreement included in the Owner Trust Estate.
SECTION 6.3 Action upon Instruction by Owners.
(a) Subject to Article IV, the Certificateholders may by written
instruction direct the Owner Trustee in the management of the Trust. Such
direction may be exercised at any time by written instruction of the
Certificateholders pursuant to Article IV.
(b) Notwithstanding the foregoing, the Owner Trustee shall not be
required to take any action hereunder or under any Operative Document if the
Owner Trustee shall have reasonably determined, or shall have been advised by
counsel, that such action is likely to result in liability on the part of the
Owner Trustee or is contrary to the terms hereof or of any Operative Document or
is otherwise contrary to law.
(c) Whenever the Owner Trustee is unable to decide between alternative
courses of action permitted or required by the terms of this Agreement or any
Operative Document, or is unsure as to the application, intent, interpretation
or meaning of any provision of this agreement or the Operative Documents, the
Owner Trustee shall promptly give notice (in such form as shall be
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appropriate under the circumstances) to the Note Insurer and the
Certificateholders requesting instruction as to the course of action to be
adopted, and, to the extent the Owner Trustee acts in good faith in accordance
with any such instruction received, the Owner Trustee shall not be liable on
account of such action to any Person. If the Owner Trustee shall not have
received appropriate instructions within ten days of such notice (or within such
shorter period of time as reasonably may be specified in such notice or may be
necessary under the circumstances) it may, but shall be under no duty to, take
or refrain from taking such action which is consistent, in its view, with this
Agreement or the Operative Documents, and as it shall deem to be the best
interests of the Certificateholders, and the Owner Trustee shall have no
liability to any Person for any such action or inaction.
(d) In the event that the Owner Trustee is unsure as to the application
of any provision of this Agreement or any Operative Document or any such
provision is ambiguous as to its application, or is, or appears to be, in
conflict with any other applicable provision, or in the event that this
Agreement permits any determination by the Owner Trustee or is silent or is
incomplete as to the course of action that the Owner Trustee is required to take
with respect to a particular set of facts, the Owner Trustee may give notice (in
such form as shall be appropriate under the circumstances) to the
Certificateholders requesting instruction and, to the extent that the Owner
Trustee acts or refrains from acting in good faith in accordance with any such
instruction received, the Owner Trustee shall not be liable, on account of such
action or inaction, to any Person. If the Owner Trustee shall not have received
appropriate instruction within 10 days of such notice (or within such shorter
period of time as reasonably may be specified in such notice or may be necessary
under the circumstances) it may, but shall be under no duty to, take or refrain
from taking such action, not inconsistent with this Agreement or the Operative
Documents, as it shall deem to be in the best interest of the
Certificateholders, and shall have no liability to any Person for such action or
inaction.
SECTION 6.4 No Duties Except as Specified in this Agreement, the
Documents or in Instructions. The Owner Trustee shall not have any duty or
obligation to manage, make any payment with respect to, register, record, sell,
dispose of, or otherwise deal with the Owner Trust Estate, or to otherwise take
or refrain from taking any action under, or in connection with, any document
contemplated hereby to which the Owner Trustee is a party, except as expressly
provided by the terms of this Agreement, any Operative Document or in any
document or written instruction received by the Owner Trustee pursuant to
Section 6.3; and no implied duties or obligations shall be read into this
Agreement or any Operative Document against the Owner Trustee. The Owner Trustee
shall have no responsibility for filing any financing or continuation statement
in any public office at any time or to otherwise perfect or maintain the
perfection of any security interest or lien granted to it hereunder or to
prepare or file any Securities and Exchange Commission filing for the Trust or
to record this Agreement or any Operative Document. The Owner Trustee
nevertheless agrees that it will, at its own cost and expense, promptly take all
action as may be necessary to discharge any liens on any part of the Owner Trust
Estate that result from actions by, or claims against, the Owner Trustee that
are not related to the ownership or the administration of the Owner Trust
Estate.
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SECTION 6.5 No Action Except Under Specified Documents or Instructions.
The Owner Trustee shall not manage, control, use, sell, dispose of or otherwise
deal with any part of the Owner Trust Estate except (i) in accordance with the
powers granted to and the authority conferred upon the Owner Trustee pursuant to
this Agreement, (ii) in accordance with the Operative Documents and (iii) in
accordance with any document or instruction delivered to the Owner Trustee
pursuant to Section 6.3.
SECTION 6.6 Restrictions. The Owner Trustee shall not take any action
(a) that is inconsistent with the purposes of the Trust set forth in Section 2.3
or (b) that, to the actual knowledge of the Owner Trustee, would result in the
Trust's becoming taxable as a corporation for Federal income tax purposes. The
Certificateholders shall not direct the Owner Trustee to take action that would
violate the provisions of this Section.
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ARTICLE VII
CONCERNING THE OWNER TRUSTEE
SECTION 7.1 Acceptance of Trusts and Duties. Except as otherwise
provided in this Article VII, in accepting the trusts hereby created
_____________________ acts solely as Owner Trustee hereunder and not in its
individual capacity and all Persons having any claim against the Owner Trustee
by reason of the transactions contemplated by this Agreement or any Operative
Document shall look only to the assets of the Trust for payment or satisfaction
thereof. The Owner Trustee accepts the trusts hereby created and agrees to
perform its duties hereunder with respect to such trusts but only upon the terms
of this Agreement. The Owner Trustee also agrees to disburse all moneys actually
received by it constituting part of the assets of the Trust upon the terms of
the Operative Documents and this Agreement. The Owner Trustee shall not be
liable or accountable hereunder or under any Operative Document under any
circumstances, except (i) for its own gross negligent action, its own gross
negligent failure to act or its own willful misconduct or (ii) in the case of
the inaccuracy of any representation or warranty contained in Section 7.3 and
expressly made by the Owner Trustee. In particular, but not by way of limitation
(and subject to the exceptions set forth in the preceding sentence):
(a) the Owner Trustee shall at no time have any responsibility or
liability for or with respect to the legality, validity and enforceability of
any Home Equity Loan, or the perfection and priority of any security interest
created by any Home Equity Loan in any Property or the maintenance of any such
perfection and priority, or for or with respect to the sufficiency of the assets
of the Trust or their ability to generate the payments to be distributed to
Certificateholders under this Agreement or the Owners of the Notes under the
Indenture, including, without limitation: the existence, condition and ownership
of any Property; the existence and enforceability of any insurance thereon; the
existence and contents of any Home Equity Loan on any computer or other record
thereof; the validity of the assignment of any Home Equity Loan to the Trust or
of any intervening assignment; the completeness of any Home Equity Loan; the
performance or enforcement of any Home Equity Loan; the compliance by the
Depositor or the Servicer with any warranty or representation made under any
Operative Document or in any related document or the accuracy of any such
warranty or representation or any action of the Indenture Trustee, the Custodian
or the Servicer or any subservicer taken in the name of the Owner Trustee.
(b) the Owner Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in accordance with the instructions of the
Note Insurer or any Certificateholder;
(c) no provision of this Agreement or any Operative Document shall
require the Owner Trustee to expend or risk funds or otherwise incur any
financial liability in the performance of any of its rights or powers hereunder
or under any Operative Document, if the Owner Trustee
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shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured or
provided to it;
(d) under no circumstances shall the Owner Trustee be liable for
indebtedness evidenced by or arising under any of the Operative Documents,
including the Note Principal Balance and the interest on the Notes;
(e) the Owner Trustee shall not be responsible for or in respect of and
makes no representation as to the validity or sufficiency of any provision of
this Agreement or for the due execution hereof by the Depositor or for the form,
character, genuineness, sufficiency, value or validity of any of the Owner Trust
Estate or for or in respect of the validity or sufficiency of the Operative
Documents, the Underwriting Agreement, the Notes, the Certificates (other than
the certificate of authentication on the Certificates) or of any Home Equity
Loans or any related documents, and the Owner Trustee shall in no event assume
or incur any liability, duty or obligation to any Owner of a Note or to any
Certificateholder, other than as expressly provided for herein and in the
Operative Documents;
(f) the Owner Trustee shall not be liable for the default or misconduct
of the Indenture Trustee, the Custodian, the Depositor or the Servicer under any
of the Operative Documents or otherwise and the Owner Trustee shall have no
obligation or liability to perform the obligations of the Trust under this
Agreement or the Operative Documents that are required to be performed by the
Indenture Trustee under the Indenture, the Custodian under the Custodial
Agreement or the Servicer under the Sale and Servicing Agreement;
(g) the Owner Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Agreement, or to institute, conduct or
defend any litigation under this Agreement or otherwise or in relation to this
Agreement, the Underwriting Agreement or any Operative Document, at the request,
order or direction of any of the Note Insurer or any of the Certificateholders,
unless the Note Insurer or such Certificateholders have offered to the Owner
Trustee security or indemnity satisfactory to it against the costs, expenses and
liabilities that may be incurred by the Owner Trustee therein or thereby. The
right of the Owner Trustee to perform any discretionary act enumerated in this
Agreement or in any Operative Document shall not be construed as a duty, and the
Owner Trustee shall not be answerable for other than its negligence or willful
misconduct in the performance of any such act;
(h) The Owner Trustee shall have no responsibility for filing any
financing or continuation statement in any public office at any time or to
otherwise perfect or maintain the perfection of any security interest or lien
granted to it hereunder or to prepare, execute or file any Securities and
Exchange Commission filing or tax return for the Trust or to record this
Agreement or any Operative Document.
SECTION 7.2 Furnishing of Documents. The Owner Trustee shall furnish
(a) to the Certificateholders, promptly upon receipt of a written request
therefor, duplicate or copies of all
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reports, notices, requests, demands, certificates, financial statements and any
other instruments furnished to the Owner Trustee under the Operative Documents,
and (b) to the Note Insurer, copies of any reports, notices, requests, demands,
certificates, financial statements, and any other instruments relating to the
Trust, the Certificates or the Notes in the possession of the Owner Trustee,
that the Note Insurer shall request in writing.
SECTION 7.3 Representations and Warranties of Owner Trustee.
_____________________ hereby represents and warrants to the Depositor, for the
benefit of the Certificateholders and the Note Insurer, that:
(a) It is a banking corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
(b) It has full power, authority and legal right to execute, deliver
and perform its obligations under this Agreement, and has taken all necessary
action to authorize the execution, delivery and performance by it of this
Agreement.
(c) The execution, delivery and performance by it of this Agreement (i)
shall not violate any provision of any law or regulation governing the banking
and trust powers of _____________________ or any order, writ, judgment or decree
of any court, arbitrator or governmental authority applicable to the
_____________________ or any of its assets, (ii) shall not violate any provision
of the corporate charter or by-laws of _____________________, or (iii) shall not
violate any provision of, or constitute, with or without notice or lapse of
time, a default under, or result in the creation or imposition of any lien on
any properties included in the Trust pursuant to the provisions of any mortgage,
indenture, contract, agreement or other undertaking to which it is a party,
which violation, default or lien could reasonably be expected to have a
materially adverse effect on _____________________'s performance or ability to
perform its duties as Owner Trustee under this Agreement or on the transactions
contemplated in this Agreement.
(d) This Agreement has been duly executed and delivered by
_____________________ and constitutes the legal, valid and binding agreement of
_____________________, enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization, or
other similar law affecting the enforcement of creditors' rights in general and
by general principles of equity, regardless of whether such enforceability is
considered in a proceeding in equity or at law.
SECTION 7.4 Reliance; Advice of Counsel.
(a) The Owner Trustee shall incur no liability to anyone in acting upon
any signature, instrument, notice, resolution, request, consent, order,
certificate, report, opinion, note or other document or paper believed by it to
be genuine and believed by it to be signed by the proper party or parties and
need not investigate any fact or matter in any such document. The Owner Trustee
may accept a certified copy of a resolution of the board of directors or other
governing body
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of any corporate party as conclusive evidence that such resolution has been duly
adopted by such body and that the same is in full force and effect. As to any
fact or matter the method of the determination of which is not specifically
prescribed herein, the Owner Trustee may for all purposes hereof rely on a
certificate, signed by the president or any vice president or by the treasurer
or other authorized officers of the relevant party, as to such fact or matter,
and such certificate shall constitute full protection to the Owner Trustee for
any action taken or omitted to be taken by it in good faith in reliance thereon.
(b) In the exercise or administration of the trusts hereunder and in
the performance of its duties and obligations under this Agreement or the
Operative Documents, the Owner Trustee: (i) may act directly or through its
agents, attorneys, custodians or nominees, and the Owner Trustee shall not be
liable for the conduct or misconduct of such agents, attorneys, custodians or
nominees if such agents, attorneys, custodians or nominees shall have been
selected by the Owner Trustee with reasonable care and (ii) may consult with
counsel, accountants and other skilled professionals to be selected with
reasonable care and employed by it. The Owner Trustee shall not be liable for
anything done, suffered or omitted in good faith by it in accordance with the
opinion or advice of any such counsel, accountants or other such Persons and not
contrary to this Agreement or any of the Operative Documents.
SECTION 7.5 Owner Trustee May Own Certificates and Notes. The Owner
Trustee in its individual or any other capacity may become the owner or pledgee
of Certificates or Notes and may deal with the Depositor, the Indenture Trustee
and the Servicer in transactions in the same manner and with the same rights as
it would have if it were not the Owner Trustee.
SECTION 7.6 Licenses. The Owner Trustee shall cause the Trust to use
its best efforts to obtain and maintain the effectiveness of any licenses
required in connection with this Agreement and the Operative Documents and the
transactions contemplated hereby and thereby until such time as the Trust shall
terminate in accordance with the terms hereof.
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ARTICLE VIII
COMPENSATION OF OWNER TRUSTEE
SECTION 8.1 Owner Trustee's Fee and Expenses. The Owner Trustee shall
receive from the Depositor as compensation for its services hereunder such fees
as have been separately agreed upon before the date hereof between the Depositor
and the Owner Trustee, and the Owner Trustee shall be entitled to be reimbursed
by the Depositor for its other reasonable expenses hereunder, including the
reasonable compensation, expenses and disbursements of such agents, custodians,
nominees, representatives, experts and counsel as the Owner Trustee may employ
in connection with the exercise and performance of its rights and its duties
hereunder.
SECTION 8.2 Indemnification. The Depositor shall be liable as primary
obligor, and the Seller shall be liable as secondary obligor pursuant to the
Sale and Servicing Agreement for, and shall indemnify the Owner Trustee and its
successors, assigns, agents and servants (collectively, the "Indemnified
Parties") from and against, any and all liabilities, obligations, losses,
damages, taxes, claims, actions and suits, and any and all reasonable costs,
expenses and disbursements (including reasonable legal fees and expenses) of any
kind and nature whatsoever (collectively, "Expenses") which may at any time be
imposed on, incurred by, or asserted against the Owner Trustee or any
Indemnified Party in any way relating to or arising out of this Agreement, the
Operative Documents, the Owner Trust Estate, the administration of the Trust or
the action or inaction of the Owner Trustee hereunder, except only that the
Depositor shall not be liable for or required to indemnify the Owner Trustee
from and against Expenses arising or resulting from the gross negligence, bad
faith or willful misconduct of the Owner Trustee. The indemnities contained in
this Section 8.2 shall survive the resignation of the Owner Trustee, termination
of the Trust or the termination of this Agreement.
SECTION 8.3 Payments to the Owner Trustee. Any amounts paid to the
Owner Trustee pursuant to this Article VIII shall be deemed not to be a part of
the Owner Trust Estate immediately after such payment.
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ARTICLE IX
TERMINATION OF TRUST AGREEMENT
SECTION 9.1 Termination of Trust Agreement.
(a) This Agreement (other than Article VIII) and the Trust shall
terminate and be of no further force or effect on the earlier of: (i) the final
distribution by the Indenture Trustee of all moneys or other property or
proceeds of the assets of the Trust in accordance with the terms of the
Indenture and (ii) the expiration of 21 years from the death of the last
survivor of the descendants of Joseph P. Kennedy (the late ambassador of the
United States to the Court of St. James's). The bankruptcy, liquidation,
dissolution, death or incapacity of any Certificateholder shall not (x) operate
to terminate this Agreement or the Trust, nor (y) entitle such
Certificateholder's legal representatives or heirs to claim an accounting or to
take any action or proceeding in any court for a partition or winding up of all
or any part of the Trust or the Owner Trust Estate or (z) otherwise affect the
rights, obligations and liabilities of the parties hereto.
(b) The Certificates shall be subject to an early redemption or
termination at the option of the majority of Certificateholders, and in certain
instances the Note Insurer, in the manner and subject to the provisions of
Section 5.02 of the Sale and Servicing Agreement.
(c) Except as provided in paragraphs (a) and (b) of this Section 9.1,
none of the Depositor, the Servicer, the Note Insurer or any Certificateholder
shall be entitled to revoke or terminate the Trust.
(d) Notice of any termination of the Trust, specifying the Payment Date
upon which the Certificateholders shall surrender their Certificates to the
Owner Trustee for payment of the final distribution and cancellation, shall be
given by the Owner Trustee by letter to the Note Insurer, the Rating Agencies
and the Trust Paying Agent mailed within five Business Days of receipt of notice
of such termination, stating: (i) the Payment Date upon or with respect to which
final payment of the Certificates shall be made upon presentation and surrender
of the Certificates at the office of the Owner Trustee therein designated; (ii)
the amount of any such final payment; and (iii) that the Record Date otherwise
applicable to such Payment Date is not applicable, payments being made only upon
presentation and surrender of the Certificates at the office of the Owner
Trustee therein specified. The Owner Trustee shall give such notice to the
Certificate Registrar (if other than the Owner Trustee) and the Trust Paying
Agent at the time such notice is given to Certificateholders. The Owner Trustee
will give notice to the Trust Paying Agent of each presentation and surrender of
the Certificates and the Trust Paying Agent shall cause to be distributed to
Certificateholders amounts distributable on such Payment Date pursuant to
Section 5.03 of the Sale and Servicing Agreement.
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(e) Upon the winding up of the Trust and its termination, the Owner
Trustee shall cause the Certificate of Trust to be canceled by filing a
certificate of cancellation with the Secretary of State in accordance with the
provisions of Section 3820 of the Business Trust Statute.
SECTION 9.2 Reserved.
ARTICLE X
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
SECTION 10.1 Eligibility Requirements for Owner Trustee. The Owner
Trustee shall at all times be a corporation satisfying the provisions of Section
3807(a) of the Business Trust Statute; authorized to exercise corporate powers;
having a combined capital and surplus of at least $50,000,000 and subject to
supervision or examination by Federal or state authorities; and having (or
having a parent which has) a rating of at least "Baa3" by Moody's and "A-1" by
Standard & Poor's and being acceptable to the Note Insurer. If such corporation
shall publish reports of condition at least annually, pursuant to law or to the
requirements of the aforesaid supervising or examining authority, then for the
purpose of this Section, the combined capital and surplus of such corporation
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. In case at any time the Owner Trustee
shall cease to be eligible in accordance with the provisions of this Section,
the Owner Trustee shall resign immediately in the manner and with the effect
specified in Section 10.2.
SECTION 10.2 Resignation or Removal of Owner Trustee. The Owner Trustee
may at any time resign and be discharged from the trusts hereby created by
giving written notice thereof to the Depositor, the Indenture Trustee and the
Note Insurer. Upon receiving such notice of resignation, the Depositor shall
promptly appoint a successor Owner Trustee (acceptable to the Note Insurer) by
written instrument, in duplicate, one copy of which instrument shall be
delivered to the resigning Owner Trustee and one copy to the successor Owner
Trustee. If no successor Owner Trustee shall have been so appointed and have
accepted appointment within 30 days after the giving of such notice of
resignation, the resigning Owner Trustee or the Note Insurer may petition any
court of competent jurisdiction for the appointment of a successor Owner
Trustee.
If at any time the Owner Trustee shall cease to be eligible in
accordance with the provisions of Section 10.1 and shall fail to resign after
written request therefor by the Indenture Trustee, or if at any time the Owner
Trustee shall be legally unable to act, or shall be adjudged bankrupt or
insolvent, or a receiver of the Owner Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the Owner
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation, then the Note Insurer, or the Indenture Trustee
with the consent of the Note Insurer, may remove the Owner Trustee. If the
Indenture Trustee or the Note Insurer shall remove the Owner Trustee under the
authority of the immediately preceding sentence, the Note Insurer, or the
Servicer with the consent of the Note Insurer, shall promptly appoint a
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successor Owner Trustee by written instrument in duplicate, one copy of which
instrument shall be delivered to the outgoing Owner Trustee so removed and one
copy to the successor Owner Trustee and payment of all fees owed to the outgoing
Owner Trustee.
Any resignation or removal of the Owner Trustee and appointment of a
successor Owner Trustee pursuant to any of the provisions of this Section shall
not become effective until acceptance of appointment by the successor Owner
Trustee pursuant to Section 10.3, written approval by the Note Insurer and
payment of all fees and expenses owed to the outgoing Owner Trustee. The
Depositor shall provide notice of such resignation or removal of the Owner
Trustee to each of the Rating Agencies and the Note Insurer.
SECTION 10.3 Successor Owner Trustee. Any successor Owner Trustee
appointed pursuant to Section 10.2 shall execute, acknowledge and deliver to the
Depositor, the Indenture Trustee, the Note Insurer and to its predecessor Owner
Trustee an instrument accepting such appointment under this Agreement, and
thereupon the resignation or removal of the predecessor Owner Trustee shall
become effective and such successor Owner Trustee (if acceptable to the Note
Insurer), without any further act, deed or conveyance, shall become fully vested
with all the rights, powers, duties, and obligations of its predecessor under
this Agreement, with like effect as if originally named as Owner Trustee. The
predecessor Owner Trustee shall upon payment of its fees and expenses deliver to
the successor Owner Trustee all documents and statements and monies held by it
under this Agreement; and the Depositor and the predecessor Owner Trustee shall
execute and deliver such instruments and do such other things as may reasonably
be required for fully and certainly vesting and confirming in the successor
Owner Trustee all such rights, powers, duties, and obligations.
No successor Owner Trustee shall accept appointment as provided in this
Section unless at the time of such acceptance such successor Owner Trustee shall
be eligible pursuant to Section 10.1.
Upon acceptance of appointment by a successor Owner Trustee pursuant to
this Section, the Depositor shall mail notice of the successor of such Owner
Trustee to all Certificateholders, the Indenture Trustee, the Owners, the Note
Insurer and the Rating Agencies. If the Depositor fails to mail such notice
within 10 days after acceptance of appointment by the successor Owner Trustee,
the successor Owner Trustee shall cause such notice to be mailed at the expense
of the Depositor.
SECTION 10.4 Merger or Consolidation of Owner Trustee. Any corporation
into which the Owner Trustee may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Owner Trustee shall be a party, or any corporation
succeeding to all or substantially all of the corporate trust business of the
Owner Trustee, shall be the successor of the Owner Trustee hereunder, provided
such corporation shall be eligible pursuant to Section 10.1, and without the
execution or filing of any instrument or any further act on the part of any of
the parties hereto; provided, however, that the Owner Trustee
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shall mail notice of such merger or consolidation to the Note Insurer and each
of the Rating Agencies.
SECTION 10.5 Appointment of Co-Trustee or Separate Trustee.
(a) Notwithstanding any other provisions of this Agreement, at any
time, for the purpose of meeting any legal requirement of any jurisdiction in
which any part of the Owner Trust Estate or any Property may at the time be
located, the Owner Trustee (with the consent of the Note Insurer) shall have the
power and shall execute and deliver all instruments to appoint one or more
Persons approved by the Owner Trustee and the Note Insurer to act as co-trustee,
jointly with the Owner Trustee, or as separate trustee or trustees, of all or
any part of the assets of the Trust, and to vest in such Person, in such
capacity, such title to the Trust, or any part thereof, and, subject to the
other provisions of this Section, such powers, duties, obligations, rights and
trusts as the Note Insurer and the Owner Trustee may consider necessary or
desirable. No co-trustee or separate trustee under this Agreement shall be
required to meet the terms of eligibility as a successor trustee pursuant to
Section 10.1 and no notice of the appointment of any co-trustee or separate
trustee shall be required pursuant to Section 10.3.
(b) Each separate trustee and co-trustee shall, to the extent permitted
by law, be appointed and act subject to the following provisions and conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Owner Trustee shall be conferred upon and exercised or
performed by the Owner 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 Owner 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,
the Owner Trustee shall be incompetent or unqualified to perform such
act or acts, in which event such rights, powers, duties and obligations
(including the holding of title to the Trust or any portion thereof in
any such jurisdiction) shall be exercised and performed singly by such
separate trustee or co-trustee, but solely at the direction of the
Owner Trustee;
(ii) no trustee under this Agreement shall be personally
liable by reason of any act or omission of any other trustee under this
Agreement; and
(iii) the Owner Trustee may at any time accept the resignation
of or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Owner Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article. Each separate trustee and co-trustee, upon its
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acceptance of the trusts conferred, shall be vested with the estates or property
specified in its instrument of appointment, either jointly with the Owner
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 Owner Trustee. Each such instrument shall be filed with the Owner
Trustee and a copy thereof given to the Note Insurer.
(d) Any separate trustee or co-trustee may at any time appoint the
Owner Trustee as 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 Owner Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
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ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Amendments Without Consent of Certificateholders or Owners
of the Notes. This Agreement may be amended by the Depositor and the Owner
Trustee without the consent of any of the Certificateholders (but with the prior
written consent of the Note Insurer and prior notice to each of the Rating
Agencies), to (i) cure any ambiguity, (ii) correct or supplement any provision
in this Agreement that may be defective or inconsistent with any other provision
in this Agreement, (iii) add or supplement any credit enhancement for the
benefit of the Owners of the Notes or the Certificateholders, (iv) add to the
covenants, restrictions or obligations of the Depositor or the Owner Trustee and
(v) add, change or eliminate any other provision of this Agreement in any manner
that shall not, adversely affect in any material respect the interests of the
Owners of the Notes or the Certificateholders. An amendment described above
shall be deemed not to adversely affect in any material respect the interests of
any Certificateholder or Owner of a Note if (i) an opinion of counsel is
obtained to such effect or (ii) the party requesting the amendment satisfies the
Rating Agency Condition with respect to such amendment.
SECTION 11.2 Amendments With Consent of Certificateholders. This
Agreement may be amended from time to time by the Depositor and the Owner
Trustee with the consent of the Note Insurer and more than a majority in
Percentage Interests of the Certificates for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement, or of modifying in any manner the rights of the
Certificateholders; provided, however, that no such amendment shall (a) increase
or reduce in any manner the amount of, or accelerate or delay the timing of,
collections of payments on Home Equity Loans or distributions that shall be made
for the benefit of the Certificateholders or (b) reduce the aforesaid percentage
required to consent to any such amendment, without the consent of the Holders of
all of the Certificates then outstanding.
SECTION 11.3 Form of Amendments.
(a) Promptly after the execution of any amendment, supplement or
consent pursuant to Section 11.1 or 11.2, The Owner Trustee shall furnish
written notification of the substance of such amendment or consent to each
Certificateholder, the Indenture Trustee, the Note Insurer and each Rating
Agency.
(b) It shall not be necessary for the consent of the
Certificateholders, pursuant to Section 11.2 to approve the particular form of
any proposed amendment or consent, but it shall be sufficient if such consent
shall approve the substance thereof. The manner of obtaining such consents (and
any other consents of Certificateholders provided for in this Agreement or in
any other Operative Document) and of evidencing the authorization of the
execution thereof by Certificateholders shall be subject to such reasonable
requirements as the Owner Trustee may prescribe.
34
<PAGE>
(c) Promptly after the execution of any amendment to the Certificate of
Trust, the Owner Trustee shall cause the filing of such amendment with the
Secretary of State.
(d) Prior to the execution of any amendment to this Agreement or the
Certificate of Trust, the Owner Trustee shall be entitled to receive and rely
upon an Opinion of Counsel stating that the execution of such amendment is
authorized or permitted by this Agreement and that all conditions precedent to
the execution and delivery of such amendment have been satisfied. The Owner
Trustee may, but shall not be obligated to, enter into any such amendment which
affects the Owner Trustee's own rights, duties or immunities under this
Agreement or otherwise.
SECTION 11.4 No Legal Title to Owner Trust Estate. The
Certificateholders shall not have legal title to any part of the assets of the
Owner Trust Estate. The Certificateholders shall be entitled to receive
distributions with respect to their undivided ownership interest therein only in
accordance with Articles V and IX. No transfer, by operation of law or
otherwise, of any right, title, and interest of the Certificateholders to and in
their ownership interest in the assets of the Trust shall operate to terminate
this Agreement or the trusts hereunder or entitle any transferee to an
accounting or to the transfer to it of legal title to any part of the assets of
the Trust.
SECTION 11.5 Limitations on Rights of Others. The provisions of this
Agreement are solely for the benefit of the Note Insurer, the Owner Trustee, the
Depositor, the Certificateholders and, to the extent expressly provided herein,
the Indenture Trustee and the Owners of the Notes, and nothing in this
Agreement, whether express or implied, shall be construed to give to any other
Person any legal or equitable right, remedy or claim in the assets of the Trust
or under or in respect of this Agreement or any covenants, conditions or
provisions contained herein.
SECTION 11.6 Notices.
(a) All demands, notices and communications hereunder shall be in
writing and shall be deemed to have been duly given if personally delivered at
or mailed by overnight mail, certified mail or registered mail, postage prepaid,
to (i) in the case of the Servicer, IMC Mortgage Company, 5901 East Fowler Ave.,
Tampa, Florida 33617-2362, Attention: Laurie Williams, or such other addresses
as may hereafter be furnished to the Certificateholders in writing by the
Servicer, (ii) in the case of the Depositor, IMC Securities, Inc. 5901 East
Fowler Ave., Tampa, Florida 33617- 2362, Attention: Laurie Williams, or such
other addresses as may hereafter be furnished to the Certificateholders in
writing by the Depositor, (iii) in the case of the Owner Trustee,
__________________, _______________________, __________________, ___________,
____________, ______, Attention: IMC Home Equity Loan Owner Trust 199__-__, (iv)
in the case of the Certificateholders, as set forth in the Certificate Register,
(v) in the case of the Indenture Trustee, _____________________,
________________, ________________, Attention: IMC Home Equity Loan Owner Trust
199__-__, (vi) in the case of Moody's, 99 Church Street, New York, New York
10007, Attention: Home Equity Monitoring Group, (vii) in the case of Standard &
Poor's, 26 Broadway, New York, New York 10004, Attention: Residential Mortgage
Group, and (viii) in the case of the Note Insurer, __________________
_____________________, Attention: IMC Home
35
<PAGE>
Equity Loan Owner Trust 199__-__. Any such notices shall be deemed to be
effective with respect to any party hereto upon the receipt of such notice by
such party, except that notices to the Certificateholders shall be effective
upon mailing or personal delivery.
(b) Any notice required or permitted to be given to a Certificateholder
shall be given by first-class mail, postage prepaid, at the address of such
Holder as shown in the Certificate Register. Any notice so mailed within the
time prescribed in this Agreement shall be conclusively presumed to have been
duly given, whether or not the Certificateholder receives such notice.
SECTION 11.7 Severability. If any one or more of the covenants,
agreements, provisions or terms of this Agreement shall be for any reason
whatsoever held invalid, then such covenants, agreements, provisions or terms
shall be deemed severable from the remaining covenants, agreements, provisions
or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or of the Certificates
or the rights of the Holders thereof.
SECTION 11.8 Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument.
SECTION 11.9 Successors and Assigns. All covenants and agreements
contained herein shall be binding upon, and inure to the benefit of, the
Depositor, the Owner Trustee, the Note Insurer and each Certificateholder and
their respective successors and permitted assigns, all as herein provided. Any
request, notice, direction, consent, waiver or other instrument or action by a
Certificateholder shall bind the successors and assigns of such
Certificateholder.
SECTION 11.10 No Petition Covenant. Notwithstanding any prior
termination of this Agreement, the Trust (or the Owner Trustee on behalf of the
Trust), each Certificateholder and the Indenture Trustee shall not acquiesce,
petition or otherwise invoke or cause the Depositor or the Trust to invoke the
process of any court or governmental authority for the purpose of commencing or
sustaining a case against the Depositor or the Trust under any federal or state
bankruptcy, insolvency or similar law or appointing a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of the
Depositor or the Trust or any substantial part of its property, or ordering the
winding up or liquidation of the affairs of the Depositor or the Trust.
SECTION 11.11 No Recourse. Each Certificateholder by accepting a
Certificate acknowledges that such Certificateholder's Certificates represent
beneficial interests in the Trust only and do not represent interests in or
obligations of the Depositor, the Servicer, the Owner Trustee, the Indenture
Trustee or any affiliate thereof and no recourse may be had against such parties
or their assets, except as may be expressly set forth or contemplated in this
Agreement, the Certificates or the Operative Documents.
36
<PAGE>
SECTION 11.12 Headings. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
SECTION 11.13 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 11.14 Reserved.
SECTION 11.15 Third-Party Beneficiary. The parties hereto acknowledge
that the Note Insurer is an express third party beneficiary hereof entitled to
enforce the provisions hereunder as if it were actually a party hereto. Nothing
in this section, however, shall be construed to mitigate in any way, the
fiduciary responsibilities of the Owner Trustee to the Certificateholders nor to
create a fiduciary responsibility of the Owner Trustee to the Note Insurer.
SECTION 11.16 Suspension and Termination of Note Insurer's Rights.
During the continuation of a Note Insurer Default, rights granted or reserved to
the Note Insurer hereunder shall vest instead in the Certificateholders;
provided that the Note Insurer shall be entitled to any distributions in
reimbursement of the Note Insurer Reimbursement Amount, and the Note Insurer
shall retain those rights under Section 11.1 to consent to any amendment of this
Agreement.
At such time as either (i) the Note Principal Balance has been reduced
to zero or (ii) the Insurance Policy has been terminated and in either case of
(i) or (ii) the Note Insurer has been reimbursed for all Insured Payments and
any other amounts owed under the Insurance Policy and the Insurance Agreement
(and the Note Insurer no longer has any obligation under the Insurance Policy,
except for breach thereof by the Note Insurer), then the rights and benefits
granted or reserved to the Note Insurer hereunder (including the rights to
direct certain actions and receive certain notices) shall terminate and the
Certificateholders shall be entitled to the exercise of such rights and to
receive such benefits of the Note Insurer following such termination to the
extent that such rights and benefits are applicable to the Certificateholders.
37
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement
to be duly executed by their respective officers hereunto duly authorized, as of
the day and year first above written.
_____________________,
as Owner Trustee
By:____________________________
Name:
Title:
IMC SECURITIES, INC.,
as Depositor
By:____________________________
Name:
Title:
Acknowledged and Accepted:
IMC MORTGAGE COMPANY,
as Servicer
By:____________________________
Name:
Title:
_____________________ ,
as Indenture Trustee
By:____________________________
Name:
Title:
<PAGE>
EXHIBIT A
CERTIFICATE OF TRUST OF
IMC Home Equity Loan Trust 199__-__
THIS Certificate of Trust of IMC Home Equity Loan Owner Trust 199__-__
(the "Trust") dated as of ________________, is being duly executed and filed by
_____________________, a Delaware banking corporation, as trustee, to form a
business trust under the Delaware Business Trust Act (12 Del. Code, ss.3801 et
seq.).
1. Name. The name of the business trust formed hereby is IMC Home Equity Loan
Owner Trust 199__-__.
2. Delaware Trustee. The name and business address of the trustee of the Trust
in the State of Delaware is _____________________, ________________
________________ ________________, Attention: Corporate Trust
Administration.
3. This Certificate of Trust shall be effective as of its filing.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of the Trust, has
executed this Certificate of Trust as of the date first above written.
______________________________,
not in its individual capacity
but solely as Owner Trustee
By: ____________________________
Name:
Title:
<PAGE>
EXHIBIT B-1
TO THE TRUST AGREEMENT
(FORM OF CERTIFICATE)
THE EQUITY INTEREST IN THE TRUST REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN
AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAWS. THIS CERTIFICATE MAY BE DIRECTLY OR
INDIRECTLY OFFERED OR SOLD OR OTHERWISE DISPOSED OR (INCLUDING PLEDGED) BY THE
HOLDER HEREOF ONLY TO (I) A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE
144A UNDER THE ACT, IN A TRANSACTION THAT IS REGISTERED UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS OR THAT IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE ACT PURSUANT TO RULE 144A OR (II) A PERSON INVOLVED IN THE
ORGANIZATION OR OPERATION OF THE TRUST OR AN AFFILIATE OF SUCH A PERSON WITHIN
THE MEANING OR RULE 3A-7 OF THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED
(INCLUDING BUT NOT LIMITED TO, IMC MORTGAGE COMPANY AND IMC SECURITIES, INC.) IN
A TRANSACTION THAT IS REGISTERED UNDER THE ACT AND APPLICABLE STATE SECURITIES
LAWS OR THAT IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH
LAWS. NO PERSON IS OBLIGATED TO REGISTER THIS EQUITY INTEREST UNDER THE ACT OR
ANY STATE SECURITIES LAWS.
NO TRANSFER OF THIS CERTIFICATE OR ANY BENEFICIAL INTEREST THEREIN
SHALL BE MADE TO ANY PERSON UNLESS THE OWNER TRUSTEE HAS RECEIVED
EITHER
(A) A CERTIFICATE FROM THE TRANSFEREE TO THE EFFECT THAT
SUCH TRANSFEREE (1) IS NOT AN "EMPLOYEE BENEFIT PLAN"
WITHIN THE MEANING OF SECTION 3(3) OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED
("ERISA"), OR A "PLAN" WITHIN THE MEANING OF SECTION
4975(e)(1) OF THE CODE (ANY SUCH PLAN OR EMPLOYEE BENEFIT
PLAN, A "PLAN") AND IS NOT DIRECTLY OR INDIRECTLY
PURCHASING SUCH CERTIFICATE ON BEHALF OF, AS INVESTMENT
MANAGER OF, AS NAMED FIDUCIARY OF, AS TRUSTEE OF, OR WITH
ASSETS OF A PLAN, OR (2) EITHER (I) SUCH TRANSFEREE IS
ACQUIRING THE CERTIFICATE FOR ITS OWN ACCOUNT AND NO
PART OF THE ASSETS USED TO ACQUIRE THE CERTIFICATE
CONSTITUTES ASSETS OF A PLAN, OR (II) THE SOURCE OF FUNDS TO
BE USED TO ACQUIRE SUCH CERTIFICATE IS AN "INSURANCE
COMPANY GENERAL ACCOUNT," WITHIN THE MEANING OF
<PAGE>
PROHIBITED TRANSACTION CLASS EXEMPTION 95-60, 60 FED. REG.
35925 (JULY 12, 1995) (THE "EXEMPTION"), AND THERE IS NO PLAN
WITH RESPECT TO WHICH THE AMOUNT OF SUCH GENERAL ACCOUNT'S
RESERVES FOR THE CONTRACT(S) HELD BY OR ON BEHALF OF SUCH PLAN
(DETERMINED UNDER SECTION 807(d) OF THE CODE), TOGETHER WITH
THE AMOUNT OF THE RESERVES OF THE CONTRACT(S) HELD BY OR ON
BEHALF OF ANY OTHER PLANS (DETERMINED UNDER SECTION 807(d) OF
THE CODE) MAINTAINED BY THE SAME EMPLOYER (OR AN AFFILIATE
THEREOF AS DEFINED IN SECTION V(a)(1) OF THE EXEMPTION) OR BY
THE SAME EMPLOYEE ORGANIZATION, EXCEED 10% OF THE TOTAL OF ALL
LIABILITIES OF SUCH GENERAL ACCOUNT; OR
(B) AN OPINION OF COUNSEL ACCEPTABLE TO SUCH PERSONS THAT (A)
THE PROPOSED ISSUANCE OR TRANSFER OF THE CERTIFICATE TO
SUCH TRANSFEREE WILL NOT CAUSE ANY ASSETS OF THE TRUST
TO BE DEEMED ASSETS OF A PLAN, OR (B) THE PROPOSED ISSUANCE
OR TRANSFER OF THE CERTIFICATE WILL NOT CAUSE THE OWNER
TRUSTEE OR THE CERTIFICATE REGISTRAR OR ANY OF THEIR
RESPECTIVE SUCCESSORS TO BE A FIDUCIARY OF A PLAN WITHIN
THE MEANING OF SECTION 3(21) OF ERISA AND WILL NOT GIVE RISE
TO A TRANSACTION DESCRIBED IN SECTION 406 OF ERISA OR
SECTION 4975(c)(1) OF THE CODE FOR WHICH A STATUTORY OR
ADMINISTRATIVE EXEMPTION IS UNAVAILABLE.
THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF UNLESS,
PRIOR TO SUCH DISPOSITION, THE PROPOSED TRANSFEREE DELIVERS TO THE OWNER TRUSTEE
AND THE CERTIFICATE REGISTRAR A CERTIFICATE STATING THAT SUCH TRANSFEREE (A)
AGREES TO BE BOUND BY AND TO ABIDE BY THE TRANSFER RESTRICTIONS APPLICABLE TO
THIS CERTIFICATE; (B) IS NOT AN ENTITY THAT WILL HOLD THIS CERTIFICATE AS
NOMINEE TO FACILITATE THE CLEARANCE AND SETTLEMENT OF SUCH SECURITY THROUGH THIS
CERTIFICATE MAY NOT BE PURCHASED BY OR TRANSFERRED TO ANY PERSON THAT IS A
NON-U.S. PERSON. THE TERM "NON- U.S. PERSON" MEANS A PERSON WHO IS NOT ONE OF
THE FOLLOWING: 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, AN ESTATE THAT IS SUBJECT TO
U.S. FEDERAL INCOME TAX REGARDLESS OF THE SOURCE OF ITS INCOME OR A TRUST IF (I)
A COURT IN THE UNITED STATES IS ABLE TO EXERCISE PRIMARY SUPERVISION OVER THE
ADMINISTRATION OF THE TRUST AND (II) ONE OR MORE UNITED STATES FIDUCIARIES HAVE
THE AUTHORITY TO CONTROL ALL SUBSTANTIAL DECISIONS OF THE TRUST.
B-1-2
<PAGE>
IMC HOME EQUITY LOAN OWNER TRUST 199__-__
CERTIFICATE
No. 0001
THIS CERTIFIES THAT IMC Mortgage Company (the "Owner") is the
registered owner of a 99% Percentage Interest in IMC Home Equity Loan Owner
Trust 199__-__ (the "Trust") existing under the laws of the State of Delaware
and created pursuant to the Trust Agreement, dated as of ________________ (the
"Trust Agreement"), between IMC Securities, Inc., as Depositor, and
_____________________, in its individual capacity and in its fiduciary capacity
as owner trustee under the Trust Agreement (the "Owner Trustee"). Capitalized
terms used but not otherwise defined herein have the meanings assigned to such
terms in the Trust Agreement. The Owner Trustee, on behalf of the Issuer and not
in its individual capacity, has executed this Certificate by one of its duly
authorized signatories as set forth below. This Certificate is one of the
Certificates referred to in the Trust Agreement and is issued under and is
subject to the terms, provisions and conditions of the Trust Agreement to which
the holder of this Certificate by virtue of the acceptance hereof agrees and by
which the holder hereof is bound. Reference is hereby made to the Trust
Agreement for the rights of the holder of this Certificate, as well as for the
terms and conditions of the Trust created by the Trust Agreement.
The holder, by its acceptance hereof, agrees not to transfer this
Certificate except in accordance with terms and provisions of the Agreement.
THIS CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust and not
in its individual capacity, has caused this Certificate to be duly executed.
IMC HOME EQUITY LOAN OWNER TRUST
199__-__
By: ____________________, not in its individual
capacity but solely as Owner Trustee under
the Trust Agreement
By: ____________________________________
Authorized Signatory
DATED: ________________
B-1-3
<PAGE>
CERTIFICATE OF AUTHENTICATION
This is one of the Certificates referred to in the within-mentioned
Agreement.
___________________________________
as Owner Trustee
By: ____________________________________
Authorized Signatory
B-1-4
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
________________________________________________________________________________
(Please print or type name and address, including postal zip code, of assignee)
________________________________________________________________________________
the within Instrument, and all rights thereunder, hereby irrevocably
constituting and appointing
______________________________________________________________ Attorney to
transfer said Instrument on the books of the Certificate Registrar, with full
power of substitution in the premises.
Dated: _____________________
__________________________________________*/
Signature Guaranteed:
__________________________________________*/
NOTICE: The signature to this assignment must correspond with the name as it
appears upon the face of the within Instrument in every particular,
without alteration, enlargement or any change whatever. Such signature
must be guaranteed by a member firm of the New York Stock Exchange or a
commercial bank or trust company.
B-1-5
<PAGE>
EXHIBIT B-2
TO THE TRUST AGREEMENT
(FORM OF CERTIFICATE ISSUED TO THE DEPOSITOR)
THE EQUITY INTEREST IN THE TRUST REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN
AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAWS. THIS CERTIFICATE MAY BE DIRECTLY OR
INDIRECTLY OFFERED OR SOLD OR OTHERWISE DISPOSED OF (INCLUDING PLEDGED) BY THE
HOLDER HEREOF ONLY TO (I) A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE
144A UNDER THE ACT, IN A TRANSACTION THAT IS REGISTERED UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS OR THAT IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE ACT PURSUANT TO RULE 144A OR (II) A PERSON INVOLVED IN THE
ORGANIZATION OR OPERATION OF THE TRUST OR AN AFFILIATE OF SUCH A PERSON WITHIN
THE MEANING OF RULE 3A-7 OF THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED
(INCLUDING, BUT NOT LIMITED TO, IMC MORTGAGE COMPANY AND IMC SECURITIES, INC.)
IN A TRANSACTION THAT IS REGISTERED UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS OR THAT IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE ACT
AND SUCH LAWS. NO PERSON IS OBLIGATED TO REGISTER THIS RESIDUAL INTEREST UNDER
THE ACT OR ANY STATE SECURITIES LAWS.
THIS CERTIFICATE IS NONTRANSFERABLE. NOTWITHSTANDING ANYTHING HEREIN OR IN THE
TRUST AGREEMENT TO THE CONTRARY, ANY ATTEMPTED TRANSFER OF THIS CERTIFICATE
SHALL BE NULL AND VOID FOR ALL PURPOSES.
IMC HOME EQUITY LOAN OWNER TRUST 199__-__
CERTIFICATE
No. 0002
THIS CERTIFIES THAT IMC SECURITIES, INC. (the "Owner") is the
registered owner of a 1% Percentage Interest of the IMC Home Equity Loan Owner
Trust 199__-__ (the "Trust") existing under the laws of the State of Delaware
and created pursuant to the Trust Agreement, dated as of ________________ (the
"Trust Agreement") between IMC Securities, inc., as Depositor and
_____________________, not in its individual capacity but solely in its
fiduciary capacity as owner trustee under the Trust Agreement (the "Owner
Trustee"). Capitalized terms used but not otherwise
B-2-1
<PAGE>
defined herein have the meanings assigned to them in the Trust Agreement. The
Owner Trustee, on behalf of the Issuer and not in its individual capacity, has
executed this Certificate by one of its duly authorized signatories as set forth
below. This Certificate is one of the Certificates referred to in the Trust
Agreement and is issued under and is subject to the terms, provisions and
conditions of the Trust Agreement to which the holder of this Certificate by
virtue of acceptance hereof agrees and by which the holder hereof is bound.
Reference is hereby made to the trust Agreement for the rights of the holder of
this Certificate, as well as for the terms and conditions of the Trust created
by the Trust Agreement.
The holder, by its acceptance Certificate hereof, agrees not to
transfer this Certificate.
THIS CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the trust and not
in its individual capacity, has caused this Certificate to be duly executed.
IMC HOME EQUITY LOAN OWNER TRUST
199__-__
By: _____________________, not in its
individual capacity but solely as Owner
Trustee under the Trust Agreement
By: ____________________________________
Authorized Signatory
DATED: ________________
B-2-2
<PAGE>
CERTIFICATE OF AUTHENTICATION
This is one of the Certificates referred to in the within-mentioned
Agreement.
By: ____________________________________
Authenticating Agent
B-2-3
Exhibit 99.1
CERTIFICATES
INSURED
PROSPECTUS SUPPLEMENT
(To Prospectus Dated _________, 199__)
$_____________________
IMC HOME EQUITY LOAN TRUST 199__-__
IMC MORTGAGE COMPANY
[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, Class A-6 Certificates, Class A-7 Certificates, Class
A-8 Certificates and the Class A-9IO Certificates (collectively, the "Class A
Certificates") and (ii) a residual Class of Certificates (the "Class R
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 _____ herein, "Prepayment and
Yield Considerations" beginning on page ________ herein and "Risk Factors"
beginning on page ___ in the Prospectus.
The Certificates represent undivided ownership interests in a pool of
fixed rate home equity loans (the "Home Equity Loans") held by IMC Home Equity
Loan Trust 199__-__ (the "Trust"), which are secured by first and second lien
mortgages or deeds of trust primarily on one- to four-family residential
properties. The Certificates also represent undivided ownership interests in all
interest and principal due under the Home Equity Loans after ______________,
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 SELLER,
THE SERVICER, EXCEPT AS DESCRIBED HEREIN, THE CERTIFICATE INSURER, THE
TRUSTEE 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.
<TABLE>
<CAPTION>
=============================================================================================
Initial
Certificate
Principal Pass-Through Price to Underwriting Proceeds to
Balance Rate Public(1) Discount Depositor(1)(2)
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
$ (3) % % %
- ---------------------------------------------------------------------------------------------
$ % % % %
- ---------------------------------------------------------------------------------------------
$ % % % %
- ---------------------------------------------------------------------------------------------
$ % % % %
- ---------------------------------------------------------------------------------------------
$ % % % %
- ---------------------------------------------------------------------------------------------
$ %(4)(5) % % %
- ---------------------------------------------------------------------------------------------
$ %(4)(5) % % %
- ---------------------------------------------------------------------------------------------
$ %(4)(5) % % %
- ---------------------------------------------------------------------------------------------
(6) % % % %
==============================================================================================
Total $ $ $ $
==============================================================================================
</TABLE>
(1) Plus accrued interest (other than with respect to the Class A-1
Certificates), if any, from ____________, 199__.
(2) Before deducting expenses, estimated to be $_____________.
(3) The Pass-Through Rate on the Class A-1 Certificates is adjustable based on
LIBOR as described herein.
(4) Subject to adjustment after the Clean-Up Call Date as described herein.
(5) The Pass-Through Rate on this Class may be limited as described herein.
(6) Interest will be calculated on the basis of a Notional Principal Amount
equal to the outstanding Certificate Principal Balance of the ____________
Certificates until the Payment Date in _____________, 20___.
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 the Class A Certificates will be
delivered in book-entry form only through the Same-Day Funds Settlement System
of The Depository Trust Company, Cedel Bank, S.A. and the Euroclear System on or
about ______________, 199__. The Class A Certificates will be offered in Europe
and the United States of America.
[Underwriters]
The date of this Prospectus Supplement is _________________, 199__
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these Securities has been filed with the
Securities and Exchange Commission. These Securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This preliminary prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
Securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such State.
<PAGE>
(cover continued from previous page)
The Loan Balance of the Home Equity Loans as of the Statistical
Calculation 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 IMC Mortgage Company (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
________________, 199__ among the Seller, the Servicer, IMC Securities, Inc.
(the "Depositor") and _________________________, as Trustee (the "Trustee").
In addition to the Home Equity Loans as of the Statistical Calculation
Date, additional Home Equity Loans will be purchased by the Trust from the
Depositor on the Closing Date. All of the Home Equity Loans as of the Closing
Date (the "Initial Home Equity Loans") will have a Cut-Off Date of
______________, 199__ and the Depositor expects that the Initial Home Equity
Loans will total approximately $______________ as of the Closing Date. See "The
Home Equity Loan Pool" herein.
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 ______________, 199__ from
funds on deposit in the Pre-Funding Account. On the Closing Date (as defined
below), an aggregate cash amount of approximately $______________ (the
"Pre-Funded Amount") will be deposited with the Trustee in the Pre-Funding
Account to be used to acquire Subsequent Home Equity Loans.
Distributions of principal and interest will be made 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 ________________,
199__ (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) or Notional Principal Amount
(as defined herein) in the case of the Class A-9IO Certificates at the
Pass-Through Rate applicable to such Class of Certificates. The Pass-Through
Rate for each Class of Class A Certificates (other than the Class A-1
Certificates) is set out on the cover hereof. The Pass-Through Rate for the
Class A-1 Certificates adjusts monthly based on one-month LIBOR (as defined
herein) or as otherwise described herein. Distributions of principal in
reduction of the Certificate Principal Balances will be made on each Payment
Date in the manner and amounts 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, Inc.
The Class A-9IO Certificates are interest-only Certificates. The yield
to investors on the Class A-9IO Certificates will be, and 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 "Summary of Terms - Nature of the Class A-9IO Certificates" and
"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. See "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.
As provided herein under "The Certificate Insurer Incorporation of
Certain Documents by Reference," the Depositor will provide without charge to
any person to whom this Prospectus Supplement is delivered, upon oral or written
request of such person, a copy of any or all financial statements incorporated
herein by reference. Requests for such copies should be directed as provided
under "The Certificate Insurer Incorporation of Certain Documents by Reference"
herein.
------------------
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE
CERTIFICATES OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS,
SYNDICATE SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING" HEREIN.
To the extent statements contained herein do not relate to historical
or current information, this Prospectus Supplement may be deemed to consist of
forward looking statements that involve risks and uncertainties that may
adversely affect the distributions to be made on, or the yield of, the Class A
Certificates, which risks and uncertainties are discussed under "Risk Factors"
and "Prepayment and Yield Considerations" herein. As a consequence, no assurance
can be given as to the actual distributions on, or the yield of, the Class A
Certificates.
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
Page
----
SUMMARY OF TERMS...................................................... S-1
RISK FACTORS.......................................................... S-16
THE SELLER AND SERVICER............................................... S-19
General........................................................... S-19
Credit and Underwriting Guidelines................................ S-20
Delinquency, Loan Loss and Foreclosure Information................ S-21
THE DEPOSITOR......................................................... S-23
USE OF PROCEEDS....................................................... S-23
THE HOME EQUITY LOAN POOL............................................. S-24
General........................................................... S-24
Conveyance of Subsequent Home Equity Loans........................ S-29
Interest Payments on the Home Equity Loans........................ S-30
PREPAYMENT AND YIELD CONSIDERATIONS................................... S-30
General........................................................... S-30
Mandatory Prepayment.............................................. S-31
Prepayment and Yield Scenarios for Class A Certificates........... S-31
Payment Lag Feature of Class A Certificates....................... S-36
Yield Sensitivity of the Class A-9IO Certificates................. S-36
FORMATION OF THE TRUST AND TRUST PROPERTY............................. S-36
ADDITIONAL INFORMATION................................................ S-37
DESCRIPTION OF THE CLASS A CERTIFICATES............................... S-37
General........................................................... S-37
Payment Dates..................................................... S-37
Distributions..................................................... S-38
Calculation of LIBOR.............................................. S-40
Pre-Funding Account............................................... S-40
Capitalized Interest Account...................................... S-41
Book Entry Registration of the Class A Certificates............... S-41
Assignment of Rights.............................................. S-44
THE CERTIFICATE INSURER............................................... S-44
CREDIT ENHANCEMENT.................................................... S-44
Insurance Policy.................................................. S-44
Overcollateralization Provisions.................................. S-47
THE POOLING AND SERVICING AGREEMENT................................... S-48
Covenant of the Seller to Take Certain Actions with Respect to
the Home Equity Loans in Certain Situations.................. S-48
Assignment of Home Equity Loans................................... S-49
Servicing and Sub-Servicing....................................... S-51
Removal and Resignation of Servicer............................... S-54
The Trustee....................................................... S-55
Reporting Requirements............................................ S-55
Removal of Trustee for Cause...................................... S-56
Governing Law..................................................... S-56
Amendments........................................................ S-57
Termination of the Trust.......................................... S-57
Optional Termination.............................................. S-57
FEDERAL INCOME TAX CONSEQUENCES....................................... S-58
REMIC Elections................................................... S-58
ERISA CONSIDERATIONS.................................................. S-58
RATINGS............................................................... S-61
LEGAL INVESTMENT CONSIDERATIONS....................................... S-62
UNDERWRITING.......................................................... S-62
REPORT OF EXPERTS..................................................... S-65
CERTAIN LEGAL MATTERS................................................. S-65
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES......... I-1
INDEX TO LOCATION OF PRINCIPAL DEFINED TERMS.......................... A-1
<PAGE>
Prospectus
Page
----
SUMMARY OF PROSPECTUS................................................
RISK FACTORS.........................................................
DESCRIPTION OF THE CERTIFICATES......................................
General..........................................................
Classes of Certificates..........................................
Distributions of Principal and Interest..........................
Book Entry Registration..........................................
List of Owners of Certificates...................................
THE TRUSTS...........................................................
Mortgage Loans...................................................
Mortgage-Backed Securities.......................................
Other Mortgage Securities
CREDIT ENHANCEMENT
SERVICING OF MORTGAGE LOANS..........................................
Payments on Mortgage 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.................................................
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 Certificates....
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............................
Taxation of Securities Classified as Partnership Interests.......
PLAN OF DISTRIBUTION.................................................
RATINGS..............................................................
LEGAL MATTERS........................................................
FINANCIAL INFORMATION................................................
INDEX TO LOCATION OF PRINCIPAL DEFINED TERMS.........................
<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"):
Initial Certificate Pass-Through
Principal Balance Rate Class
----------------- ---- -----
$ (1) Class A-1 Certificates
$ % Class A-2 Certificates
$ % Class A-3 Certificates
$ % Class A-4 Certificates
$ % Class A-5 Certificates
$ % (2) Class A-6 Certificates
$ % (2) Class A-7 Certificates
$ % (2) Class A-8 Certificates
$ (3) % Class A-9IO Certificates
(1) On each Payment Date, the "Class A-1 Pass-Through
Rate" will be equal to the lesser of (x) the rate equal
to the London interbank offered rate for United States
Dollar deposits ("LIBOR") (calculated as described under
"Description of the Class A Certificates-Calculation of
LIBOR" herein) plus _____% per annum and (y) the
weighted average of the Coupon Rates on the Home Equity
Loans, less _____% per annum (the rate described in this
clause (y), the "Available Funds Cap").
(2) The Pass-Through Rate with respect to the Class A-6,
Class A-7 and Class A-8 Certificates will on any Payment
Date equal the lesser of (x) the Pass-Through Rate for
such Class set out above for any Payment Date which
occurs on or prior to the date (the "Clean-Up Call
Date") on which the aggregate Loan Balance of the Home
Equity Loans has declined to ___% or less of the sum of
(i) the Original Aggregate Loan Balance plus (ii) the
original Pre-Funded Amount (such sum the "Maximum
Collateral Amount"), and with respect to any Payment
Date thereafter, the sum of (i) the Pass-Through Rate
for such Class set out above plus (ii) _____% per annum
and (y) the weighted average Coupon Rate of the Home
Equity Loans less the sum of approximately (i) ______%
per annum and (ii) for the first ___ Payment Dates, the
product of (a) _____% per annum and (b) the Class A-9IO
Notional Principal Amount divided by the Loan Balance of
the Home Equity Loans, or thereafter, zero.
(3) Interest will be calculated on the Class A-9IO
Certificates on each Payment Date on the basis of a
"Notional Principal Amount" equal to, for the first 36
Payment Dates the outstanding Class A-8 Certificate
Principal Balance, as of the first day of the related
Remittance Period and, thereafter, zero. Reference to
the Notional Principal Amount of the Class A-9IO
Certificates is solely for convenience on certain
calculations and does not represent the right to receive
any distribution allocable to principal.
Depositor: IMC Securities, Inc. (the "Depositor"), a Delaware
corporation.
Seller and Servicer: IMC Mortgage Company (the "Seller" and the "Servicer"),
a Florida corporation. The Seller's and Servicer's
principal executive offices are located at 5901 East
Fowler Avenue, Tampa, Florida 33617-2362.
Trustee: __________________________, a ________________
banking corporation, as trustee (the "Trustee"). The
Trustee shall receive a fee equal to _____% per
S-1
<PAGE>
annum, payable monthly at one-twelfth the annual rate of
the aggregate outstanding Loan Balance of the Home
Equity Loans.
Cut-Off Date: As of the close of business on _________, 199__ (the
"Cut-Off Date").
Statistical
Calculation
Date: As of the close of business on _______________,
199__ (the "Statistical Calculation Date").
Closing Date: On or about _______________, 199__ (the
"Closing Date").
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 "Pooling and
Servicing Agreement"). The Trust assets (not all of
which will be included in a REMIC election) will include
the 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 Non-REMIC
Accounts and certain other property. 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. See "Formation of the Trust and Trust
Property" herein.
On the Closing Date, the Pre-Funded Amount (as described
herein) 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. As a result, the
aggregate principal balance of the Home Equity Loans
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 herein 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,
a residual Class of Certificates (the "Class R
Certificates") which will represent an undivided
ownership interest in the Upper-Tier REMIC. The Class A
Certificates and the Class R Certificates are herein
referred to as the "Certificates." Only the Class A
Certificates are offered hereby.
S-2
<PAGE>
Denominations: The Class A Certificates are issuable in minimum
denominations of an original principal amount or
Notional Principal Amount, as applicable, of $__________
and multiples of $__________ in excess thereof.
The Home Equity Loans: Unless otherwise noted, all statistical percentages in
this Prospectus Supplement are approximate and measured
by the aggregate Loan Balance of the Home Equity Loans
as of the Statistical Calculation Date. See "Additional
Information" in this Prospectus Supplement. The Home
Equity Loans to be conveyed to the Trust by the
Depositor on the Closing Date (the "Initial Home Equity
Loans") will consist of the Home Equity Loans as of the
Statistical Calculation Date and additional Home Equity
Loans delivered on the Closing Date which will consist
of fixed rate conventional home equity loans and the
Notes relating thereto. As of the Statistical
Calculation Date, there are _______ Home Equity Loans.
The Home Equity Loans as of the Statistical Calculation
Date 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 Combined Loan-to-Value Ratio
(based upon appraisals made at the time of origination
of the related Home Equity Loan) relating to any Home
Equity Loan exceeded ___% as of the Statistical
Calculation Date except for ____ loans with an aggregate
Loan Balance of $______________ (or ____% of the
aggregate Loan Balance of the Home Equity Loans), which
had a Combined Loan-to-Value Ratio not greater than
____%. None of the Home Equity Loans as of the
Statistical Calculation Date are insured by pool
mortgage insurance policies and no significant portion
of the Home Equity Loans as of the Statistical
Calculation Date are insured by primary mortgage
insurance policies; however, certain distributions due
to the owners of the Class A Certificates are insured by
the Certificate Insurer pursuant to the Insurance
Policy. See "Credit Enhancement--Insurance Policy"
herein. The Home Equity Loans are not guaranteed by the
Depositor, the Seller, the Servicer, the Trustee 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 Fannie Mae for
Fannie Mae mortgage-backed securities and in accordance
with the terms of the Pooling and Servicing Agreement.
As of the Statistical Calculation Date, the average Loan
Balance of the Home Equity Loans was $____________. The
maximum and minimum Loan Balances of the Home Equity
Loans as of the Statistical Calculation Date were
$____________ and $________, respectively. The weighted
average interest rate (the "Coupon Rate") of the Home
Equity Loans as of the Statistical Cut-Off Date was
____%; the Coupon Rates of the Home Equity Loans ranged
from _____% to ____%; the weighted average Combined
Loan-to-Value Ratio of the Home Equity Loans was ____%;
the weighted average remaining term to maturity of the
Home Equity Loans was ____ months; and the remaining
terms to maturity of the Home Equity Loans ranged from
___ months to ____ months. As of the Statistical
Calculation Date, ____% of the aggregate Loan Balance of
the Home Equity Loans were secured by first mortgages
and ____% of the aggregate Loan Balance of the Home
Equity Loans were secured by second mortgages. As of the
Statistical Cut-Off Date, Home Equity Loans containing
"balloon" payments represented not more than __.___% of
the aggregate Loan Balance of the Home Equity Loans. No
Initial Home Equity Loan will mature later than
____________, 20__. See "The Home Equity Loan
Pool--Initial Home Equity Loans" herein.
S-3
<PAGE>
Final Scheduled
Payment Date: The Final Scheduled Payment Date for each Class of
Class A Certificates is as set forth below, although it
is anticipated that the actual 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-9IO Certificates
Class A Distributions: 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 Class A Certificates,
other than the Class A-1 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 Class A-1 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) 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, Tampa, Florida, the city in which the
corporate trust office of the Trustee is located or the
city in which the Certificate Insurer is located are
authorized or obligated by law or executive order to be
closed.
For each Payment Date, interest due with respect to the
Class A Certificates (other than the Class A-1
Certificates) will be interest which has accrued on the
related Certificate Principal Balance or Notional
Principal Amount, as the case may be, during the
calendar month immediately preceding the month in which
such Payment Date occurs. The interest due with respect
to the Class A-1 Certificates will be the interest which
has accrued on the Class A-1 Certificate Principal
Balance 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 such period relating to the accrual of interest is
the "Accrual Period" for the related Class of Class A
Certificates. All calculations of interest on the Class
A Certificates (other than the Class A-1 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 Class A-1 Certificates will be made on
the basis of a 360-day year and the actual number of
days elapsed in the related Accrual Period.
S-4
<PAGE>
Allocations of
Interestand Principal: The Class A Distribution Amount for each
Payment Date (to the extent funds are available
therefor) shall be 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
(including the Class A-9IO Certificates), the related
Current Interest for such Certificates on a pro rata
basis without any priority among such Class A
Certificates; and
(ii) Second, to the Owners of the Class A Certificates
(other than the Class A-9IO Certificates), the Class A
Principal Distribution Amount (as defined below) shall
be distributed as follows: (I) to the Owners of the
Class A-8 Certificates an amount equal to the Class A-8
Lockout Distribution Amount (as defined below) and (II)
the remainder of the Class A Principal Distribution
Amount as follows: first, to the Owners of the Class A-1
Certificates until the Class A-1 Certificate Principal
Balance is reduced to zero; second, to the Owners of the
Class A-2 Certificates until the Class A-2 Certificate
Principal Balance is reduced to zero; third, to the
Owners of the Class A-3 Certificates until the Class A-3
Certificate Principal Balance is reduced to zero;
fourth, to the Owners of the Class A-4 Certificates
until the Class A-4 Certificate Principal Balance is
reduced to zero; fifth, to the Owners of the Class A-5
Certificates until the Class A-5 Certificate Principal
Balance is reduced to zero; sixth, to the Owners of the
Class A-6 Certificates until the Class A-6 Certificate
Principal Balance is reduced to zero; seventh, to the
Owners of the Class A-7 Certificates until the Class A-7
Certificate Principal Balance is reduced to zero; and,
eighth, to the Owners of the Class A-8 Certificates
until the Class A-8 Certificate Principal Balance is
reduced to zero.
"Current Interest" with respect to each Class of Class A
Certificates means, with respect to any Payment Date the
sum of (i) the aggregate amount of interest accrued
during the preceding Accrual Period on the Certificate
Principal Balance of the related Class A Certificates
(other than the Class A-9IO Certificates) or, in the
case of the Class A-9IO Certificates, on the Notional
Principal Amount, (ii) the Interest Carry Forward
Amount, if any, with respect to such Class of Class A
Certificates and (iii) the Preference Amount as it
relates to interest previously paid on such Class of the
Class A Certificates prior to such Payment Date (in
accordance with the Insurance Policy); provided,
however, that Current Interest will be reduced by the
amount of any Civil Relief Interest Shortfalls (as
defined in the Pooling and Servicing Agreement).
The "Interest 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 (x) the amount, if
any, by which (i) the Current Interest for such Class as
of the immediately preceding Payment Date exceeded (ii)
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.
The Class A Certificates (other than the Class A-8
Certificates and Class A-9IO Certificates) are
"sequential pay" classes such the Owners of the Class
A-7 Certificates will receive no payments of principal
until the Class A-6 Certificate
S-5
<PAGE>
Principal Balance is 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. Notwithstanding the
foregoing, in the event that a Certificate Insurer
Default has occurred, and during the time such default
is continuing, if there is an Overcollateralization
Deficit, the Class A Principal Distribution Amount shall
be distributed pro rata to the Owners of all Classes of
the Class A Certificates (other than the Class A-9IO
Certificates).
The Owners of the Class A-8 Certificates are entitled to
receive payments of the Class A-8 Lockout Distribution
Amount specified herein; provided, that if on any
Payment Date the Class A-7 Certificate Principal Balance
is zero, the Owners of the Class A-8 Certificates will
be entitled to receive the entire Class A Principal
Distribution Amount for such Payment Date.
The Class A-9IO Certificates are interest-only
Certificates and are not entitled to receive
distributions of principal.
On each Payment Date, distributions in reduction of the
Certificate Principal Balance of the related Class of
Class A Certificates (other than the Class A-9IO
Certificates) will be made in the amounts described
herein. The "Class A Principal Distribution Amount" for
each Payment Date shall be the lesser of:
(a) the Total Available Funds (as defined herein) plus
any Insured Payment with respect to the Class A
Certificates minus the Current Interest and the Trust
Fees and Expenses for such Payment Date with respect to
the Class A Certificates; and
(b) the excess, if any, of
(i) the sum of:
(A) the Preference Amount with respect to
principal owed to each Owner of Class A Certificates
that remains unpaid as of such Payment Date;
(B) the principal portion of all scheduled
monthly payments on the Home Equity Loans due on or
prior to the related Due Date thereof, to the extent
actually received by the Servicer during the related
Remittance Period and any Prepayments made by the
Mortgagors and actually received by the Servicer
during the related Remittance Period;
(C) the balance of each Home Equity Loan (the
"Loan Balance") that was repurchased by the Seller
or purchased by the Servicer
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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 (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 during the related Remittance Period
(to the extent such Net Liquidation Proceeds relate
to principal);
(F) the amount of any Overcollateralization
Deficit for such Payment Date;
(G) the principal portion of the proceeds
received by the Trustee upon termination of the
Trust (to the extent such proceeds relate to
principal);
(H) on the Payment Date immediately following
the end 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
(I) the amount of any Overcollateralization
Increase Amount for such Payment Date to the extent
of any Net Monthly Excess Cashflow available for
such purpose;
over
(ii) the amount of any Overcollateralization
Reduction Amount for such Payment Date.
The "Class A-8 Lockout Distribution Amount" for any
Payment Date will be the product of (i) the applicable
Class A-8 Lockout Percentage for such Payment Date and
(ii) the Class A-8 Lockout Pro Rata Distribution Amount
for such Payment Date.
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<PAGE>
The "Class A-8 Lockout Percentage" for each Payment Date
shall be as follows:
Payment Dates Lockout Percentage
------------- ------------------
%
%
%
%
%
The "Class A-8 Lockout Pro Rata Distribution Amount" for
any Payment Date will be an amount equal to the product
of (x) a fraction, the numerator of which is the
Certificate Principal Balance of the Class A-8
Certificates immediately prior to such Payment Date and
the denominator of which is the aggregate Class A
Certificate Principal Balance immediately prior to such
Payment Date and (y) the Class A Principal Distribution
Amount with respect to 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), as amended from time to time, in
accordance with a final nonappealable order of a court
having competent jurisdiction.
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 preceding
Business Day, commencing in ____________, 199__.
The "Trust Fees and Expenses" are the Premium Amount,
the Trustee Fee and any Trustee Reimbursable Expenses
(each as defined herein).
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 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 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 aggregate
Class A Certificate Principal Balance. This acceleration
feature creates overcollateralization (i.e., the excess
of the aggregate outstanding Loan Balance of the Home
Equity Loans over the aggregate
S-8
<PAGE>
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 unless
necessary to maintain the required level of
overcollateralization.
The Pooling and Servicing Agreement provides that,
subject to certain floors, caps and triggers, the
required level of overcollateralization may increase or
decrease over time. An increase would result in a
temporary period of accelerated amortization of the
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. See
"Prepayment and Yield Considerations", "Credit
Enhancement--Overcollateralization Provisions" herein
and "Credit Enhancement" in the Prospectus.
As a result of the generally "sequential pay" feature of
the Class A Certificates, any such accelerated principal
will be paid to that Class of the Class A Certificates
then entitled to receive distributions of principal.
Certificate Insurance Policy.
__________________________________________ (the
"Certificate Insurer"), will issue a financial guaranty
insurance policy (the "Insurance Policy") with respect
to the Class A Certificates. Pursuant to the provisions
of the Insurance Policy, the Certificate Insurer will
irrevocably and unconditionally guarantee certain
payments to the Trustee for the benefit of the holders
of each Class of Class A Certificates. The amount of the
actual payment, if any, made by the Certificate Insurer
to the Trustee for the benefit of the Owners of the
Class A Certificates under the Insurance Policy on each
Payment Date (the "Insured Payment") is the excess, if
any, of (i) the sum of (a) the Current Interest, (b) the
Overcollateralization Deficit and (c) the Preference
Amount (without duplication) over (ii) the Total
Available Funds (after any deduction for the Trust Fees
and Expenses) and after taking into account the portion
of the Principal Distribution Amount to be actually
distributed on such Payment Date (without regard to any
Insured Payment to be made with respect to such Payment
Date).
Insured Payments do not cover Realized Losses except to
the extent that an Overcollateralization Deficit exists;
provided, however, that the Certificate Insurer is
permitted at its sole option, but is not required, to
pay any losses in connection with the liquidation of a
Home Equity Loan in accordance with the Insurance
Policy. Insured Payments do not cover the Servicer's
failure to make Delinquency Advances pursuant to the
Pooling and Servicing Agreement, except to the extent
that an Overcollateralization Deficit would otherwise
result therefrom. Nevertheless, the effect of the
Insurance Policy is to guaranty the timely payment of
interest on, and the ultimate payment of the principal
amount, if any, of, each related Class of Class A
Certificates.
The Insurance Policy is noncancellable for any reason.
Unless a Certificate Insurer Default exists, the
Certificate Insurer shall have the right to exercise
certain rights of the Owners of the 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
S-9
<PAGE>
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 Class A Certificates on
which such Insured Payments were made. In connection
with each Insured Payment on a Class A Certificate, the
Trustee, as attorney-in-fact for the Owner thereof, will
be required to assign to the Certificate Insurer the
rights of such Owner with respect to the related 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 a _______________ monoline
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, Inc. ("Standard
& Poor's"), Fitch Investors Service, L.P., Nippon
Investors Service, Inc. and Standard & Poor's
(Australia) Pty. Ltd. See "The Certificate Insurer"
herein.
The "Premium Amount" is the amount payable to the
Certificate Insurer as premium for the Insurance Policy.
Nature of Class A-9IO
Certificates: General Character as an Interest-Only Security. As the
owners of interest-only strip securities, the Owners of
the Class A-9IO Certificates will be entitled to receive
monthly distributions only of interest, as described
herein. Because they will not receive any distributions
of principal, the Owners of the Class A-9IO Certificates
will be affected by prepayments, liquidations and other
dispositions (including optional redemptions described
herein) of the Home Equity Loans to a greater degree
than will the Owners of the other Classes of Class A
Certificates. In addition, the Notional Principal Amount
applicable to interest calculations on the Class A-9IO
Certificates is (x) through the Payment Date in
__________ 20__, the Class A-8 Certificate Principal
Balance and (y) thereafter, zero. Since the Class A-8
Certificates will amortize in accordance with the
distribution of the Class A-8 Lockout Distribution
Amount, the performance of the Class A-9IO Certificates
is intended to be more stable than if such Notional
Principal Amount were calculated using the underlying
Home Equity Loans directly. However, there can be no
assurance that such will be the case. Because there are
______ Home Equity Loans as of the Statistical
Calculation Date, the prepayment experience of any one
Home Equity Loan will not be material to an investor's
overall return.
In general, losses due to liquidations, repurchases by
the Servicer and other dispositions of Home Equity Loans
from the Trust will have the same effect on the Owners
of the Class A-9IO Certificates as do prepayments of
principal and are collectively referred to as
"Prepayments."
Because the yield to Owners of the Class A-9IO
Certificates is more sensitive to rates of prepayment,
it is advisable for potential investors in the Class
A-9IO
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<PAGE>
Certificates to consider carefully, and to make their
own evaluation of, the effect of any particular
assumption regarding the rates and the timing of
prepayments. In general, when interest rates decline,
prepayments in a pool of receivables such as the Home
Equity Loans will increase as borrowers seek to
refinance at lower rates. This will have the effect of
reducing the future stream of payments available to an
owner of an interest-only security based on such
receivables pool, thus adversely affecting such
investor's yield. Conversely, when interest rates
increase, prepayments will tend to decrease (because
attractive refinancing opportunities are not available)
and the future stream of payments available to such an
owner of an interest-only security may not decline as
rapidly as originally anticipated, thus positively
affecting such investor's yield. See "Prepayment and
Yield Considerations -- Yield Sensitivity of the Class
A-9IO Certificates" herein for other factors which may
also influence prepayment rates.
Applicability of Credit Enhancement to the Class A-9IO
Certificates. As described above under "Credit
Enhancement," the Trust includes provisions which
subordinate the distributions on the Class R
Certificates for each Payment Date for the purpose,
inter alia, of funding the full amounts due on each
Class of the Class A Certificates, including the Class
A-9IO Certificates, on each Payment Date. The Insurance
Policy will guarantee payment of Current Interest on the
Class A-9IO Certificates.
In general, the protection afforded by the
overcollateralization feature and by the Insurance
Policy is for credit risk and not for prepayment risk.
The overcollateralization feature does not, nor may a
claim be made under the related Insurance Policy to,
guarantee or insure that any particular rate of
prepayment by the Trust. If the entire pool of Home
Equity Loans were to prepay in the initial month, with
the result that the Owners of the Class A-9IO
Certificates receive only a single month's interest and
thus suffer a nearly complete loss on their investments,
no amounts would be available from the
overcollateralization feature or from the Insurance
Policy to mitigate such loss.
Accrual of "Original Issue Discount." The Class A-9IO
Certificates will be issued with "original issue
discount" within the meaning of the Code. As a result,
in certain rapid prepayment environments the effect of
the rules governing the accrual of original issue
discount may require Owners of the Class A-9IO
Certificates to accrue original issue discount at a rate
in excess of the rate at which distributions are
received by such Owners. See "Certain Federal Income Tax
Consequences" herein and in the Prospectus.
Pre-Funding Account: On the Closing Date, an aggregate cash amount (the
"Pre-Funded Amount") of approximately $________________
will be deposited in the Pre-Funding Account. During the
period (the "Funding Period") from the Closing Date
until the earliest to occur of (i) the date on which the
Pre-Funded Amount is reduced to $________ or less, (ii)
the occurrence of a "Servicer Termination Event" (as
defined in the Pooling and Servicing Agreement) or (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 on any
date (each, a "Subsequent Transfer Date") must satisfy
the criteria set forth in the Pooling and
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<PAGE>
Servicing Agreement. See "The Home Equity Loan Pool --
Conveyance of Subsequent Home Equity Loans" herein. Any
Pre-Funded Amount remaining at the end of the Funding
Period will be distributed to the Owners of the Class A
Certificates (other than the Class A-9IO Certificates)
then entitled to receive payments of principal on the
Payment Date immediately following the end of the
Funding Period, thus resulting in a partial principal
prepayment of the related Class A 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 the Upper-Tier REMIC or the Lower-Tier
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
Owners of the Class A Certificates. 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) (a) the amount of interest accruing at the
weighted average of the Pass-Through Rates of the Class
A Certificates (other than the Class A-9IO Certificates)
on the amount by which the aggregate Class A Certificate
Principal Balance exceeds the aggregate Loan Balance of
the Home Equity Loans plus (b) the product of (1)
Current Interest on the Class A-9IO Certificates divided
by the aggregate Class A Certificate Principal Balance
and (2) the amount by which the aggregate Class A
Certificate Principal Balance exceeds the aggregate Loan
Balance of the Home Equity Loans plus (c) the Trust Fees
and Expenses 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 Payment Date immediately following the
end of the Funding Period to fund any such excess. Any
amounts remaining in the Capitalized Interest Account
not needed for such purpose will be paid to the
depositor of such funds at the end of the Funding
Period. The Capitalized Interest Account will not be an
asset of either the Upper-Tier REMIC or the Lower-Tier
REMIC.
Mandatory Prepayment of
Certificates: It is intended that the principal amount of
Subsequent Home Equity Loans sold to the Trust 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 Class A 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 Pre-Funded Amount, principal
prepayments to Owners of the Class A Certificates (other
than the Class A-9IO Certificates) then entitled to
receive payments of principal will occur on the Payment
Date immediately following the end of the Funding Period
in an amount equal to the Pre-Funded Amount remaining at
the end of the Funding Period.
S-12
<PAGE>
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"), in the
United States, or Cedel Bank, S.A. ("Cedel") or the
Euroclear System ("Euroclear") in Europe. Transfers
within DTC, Cedel or Euroclear, as the case may be, will
be in accordance with the usual rules and operating
procedures of the relevant system. So long as the Class
A Certificates are Book-Entry Certificates (as defined
herein), such Certificates will be evidenced by one or
more Certificates registered in the name of Cede & Co.
("Cede") as the nominee of DTC or one of the European
Depositaries. Cross-market transfers between persons
holding directly or indirectly through DTC, on the one
hand, and counterparties holding directly or indirectly
through Cedel or Euroclear, on the other, will be
effected in DTC through Citibank, N.A. ("Citibank") or
The Chase Manhattan Bank ("Chase") and together with
Citibank, the "European Depositaries"), on the relevant
depositaries of Cedel and Euroclear, respectively, and
each a participating member of DTC or one of the
European Depositaries. 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 after the Clean-Up Call Date. In
addition, the Certificate Insurer will have the right,
under the limited circumstances described in the Pooling
and Servicing Agreement to purchase all the Home Equity
Loans and thereby effect a termination of the Trust. See
"The Pooling and Servicing Agreement--Optional
Termination" herein.
Ratings: It is a condition of issuance of the Class A
Certificates (other than the Class A-9IO Certificates)
that the Class A Certificates receive ratings of "AAA"
by Standard & Poor's, and "Aaa" by Moody's. It is a
condition of issuance of the Class A-9IO Certificates
that such Certificates receive ratings of "AAAr" 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. No Rating Agency is obligated to
maintain any rating on any Certificate, and,
accordingly, there can be no assurance that the rating
assigned to any Class of Certificate upon initial
issuance thereof will not be lowered or withdrawn at any
time thereafter. See "Ratings" herein.
Ratings of the Class A-9IO Certificates. Ratings which
are assigned to securities such as the Class A-9IO
Certificates generally evaluate the ability of the
issuer (i.e., the Trust) and any guarantor (i.e., the
Certificate Insurer) to make payments, as
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<PAGE>
required by such securities. The amounts distributable
on the Class A-9IO Certificates consist only of
interest. In general, the ratings of such Certificates
address only credit risk and not prepayment risk. See
"Ratings" and "Summary of Terms--Nature of Class A-9IO
Certificates" herein.
The "r" symbol is appended to the rating by Standard &
Poor's of the Class A-9IO Certificates because they are
interest-only Certificates that Standard & Poor's
believes may experience high volatility or high
variability in expected returns due to non-credit risks
created by the terms of such Certificates. The absence
of an "r" symbol in the ratings of the other Class A
Certificates should not be taken as an indication that
such Certificates will experience no volatility or
variability in total return. See "Ratings" and "Summary
of Terms--Nature of Class A-9IO Certificates" herein.
Federal Tax Aspects: For federal income tax purposes, the Trust, exclusive of
the Pre-Funding Account and the Capitalized Interest
Account (such accounts collectively, the "Non-REMIC
Accounts") created by the Pooling and Servicing
Agreement will consist of two segregated asset pools
(the "Lower-Tier REMIC" and the "Upper-Tier REMIC") with
respect to which elections will be made to treat each as
a separate "real estate mortgage investment conduit"
("REMIC"). Each Class of the Class A Certificates will
be designated as a "regular interest" in the Upper-Tier
REMIC. 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-9IO Certificates will, and other 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 the Upper-Tier REMIC, the Class A
Certificates will be treated as "regular . . .
interest(s) in a REMIC" under Section 7701(a)(19)(C) of
the Internal Revenue Code of 1986, as amended (the
"Code") and "real estate assets" under Section 856(c) of
the Code in the same proportion that the assets in the
Upper-Tier 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 "Federal
Income Tax Consequences" herein.
ERISA Considerations: Subject to the considerations discussed under "ERISA
Considerations" herein, the Class A Certificates may be
purchased by employee benefit plans that are subject to
ERISA. See "ERISA Considerations" herein and in the
Prospectus.
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<PAGE>
Legal Investment
Considerations: The Class A Certificates will [not] constitute "mortgage
related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 ("SMMEA").
[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 Class A Certificates.] See "Legal
Investment Considerations" herein.
S-15
<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 Home Equity Loans may be prepaid by the
related Mortgagors in whole or in part, at any time. However, as of the
Statistical Calculation Date approximately ____% of the Home Equity Loans (by
Loan Balance) require the payment of a fee in connection with certain
prepayments. 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 Mortgage
Assets--Enforceability of Certain Provisions" in the Prospectus. The rate of
prepayments on fixed rate 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 of
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 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. The yields realized by Owners of the
Class A-9IO Certificates will be more sensitive to the rate of prepayment on the
Home Equity Loans. Because amounts distributable to the Owners of the Class
A-9IO Certificates consist entirely of interest, the yield to maturity of the
Class A-9IO Certificates will be sensitive to the repurchase, prepayment and
default experience of the Home Equity Loans, and prospective investors should
fully consider the associated risks, including the risk that such investors may
not fully recover their initial investment. See "Prepayment and Yield
Considerations" herein.
Nature of Collateral; Junior Liens. Because ____% of the aggregate Loan
Balance of the Home Equity Loans as of the Statistical Calculation Date 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
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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.
The Subsequent Home Equity Loans and the Pre-Funding Account. Any
conveyance of Subsequent Home Equity Loans is subject to the following
conditions, among others (i) each such Subsequent Home Equity Loan 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 Depositor will not select such Subsequent Home Equity Loans in a manner
adverse to the interest of the Owners of the Class A Certificates or the
Certificate Insurer; (iii) the Depositor will deliver certain opinions of
counsel with respect to the validity of the conveyance of such Subsequent Home
Equity Loans; (iv) each Subsequent Home Equity Loan will be a fixed rate Home
Equity Loan and (v) 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 Depositor 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" and the Certificate Insurer shall have consented
to such conveyance. The Pooling and Servicing Agreement will provide that any of
such requirement may be waived or modified in any respect upon prior written
consent of the Certificate Insurer.
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 Trust by the end of the Funding Period, the Owners of
the Class of Class A Certificates (other than the Class A-9IO 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 immediately following the Funding Period. 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 Class A 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. Following the transfer of Subsequent Home
Equity Loans to the Trust, it is anticipated that the aggregate characteristics
of the Home Equity Loans then held in the Trust will not vary significantly from
those of the Home Equity Loans as of the Statistical Calculation Date. See "The
Home Equity Loan Pool--Conveyance of Subsequent Home Equity Loans" herein.
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 Servicer 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 the Mortgage Assets"
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;
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(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 Servicer 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 Mortgage Assets" in the
Prospectus.
It is possible that some of the Home Equity Loans will be subject to
the Riegle Community Development and Regulatory Improvement Act of 1994 (the
"Riegle Act"), which incorporates the Home Ownership and Equity Protection Act
of 1994. The Riegle Act adds certain additional provisions to Regulation Z,
which is the implementing regulation of the Truth-in-Lending Act. These
provisions impose additional disclosure and other requirements on creditors with
respect to non-purchase money home equity loans with high interest rates or high
upfront fees and charges. In general, home equity loans within the purview of
the Riegle Act have annual percentage rates over 10% greater than the yield on
Treasury Securities of comparable maturity and/or fees and points which exceed
the greater of 8% of the total loan amount or $400. The provisions of the Riegle
Act apply on a mandatory basis to all home equity loans originated on or after
October 1, 1995. These provisions can impose specific statutory liabilities upon
creditors who fail to comply with their provisions and may affect the
enforceability of the related loans. In addition, any assignee of the creditor
would generally be subject to all claims and defenses that the consumer could
assert against the creditor, including, without limitation, the right to rescind
the home equity loan. The Seller will represent and warrant in the Pooling and
Servicing Agreement that each Home Equity Loan was originated in compliance with
all applicable laws including the Truth-in-Lending Act, as amended.
Risk of Higher Default Rates for Home Equity Loans with Balloon
Payments. _____% of the aggregate Loan Balance of the Home Equity Loans as of
the Statistical Calculation 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"). The 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 generally up to ___ 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.
Risk of Insolvency. The Seller believes that its transfer of the Home
Equity Loans to the Depositor and the transfer of the Home Equity Loans 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 or the Depositor in the event of the
insolvency of the Seller or the Depositor, as applicable, and will not be
available to the creditors of the Seller or the Depositor, as applicable.
However, in the event of an insolvency of the Seller or the Depositor, it is
possible that a bankruptcy trustee or a creditor of the Seller or the Depositor
may argue that the transaction between the Seller and the Depositor or between
the Depositor and the Trust was a pledge of such Home Equity Loans in connection
with a borrowing by the Seller or the Depositor 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 LLP, counsel to the Seller and the Depositor, with respect to the true
sale
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of the 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
an Overcollateralization Deficit, the Certificate Insurer is unable to meet its
obligations under the 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, IMC Mortgage Company, is a Florida
corporation. IMC Mortgage Company completed an initial public offering of
certain shares of its common stock on June 25, 1996 and a secondary offering of
certain shares of its common stock in April 1997. The principal executive
offices of the Seller are located at 5901 East Fowler Avenue, Tampa, Florida
33617-2362 and its telephone number is (813) 984-8801.
The Seller has been in the mortgage lending business since its
formation in 1993 and the Seller and other subsidiaries of the Seller are
engaged in originating, purchasing and servicing home equity loans secured by
first and second mortgages and deeds of trust on Properties located in ___
states and the District of Columbia.
In September 1997, IMC Mortgage Company began servicing loans
previously serviced by Industry Mortgage Company, L.P., a Delaware limited
partnership, which is a subsidiary of IMC Mortgage Company and an affiliate of
the Depositor. Consequently, information on loans serviced prior to September
1997 was generated by Industry Mortgage Company, L.P. and not by IMC Mortgage
Company. The transfer of servicing to IMC Mortgage Company is part of an ongoing
effort to consolidate mortgage banking functions of the Seller and Servicer.
Since both IMC Mortgage Company and Industry Mortgage Company, L.P. have the
same management and staff, such transfer will not result in any changes to the
management and staff previously servicing the loans for Industry Mortgage
Company, L.P. In addition, there will not be any changes made to any of the
servicing procedures previously utilized by Industry Mortgage Company, L.P.
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, in its capacity as Servicer, 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 and confirmation in writing from the
Rating Agencies that such assignment shall not result in a downgrade or
withdrawal of the ratings assigned to the Class A Certificates by the respective
Rating Agencies; 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. Each Sub-Servicing
Agreement shall be terminated at such time as the Servicer resigns or is
removed. See "The Pooling and Servicing Agreement--Servicing and Sub-Servicing"
herein.
The Certificate Insurer or the Trustee (with the prior written consent
of the Certificate Insurer) (or in certain circumstances the Owners, with the
consent of 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
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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 and (y) until such time as a successor servicer is appointed pursuant
to the terms of the Pooling and Servicing Agreement, 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 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, 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 Fannie Mae 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 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, except as described herein, 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 Fannie Mae ("Fannie Mae") 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 full-service branch offices in
Cincinnati, Ohio, Ft. Washington, Pennsylvania, Lincoln, Rhode Island and Cherry
Hill, New Jersey. In addition, the Seller maintains retail branch offices
throughout the United States and 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
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Seller also acquires and originates balloon loans, which generally provide for
scheduled amortization over 30 years, with a due date and a balloon payment
generally 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
$400,000. Under current policy the Seller generally does not acquire or
originate home equity loans where the combined Loan-to-Value Ratio exceeds 90%.
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.
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 Fannie Mae/FHLMC forms and conform to
current Fannie Mae/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
In September 1997, the Servicer began servicing loans previously
serviced by its subsidiary, Industry Mortgage Company, L.P. IMC Mortgage Company
and Industry Mortgage Company, L.P. have the same management and staff and
therefore the transfer of servicing will not result in any changes to the
management and staff previously servicing the loans for Industry Mortgage
Company, L.P. 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 and reflect information generated by Industry
Mortgage Company, L.P. However, because the total amount of loans originated or
purchased by IMC Mortgage Company and its subsidiaries 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
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not have been outstanding long enough to give rise to some or all of the
indicated periods of delinquencies. In addition, the information in the tables
below has not been adjusted to eliminate the effect of the significant growth in
the size of Industry Mortgage Company, L.P.'s home equity loan portfolio during
the periods shown. Accordingly, loss and delinquency as percentages of aggregate
principal balance of home equity loans serviced for each period would be higher
than those shown if a group of home equity loans were artificially isolated at a
point in time and the information showed the activity only in that isolated
group. As a result, the historical delinquency experience and loan loss
information set forth below may not be indicative of the future performance of
the home equity loans.
Delinquency and Default Experience of the Servicer's Servicing
Portfolio of Home Equity Loans
Year Ending December 31,
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
1997 1996 1995
---- ---- ----
Number of Dollar Number of Dollar Number of Dollar
Loans Amount Loans Amount Loans Amount
----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Portfolio At 102,275 $6,956,905,062 35,390 $2,148,068,446 9,376 $535,797,748
Delinquency
Percentage(1)
30-59 days 2.598% 2.371% 3.390% 3.093% 2.613% 2.570%
60-89 days 1.438% 1.292% 1.077% 1.068% 0.672% 0.642%
90 + days 4.042% 3.886% 2.427% 2.616% 1.237% 1.223%
------ ------ ------ ------ ------ ------
Total
Delinquency 8.078% 7.549% 6.894% 6.777% 4.522% 4.435%
====== ====== ====== ====== ====== ======
Default
Percentage(2)
Foreclosure 1.235% 1.420% 0.863% 1.003% 0.779% 0.749%
Bankruptcy(3) 1.208% 1.139% 1.064% 1.069% 0.576% 0.630%
Real Estate
Owned 0.462% 0.441% 0.276% 0.313% 0.117% 0.160%
------ ------ ------ ------ ------ ------
Total Default 2.904% 3.000% 2.204% 2.385% 1.472% 1.539%
====== ====== ====== ====== ====== ======
</TABLE>
---------------
(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
account balances on home equity loans in foreclosure, bankruptcy
or real estate owned.
(3) The bankruptcy percentage represents all home equity loans that
are in bankruptcy regardless of delinquency status.
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Loan Loss Experience on the Servicer's Servicing
Portfolio of Home Equity Loans
Year Ending December 31,
----------------------------------
1997 1996 1995
---- ---- ----
Average Amount
Outstanding(1) $4,315,237,578 $1,207,171,960 $294,251,859
Gross Losses(2) $6,274,022 $1,581,695 $278,632
Recoveries(3) $0 $1,727 $0
Net Losses(4) $6,274,022 $1,579,968 $278,632
Net Losses as a
Percentage of Average
Amount Outstanding 0.145% 0.131% 0.095
- -----------------------
(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 is a subsidiary of the Seller and the Servicer. The
Depositor maintains its principal offices at 5901 East Fowler Avenue, Tampa,
Florida 33617-2362. None of the Depositor, the Seller, the Servicer or any of
their affiliates will insure or guarantee distributions on the Certificates.
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 pay off extensions of credit provided
by, among others, certain of the Underwriters with respect to certain Home
Equity Loans, (iii) to the deposit of the Pre-Funded Amount in the Pre-Funding
Account and (iv) 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 R Certificates
retained by 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.
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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 Home Equity
Loans as of the Statistical Calculation Date. The pool of Home Equity Loans
aggregated $___________________ as of the Statistical Calculation Date.
Additional Home Equity Loans will be purchased by the Trust for inclusion in the
Trust from the Depositor on the Closing Date. Such additional Initial Home
Equity Loans will represent Initial Home Equity Loans acquired or to be acquired
by the Depositor on or prior to the Closing Date. The Depositor expects that the
actual pool of Initial Home Equity Loan as of the Closing Date will represent
approximately $______________. In addition, with respect to the pool of Home
Equity Loans as of the Statistical Calculation Date as to which statistical
information is presented herein, some amortization of the pool will occur prior
to the Closing Date. Moreover, certain loans included in the pool of Home Equity
Loans as of the Statistical Calculation Date may prepay in full, or may be
determined not to meet the eligibility requirements for the final pool, and may
not be included in the final pool. As a result of the foregoing, the statistical
distribution of characteristics for the Initial Home Equity Loan pool as of the
Closing Date will vary from the statistical distribution of such characteristics
for the Home Equity Loans as of the Statistical Calculation Date as presented in
this Prospectus Supplement. Unless otherwise noted, all statistical percentages
in this Prospectus Supplement are measured by the aggregate principal balance of
the Home Equity Loans as of the Statistical Calculation Date.
Subsequent Home Equity Loans are intended to 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. 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
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 Home
Equity Loans as of the Statistical Calculation Date. Unless otherwise noted, all
statistical percentages in this Prospectus Supplement are measured by the
aggregate principal balance of the related Home Equity Loans as of the
Statistical Calculation Date. The columns entitled "% of Home Equity Loans" and
"% of Aggregate Loan Balance" in the following tables may not sum to 100% due to
rounding.
The Home Equity Loans as of the Statistical Calculation 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 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 Home Equity Loans as of the Statistical
Calculation Date have a first payment date on or after __________, 199__. Home
Equity Loans aggregating ____% of the aggregate Loan Balances of the Home Equity
Loans as of the Statistical Calculation Date are secured by first liens on the
related properties, and the remaining 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 Fannie Mae 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
S-24
<PAGE>
actual rates of delinquencies, foreclosures and losses could be higher than
those now generally experienced in the mortgage lending industry.
As of the Statistical Calculation Date, the average Loan Balance of the
Home Equity Loans was $_________. The maximum and minimum Loan Balances of the
Home Equity Loans as of the Statistical Calculation Date were $___________ and
$______, respectively. The weighted average Coupon Rate of the Home Equity Loans
as of the Statistical Calculation Date was ____%; the Coupon Rate of the Home
Equity Loans ranged from _____% to ____%; the weighted average Combined
Loan-to-Value Ratio of the Home Equity Loans was ____%; the weighted average
remaining term to maturity of the Home Equity Loans was ____ months; and the
remaining terms to maturity of the Home Equity Loans ranged from ___ months to
____ months. As of the Statistical Calculation Date, ____% of the aggregate Loan
Balance of the Home Equity Loans were secured by first mortgages and ____% of
the aggregate Loan Balance of the Home Equity Loans were secured by second
mortgages. As of the Statistical Calculation Date, Home Equity Loans containing
"balloon" payments represented not more than ____% of the aggregate Loan Balance
of the Home Equity Loans. No Initial Home Equity Loan will mature later than
_______________, 20 ___.
S-25
<PAGE>
Geographic Distribution of Properties
The geographic distribution of the Home Equity Loans by state, as of
the Statistical Calculation Date, was as follows:
Number of % of
Home Aggregate
Equity Aggregate Loan
State Loans Loan Balance Balance
----- -------- ------------ -------
Alabama
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Total
S-26
<PAGE>
Combined Loan-to-Value Ratios
The original combined loan-to-value ratios as of the origination dates of
the Home Equity Loans (based upon appraisals made at the time of origination
thereof) (the "Combined Loan-to-Value Ratios") as of the Statistical Calculation
Date were distributed as follows:
<TABLE>
<CAPTION>
% of
Range of Number of Aggregate Aggregate
Original CLTV's Home Equity Loans Loan Balance Loan Balance
--------------- ----------------- ------------ ------------
<S> <C> <C> <C>
Up to 5.00%
5.01 to 10.00
10.01 to 15.00
15.01 to 20.00
20.01 to 25.00
25.01 to 30.00
30.01 to 35.00
35.01 to 40.00
40.01 to 45.00
45.01 to 50.00
50.01 to 55.00
55.01 to 60.00
60.01 to 65.00
65.01 to 70.00
70.01 to 75.00
75.01 to 80.00
80.01 to 85.00
85.01 to 90.00
90.01 to 95.00
95.01 to 100.00
Total
</TABLE>
Statistical Calculation Date Coupon Rates
The Coupon Rates borne by the Notes relating to the Home Equity Loans as
of the Statistical Calculation Date were distributed as follows as of the
Statistical Calculation Date:
<TABLE>
<CAPTION>
% of
Range of Number of Aggregate Aggregate
Coupon Rates Home Equity Loans Loan Balance Loan Balance
--------------- ----------------- ------------ ------------
<S> <C> <C> <C>
7.001% to 8.000%
8.001 to 9.000
9.001 to 10.000
10.001 to 11.000
11.001 to 12.000
12.001 to 13.000
13.001 to 14.000
14.001 to 15.000
15.001 to 16.000
16.001 to 17.000
17.001 to 18.000
18.001 to 19.000
22.001 to 23.000
23.001 to 24.000
Total
</TABLE>
S-27
<PAGE>
Statistical Calculation Date Loan Balances
The distribution of the outstanding principal amounts of the Home Equity
Loans as of the Statistical Calculation Date was as follows:
<TABLE>
<CAPTION>
Statistical Calculation Number of Aggregate % of Total Aggregate
Date Loan Balances Home Equity Loans Loan Balance Loan Balance
----------------------- ----------------- ------------ ------------
<S> <C> <C> <C>
Up to $ 25,000.00
25,000.01 to 50,000.00
50,000.01 to 75,000.00
75,000.01 to 100,000.00
100,000.01 to 125,000.00
125,000.01 to 150,000.00
150,000.01 to 175,000.00
175,000.01 to 200,000.00
200,000.01 to 250,000.00
Total
</TABLE>
Types of Mortgaged Properties
The Properties securing the Home Equity Loans as of the Statistical
Calculation Date were of the property types as follows:
Number of
Home Equity Aggregate % of Aggregate
Property Types Loans Loan Balance Loan Balance
-------------- ----- ------------ ------------
Single Family Detached
Two- to Four-Family
Condominium
Townhouse
Single Family Attached
Manufactured Housing
Multi-Family
Planned Unit Development
Mixed Use
Total
Distribution of Months Since Origination
The distribution of the number of months since the date of origination of
the Home Equity Loans as of the Statistical Calculation Date was as follows:
Number of
Number of Months Home Equity Aggregate % of Aggregate
Since Origination Loans Loan Balance Loan Balance
----------------- ----- ------------ ------------
0 to 1
2 to 12
13 to 24
25 or more
Total
S-28
<PAGE>
Distribution of Remaining Term to Maturity
The distribution of the number of months remaining to maturity of the
Home Equity Loans as of the Statistical Calculation Date was as follows:
Number of
Months Remaining Home Equity Aggregate % of Aggregate
to Maturity Loans Loan Balance Loan Balance
----------- ----- ------------ ------------
Up to 120
121 to 180
181 to 240
241 to 300
301 to 360
Total
Occupancy Status
The occupancy status of the Properties securing the Home Equity Loans as
of the Statistical Calculation Date was as follows:
Number of
Home Equity Aggregate % of Aggregate
Occupancy Status Loans Loan Balance Loan Balance
- ---------------- ----- ------------ ------------
Total
Distribution by Lien Position
The lien position of the Home Equity Loans as of the Statistical
Calculation Date was as follows:
Number of
Initial
Home Equity Aggregate % of Aggregate
Lien Position Loans Loan Balance Loan Balance
- ------------- ----- ------------ ------------
First Lien
Second Lien
Total
Conveyance of Subsequent Home Equity Loans
The Pooling and Servicing Agreement permits the Trust to acquire
Subsequent Home Equity Loans in aggregate principal balance equal to the
Pre-Funded Amount. Accordingly, the statistical characteristics of the Home
Equity Loans will vary as of each Subsequent Cut-Off Date upon the acquisition
of Subsequent Home Equity Loans, but the Seller does not expect such variance to
be material.
The obligation of the Trust to purchase a Subsequent Home Equity Loan on a
Subsequent Transfer Date for assignment to the Home Equity Loan Pool is subject,
among other factors, to the following requirements: (i) the ratings on the Class
A Certificates shall not have been downgraded by any Rating Agency; (ii) such
Subsequent Home Equity
S-29
<PAGE>
Loan may not be ___ 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 ___ days Delinquent as of the related Subsequent
Cut-Off Date); (iii) such Subsequent Home Equity Loan will be a fixed rate Home
Equity Loan; (iv) the original term to maturity of such Subsequent Home Equity
Loan may not exceed ___ years; (v) such Subsequent Home Equity Loan will have a
Coupon Rate of not less than _____%; 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; (d) will have no Home Equity Loan that is
a first lien with an original Loan Balance in excess of $________; and (e) will
have no Home Equity Loan that is a second lien with an original Loan Balance in
excess of $________ and a combined original principal balance of the first and
second lien in excess of $________.
Interest Payments on the Home Equity Loans
A substantial majority 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.
There are a number of Home Equity Loans on which interest is charged to
the Mortgagor at the Coupon Rate on the outstanding principal balance calculated
based on the number of days elapsed between receipt of the Mortgagor's last
payment through receipt of the Mortgagor's most current payment (such Home
Equity Loans, "Date-of-Payment Loans"). Such interest is deducted from the
Mortgagor's payment amount and the remainder, if any, of the payment is applied
as a reduction to the outstanding principal balance of such Note. Although the
Mortgagor is required to remit equal monthly payments on a specified monthly
payment date that would reduce the outstanding principal balance of such Note to
zero at such Note's maturity date, payments that are made by the Mortgagor after
the due date therefor would cause the outstanding principal balance of such Note
not to be reduced to zero on its maturity date. In such a case, the Mortgagor
would be required to make an additional principal payment at the maturity date
for such Note. If it were assumed that all the Mortgagors on the Date-of-Payment
Loans were to pay on the latest date possible without the Date-of-Payment Loans
being in default, the amount of such additional principal payment would be a de
minimis amount of the aggregate Loan Balance of the Home Equity Loans. On the
other hand, if a Mortgagor makes a payment (other than a Prepayment) before the
due date therefor, the reduction in the outstanding principal balance of such
Note would occur over a shorter period of time than would have occurred had it
been based on the schedule of amortization in effect on the Cut-Off Date.
Accordingly, the timing of principal payments to the Owners of the Offered
Certificates may be affected by the fact that actual Mortgagor payments may not
be made on the due date therefor.
PREPAYMENT AND YIELD CONSIDERATIONS
General
The weighted average life of, and, if purchased at other than par, the
yield to maturity on, the Class A Certificates will relate to the rate of
payment of principal of the Home Equity Loans, including, for this purpose,
Prepayments, liquidations due to defaults, casualties and condemnations, and
repurchases of Home Equity Loans by the Seller. The Home Equity Loans may be
prepaid by the related Mortgagors, in whole or in part, at any time. However,
approximately ____% of the Home Equity Loans as of the Statistical Calculation
Date (by Loan Balance) require the payment of a fee in connection with certain
prepayments. The rate of payment of principal of the Home Equity Loans may also
be affected by the amount of Home Equity Loans secured by a second liens. Such
Home Equity Loans are subordinate to the rights of the mortgagee or beneficiary
under a first mortgage or deed of trust to receive proceeds from any
liquidation, insurance or condemnation proceedings available to satisfy the
outstanding balance of the related Home Equity Loan. However, since only ____%
of the aggregate Loan Balance of the Home Equity Loans as of the Statistical
Calculation Date are secured by second liens, the effect on the rate of payment
of principal, if any, should be minimal. 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
S-30
<PAGE>
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 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.
In addition to the foregoing factors affecting the weighted average life
of the Class A Certificates, the overcollateralization provisions of the Trust
result in an additional reduction of the 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 Certificate Principal Balance of the applicable
Class or Classes of Class A Certificates. This acceleration feature creates
overcollateralization which results from the excess of the aggregate Loan
Balance of the Home Equity Loans over the aggregate 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.
Mandatory Prepayment
In the event that prior to the end of the Funding Period the Depositor is
unable to sell Subsequent Home Equity Loans to the Trust in an amount equal to
the Pre-Funded Amount, the Class of Class A Certificates (other than the Class
A-9IO Certificates) then entitled to receive payments of principal will receive
a partial prepayment on the Payment Date immediately following the end of the
Funding Period in an amount equal to the Pre-Funded Amount remaining at the end
of the Funding Period.
The Depositor 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 at the end of the Funding
Period.
Prepayment and Yield Scenarios 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 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 no Net Monthly Excess Cashflow (as defined herein) will be used to make
accelerated payments of principal (i.e., Overcollateralization Increase Amounts)
to the Owners of the applicable Class A Certificates. The Final Scheduled
Payment Date for the Class A-7 and Class A-8 Certificates is the twelfth Payment
Date following the Remittance Period in which the Loan Balances of all Home
Equity Loans (including Subsequent Home Equity Loans) have been reduced to zero
assuming that the Home Equity Loans pay in accordance with their terms. The
weighted average lives of the Class A Certificates are 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 Dates with respect to the
Class A Certificates could occur significantly earlier than the Final Scheduled
Payment Dates 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.
S-31
<PAGE>
"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 any
Class of the Class A Certificates will be influenced by the rate at which
principal of the Home Equity Loans 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.
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. 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 such Home Equity Loans and an additional _____% (precisely
___/___ths) per annum in each month thereafter until the twelfth month.
Beginning in the thirteenth month and in each month thereafter during the life
of such 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 the 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 (other than the Class A-9IO
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 (other than the Class A-9IO 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 consist of pools of loans with level-pay and balloon amortization
methodologies, Cut-Off Date Loan Balances, gross coupon rates, net coupon rates,
original and remaining terms of amortization, and remaining terms to maturity as
applicable, as set forth in the "Representative Loan Pools" table below, (ii)
the Closing Date for the Certificates occurs on __________, 199__, (iii)
distributions on the Certificates are made on the 20th 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 Prepayment Assumption, (vi) prepayments include ___ days'
interest thereon, (vii) the optional termination is not exercised, (viii) the
"Specified Overcollateralization Amount" (as defined under "Credit Enhancement
- -- Overcollateralization Provisions") is set initially as specified in the
Pooling and Servicing Agreement and thereafter decreases in accordance with the
provisions of the Pooling and Servicing Agreement, (ix) all of the Initial Home
Equity Loans are sold to the Trust as of the Closing Date and all of the
Subsequent Home Equity Loans are sold to the Trust in __________ 199__; (x) the
amount on deposit in the Pre-Funding Account earns interest at a constant rate
of ____%; (xi) LIBOR remains constant at _____% and (xii) 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-32
<PAGE>
REPRESENTATIVE LOAN POOLS
<TABLE>
<CAPTION>
Original Remaining Remaining
Term of Term of Term to
Pool Loan Gross Coupon Net Coupon Amortization Amortization Maturity Amortization
Number Balance Rate Rate (in months) (in months) (in Method) Method
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
</TABLE>
- ----------
(1) Loans in the pool which will be Subsequent Home Equity Loans.
S-33
<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 (1)
<TABLE>
<CAPTION>
Class A-1 Class A-2
--------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Payment Date % % % % % % % % % % % %
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Weighted Average
Life to Maturity
(Years)(2)
Weighted Average
Life to Call
(Years)(2)
</TABLE>
<TABLE>
<CAPTION>
Class A-3 Class A-4
--------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Payment Date % % % % % % % % % % % %
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Weighted
Average
Life to
Maturity
(Years)(2)
Weighted
Average
Life to
Call
(Years)(2)
</TABLE>
- -----------------------------
(1) The percentages in the above table have been rounded to the nearest whole
number.
(2) The weighted average life of the Class A Certificates is determined by (i)
multiplying the amount of each principal payment by the number of years
from the date of issuance to the related Payment Date, (ii) adding the
results, and (iii) dividing the sum by the initial respective Certificate
Principal Balance for such Class of Class A Certificate.
S-34
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE(1)
<TABLE>
<CAPTION>
Class A-5 Class A-6
--------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Payment Date % % % % % % % % % % % %
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Weighted
Average
Life to
Maturity
(Years)(2)
Weighted
Average
Life to
Call
(Years)(2)
</TABLE>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE(1)
<TABLE>
<CAPTION>
Class A-7 Class A-8
--------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Payment Date % % % % % % % % % % % %
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Weighted
Average
Life to
Maturity
(Years)(2)
Weighted
Average
Life to
Call
(Years)(2)
</TABLE>
- -----------------------------
(1) The percentages in the above table have been rounded to the nearest whole
number.
(2) The weighted average life of the Class A Certificates is determined by (i)
multiplying the amount of each principal payment by the number of years
from the date of issuance to the related Payment Date, (ii) adding the
results, and (iii) dividing the sum by the initial respective Certificate
Principal Balance for such Class of Class A Certificate.
* Indicates that the cash flows are contingent on the optional termination
provision not being exercised.
S-35
<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 while the Trustee
will not be required to distribute any such amounts to the Owners of the Class A
Certificates until the next succeeding Payment Date. As a result, the monthly
distributions to the Owners of the Class A Certificates 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 of the Class A Certificates (other than the Class A-1 Certificates)
will be below that otherwise produced by the related Pass-Through Rate because
the distribution to the Owners of the Class A Certificates in respect of any
given month will not be made until on or about the 20th day of the following
month.
Yield Sensitivity of the Class A-9IO Certificates
Because amounts distributable to the Owners of the Class A-9IO
Certificates consist entirely of interest, the yield to maturity of the Class
A-9IO Certificates will be sensitive to the repurchase, prepayment and default
experience of the Home Equity Loans, and prospective investors should fully
consider the associated risks, including the risk that such investors may not
fully recover their initial investment. In addition, the Notional Principal
Amount applicable to interest calculations on the Class A-9IO Certificates is
(x) through the Payment Date in __________ 20__, the Class A-8 Certificate
Principal Balance and (y) thereafter, zero. Since the Class A-8 Certificates
will amortize in accordance with the distribution of the Class A-8 Lockout
Distribution Amount, the performance of the Class A-9IO Certificates is likely
to be more stable than if such Notional Principal Amount were calculated using
the underlying Home Equity Loans directly, and consequently, the yield
sensitivity of such Certificates will only be impacted at extremely high rates
of prepayment.
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 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 Upper-Tier
Distribution Account (as defined in the Pooling and Servicing Agreement), 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 Lower-Tier REMIC
will generally consist of the Home Equity Loans. The assets of the Upper-Tier
REMIC will generally consist of the Upper-Tier Distribution Account and the
uncertificated regular interests issued by the Lower-Tier REMIC, which in
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the aggregate will correspond to the Class A Certificates. In addition to the
Class A Certificates, the Trust will also issue the Class R Certificates which
will be designated as the "residual interest" in the Upper-Tier REMIC for
purposes of the Code. 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 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 Home Equity Loans
and the Properties is based upon the pool as constituted at the close of
business on the Statistical Calculation Date. Prior to the issuance of the Class
A Certificates, 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. Approximately $_______________ of Home Equity
Loans will also be included in the pool prior to the issuance of the
Certificates and the Subsequent Home Equity Loans may be added to the pool after
the issuance of the Class A 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. In the event 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. A description of the pool of Initial Home Equity
Loans, as of the Closing Date including such additional Home Equity Loans, will
be filed in a current report on Form 8-K within fifteen days after the initial
issuance of the Class A Certificates.
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.
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 related
Certificate Principal Balance (or Notional Principal Amount) 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
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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 balance (or notional principal balance) of such Class A
Certificate as of the Cut-Off Date by the Certificate Principal Balance (or
Notional Principal Amount) 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, (iv) on the Payment Dates in ___________ 199__,
_________ 199__ and __________ 199__, the Capitalized Interest Requirement (as
defined in the Pooling and Servicing Agreement) and (v) on the Payment Date
immediately following the end of the Funding Period any portion of the
Pre-Funded Amount, if any, to be transferred on such Payment Date.
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 of Terms herein under "Certificates Offered." The Class A-1
Pass-Through Rate adjusts monthly and will on each Payment Date be equal to the
lesser of (x) LIBOR plus ____% and (y) the Available Funds Cap.
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 any 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
(as defined herein) with respect to such Payment Date plus (y)
any Overcollateralization Reduction Amount with respect to
such Payment Date (such sum being the "Total Monthly Excess
Cashflow" with respect to such 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
Overcollateralization 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
Overcollateralization Increase Amount) exceeds (y)
the Available Funds for such Payment Date (net of
Current Interest, Servicing Fee and Trust Fees and
Expenses) (the amount of such difference being an
"Available Funds Shortfall"); and
(B) second, any portion of the Total Monthly Excess
Cashflow remaining after the allocation described in
clause (A) 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;
(iii) third, the amount, if any, of the Total Monthly Excess
Cashflow on a Payment Date remaining after the allocations and
payments described in clause (ii) above is the "Net Monthly
Excess Cashflow" for such 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 an
Overcollateralization Increase Amount to the Owners
of the Class A Certificates pursuant to clause
(iv)(C) below, any Overcollateralization Deficiency
Amount (as defined in the Pooling and Servicing
Agreement) as of such Payment Date; and
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(B) second, any Net Monthly Excess Cashflow remaining
after the applications and payments described in
clause (A) above shall be paid to the Servicer 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, the Trustee shall
distribute:
(A) (x) to the Certificate Insurer, the amounts described
in clause (ii)(B) above and (y) to the Servicer, the
amounts described in clause (iii)(B) above;
(B) to the Owners of the Class A Certificates (including
the Class A-9IO Certificates), the 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;
(C) to the Owners of Class A Certificates, the Class A
Principal Distribution Amount shall be distributed as
follows: (1) to the Owners of the Class A-8
Certificates an amount equal to the Class A-8 Lockout
Distribution Amount and (2) the remainder as follows:
first, to the Owners of the Class A-1 Certificates
until the Class A-1 Certificate Principal Balance is
reduced to zero; second, to the Owners of the Class
A-2 Certificates until the Class A-2 Certificate
Principal Balance is reduced to zero; third, to the
Owners of the Class A-3 Certificates until the Class
A-3 Certificate Principal Balance is reduced to zero;
fourth, to the Owners of the Class A-4 Certificates
until the Class A-4 Certificate Principal Balance is
reduced to zero; fifth, to the Owners of the Class
A-5 Certificates until the Class A-5 Certificate
Principal Balance is reduced to zero; sixth, to the
Owners of the Class A-6 Certificates until the Class
A-6 Certificate Principal Balance is reduced to zero;
seventh, to the Owners of the Class A-7 Certificates
until the Class A-7 Certificate Principal Balance is
reduced to zero; and, eighth to the Owners of the
Class A-8 Certificates until the Class A-8
Certificate Principal Balance is reduced to zero;
(D) to the Trustee, as reimbursement for all expenses
incurred in connection with duties and obligations
under the Pooling and Servicing Agreement not
reimbursed pursuant to clause (i) above; 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.
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.
"Available Funds" as to each 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 to be made on such
Payment Date and inclusive of any investment earnings on eligible investments
therein).
"Total Available Funds" as to each Payment Date is the sum of (x) the
amount on deposit in the Certificate Account (net of Total Monthly Excess
Cashflow) on such Payment Date, (y) any amounts of Total Monthly Excess Cashflow
to be applied on such Payment Date and (z) any deposit to the Certificate
Account from the Pre-Funding Account or Capitalized Interest Account expected to
be made in accordance with the Pooling and Servicing Agreement (disregarding the
amount of any Insured Payment to be made on such Payment Date).
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
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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. Such subrogation and reimbursement to have no effect on
the Certificate Insurer's obligations under the Insurance Policy.
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.
Calculation of LIBOR
On each LIBOR Determination Date (as defined below), the Trustee will
determine LIBOR for the next Accrual Period for the Class A-1 Certificates.
"LIBOR" means, as of any LIBOR Determination Date, the London interbank
offered rate for one-month United States dollar deposits 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 one month. 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 one month.
"LIBOR Determination Date" means, with respect to any Accrual Period,
the second London business day preceding the commencement of such Accrual Period
(or, in the case of the first Accrual Period, the second London business day
preceding the Closing Date). For purposes of determining LIBOR, a "London
business day" is any day on which dealings in deposits of United States dollars
are transacted in the London interbank market.
"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).
"Reference Banks" means leading banks selected by the Trustee and
engaged in transactions in Eurodollar deposits in the international Eurocurrency
market.
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 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 applicable Class(es) of Class A
Certificates (other than the Class A-9IO Certificates) then entitled to receive
principal payments on the Payment Date immediately following the end of the
Funding Period in reduction of the Certificate Principal Balance of such Owner's
Certificates, thus resulting in a partial principal prepayment of the related
Class A Certificates.
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 Upper-Tier REMIC or the
Lower-Tier REMIC.
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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) (a) the amount of interest accruing during the
related interest accrual period at the weighted average of the Pass-Through
Rates of all Class A Certificates (other than the Class A-9IO Certificates) on
the amount by which the aggregate Class A Certificate Principal Balance exceeds
the aggregate Loan Balance of the Home Equity Loans plus (b) the product of (1)
Current Interest on the Class A-9IO Certificates divided by the aggregate Class
A Certificate Principal Balance and (2) the amount by which the aggregate Class
A Certificate Principal Balance exceeds the aggregate Loan Balance of the Home
Equity Loans plus (c) the Trust Fees and Expenses 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 each Payment Date during
and immediately after the end of the Funding Period 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
Class A Certificates.
Amounts on deposit in the Capitalized Interest Account will be invested
in Eligible Investments. The Capitalized Interest Account will not be an asset
of the Upper-Tier REMIC or the Lower-Tier REMIC.
Book Entry Registration of the Class A Certificates
The Class A Certificates will originally be issued 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 in the United
States, or Cedel or Euroclear (in Europe) if they are 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. Cedel and Euroclear will hold
omnibus positions on behalf of their Participants through customers' securities
accounts in Cedel's and Euroclear's names on the books of their respective
depositaries which in turn will hold such positions in customers' securities
accounts in the depositaries' names on the books of DTC. Citibank will act as
depositary for Cedel and Chase will act as depositary for Euroclear (in such
capacities, individually the "Relevant Depositary" and collectively the
"European Depositaries"). Investors may hold such beneficial interests in the
Book-Entry Certificates in minimum denominations representing principal amounts
of $_______ and in multiples of $_______ 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., 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 and on
the records of Cedel and Euroclear, as appropriate).
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.
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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.
Because of time zone differences, credits of securities received in
Cedel or Euroclear as a result of a transaction with a Participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or Cedel Participants on such business day. Cash received in Cedel or
Euroclear as a result of sales of securities by or through a Cedel Participant
(as defined below) or Euroclear Participant (as defined below) to a DTC
Participant will be received with value on the DTC settlement date but will be
available in the relevant Cedel or Euroclear cash account only as of the
business day following settlements in DTC. For information with respect to tax
documentation procedures relating to the Certificates. See "Certain Federal
Income Tax Consequences -- Taxation of Certain Foreign Investors" and -- "Backup
Withholding" in the Prospectus and "Global Clearance, Settlement and Tax
Documentation Procedures -- Certain U.S. Federal Income Tax Documentation
Requirements" in Annex I hereto.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. Cedel Participants and Euroclear Participants may not deliver instructions
directly to the European Depositaries.
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.
Cedel Bank, S.A. was incorporated in 1970 as a limited company under
Luxembourg law. Cedel is owned by banks, securities dealers and financial
institutions, and currently has about 100 shareholders, including United States
financial institutions or their subsidiaries. No single entity may own more than
five percent of Cedel's stock.
Cedel is registered as a bank in Luxembourg, and as such is subject to
regulation by the Institut Monetaire Luxembourgeois, "IML," the Luxembourg
Monetary Authority, which supervises Luxembourg banks.
Cedel holds securities for its participant organizations ("Cedel
Participants") and facilitates the clearance and settlement of securities
transactions between Cedel Participants through electronic book-entry changes in
accounts of Cedel Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in Cedel in any of 28
currencies, including United States dollars. Cedel provides to its Cedel
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedel interfaces with domestic markets in several
countries. As a professional depository, Cedel is subject to regulation by the
Luxembourg Monetary Institute. Cedel Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to Cedel is also available to others, such as
banks,
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brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Cedel Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 32 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the "Euroclear Operator"), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear Securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries. Indirect access to Euroclear is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
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. Distribution with respect to
Book-Entry Certificates held through Cedel or Euroclear will be credited to the
cash accounts of Cedel Participants or Euroclear Participants in accordance with
the relevant system's rules and procedures, to the extent received by the
Relevant Depositary. Such distributions will be subject to tax reporting in
accordance with relevant United States tax laws and regulations. Because 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 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
on behalf of a Cedel Participant or Euroclear Participant only at the direction
of one or more Financial Intermediaries to
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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. Cedel or the Euroclear Operator, as the
case may be, will take any action permitted to be taken by an Owner under the
Pooling and Servicing Agreement on behalf of a Cedel Participant or Euroclear
Participant only in accordance with its relevant rules and procedures and
subject to the ability of the Relevant Depositary to effect such actions on its
behalf through DTC. 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, Cedel and
Euroclear, they are 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
__________________________ (hereinafter in this section, "_________________" or
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.
CREDIT ENHANCEMENT
Insurance Policy
The following summary of the terms of the Insurance Policy does not
purport to be complete and is qualified in its entirety by reference to the
Insurance Policy. A form of the Insurance Policy may be obtained, upon request,
from the Depositor.
Simultaneously with the issuance of the Certificates, the Certificate
Insurer will issue the Insurance Policy to the Trustee for the benefit of the
Owners of the Class A Certificates 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 the Insured Payments 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
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prior written consent. An Insured Payment for a Payment Date is the excess, if
any, of (i) the sum of (a) the Current Interest, (b) the Overcollateralization
Deficit and (c) the Preference Amount (without duplication) over (ii) the Total
Available Funds (after any deduction for the Trust Fees and Expenses) and after
taking into account the portion of the Class A Principal Distribution Amount to
be actually distributed on such Payment Date (without regard to any Insured
Payment to be made with respect to such Payment Date). Insured Payments do not
cover Realized Losses except to the extent that an Overcollateralization Deficit
exists; provided, however, that the Certificate Insurer is permitted at its sole
option, but not required, to pay any losses in connection with the liquidation
of a Home Equity Loan in accordance with the Insurance Policy. Insured Payments
do not cover the Servicer's failure to make Delinquency Advances pursuant to the
Pooling and Servicing Agreement, except to the extent that an
Overcollateralization Deficit would otherwise result therefrom. Nevertheless,
the effect of the Insurance Policy is to guaranty the timely payment of interest
on all Classes of the Class A Certificates and the ultimate principal amount of
all Classes of the Class A Certificates (other than the Class A-9IO
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) ___:___, New York
City time, on the second Business Day following Receipt of such notice for
payment, and (b) ___:____, 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 (the "Order"), (B) a
certificate of the Owner(s) 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(s) of the Class A Certificate, in such form as is
reasonably required by the Certificate Insurer and provided to the Owner(s) of
the Class A Certificate by the Certificate Insurer, irrevocably assigning to the
Certificate Insurer all rights and claims of the Owner(s) 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 ___:___
p.m., New York City time, on a Business Day; delivery either on a day that is
not a Business Day or after ___:___ 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 or the State of New York, are authorized or obligated by law
or executive order to be closed. The Certificate Insurer's obligations under the
Insurance Policy to make 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
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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.
Claims under the Insurance Policy will rank equally with any other
unsecured debt 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. Claims against the Certificate Insurer
under the Insurance Policy constitute pari passu claims against the general
assets of the Certificate Insurer. 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 canceled or revoked prior to payment in full of the Class A
Certificates. The Insurance Policy is governed by the laws of the State of New
York. The Insurance Policy is not covered by the Property/Casualty Insurance
Security Fund specified in Article 76 of the New York Insurance Law.
To the fullest extent permitted by applicable law, the Certificate
Insurer agrees under the Insurance Policy not to assert, and waives, for the
benefit of each Owner, all of its rights (whether by counterclaim, setoff or
otherwise) and defense (including, without limitation, the defense of fraud),
whether acquired by subrogation, assignment or otherwise, to the extent that
such rights and defenses may be available to the Certificate Insurer to avoid
payment of its obligations under the Insurance Policy in accordance with the
express provisions of the Insurance Policy.
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, as a third party beneficiary to the Pooling and Servicing
Agreement have, among others, the following rights: (i) the right to give
notices of breach or to terminate the rights and obligations of the Servicer
under the Pooling and Servicing Agreement in the event of a Servicer Termination
Event (as defined in the Pooling and Servicing Agreement) and to institute
proceedings against the Servicer; (ii) the right to consent to or direct any
waivers of defaults by the Servicer; (iii) the right to remove the Trustee
pursuant to the Pooling and Servicing Agreement; (iv) the right to direct the
actions of the Trustee during the continuation of a Servicer default; (v) the
right to require the Seller to repurchase Home Equity Loans for breach of
representation and warranty or defect in documentation; (vi) the right to direct
all matters relating to a bankruptcy or other insolvency proceeding involving
the Seller; and (vii) the right to direct the Trustee to investigate certain
matters. The Certificate Insurer's consent will be required prior to, among
other things, (i) the removal of the Trustee, (ii) the appointment of any
successor Trustee or Servicer or (iii) any amendment to the Pooling and
Servicing Agreement.
The Depositor, the Seller, the Servicer and the Certificate Insurer
will enter into an Insurance and Indemnity Agreement (the "Insurance Agreement")
pursuant to which the Seller will agree to reimburse, with interest, the
Certificate Insurer for amounts paid pursuant to claims under the Insurance
Policy. The Seller will further agree to pay the Certificate Insurer all
reasonable charges and expenses which the Certificate Insurer may pay or incur
relative to any amounts paid under the Insurance Policy or otherwise in
connection with the transaction and to indemnify the Certificate Insurer against
certain liabilities. Except to the extent provided therein, amounts owing under
the Insurance Agreement will be payable solely from the Trust Estate. An "event
of default" by the Servicer under the Insurance Agreement will constitute a
Servicer Termination Event under the Pooling and Servicing Agreement and allow
the Certificate Insurer, among other things, to direct the Trustee to terminate
the Servicer. See "Pooling and Servicing Agreement -- Removal and Resignation of
the Servicer" herein. An "event of default" under the Insurance Agreement
includes (i) the Seller's, the Depositor's or the Servicer's failure to pay when
due any amount owed under the Insurance Agreement or certain other documents,
(ii) the inaccuracy or incompleteness in any material respect of any
representation or warranty of the Seller, the Depositor or the Servicer in the
Insurance Agreement, the Pooling and Servicing Agreement or certain other
documents, (iii) the Seller's, the Depositor's or the Servicer's failure to
perform or to comply with any covenant or agreement in the Insurance Agreement,
the Pooling and Servicing Agreement and certain other documents, (iv) a finding
or ruling by a governmental authority or agency that the Insurance Agreement,
the Pooling and Servicing Agreement or certain other documents are not binding
on the Seller, the Depositor or the Servicer, (v) the Seller's, the Depositor's
or the Servicer's failure to pay its debts in general or the occurrence of
certain events of insolvency or bankruptcy with respect to the Seller or the
Servicer and (vi) the occurrence of certain "performance test violations"
designed to measure the performance of the Home Equity Loans.
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Overcollateralization Provisions
Overcollateralization Resulting from Cash Flow Structure. The Pooling
and Servicing Agreement requires that, on each Payment Date, Net Monthly Excess
Cashflow be applied on such Payment Date as an accelerated payment of principal
on the applicable Class(es) 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 during a Remittance Period (net of the Servicing Fee and of certain
miscellaneous administrative amounts) plus any Delinquency Advances and
Compensating Interest over (y) the sum of the Current Interest and the Trust
Fees and Expenses (the difference between (x) and (y) is the "Total Monthly
Excess Spread"), over (ii) the portion of the Total Monthly Excess Cashflow that
is used to cover shortfalls in Available Funds on such Payment Date or used to
reimburse the Certificate Insurer.
The application of Net Monthly Excess Cashflow has the effect of
accelerating the amortization of the Class A Certificates relative to the
amortization of the Home Equity Loans. To the extent that any Net Monthly Excess
Cashflow is not so used, 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, the Net Monthly Excess
Cashflow will be applied as an accelerated payment of principal on the Class A
Certificates until the Overcollateralization Amount has increased to the level
required. "Overcollateralization Amount" means, with respect to each Payment
Date, the excess, if any, of (x) 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
preceding Remittance Period and (ii) any amount on deposit in the Pre-Funding
Account at such time exclusive of any Pre-Funding Account Earnings (as defined
in the Pooling and Servicing Agreement) over (y) the aggregate 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
Overcollateralization Deficit or Overcollateralization Increase Amount) on such
Payment Date). Any amount of Net Monthly Excess Cashflow actually applied as an
accelerated payment of principal is an "Overcollateralization Increase Amount."
The required level of the Overcollateralization Amount with respect to a Payment
Date is the "Specified Overcollateralization Amount." The Pooling and Servicing
Agreement generally provides that the Specified Overcollateralization Amount
may, over time, decrease, or increase, subject to certain floors, caps and
triggers including triggers that allow the Specified Overcollateralization
Amount to decrease or "step down" based on the performance on the Home Equity
Loans 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 Class A Certificates during the period that the Home Equity Loans are
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 Overcollateralization Amount 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 applicable Class(es) of
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 the Class A
Certificates relative to the amortization of the Home Equity Loans and of
reducing the Overcollateralization Amount. With respect to any Payment Date, the
excess, if any, of (x) the Overcollatrealization Amount on such Payment Date
after taking into account all distributions to be made on such Payment Date
(except for any distributions of Overcollateralization Reduction Amounts as
described in this sentence) over (y) the Specified Overcollateralization Amount
is the "Excess Overcollateralization Amount" for such Payment Date. If, on any
Payment Date, the Excess Overcollateralization 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 Overcollateralization Amount is or would be greater
than the Specified Overcollateralization 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 Overcollateralization 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 "Overcollateralization
Reduction Amount" with respect to the related Payment Date.
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 an Overcollateralization Reduction Amount)
during the prior Remittance Period will be distributed to the Owners of the
related Class A Certificates on such Payment
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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 applicable
Class(es) of 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 Overcollateralization Amount, which to the extent that such reduction
causes the Overcollateralization Amount to be less than the related Specified
Overcollateralization Amount applicable to the related Payment Date, will
require the payment of a Overcollateralization Increase Amount on such Payment
Date (or, if insufficient funds are available on such Payment Date, on
subsequent Payment Dates, until the Overcollateralization Amount equals the
related Specified Overcollateralization Amount).
Overcollateralization and the Insurance Policy. The Pooling and
Servicing Agreement defines an "Overcollateralization Deficit" with respect to a
Payment Date to be the amount, if any, by which (x) the aggregate Class A
Certificate Principal Balance with respect to such Payment Date, after taking
into account all distributions to be made on such Payment Date (except for any
Overcollateralization Deficit and Overcollateralization Increase Amount),
exceeds (y) the sum of (a) the aggregate Loan Balances of the Home Equity Loans
as of the close of business on the last day of the prior Remittance Period and
(b) 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 second Business Day prior to any Payment
Date as to which the Trustee has determined that an Overcollateralization
Deficit will occur for the purpose of applying the proceeds of such Insured
Payment as a payment of principal to the Owners of the applicable Class(es) of
Class A Certificates (other than the Class A-9IO Certificates) on such Payment
Date. The Insurance Policy is thus similar to the overcollateralization
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 (other than
the Class A-9IO Certificates) should realize that, under extreme loss or
delinquency scenarios applicable to the 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 (other than the Class A-9IO 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 (other than
the Class A-9IO Certificates) are insulated from shortfalls in Available Funds
that may arise.
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 or prior to 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 the excess, if any, of the
Loan Balance of the Home Equity Loan being replaced over the outstanding
principal balance of the replacement Home Equity Loan plus interest (the
"Substitution Amount") to the Trustee on behalf of the Trust as part of the
Monthly Remittance remitted by the Servicer on such
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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 either
the Upper-Tier REMIC or the Lower-Tier REMIC (other than the Non-REMIC Accounts)
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 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 a representation of warranty is
untrue in any material respect and has not been remedied constitutes the sole
remedy 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
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 its respective 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 received on or before the Cut-Off Date) 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) (1) 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 (2) 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,
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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 until such information is received;
provided, further, that the Seller shall not be required to record an
assignment of a Mortgage (except upon the occurrence of certain
triggers specified in the Pooling and Servicing Agreement) 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 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 Monthly Remittance Date.
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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
monitor no less frequently than monthly 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 Fannie Mae's Servicing
Guide (the "Fannie Mae Guide"); provided, however, that to the extent such
standards, such obligations or the Fannie Mae Guide is amended by Fannie Mae
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.
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 Fannie Mae 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
(received after the Cut-Off Date), 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 (a) the Loan Balance of the related Home Equity Loan
immediately prior to liquidation, (b) accrued and unpaid interest on such Home
Equity Loan (net of the Servicing Fee) to the date of such liquidation and (c)
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 in the following order and only for the following
purposes:
(i) on each Monthly Remittance Date, to pay itself the Servicing
Fee;
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(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
for any excess interest collected from a Mortgagor; 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 Monthly 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 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 (such amount to
be replaced on future dates to the extent necessary) 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 the Servicer in its reasonable
business judgment determines that any such proposed amount 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 Pooling and Servicing 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 related 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 related 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 such succeeding Monthly
Remittance Date. The Servicer shall not be entitled to reimbursement for amounts
paid as Compensating Interest.
In accordance with the terms of the Pooling and Servicing Agreement,
the Servicer will have the right and the option, but not the obligation, to
purchase for its own account Home Equity Loans which become delinquent as to
three
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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 Upper-Tier REMIC or the Lower-Tier REMIC (other than the Non-REMIC
Accounts) 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 35
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.
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: (a) the
provisions of the related Note and Mortgage have been complied with; (b) the
loan-to-value ratio and debt-to-income ratio after any release do not exceed the
loan-to-value ratio and debt-to-income ratio, respectively, of such Note on the
Cut-Off Date provided that the loan-to-value ratio shall be permitted to be
increased by an amount not to exceed 5% unless approved by the Certificate
Insurer; and (c) 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 the Remittance Period related to the Final Scheduled Payment Date of the
latest Class of Class A Certificates remaining in the Trust. 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 five (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, with the
consent of the Certificate Insurer, the Servicer 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).
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
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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
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__: (i) an officers' certificate stating, as to each
signer thereof, that (a) 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 (b) 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 (ii)
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 Attestation Program for Mortgage
Bankers, and stating such firm's conclusions relating thereto.
Removal and Resignation of Servicer
The Certificate Insurer or the Trustee (with the prior written consent
of the Certificate Insurer) (or except as specified in the Pooling and Servicing
Agreement, the Owners, with the consent of the Certificate Insurer) will have
the right, pursuant to the Pooling and Servicing Agreement, to 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 and (B) until such time as a successor Servicer is appointed pursuant
to the terms of the Pooling and Servicing Agreement, shall serve in the capacity
of Backup 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 Fannie Mae, 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
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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 or a successor servicer shall have assumed the Servicer's
responsibilities and obligations in accordance with the Pooling and Servicing
Agreement.
The Trustee
___________________________, a ____________________________, 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:
(i) the amount of the distribution with respect to the Class A
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 any Pre-Funded Amounts distributed as a
prepayment (based on a Certificate in the original principal amount of
$1,000) and any Overcollateralization Increase Amount;
(iii) the amount of such distribution allocable to interest on
the Home Equity Loans (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 Class A Distribution Amounts on such Payment Date and
the Interest 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 Overcollateralization Amount and
Overcollateralization Deficit, 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,
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;
(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
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(xiv) for Payment Dates during and immediately following the
Funding Period, the total remaining Pre-Funded Amount and the
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;
(a) the number and aggregate principal balances of Home Equity
Loans 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 calendar month 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 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 calendar month 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 calendar month 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 calendar month 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 calendar month immediately preceding
the Payment Date;
(f) the amount of cumulative Realized Losses since the Closing
Date, the current period Realized Losses and any other loss percentage
as required by the Pooling and Servicing Agreement; and
(g) the aggregate Loan Balances of 60+ Day Delinquent Loans.
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.
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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 the REMIC status of either the
Lower-Tier REMIC or the Upper-Tier REMIC, (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), such amendment shall not adversely affect in any material
respect any Owner. Any such amendment shall be deemed not to adversely affect in
any material respect any Owner if there is delivered to the Trustee written
notifiation from each Rating Agency that such amendment will not cause such
Rating Agency to reduce its then current rating assigned to any Class of the
Class A Certificates. 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 or (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.
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 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 (as defined in the Pooling and Servicing Agreement) 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 (i) unanimously to direct the Trustee on behalf of the Lower-Tier REMIC
to adopt a plan of complete liquidation, as contemplated by Section 860F(a)(4)
of the Code and (ii) 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 after the Clean-Up Call Date
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. The proceeds from any such
termination may not be sufficient to distribute the full amount to which each
Class of Certificates is entitled if the purchase price is based in part on the
appraised value of any REO property underlying the Home Equity Loans and such
appraisal value is less than principal balance of the related Home Equity Loans.
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
Lower-Tier 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.
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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 "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
The Trust (other than the Non-REMIC Accounts) will consist of 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 Lower-Tier REMIC
will issue several uncertificated subclasses of non-voting interests (the
"Lower-Tier REMIC Regular Interests"), which will be designated as the regular
interests in the Lower-Tier REMIC and the uncertificated Lower-Tier REMIC
Residual Class, which will be designated as the residual interest in the
Lower-Tier REMIC. The assets of the Lower-Tier 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, and the Non-REMIC
Accounts. The Upper-Tier REMIC will issue the Class A Certificates all of which
will be designated as 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 Lower-Tier REMIC
Regular Interests and the Upper-Tier Distribution Account. See "Formation of the
Trust and Trust Property" herein.
Qualification as a REMIC requires ongoing compliance with certain
conditions. Arter & Hadden LLP, 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 Lower-Tier 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 Lower-Tier REMIC Regular Interests will be treated as "regular
interests" in the Lower-Tier REMIC and the uncertificated Lower-Tier REMIC
Residual Class will be the sole "residual interest" in the Lower-Tier 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
such REMIC on the date on which those interests are created, and not as
ownership interests in such 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 Prepayment Assumption.
No representation is made as to the actual rate at which the Home Equity Loans
will prepay. See "Prepayment and Yield Considerations -- Prepayment and Yield
Scenarios for Class A Certificates" herein.
As a result of the qualification of the Lower-Tier 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 "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
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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 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 each of the Underwriters 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
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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 Pooling and Servicing Agreement and reimbursement of
such person's reasonable expenses in connection therewith; and
(6) the Plan investing in the certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission under the Securities Act of 1933.
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 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").
On July 21, 1997, the DOL published in the Federal Register amendments
to the Exemptions ("PTE 97-34"), which extend exemptive relief to certain
mortgage-backed and asset-backed securities transactions using pre-funding
accounts for trusts issuing pass-through certificates. With respect to the Class
A Certificates, the amendments generally allow Home Equity Loans supporting
payments to Owners, and having a principal amount equal to no more than 25% of
the total principal amount of the Class A Certificates being offered by the
Trust, to be transferred to the Trust within a funding period no longer than 90
days or three months following the Closing Date instead of requiring that all
such Home Equity Loans be either identified or transferred on or before the
Closing Date. The relief will apply to the purchase, sale and holding of the
Class A Certificates, provided that the following general conditions are met:
(1) the ratio of the amount allocated to the Pre-Funding
Account to the total principal amount of the Certificates being offered
("Pre-Funding Limit") does not exceed 25%;
(2) all Subsequent Home Equity Loans meet the same terms and
conditions for eligibility as the original Home Equity Loans used to
create the Trust, which terms and conditions have been approved by the
Rating Agencies;
(3) the transfer of such Subsequent Home Equity Loans to the
Trust during the Funding Period does not result in the Certificates to
be covered by the Exemptions receiving a lower credit rating from a
Rating Agency upon termination of the Funding Period than the rating
that was obtained at the time of the initial issuance of the
Certificates by the Trust;
(4) solely as a result of the use of pre-funding, the weighted
average annual percentage interest rate (the "Average Interest Rate")
for all of the Home Equity Loans and Subsequent Home Equity Loans in
the Trust at the end of the Funding Period is not more than 100 basis
points lower than the Average Interest Rate for the Home Equity Loans
which were transferred to the Trust on the Closing Date;
(5) either: (i) the characteristics of the Subsequent Home
Equity Loans are monitored by an insurer or other credit support
provider which is independent of the Company; or (ii) an independent
accountant retained by the Company provides the Company with a letter
(with copies provided to the Rating Agencies, the Underwriters and the
Trustee) stating whether or not the characteristics of the Subsequent
Home Equity Loans conform to the characteristics described in the
Prospectus or Prospectus Supplement and/or Pooling and Servicing
Agreement. In preparing such letter, the independent accountant must
use the same type of procedures as were applicable to the Home Equity
Loans which were transferred to the Trust as of the Closing Date;
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(6) the Funding Period ends no later than three months or 90
days after the Closing Date or earlier in certain circumstances if the
Pre-Funding Account falls below the minimum level specified in the
Pooling and Servicing Agreement or an event of default occurs;
(7) amounts transferred to any Pre-Funding Account and/or
Capitalized Interest Account used in connection with the pre-funding
may be invested only in investments which are permitted by the Rating
Agencies and; (i) are direct obligations of, or obligations fully
guaranteed as to timely payment of principal and interest by, the
United States or any agency or instrumentality thereof (provided that
such obligations are backed by the full faith and credit of the United
States); or (ii) have been rated (or the obligor has been rated) in one
of the three highest generic rating categories by such Rating Agency;
(8) the Prospectus or Prospectus Supplement describes: (i) any
Pre-Funding Account and/or Capitalized Interest Account; (ii) the
duration of the Funding Period; (iii) the percentage and/or dollar
amount of the Pre-Funding Limit for the Funding Period that will be
remitted to Owners as repayments of principal; and (iv) that the
amounts remaining in the Pre-Funding Account at the end of the Funding
Period will be remitted to Owners as repayments of principal; and
(9) the Pooling and Servicing Agreement describes the
permitted investments for the Pre-Funding Account and/or Capitalized
Interest Account and, if not disclosed in the Prospectus or Prospectus
Supplement, the terms and conditions for eligibility of Subsequent Home
Equity Loans.
It is believed that all of the conditions for exemptive relief under
the amendments to the Exemptions with respect to pre-funding have been or will
be satisfied.
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,
as amended by PTE 97-34, 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.
In addition to the matters described above, purchasers of an Class A
Certificate that are insurance companies should consult with their counsel with
respect to the recent United States Supreme Court case interpreting the
fiduciary responsibility rules of ERISA, John Hancock Mutual Life Insurance Co.
v. Harris Trust and Savings Bank 114 S.Ct. 517 (1993). In John Hancock, the
Supreme Court ruled that assets held in an insurance company's general account
may be deemed to be "plan assets" for ERISA purposes under certain
circumstances. Prospective purchasers using insurance company general account
assets should determine whether the decision affects their ability to make
purchases of the Class A Certificates.
RATINGS
It is a condition of the issuance of the Class A Certificates that the
Class A Certificates (other than the Class A-9IO Certificates) receive ratings
of "AAA" by Standard & Poor's and "Aaa" by Moody's. It is a condition to the
issuance of the Class A-9IO Certificates that they be rated "AAAr" 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.
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The ratings of Moody's on home equity pass-through certificates address
the likelihood of the receipt by the Owners of all distributions to which such
Owners are entitled. Moody's rating opinions address the structural and legal
issues and tax-related aspects associated with the Certificates, including the
nature of the underlying home equity loans and the credit quality of the credit
support provider, if any. Moody's ratings on pass-through certificates do not
represent any assessment of the likelihood that principal prepayments may differ
from those originally anticipated.
Ratings which are assigned to securities such as the Class A-9IO
Certificates generally evaluate the ability of the seller (i.e., the Trust) to
make payments, as required by such securities. The amounts distributable on the
Class A-9IO Certificates consist only of interest. In general, the ratings
address credit risk and not prepayment risk. If all of the Home Equity Loans
were to prepay in the initial month, with the result that investors in the Class
A-9IO Certificates receive only a single month's interest and thus suffer a
nearly complete loss of their investment, all amounts "due" to such Owners will
nevertheless have been paid, and such result is consistent with the "Aaa/AAAr"
ratings received on the Class A-9IO Certificates.
The "r" symbol is appended to the rating by Standard & Poor's of Class
A-9IO Certificates because they are interest-only Certificates that Standard &
Poor's believes may experience high volatility or high variability in expected
returns due to non-credit risks created by the terms of such Certificates. The
absence of an "r" symbol in the rating of the other Classes of Class A
Certificates should not be taken as an indication that such Certificates will
experience no volatility or variability in total return.
The ratings of Moody's and Standard & Poor's do not address the
possibility that, as a result of principal prepayments, certificateholders may
receive a lower than anticipated yield.
The ratings of the Class A Certificates should be evaluated
independently from similar ratings on other types of securities. A security
rating is not a recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal at any time by the assigning rating agency.
The Depositor has not requested a rating of the Class A Certificates
offered hereby by any rating agency other than Moody's and Standard & Poor's and
the Depositor has not provided information relating to the Class A Certificates
offered hereby or the Home Equity Loans to any rating agency other than Moody's
and Standard & Poor's. However, there can be no assurance as to whether any
other rating agency will rate the Certificates offered hereby or, if another
rating agency rates such Class A Certificates, what rating would be assigned to
such Class A Certificates by such rating agency. Any such unsolicited rating
assigned by another rating agency to the Class A Certificates offered hereby may
be lower than the rating assigned to such Certificates by any of Moody's and
Standard & Poor's.
LEGAL INVESTMENT CONSIDERATIONS
The Class A Certificates will [not] constitute "mortgage related
securities" for purposes of SMMEA. [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 Class A Certificates.]
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement relating to the Class A 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 of the Class A Certificates set forth
opposite its name below:
Class A-1 Certificates
Underwriters Principal Amount
------------ ----------------
$
$
$
$
$
Total $
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Class A-2 Certificates
Underwriters Principal Amount
------------ ----------------
$
$
$
$
Total $
Class A-3 Certificates
Underwriters Principal Amount
------------ ----------------
$
$
$
$
Total $
Class A-4 Certificates
Underwriters Principal Amount
------------ ----------------
$
$
$
$
Total $
Class A-5 Certificates
Underwriters Principal Amount
------------ ----------------
$
$
$
$
Total $
Class A-6 Certificates
Underwriters Principal Amount
------------ ----------------
$
$
$
$
Total $
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Class A-7 Certificates
Underwriters Principal Amount
------------ ----------------
$
$
$
$
Total $
Class A-8 Certificates
Underwriters Principal Amount
------------ ----------------
$
$
$
$
Total $
Class A-9IO Certificates
Underwriters Percentage Interest
------------ -------------------
%
%
%
%
Total %
No principal payments are distributed with respect to the Class A-9IO
Certificates. Interest will be distributed and calculated on the basis of the
Notional Principal Amount.
In the Underwriting Agreement, the Underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase all of the Class A
Certificates offered 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 related 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.
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Selling Reallowance
Class Concession Discount
----- ---------- --------
A-1 ....................
A-2 ....................
A-3 ....................
A-4 ....................
A-5 ....................
A-6 ....................
A-7 ....................
A-8 ....................
A-9IO ..................
After the initial public offering, such prices and discounts may be
changed.
The Underwriters may engage in over-allotment, stabilizing
transactions, syndicate covering transactions and penalty bids in accordance
with Regulation M under the Securities Exchange Act of 1934, as amended.
Over-allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed a
specific maximum. Syndicate covering transactions involve purchases of the Class
A Certificates in the open market after the distribution has been completed in
order to cover syndicate short positions. Penalty bids permit the Underwriters
to reclaim a selling concession from a syndicate member when the Class A
Certificates originally sold by such syndicate member are purchased in a
syndicate covering transaction to cover syndicate short positions. Such
stabilizing transactions, syndicate covering transactions and penalty bids may
cause the price of the Class A Certificates to be higher than it would otherwise
be in the absence of such transactions. These transactions, if commenced, may be
discontinued at any time.
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 the Certificate Insurer,
_______________________________________ as of ______________, 199__ and ______,
and the related consolidated statements of income, changes in shareholders'
equity, and cash flows for each of the three years in the period ended
_______________, 199_, incorporated by reference into this Prospectus
Supplement, have been incorporated by reference 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 Seller by Arter & Hadden LLP,
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 Seller and the Depositor by Arter & Hadden LLP. Certain legal matters
relating to the validity of the issuance of the Certificates will be passed upon
for the Underwriters by___________________________________________________.
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ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered
$____________________ IMC Home Equity Loan Pass-Through Certificates, Series
199__-__ (the "Global Securities") will be available only in book-entry form.
Investors in the Global Securities may hold such Global Securities through any
of DTC, Cedel or Euroclear. The Global Securities will be tradeable as home
market instruments in both the European and U.S. domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors through Cedel and Euroclear
will be conducted in the ordinary way in accordance with the normal rules and
operating procedures of Cedel and Euroclear and in accordance with conventional
eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors through DTC will be
conducted according to DTC's rules and procedures applicable to U.S. corporate
debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Notes will be effected on a delivery-against-payment basis
through the respective Depositaries of Cedel and Euroclear (in such capacity)
and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in the
name of Cede & Co. as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on their
behalf as direct and indirect Participants in DTC. As a result, Cedel and
Euroclear will hold positions on behalf of their participants through their
Relevant Depositary which in turn will hold such positions in their accounts as
DTC Participants.
Investors electing to hold their Global Securities through DTC will
follow DTC settlement practices. Investor securities custody accounts will be
credited with their holdings against payment in same-day funds on the settlement
date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior home
equity loan asset-backed securities issues in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC, Seller and Cedel or Euroclear Participants. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a Cedel Participant or a Euroclear Participant, the purchaser
will send instructions to Cedel or Euroclear through a Cedel Participant or
Euroclear Participant at least one business day prior to settlement. Cedel or
Euroclear will instruct the Relevant Depositary, as the case may be, to receive
the Global Securities against payment. Payment will include interest accrued on
the Global Securities from and including the last coupon payment date to and
excluding the settlement date, on the basis of either a 360-day year
I-1
<PAGE>
comprised of 30-day month's or the actual number of days in such accrual period
and a year assumed to consist of 360 days, as applicable. For transactions
settling on the 31st of the month, payment will include interest accrued to and
excluding the first day of the following month. Payment will then be made by the
Relevant Depositary to the DTC Participant's account against delivery of the
Global Securities. After settlement has been completed, the Global Securities
will be credited to the respective clearing system and by the clearing system,
in accordance with its usual procedures, to the Cedel Participant's or Euroclear
Participant's account. The securities credit will appear the next day (European
time) and the cash debt will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the Cedel or Euroclear cash debt
will be valued instead as of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Cedel or Euroclear. Under this
approach, they may take on credit exposure to Cedel or Euroclear until the
Global Securities are credited to their account one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit
to them, Cedel Participants or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon to finance
settlement. Under this procedure, Cedel Participants or Euroclear Participants
purchasing Global Securities would incur overdraft charges for one day, assuming
they cleared the overdraft when the Global Securities were credited to their
accounts. However, interest on the Global Securities would accrue from the value
date. Therefore, in many cases the investment income on the Global Securities
earned during that one-day period may substantially reduce or offset the amount
of such overdraft charges, although the result will depend on each Cedel
Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours,
DTC Participants can employ their usual procedures for crediting Global
Securities to the respective European Depositary for the benefit of Cedel
Participants or Euroclear Participants. The sale proceeds will be available to
the DTC seller on the settlement date. Thus, to the DTC Participants a
cross-market transaction will settle no differently than a trade between two DTC
Participants.
Trading between Cedel or Euroclear Seller and DTC Purchaser. Due to
time zone differences in their favor, Cedel Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The seller will send
instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. In these cases Cedel
or Euroclear will instruct the respective Depositary, as appropriate, to credit
the Global Securities to the DTC Participant's account against payment. Payment
will include interest accrued on the Global Securities from and including the
last coupon payment to and excluding the settlement date on the basis either a
360-day year comprised of 30-day month's or of the actual number of days in such
accrual period and a year assumed to consist to 360 days, as applicable. For
transactions settling on the 31st of the month, payment will include interest
accrued to and excluding the first day of the following month. The payment will
then be reflected in the account of Cedel Participant or Euroclear Participant
the following day, and receipt of the cash proceeds in the Cedel Participant's
or Euroclear Participant's account would be back-valued to the value date (which
would be the preceding day, when settlement occurred in New York). Should the
Cedel Participant or Euroclear Participant have a line of credit with its
respective clearing system and elect to be in debt in anticipation of receipt of
the sale proceeds in its account, the back-valuation will extinguish any
overdraft incurred over that one-day period. If settlement is not completed on
the intended value date (i.e., the trade fails), receipt of the cash proceeds in
the Cedel Participant's or Euroclear Participant's account would instead be
valued as of the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase
Global Securities from DTC Participants for delivery to Cedel Participants or
Euroclear Participants should note that these trades would automatically fail on
the sale side unless affirmative action is taken. At least three techniques
should be readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until
the purchase side of the trade is reflected in their Cedel or Euroclear
accounts) in accordance with the clearing system's customary
procedures;
I-2
<PAGE>
(b) borrowing the Global Securities in the U.S. from a DTC
Participant no later than one day prior to settlement, which would give
the Global Securities sufficient time to be reflected in their Cedel or
Euroclear account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of
the trade so that the value date for the purchase from the DTC
Participant is at least one day prior to the value date for the sale to
the Cedel Participant or Euroclear Participant.
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of Global Securities holding securities through
Cedel or Euroclear (or through DTC if the holder has an address outside the
U.S.) will be subject to the 30% U.S. withholding tax that generally applies to
payments of interest (including original issue discount) on registered debt
issued by U.S. Persons (as defined below), unless (i) each clearing system, bank
or other financial institution that holds customers' securities in the ordinary
course of its trade or business in the chain of intermediaries between such
beneficial owner and the U.S. entity required to withhold tax complies with
applicable certification requirements and (ii) such beneficial owner takes one
of the following steps to obtain an exemption or reduced tax rate:
Exemption for Non-U.S. Persons (Form W-8). Beneficial Owners of Global
Securities that are Non-U.S. Persons (as defined below) can obtain a complete
exemption from the withholding tax by filing a signed Form W-8 (Certificate of
Foreign Status). If the information shown on Form W-8 changes, a new Form W-8
must be filed within 30 days of such change.
Exemption for Non-U.S. Persons with effectively connected income (Form
4224). A Non-U.S. Person (as defined below), including a non-U.S. corporation or
bank with a U.S. branch, for which the interest income is effectively connected
with its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a Trade
or Business in the United States).
Exemption or reduced rate for Non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons residing in a country that has a tax
treaty with the United States can obtain an exemption or reduced tax rate
(depending on the treaty terms) by filing Form 1001 (Ownership, Exemption or
Reduced Rate Certificate). If the treaty provides only for a reduced rate,
withholding tax will be imposed at that rate unless the filer alternatively
files Form W-8. Form 1001 may be filed by Note Owners or their agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's Request
for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Owner of a Global
Security or, in the case of a Form 1001 or a Form 4224 filer, his agent, files
by submitting the appropriate form to the person through whom it holds the
security (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W-8 and Form 1001 are effective for three
calendar years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity organized in or under
the laws of the United States or any political subdivision thereof or (iii) an
estate the income of which is includible in gross income for United States tax
purposes, regardless of its source or a trust if a court within the United
States is able to exercise primary supervision of the administration of the
trust and one or more United States fiduciaries have the authority to control
all substantial decisions of the trust. The term "Non-U.S. Person" means any
person who is not a U.S. Person. This summary does not deal with all aspects of
U.S. Federal income tax withholding that may be relevant to foreign holders of
the Global Securities. Investors are advised to consult their own tax advisors
for specific tax advice concerning their holding and disposing of the Global
Securities.
I-3
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<PAGE>
APPENDIX A
INDEX TO LOCATION OF PRINCIPAL DEFINED TERMS
<TABLE>
<CAPTION>
Page Page
---- ----
<S> <C> <C> <C>
....................................................... S-14 Loan Balance ........................................... S-6
Accrual Period ......................................... S-4 Loan Purchase Price .................................... S-49
Appraised Values ....................................... S-24 Lower-Tier REMIC ....................................... S-14
Available Funds ........................................ S-39 Lower-Tier REMIC Regular Interests ..................... S-58
Available Funds Cap .................................... S-1 Maximum Collateral Amount .............................. S-1
Average Interest Rate .................................. S-60 Monthly Remittance Date ................................ S-8
Backup Servicer ........................................ S-20 Moody's ................................................ S-10
Balloon Loans .......................................... S-18 Mortgagor .............................................. S-30
Beneficial Owners ...................................... S-13 Net Liquidation Proceeds ............................... S-51
Book-Entry Certificates ................................ S-41 Non-REMIC Accounts ..................................... S-14
Capitalized Interest Account ........................... S-12 Notes .................................................. S-24
Cedel .................................................. S-13 Notional Principal Amount .............................. S-1
Cedel Participants ..................................... S-42 Order .................................................. S-45
Certificate Account .................................... S-37 Overcollateralization Amount ........................... S-47
Certificate Insurer .................................... S-9 Overcollateralization Deficit .......................... S-48
Chase .................................................. S-13 Overcollateralization Increase Amount .................. S-47
Citibank ............................................... S-13 Overcollateralization Reduction Amount ................. S-47
Class .................................................. S-1 Participants ........................................... S-41
Class A Distribution Amount ............................ S-4 Payment Date ........................................... S-4
Class A Principal Distribution Amount .................. S-6 Percentage Interest .................................... S-38
Class A-1 Certificates ................................. S-1 Plans .................................................. S-58
Class A-1 Pass-Through Rate ............................ S-1 Pooling and Servicing Agreement ........................ S-2
Class A-2 Certificates ................................. S-1 Preference Amount ...................................... S-8
Class A-3 Certificates ................................. S-1 Premium Amount ......................................... S-10
Class A-4 Certificates ................................. S-1 Prepayment Assumption .................................. S-32
Class A-5 Certificates ................................. S-1 Prepayments ............................................ S-16
Class A-6 Certificates ................................. S-1 Preservation Expenses .................................. S-52
Class A-7 Certificates ................................. S-1 Pre-Funded Amount ...................................... S-11
Class A-8 Certificates ................................. S-1 Pre-Funding Account .................................... S-2
Class A-8 Lockout Distribution Amount .................. S-7 Pre-Funding Limit ...................................... S-60
Class A-8 Lockout Percentage ........................... S-8 Principal and Interest Account ......................... S-51
Class A-8 Lockout Pro Rata Distribution Amount ......... S-8 Properties ............................................. S-2
Class A-9IO Certificates ............................... S-1 Qualified Replacement Mortgage ......................... S-48
Class R Certificates ................................... S-2 Rating Agencies ........................................ S-13
Clean-Up Call Date ..................................... S-1 REMIC .................................................. S-14
Closing Date ........................................... S-2 REMIC Opinion .......................................... S-49
Combined Loan-to-Value Ratios .......................... S-27 Realized Loss .......................................... S-48
Compensating Interest .................................. S-52 Record Date ............................................ S-4
Cooperative ............................................ S-43 Reference Banks ........................................ S-40
Coupon Rate ............................................ S-3 Register ............................................... S-37
CPR .................................................... S-32 Registrar .............................................. S-37
Current Interest ....................................... S-5 Relevant Depositary .................................... S-41
Custodian .............................................. S-49 Remittance Period ...................................... S-8
Cut-Off Date ........................................... S-2 Restricted Group ....................................... S-60
D&P .................................................... S-59 Riegle Act ............................................. S-18
Daily Collections ...................................... S-51 Rules .................................................. S-41
Date-of-Payment Loans .................................. S-30 Seller ................................................. S-1
Definitive Certificate ................................. S-41 Servicer ............................................... S-1
Delinquency Advances ................................... S-52 Servicer Termination Events ............................ S-54
Depositor .............................................. S-1 Servicing Advance ...................................... S-52
DOL .................................................... S-59 Servicing Fee .......................................... S-8
DTC .................................................... S-13 SMMEA .................................................. S-15
DTC Participants ....................................... S-42 Specified Overcollateralization Amount ................. S-47
ERISA .................................................. S-58 Standard & Poor's ...................................... S-10
Euroclear .............................................. S-13 Statistical Calculation Date ........................... S-2
Euroclear Operator ..................................... S-43 Subsequent Cut-Off Date ................................ S-17
Euroclear Participants ................................. S-43 Subsequent Home Equity Loans ........................... S-2
European Depositaries .................................. S-13 Subsequent Transfer Agreement .......................... S-17
Excess Overcollateralization Amount .................... S-47 Subsequent Transfer Date ............................... S-11
Exemption .............................................. S-59 Substitution Amount .................................... S-48
Fannie Mae ............................................. S-20 Sub-Servicers .......................................... S-19
Fannie Mae Guide ....................................... S-51 Sub-Servicing Agreements ............................... S-19
FHLMC .................................................. S-20 Telerate Page 3750 ..................................... S-40
Final Determination .................................... S-57 Terms and Conditions ................................... S-43
Financial Intermediary ................................. S-41 Total Available Funds .................................. S-39
Fitch .................................................. S-59 Total Monthly Excess Spread ............................ S-47
Funding Period ......................................... S-11 Trust .................................................. S-1
Home Equity Loans ...................................... S-2 Trust Estate ........................................... S-36
Initial Home Equity Loans .............................. S-3 Trust Fees and Expenses ................................ S-8
Insurance Agreement .................................... S-46 Trustee ................................................ S-1
Insurance Policy ....................................... S-9 Underwriters ........................................... S-62
Insured Payment ........................................ S-9 Upper-Tier REMIC ....................................... S-14
Interest Carry-Forward Amount .......................... S-5 Weighted average life .................................. S-32
LIBOR .................................................. S-40
LIBOR Determination Date ............................... S-40
</TABLE>
A-1
<PAGE>
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<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-
The Depositor ..............................................................S-
Use of Proceeds ............................................................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-
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
Risk Factors ..............................................................
Description of the Certificates ...........................................
The Trusts ................................................................
Credit Enhancement ........................................................
Servicing of Mortgage Loans ...............................................
Administration ............................................................
Use of Proceeds ...........................................................
The Depositor .............................................................
Certain Legal Aspects of the Mortgage Assets ..............................
Legal Investment Matters ..................................................
ERISA Considerations ......................................................
Federal Income Tax Consequences ...........................................
Plan of Distribution ......................................................
Ratings ...................................................................
Legal Matters .............................................................
Financial Information .....................................................
Index to Location of Principal Defined Terms ..............................
================================================================================
<PAGE>
================================================================================
$___________________
IMC HOME EQUITY
LOAN TRUST 199__-___
[LOGO]
IMC MORTGAGE COMPANY
Seller and Servicer
IMC SECURITIES, INC.
Depositor
-----------
PROSPECTUS SUPPLEMENT
-----------
[Underwriters]
________________________, 19___
================================================================================
Exhibit 99.2
PROSPECTUS SUPPLEMENT CERTIFICATES
(To Prospectus Dated ____________, 199__) SENIOR/SUBORDINATE
$_________________
IMC HOME EQUITY LOAN TRUST 199__-__
IMC MORTGAGE COMPANY
[LOGO] Seller and Servicer
IMC SECURITIES, INC.
Depositor
The IMC Home Equity Loan Pass-Through Certificates, Series 1998-1 (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 the Class A-7IO Certificates
(collectively, the "Class A Certificates"), (ii) the Class M-1 Certificates and
the Class M-2 Certificates (collectively, the "Mezzanine Certificates"), (iii)
the Class B Certificates (collectively with the Mezzanine Certificates, the
"Subordinate Certificates") and (iv) the residual class with respect to each
REMIC held by the Trust. Only the Class A Certificates, the Mezzanine
Certificates and the Class B Certificates (collectively, the "Offered
Certificates") are offered hereby.
The Certificates represent undivided ownership interests in a pool of
fixed rate home equity loans (the "Home Equity Loans") held by IMC Home Equity
Loan Trust 199__-__ (the "Trust"), which are secured by first and second lien
mortgages or deeds of trust primarily on one- to four-family residential
properties. The Certificates also represent an undivided ownership interest in
all interest and principal due under the respective Home Equity Loans after
_______________, 199__ (the "Cut-Off Date"), security interests in the
properties which secure the related Home Equity Loans (the "Properties"), funds
on deposit in certain trust accounts, and certain other property.
(continued on following page)
For a discussion of significant matters affecting investment in the
Certificates, see "Risk Factors" beginning on page S-___herein, "Prepayment and
Yield Considerations" beginning on page S-___herein and "Risk Factors" beginning
on page __ in the Prospectus.
THE OFFERED CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST ONLY AND DO
NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE DEPOSITOR, THE SELLER, THE
SERVICER, EXCEPT AS DESCRIBED HEREIN, OR ANY OF THEIR AFFILIATES. NEITHER
THE OFFERED 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.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================================================
Initial Certificate Pass-Through Price to Underwriting Proceeds to
Principal Balance Rate Public(1) Discount Depositor(1)(2)
===============================================================================================================================
<S> <C> <C> <C> <C> <C>
Per Class A-1 Certificate Variable(3)
- -------------------------------------------------------------------------------------------------------------------------------
Per Class A-2 Certificate
- -------------------------------------------------------------------------------------------------------------------------------
Per Class A-3 Certificate
- -------------------------------------------------------------------------------------------------------------------------------
Per Class A-4 Certificate (4)
- -------------------------------------------------------------------------------------------------------------------------------
Per Class A-5 Certificate (4)
- -------------------------------------------------------------------------------------------------------------------------------
Per Class A-6 Certificate (4)
- -------------------------------------------------------------------------------------------------------------------------------
Per Class A-7IO Certificate (5)
- -------------------------------------------------------------------------------------------------------------------------------
Per Class M-1 Certificate (4)
- -------------------------------------------------------------------------------------------------------------------------------
Per Class M-2 Certificate (4)
- -------------------------------------------------------------------------------------------------------------------------------
Per Class B Certificate (4)
===============================================================================================================================
Total ..........
===============================================================================================================================
</TABLE>
(1) Plus accrued interest (other than on the Class A-1 Certificates), if
any, from _________, 19___.
(2) Before deducting expenses, estimated to be $_____________.
(3) The Pass-Through Rate on the Class A-1 Certificates adjusts monthly
based on LIBOR as described herein.
(4) The Pass-Through Rate on this Class may be limited and is subject to
adjustment after the Clean-Up Call Date, if outstanding, as described
herein.
(5) Interest will be calculated on the basis of a Notional Principal Amount
equal to the outstanding Certificate Principal Balance of the Class A-6
Certificates until the Payment Date in ___________________.
The Offered 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 the Offered Certificates will be
delivered in book-entry form only through the Same-Day Funds Settlement System
of The Depository Trust Company, Cedel Bank, S.A. and the Euroclear System on or
about _____________, 199___. The Offered Certificates will be offered in Europe
and the United States of America.
Underwriters of the Offered Certificates (other than the Class A-7IO
Certificates)
[Underwriters]
Underwriter of the Class A-7IO Certificates
The date of this Prospectus Supplement is _________________, 199___
Information contained herein is subject to completion or amendment. A
registration statement relating to these Securities has been filed with the
Securities and Exchange Commission. These Securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This preliminary prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
Securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such State.
<PAGE>
(cover continued from previous page)
The Class M-1 Certificates are subordinate in right of distribution to
the Class A Certificates to the extent described herein. The Class M-2
Certificates are subordinate in right of distribution to the Class A
Certificates and the Class M-1 Certificates to the extent described herein. The
Class B Certificates are subordinate in right of distribution to the Class A
Certificates and the Mezzanine Certificates to the extent described herein. The
initial aggregate Certificate Principal Balance of the Subordinate Certificates
will equal approximately _____% of the initial aggregate Certificate Principal
Balance of all of the Certificates.
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 IMC Mortgage Company (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 ________,
199__ among the Seller, the Servicer, the Depositor and The Chase Manhattan
Bank, 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 ___________, 199__ from funds
on deposit in the Pre-Funding Account. On the Closing Date (as defined below),
an aggregate cash amount of approximately $____________ (the "Pre-Funded
Amount") will be deposited with the Trustee in the Pre-Funding Account to be
used to acquire Subsequent Home Equity Loans for the Trust.
Distributions of principal and interest will be made 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 _________, 199___
(each, a "Payment Date"). To the extent available, interest will be passed
through on each Payment Date to the Owners of the Offered Certificates based on
the related Certificate Principal Balance (as defined herein) or Notional
Principal Amount (as defined herein) in the case of the Class A-7IO Certificates
at the Pass-Through Rate applicable to such Class of Certificates, subject to
the limitations described herein. The Pass-Through Rate for each Class of
Offered Certificates (other than the Class A-1 Certificates) is set out on the
cover hereof. The Pass-Through Rate for the Class A-1 Certificates adjusts
monthly based on one-month LIBOR (as defined herein) or as otherwise described
herein. The Pass-Through Rate for the Class A-7IO Certificates is described
under "Summary of Terms -- Certificates Offered" herein. Distributions of
principal in reduction of the Certificate Principal Balances will be made on
each Payment Date in the manner and the amounts described herein.
As described further herein, the Mezzanine Certificates and Class B
Certificates may not be acquired by Plans (as defined herein). See "ERISA
Considerations" herein.
The Class A-7IO Certificates are interest-only Certificates. The yield
to investors on the Class A-7IO Certificates will be, and the yield to investors
on the other Classes of Offered 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 related Home Equity
Loans, which may vary over time. See "Summary of Terms -- Nature of Class A-7IO
Certificates" and "Prepayment and Yield Considerations" herein and "Risk
Factors" 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, all Classes of the Offered Certificates will
constitute a "regular interest" in the Upper-Tier REMIC. See "Federal Income Tax
Consequences" herein and in the Prospectus.
Prior to their issuance, there has been no market for the Offered
Certificates and there can be no 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 Offered Certificates. The Underwriters intend, but are not obligated, to
make a market in the Offered Certificates.
-------------------
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE OFFERED CERTIFICATES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS TO WHICH IT RELATES. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS
TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
The Offered Certificates offered by this Prospectus Supplement will be
part of a separate series of Certificates being offered by the Depositor
pursuant to its Prospectus dated _____________, 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.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE
CERTIFICATES OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS,
SYNDICATE SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING" HEREIN.
To the extent statements contained herein do not relate to historical
or current information, this Prospectus Supplement may be deemed to consist of
forward looking statements that involve risks and uncertainties that may
adversely affect the distributions to be made on, or the yield of, the Offered
Certificates, which risks and uncertainties are discussed under "Risk Factors"
and "Prepayment and Yield Considerations" herein. As a consequence, no assurance
can be given as to the actual distributions on, or the yield of, the Offered
Certificates.
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
Page
----
SUMMARY OF TERMS.............................................................S-1
RISK FACTORS................................................................S-19
THE SELLER AND SERVICER.....................................................S-22
General.................................................................S-22
Credit and Underwriting Guidelines......................................S-23
Delinquency, Loan Loss and Foreclosure Information......................S-25
THE DEPOSITOR...............................................................S-27
USE OF PROCEEDS.............................................................S-27
THE HOME EQUITY LOAN POOL...................................................S-27
General.................................................................S-27
Conveyance of Subsequent Home Equity Loans..............................S-32
Interest Payments on the Home Equity Loans..............................S-33
PREPAYMENT AND YIELD CONSIDERATIONS.........................................S-33
General.................................................................S-33
Mandatory Prepayment....................................................S-34
Prepayment and Yield Scenarios for Offered Certificates.................S-34
Payment Lag Feature of Offered Certificates.............................S-39
Yield Sensitivity of the Class A-7IO Certificates.......................S-39
FORMATION OF THE TRUST AND TRUST PROPERTY...................................S-40
ADDITIONAL INFORMATION......................................................S-41
DESCRIPTION OF THE OFFERED CERTIFICATES.....................................S-41
General.................................................................S-41
Payment Dates...........................................................S-41
Distributions...........................................................S-42
Calculation of LIBOR....................................................S-44
Pre-Funding Account.....................................................S-44
Capitalized Interest Account............................................S-44
Book Entry Registration of the Offered Certificates.....................S-45
Assignment of Rights....................................................S-48
CREDIT ENHANCEMENT..........................................................S-48
Subordination of Subordinate Certificates...............................S-48
Application of Realized Losses..........................................S-49
Application of Monthly Excess Cashflow Amounts..........................S-49
THE POOLING AND SERVICING AGREEMENT.........................................S-52
Covenant of the Seller to Take Certain Actions with Respect to the
Home Equity Loans in Certain Situations............................S-52
Assignment of Home Equity Loans.........................................S-53
Servicing and Sub-Servicing.............................................S-54
Removal and Resignation of Servicer.....................................S-57
The Trustee.............................................................S-58
Reporting Requirements..................................................S-58
Removal of Trustee for Cause............................................S-60
Governing Law...........................................................S-60
Amendments..............................................................S-60
Termination of the Trust................................................S-60
Optional Termination....................................................S-61
FEDERAL INCOME TAX CONSEQUENCES.............................................S-61
REMIC Elections.........................................................S-61
ERISA CONSIDERATIONS........................................................S-62
RATINGS.....................................................................S-65
LEGAL INVESTMENT CONSIDERATIONS.............................................S-66
UNDERWRITING................................................................S-67
CERTAIN LEGAL MATTERS.......................................................S-70
GLOBAL CLEARANCE, SETTLEMENT AND TAX
DOCUMENTATION PROCEDURES................................................I-1
INDEX TO LOCATION OF PRINCIPAL DEFINED TERMS.................................A-1
<PAGE>
Prospectus
Page
----
SUMMARY OF PROSPECTUS...........................................................
RISK FACTORS....................................................................
DESCRIPTION OF THE SECURITIES...................................................
General.....................................................................
Classes of Securities.......................................................
Distributions of Principal and Interest.....................................
Book Entry Registration.....................................................
List of Owners of Securities................................................
THE TRUSTS......................................................................
Mortgage Loans..............................................................
Mortgage-Backed Securities..................................................
Other Mortgage Securities...................................................
CREDIT ENHANCEMENT..............................................................
SERVICING OF MORTGAGE LOANS.....................................................
Payments on Mortgage 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.............................................................
THE POOLING AND SERVICING AGREEMENT.............................................
Assignment of Mortgage Assets...............................................
Evidence as to Compliance...................................................
The Trustee.................................................................
Administration of the Security Account......................................
Reports.....................................................................
Forward Commitments; Pre-Funding............................................
Servicer Events of Default..................................................
Rights Upon Servicer Event of Default.......................................
Amendment...................................................................
Termination ................................................................
THE INDENTURE
General.....................................................................
Modification of Indenture...................................................
Note Events of Default......................................................
Rights Upon Note Events of Default..........................................
List of Note Owners.........................................................
Annual Compliance Statement.................................................
Indenture Trustee's Annual Report...........................................
Satisfaction and Discharge of Indenture.....................................
Redemption of Notes.........................................................
Reports by Indenture Trustee to Note Owners.................................
Limitation on Suits.........................................................
The Sale and Servicing Agreement............................................
USE OF PROCEEDS.................................................................
THE DEPOSITOR...................................................................
CERTAIN LEGAL ASPECTS OF THE MORTGAGE ASSETS....................................
General.....................................................................
Foreclosure.................................................................
Enforceability of Certain Provisions........................................
Soldiers' and Sailors' Civil Relief Act.....................................
LEGAL INVESTMENT MATTERS........................................................
ERISA CONSIDERATIONS............................................................
FEDERAL INCOME TAX CONSEQUENCES.................................................
Federal Income Tax Consequences For REMIC Securities........................
Taxation of Regular Securities..............................................
Taxation of Residual Securities.............................................
Treatment of Certain Items of REMIC Income and Expense......................
Tax-Related Restrictions on Transfer of Residual Securities.................
Sale or Exchange of a Residual Security.....................................
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 Securities..............................
as to Which No REMIC Election Is Made..................................
Standard Securities........................................................
Premium and Discount.......................................................
Stripped Securities........................................................
Reporting Requirements and Backup Withholding..............................
Taxation of Certain Foreign Investors......................................
Debt Certificates..........................................................
Notes......................................................................
Taxation of Securities Classified as Partnership Interests.................
PLAN OF DISTRIBUTION............................................................
RATINGS.........................................................................
LEGAL MATTERS...................................................................
FINANCIAL INFORMATION...........................................................
INDEX TO LOCATION OF PRINCIPAL DEFINED TERMS....................................
<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") and original
Certificate Principal Balances (each, a "Certificate
Principal Balance"), set forth below:
<TABLE>
<CAPTION>
Initial Certificate
Principal Balance Pass-Through Rate Class
-------------------- ------------------ ------
<S> <C> <C> <C>
$ (1) Class A-1 Certificates
$ Class A-2 Certificates
$ Class A-3 Certificates
$ (2) Class A-4 Certificates
$ (3) Class A-5 Certificates
$ (3) Class A-6 Certificates
$ (4) (4) Class A-7IO Certificates
$ (3) Class M-1 Certificates
$ (3) Class M-2 Certificates
$ (3) Class B Certificates
</TABLE>
(1) On each Payment Date, the "Class A-1 Pass-Through
Rate" will be equal to the lesser of (x) the rate
equal to the London interbank offered rate for United
States Dollar deposits ("LIBOR") (calculated as
described under "Description of the Offered
Certificates-Calculation of LIBOR" herein) plus ____%
per annum and (y) the weighted average of the Coupon
Rates on the Home Equity Loans, less ________% per
annum (the rate described in this clause (y), the
"Available Funds Cap").
(2) The Pass-Through Rate with respect to the Class
A-4 will on any Payment Date equal the lesser of (x)
____% and (y) the weighted average Coupon Rate of the
Home Equity Loans less the sum of approximately (a)
_______% per annum and (b) for the first 30 Payment
Dates, the product of (1) ____% per annum and (2) the
Class A-7IO Notional Principal Amount divided by the
Loan Balance of the Home Equity Loans, or thereafter,
zero.
(3) The Pass-Through Rate with respect to the Class
A-5, Class A-6, Class M-1, Class M-2 and Class B
Certificates will on any Payment Date equal the
lesser of (x) the Pass-Through Rate for such Class
set out above for any Payment Date which occurs on or
prior to the Clean-Up Call Date, and with respect to
any Payment Date thereafter, the sum of (i) the
Pass-Through Rate for such Class set out above plus
(ii) ____% per annum and (y) the weighted average
Coupon Rate of the Home Equity Loans less the sum of
approximately (a) ______% per annum and (b) for the
first ___ Payment Dates, the product of (1) _____%
per annum and (2) the Class A-7IO Notional Principal
Amount divided by the Loan Balance of the Home Equity
Loans, or thereafter, zero.
(4) Interest will be calculated on the Class A-7IO
Certificates on each Payment Date on the basis of a
"Notional Principal Amount" equal to, for the first
30 Payment Dates the outstanding Class A-6
Certificate Principal Balance, as of the first day of
the related Remittance Period and, thereafter, zero.
Reference to the Notional Principal Amount of the
Class A-7IO Certificates is solely for convenience on
certain calculations and does not represent the right
to receive any distribution allocable to principal.
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 the "Class A-7IO
Certificates" (collectively, the "Class A
Certificates"), (ii) the "Class M-1 Certificates" and
the "Class M-2 Certificates" (collectively, the
"Mezzanine Certificates") and (iii) the "Class B
Certificates" (and together with the Mezzanine
Certificates, the "Subordinate Certificates"). Only
the Class A Certificates, the Mezzanine Certificates
and the Class B Certificates (collectively, the
"Offered Certificates") are offered hereby.
S-1
<PAGE>
The initial aggregate Certificate Principal Balance
of the Subordinate Certificates will equal _____% of
the initial aggregate Certificate Principal Balance
of all Certificates.
The Subordinate Certificates are subordinate in right
of distribution to the Class A Certificates to the
extent described herein. The Class M-1 Certificates
are subordinate to the Class A Certificates to the
extent described herein. The Class M-2 Certificates
are subordinate to the Class A Certificates and Class
M-1 Certificates to the extent described herein. The
Class B Certificates are subordinate to the Class A
Certificates and the Mezzanine Certificates to the
extent described herein.
On any date after the Closing Date, the "Aggregate
Certificate Principal Balance" is the sum of the
Certificate Principal Balance of all Classes of the
Offered Certificates (other than the Class A-7IO
Certificates).
Depositor: IMC Securities, Inc. (the "Depositor"), a Delaware
corporation. The Depositor's principal executive
offices are located at 5901 East Fowler Avenue,
Tampa, Florida 33617-2362.
Seller and Servicer: IMC Mortgage Company (the "Seller" and the
"Servicer"), a Florida corporation. The Seller's and
Servicer's principal executive offices are located at
5901 East Fowler Avenue, Tampa, Florida 33617-2362.
Trustee: ___________________, a ____________________
corporation, as trustee (the "Trustee"). The Trustee
shall receive a fee (the "Trustee Fee") equal to
_______% per annum, payable monthly at one-twelfth
the annual rate of the aggregate outstanding Loan
Balance of the Home Equity Loans.
Custodian: _________________, a national banking association, as
Custodian (the "Custodian").
Cut-Off Date: As of the close of business on _________, 199__ (the
"Cut-Off Date").
Closing Date: On or about __________, 199__ (the "Closing Date").
Description of the
Certificates Offered: The Offered 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
"Pooling and Servicing Agreement"). The Trust assets
(not all of which will be included in a REMIC
election) will include the 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 Non-REMIC Accounts and
certain other property. See "Formation of the Trust
and Trust Property" herein.
On the Closing Date, the Pre-Funded Amount (as
defined herein) 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. As a result, the aggregate
principal balance of the Home Equity Loans 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.
S-2
<PAGE>
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
herein under "Capitalized Interest Account") on the
Offered Certificates attributable to the provisions
allowing for purchase of Subsequent Home Equity Loans
after the Cut-Off Date.
Other Certificates: In addition to the Offered Certificates, the Trust
will issue, pursuant to the Pooling and Servicing
Agreement, a residual Class of Certificates (the
"Class R Certificates") which will represent an
undivided ownership interest in the Upper-Tier REMIC.
The Offered Certificates and the Class R Certificates
are herein referred to as the "Certificates." Only
the Offered Certificates are offered hereby.
Denominations: The Offered Certificates are issuable in minimum
denominations of an original principal amount or
Notional Principal Amount, as applicable, of
$_________ and multiples of $_________ in excess
thereof.
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") will consist of fixed rate
conventional home equity loans and the Notes relating
thereto. As of the Cut-Off Date, there are
___________ Initial Home Equity Loans. 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 Combined
Loan-to-Value Ratio (based upon appraisals made at
the time of origination of the related 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 Combined 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.
The Home Equity Loans are not guaranteed by the
Depositor, the Seller, the Servicer, the Trustee 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 Fannie
Mae for Fannie Mae mortgage-backed securities and in
accordance with the terms of the Pooling and
Servicing Agreement.
As of the Cut-Off Date, the average Loan Balance of
the Initial Home Equity Loans was $___________. The
minimum and maximum Loan Balances of the Initial Home
Equity Loans as of the Cut-Off Date were $__________
and $________, respectively. The weighted average
interest rate (the "Coupon Rate") of the Initial Home
Equity Loans as of the Cut-Off Date was ____%; the
Coupon Rates of the Initial Home Equity Loans ranged
from ____% to _____%; the weighted average Combined
Loan-to-Value Ratio of the Initial Home Equity Loans
was _____%; the weighted average remaining term to
maturity of the Initial Home Equity Loans was ____
months; and the remaining terms to maturity of the
Initial Home Equity Loans ranged from ___ months to
____ months. As of the Cut-Off Date, _____% of the
aggregate Loan Balance of the Initial Home Equity
Loans were secured by first mortgages and ____% of
the aggregate Loan Balance of the Initial Home Equity
Loans were secured by second mortgages. Initial Home
Equity Loans containing "balloon" payments
represented approximately ____% of the aggregate Loan
Balance of the Initial Home Equity Loans. No Initial
Home Equity Loan will mature later than ___________,
20___. See "The Home Equity Loan Pool -- Initial Home
Equity Loans" herein.
Final Scheduled Payment
Date: The Final Scheduled Payment Date for each Class of
the Offered Certificates is as set forth below,
although it is anticipated that the actual final
Payment Date for each Class of the Offered
Certificates will occur significantly earlier than
the
S-3
<PAGE>
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-7IO Certificates
Class M-1 Certificates
Class M-2 Certificates
Class B Certificates
Distributions--General: On the 20th 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, subject to the availability of amounts
therefor, pursuant to the cashflow priority
hereinafter described, to distribute to the holders
(the "Owners") of each Class of Certificates, other
than the Class A-1 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 Class A-1 Certificates of record as of the day
immediately preceding such Payment Date (each such
date, the "Record Date") the applicable "Class
Distribution Amount" which shall be the sum of (x)
the related Current Interest, (y) the related
Interest Carry Forward Amount, if any, and (z) the
related Principal Distribution Amount (each as
defined below). Such amounts shall be distributed to
the Offered Certificates in the manner described
below.
For each Payment Date, interest due with respect to
the Offered Certificates (other than the Class A-1
Certificates) will be interest which has accrued on
the related Certificate Principal Balance or Notional
Principal Amount, as the case may be, during the
calendar month immediately preceding the month in
which such Payment Date occurs. The interest due with
respect to the Class A-1 Certificates will be the
interest which has accrued on the Class A-1
Certificate Principal Balance 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 such period
relating to the accrual of interest is the "Accrual
Period" for the related Class of Offered
Certificates. All calculations of interest on the
Offered Certificates (other than the Class A-1
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 Class A-1
Certificates will be made on the basis of a 360-day
year and the actual number of days elapsed in the
related Accrual Period.
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, Tampa, Florida or the city in which
the corporate trust office of the Trustee is located
are authorized or obligated by law or executive order
to be closed.
Interest: On each Payment Date the Interest Remittance Amount
will be distributed in the following order of
priority:
First, to the Trustee, the Trustee Fee and any
Trustee Reimbursable Expenses;
S-4
<PAGE>
Second, to the Owners of the Class A Certificates
(including the Class A-7IO Certificates), the related
Current Interest plus the Interest Carry Forward
Amount with respect to each Class of Class A
Certificates without any priority among such Class A
Certificates; provided, that if the Interest
Remittance Amount less the amount paid to the Trustee
as the Trustee Fee and Trustee Reimbursable Expenses
(such amount, the "Interest Amount Available") is not
sufficient to make a full distribution of interest
with respect to all Classes of the Class A
Certificates, the Interest Amount Available will be
distributed among the outstanding Classes of Class A
Certificates pro rata based on the aggregate amount
of interest due on each such Class, and the amount of
the shortfall will be carried forward with accrued
interest at the related Pass-Through Rate;
Third, to the extent of the Interest Amount Available
then remaining, to the Owners of the Class M-1
Certificates, the related Current Interest;
Fourth, to the extent of the Interest Amount
Available then remaining, to the Owners of the Class
M-2 Certificates, the related Current Interest;
Fifth, to the extent of the Interest Amount Available
then remaining, to the Owners of the Class B
Certificates, the related Current Interest; and
Sixth, the amount, if any, of the Interest Amount
Available remaining in the Certificate Account after
application with respect to the priorities set forth
above is defined as the "Monthly Excess Interest
Amount" for such Payment Date and shall be applied as
described below under "Credit Enhancement --
Application of Monthly Excess Cashflow Amounts" in
this Summary of Terms.
"Current Interest" with respect to each Class of
Offered Certificates means, with respect to any
Payment Date the sum of (i) the aggregate amount of
interest accrued during the preceding Accrual Period
at its applicable Pass-Through Rate on the
Certificate Principal Balance (or the Notional
Principal Amount with respect to the Class A-7IO
Certificates) of such Class of Certificates plus (ii)
the Preference Amount as it relates to interest
previously paid on such Class of the Offered
Certificates prior to such Payment Date; provided,
however, that with respect to each Class of Offered
Certificates, Current Interest will be reduced by
such Class' pro rata share of any Civil Relief
Interest Shortfalls (as defined in the Pooling and
Servicing Agreement).
"Interest Remittance Amount" means as of any Monthly
Remittance Date, the sum, without duplication, of (i)
all interest due during the related Remittance Period
on the Home Equity Loans (less the Servicing Fee),
(ii) all Compensating Interest paid by the Servicer
on such Monthly Remittance Date, (iii) the portion of
any Substitution Amount relating to interest, (iv)
the portion of any purchase price relating to
interest on any Home Equity Loan repurchased during
the related Remittance Period, (v) any amounts
required to be applied from the Capitalized Interest
Account and (vi) the portion of Net Liquidation
Proceeds relating to interest.
The "Interest Carry Forward Amount" with respect to
any Class of the Offered Certificates for any Payment
Date is the sum of (x) the amount, if any, by which
(i) the sum of the Current Interest for such Class as
of the immediately preceding Payment Date and all
prior unpaid Interest Carry Forward Amounts exceeded
(ii) the amount of the actual distribution with
respect to interest made to the Owners of such Class
of Offered Certificates on such immediately preceding
Payment Date plus (y) 30 days' interest on such
amount, calculated at the related Pass-Through Rate
in effect with respect to such Class of Offered
Certificates.
S-5
<PAGE>
Principal: On each Payment Date (a) before the Stepdown Date or
(b) with respect to which a Trigger Event is in
effect, Owners of the Class A Certificates (other
than the Class A-7IO Certificates) will be entitled
to receive payment of 100% of the Principal
Distribution Amount for such Payment Date as follows:
first, to the Owners of the Class A-6 Certificates,
the Class A-6 Lockout Distribution Amount and second,
to the Owners of 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 and the Class A-6 Certificates (without
regard to the Class A-6 Lockout Distribution Amount),
in that order, in each case, until the Certificate
Principal Balance of each Class of Class A
Certificates has been reduced to zero.
On each Payment Date (a) on or after the Stepdown
Date and (b) as long as a Trigger Event is not in
effect, the Owners of all Classes of the Offered
Certificates (other than the Class A-7IO
Certificates) will be entitled to receive payments of
principal, in the order of priority, in the amounts
set forth below and to the extent of the Principal
Distribution Amount as follows:
First, the lesser of (x) the Principal Distribution
Amount and (y) the Class A Principal Distribution
Amount shall be distributed as follows: (i) to the
Owners of the Class A-6 Certificates, in an amount
equal to the Class A-6 Lockout Distribution Amount
and, (ii) to the Owners of 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 and the Class A-6 Certificates
(without regard to the Class A-6 Lockout Distribution
Amount), in that order, in each case, until the
Certificate Principal Balance of each Class of Class
A Certificates has been reduced to zero;
Second, the lesser of (x) the excess of (i) the
Principal Distribution Amount over (ii) the amount
distributed to the Owners of the Class A Certificates
in clause First above and (y) the Class M-1 Principal
Distribution Amount shall be distributed to the
Owners of the Class M-1 Certificates, until the Class
M-1 Certificate Principal Balance has been reduced to
zero;
Third, the lesser of (x) the excess of (i) the
Principal Distribution Amount over (ii) the sum of
the amount distributed to the Owners of the Class A
Certificates in clause First above and the amount
distributed to the Owners of the Class M-1
Certificates in clause Second above and (y) the Class
M-2 Principal Distribution Amount shall be
distributed to the Owners of the Class M-2
Certificates, until the Class M-2 Certificate
Principal Balance has been reduced to zero;
Fourth, the lesser of (x) the excess of (i) the
Principal Distribution Amount over (ii) the sum of
the amount distributed to the Owners of the Class A
Certificates pursuant to clause First above, the
amount distributed to the Owners of the Class M-1
Certificates pursuant to clause Second above and the
amount distributed to the Owners of the Class M-2
Certificates pursuant to clause Third above and (y)
the Class B Principal Distribution Amount shall be
distributed to the Owners of the Class B
Certificates, until the Class B Certificate Principal
Balance has been reduced to zero; and,
Fifth, any amount of the Principal Remittance Amount
remaining after making all of the distributions in
clauses First, Second, Third and Fourth above shall
be included as part of the Monthly Excess Cashflow
Amount and shall be applied as described below under
"Credit Enhancement -- Application of Monthly Excess
Cashflow Amounts" in this Summary of Terms.
Notwithstanding the foregoing, in the event that the
Certificate Principal Balance of each Class of the
Class A Certificates has been reduced to zero, all
amounts of principal that would have been distributed
to the Class A Certificates will be distributed to
the Subordinate Certificates sequentially in the
following order: Class
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<PAGE>
M-1, Class M-2 and Class B. Similarly, if the
Certificate Principal Balance of the Class M-1
Certificates has been reduced to zero, all amounts of
principal that would have been distributed to such
Class M-1 Certificates will be distributed to the
Class M-2 and Class B Certificates in that order.
Finally, if the Certificate Principal Balance of the
Class M-2 Certificates has been reduced to zero, all
amounts of principal that would have been distributed
on such Class M-2 Certificates will be distributed to
the Class B Certificates.
Payments of principal on the Class A Certificates
shall be paid out in the order described above,
provided, however, that on any Payment Date on which
the sum of the Certificate Principal Balance of the
Subordinate Certificates and the
Overcollateralization Amount is zero, any amounts of
principal payable to the Owners of the Class A
Certificates shall be distributed pro rata.
The Class A-7IO Certificates are interest-only
Certificates and are not entitled to receive
distributions of principal.
The Owners of the Class A-6 Certificates are entitled
to receive payments of the Class A-6 Lockout
Distribution Amount specified herein; provided, that
if on any Payment Date the Class A-5 Certificate
Principal Balance is zero, the Owners of the Class
A-6 Certificates will be entitled to receive the
entire Class A Principal Distribution Amount for such
Payment Date.
In addition to the following definitions, the above
discussion makes use of a number of defined terms
which are defined under "Description of the Offered
Certificates -- Distributions" herein.
"Principal Distribution Amount" means, as of any
Payment Date, the sum of (i) the Principal Remittance
Amount minus, for Payment Dates occurring on and
after the Stepdown Date, the Overcollateralization
Release Amount, if any, and (ii) the Extra Principal
Distribution Amount, if any.
The "Class A-6 Lockout Distribution Amount" for any
Payment Date will be the product of (i) the
applicable Class A-6 Lockout Percentage for such
Payment Date and (ii) the Class A-6 Lockout Pro Rata
Distribution Amount for such Payment Date. In no
event shall the Class A-6 Lockout Distribution Amount
exceed the outstanding Class A-6 Certificate
Principal Balance.
The "Class A-6 Lockout Percentage" for each Payment
Date shall be as follows:
<TABLE>
<CAPTION>
Payment Dates Lockout Percentage
-------------- ------------------
<S> <C>
______ 199__ - ______ 20__
______ 20___ - ______ 20__
______ 20___ - ______ 20__
______ 20___ - ______ 20__
_______20__ and thereafter
</TABLE>
The "Class A-6 Lockout Pro Rata Distribution Amount"
for any Payment Date will be an amount equal to the
product of (x) a fraction, the numerator of which is
the Certificate Principal Balance of the Class A-6
Certificates immediately prior to such Payment Date
and the denominator of which is the aggregate
Certificate Principal Balance of all Classes of the
Class A Certificates immediately prior to such
Payment Date and (y) the Class A Principal
Distribution Amount for such Payment Date.
The "Remittance Period" with respect to any Monthly
Remittance Date is the period from the second day of
the month immediately preceding such Monthly
S-7
<PAGE>
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
18th day of each month, or if such day is not a
Business Day, the next preceding Business Day,
commencing in ________ 199__.
"Principal Remittance Amount" means as of any Monthly
Remittance Date, the sum, without duplication, of (i)
the principal actually collected by the Servicer on
the Home Equity Loans during the related Remittance
Period, (ii) the Loan Balance of each Home Equity
Loan that was repurchased from the Trust during the
related Remittance Period, (iii) any Substitution
Amount relating to principal delivered by the Seller
in connection with a substitution of a Home Equity
Loan during the related Remittance Period, (iv) all
Net Liquidation Proceeds actually collected by the
Servicer during the related Remittance Period (to the
extent such Net Liquidation Proceeds related to
principal) and (v) any amount remaining in the
Pre-Funding Account following the Funding Period.
A "Trigger Event" has occurred with respect to a
Payment Date if the percentage obtained by dividing
(x) the principal amount of ____ Day Delinquent Loans
by (y) the aggregate outstanding Loan Balance of the
Home Equity Loans as of the last day of the
immediately preceding Remittance Period equals or
exceeds one-half of the Senior Enhancement
Percentage.
"Stepdown Date" means the earlier to occur of (i) the
later to occur of (x) the Payment Date in _________
20___ and (y) the first Payment Date on which the
Senior Enhancement Percentage (after taking into
account distributions of principal on such Payment
Date) is greater than or equal to the Senior
Specified Enhancement Percentage and (ii) the Payment
Date on which the Certificate Principal Balance of
the Class A Certificates has been reduced to zero.
"Class A Principal Distribution Amount" means as of
any Payment Date (a) prior to the Stepdown Date or
with respect to which a Trigger Event is in effect,
100% of the Principal Distribution Amount and (b) on
or after the Stepdown Date and as long as a Trigger
Event is not in effect the excess of (x) the
aggregate Certificate Principal Balance of the Class
A Certificates immediately prior to such Payment Date
over (y) the lesser of (A) the product of (i) _____%
and (ii) the outstanding Loan Balance of the Home
Equity Loans as of the last day of the related
Remittance Period and (B) the aggregate outstanding
Loan Balance as of the last day of the related
Remittance Period minus $_______________.
"Class M-1 Principal Distribution Amount" means as of
any Payment Date on or after the Stepdown Date and as
long as a Trigger Event is not in effect, the excess
of (x) the sum of (i) the aggregate Certificate
Principal Balance of the Class A Certificates (after
taking into account the payment of the Class A
Principal Distribution Amount on such Payment Date)
and (ii) the Class M-1 Certificate Principal Balance
immediately prior to such Payment Date over (y) the
lesser of (A) the product of (i) ____% and (ii) the
outstanding Loan Balance of the Home Equity Loans as
of the last day of the related Remittance Period and
(B) the aggregate outstanding Loan Balance as of the
last day of the related Remittance Period minus
$____________.
"Class M-2 Principal Distribution Amount" means as of
any Payment Date on or after the Stepdown Date and as
long as a Trigger Event is not in effect, the excess
of (x) the sum of (i) the aggregate Certificate
Principal Balance of the Class A Certificates (after
taking into account the payment of the Class A
Principal Distribution Amount on such Payment Date),
(ii) the Class M-1 Certificate Principal Balance
(after taking into account the payment of the Class
M-1 Principal Distribution Amount on such Payment
Date) and (iii) the Class M-2 Certificate Principal
Balance immediately prior to such Payment Date over
(y) the lesser of
S-8
<PAGE>
(A) the product of (i) ____% and (ii) the outstanding
aggregate Loan Balance of the Home Equity Loans as of
the last day of the related Remittance Period and (B)
the aggregate outstanding Loan Balance as of the last
day of the related Remittance Period minus
$____________.
"Class B Principal Distribution Amount" means as of
any Payment Date on or after the Stepdown Date and as
long as a Trigger Event is not in effect, the excess
of (x) the sum of (i) the aggregate Certificate
Principal Balance of the Class A Certificates (after
taking into account the payment of the Class A
Principal Distribution Amount on such Payment Date),
(ii) the Class M-1 Certificate Principal Balance
(after taking into account the payment of the Class
M-1 Principal Distribution Amount on such Payment
Date), (iii) the Class M-2 Certificate Principal
Balance (after taking into account the payment of the
Class M-2 Principal Distribution Amount on such date)
and (iv) the Class B Certificate Principal Balance
immediately prior to such Payment Date over (y) the
lesser of (A) the product of (i) ____% and (ii) the
outstanding aggregate Loan Balance of the Home Equity
Loans as of the last day of the related Remittance
Period and (B) the aggregate outstanding Loan Balance
as of the last day of the related Remittance Period
minus $____________.
"Overcollateralization Amount" means as of any
Payment Date the difference between (x) the Loan
Balance of the Home Equity Loans as of the last day
of the immediately preceding Remittance Period and
(y) the Aggregate Certificate Principal Balance
(after taking into account all distributions of
principal on such Payment Date).
"Senior Enhancement Percentage" for any Payment Date
is the percentage obtained by dividing (x) the sum of
(i) the aggregate Certificate Principal Balance of
the Subordinate Certificates and (ii) the
Overcollateralization Amount, in each case after
taking into account the distribution of the Principal
Distribution Amount on such Payment Date by (y) the
aggregate Loan Balance of the Home Equity Loans as of
the last day of the related Remittance Period.
"Senior Specified Enhancement Percentage" on any date
of determination thereof means _____%.
"Extra Principal Distribution Amount" means, as of
any Payment Date, the lesser of (x) the Monthly
Excess Interest Amount for such Payment Date and (y)
the Overcollateralization Deficiency for such Payment
Date.
"Overcollateralization Deficiency" means, as of any
Payment Date, the excess, if any, of (x) the Targeted
Overcollateralization Amount for such Payment Date
over (y) the Overcollateralization Amount for such
Payment Date, calculated for this purpose after
taking into account the reduction on such Payment
Date of the Aggregate Certificate Principal Balance
resulting from the distribution of the Principal
Remittance Amount (but not the Extra Principal
Distribution Amount) on such Payment Date, but prior
to taking into account any Applied Realized Loss
Amount on such Payment Date.
"Overcollateralization Release Amount" means, as of
any Payment Date, the lesser of (x) the Principal
Remittance Amount for such Payment Date and (y) the
excess of (i) the Overcollateralization Amount for
such Payment Date, assuming that 100% of the
Principal Remittance Amount is applied on such
Payment Date to the payment of principal on the
Offered Certificates and (ii) the Targeted
Overcollateralization Amount for such Payment Date.
Notwithstanding the foregoing, the
Overcollateralization Release Amount will be $0 on
any Payment Date if certain loss and delinquency
events are continuing on such Payment Date as
described more fully in the Pooling and Servicing
Agreement. In such event,
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<PAGE>
amounts which would otherwise be Overcollaterization
Release Amounts will be applied to reduce the
Certificate Principal Balance of the Subordinate
Certificates in reverse order of seniority.
"Targeted Overcollateralization Amount" means, as of
any Payment Date, (x) prior to the Stepdown Date,
$_______________ and (y) on and after the Stepdown
Date, the greater of (i) ____% of the aggregate
outstanding Loan Balance of the Home Equity Loans as
of the last day of the related Remittance Period and
(ii) $__________.
"Preference Amount" means any amount previously
distributed to an Owner on an Offered Certificate
that is recoverable and sought to be recovered as a
voidable preference by a trustee in bankruptcy under
the United States Bankruptcy Code (11 U.S.C.) as
amended from time to time, in accordance with a final
nonappealable order of a court having competent
jurisdiction.
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 Offered Certificates consists of
the subordination of the Subordinate Certificates to
the Class A Certificates, the further subordination
within the Subordinate Certificates, the priority of
application of Realized Losses and the application of
Monthly Excess Cashflow Amounts.
Subordination of Subordinate Certificates. The rights
of the Owners of the Subordinate Certificates and the
Class R Certificates to receive distributions with
respect to the Home Equity Loans will be
subordinated, to the extent described herein, to such
rights of the Owners of the Class A Certificates.
This subordination is intended to enhance the
likelihood of regular receipt by the Owners of the
Class A Certificates of the full amount of their
scheduled monthly payment of interest and principal
and to afford such Owners protection against Realized
Losses.
The protection afforded to the Owners of the Class A
Certificates by means of the subordination of the
Subordinate Certificates and the Class R Certificates
will be accomplished by the preferential right of the
Owners of the Class A Certificates to receive, prior
to any distribution being made on a Payment Date in
respect of the Subordinate Certificates and the Class
R Certificates, the amounts of interest due them and
principal available for distribution on such Payment
Date, and, if necessary, by the right of the Owners
of the Class A Certificates to receive future
distributions of amounts that would otherwise be
payable to the Owners of the Subordinate Certificates
and the Class R Certificates.
In addition, the rights of the Owners of the Class
M-2, Class B and Class R Certificates to receive
distributions will be subordinated, to the extent
described herein, to such rights of the Owners of the
Class A and Class M-1 Certificates. This
subordination is intended to enhance the likelihood
of regular receipt by the Owners of the Class A and
Class M-1 Certificates of the amount of interest due
them and principal available for distribution and to
afford such Owners with protection against Realized
Losses.
The rights of the Owners of the Class B and Class R
Certificates to receive distributions will be
subordinated in the same manner to such rights of the
Owners of the Class A, Class M-1 and Class M-2
Certificates and the rights of Owners of the Class R
Certificates to receive distributions will be
subordinated in the same manner to such rights of the
Owners of the Offered Certificates.
Application of Realized Losses. If a Home Equity Loan
becomes a Liquidated Loan during a Remittance Period,
the Net Liquidation Proceeds relating thereto and
S-10
<PAGE>
allocated to principal may be less than the Loan
Balance of such Home Equity Loan. The amount of such
insufficiency is a "Realized Loss". Realized Losses
will, in effect, be absorbed first, by the Class R
Certificates (both through the application of the
Monthly Excess Interest Amount to fund such
deficiency and through a reduction in the
Overcollateralization Amount), second, by the Owners
of the Class B Certificates, third, by the Owners of
the Class M-2 Certificates, and, fourth, by the
Owners of the Class M-1 Certificates.
To the extent that the pool of Home Equity Loans
experiences Realized Losses, such Realized Losses
will reduce the aggregate outstanding Loan Balance of
the Home Equity Loans (i.e, a reduction in the
collateral balance will occur). Since the
Overcollateralization Amount is the excess, if any,
of the collateral balance over the Aggregate
Certificate Principal Balance, Realized Losses will
in the first instance reduce the
Overcollateralization Amount.
The Pooling and Servicing Agreement requires that the
Overcollateralization Amount be initially increased
to, and thereafter maintained at, the Targeted
Overcollateralization Amount. This increase and
subsequent maintenance is intended to be accomplished
by the application of Monthly Excess Interest Amounts
to the funding of the Extra Principal Distribution
Amount. Such Extra Principal Distribution Amounts,
since they are funded from interest collections on
the Home Equity Loans but are distributed as
principal on the Offered Certificates, will increase
the Overcollateralization Amount.
If, on any Payment Date after taking into account all
Realized Losses experienced during the prior
Remittance Period and after taking into account the
distribution of principal (including the Extra
Principal Distribution Amount) with respect to the
Offered Certificates on such Payment Date, the
Aggregate Certificate Principal Balance exceeds the
aggregate Loan Balance of the Home Equity Loans as of
the end of the related Remittance Period (i.e., if
the level of overcollateralization is negative), then
the Certificate Principal Balance of the Subordinate
Certificates will be reduced (in effect, "written
down") such that the level of overcollateralization
is zero, rather than negative. Such a negative level
of overcollateralization is an "Applied Realized Loss
Amount", which is applied as a reduction in the
Certificate Principal Balance of the Subordinate
Certificates in reverse order of seniority (i.e.,
first against the Class B Certificate Principal
Balance until it is reduced to zero, then against the
Class M-2 Certificate Principal Balance until it is
reduced to zero and then against the Class M-1
Certificate Principal Balance until it is reduced to
zero). The Pooling and Servicing Agreement does not
permit the "write down" of the Certificate Principal
Balance of any Class A Certificate.
Once the Certificate Principal Balance of a Class of
Subordinate Certificates has been "written down," the
amount of such write down will no longer bear
interest, nor will such amount thereafter be
"reinstated" or "written up," although the amount of
such "write down" may, on future Payment Dates be
paid to Owners of the Subordinate Certificates which
experienced the "write down", in direct order of
seniority (i.e., first, the Class M-1 Certificates,
second, the Class M-2 Certificates and, third, the
Class B Certificates). The source of funding of such
payments will be the amount, if any, of the Monthly
Excess Cashflow Amount remaining on such future
Payment Dates after the funding of the Extra
Principal Distribution Amount and after the payment
of Interest Carry Forward Amounts with respect to the
Subordinate Certificates on such Payment Date.
Application of Monthly Excess Cashflow Amounts. The
weighted average net Coupon Rate for the Home Equity
Loans is expected to be generally higher than the
weighted average of the Pass-Through Rates on the
Offered Certificates, thus generating certain excess
interest collections which, in the absence of losses
will not be necessary to fund interest distributions
on the Offered Certificates. The
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<PAGE>
Pooling and Servicing Agreement provides that this
excess interest be applied to the extent available,
to make accelerated payments of principal (i.e., the
Extra Principal Distribution Amount) to the Class or
Classes then entitled to receive distributions of
principal; such application will cause the Aggregate
Certificate Principal Balance to amortize more
rapidly than the pool of Home Equity Loans, resulting
in overcollateralization.
The required level of overcollateralization for any
Payment Date is the Targeted Overcollateralization
Amount for such Payment Date. The Targeted
Overcollateralization Amount is initially (i.e.,
prior to the Stepdown Date) $_____________. Since the
actual level of the Overcollateralization Amount is
$0 as of the Closing Date, in the early months of the
transaction, subject to the availability of Monthly
Excess Interest Amounts, Extra Principal Distribution
Amounts will be paid, with the result that the
Overcollateralization Amount will increase to the
level of the Targeted Overcollateralization Amount.
If, once the Targeted Overcollateralization Amount
has been reached, Realized Losses occur, such
Realized Losses will result in an
Overcollateralization Deficiency (since such Realized
Losses reduce the Loan Balance of the Home Equity
Loans without giving rise to a corresponding
reduction of the Aggregate Certificate Principal
Balance). The cashflow priorities of the Trust
require that, in this situation, an Extra Principal
Distribution Amount be paid (subject to the
availability of any Monthly Excess Interest Amount)
for the purpose of re-establishing the
Overcollateralization Amount at the then-required
Targeted Overcollateralization Amount.
On and after the Stepdown Date, the Targeted
Overcollateralization Amount is permitted to decrease
or "step-down" below the $____________ level to a
level equal to ____% of the then current aggregate
outstanding Loan Balance (subject to a floor of
$_________). If the Targeted Overcollateralization
Amount is permitted to "step-down" on a Payment Date,
the Pooling and Servicing Agreement permits a portion
of the Principal Remittance Amount for such Payment
Date not to be passed through as a distribution of
principal on such Payment Date. This has the effect
of decelerating the amortization of the Offered
Certificates relative to the aggregate outstanding
Loan Balance of the Home Equity Loans, thereby
reducing the actual level of the
Overcollateralization Amount to the new, lower
Targeted Overcollateralization Amount. This portion
of the Principal Remittance Amount not distributed as
principal on the Certificates therefore releases
overcollateralization from the Trust. The amount of
such releases are the Overcollateralization Release
Amounts.
On any Payment Date, the sum of the Monthly Excess
Interest Amount and the Overcollateralization Release
Amount is the "Monthly Excess Cashflow Amount", which
is required to be applied in the following order of
priority on such Payment Date:
(1) to fund the Extra Principal Distribution
Amount for such Payment Date;
(2) to fund the Class M-1 Interest Carry
Forward Amount, if any;
(3) to fund the Class M-1 Realized Loss
Amortization Amount for such Payment Date;
(4) to fund the Class M-2 Interest Carry
Forward Amount, if any;
(5) to fund the Class M-2 Realized Loss
Amortization Amount for such Payment Date;
(6) to fund the Class B Interest Carry Forward
Amount, if any;
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<PAGE>
(7) to fund the Class B Realized Loss
Amortization Amount for such Payment Date;
(8) to the Servicer to the extent of any
unreimbursed Delinquency Advances or
Servicing Advances;
(9) to the Trustee for reimbursement of
expenses of the Trustee that are not
Trustee Reimburseable Expenses; and
(10) to fund a distribution to Owners of the
Class R Certificates.
Nature of Class A-7IO
Certificates: General Character as an Interest-Only Security. As
the owners of interest-only strip securities, the
Owners of the Class A-7IO Certificates will be
entitled to receive monthly distributions only of
interest, as described herein. Because they will not
receive any distributions of principal, the Owners of
the Class A-7IO Certificates will be affected by
prepayments, liquidations and other dispositions of
the Home Equity Loans to a greater degree than will
the Owners of the other Classes of Offered
Certificates. In addition, the Notional Principal
Amount applicable to interest calculations on the
Class A-7IO Certificates is (x) through the Payment
Date in __________ 20___, the Class A-6 Certificate
Principal Balance and (y) thereafter, zero. Since the
Class A-6 Certificates will amortize in accordance
with the distribution of the Class A-6 Lockout
Distribution Amount, the performance of the Class
A-7IO Certificates is intended to be more stable than
if such Notional Principal Amount were calculated
using the underlying Home Equity Loans directly.
However, there can be no assurance that such will be
the case. Because there are ______ Initial Home
Equity Loans, the prepayment experience of any one
Home Equity Loan will not be material to an
investor's overall return.
In general, losses due to liquidations, repurchases
by the Servicer and other dispositions of Home Equity
Loans from the Trust will have the same effect on the
Owners of the Class A-7IO Certificates as do
prepayments of principal and are collectively
referred to as "Prepayments."
Because the yield to Owners of the Class A-7IO
Certificates is more sensitive to rates of
prepayment, it is advisable for potential investors
in the Class A-7IO Certificates to consider
carefully, and to make their own evaluation of, the
effect of any particular assumption regarding the
rates and the timing of prepayments. In general, when
interest rates decline, prepayments in a pool of
receivables such as the Home Equity Loans will
increase as borrowers seek to refinance at lower
rates. This will have the effect of reducing the
future stream of payments available to an owner of an
interest-only security based on such receivables
pool, thus adversely affecting such investor's yield.
Conversely, when interest rates increase, prepayments
will tend to decrease (because attractive refinancing
opportunities are not available) and the future
stream of payments available to such an owner of an
interest-only security may not decline as rapidly as
originally anticipated. See "Prepayment and Yield
Considerations -- Yield Sensitivity of the Class
A-7IO Certificates" herein for other factors which
may also influence prepayment rates.
Applicability of Credit Enhancement to the Class
A-7IO Certificates. As described above under "Credit
Enhancement," the Trust includes provisions which
subordinate the distributions on the Subordinate
Certificates and the Class R Certificates for each
Payment Date for the purpose, inter alia, of funding
the full amounts due on each Class of the Class A
Certificates, including the Class A-7IO Certificates,
on each Payment Date.
In general, the protection afforded by such
subordination and overcollateralization features is
for credit risk and not for prepayment risk. These
features do not
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<PAGE>
guarantee or insure that any particular rate of
prepayment is experienced by the Trust. If the entire
pool of Home Equity Loans were to prepay in the
initial month, with the result that the Owners of the
Class A-7IO Certificates receive only a single
month's interest and thus suffer a nearly complete
loss on their investments, no amounts would be
available from the overcollateralization feature to
mitigate such loss.
Accrual of "Original Issue Discount." The Class A-7IO
Certificates will be issued with "original issue
discount" within the meaning of the Code. As a
result, in certain rapid prepayment environments the
effect of the rules governing the accrual of original
issue discount may require Owners of the Class A-7IO
Certificates to accrue original issue discount at a
rate in excess of the rate at which distributions are
received by such Owners. See "Federal Income Tax
Consequences" herein and in the Prospectus.
Pre-Funding Account: On the Closing Date, an aggregate cash amount (the
"Pre-Funded Amount") of approximately
$_______________ will be deposited in the Pre-Funding
Account. During the period (the "Funding Period")
from the Closing Date until the earliest to occur of
(i) the date on which the Pre-Funded Amount is
reduced to $________ or less, (ii) the occurrence of
a "Servicer Termination Event" (as defined in the
Pooling and Servicing Agreement) or (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 on
any date (each, a "Subsequent Transfer Date") must
satisfy the criteria set forth in the Pooling and
Servicing Agreement. See "The Home Equity Loan Pool--
Conveyance of Subsequent Home Equity Loans" herein.
Any Pre-Funded Amount remaining at the end of the
Funding Period will be distributed to the Owners of
the Offered Certificates (other than the Class A-7IO
Certificates) then entitled to receive payments of
principal on the Payment Date immediately following
the end of the Funding Period, thus resulting in a
partial principal prepayment of such Offered
Certificates as specified herein under "Description
of the Offered 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 and, to the
extent required by the Pooling and Servicing
Agreement, then deposited into the Certificate
Account. The Pre-Funding Account will not be an asset
of either the Lower-Tier REMIC or the Upper-Tier
REMIC.
Capitalized Interest
Account: On the Closing Date, cash will be deposited in a
trust account (the "Capitalized Interest Account") in
the name of, and maintained by, the Trustee on behalf
of the Owners of the Offered Certificates. The amount
on deposit in the Capitalized Interest Account,
including reinvestment income thereon, will be used
by the Trustee on each Payment Date during and
immediately after the Funding Period to fund the
excess, if any, of (x) the interest accruing on the
outstanding Pre-Funded Amount as of the end of the
related Remittance Period at a rate equal to (i) the
weighted average of the Pass-Through Rates on the
Offered Certificates (except for the Class A-7IO
Certificates) and (ii) the Current Interest on the
Class A-7IO Certificates expressed as a percentage of
the Aggregate Certificate Principal Balance over (y)
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 each
Payment Date during and immediately following the end
of the Funding Period to fund such excess, if any.
Any amounts remaining in the Capitalized Interest
Account not needed for such purpose will be paid to
the depositor of such funds immediately after the end
of the Funding Period. The Capitalized Interest
Account will not be an asset of either the Lower-Tier
REMIC or the Upper-Tier REMIC.
S-14
<PAGE>
Mandatory Prepayment of
Certificates: It is intended that the principal amount of
Subsequent Home Equity Loans sold to the Trust 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 Offered 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
Pre-Funded Amount, principal prepayments to Owners of
the Class or Classes of Offered Certificates (other
than the Class A-7IO Certificates) then entitled to
receive payments of principal will occur no later
than the Payment Date immediately following the end
of the Funding Period in an amount equal to the
Pre-Funded Amount remaining at the end of the Funding
Period.
Book-Entry Registration
of the Offered
Certificates: Each Class of the Offered Certificates will initially
be issued in book-entry form. Persons acquiring
beneficial ownership interests in such Offered
Certificates ("Beneficial Owners") may elect to hold
their interests through The Depository Trust Company
("DTC"), in the United States, or Cedel Bank, S.A.
("Cedel") or the Euroclear System ("Euroclear") in
Europe. Transfers within DTC, Cedel or Euroclear, as
the case may be, will be in accordance with the usual
rules and operating procedures of the relevant
system. So long as the Offered Certificates are
Book-Entry Certificates (as defined herein), such
Certificates will be evidenced by one or more
Certificates registered in the name of Cede & Co.
("Cede"), as the nominee of DTC or one of the
European Depositaries. Cross-market transfers between
persons holding directly or indirectly through DTC,
on the one hand, and counterparties holding directly
or indirectly through Cedel or Euroclear, on the
other, will be effected in DTC through Citibank, N.A.
("Citibank") or The Chase Manhattan Bank ("Chase" and
together with Citibank, the "European Depositaries"),
on the relevant depositaries of Cedel and Euroclear,
respectively, and each a participating member of DTC
or one of the European Depositaries. The Offered
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
Offered Certificates reflect the rights of Beneficial
Owners only as such through DTC and its participating
organizations for so long as such Offered
Certificates are held by DTC. See "Description of the
Offered Certificates -- Book-Entry Registration of
the Offered 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 the
"Clean-Up Call Date" occurring on any Monthly
Remittance Date when the aggregate Loan Balance of
the Home Equity Loans has declined to 10% or less of
the sum of (x) the Original Aggregate Loan Balance
plus (y) the original Pre-Funded Amount (such sum,
the "Maximum Collateral Amount"). See "The Pooling
and Servicing Agreement--Optional Termination"
herein.
S-15
<PAGE>
Ratings: It is a condition of issuance of the Offered
Certificates that each Class of the Offered
Certificates receive at least the ratings set out
below from Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Ratings Services, a
division of the McGraw-Hill Companies ("Standard &
Poor's") and Fitch IBCA, Inc. ("Fitch"):
<TABLE>
<CAPTION>
Class Moody's Standard & Poor's Fitch
----- ------- ----------------- -----
<S> <C> <C> <C>
A-1 through A-6 Aaa AAA AAA
A-7IO Aaa AAAr AAA
M-1 Aa2 AA AA+
M-2 A2 A A+
B Baa3 BBB- BBB
</TABLE>
Moody's, Standard & Poor's and Fitch 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.
Ratings of the Class A-7IO Certificates. Ratings
which are assigned to securities such as the Class
A-7IO Certificates generally evaluate the ability of
the issuer (i.e., the Trust) to make payments, as
required by such securities. The amounts
distributable on the Class A-7IO Certificates consist
only of interest. In general, the ratings of such
Certificates address only credit risk and not
prepayment risk. See "Ratings" and "Summary of Terms
-- Nature of Class A-7IO Certificates" herein.
The "r" symbol is appended to the rating by Standard
& Poor's of the Class A-7IO Certificates because they
are interest-only Certificates that Standard & Poor's
believes may experience high volatility or high
variability in expected returns due to non-credit
risks created by the terms of such Certificates. The
absence of an "r" symbol in the ratings of the other
Classes of Offered Certificates should not be taken
as an indication that such Certificates will
experience no volatility or variability in total
return. See "Ratings" and "Summary of Terms -- Nature
of Class A-7IO Certificates" herein.
Federal Tax Aspects: For federal income tax purposes, the Trust, exclusive
of the Pre-Funding Account and the Capitalized
Interest Account (such accounts collectively, the
"Non-REMIC Accounts") created by the Pooling and
Servicing Agreement will consist of two segregated
asset pools (the "Upper-Tier REMIC" and the
"Lower-Tier REMIC") with respect to which elections
will be made to treat each as a separate "real estate
mortgage investment conduit" ("REMIC"). Each Class of
the Offered Certificates will be designated as a
"regular interest" in the Upper-Tier REMIC. The Class
R Certificates will be designated as the sole
"residual interest" in the Upper-Tier REMIC. See
"Certain Federal Income Tax Consequences" herein.
Owners of the Offered Certificates, including Owners
that generally report income on the cash method of
accounting, will be required to include interest on
the Offered Certificates in income in accordance with
the accrual method of accounting. In addition, the
Class A-7IO Certificates will, and each other Class
of the Offered 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 Offered
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<PAGE>
Certificates as regular interests in the Upper-Tier
REMIC, the Offered Certificates will be treated as
"regular . . . interest(s) in a REMIC" under Section
7701(a)(19)(C) of the Internal Revenue Code of 1986,
as amended (the "Code") and "real estate assets"
under Section 856(c) of the Code in the same
proportion that the assets in the Upper-Tier REMIC
consist of qualifying assets under such sections. In
addition, 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. For further information regarding
the federal income tax consequences of investing in
the Offered Certificates, see "Federal Income Tax
Consequences" herein.
ERISA Considerations: Subject to the considerations discussed under "ERISA
Considerations" herein, the Class A Certificates may
be purchased by employee benefit plans that are
subject to ERISA. [The Subordinate Certificates may
not be purchased by employee benefit plans that are
subject to ERISA except as provided herein.] See
"ERISA Considerations" herein and in the Prospectus.
Legal Investment
Considerations: The Offered Certificates will [not] constitute
"mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984
("SMMEA"). [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 Offered Certificates.]
See "Legal Investment Considerations" herein.
S-17
<PAGE>
RISK FACTORS
Prospective investors in the Offered 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
Offered Certificates.
Sensitivity to Prepayments. The Home Equity Loans may be prepaid by the
related Mortgagors in whole or in part, at any time. However, approximately ___%
of the Initial Home Equity Loans (by Loan Balance) require the payment of a fee
in connection with certain prepayments. In addition, a substantial portion of
the Initial 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 Mortgage Assets--Enforceability of Certain Provisions" in the
Prospectus. The rate of prepayments on fixed rate 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 Offered Certificates, and, if
purchased at other than par, the yields realized by Owners of the Offered
Certificates will be sensitive to levels of payment (including prepayments of
the Home Equity Loans (the "Prepayments")) on the Home Equity Loans. In general,
the yield on a Class of Offered 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 and enhanced by a lower than anticipated
level. Similarly, the yield on a Class of Offered Certificates that is purchased
at a discount from the outstanding principal amount thereof will be adversely
affected by a lower than anticipated level. The yields realized by Owners of the
Class A-7IO Certificates will be more sensitive to the rate of prepayment on the
Home Equity Loans. Because amounts distributable to the Owners of the Class
A-7IO Certificates consist entirely of interest, the yield to maturity of the
Class A-7IO Certificates will be sensitive to the repurchase, prepayment and
default experience of the Home Equity Loans, and prospective investors should
fully consider the associated risks, including the risk that such investors may
not fully recover their initial investment. See "Prepayment and Yield
Considerations" herein.
Trust Assets are the Only Source of Credit Enhancement. The
subordination of the Subordinate Certificates to the Class A Certificates, the
further subordination within the Subordinate Certificates, and the
overcollateralization provisions of the Trust are the sole sources of protection
against losses on the Home Equity Loans and other shortfalls in available funds.
If losses or other shortfalls exceed the protection afforded by such mechanism,
Owners of the Offered Certificates will bear their proportionate share of such
losses and shortfalls. The Certificates represent interests only in the Trust
and do not represent interests in, or obligations of the Depositor, the Seller,
the Servicer, the Trustee or any of their respective affiliates. The assets of
the Trust are the sole source of funds for distributions on the Certificates.
Subordination Limited Protection Afforded to Class A Certificates. The
rights of the Owners of the Class M-1 Certificates to receive distributions with
respect to the Home Equity Loans will be subordinate to the rights of the
holders of the Class A Certificates to receive such distributions, the rights of
Owners of the Class M-2 Certificates to receive distributions with respect to
the Home Equity Loans will be subordinate to the rights of the Owners of the
Class A and the Class M-1 Certificates to receive such distributions and the
rights of the Owners of the Class B Certificates to receive distributions with
respect to the Home Equity Loans will be subordinate to the rights of the Owners
of the Class A, Class M-1 and Class M-2 Certificates to receive such
distributions. The subordination of the Subordinate Certificates relative to the
Class A Certificates (and of the more lower-ranking Classes of the Subordinate
Certificates to the higher-ranking Classes thereof) is intended to enhance the
likelihood of regular receipt by the Owners of the Class A Certificates (and
such higher-ranking Classes) of the full amount of the monthly distributions
allocable to them, and to afford such Owners protection against losses.
Subordination Allocation of Losses to Subordinate Certificates. The
rights of the Owners of each Class of Subordinate Certificates to receive
distributions of principal with respect to the Home Equity Loans will be
subordinate to the rights of the Owners of the Class A Certificates to receive
such distributions and to the rights of the
S-18
<PAGE>
Owners of each higher-ranking Class of Subordinate Certificates to receive such
distributions. See "Credit Enhancement -- Subordination of Subordinate
Certificates" herein.
The yields to maturity on the Mezzanine Certificates and Class B
Certificates will be progressively more sensitive to the rate, timing and
severity of defaults on the Home Equity Loans. Investors should fully consider
the risks associated with an investment in the Mezzanine Certificates or Class B
Certificates, including the possibility that such investors may not fully
recover their initial investment as a result of Realized Losses on the Home
Equity Loans. See "Credit Enhancement Application of Realized Losses".
The Subordinate Certificates will not be entitled to any principal
distributions until at least the Stepdown Date and during the continuation of a
Trigger Event (unless the aggregate Certificate Principal Balance of the Class A
Certificates has been reduced to zero.) As a result, the weighted average lives
of the Subordinate Certificates will be longer than would be the case if
distributions of principal were to be allocated on a pro rata basis among the
Class A and Subordinate Certificates. As a result of the longer weighted average
lives of the Subordinate Certificates, the Owners of such Certificates have a
greater risk of suffering a loss on their investments.
Nature of Collateral; Junior Liens. 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.
The Subsequent Home Equity Loans and the Pre-Funding Account. Any
conveyance of Subsequent Home Equity Loans is subject to the following
conditions, among others (i) each such Subsequent Home Equity Loan 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 Depositor will not select such Subsequent Home Equity Loans in a manner
adverse to the interest of the Owners of the Offered Certificates; (iii) the
Depositor will deliver certain opinions of counsel with respect to the validity
of the conveyance of such Subsequent Home Equity Loans; (iv) each Subsequent
Home Equity Loan will be a fixed rate Home Equity Loan; and (v) 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 Depositor 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."
S-19
<PAGE>
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 Trust by the end of the Funding Period, the Owners of
the Class or Classes of Offered Certificates (other than the Class A-7IO
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 immediately following the Funding
Period. 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 any Class of the Offered
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. Following the transfer of Subsequent Home
Equity Loans to the Trust, it is anticipated that the aggregate characteristics
of the Home Equity Loans then held in the Trust will not vary significantly from
those of the Initial Home Equity Loans. See "The Home Equity Loan
Pool--Conveyance of Subsequent Home Equity Loans" herein.
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 Servicer 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 the Mortgage Assets"
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 Servicer 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 Mortgage Assets"
in the Prospectus.
It is possible that some of the Home Equity Loans will be subject to
the Riegle Community Development and Regulatory Improvement Act of 1994 (the
"Riegle Act"), which incorporates the Home Ownership and Equity Protection Act
of 1994. The Riegle Act adds certain additional provisions to Regulation Z,
which is the implementing regulation of the Truth-in-Lending Act. These
provisions impose additional disclosure and other requirements on creditors with
respect to non-purchase money home equity loans with high interest rates or high
upfront fees and charges. In general, home equity loans within the purview of
the Riegle Act have annual percentage rates over 10% greater than the yield on
Treasury Securities of comparable maturity and/or fees and points which exceed
the greater of 8% of the total loan amount or $400. The provisions of the Riegle
Act apply on a mandatory basis to all home equity loans originated on or after
October 1, 1995. These provisions can impose specific statutory liabilities upon
creditors
S-20
<PAGE>
who fail to comply with their provisions and may affect the enforceability of
the related loans. In addition, any assignee of the creditor would generally be
subject to all claims and defenses that the consumer could assert against the
creditor, including, without limitation, the right to rescind the home equity
loan. The Seller will represent and warrant in the Pooling and Servicing
Agreement that each Home Equity Loan was originated in compliance with all
applicable laws including the Truth-in-Lending Act, as amended.
Risk of Higher Default Rates for Home Equity Loans with Balloon
Payments. _____% of the aggregate Loan Balance of the Initial Home Equity Loans
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"). The
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 up to 15 years
after origination. Amortization of a Balloon Loan based on a scheduled period
that is longer than the term of the loan results in a remaining principal
balance at maturity that is substantially larger than the regular scheduled
payments. The Seller does not have any information regarding the default history
or prepayment history of payments on Balloon Loans. Because borrowers of Balloon
Loans are required to make substantial single payments 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.
Risk of Insolvency. The Seller believes that its transfer of the Home
Equity Loans to the Depositor and the transfer of the Home Equity Loans 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 or the Depositor in the event of the
insolvency of the Seller or the Depositor, as applicable and will not be
available to the creditors of the Seller or the Depositor, as applicable.
However, in the event of an insolvency of the Seller or the Depositor, it is
possible that a bankruptcy trustee or a creditor of the Seller or the Depositor
may argue that the transaction between the Seller and the Depositor or between
the Depositor and the Trust was a pledge of such Home Equity Loans in connection
with a borrowing by the Seller or the Depositor 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 and the
Rating Agencies will have received an opinion of Arter & Hadden LLP, counsel to
the Seller and the Depositor, with respect to the true sale of the Home Equity
Loans from the Seller to the Depositor and from the Depositor to the Trustee, in
form and substance satisfactory to the Rating Agencies.
THE SELLER AND SERVICER
General
The Seller and Servicer, IMC Mortgage Company, is a Florida
corporation. IMC Mortgage Company completed an initial public offering of
certain shares of its common stock on June 25, 1996 and a secondary offering of
certain shares of its common stock in April 1997. The principal executive
offices of the Seller are located at 5901 East Fowler Avenue, Tampa, Florida
33617-2362 and its telephone number is (813) 984-8801.
The Seller has been in the mortgage lending business since its
formation in 1993 and the Seller and other subsidiaries of the Seller are
engaged in originating, purchasing and servicing home equity loans secured by
first and second mortgages and deeds of trust on Properties located in 50 states
and the District of Columbia.
In September 1997, IMC Mortgage Company began servicing loans
previously serviced by Industry Mortgage Company, L.P., a Delaware limited
partnership, which is a subsidiary of IMC Mortgage Company and an affiliate of
the Depositor. Consequently, information on loans serviced prior to September
1997 was generated by Industry Mortgage Company, L.P. and not by IMC Mortgage
Company. The transfer of servicing to IMC Mortgage Company is part of an ongoing
effort to consolidate mortgage banking functions of the Seller and Servicer.
Since both IMC Mortgage Company and Industry Mortgage Company, L.P. have the
same management and staff, such transfer did not result in any changes to the
management and staff previously servicing the loans for Industry Mortgage
Company, L.P. In addition, there have not been any changes made to any of the
servicing procedures previously utilized by Industry Mortgage Company, L.P.
S-21
<PAGE>
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 Offered Certificates,
which are being offered hereby. The Seller, in its capacity as Servicer, 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
confirmation in writing from the Rating Agencies that such assignment shall not
result in a downgrade or withdrawal of the ratings assigned to the Offered
Certificates by the respective Rating Agencies; provided, however, that any
assignee must meet the eligibility requirements for a successor servicer set
forth in the Pooling and Servicing Agreement.
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. Each Sub-Servicing Agreement shall be terminated at such time as
the Servicer resigns or is removed. See "The Pooling and Servicing
Agreement--Servicing and Sub-Servicing" herein.
The Trustee, at the direction of a majority of the Owners of the
Offered Certificates, 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 and (y) until such time as a successor servicer is appointed pursuant
to the terms of the Pooling and Servicing Agreement, 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 Owners of a majority of the
Offered Certificates. If the Trustee is unable to obtain a qualifying bid and is
prevented by law from acting 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 Fannie Mae 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 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, except as described herein, 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 Fannie Mae ("Fannie Mae") or the Federal Home Loan
S-22
<PAGE>
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 full-service branch offices in
Cincinnati, Ohio, Ft. Washington, Pennsylvania, Lincoln, Rhode Island and Cherry
Hill, New Jersey. In addition, the Seller maintains retail branch offices
throughout the United States and 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 generally 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 $400,000. Under current policy the Seller generally
does not acquire or originate home equity loans where the combined Loan-to-Value
Ratio exceeds 90%. 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.
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 Fannie Mae/FHLMC forms and conform to
current Fannie Mae/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.
S-23
<PAGE>
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
In September 1997, the Servicer began servicing loans previously
serviced by its subsidiary, Industry Mortgage Company, L.P. IMC Mortgage Company
and Industry Mortgage Company, L.P. have the same management and staff and
therefore the transfer of servicing did not result in any changes to the
management and staff previously servicing the loans for Industry Mortgage
Company, L.P. 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 and reflect information generated by Industry
Mortgage Company, L.P. However, because the total amount of loans originated or
purchased by IMC Mortgage Company and its subsidiaries 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. In addition, the information in the tables below has
not been adjusted to eliminate the effect of the significant growth in the size
of Industry Mortgage Company, L.P.'s home equity loan portfolio during the
periods shown. Accordingly, loss and delinquency as percentages of aggregate
principal balance of home equity loans serviced for each period would be higher
than those shown if a group of home equity loans were artificially isolated at a
point in time and the information showed the activity only in that isolated
group. As a result, the historical delinquency experience and loan loss
information set forth below may not be indicative of the future performance of
the home equity loans. The columns in the following tables may not total exactly
due to rounding.
S-24
<PAGE>
Delinquency and Default Experience of the Servicer's Servicing
Portfolio of Home Equity Loans
<TABLE>
<CAPTION>
Year Ending December 31,
--------------------------------------------------------------------------------------------------
1997 1996 1995
---- ---- ----
Number of Dollar Number of Dollar Number of Dollar
Loans Amount Loans Amount Loans Amount
----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Portfolio At 102,275 $6,956,905,062 35,390 $2,148,068,446 9,376 $535,797,748
Delinquency
Percentage(1)
-------------
30 - 59 days 2.598% 2.371% 3.390% 3.093% 2.613% 2.570%
60 - 89 days 1.438% 1.292% 1.077% 1.068% 0.672% 0.642%
90 + days 4.042% 3.886% 2.427% 2.616% 1.237% 1.223%
----- ----- ----- ----- ----- -----
Total 8.078% 7.549% 6.894% 6.777% 4.522% 4.435%
Delinquency ===== ===== ====== ====== ====== ======
Default
Percentage(2)
-------------
Foreclosure 1.235% 1.420% 0.863% 1.003% 0.779% 0.749%
Bankruptcy(3) 1.208% 1.139% 1.064% 1.069% 0.576% 0.630%
Real Estate 0.462% 0.441% 0.276% 0.313% 0.117% 0.160%
----- ----- ------ ------ ------ ------
Owned
Total Default 2.904% 3.000% 2.204% 2.385% 1.472% 1.539%
===== ===== ====== ====== ====== ======
</TABLE>
-----------------
(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
account balances on home equity loans in foreclosure, bankruptcy
or real estate owned.
(3) The bankruptcy percentage represents all home equity loans that
are in bankruptcy regardless of delinquency status.
Loan Loss Experience on the Servicer's Servicing
Portfolio of Home Equity Loans
Year Ending December 31,
------------------------------------------------
1997 1996 1995
---- ---- ----
Average Amount Outstanding(1) $4,315,237,578 $1,207,171,960 $294,251,859
Gross Losses(2) $6,274,022 $1,581,695 $278,632
Recoveries(3) $0 $1,727 $0
Net Losses(4) $6,274,022 $1,579,968 $278,632
Net Losses as a Percentage of 0.145% 0.131% 0.095%
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."
S-25
<PAGE>
THE DEPOSITOR
The Depositor was incorporated in the State of Delaware in November
1994. The Depositor is a subsidiary of the Seller and the Servicer. The
Depositor maintains its principal offices at 5901 East Fowler Avenue, Tampa,
Florida 33617-2362. None of the Depositor, the Seller, the Servicer or any of
their affiliates will insure or guarantee distributions on the Certificates.
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 Offered
Certificates will be applied by the Depositor (i) to the purchase of the Initial
Home Equity Loans from the Seller, (ii) to pay off extensions of credit provided
by, among others, certain of the Underwriters with respect to certain Home
Equity Loans, (iii) to the deposit of the Pre-Funded Amount in the Pre-Funding
Account and (iv) 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 R Certificates
retained by 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 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 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
(the "Loan 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.
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 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
have a first payment date on or after __________, 199__. Initial Home Equity
Loans aggregating ____% of the aggregate Loan Balances of the 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 Fannie Mae 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.
S-26
<PAGE>
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.
As of the Cut-Off Date, the average Loan Balance of the Initial Home
Equity Loans was $____________. The minimum and maximum Loan Balances of the
Initial Home Equity Loans as of the Cut-Off Date were $_________ and
$____________, respectively. The weighted average Coupon Rate of the Initial
Home Equity Loans was _____%; the Coupon Rate of the Initial Home Equity Loans
ranged from ____% to _____%; the weighted average Combined Loan-to-Value Ratio
of the Initial Home Equity Loans was ____%; the weighted average remaining term
to maturity of the Initial Home Equity Loans was ___ months; and the remaining
terms to maturity of the Initial Home Equity Loans ranged from ___ months to ___
months. Initial Home Equity Loans containing "balloon" payments represented not
more than _____% of the aggregate Loan Balance of the Initial Home Equity Loans.
No Initial Home Equity Loan will mature later than ___________, 20___.
S-27
<PAGE>
Geographic Distribution of Properties
The geographic distribution of the Initial Home Equity Loans 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
- ----- ----------------- ------------ ------------
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Total
S-28
<PAGE>
Combined Loan-to-Value Ratios
The original combined loan-to-value ratios as of the origination dates
of the Initial Home Equity Loans (based upon appraisals made at the time of
origination thereof) (the "Combined Loan-to-Value Ratios") as of the Cut-Off
Date were distributed as follows:
<TABLE>
<CAPTION>
Number of Initial Aggregate % of Aggregate
Range of Original CLTV's Home Equity Loans Loan Balance Loan Balance
------------------------ ----------------- ------------ ------------
<S> <C> <C> <C>
5.01 to 10.00%
10.01 to 15.00
15.01 to 20.00
20.01 to 25.00
25.01 to 30.00
30.01 to 35.00
35.01 to 40.00
40.01 to 45.00
45.01 to 50.00
50.01 to 55.00
55.01 to 60.00
60.01 to 65.00
65.01 to 70.00
70.01 to 75.00
75.01 to 80.00
80.01 to 85.00
85.01 to 90.00
90.01 to 95.00
95.01 to 100.00
Total
</TABLE>
Cut-Off Date Coupon Rates
The Coupon Rates borne by the Notes relating to the Initial Home Equity
Loans as of the Cut-Off Date were distributed as follows:
<TABLE>
<CAPTION>
Number of Initial Aggregate % of Aggregate
Range of Coupon Rates Home Equity Loans Loan Balance Loan Balance
--------------------- ----------------- ------------ ------------
<S> <C> <C> <C>
6.001 to 7.000%
7.001 to 8.000
8.001 to 9.000
9.001 to 10.000
10.001 to 11.000
11.001 to 12.000
12.001 to 13.000
13.001 to 14.000
14.001 to 15.000
15.001 to 16.000
16.001 to 17.000
17.001 to 18.000
Total
</TABLE>
S-29
<PAGE>
Cut-Off Date Loan Balances
The distribution of the outstanding principal amounts of the Initial
Home Equity Loans as of the Cut-Off Date was as follows:
<TABLE>
<CAPTION>
Number of Initial Aggregate % of Aggregate
Cut-Off Date Loan Balances Home Equity Loans Loan Balance Loan Balance
-------------------------- ----------------- ------------ ------------
<S> <C> <C> <C>
Up to $ 25,000.00
25,000.01 to 50,000.00
50,000.01 to 75,000.00
75,000.01 to 100,000.00
100,000.01 to 125,000.00
125,000.01 to 150,000.00
150,000.01 to 175,000.00
175,000.01 to 200,000.00
200,000.01 to 225,000.00
Total
</TABLE>
Types of Mortgaged Properties
The Properties securing the Initial Home Equity Loans as of the Cut-Off
Date were of the property types as follows:
<TABLE>
<CAPTION>
Number of Initial Aggregate % of Aggregate
Property Types Home Equity Loans Loan Balance Loan Balance
-------------- ----------------- ------------ ------------
<S> <C> <C> <C>
Single Family Detached
Two- to Four-Family
Single Family Attached
Condominium
Manufactured Housing
Townhouse
Multi-Family
Planned Unit Development
Mixed Use
Total
</TABLE>
Distribution of Months Since Origination
The distribution of the number of months since the date of origination
of the Initial Home Equity Loans as of the Cut-Off Date was as follows:
<TABLE>
<CAPTION>
Number of Months Number of Initial Aggregate % of Aggregate
Since Origination Home Equity Loans Loan Balance Loan Balance
----------------- ----------------- ------------ ------------
<S> <C> <C> <C>
0 to 1
2 to 12
13 to 24
25 or more
Total
</TABLE>
S-30
<PAGE>
Distribution of Remaining Term to Maturity
The distribution of the number of months remaining to maturity of the
Initial Home Equity Loans as of the Cut-Off Date was as follows:
<TABLE>
<CAPTION>
Number of Initial Aggregate % of Aggregate
Months Remaining to Maturity Home Equity Loans Loan Balance Loan Balance
---------------------------- ----------------- ------------ ------------
<S> <C> <C> <C>
Up to 120
121 to 180
181 to 240
241 to 300
301 to 360
Total
</TABLE>
Occupancy Status(1)
The occupancy status of the Properties securing the Initial Home Equity
Loans as of the Cut-Off Date was as follows:
<TABLE>
<CAPTION>
Number of Initial Aggregate % of Aggregate
Occupancy Status Home Equity Loans Loan Balance Loan Balance
---------------- ----------------- ------------ ------------
<S> <C> <C> <C>
Total
</TABLE>
(1) Based on representations by the borrower at the time of origination of the
Home Equity Loans.
Distribution by Lien Position
The lien position of the Initial Home Equity Loans as of the Cut-Off
Date was as follows:
<TABLE>
<CAPTION>
Number of Initial Aggregate % of Aggregate
Lien Position Home Equity Loans Loan Balance Loan Balance
------------- ----------------- ------------ ------------
<S> <C> <C> <C>
Total
</TABLE>
Conveyance of Subsequent Home Equity Loans
The Pooling and Servicing Agreement permits the Trust to acquire
Subsequent Home Equity Loans in aggregate principal balance equal to the
Pre-Funded Amount. Accordingly, the statistical characteristics of the Home
Equity Loans will vary as of each Subsequent Cut-Off Date upon the acquisition
of Subsequent Home Equity Loans, but the Seller does not expect such variance to
be material.
The obligation of the Trust to purchase a Subsequent Home Equity Loan
on a Subsequent Transfer Date for assignment to the Home Equity Loan Pool is
subject, among other factors, to the following requirements: (i) the ratings
S-31
<PAGE>
on the Offered Certificates shall not have been downgraded by any Rating Agency;
(ii) 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); (iii) such Subsequent Home Equity Loan
will be a fixed rate Home Equity Loan; (iv) the original term to maturity of
such Subsequent Home Equity Loan may not exceed 30 years; (v) such Subsequent
Home Equity Loan will have a Coupon Rate of not less than ____%; 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; (d) will have
no more than ____% Home Equity Loans which are second liens; (e) will have at
least ___% Home Equity Loans which are owner occupied; (f) will have no Home
Equity Loan that is a first lien with an original Loan Balance in excess of
$_________; and (g) will have no Home Equity Loan that is a second lien with an
original Loan Balance in excess of $________ and a combined original principal
balance of the first and second lien in excess of $________.
Interest Payments on the Home Equity Loans
A substantial majority of the Initial 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.
There are a number of Home Equity Loans on which interest is charged to
the Mortgagor at the Coupon Rate on the outstanding principal balance calculated
based on the number of days elapsed between receipt of the Mortgagor's last
payment through receipt of the Mortgagor's most current payment (such Home
Equity Loans, "Date-of-Payment Loans"). Such interest is deducted from the
Mortgagor's payment amount and the remainder, if any, of the payment is applied
as a reduction to the outstanding principal balance of such Note. Although the
Mortgagor is required to remit equal monthly payments on a specified monthly
payment date that would reduce the outstanding principal balance of such Note to
zero at such Note's maturity date, payments that are made by the Mortgagor after
the due date therefor would cause the outstanding principal balance of such Note
not to be reduced to zero on its maturity date. In such a case, the Mortgagor
would be required to make an additional principal payment at the maturity date
for such Note. If it were assumed that all the Mortgagors on the Date-of-Payment
Loans were to pay on the latest date possible without the Date-of-Payment Loans
being in default, the amount of such additional principal payment would be a de
minimis amount of the aggregate Loan Balance of the Home Equity Loans. On the
other hand, if a Mortgagor makes a payment (other than a Prepayment) before the
due date therefor, the reduction in the outstanding principal balance of such
Note would occur over a shorter period of time than would have occurred had it
been based on the schedule of amortization in effect on the Cut-Off Date.
Accordingly, the timing of principal payments to the Owners of the Offered
Certificates may be affected by the fact that actual Mortgagor payments may not
be made on the due date therefor.
PREPAYMENT AND YIELD CONSIDERATIONS
General
The weighted average life of, and, if purchased at other than par, the
yield to maturity on, the Offered Certificates will relate to the rate of
payment of principal of the Home Equity Loans, including, for this purpose,
Prepayments, liquidations due to defaults, casualties and condemnations, and
repurchases of Home Equity Loans by the Seller. The Home Equity Loans may be
prepaid by the related Mortgagors, in whole or in part, at any time. However,
approximately ___% of the Initial Home Equity Loans (by Loan Balance) require
the payment of a fee in connection with certain prepayments. The rate of payment
of principal of the Home Equity Loans may also be affected by the amount of Home
Equity Loans secured by a second liens. Such Home Equity Loans are subordinate
to the rights of the mortgagee or beneficiary under a first mortgage or deed of
trust to receive proceeds from any liquidation, insurance or condemnation
proceedings available to satisfy the outstanding balance of the related Home
Equity Loan. However, since only ____% of the aggregate Loan Balance of the
Initial Home Equity Loans are secured by second
S-32
<PAGE>
liens, the effect on the rate of payment of principal, if any, should be
minimal. 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 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.
In addition to the foregoing factors affecting the weighted average
life of the Offered Certificates, the overcollateralization provisions of the
Trust result in an additional reduction of the 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 the Monthly
Excess Interest Amount to the payment of the related Certificate Principal
Balance of the Offered Certificates. This creates overcollateralization which
results from the excess of the aggregate Loan Balance of the Home Equity Loans
over the Aggregate Certificate Principal Balance. Once the Target
Overcollateralization Amount is reached, the application of the Monthly Excess
Interest Amount to pay down principal will cease, unless necessary to maintain
the Overcollateralization Amount at the Target Overcollateralization Amount.
Mandatory Prepayment
In the event that prior to the end of the Funding Period the Depositor
is unable to sell Subsequent Home Equity Loans to the Trust in an amount equal
to the Pre-Funded Amount, the Owners of the Class or Classes of Offered
Certificates (other than the Class A-7IO Certificates) then entitled to receive
payments of principal will receive a partial prepayment on the Payment Date
immediately following the end of the Funding Period in an amount equal to the
Pre-Funded Amount remaining at the end of the Funding Period.
The Depositor 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 at the end of the Funding
Period.
Prepayment and Yield Scenarios for Offered 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 Offered Certificates"), the yield to maturity on a Class
of Offered 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 the Offered 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 the Offered 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 the Offered
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 the Offered Certificates as
of the Closing Date 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 no Monthly
Excess Interest Amount will be used to make accelerated payments of principal to
the Owners of the Offered Certificates. The Final Scheduled Payment Date for the
Class A-5 Certificates, Class A-6 Certificates and each Class of the Subordinate
Certificates is the thirteenth Payment Date following the Remittance Period in
which the Loan Balances of all Home Equity Loans (including
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<PAGE>
Subsequent Home Equity Loans) have been reduced to zero assuming that the Home
Equity Loans pay in accordance with their terms. The weighted average lives of
the Offered Certificates are 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 Dates with respect to the Offered
Certificates could occur significantly earlier than the Final Scheduled Payment
Dates 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 10% 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 any
Class of the Offered Certificates will be influenced by the rate at which
principal of the Home Equity Loans 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.
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. A 100%
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 such Home Equity Loans and an additional ____%
(precisely ______ths) per annum in each month thereafter until the twelfth
month. Beginning in the thirteenth month and in each month thereafter during the
life of such Home Equity Loans, 100% Prepayment Assumption assumes a constant
prepayment rate of ___% per annum each month. As used in the table below, 0%
Prepayment Assumption assumes prepayment rates equal to 0% of the Prepayment
Assumption; i.e., no prepayments. Correspondingly, 100% Prepayment Assumption
assumes prepayment rates equal to 100% 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 Offered 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 Offered Certificates (other than the Class A-7IO
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
Offered Certificates (other than the Class A-7IO 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 consist of pools of loans with level-pay and balloon amortization
methodologies, Loan Balances, gross coupon rates, net coupon rates, original and
remaining terms of amortization, and remaining terms to maturity as applicable,
as set forth in the "Representative Loan Pools" table below, (ii) the Closing
Date for the Certificates occurs on _________, 199__, (iii) distributions on the
Certificates are made on the ____ 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 Trustee Fee, (v) the Home Equity
Loans' prepayment rates are a multiple of the Prepayment Assumption, (vi)
prepayments include ___ day's interest thereon, (vii) no optional termination is
exercised (except in the case of the Weighted Average Life to Call), (viii) the
"Targeted Overcollateralization Amount" (as defined under "Credit Enhancement --
Overcollateralization Provisions") is set initially as specified in the Pooling
and Servicing Agreement and thereafter decreases in accordance with the
provisions of the Pooling and Servicing Agreement, (ix) no reinvestment income
from any Trust account is available for payment to the Owners of the
Certificates other than the Pre-Funding Account, which accrues on the funds
therein based on the Assumed Delivery of Home Equity Loans set forth below, (x)
the Class A-1 Pass-Through Rate remains constant at approximately ____% 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).
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<PAGE>
REPRESENTATIVE LOAN POOLS
<TABLE>
<CAPTION>
Original Remaining Remaining Assumed
Gross Term of Term of Term to Delivery of
Pool Loan Coupon Net Coupon Amortization Amortization Maturity Amortization Home Equity
Number Balance Rate Rate (in months) (in months) (in months) Method Loans
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
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<PAGE>
The following tables set forth the percentages of the initial principal
amount of the Offered 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(1)
<TABLE>
<CAPTION>
Class A-1 Class A-2
Payment Date % % % % % % % % % % % %
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial
Weighted Average Life
to Maturity (years)(2)
Weighted Average Life
to Call (years)(2)
<CAPTION>
Class A-3 Class A-4
Payment Date % % % % % % % % % % % %
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial
Weighted Average Life
to Maturity (years)(2)
Weighted Average Life
to Call (years)(2)
</TABLE>
- -----------------------------
(1) The percentages in the following tables have been rounded to the nearest
whole number.
(2) The weighted average life of the Offered Certificates is determined by
(i) multiplying the amount of each principal payment by the number of years
from the date of issuance to the related Payment Date, (ii) adding the
results, and (iii) dividing the sum by the initial respective Certificate
Principal Balance for such Class of Offered Certificate.
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<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE(1)
<TABLE>
<CAPTION>
Class A-5 Class A-6
Payment Date % % % % % % % % % % % %
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial
Weighted Average Life
to Maturity (years)(2)
Weighted Average Life
to Call (years)(2)
<CAPTION>
Class M-1 Class M-2
Payment Date % % % % % % % % % % % %
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial
Weighted Average Life
to Maturity (years)(2)
Weighted Average Life
to Call (years)(2)
</TABLE>
- -----------------------------
(1) The percentages in the following tables have been rounded to the nearest
whole number.
(2) The weighted average life of the Offered Certificates is determined by
(i) multiplying the amount of each principal payment by the number of years
from the date of issuance to the related Payment Date, (ii) adding the
results, and (iii) dividing the sum by the initial respective Certificate
Principal Balance for such Class of Offered Certificate.
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<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE(1)
<TABLE>
<CAPTION>
Class B
Payment Date % % % % % %
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Initial
Weighted Average Life
to Maturity (years)(2)
Weighted Average Life
to Call (years)(2)
</TABLE>
- -----------------------------
(1) The percentages in the following tables have been rounded to the nearest
whole number.
(2) The weighted average life of the Offered Certificates is determined by
(i) multiplying the amount of each principal payment by the number of years
from the date of issuance to the related Payment Date, (ii) adding the
results, and (iii) dividing the sum by the initial respective Certificate
Principal Balance for such Class of Offered Certificate.
Payment Lag Feature of Offered 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 while the Trustee
will not be required to distribute any such amounts to the Owners of the Offered
Certificates until the next succeeding Payment Date. As a result, the monthly
distributions to the Owners of the Offered Certificates 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 of the Offered Certificates (other than the Class A-1 Certificates) will
be below that otherwise produced by the related Pass-Through Rate because the
distribution to the Owners of the Offered Certificates in respect of any given
month will not be made until on or about the 20th day of the following month.
Yield Sensitivity of the Class A-7IO Certificates
Because amounts distributable to the Owners of the Class A-7IO
Certificates consist entirely of interest, the yield to maturity of the Class
A-7IO Certificates will be sensitive to the repurchase, prepayment and default
experience of the Home Equity Loans, and prospective investors should fully
consider the associated risks, including the risk that such investors may not
fully recover their initial investment. In addition, the Notional Principal
Amount applicable to interest calculations on the Class A-7IO Certificates is
(x) through the Payment Date in September 2000, the Class A-6 Certificate
Principal Balance and (y) thereafter, zero. Since the Class A-6 Certificates
will amortize in accordance with the distribution of the Class A-6 Lockout
Distribution Amount, the performance of the Class A-7IO Certificates is likely
to be more stable than if such Notional Principal Amount were calculated using
the underlying Home Equity Loans directly, and consequently, the yield
sensitivity of such Certificates will only be impacted at extremely high rates
of prepayment.
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<PAGE>
The following table sets forth percentages for the sensitivity of the
Class A-7IO Certificates to prepayments based on the modeling assumptions set
forth above.
Pre-Tax Yield to Maturity(1) -- Sensitivity of the Class A-7IO
Certificates to Prepayments
Percentage of the Prepayment Assumption
---------------------------------------
% % % % % %
----- ----- ----- ----- ----- -----
- --------------------
(1) Represented on a corporate bond equivalent basis.
(2) As a percent of the Notional Principal Amount as of the Cut-Off Date.
Accrued interest will be added to such price after calculating the yields
set forth in the table.
The yields set forth in the preceding table were calculated by
determining the monthly discount rates which, when applied to the assumed stream
of cash flow to be paid on the Class A-7IO Certificates would cause the
discounted present value of such assumed cash flows to equal the assumed
purchase price of the Class A-7IO Certificates plus accrued interest and by
converting such monthly rates to corporate bond equivalent rates. Such
calculations do not take into account variations that may occur in the interest
rates at which investors may be able to reinvest funds received by them as
distributions on the Class A-7IO Certificates.
The Home Equity Loans will not necessarily have the characteristics
assumed above, and there can be no assurance that (i) the Home Equity Loans will
prepay at any of the rates shown in the table or at any other particular rate or
will prepay proportionately, (ii) the pre-tax yield on the Class A-7IO
Certificates will correspond to any of the pre-tax yields shown above or (iii)
the purchase price of the Class A-7IO Certificates will be equal to any of the
purchase prices assumed.
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 Offered 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 Upper-Tier
Distribution Account (as defined in the Pooling and Servicing Agreement), 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").
The Offered 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.
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 Lower-Tier REMIC
will generally consist of the Home Equity Loans. The assets of the Upper-Tier
REMIC will generally consist of the Upper-Tier Distribution Account and the
uncertificated regular interests issued by the Lower-Tier REMIC, which in
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<PAGE>
the aggregate will correspond to the Offered Certificates. In addition to the
Offered Certificates, the Trust will also issue the Class R Certificates which
will be designated as the "residual interest" in the Upper-Tier REMIC for
purposes of the Code. 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 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 Initial Home Equity Loans as
constituted at the close of business on the Cut-Off Date. Prior to the issuance
of the Offered 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. The Subsequent Home
Equity Loans will be added to the pool after the issuance of the Offered
Certificates.
A current report on Form 8-K will be available to purchasers of the
Offered Certificates and will be filed, 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 Offered Certificates and within 15 days of the addition of any
Subsequent Home Equity Loans. In the event 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 OFFERED CERTIFICATES
General
Each Offered 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.
Payment Dates
On each Payment Date, the Owners of each Class of the Offered
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
related Certificate Principal Balance (or Notional Principal Amount) of such
Class of the Offered Certificates is reduced to zero, and to the extent funds
are available therefor, the related Current Interest, any Interest Carry Forward
Amount and the portion of the Principal Distribution Amount, if any, allocated
therefor as of such Payment Date, allocated among the Classes of the Offered
Certificates as described below. Distributions will be made in immediately
available funds to Owners of the Offered 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 Offered Certificates--Book Entry Registration of the
Offered Certificates" herein and "Description of the Certificates--Book Entry
Registration" in the Prospectus.
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<PAGE>
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.
Each Owner of record of the related Class of Offered 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 an Offered Certificate
as of any date of determination will be equal to the percentage obtained by
dividing the principal balance (or notional balance) of such Offered Certificate
as of the Cut-Off Date by the Certificate Principal Balance (or Notional
Principal Amount) for the related Class of Certificates as of the Cut-Off Date.
Distributions
Upon receipt, the Trustee will be required to deposit into the
Certificate Account the Interest Remittance Amount and the Principal Remittance
Amount.
The Pooling and Servicing Agreement establishes a pass-through rate on
each Class of the Offered Certificates (each, a "Pass-Through Rate") as set
forth in the Summary of Terms herein under "Certificates Offered." The Class A-1
Pass-Through Rate adjusts monthly and will on each Payment Date be equal to the
lesser of (x) LIBOR plus ____% and (y) the Available Funds Cap. The "Expense Fee
Rate" will equal the sum of the per annum rates at which the Servicing Fee, the
Trustee Fee and any Trustee Reimbursable Expenses (as defined in the Pooling and
Servicing Agreement) are calculated.
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 with respect to interest and principal:
Interest: On each Payment Date the Interest Remittance Amount will be
distributed in the following order of priority:
First, to the Trustee, the Trustee Fee and any Trustee Reimbursable
Expenses;
Second, to the Owners of the Class A Certificates (including the Class
A-7IO Certificates), the related Current Interest plus the related
Class A Interest Carry Forward Amount with respect to each Class of
Class A Certificates without any priority among such Class A
Certificates; provided, that if the Interest Amount Available is not
sufficient to make a full distribution of interest with respect to all
Classes of the Class A Certificates, the Interest Amount Available will
be distributed among the outstanding Classes of Class A Certificates
pro rata based on the aggregate amount of interest due on each such
Class, and the amount of the shortfall will be carried forward with
accrued interest at the related Pass-Through Rate;
Third, to the extent of the Interest Amount Available then remaining,
to the Owners of the Class M-1 Certificates, the related Current
Interest;
Fourth, to the extent of the Interest Amount Available then remaining,
to the Owners of the Class M-2 Certificates, the related Current
Interest;
Fifth, to the extent of the Interest Amount Available then remaining,
to the Owners of the Class B Certificates, the related Current
Interest; and
Sixth, the Monthly Excess Interest Amount shall be applied as described
under "Credit Enhancement -- Application of Monthly Excess Cashflow
Amount."
Principal: On each Payment Date (a) before the Stepdown Date or (b)
with respect to which a Trigger Event is in effect, Owners of the Class A
Certificates (other than the Class A-7IO Certificates) will be entitled to
receive payment of 100% of the Principal Distribution Amount as follows: first,
to the Owners of the Class A-6 Certificates,
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<PAGE>
the Class A-6 Lockout Distribution Amount and second, to the Owners of 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 and the Class A-6
Certificates (without regard to the Class A-6 Lockout Distribution Amount), in
that order, in each case, until the Certificate Principal Balance of each Class
of Class A Certificates has been reduced to zero.
On each Payment Date (a) on or after the Stepdown Date and (b) as long
as a Trigger Event is not in effect, the Owners of all Classes of the Offered
Certificates (other than the Class A-7IO Certificates) will be entitled to
receive payments of principal, in the order of priority, in the amounts set
forth below and to the extent of the Principal Distribution Amount as follows:
First, the lesser of (x) the Principal Distribution Amount and (y) the
Class A Principal Distribution Amount shall be distributed as follows:
(i) to the Owners of the Class A-6 Certificates, in an amount equal to
the Class A-6 Lockout Distribution Amount and, (ii) to the Owners of
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
and the Class A-6 Certificates (without regard to the Class A-6 Lockout
Distribution Amount), in that order, in each case, until the
Certificate Principal Balance of each Class of Class A Certificates has
been reduced to zero;
Second, the lesser of (x) the excess of (i) the Principal Distribution
Amount over (ii) the amount distributed to the Owners of the Class A
Certificates in clause First above and (y) the Class M-1 Principal
Distribution Amount shall be distributed to the Owners of the Class M-1
Certificates, until the Class M-1 Certificate Principal Balance has
been reduced to zero;
Third, the lesser of (x) the excess of (i) the Principal Distribution
Amount over (ii) the sum of the amount distributed to the Owners of the
Class A Certificates in clause First above and the amount distributed
to the Owners of the Class M-1 Certificates in clause Second above and
(y) the Class M-2 Principal Distribution Amount shall be distributed to
the Owners of the Class M-2 Certificates, until the Class M-2
Certificate Principal Balance has been reduced to zero;
Fourth, the lesser of (x) the excess of (i) the Principal Distribution
Amount over (ii) the sum of the amount distributed to the Owners of the
Class A Certificates pursuant to clause First above, the amount
distributed to the Owners of the Class M-1 Certificates pursuant to
clause Second above and the amount distributed to the Owners of the
Class M-2 Certificates pursuant to clause Third above and (y) the Class
B Principal Distribution Amount shall be distributed to the Owners of
the Class B Certificates, until the Class B Certificate Principal
Balance has been reduced to zero; and,
Fifth, any amount of the Principal Remittance Amount remaining after
making all of the distributions in clauses First, Second, Third and
Fourth above shall be included as part of the Monthly Excess Cashflow
Amount as described under "Credit Enhancement -- Application of Monthly
Excess Cashflow Amounts" in the Summary of Terms.
Notwithstanding the foregoing, in the event that the Certificate
Principal Balances of all of the Class A Certificates have been reduced to zero,
all amounts of principal that would have been distributed to such Class A
Certificates will be distributed to the Subordinate Certificates sequentially in
the following order: Class M-1, Class M-2 and Class B. Similarly, if the
Certificate Principal Balance of the Class M-1 Certificates has been reduced to
zero, all amounts of principal that would have been distributed to such Class
M-1 Certificates will be distributed to the Class M-2 and Class B Certificates
in that order. Finally, if the Certificate Principal Balance of the Class M-2
Certificates has been reduced to zero, all amounts of principal that would have
been distributed on such Class M-2 Certificates will be distributed to the Class
B Certificates.
Payments of principal on the Class A Certificates shall be paid out in
the order described above, provided, however, that on any Payment Date on which
the sum of the Certificate Principal Balance of the Subordinate Certificates and
the Overcollateralization Amount is zero, any amounts of principal payable to
the Owners of the Class A Certificates on such Payment Date shall be distributed
pro rata.
The Owners of the Class A-6 Certificates are entitled to receive
payments of the Class A-6 Lockout Distribution Amount specified herein;
provided, that if on any Payment Date the Class A-5 Certificate Principal
Balance is zero, the
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<PAGE>
Owners of the Class A-6 Certificates will be entitled to receive the entire
Class A Principal Distribution Amount for such Payment Date.
Calculation of LIBOR
On each LIBOR Determination Date (as defined below), the Trustee will
determine LIBOR for the next Accrual Period for the Class A-1 Certificates.
"LIBOR" means, as of any LIBOR Determination Date, the London interbank
offered rate for one-month United States dollar deposits 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 one month. 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 one month (commencing on the first day of such Accrual Period).
"LIBOR Determination Date" means, with respect to any Accrual Period,
the second London business day preceding the commencement of such Accrual Period
(or, in the case of the first Accural Period, the second London business day
preceding the Closing Date). For purposes of determining LIBOR, a "London
business day" is any day on which dealings in deposits of United States dollars
are transacted in the London interbank market.
"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).
"Reference Banks" means leading banks selected by the Trustee and
engaged in transactions in Eurodollar deposits in the international Eurocurrency
market.
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 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 applicable Class or Classes of
Offered Certificates (other than the Class A-7IO Certificates) then entitled to
receive principal payments on the Payment Date immediately following the end of
the Funding Period in reduction of the Certificate Principal Balance of such
Owner's Certificates, thus resulting in a partial principal prepayment of such
Certificates.
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 and, to the extent required by the Pooling and Servicing
Agreement, then deposited in the Certificate Account prior to each Payment Date
during the Funding Period. The Pre-Funding Account will not be an asset of
either the Lower-Tier 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 on
each Payment Date during and immediately after the Funding Period to fund the
excess, if any, of (x) the interest accruing on the outstanding Pre-Funded
Amount as of the end of the related Remittance Period at a rate equal to (i) the
weighted average of the Pass-
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Through Rates on the Offered Certificates (except for the Class A-7IO
Certificates) and (ii) the Current Interest on the Class A-7IO Certificates
expressed as a percentage of the Aggregate Certificate Principal Balance over
(y) 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 each Payment Date during and immediately following the end of the Funding
Period to fund such excess, if any. 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 immediately after the
Funding Period.
Amounts on deposit in the Capitalized Interest Account will be invested
in Eligible Investments. The Capitalized Interest Account will not be an asset
of the Lower-Tier REMIC or the Upper-Tier REMIC.
Book Entry Registration of the Offered Certificates
The Offered Certificates will originally 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 in the United States, or
Cedel or Euroclear (in Europe) if they are 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 Offered Certificates which in the aggregate equal the principal balance of
such Offered Certificates and will initially be registered in the name of Cede &
Co., the nominee of DTC. Cedel and Euroclear will hold omnibus positions on
behalf of their Participants through customers' securities accounts in Cedel's
and Euroclear's names on the books of their respective depositaries which in
turn will hold such positions in customers' securities accounts in the
depositaries' names on the books of DTC. Citibank will act as depositary for
Cedel and Chase will act as depositary for Euroclear (in such capacities,
individually the "Relevant Depositary" and collectively the "European
Depositaries"). Investors may hold such beneficial interests in the Book-Entry
Certificates in minimum denominations representing principal amounts of $25,000
and in multiples of $1,000 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., 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 and on
the records of Cedel and Euroclear, as appropriate).
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 Offered
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 Offered Certificates only through
Participants and indirect participants by instructing such Participants and
indirect participants to transfer such Offered Certificates, by book-entry
transfer, through DTC for the account of the purchasers of such Offered
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 Offered Certificates will be executed through DTC and the
accounts of the
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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.
Because of time zone differences, credits of securities received in
Cedel or Euroclear as a result of a transaction with a Participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or Cedel Participants on such business day. Cash received in Cedel or
Euroclear as a result of sales of securities by or through a Cedel Participant
(as defined below) or Euroclear Participant (as defined below) to a DTC
Participant will be received with value on the DTC settlement date but will be
available in the relevant Cedel or Euroclear cash account only as of the
business day following settlements in DTC. For information with respect to tax
documentation procedures relating to the Certificates, see "Federal Income Tax
Consequences -- Taxation of Certain Foreign Investors" and -- "Backup
Withholding" in the Prospectus and "Global Clearance, Settlement and Tax
Documentation Procedures -- Certain U.S. Federal Income Tax Documentation
Requirements" in Annex I hereto.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. Cedel Participants and Euroclear Participants may not deliver instructions
directly to the European Depositaries.
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.
Cedel Bank, S.A. was incorporated in 1970 as a limited company under
Luxembourg law. Cedel is owned by banks, securities dealers and financial
institutions, and currently has about 100 shareholders, including United States
financial institutions or their subsidiaries. No single entity may own more than
five percent of Cedel's stock.
Cedel is registered as a bank in Luxembourg, and as such is subject to
regulation by the Institut Monetaire Luxembourgeois, "IML," the Luxembourg
Monetary Authority, which supervises Luxembourg banks.
Cedel holds securities for its participant organizations ("Cedel
Participants") and facilitates the clearance and settlement of securities
transactions between Cedel Participants through electronic book-entry changes in
accounts of Cedel Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in Cedel in any of 28
currencies, including United States dollars. Cedel provides to its Cedel
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedel interfaces with domestic markets in several
countries. As a professional depository, Cedel is subject to regulation by the
Luxembourg Monetary Institute. Cedel Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to Cedel is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Cedel Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of
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simultaneous transfers of securities and cash. Transactions may now be settled
in any of 32 currencies, including United States dollars. Euroclear includes
various other services, including securities lending and borrowing and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described above. Euroclear is
operated by the Brussels, Belgium office of Morgan Guaranty Trust Company of New
York (the "Euroclear Operator"), under contract with Euroclear Clearance Systems
S.C., a Belgian cooperative corporation (the "Cooperative"). All operations are
conducted by the Euroclear Operator, and all Euroclear Securities clearance
accounts and Euroclear cash accounts are accounts with the Euroclear Operator,
not the Cooperative. The Cooperative establishes policy for Euroclear on behalf
of Euroclear Participants. Euroclear Participants include banks (including
central banks), securities brokers and dealers and other professional financial
intermediaries. Indirect access to Euroclear is also available to other firms
that clear through or maintain a custodial relationship with a Euroclear
Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
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. Distribution with respect to
Book-Entry Certificates held through Cedel or Euroclear will be credited to the
cash accounts of Cedel Participants or Euroclear Participants in accordance with
the relevant system's rules and procedures, to the extent received by the
Relevant Depositary. Such distributions will be subject to tax reporting in
accordance with relevant United States tax laws and regulations. Because 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 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
on behalf of a Cedel Participant or Euroclear Participant 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.
Cedel or the Euroclear Operator, as the case may be, will take any action
permitted to be taken by an Owner under the Pooling and Servicing Agreement on
behalf of a Cedel Participant or Euroclear Participant only in accordance with
its relevant rules and procedures and subject to the ability of the Relevant
Depositary to effect such actions on its behalf through DTC. DTC may take
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actions, at the direction of the related Participants, with respect to some
Offered Certificates which conflict with actions taken with respect to other
Offered 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 Offered 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, Cedel and
Euroclear, they are 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.
CREDIT ENHANCEMENT
Subordination of Subordinate Certificates
The rights of the Owners of the Subordinate Certificates and the Class
R Certificates to receive distributions with respect to the Home Equity Loans
will be subordinated, to the extent described herein, to such rights of the
Owners of the Class A Certificates. This subordination is intended to enhance
the likelihood of regular receipt by the Owners of the Class A Certificates of
the full amount of their scheduled monthly payment of interest and principal and
to afford such Owners protection against Realized Losses.
The protection afforded to the Owners of the Class A Certificates by
means of the subordination of the Subordinate Certificates and the Class R
Certificates will be accomplished by the preferential right of the Owners of the
Class A Certificates to receive, prior to any distribution being made on a
Payment Date in respect of the Subordinate Certificates and the Class R
Certificates, the amounts of interest due them and principal available for
distribution on such Payment Date, and, if necessary, by the right of the Owners
of the Class A Certificates to receive future distributions of amounts that
would otherwise be payable to the Owners of the Subordinate Certificates and the
Class R Certificates.
In addition, the rights of the Owners of the Class M-2, Class B and
Class R Certificates to receive distributions will be subordinated, to the
extent described herein, to such rights of the Owners of the Class A and Class
M-1 Certificates. This subordination is intended to enhance the likelihood of
regular receipt by the Owners of the Class A and Class M-1 Certificates of the
amount of interest due them and principal available for distribution and to
afford such Owners with protection against Realized Losses.
The rights of the Owners of the Class B and Class R Certificates to
receive distributions will be subordinated in the same manner to such rights of
the Owners of the Class A, Class M-1 and Class M-2 Certificates and the rights
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of Owners of the Class R Certificates to receive distributions will be
subordinated in the same manner to such rights of the Owners of the Offered
Certificates.
Application of Realized Losses
If a Home Equity Loan becomes a Liquidated Loan during a Remittance
Period, the Net Liquidation Proceeds relating thereto and allocated to principal
may be less than the Loan Balance of such Home Equity Loan. The amount of such
insufficiency is a Realized Loss. Realized Losses will, in effect, be absorbed
first, by the Class R Certificates (both through the application of the Monthly
Excess Interest Amount to fund such deficiency and through a reduction in the
Overcollateralization Amount), second, by the Owners of the Class B
Certificates, third, by the Owners of the Class M-2 Certificates, and, fourth,
by the Owners of the Class M-1 Certificates.
To the extent that the pool of Home Equity Loans experiences Realized
Losses, such Realized Losses will reduce the aggregate outstanding Loan Balance
of the Home Equity Loans, i.e, a reduction in the collateral balance will occur.
Since the Overcollateralization Amount is the excess, if any, of the collateral
balance over the Aggregate Certificate Principal Balance, Realized Losses, to
the extent experienced, will in the first instance reduce the
Overcollateralization Amount.
The Pooling and Servicing Agreement requires that the
Overcollateralization Amount be initially increased to, and thereafter
maintained at, the Targeted Overcollateralization Amount. This increase and
subsequent maintenance is intended to be accomplished by the application of
Monthly Excess Interest Amounts to the funding of the Extra Principal
Distribution Amount. Such Extra Principal Distribution Amounts, since they are
funded from interest collections on the Home Equity Loans but are distributed as
principal on the Offered Certificates, will increase the Overcollateralization
Amount.
If, on any Payment Date after taking into account all Realized Losses
experienced during the prior Remittance Period and after taking into account the
distribution of principal (including the Extra Principal Distribution Amount)
with respect to the Offered Certificates on such Payment Date, the Aggregate
Certificate Principal Balance exceeds the aggregate Loan Balance of the Home
Equity Loans as of the end of the related Remittance Period (i.e. if the level
of overcollateralization is negative), then the Certificate Principal Balance of
the Subordinate Certificates will be reduced (in effect, "written down") such
that the level of overcollateralization is zero, rather than negative. Such a
negative level of overcollateralization is an Applied Realized Loss Amount,
which is applied as a reduction in the Certificate Principal Balance of the
Subordinate Certificates in reverse order of seniority (i.e., first against the
Class B Certificate Principal Balance until it is reduced to zero, then against
the Class M-2 Certificate Principal Balance until it is reduced to zero and then
against the Class M-1 Certificate Principal Balance until it is reduced to
zero). The Pooling and Servicing Agreement does not permit the "write down" of
the Certificate Principal Balance of any Class A Certificate.
Once the Certificate Principal Balance of a Class of Subordinate
Certificates has been "written down," the amount of such write down will no
longer bear interest, nor will such amount thereafter be "reinstated" or
"written up," although the amount of such "write down" may, on future Payment
Dates be paid to Owners of the Subordinate Certificates which experienced the
"write down", in direct order of seniority (i.e., first, the Class M-1
Certificates, second, the Class M-2 Certificates and, third, the Class B
Certificates). The source of funding of such payments will be the amount, if
any, of the Monthly Excess Cashflow Amount remaining on such future Payment
Dates after the funding of the Extra Principal Distribution Amount and after the
payment of Interest Carry Forward Amounts with respect to the Subordinate
Certificates on such Payment Date.
Application of Monthly Excess Cashflow Amounts
The weighted average net Coupon Rate for the Home Equity Loans is
expected to be generally higher than the weighted average of the Pass-Through
Rates on the Offered Certificates, thus generating certain excess interest
collections which, in the absence of losses will not be necessary to fund
interest distributions on the Offered Certificates. The Pooling and Servicing
Agreement provides that this excess interest be applied to the extent available,
to make accelerated payments of principal (i.e., the Extra Principal
Distribution Amount) to the Class or Classes then entitled to receive
distributions of principal; such application will cause the Aggregate
Certificate Principal Balance to amortize more rapidly than the pool of Home
Equity Loans, resulting in overcollateralization.
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The required level of overcollateralization for any Payment Date is the
Targeted Overcollateralization Amount for such Payment Date. The Targeted
Overcollateralization Amount is initially (i.e., prior to the Stepdown Date)
$__________. Since the actual level of the Overcollateralization Amount is $___
as of the Closing Date, in the early months of the transaction, subject to the
availability of Monthly Excess Interest Amounts, Extra Principal Distribution
Amounts will be paid, with the result that the Overcollateralization Amount will
increase to the level of the Targeted Overcollateralization Amount.
If, once the Targeted Overcollateralization Amount has been reached,
Realized Losses occur, such Realized Losses will result in an
Overcollateralization Deficiency (since such Realized Losses reduce the Loan
Balance of the Home Equity Loans without giving rise to a corresponding
reduction of the Aggregate Certificate Principal Balance). The cashflow
priorities of the Trust require that, in this situation, an Extra Principal
Distribution Amount be paid (subject to the availability of any Monthly Excess
Interest Amount) for the purpose of re-establishing the Overcollateralization
Amount at the then-required level of the Targeted Overcollateralization Amount.
On and after the Stepdown Date, the Targeted Overcollateralization
Amount is permitted to decrease or "step-down," below the $___________level to a
level equal to ____% of the then current aggregate outstanding Loan Balance
(subject to a floor of $_____________). If the Targeted Overcollateralization
Amount is permitted to "step-down" on a Payment Date, the Pooling and Servicing
Agreement permits a portion of the Principal Remittance Amount for such Payment
Date not to be passed through as a distribution of principal on such Payment
Date. This has the effect of decelerating the amortization of the Offered
Certificates relative to the aggregate outstanding Loan Balance of the Home
Equity Loans, thereby reducing the actual level of the Overcollateralization
Amount to the new, lower Targeted Overcollateralization Amount. This portion of
the Principal Remittance Amount not distributed as principal on the Certificates
therefore releases overcollateralization from the Trust. The amount of such
releases are the Overcollateralization Release Amounts.
On any Payment Date, the sum of the Monthly Excess Interest Amount and
the Overcollateralization Release Amount is the Monthly Excess Cashflow Amount,
which is required to be applied in the following order of priority on such
Payment Date:
(1) to fund the Extra Principal Distribution Amount for such Payment
Date;
(2) to fund the Class M-1 Interest Carry Forward Amount, if any;
(3) to fund the Class M-1 Realized Loss Amortization Amount for such
Payment Date;
(4) to fund the Class M-2 Interest Carry Forward Amount, if any;
(5) to fund the Class M-2 Realized Loss Amortization Amount for such
Payment Date;
(6) to fund the Class B Interest Carry Forward Amount, if any;
(7) to fund the Class B Realized Loss Amortization Amount for such
Payment Date;
(8) to the Servicer to the extent of any unreimbursed Delinquency
Advances or Servicing Advances;
(9) to the Trustee for reimbursement of expenses of the Trustee that
are not Trustee Reimbursable Expenses; and
(10) to fund a distribution to Owners of the Class R Certificates.
The Certificate Principal Balance of any Class of the Class A
Certificates is the Initial Certificate Principal Balance of such Class as
reduced by all amounts actually distributed to the Owners of such Class of Class
A Certificates on all prior Payment Dates.
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"Class B Applied Realized Loss Amount" means, as to any Payment Date,
the lesser of (x) the Class B Certificate Principal Balance (after taking into
account the distribution of the Principal Distribution Amount on such Payment
Date, but prior to the application of the Class B Applied Realized Loss Amount,
if any, on such Payment Date) and (y) the Applied Realized Loss Amount as of
such Payment Date.
"Class B Certificate Principal Balance" means, as of any date of
determination, the Original Class B Certificate Principal Balance as reduced by
the sum of (x) all amounts actually distributed to the Owners of the Class B
Certificates on all prior Payment Dates on account of principal and (y) the
aggregate, cumulative amount of Class B Applied Realized Loss Amounts on all
prior Payment Dates.
"Class B Realized Loss Amortization Amount" means, as of any Payment
Date, the lesser of (x) the Class B Unpaid Realized Loss Amount as of such
Payment Date and (y) the excess of (i) the Monthly Excess Cashflow Amount over
(ii) the sum of the Extra Principal Distribution Amount, the Class M-1 Realized
Loss Amortization Amount, the Class M-2 Realized Loss Amortization Amount, the
Class M-1 Interest Carry Forward Amount, the Class M-2 Interest Carry Forward
Amount and the Class B Interest Carry Forward Amount in each case for such
Payment Date.
"Class M-1 Applied Realized Loss Amount" means, as to any Payment Date,
the lesser of (x) the Class M-1 Certificate Principal Balance (after taking into
account the distribution of the Principal Distribution Amount on such Payment
Date, but prior to the application of the Class M-1 Applied Realized Loss
Amount, if any, on such Payment Date) and (y) the excess of (i) the Applied
Realized Loss Amount as of such Payment Date over (ii) the sum of the Class M-2
Applied Realized Loss Amount and the Class B Applied Realized Loss Amount, in
each case as of such Payment Date.
"Class M-1 Certificate Principal Balance" means, as of any date of
determination, the Original Class M-1 Certificate Principal Balance as reduced
by the sum of (x) all amounts actually distributed to the Owners of the Class
M-1 Certificates on all prior Payment Dates on account of principal and (y) the
aggregate, cumulative amount of Class M-1 Applied Realized Loss Amounts on all
prior Payment Dates.
"Class M-1 Realized Loss Amortization Amount" means, as of any Payment
Date, the lesser of (x) the Class M-1 Unpaid Realized Loss Amount as of such
Payment Date and (y) the excess of (i) the Monthly Excess Cashflow Amount over
(ii) the sum of the Extra Principal Distribution Amount and the Class M-1
Interest Carry Forward Amount for such Payment Date.
"Class M-2 Applied Realized Loss Amount" means, as to any Payment Date,
the lesser of (x) the Class M-2 Certificate Principal Balance (after taking into
account the distribution of the Principal Distribution Amount on such Payment
Date, but prior to the application of the Class M-2 Applied Realized Loss
Amount, if any, on such Payment Date) and (y) the excess of (i) the Applied
Realized Loss Amount as of such Payment Date over (ii) the sum of the Class B
Applied Realized Loss Amount and the Class M-1 Applied Realized Loss Amount, in
each case as of such Payment Date.
"Class M-2 Certificate Principal Balance" means, as of any date of
determination, the Original Class M-2 Certificate Principal Balance as reduced
by the sum of (x) all amounts actually distributed to the Owners of the Class
M-2 Certificates on all prior Payment Dates on account of principal and (y) the
aggregate, cumulative amount of Class M-2 Applied Realized Loss Amounts on all
prior Payment Dates.
"Class M-2 Realized Loss Amortization Amount" means, as of any Payment
Date, the lesser of (x) the Class M-2 Unpaid Realized Loss Amount as of such
Payment Date and (y) the excess of (i) the Monthly Excess Cashflow Amount over
(ii) the sum of the Extra Principal Distribution Amount, the Class M-1 Realized
Loss Amortization Amount, the Class M-2 Interest Carry Forward Amount for such
Payment Date.
"Unpaid Realized Loss Amount" means for any Class of the Subordinate
Certificates and as to any Payment Date, the excess of (x) the aggregate
cumulative amount of related Applied Realized Loss Amounts with respect to such
Class for all prior Payment Dates over (y) the aggregate, cumulative amount of
related Realized Loss Amortization Amounts with respect to such Class for all
prior Payment Dates.
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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, any Sub-Servicer, any Owner, the Custodian or the
Trustee that the representations and warranties set forth in the Pooling and
Servicing Agreement are untrue in any material respect as of the Closing Date
with the result that the interests of the Owners 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, the Seller will be required promptly to
cure such breach in all material respects or the Seller shall on or prior to 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 the excess, if any, of the Loan Balance of the Home
Equity Loan being replaced over the outstanding principal balance of the
replacement Home Equity Loan plus interest (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, 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 otherwise subject the Trust
to tax and would not jeopardize the status of either the Upper-Tier REMIC or the
Lower-Tier REMIC (other than the Non-REMIC Accounts) as a REMIC (a "REMIC
Opinion") addressed to the Trustee. The Seller shall also deliver an Officer's
Certificate to the Trustee 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 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 either a REMIC Opinion or an
opinion of counsel rendered by independent counsel that the effects described in
a 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 a representation of warranty is untrue in any material respect and
has not been remedied constitutes the sole remedy available to the Owners and
the Trustee.
"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.
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Assignment of Home Equity Loans
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 its respective 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 received on or before the Cut-Off Date) 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) (1) 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 (2) 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 until such information is received; provided,
further, that the Seller shall not be required to record an assignment
of a Mortgage (except upon the occurrence of certain triggers specified
in the Pooling and Servicing Agreement) if the Seller furnishes to the
Trustee 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 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 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 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 and the Rating
Agencies.
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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 and the
Owners. 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,
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 Monthly 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
monitor no less frequently than monthly 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 Fannie Mae's Servicing
Guide (the "Fannie Mae Guide"); provided, however, that to the extent such
standards, such obligations or the Fannie Mae Guide is amended by Fannie Mae
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.
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 Fannie Mae 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,
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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
received after the Cut-Off Date, 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 (a) the Loan Balance of the related Home Equity Loan
immediately prior to liquidation, (b) accrued and unpaid interest on such Home
Equity Loan (net of the Servicing Fee) to the date of such liquidation and (c)
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 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 for any excess interest collected from a Mortgagor; 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 Monthly 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 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 (such amount to
be replaced on future dates to the extent necessary) or from the Certificate
Account out of the Monthly Excess Cashflow Amount.
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.
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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 the Servicer in its reasonable
business judgment determines that any such proposed amount 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 Pooling and Servicing 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 related 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 shall not be entitled to reimbursement for amounts
paid as Compensating Interest.
In accordance with the terms of the Pooling and Servicing Agreement,
the Servicer will have the right and the option, but not the obligation, to
purchase for its own account Home Equity Loans which become 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 Trustee, at the Servicer's expense, an opinion of counsel
delivered to 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 either the Upper-Tier REMIC or the Lower-Tier
REMIC (other than the Non-REMIC Accounts) 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.
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 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: (a) the provisions of the related Note and Mortgage have been
complied with; (b) the loan-to-value ratio and debt-to-income ratio after any
release do not exceed the loan-to-value ratio and debt-to-income ratio,
respectively, of such Note on the Cut-Off Date provided that the loan-to-value
ratio shall be permitted to be increased by an amount not to exceed 5%; and (c)
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 default with respect to such Home Equity Loan or in the event
that a default with respect to such Home Equity Loan is imminent;
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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 latest Class of Offered Certificates
remaining in the Trust. 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 prior to the
execution of any modification, waiver or amendment of any provision of any Home
Equity Loan 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 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).
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 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 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 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 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 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 and the Rating
Agencies on or before April 30 of each year, commencing in ____: (i) an
officers' certificate stating, as to each signer thereof, that (a) 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 (b) 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 (ii) a letter or letters of a firm of
independent, nationally recognized certified public accountants reasonably
acceptable to the Trustee stating that such firm has examined the Servicer's
overall servicing operations in accordance with the requirements of the Uniform
Single Attestation Program for Mortgage Bankers, and stating such firm's
conclusions relating thereto.
Removal and Resignation of Servicer
The Trustee, at the direction of a majority of the Owners of the
Offered Certificates, will have the right, pursuant to the Pooling and Servicing
Agreement, to remove the Servicer upon the occurrence of certain events
(collectively, the "Servicer Termination Events") including, without limitation:
(a) certain acts of bankruptcy or
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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.
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 and (B) until such time as a successor Servicer is appointed pursuant
to the terms of the Pooling and Servicing Agreement, shall serve in the capacity
of Backup 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 Fannie Mae, having equity of not less than
$5,000,000, and acceptable to a majority of the Owners of the Offered
Certificates 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 or a successor servicer shall have assumed the Servicer's
responsibilities and obligations in accordance with the Pooling and Servicing
Agreement.
The Trustee
___________________________, a _______________ corporation, 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 and
the Rating Agencies:
i) the amount of the distribution with respect each Class of
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 any Pre-Funded Amounts distributed as a prepayment (based on a
Certificate in the original principal amount of $1,000) and any Extra Principal
Distribution Amount;
iii) the amount of such distribution allocable to interest on
the Home Equity Loans (based on a Certificate in the original principal amount
of $1,000);
iv) the Interest Carry-Forward Amount for each Class;
v) the principal amount of each Class of Offered 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;
vi) the aggregate Loan Balance of all Home Equity Loans after
giving effect to any payment of principal on such Payment Date;
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vii) 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;
viii) the total of any Substitution Amounts or Loan Purchase
Price amounts included in such distribution;
ix) the weighted average Coupon Rate of the Home Equity Loans;
x) LIBOR relating to such Payment Date;
xi) whether a Trigger Event or Subordinated Trigger Event is
in effect;
xii) the Senior Enhancement Percentage;
xiii) the Overcollateralization Amount;
xiv) the amount of any Applied Realized Loss Amount, Realized
Loss Amortizations Amount and Unpaid Realized Loss Amount for each Class as of
the close of such Payment Date; and
xv) for the Payment Dates during and immediately following the
Funding Period, the total remaining Pre-Funded Amount in the Pre-Funding
Account.
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 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:
(a) the number and aggregate principal balances of
Home Equity Loans 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 calendar month 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 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 calendar month 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 calendar month 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 calendar month
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 calendar month immediately
preceding the Payment Date;
(f) the amount of cumulative Realized Losses since
the Closing Date, the current period Realized Losses (each as defined
in the Pooling and Servicing Agreement) and any other loss percentages
as required by the Pooling and Servicing Agreement; and
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(g) the aggregate Loan Balances of 60+ Day Delinquent
Loans.
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 the Seller or the Owners of a majority of the Percentage Interests
represented by the Offered Certificates or, if there are no Offered 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 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 the
REMIC status of either the Lower-Tier REMIC or the Upper-Tier REMIC, (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), such amendment shall not
adversely affect in any material respect any Owner. Any such amendment shall be
deemed not to adversely affect in any material respect any Owner if there is
delivered to the Trustee written notification from each Rating Agency that such
amendment will not cause such Rating Agency to reduce its then current rating
assigned to any Class of the Offered Certificates. 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 or (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.
The Trustee will be required to furnish written notification of the
substance of any such amendments 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 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 (as defined in the Pooling and Servicing
Agreement) 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 (i) unanimously to direct the Trustee on behalf of
the Lower-Tier REMIC to adopt a plan of complete liquidation, as contemplated by
Section 860F(a)(4) of the Code and (ii) to furnish to the Trustee an opinion of
counsel experienced in federal income tax matters acceptable to the Trustee to
the effect that such liquidation constitutes a Qualified Liquidation.
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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 after the Clean-Up Call Date
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. The proceeds from any such
termination may not be sufficient to distribute the full amount to which each
Class of Certificates is entitled if the purchase price is based in part on the
appraised value of any REO property underlying the Home Equity Loans and such
appraisal value is less than principal balance of the related Home Equity Loans.
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
Upper-Tier REMIC or the Lower-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 Owners of a majority in Percentage Interests represented by
the Offered Certificates then Outstanding 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.
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 Offered Certificates. Such section must be considered only in connection
with "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 Offered Certificates.
REMIC Elections
The Trust (other than the Non-REMIC Accounts) will consist of 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 Lower-Tier REMIC
will issue several uncertificated subclasses of non-voting interests (the
"Lower-Tier REMIC Regular Interests"), which will be designated as the regular
interests in the Lower-Tier REMIC and the uncertificated "Lower-Tier REMIC
Residual Class", which will be designated as the residual interest in the
Lower-Tier REMIC. The assets of the Lower-Tier 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 and the Non-REMIC
Accounts. The Upper-Tier REMIC will issue the Offered Certificates all of which
will be designated as 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 Lower-Tier REMIC
Regular Interests and the Upper-Tier Distribution Account. See "Formation of the
Trust and Trust Property" herein.
Qualification as a REMIC requires ongoing compliance with certain
conditions. Arter & Hadden LLP, 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 Lower-Tier
REMIC and the Upper-Tier REMIC will be treated as a REMIC, the Offered
Certificates will be treated as "regular interests" in the Upper-Tier REMIC, the
Class R Certificate will be treated as the sole "residual interest" in the
Upper-Tier REMIC, the Lower-Tier REMIC Regular Interests will be treated as
"regular interests" in the Lower-Tier REMIC, and the Lower-Tier REMIC Residual
Class will be the sole "residual interest" in the Lower-Tier 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 such REMIC on the
date on which those interests are created, and not as ownership interests in
such REMIC or its assets. Owners of the
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Offered Certificates that otherwise report income under a cash method of
accounting will be required to report income with respect to such Offered
Certificates under an accrual method.
The prepayment assumption for each Class of the Offered Certificates
for calculating original issue discount is 100% of the related Prepayment
Assumption. No representation is made as to the actual rate at which the Home
Equity Loans will prepay. See "Prepayment and Yield Considerations -- Prepayment
and Yield Scenarios for Offered Certificates" herein.
As a result of the qualification of the Lower-Tier 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 "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 Offered 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 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
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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 Ratings
Services, Moody's, Duff & Phelps Credit Rating Co. ("D&P") or 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 Pooling and Servicing Agreement and reimbursement of
such person's reasonable expenses in connection therewith; and
(6) the Plan investing in the certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission under the Securities Act of 1933.
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 assets sold or serviced by the same entity. The
Exemption does not apply to Plans sponsored by the Depositor, 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").
On July 21, 1997, the DOL published in the Federal Register amendments
to the Exemptions ("PTE 97-34"), which extend exemptive relief to certain
mortgage-backed and asset-backed securities transactions using pre-funding
accounts for trusts issuing pass-through certificates. With respect to the
Certificates, the amendments generally allow Mortgage Loans supporting payments
to Owners, and having a principal amount equal to no more than 25% of the total
principal amount of the Certificates being offered by the Trust, to be
transferred to the Trust within a funding period no longer than 90 days or three
months following the Closing Date instead of requiring that all such Mortgage
Loans be either identified or transferred on or before the Closing Date. The
relief will apply to the purchase, sale and holding of the Class A Certificates,
provided that the following general conditions are met:
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(1) the ratio of the amount allocated to the Pre-Funding
Account to the total principal amount of the Certificates being offered
("Pre-Funding Limit") does not exceed 25%;
(2) all Subsequent Home Equity Loans meet the same terms and
conditions for eligibility as the original Home Equity Loans used to
create the Trust, which terms and conditions have been approved by the
Rating Agencies;
(3) the transfer of such Subsequent Home Equity Loans to the
Trust during the Funding Period does not result in the Certificates to
be covered by the Exemptions receiving a lower credit rating from a
Rating Agency upon termination of the Funding Period than the rating
that was obtained at the time of the initial issuance of the
Certificates by the Trust;
(4) solely as a result of the use of pre-funding, the weighted
average annual percentage interest rate (the "Average Interest Rate")
for all of the Home Equity Loans and Subsequent Home Equity Loans in
the Trust at the end of the Funding Period is not more than 100 basis
points lower than the Average Interest Rate for the Home Equity Loans
which were transferred to the Trust on the Closing Date;
(5) either: (i) the characteristics of the Subsequent Home
Equity Loans are monitored by an insurer or other credit support
provider which is independent of the Company; or (ii) an independent
accountant retained by the Company provides the Company with a letter
(with copies provided to the Rating Agencies, the Underwriters and the
Trustee) stating whether or not the characteristics of the Subsequent
Home Equity Loans conform to the characteristics described in the
Prospectus or Prospectus Supplement and/or Pooling and Servicing
Agreement. In preparing such letter, the independent accountant must
use the same type of procedures as were applicable to the Home Equity
Loans which were transferred to the Trust as of the Closing Date;
(6) the Funding Period ends no later than three months or 90
days after the Closing Date or earlier in certain circumstances if the
Pre-Funding Account falls below the minimum level specified in the
Pooling and Servicing Agreement or an event of default occurs;
(7) amounts transferred to any Pre-Funding Account and/or
Capitalized Interest Account used in connection with the pre-funding
may be invested only in investments which are permitted by the Rating
Agencies and; (i) are direct obligations of, or obligations fully
guaranteed as to timely payment of principal and interest by, the
United States or any agency or instrumentality thereof (provided that
such obligations are backed by the full faith and credit of the United
States); or (ii) have been rated (or the obligor has been rated) in one
of the three highest generic rating categories by such Rating Agency;
(8) the Prospectus or Prospectus Supplement describes: (i) any
Pre-Funding Account and/or Capitalized Interest Account; (ii) the
duration of the Funding Period; (iii) the percentage and/or dollar
amount of the Pre-Funding Limit for the Funding Period that will be
remitted to Owners as repayments of principal; and (iv) that the
amounts remaining in the Pre-Funding Account at the end of the Funding
Period will be remitted to Owners as repayments of principal; and
(9) the Pooling and Servicing Agreement describes the
permitted investments for the Pre-Funding Account and/or Capitalized
Interest Account and, if not disclosed in the Prospectus or Prospectus
Supplement, the terms and conditions for eligibility of Subsequent Home
Equity Loans.
It is believed that all of the conditions for exemptive relief under
the amendments to the Exemptions with respect to pre-funding have been or will
be satisfied.
[The exemptions do not apply to the initial purchase, the holding or
the subsequent resale of the Mezzanine Certificates and Class B Certificates
because such Certificates are subordinate to certain other Classes of
Certificates. Accordingly, Plans may not purchase the Mezzanine Certificates or
Class B Certificates, except that any insurance company may purchase such
Certificates with assets of its general account if the exemptive relief granted
by the DOL for transactions involving insurance company general accounts in
Prohibited Transaction Exemption 95-60, 60 Fed. Reg.
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35925 (July 12, 1995) ("PTCE 95-60") is available with respect to such
investment. Any insurance company proposing to purchase such Certificates for
its general account should consider whether such relief would be available.
Pursuant to PTCE 95-60 certain representations or opinions must be made to
qualify. By the transferee's acceptance of the Mezzanine Certificates or Class B
Certificates such transferee will be deemed to have represented that either (i)
it is not a Plan and is not acquiring such Certificate with the assets of a Plan
or (ii) such transferee and its acquisition of such Certificates comply with the
requirements in PTCE 95-60. In the event that such representations are violated,
the transferee must provide the opinions provided for under PTCE 95-60 or any
attempted transfers or acquisitions shall be void and of no effect.]
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,
as amended by PTE 97-34, and the potential consequences in their specific
circumstances, prior to making an investment in the Offered Certificates.
Moreover, each Plan fiduciary should determine whether under the general
fiduciary standards of investment procedure and diversification an investment in
the Offered 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.
In addition to the matters described above, purchasers of an Offered
Certificate that are insurance companies should consult with their counsel with
respect to the recent United States Supreme Court case interpreting the
fiduciary responsibility rules of ERISA, John Hancock Mutual Life Insurance Co.
v. Harris Trust and Savings Bank 114 S.Ct. 517 (1993). In John Hancock, the
Supreme Court ruled that assets held in an insurance company's general account
may be deemed to be "plan assets" for ERISA purposes under certain
circumstances. Prospective purchasers using insurance company general account
assets should determine whether the decision affects their ability to make
purchases of the Offered Certificates.
RATINGS
It is a condition of the issuance of the Offered Certificates that the
Offered Certificates receive at least the ratings from the Rating Agencies as
follows:
Class Moody's Standard & Poor's Fitch
- ----- ------- ----------------- -----
A-1 through A-6 Aaa AAA AAA
A-7IO Aaa AAAr AAA
M-1 Aa2 AA AA+
M-2 A2 A A+
B Baa3 BBB- BBB
Explanations of the significance of such ratings may be obtained from
Moody's, 99 Church Street, New York, New York 10007, Standard & Poor's, 26
Broadway, New York, New York 10004 and Fitch, One State Street Plaza, 33rd
Floor, New York, New York 10004. Such ratings will be the views only of such
rating agencies. There is no assurance that 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 Offered Certificates. A security rating is not a recommendation to
buy, sell or hold securities.
The ratings assigned by Fitch to pass-through certificates address the
likelihood of the receipt by the Owners of all distributions to which such
Owners are entitled. Fitch's ratings address the structural and legal aspects
associated with the Certificates, including the nature of the underlying loans
and the credit quality of the credit support provider. Fitch's ratings on home
equity pass-through Certificates do not represent any assessment of the
likelihood or rate of
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principal prepayments. The ratings do not address the possibility that Owners
might suffer a lower than anticipated yield or that investors in the Class A-7IO
Certificates may not fully recover their investment.
The ratings of Moody's on home equity pass-through certificates address
the likelihood of the receipt by the Owners of all distributions to which such
Owners are entitled. Moody's rating opinions address the structural and legal
issues and tax-related aspects associated with the Certificates, including the
nature of the underlying home equity loans and the credit quality of the credit
support provider, if any. Moody's ratings on pass-through certificates do not
represent any assessment of the likelihood that principal prepayments may differ
from those originally anticipated.
Ratings which are assigned to securities such as the Class A-7IO
Certificates generally evaluate the ability of the seller (i.e., the Trust) to
make payments, as required by such securities. The amounts distributable on the
Class A-7IO Certificates consist only of interest. In general, the ratings
address credit risk and not prepayment risk. If all of the Home Equity Loans
were to prepay in the initial month, with the result that investors in the Class
A-7IO Certificates receive only a single month's interest and thus suffer a
nearly complete loss of their investment, all amounts "due" to such Owners will
nevertheless have been paid, and such result is consistent with the
"Aaa/AAAr/AAA" ratings received on the Class A-7IO Certificates.
The "r" symbol is appended to the rating by Standard & Poor's of Class
A-7IO Certificates because they are interest-only Certificates that Standard &
Poor's believes may experience high volatility or high variability in expected
returns due to non-credit risks created by the terms of such Certificates. The
absence of an "r" symbol in the rating of the other Classes of Offered
Certificates should not be taken as an indication that such Certificates will
experience no volatility or variability in total return.
The ratings of Moody's, Standard & Poor's and Fitch do not address the
possibility that, as a result of principal prepayments, certificateholders may
receive a lower than anticipated yield.
The ratings of the Certificates should be evaluated independently from
similar ratings on other types of securities. A security rating is not a
recommendation to buy, sell or hold securities and may be subject to revision or
withdrawal at any time by the assigning rating agency.
The Depositor has not requested a rating of the Certificates offered
hereby by any rating agency other than Moody's, Standard & Poor's and Fitch and
the Depositor has not provided information relating to the Certificates offered
hereby or the Home Equity Loans to any rating agency other than Moody's,
Standard & Poor's and Fitch. However, there can be no assurance as to whether
any other rating agency will rate the Certificates offered hereby or, if another
rating agency rates such Certificates, what rating would be assigned to such
Certificates by such rating agency. Any such unsolicited rating assigned by
another rating agency to the Certificates offered hereby may be lower than the
rating assigned to such Certificates by any of Moody's, Standard & Poor's and
Fitch.
LEGAL INVESTMENT CONSIDERATIONS
The Offered Certificates will [not] constitute "mortgage related
securities" for purposes of SMMEA. [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 Offered Certificates.]
S-65
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement relating to the Offered Certificates (the "Underwriting Agreement"),
the Depositor has agreed to sell to each of the Underwriters named below (the
"Underwriters"), and each of the Underwriters has severally agreed to purchase,
the principal amount of the Offered 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-66
<PAGE>
Class A-5 Certificates
Underwriters Principal Amount
------------ ----------------
$
Total $
Class A-6 Certificates
Underwriters Principal Amount
------------ ----------------
$
Total $
Class A-7IO Certificates
Underwriter Percentage Interest
----------- -------------------
No principal payments are distributed with respect to the Class A-7IO
Certificates. Interest will be distributed and calculated on the basis of the
Notional Principal Amount. Bear, Stearns & Co. Inc. is the sole underwriter with
respect to the Class A-7IO Certificates.
Class M-1 Certificates
Underwriters Principal Amount
------------ ----------------
$
Total $
Class M-2 Certificates
Underwriters Principal Amount
------------ ----------------
$
Total $
S-67
<PAGE>
Class B Certificates
Underwriters Principal Amount
------------ ----------------
$
Total $
In the Underwriting Agreement, the Underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase all of the Offered
Certificates offered hereby, if any are purchased. The Depositor has been
advised by the Underwriters that they propose initially to offer the Offered
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 related 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-7IO..........................
M-1............................
M-2............................
B..............................
After the initial public offering, such prices, concessions and
discounts may be changed.
The Underwriters may engage in over-allotment, stabilizing
transactions, syndicate covering transactions and penalty bids in accordance
with Regulation M under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specific maximum. Syndicate covering
transactions involve purchases of the Offered Certificates in the open market
after the distribution has been completed in order to cover syndicate short
positions. Penalty bids permit the Underwriters to reclaim a selling concession
from a syndicate member when the Offered Certificates originally sold by such
syndicate member are purchased in a syndicate covering transaction to cover
syndicate short positions. Such stabilizing transactions, syndicate covering
transactions and penalty bids may cause the price of the Offered Certificates to
be higher than it would otherwise be in the absence of such transactions. These
transactions, if commenced, may be discontinued at any time.
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.
S-68
<PAGE>
CERTAIN LEGAL MATTERS
Certain legal matters relating to the validity of the issuance of the
Certificates will be passed upon for the Seller by Arter & Hadden LLP,
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 Seller and the Depositor by Arter & Hadden LLP. Certain legal matters
relating to the validity of the issuance of the Certificates will be passed upon
for the Underwriters by _____________________________________________.
S-69
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered
$_______________ IMC Home Equity Loan Pass-Through Certificates, Series 199__-__
(the "Global Securities") will be available only in book-entry form. Investors
in the Global Securities may hold such Global Securities through any of DTC,
Cedel or Euroclear. The Global Securities will be tradeable as home market
instruments in both the European and U.S. domestic markets. Initial settlement
and all secondary trades will settle in same-day funds.
Secondary market trading between investors through Cedel and Euroclear
will be conducted in the ordinary way in accordance with the normal rules and
operating procedures of Cedel and Euroclear and in accordance with conventional
eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors through DTC will be
conducted according to DTC's rules and procedures applicable to U.S. corporate
debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Notes will be effected on a delivery-against-payment basis
through the respective Depositaries of Cedel and Euroclear (in such capacity)
and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in the
name of Cede & Co. as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on their
behalf as direct and indirect Participants in DTC. As a result, Cedel and
Euroclear will hold positions on behalf of their participants through their
Relevant Depositary which in turn will hold such positions in their accounts as
DTC Participants.
Investors electing to hold their Global Securities through DTC will
follow DTC settlement practices. Investor securities custody accounts will be
credited with their holdings against payment in same-day funds on the settlement
date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior home
equity loan asset-backed securities issues in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC, Seller and Cedel or Euroclear Participants. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a Cedel Participant or a Euroclear Participant, the purchaser
will send instructions to Cedel or Euroclear through a Cedel Participant or
Euroclear Participant at least one business day prior to settlement. Cedel or
Euroclear will instruct the Relevant Depositary, as the case may be, to receive
the Global Securities
I-1
<PAGE>
against payment. Payment will include interest accrued on the Global Securities
from and including the last coupon payment date to and excluding the settlement
date, on the basis of either a 360-day year comprised of 30-day month's or the
actual number of days in such accrual period and a year assumed to consist of
360 days, as applicable. For transactions settling on the 31st of the month,
payment will include interest accrued to and excluding the first day of the
following month. Payment will then be made by the Relevant Depositary to the DTC
Participant's account against delivery of the Global Securities. After
settlement has been completed, the Global Securities will be credited to the
respective clearing system and by the clearing system, in accordance with its
usual procedures, to the Cedel Participant's or Euroclear Participant's account.
The securities credit will appear the next day (European time) and the cash debt
will be back-valued to, and the interest on the Global Securities will accrue
from, the value date (which would be the preceding day when settlement occurred
in New York). If settlement is not completed on the intended value date (i.e.,
the trade fails), the Cedel or Euroclear cash debt will be valued instead as of
the actual settlement date.
Cedel Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Cedel or Euroclear. Under this
approach, they may take on credit exposure to Cedel or Euroclear until the
Global Securities are credited to their account one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit
to them, Cedel Participants or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon to finance
settlement. Under this procedure, Cedel Participants or Euroclear Participants
purchasing Global Securities would incur overdraft charges for one day, assuming
they cleared the overdraft when the Global Securities were credited to their
accounts. However, interest on the Global Securities would accrue from the value
date. Therefore, in many cases the investment income on the Global Securities
earned during that one-day period may substantially reduce or offset the amount
of such overdraft charges, although the result will depend on each Cedel
Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours,
DTC Participants can employ their usual procedures for crediting Global
Securities to the respective European Depositary for the benefit of Cedel
Participants or Euroclear Participants. The sale proceeds will be available to
the DTC seller on the settlement date. Thus, to the DTC Participants a
cross-market transaction will settle no differently than a trade between two DTC
Participants.
Trading between Cedel or Euroclear Seller and DTC Purchaser. Due to
time zone differences in their favor, Cedel Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The seller will send
instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. In these cases Cedel
or Euroclear will instruct the respective Depositary, as appropriate, to credit
the Global Securities to the DTC Participant's account against payment. Payment
will include interest accrued on the Global Securities from and including the
last coupon payment to and excluding the settlement date on the basis either a
360-day year comprised of 30-day month's or of the actual number of days in such
accrual period and a year assumed to consist to 360 days, as applicable. For
transactions settling on the 31st of the month, payment will include interest
accrued to and excluding the first day of the following month. The payment will
then be reflected in the account of Cedel Participant or Euroclear Participant
the following day, and receipt of the cash proceeds in the Cedel Participant's
or Euroclear Participant's account would be back-valued to the value date (which
would be the preceding day, when settlement occurred in New York). Should the
Cedel Participant or Euroclear Participant have a line of credit with its
respective clearing system and elect to be in debt in anticipation of receipt of
the sale proceeds in its account, the back-valuation will extinguish any
overdraft incurred over that one-day period. If settlement is not completed on
the intended value date (i.e., the trade fails), receipt of the cash proceeds in
the Cedel Participant's or Euroclear Participant's account would instead be
valued as of the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase
Global Securities from DTC Participants for delivery to Cedel Participants or
Euroclear Participants should note that these trades would automatically fail on
the sale side unless affirmative action is taken. At least three techniques
should be readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the
purchase side of the trade is reflected in their Cedel or Euroclear accounts) in
accordance with the clearing system's customary procedures;
I-2
<PAGE>
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Cedel or Euroclear account
in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at least one
day prior to the value date for the sale to the Cedel Participant or Euroclear
Participant.
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of Global Securities holding securities through
Cedel or Euroclear (or through DTC if the holder has an address outside the
U.S.) will be subject to the 30% U.S. withholding tax that generally applies to
payments of interest (including original issue discount) on registered debt
issued by U.S. Persons (as defined below), unless (i) each clearing system, bank
or other financial institution that holds customers' securities in the ordinary
course of its trade or business in the chain of intermediaries between such
beneficial owner and the U.S. entity required to withhold tax complies with
applicable certification requirements and (ii) such beneficial owner takes one
of the following steps to obtain an exemption or reduced tax rate:
Exemption for Non-U.S. Persons (Form W-8). Beneficial Owners of Global
Securities that are Non-U.S. Persons (as defined below) can obtain a complete
exemption from the withholding tax by filing a signed Form W-8 (Certificate of
Foreign Status). If the information shown on Form W-8 changes, a new Form W-8
must be filed within 30 days of such change.
Exemption for Non-U.S. Persons with effectively connected income (Form
4224). A Non-U.S. Person (as defined below), including a non-U.S. corporation or
bank with a U.S. branch, for which the interest income is effectively connected
with its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a Trade
or Business in the United States).
Exemption or reduced rate for Non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons residing in a country that has a tax
treaty with the United States can obtain an exemption or reduced tax rate
(depending on the treaty terms) by filing Form 1001 (Ownership, Exemption or
Reduced Rate Certificate). If the treaty provides only for a reduced rate,
withholding tax will be imposed at that rate unless the filer alternatively
files Form W-8. Form 1001 may be filed by Note Owners or their agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's Request
for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Owner of a Global
Security or, in the case of a Form 1001 or a Form 4224 filer, his agent, files
by submitting the appropriate form to the person through whom it holds the
security (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W-8 and Form 1001 are effective for three
calendar years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity organized in or under
the laws of the United States or any political subdivision thereof or (iii) an
estate the income of which is includible in gross income for United States tax
purposes, regardless of its source or a trust if a court within the United
States is able to exercise primary supervision of the administration of the
trust and one or more United States fiduciaries have the authority to control
all substantial decisions of the trust. The term "Non-U.S. Person" means any
person who is not a U.S. Person. This summary does not deal with all aspects of
U.S. Federal income tax withholding that may be relevant to foreign holders of
the Global Securities. Investors are advised to consult their own tax advisors
for specific tax advice concerning their holding and disposing of the Global
Securities.
I-3
<PAGE>
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<PAGE>
APPENDIX A
INDEX TO LOCATION OF PRINCIPAL DEFINED TERMS
Accrual Period.............................................. S-5
Aggregate Certificate Principal Balance..................... S-3
Applied Realized Loss Amount................................ S-12
Appraised Values............................................ S-27
Available Funds Cap......................................... S-2
Average Interest Rate....................................... S-64
Backup Servicer............................................. S-23
Balloon Loans............................................... S-22
Beneficial Owners........................................... S-15
Book-Entry Certificates..................................... S-45
Capitalized Interest Account................................ S-15
Cede........................................................ S-16
Cedel....................................................... S-15
Cedel Participants.......................................... S-46
Certificate Account......................................... S-41
Certificate Principal Balance............................... S-1
Chase Manhattan Bank........................................ S-16
Citibank, N.A. ............................................. S-16
Class....................................................... S-1
Class A Certificates........................................ S-2
Class A Principal Distribution Amount....................... S-9
Class A-1 Certificates...................................... S-2
Class A-1 Pass-Through Rate................................. S-2
Class A-2 Certificates...................................... S-2
Class A-3 Certificates...................................... S-2
Class A-4 Certificates...................................... S-2
Class A-5 Certificates...................................... S-2
Class A-6 Certificates...................................... S-2
Class A-6 Lockout Distribution Amount....................... S-8
Class A-6 Lockout Percentage................................ S-8
Class A-6 Lockout Pro Rata Distribution Amount.............. S-8
Class A-7IO Certificates.................................... S-2
Class B Applied Realized Loss Amount........................ S-51
Class B Certificate Principal Balance....................... S-51
Class B Certificates........................................ S-2
Class B Principal Distribution Amount....................... S-9
Class B Realized Loss Amortization Amount................... S-51
Class Distribution Amount................................... S-5
Class M-1 Realized Loss Amortization Amount................. S-51
Class M-1 Applied Realized Loss Amount...................... S-51
Class M-1 Certificate Principal Balance..................... S-51
Class M-1 Certificates...................................... S-2
Class M-1 Principal Distribution Amount..................... S-9
Class M-2 Applied Realized Loss Amount...................... S-51
Class M-2 Certificate Principal Balance..................... S-51
Class M-2 Certificates...................................... S-2
Class M-2 Principal Distribution Amount..................... S-9
Class M-2 Realized Loss Amortization Amount................. S-51
Class R Certificates........................................ S-3
Clean-Up Call Date.......................................... S-16
Closing Date................................................ S-3
Code........................................................ S-18
Combined Loan-to-Value Ratios............................... S-30
Compensating Interest....................................... S-56
Cooperative................................................. S-47
Coupon Rate................................................. S-4
CPR......................................................... S-35
Current Interest............................................ S-6
Custodian................................................... S-3
Cut-Off Date................................................ S-3
D&P......................................................... S-63
Daily Collections........................................... S-55
Date-of-Payment Loans....................................... S-33
Definitive Certificate...................................... S-45
Delinquency Advances........................................ S-55
Depositor................................................... S-3
DOL......................................................... S-62
DTC......................................................... S-15
DTC Participants............................................ S-46
ERISA....................................................... S-62
Euroclear................................................... S-15
Euroclear Operator.......................................... S-47
Euroclear Participants...................................... S-46
Euroclear System............................................ S-15
European Depositaries....................................... S-45
Exchange Act................................................ S-69
Exemption................................................... S-63
Expense Fee Rate............................................ S-42
Extra Principal Distribution Amount......................... S-10
FannieMae................................................... S-23
FHLMC....................................................... S-24
Final Determination......................................... S-61
Financial Intermediary...................................... S-45
Fitch....................................................... S-17
FNMA Guide.................................................. S-54
Funding Period.............................................. S-15
Home Equity Loans........................................... S-3
Initial Home Equity Loans................................... S-4
Interest Amount Available................................... S-6
Interest Carry Forward Amount............................... S-6
Interest Remittance Amount.................................. S-6
LIBOR....................................................... S-2
LIBOR Determination Date.................................... S-44
Loan Balance................................................ S-27
Loan Purchase Price......................................... S-52
Lower-Tier REMIC............................................ S-17
Maximum Collateral Amount................................... S-16
Mezzanine Certificates...................................... S-2
Monthly Excess Cashflow Amount.............................. S-13
Monthly Remittance Date..................................... S-8
A-1
<PAGE>
Moody's..................................................... S-17
Mortgagor................................................... S-33
Net Liquidation Proceeds.................................... S-55
Non-REMIC Accounts.......................................... S-17
Notes....................................................... S-27
Notional Principal Amount................................... S-2
Offered Certificates........................................ S-2
Original Aggregate Loan Balance............................. S-27
Overcollateralization Amount................................ S-10
Overcollateralization Deficiency............................ S-10
Overcollateralization Release Amount........................ S-10
Owners...................................................... S-5
Participants................................................ S-45
Payment Date................................................ S-5
Percentage Interest......................................... S-42
Plans....................................................... S-62
Pooling and Servicing Agreement............................. S-3
Preference Amount........................................... S-10
Prepayment Assumption....................................... S-35
Prepayments................................................. S-19
Preservation Expenses....................................... S-56
Pre-Funded Amount........................................... S-14
Pre-Funding Account......................................... S-3
Pre-Funding Limit........................................... S-64
Principal and Interest Account.............................. S-54
Principal Distribution Amount............................... S-8
Principal Remittance Amount................................. S-8
Properties.................................................. S-3
Qualified Replacement Mortgage.............................. S-52
Rating Agencies............................................. S-17
REMIC Opinion............................................... S-52
Realized Loss............................................... S-11
Record Date................................................. S-5
Register.................................................... S-41
Registrar................................................... S-41
Relevant Depositary......................................... S-45
Remittance Period........................................... S-8
Restricted Group............................................ S-63
Riegle Act.................................................. S-21
Rules....................................................... S-45
Seller...................................................... S-3
Senior Enhancement Percentage............................... S-10
Senior Specified Enhancement Percentage..................... S-10
Servicer.................................................... S-3
Servicer Termination Events................................. S-58
Servicing Advance........................................... S-56
Servicing Fee............................................... S-11
SMMEA....................................................... S-18
Standard & Poor's........................................... S-17
Stepdown Date............................................... S-9
Subordinate Certificates.................................... S-2
Subsequent Cut-Off Date..................................... S-20
Subsequent Home Equity Loans................................ S-3
Subsequent Transfer Agreement............................... S-20
Subsequent Transfer Date.................................... S-15
Substitution Amount......................................... S-52
Sub-Servicers............................................... S-23
Sub-Servicing Agreements.................................... S-23
Targeted Overcollateralization Amount....................... S-10
Telerate Page 3750.......................................... S-44
Terms and Conditions........................................ S-47
Trigger Event............................................... S-9
Trust....................................................... S-1
Trust Estate................................................ S-40
Trustee..................................................... S-3
Trustee Fee................................................. S-3
Underwriters................................................ S-67
Unpaid Realized Loss Amount................................. S-51
Upper-Tier REMIC............................................ S-17
Weighted average life....................................... S-35
A-2
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<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-
The Depositor............................................................ S-
Use of Proceeds.......................................................... 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 Offered Certificates.................................. S-
Credit Enhancement....................................................... S-
The Pooling and Servicing Agreement...................................... S-
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....................................................
Risk Factors.............................................................
Description of the Securities............................................
The Trusts...............................................................
Credit Enhancement.......................................................
Servicing of Mortgage Loans..............................................
Pooling and Servicing Agreement..........................................
The Indenture............................................................
Use of Proceeds..........................................................
The Depositor............................................................
Certain Legal Aspects of the Mortgage Assets.........
Legal Investment Matters.............................
ERISA Considerations.................................
Federal Income Tax Consequences......................
Plan of Distribution.................................
Ratings..............................................
Legal Matters........................................
Financial Information................................
Index to Location of Principal Defined Terms.........
================================================================================
<PAGE>
================================================================================
$_______________
IMC HOME EQUITY LOAN
TRUST 199__-__
[LOGO]
IMC MORTGAGE COMPANY
Seller and Servicer
IMC SECURITIES, INC.
Depositor
---------------------
PROSPECTUS SUPPLEMENT
---------------------
[Underwriters]
___________________, 19___
================================================================================
Exhibit 99.3
PROSPECTUS SUPPLEMENT NOTES
(To Prospectus dated __________, 199__)
IMC HOME EQUITY LOAN OWNER TRUST 199__-__
_____________ADJUSTABLE RATE HOME EQUITY LOAN
ASSET BACKED NOTES, SERIES 199__-__
DUE _________________, 20__
IMC MORTGAGE COMPANY
[LOGO] Seller and Servicer
IMC SECURITIES, INC.
Depositor
The IMC Home Equity Loan Owner Trust 199__-__ (the "Issuer") will be formed
pursuant to an owner trust agreement to be dated as of _______________, 199__
(the "Trust Agreement") between IMC Securities, Inc. (the "Depositor") and
___________________, as owner trustee (the "Owner Trustee"). The Issuer is
hereby offering $________________ aggregate principal amount of its Adjustable
Rate Home Equity Loan Asset Backed Notes, Series 199__-__ (the "Notes"). The
Notes will be issued pursuant to an indenture, dated as of ______________, 199__
(the "Indenture"), between the Issuer and _______________________, as indenture
trustee (the "Indenture Trustee"), and will be secured by a trust estate (the
"Trust Estate") consisting primarily of (i) a pool (the "Pool") of adjustable
rate home equity loans secured by liens on one-to-four family residential
properties (the "Home Equity Loans"), (ii) the Issuer's rights under the Sale
and Servicing Agreement (as defined herein), (iii) the Note Insurance Policy, as
described herein and (iv) certain other assets described in the Indenture. The
Issuer also will issue instruments evidencing the residual interest in the Trust
Estate (the "Residual Interest"). The Residual Interest and the Notes are
collectively referred to as the "Securities." Only the Notes are offered hereby.
Simultaneously with the issuance of the Notes, the Seller will obtain from
_______________________ (the "Note Insurer") a financial guaranty note insurance
policy relating to the Notes (the "Note Insurance Policy") in favor of the
Indenture Trustee. The Note Insurance Policy will require the Note Insurer to
make certain Insured Payments (as defined herein) on the Notes.
(continued on following page)
[LOGO]
For a discussion of significant matters affecting investment in the Notes, see
"Risk Factors" beginning on page S-__ herein, "Prepayment and Yield
Considerations" beginning on page S-___ herein and "Risk Factors" beginning on
page ___ in the Prospectus.
THE NOTES REPRESENT NON-RECOURSE OBLIGATIONS OF THE ISSUER ONLY AND DO NOT
REPRESENT INTERESTS IN OR OBLIGATIONS OF THE DEPOSITOR, THE SELLER,
THE SERVICER, THE INDENTURE TRUSTEE, THE OWNER TRUSTEE, THE NOTE
INSURER OR ANY OF THEIR AFFILIATES, EXCEPT AS DESCRIBED HEREIN.
NEITHER THE NOTES 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.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
=============================================================================================
Initial Note Price to Underwriting Proceeds to
Principal Balance Note Rate Public Discount Depositor(1)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
............. % % % %
- ---------------------------------------------------------------------------------------------
Total........
=============================================================================================
</TABLE>
(1) Before deducting expenses, estimated to be $________.
(2) The Note Rate on the Notes is adjustable based on One-Month LIBOR as
described herein.
The Notes are offered subject to prior sale, when, as, and if accepted by the
Underwriters and subject to the Underwriters' rights to reject orders in whole
or in part. It is expected that the Notes will be delivered in book-entry form
only through the Same- Day Funds Settlement System of The Depository Trust
Company, Cedel Bank, S.A. and the Euroclear System on or about ____________,
199__. The Notes will be offered in Europe and the United States of America.
--------------
[Underwriters]
--------------
The date of this Prospectus Supplement is ______________, 199__
Information contained herein is subject to completion or amendment. A
registration statement relating to these Securities has been filed with the
Securities and Exchange Commission. These Securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This preliminary prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
Securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such State.
<PAGE>
(cover continued from previous page)
The Original Aggregate Loan Balance of the Home Equity Loans as of the Cut-Off
Date was $_________________, all of which are first liens. The Home Equity Loans
were originated or purchased by IMC Mortgage Company (the "Seller" and
"Servicer").
Payments of principal and interest will be made to holders (the "Owners") of
the Notes on the 20th day of each month (or, if such day is not a business day,
the next following business day) beginning ______________, 199__ (each, a
"Payment Date"). Interest will be paid on each Payment Date to the Owners of the
Notes based on the Note Principal Balance (as defined herein) at the Note Rate
subject to the limitations described herein.
The Notes will constitute non-recourse obligations of the Issuer. The Seller
will have limited obligations arising in respect of certain representations and
warranties on the Home Equity Loans in connection with the conveyance thereof to
the Depositor. The Servicer will have limited obligations that arise pursuant to
certain representations and warranties and to its contractual servicing
obligations under that certain agreement to be entered into among the Depositor,
the Servicer, the Seller, the Indenture Trustee and the Issuer (the "Sale and
Servicing Agreement"), including any obligation it may have to advance
delinquent interest payments on the Home Equity Loans.
The Notes will be unconditionally and irrevocably guaranteed as to timely
payment of interest due to Owners and as to ultimate payment of the Note
Principal Balance, in each case pursuant to the terms of the Note Insurance
Policy issued by the Note Insurer. See "The Note Insurer" herein.
The stated maturity for the Notes is the Payment Date occurring on
______________, 20___ (the "Final Payment Date").
The yield to maturity on the Notes will be affected by, among other things,
the rate of payment of principal (including by reason of prepayments, defaults
and liquidations) of the Home Equity Loans and the timing and receipt of such
payments as described herein and in the Prospectus. See "Risk Factors" in the
Prospectus and "Prepayment and Yield Considerations" herein.
The Notes are subject to optional redemption in full by the holder(s) of at
least 50% of the Residual Interest at any time after the aggregate Loan Balance
of the Home Equity Loans has declined to less than 10% of the Original Aggregate
Loan Balance. In addition, the Note Insurer will have rights, under the limited
circumstances described in the Sale and Servicing Agreement, to acquire all of
the Home Equity Loans from the Issuer and thereby effect a redemption of the
Notes. See "Administration Redemption of the Notes" herein.
It is a condition to the issuance of the Notes that they be rated "Aaa" by
Moody's Investors Service, Inc. and "AAA" by Standard & Poor's, a division of
The McGraw-Hill Companies.
No election will be made to treat the Trust as a "real estate mortgage
investment conduit" (a "REMIC") for federal income tax purposes.
There is currently no secondary market for the Notes. The Underwriters intend
to make a secondary market for the Notes, but have no obligation to do so. There
can be no assurance that a secondary market for the Notes will develop or, if
one does develop, that it will provide investors with a satisfactory level of
liquidity or that it will continue.
--------------
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE NOTES, 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 Notes offered by this Prospectus Supplement will be a separate series of
Asset Backed Notes 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.
As provided herein under "The Note Insurer Incorporation of Certain Documents
by Reference," the Depositor will provide without charge to any person to whom
this Prospectus Supplement is delivered, upon oral or written request of such
person, a copy of any or all financial statements incorporated herein by
reference. Requests for such copies should be directed as provided under "The
Note Insurer Incorporation of Certain Documents by Reference" herein.
--------------
To the extent statements contained herein do not relate to historical or
current information, this Prospectus Supplement may be deemed to consist of
forward looking statements that involve risks and uncertainties that may
adversely affect the distributions to be made on, or the yield of, the Notes,
which risks and uncertainties are discussed under "Risk Factors" and "Prepayment
and Yield Considerations" herein. As a consequence, no assurance can be given as
to the actual distributions on, or the yield of, the Notes.
--------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE NOTES OFFERED HEREBY,
INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT COVERING
TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING" HEREIN.
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
Page
----
SUMMARY OF TERMS . . . . . . . . . . . . . . . . . . . . . . . . S-1
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
THE SELLER AND SERVICER. . . . . . . . . . . . . . . . . . . . . S-11
General . . . . . . . . . . . . . . . . . . . . . . . . . . S-11
Credit and Underwriting Guidelines. . . . . . . . . . . . . S-12
Delinquency, Loan Loss and Foreclosure Information. . . . . S-13
THE ISSUER . . . . . . . . . . . . . . . . . . . . . . . . . . . S-15
THE DEPOSITOR. . . . . . . . . . . . . . . . . . . . . . . . . . S-15
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . S-15
THE HOME EQUITY LOAN POOL. . . . . . . . . . . . . . . . . . . . S-15
General . . . . . . . . . . . . . . . . . . . . . . . . . . S-15
Interest Payments on the Home Equity Loans. . . . . . . . . S-23
PREPAYMENT AND YIELD CONSIDERATIONS. . . . . . . . . . . . . . . S-24
General . . . . . . . . . . . . . . . . . . . . . . . . . . S-24
Prepayment and Yield Scenarios for the Notes . . . . . . . S-24
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . S-28
DESCRIPTION OF THE NOTES . . . . . . . . . . . . . . . . . . . . S-28
General . . . . . . . . . . . . . . . . . . . . . . . . . . S-28
Payment Dates . . . . . . . . . . . . . . . . . . . . . . . S-28
Payments. . . . . . . . . . . . . . . . . . . . . . . . . . S-28
Calculation of One-Month LIBOR. . . . . . . . . . . . . . . S-30
Book Entry Registration of the Notes. . . . . . . . . . . . S-30
Assignment of Rights. . . . . . . . . . . . . . . . . . . . S-33
THE NOTE INSURER . . . . . . . . . . . . . . . . . . . . . . . . S-33
CREDIT ENHANCEMENT . . . . . . . . . . . . . . . . . . . . . . . S-35
Note Insurance Policy . . . . . . . . . . . . . . . . . . . S-35
Overcollateralization Provisions. . . . . . . . . . . . . . S-35
ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . S-36
Covenant of the Seller to Take Certain Actions with
Respect to the Home Equity Loans in Certain Situations . . S-37
Assignment of Home Equity Loans . . . . . . . . . . . . . . S-37
Servicing and Sub-Servicing . . . . . . . . . . . . . . . . S-38
Removal and Resignation of Servicer . . . . . . . . . . . . S-41
Redemption of the Notes . . . . . . . . . . . . . . . . . . S-42
The Indenture Trustee . . . . . . . . . . . . . . . . . . . S-42
Voting. . . . . . . . . . . . . . . . . . . . . . . . . . . S-42
Reporting Requirements. . . . . . . . . . . . . . . . . . . S-42
Removal of Indenture Trustee for Cause. . . . . . . . . . . S-44
Governing Law . . . . . . . . . . . . . . . . . . . . . . . S-44
FEDERAL INCOME TAX CONSEQUENCES. . . . . . . . . . . . . . . . . S-44
STATE TAX CONSEQUENCES . . . . . . . . . . . . . . . . . . . . . S-44
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . S-44
RATINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-46
LEGAL INVESTMENT CONSIDERATIONS. . . . . . . . . . . . . . . . . S-46
UNDERWRITING . . . . . . . . . . . . . . . . . . . . . . . . . . S-46
REPORT OF EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . S-47
CERTAIN LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . S-47
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION
PROCEDURES. . . . . . . . . . . . . . . . . . . . . . . . . . I-1
INDEX TO LOCATION OF PRINCIPAL DEFINED TERMS . . . . . . . . . . A-1
<PAGE>
Prospectus
Page
----
SUMMARY OF PROSPECTUS. . . . . . . . . . . . . . . . . . . . . . .
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . .
DESCRIPTION OF THE SECURITIES. . . . . . . . . . . . . . . . . . .
General . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Classes of Securities . . . . . . . . . . . . . . . . . . . . .
Distributions of Principal and Interest . . . . . . . . . . . .
Book Entry Registration . . . . . . . . . . . . . . . . . . . .
List of Owners of Securities. . . . . . . . . . . . . . . . . .
THE TRUSTS . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage Loans. . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage-Backed Securities. . . . . . . . . . . . . . . . . . .
Other Mortgage Securities . . . . . . . . . . . . . . . . . . .
CREDIT ENHANCEMENT . . . . . . . . . . . . . . . . . . . . . . . .
SERVICING OF MORTGAGE LOANS. . . . . . . . . . . . . . . . . . . .
Payments on Mortgage 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 . . . . . . . . . . . . . . . . . . . . . . . .
THE POOLING AND SERVICING AGREEMENT. . . . . . . . . . . . . . . .
Assignment of Mortgage Assets . . . . . . . . . . . . . . . . .
Evidence as to Compliance . . . . . . . . . . . . . . . . . . .
The Trustee . . . . . . . . . . . . . . . . . . . . . . . . . .
Administration of the Security Account. . . . . . . . . . . . .
Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forward Commitments; Pre-Funding. . . . . . . . . . . . . . . .
Servicer Events of Default. . . . . . . . . . . . . . . . . . .
Rights Upon Servicer Event of Default . . . . . . . . . . . . .
Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . .
Termination . . . . . . . . . . . . . . . . . . . . . . . . . .
THE INDENTURE. . . . . . . . . . . . . . . . . . . . . . . . . . .
General . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Modification of Indenture . . . . . . . . . . . . . . . . . . .
Note Events of Default. . . . . . . . . . . . . . . . . . . . .
Rights Upon Note Events of Default. . . . . . . . . . . . . . .
List of Note Owners . . . . . . . . . . . . . . . . . . . . . .
Annual Compliance Statement . . . . . . . . . . . . . . . . . .
Indenture Trustee's Annual Report . . . . . . . . . . . . . . .
Satisfaction and Discharge of Indenture . . . . . . . . . . . .
Redemption of Notes . . . . . . . . . . . . . . . . . . . . . .
Reports by Indenture Trustees to Note Owners. . . . . . . . . .
Limitations on Suits. . . . . . . . . . . . . . . . . . . . . .
The Sale and Servicing Agreement. . . . . . . . . . . . . . . .
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . .
THE DEPOSITOR. . . . . . . . . . . . . . . . . . . . . . . . . . .
CERTAIN LEGAL ASPECTS OF THE MORTGAGE ASSETS . . . . . . . . . . .
General . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreclosure . . . . . . . . . . . . . . . . . . . . . . . . . .
Enforceability of Certain Provisions. . . . . . . . . . . . . .
Soldiers' and Sailors' Civil Relief Act . . . . . . . . . . . .
LEGAL INVESTMENT MATTERS . . . . . . . . . . . . . . . . . . . . .
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . .
FEDERAL INCOME TAX CONSEQUENCES. . . . . . . . . . . . . . . . . .
Federal Income Tax Consequences For REMIC Securities. . . . . .
Taxation of Regular Securities. . . . . . . . . . . . . . . . .
Taxation of Residual Securities . . . . . . . . . . . . . . . .
Treatment of Certain Items of REMIC Income and Expense. . . . .
Tax-Related Restrictions on Transfer of Residual Securities . .
Sale or Exchange of a Residual Security . . . . . . . . . . . .
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 Securities
as to Which No REMIC Election Is Made. . . . . . . . . . . .
Standard Securities . . . . . . . . . . . . . . . . . . . . . .
Premium and Discount. . . . . . . . . . . . . . . . . . . . . .
Stripped Securities . . . . . . . . . . . . . . . . . . . . . .
Reporting Requirements and Backup Withholding . . . . . . . . .
Taxation of Certain Foreign Investors . . . . . . . . . . . . .
Debt Certificates . . . . . . . . . . . . . . . . . . . . . . .
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxation of Securities Classified as Partnership Interests. . .
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . .
RATINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . .
FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . .
INDEX TO LOCATION OF PRINCIPAL DEFINED TERMS . . . . . . . . . . .
<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.
Securities Offered: $__________________ Adjustable Rate Home Equity Loan
Asset Backed Notes, Series 199__-__ (the "Notes").
The Notes represent non-recourse obligations of the
Issuer. Proceeds of the assets in the Trust Estate
will be the sole source of payments on the Notes.
Note Issuer: IMC Home Equity Loan Owner Trust 199__-__ (the
"Issuer" or the "Trust"), a Delaware business trust
established by the Depositor pursuant to an owner
trust agreement, dated as of _______________, 199__
(the "Trust Agreement"), between the Depositor and
the Owner Trustee. The Issuer does not have, nor is
it expected in the future to have, any significant
assets, other than the assets included in the Trust
Estate. See "The Issuer" herein.
Depositor: IMC Securities, Inc. (the "Depositor"), a Delaware
corporation.
Seller and Servicer: IMC Mortgage Company (the "Seller" and the
"Servicer"), a Florida corporation. The Seller's and
Servicer's principal executive offices are located at
5901 East Fowler Avenue, Tampa, Florida 33617-2362.
Indenture Trustee: _______________________, a ______________
banking corporation, as Indenture Trustee (the
"Indenture Trustee"). The Indenture Trustee shall
receive a fee (the "Indenture Trustee Fee") equal to
_____% per annum, payable monthly at one-twelfth the
annual rate of the aggregate outstanding Loan Balance
of the Home Equity Loans.
Owner Trustee: _______________________, a ______________ banking
corporation, as owner trustee under the Trust
Agreement (the "Owner Trustee"). The Owner Trustee
shall receive a fee (the "Owner Trustee Fee") as
provided under the Trust Agreement.
Cut-Off Date: As of the close of business on _____________, 199__
(the "Cut-Off Date").
Closing Date: On or about _______________, 199__.
Description of the Notes: The Notes represent non-recourse obligations of the
Issuer and will be issued pursuant to an indenture to
be dated as of ___________, 199__ (the "Indenture"),
entered into between the Issuer and the Indenture
Trustee. The assets included in the trust estate
created by the Indenture (the "Trust Estate") will be
the sole source of payments on the Notes. The Notes
will be issued in a single class.
The assets of the Trust Estate will consist of (i) a
pool (the "Pool") of adjustable rate home equity
loans (the "Home Equity Loans") secured by first lien
mortgages or deeds of trust on one-to-four family
residential properties, including units in
condominiums, planned unit developments, townhouses
and manufactured housing units (the "Properties"),
and including any note or other instrument of
indebtedness (each, a "Mortgage Note"); (ii) all
payments in respect of principal and interest on
S-1
<PAGE>
the Home Equity Loans (other than any principal or
interest payments due thereon on or prior to the
Cut-Off Date whether or not received); (iii) security
interests in the Properties; (iv) the Issuer's rights
under the Sale and Servicing Agreement; (v) the Note
Insurance Policy and (vi) certain other property.
Other Securities: In addition to the Notes, the Trust will issue a
class of security (the "Residual Interest") which
will represent the residual interest in the Trust.
The Notes and the Residual Interest are herein
referred to as the "Securities." Only the Notes are
offered hereby.
Denominations: The Notes are issuable in minimum denominations of an
original principal amount of $___________ and
multiples of $________ in excess thereof.
The Home Equity Loans: The Home Equity Loans to be included in the Trust
Estate on the Closing Date consist of adjustable rate
conventional home equity loans and the Mortgage Notes
relating thereto.
The Home Equity Loans are secured by first 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 Home Equity Loan) relating
to any Home Equity Loan exceeded _____% as of the
Cut-Off Date except for ___ loans with an aggregate
Loan Balance of $___________ (or ____% of the
Original Aggregate Loan Balance), which had a
Loan-to-Value Ratio not greater than ____%. None of
the Home Equity Loans are insured by pool mortgage
insurance policies and no significant portion of the
Home Equity Loans are insured by primary mortgage
insurance policies; however, certain distributions
due to the owners of the Notes (the "Owners") are
insured by the Note Insurer pursuant to the Note
Insurance Policy. The Home Equity Loans are not
guaranteed by the Issuer, the Depositor, the Seller,
the Servicer, the Note Insurer, the Owner Trustee,
the Indenture Trustee 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 Fannie Mae for Fannie Mae
mortgage-backed securities and in accordance with the
terms of that Sale and Servicing Agreement dated as
of ___________, 199__ (the "Sale and Servicing
Agreement") to be entered into among the Issuer, the
Depositor, the Seller, the Servicer and the Indenture
Trustee.
As of the Cut-Off Date, the average Loan Balance of
the Home Equity Loans was $__________. The minimum
and maximum Loan Balances of the Home Equity Loans as
of the Cut-Off Date were $_________ and $__________,
respectively. The weighted average interest rate (the
"Coupon Rate") of the Home Equity Loans was _____%;
the weighted average maximum Coupon Rate of the Home
Equity Loans was ______%; the maximum Coupon Rates of
the Home Equity Loans ranged from____% to _____%; the
weighted average minimum Coupon Rate of the Home
Equity Loans was ____%; the minimum Coupon Rates of
the Home Equity Loans ranged from _____% to _____%;
the weighted average Loan-to-Value Ratio of the Home
Equity Loans was ____%; the weighted average
remaining term to maturity of the Home Equity Loans
was ____ months; and the remaining terms to maturity
of the Home Equity Loans ranged from ____ months to
____ months. The weighted average gross margin of the
Home Equity Loans was ____%; the minimum gross margin
of the Home Equity Loans was ____% and
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the maximum gross margin of the Home Equity Loans was
_____%. All of the Home Equity Loans were secured by
first mortgages. Home Equity Loans containing
"balloon" payments represented not more than ____% of
the Home Equity Loans. No Home Equity Loan will
mature later than ___________, 20___. No Home Equity
Loan provides for negative amortization. See "The
Home Equity Loan Pool" herein.
Final Payment Date: The Final Payment Date for the Notes is
_____________, 20__ although it is anticipated that
the actual final Payment Date for the Notes will
occur significantly earlier than the Final Payment
Date. See "Prepayment and Yield Considerations"
herein.
Payments General: On the 20th 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 Indenture Trustee
will be required, subject to the availability of
amounts therefor, pursuant to the cash flow
priorities hereinafter described, to make payments on
the Notes to the Owners thereof of record as of the
last Business Day preceding such Payment Date (the
"Record Date").
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, Tampa, Florida, the city in which
the corporate trust office of the Indenture Trustee
is located or the city in which the Note Insurer is
located are authorized or obligated by law or
executive order to be closed.
Interest: On each Payment Date, the Notes will be entitled to
payments in respect of Current Interest.
"Current Interest" means, with respect to any Payment
Date the sum of (i) the aggregate amount of interest
accrued from and including 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 (the "Accrual Period") at the
Note Rate on the outstanding principal balance of the
Notes (the "Note Principal Balance"), (ii) any
Interest Carry Forward Amount and (iii) the
Preference Amount as it relates to interest
previously paid on such Note prior to such Payment
Date; provided, however, that Current Interest will
be reduced by the amount of any Civil Relief Interest
Shortfalls (as defined in the Sale and Servicing
Agreement). All calculations of interest on the Notes
will be made on the basis of the actual number of
days elapsed in the related Accrual Period and a year
of 360 days.
The "Interest Carry Forward Amount" for any Payment
Date is the sum of (x) the amount, if any, by which
(i) the Current Interest as of the immediately
preceding Payment Date exceeded (ii) the amount of
the actual payments of interest made on such
immediately preceding Payment Date plus (y) 30 days'
interest on such amount, calculated at the Note Rate.
On each Payment Date, the "Note Rate" will be equal
to the lesser of (x) with respect to any Payment Date
which occurs on or prior to the Redemption Date (as
defined herein), One-Month LIBOR plus ____% per annum
and for any Payment Date thereafter, One-Month LIBOR
plus ____% per annum, and (y) the weighted
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average of the Coupon Rates on the Home Equity Loans,
less ____% per annum (the rate described in this
clause (y), the "Available Funds Cap").
If, on any Payment Date, the Available Funds Cap
limits the Note Rate (i.e., the rate set by the
Available Funds Cap is less than the Formula Note
Rate), the amount of any such shortfall will be
carried forward and be due and payable on future
Payment Dates and shall accrue interest at the
Formula Note Rate, until paid (such shortfall,
together with such accrued interest, the "Available
Funds Cap Carry Forward Amount"). The Note Insurance
Policy does not cover the Available Funds Cap Carry
Forward Amount; the payment of such amount may be
funded only from (i) any excess interest resulting
from the Available Funds Cap being in excess of the
Formula Note Rate on future Payment Dates, as
distributed in the priorities specified herein and
(ii) any Net Monthly Excess Cashflow which would
otherwise be paid to the Servicer or the Indenture
Trustee on account of certain reimbursable amounts
described in the Sale and Servicing Agreement, or to
the Owners of the Residual Interests.
The "Formula Note Rate" for any Payment Date is the
rate determined by clause (x) of the definition of
"Note Rate" on such Payment Date.
The "Redemption Date" is the first Monthly Remittance
Date on which the aggregate Loan Balance of the Home
Equity Loans has declined to less than 10% of the
aggregate Loan Balance of the Home Equity Loans as of
the Cut-Off Date (the "Original Aggregate Loan
Balance").
Principal: On each Payment Date, payments in reduction of the
Note Principal Balance will be made in the amounts
described herein. The "Principal Distribution Amount"
for each Payment Date shall be the lesser of:
(a) the Total Available Funds (as defined herein)
plus any Insured Payment minus the Current Interest
and the Trust Fees and Expenses for such Payment
Date; and
(b) the excess, if any, of
(i) the sum of:
(A) the Preference Amount with respect to
principal owed to each Owner of a Note that
remains unpaid as of such Payment Date;
(B) the principal portion of all scheduled
monthly payments on the Home Equity Loans
due on or prior to the related Due Date
thereof, to the extent actually received by
the Servicer during the related Remittance
Period and any Prepayments made by the
Mortgagors and actually received by the
Servicer during the related Remittance
Period;
(C) the balance of each Home Equity Loan
(the "Loan Balance") 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 Servicer during the
related Remittance Period;
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(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 (to the extent such Substitution
Amounts relate to principal), to the extent
such Substitution Amounts are actually
received by the Servicer on the related
Remittance Date;
(E) all Net Liquidation Proceeds actually
collected by the Servicer with respect to
the Home Equity Loans during the related
Remittance Period (to the extent such Net
Liquidation Proceeds relate to principal);
(F) the amount of any Overcollateralization
Deficit for such Payment Date;
(G) the principal portion of the proceeds
received by the Indenture Trustee upon
termination of the Trust Estate (to the
extent such proceeds relate to principal);
and
(H) the amount of any Overcollateralization
Increase Amount for such Payment Date to the
extent of any Net Monthly Excess Cashflow
available for such purpose;
over
(ii) the amount of any Overcollateralization
Reduction Amount for such Payment Date.
The "Remittance Period" with respect to any Monthly
Remittance Date is the period from 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 Note Account, which is the 18th day
of each month, or if such day is not a Business Day,
the next preceding Business Day, commencing in
_____________ 199__.
The "Preference Amount" is any amount (other than
amounts in respect of the Available Funds Cap Carry
Forward Amount) previously distributed to an Owner on
a Note 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), as amended from time
to time, in accordance with a final nonappealable
order of a court having competent jurisdiction.
The "Premium Amount" is the amount payable to the
Note Insurer as premium for the Note Insurance
Policy.
Monthly Servicing Fee: The Servicer will retain a fee (the "Servicing Fee")
equal to 0.50% 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.
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Credit Enhancement: The credit enhancement provided for the benefit of
the Notes consists of (x) the overcollateralization
mechanics which utilize the excess interest created
by the internal cash flows of the Pool and (y) the
Note Insurance Policy.
Overcollateralization. The required application of
the cash flow from the Pool results in a limited
acceleration of the Notes relative to the
amortization of the 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 Note Principal Balance. This acceleration
feature creates overcollateralization (i.e., the
excess of the aggregate outstanding Loan Balance of
the Home Equity Loans over the Note 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 unless necessary to
maintain the required level of overcollateralization.
The Sale and Servicing Agreement provides that,
subject to certain floors, caps and triggers, the
required level of overcollateralization may increase
or decrease over time. An increase would result in a
temporary period of accelerated amortization of the
Notes 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. See
"Prepayment and Yield Considerations", "Credit
Enhancement Overcollateralization Provisions" herein
and "Credit Enhancement" in the Prospectus.
Financial Guaranty Note Insurance Policy.
_____________________, a _________________ stock
insurance company (the "Note Insurer"), will issue a
financial guaranty Note Insurance Policy (the "Note
Insurance Policy") with respect to the Notes.
Pursuant to the provisions of the Note Insurance
Policy, the Note Insurer will irrevocably and
unconditionally guarantee certain payments to the
Indenture Trustee for the benefit of the Owners of
the Notes. The amount of the actual payment, if any,
made by the Note Insurer to the Indenture Trustee for
the benefit of the Owners of the Notes under the Note
Insurance Policy on each Payment Date (the "Insured
Payment") is the excess, if any, of (i) the sum of
(a) the Current Interest, (b) the
Overcollateralization Deficit and (c) the Preference
Amount (without duplication) over (ii) the Total
Available Funds (after any deduction for the Trust
Fees and Expenses) and after taking into account the
portion of the Principal Distribution Amount to be
actually distributed on such Payment Date without
regard to any Insured Payment to be made with respect
to such Payment Date). The Note Insurance Policy does
not insure the payment of Available Funds Cap Carry
Forward Amounts.
Insured Payments do not cover Realized Losses except
to the extent that an Overcollateralization Deficit
exists. Insured Payments do not cover the Servicer's
failure to make Delinquency Advances pursuant to the
Sale and Servicing Agreement, except to the extent
that an Overcollateralization Deficit would otherwise
result therefrom. Nevertheless, the effect of the
Note Insurance Policy is to guaranty the timely
payment of interest on, and the ultimate payment of
the principal amount of, the Notes.
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<PAGE>
The Note Insurance Policy is noncancellable for any
reason.
Unless a Note Insurer Default exists, the Note
Insurer shall have the right to exercise certain
rights of the Owners of the Notes, as specified in
the Indenture, without any consent of such Owners;
and such Owners may exercise such rights only with
the prior written consent of the Note Insurer, except
as provided in the Indenture. In addition, to the
extent of unreimbursed payments under the Note
Insurance Policy, the Note Insurer will be subrogated
to the rights of the Owners of the Notes on which
such Insured Payments were made. In connection with
each Insured Payment on a Note, the Indenture
Trustee, as attorney-in-fact for the Owner thereof,
will be required to assign to the Note Insurer the
rights of such Owner with respect to the Note to the
extent of such Insured Payment. "Note Insurer
Default" is defined under the Sale and Servicing
Agreement as the existence and continuance of (x) the
failure by the Note Insurer to make a required
payment under the Note Insurance Policy or (y) the
bankruptcy or insolvency of the Note Insurer.
The "Trust Fees and Expenses" are the Premium Amount,
the Owner Trustee Fee, the Indenture Trustee Fee and
any Trustee Reimbursable Expenses (as defined
herein).
Book-Entry Registration
of the Notes: The Notes will initially be issued in book-entry
form. Persons acquiring beneficial ownership
interests in the Notes ("Beneficial Owners") will
hold their interests through The Depository Trust
Company ("DTC"), in the United States, or Cedel Bank,
S.A. ("Cedel") or the Euroclear System ("Euroclear"),
in Europe. Transfers within DTC, Cedel or Euroclear,
as the case may be, will be in accordance with the
usual rules and operating procedures of the relevant
system. So long as the Notes are Book-Entry Notes (as
defined herein), such Notes will be evidenced by one
or more Notes registered in the name of Cede & Co.
("Cede"), as the nominee of DTC or one of the
European Depositaries. Cross-market transfers between
persons holding directly or indirectly through DTC,
on the one hand, and counterparties holding directly
or indirectly through Cedel or Euroclear, on the
other, will be effected in DTC through Citibank, N.A.
("Citibank") or The Chase Manhattan Bank ("Chase" and
together with Citibank, the "European Depositaries"),
the relevant depositaries of Cedel and Euroclear,
respectively, and each a participating member of DTC
or one of the European Depositaries. The Notes will
initially be registered in the name of Cede. The
interests of the Owners of such Notes 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 note
representing such person's interest, except in the
event that Definitive Notes (as defined herein) are
issued under the limited circumstances described
herein. All references in this Prospectus Supplement
to any Notes reflect the rights of Beneficial Owners
only as such rights may be exercised through DTC and
its participating organizations for so long as such
Notes are held by DTC. See "Description of the Notes
Book-Entry Registration of the Notes" herein, and
"Description of the Securities Book-Entry
Registration" in the Prospectus.
Optional Redemption --
Clean-Up Call: The holders of Residual Interests exceeding in the
aggregate a 50% percentage interest (the "Majority
Residualholders") may, at their option, effect an
early
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redemption of the Notes and terminate the Trust on
any Payment Date after the Redemption Date by
purchasing all of the Home Equity Loans at a price
equal to or greater than the Redemption Price (as
defined in the Sale and Servicing Agreement). In
addition, the Note Insurer will have rights, under
the limited circumstances described in the Sale and
Servicing Agreement, to acquire all of the Home
Equity Loans from the Issuer and thereby effect a
redemption of the Notes. See "Administration
Redemption of the Notes" herein.
Ratings: It is a condition of issuance of the Notes that they
be rated "Aaa" by Moody's Investors Services, Inc.
("Moody's") and "AAA" by Standard & Poor's Rating
Services, a division of the McGraw-Hill Companies
("Standard & Poor's"). Moody's and Standard & Poor's
are referred to herein collectively as the "Rating
Agencies". The ratings issued by the Rating Agencies
on the payment of principal and interest on the Notes
do not cover the payment of any Available Funds Cap
Carry Forward Amounts. 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. No Rating Agency is
obligated to maintain any rating on the Notes and,
accordingly, there can be no assurance that the
rating assigned to Notes upon initial issuance
thereof will not be lowered or withdrawn at any time
thereafter. See "Ratings" herein.
Federal Tax Aspects: No election will be made to treat the Trust Estate or
any portion thereof as a "real estate mortgage
investment conduit" (a "REMIC") for federal income
tax purposes.
For federal income tax purposes, the Notes will be
treated as debt obligations of the Issuer and the
Issuer will not be characterized as an association
(or a publicly traded partnership or taxable mortgage
pool) taxable as a corporation. An Owner of Notes, by
its acceptance of a Note, will agree to treat the
Notes as indebtedness. An Owner will not be required
to report income with respect to the Notes under an
accrual method unless the Owner otherwise uses the
accrual method or purchases a Note which has original
issue discount.
The Notes will not represent interests in "qualifying
real property loans" within the meaning of Section
593(d) of the Internal Revenue Code of 1986, as
amended (the "Code"), "real estate assets" for
purposes of Section 856(c)(5)(A) of the Code or
"[l]oans . . . principally secured by an interest in
real property" within the meaning of Section
7701(a)(19)(C)(v) of the Code.
Investors are advised to consult their tax advisors
and to review "Federal Income Tax Consequences"
herein and in the Prospectus.
ERISA Considerations: Subject to the considerations discussed under "ERISA
Considerations" herein and in the Prospectus, the
Notes may be purchased by employee benefit plans that
are subject to ERISA. See "ERISA Considerations"
herein and in the Prospectus.
Legal Investment
Considerations: The Notes will [not] constitute "mortgage related
securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 ("SMMEA").
[Accordingly, many institutions with legal authority
to invest in comparably rated securities based on
qualifying first lien home equity loans may not be
legally authorized to invest in the Notes].
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RISK FACTORS
Prospective investors in the Notes 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 Notes.
Sensitivity to Prepayments. The Home Equity Loans may be prepaid by the
related Mortgagors in whole or in part, at any time. However, approximately
____% of the Home Equity Loans (by Loan Balance) require the payment of a fee in
connection with certain prepayments. 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
Mortgage Assets Enforceability of Certain Provisions" in the Prospectus.
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 such 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.
All of the Home Equity Loans are adjustable rate home equity loans. As is the
case with fixed rate home equity loans, adjustable rate home equity loans may be
subject to a greater rate of principal prepayments in a low interest rate
environment. For example, if prevailing interest rates were to fall, Mortgagors
with adjustable rate home equity loans may be inclined to refinance such home
equity loans with a fixed rate loan to "lock in" a lower interest rate. The
existence of the applicable periodic rate cap, maximum Coupon Rate and minimum
Coupon Rate also may affect the likelihood of prepayments resulting from
refinancings. In addition, the delinquency and loss experience on adjustable
rate home equity loans may differ from that on fixed rate home equity loans
because the amount of the monthly payments on adjustable rate home equity loans
are subject to adjustment on each payment change date.
The average life of the Notes, and, if purchased at other than par, the
yields realized by Owners of the Notes will be sensitive to levels of payment
(including prepayments (the "Prepayments")) on the Home Equity Loans. In
general, the yield on the Notes if purchased at a premium from the outstanding
principal amount thereof will be adversely affected by a higher than anticipated
level of Prepayments and enhanced by a lower than anticipated level. Conversely,
the yield on Notes if 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.
Risk of Home Equity Loan Coupon Rates Reducing the Note Rate. The calculation
of the Note Rate is based upon (i) the value of an index (One-Month LIBOR) which
is different from the value of the indices applicable to the Home Equity Loans
as described under "The Home Equity Loan Pool" either as a result of the use of
a different index, rate determination date or rate adjustment date and (ii) the
weighted average of the Coupon Rates of the Home Equity Loans, which are subject
to periodic adjustment caps, maximum rate caps and minimum rate floors. ____% of
the Home Equity Loans by aggregate Loan Balance as of the Cut-Off Date adjust
based upon the London interbank offered rate for six-month United States dollar
deposits ("Six-Month LIBOR"). A substantial majority of the Six- Month LIBOR
Loans first adjust two or three years from the date of origination, with the
remainder of the Six-Month LIBOR Loans having their first adjustment six months
after origination. ____% of the Home Equity Loans by aggregate Loan Balance as
of the Cut-Off Date are CMT Loans that adjust based on the CMT Index (the "CMT
Loans"). Although a substantial majority of CMT Loans first adjust one year
after origination, a number of the CMT Loans do not first adjust until two or
three years from the date of origination. The Note Rate adjusts monthly based
upon One-Month LIBOR as described under "Description of the Notes Calculation
of One-Month LIBOR" herein, subject to the Available Funds Cap. Consequently,
the interest which becomes due on the Home Equity Loans (net of the Servicing
Fee and the Trust Fees and Expenses) during any Remittance Period may not equal
the amount of interest that would accrue at One-Month LIBOR plus the margin on
the Notes during the related Accrual Period. In particular, the Note Rate
adjusts monthly, while the interest rates of the Home Equity Loans adjust less
frequently with the result that the Available Funds Cap may limit increases in
the Note Rate for extended periods in a rising interest rate environment. In
addition, One-Month LIBOR, Six-Month LIBOR and the CMT Index may respond to
different economic and market factors, and there is not necessarily a
correlation among them. Thus, it is possible, for example, that One-Month LIBOR
may rise during periods in which Six-Month LIBOR or the CMT Index are stable or
are falling or that, even if each of One-Month LIBOR, Six-Month LIBOR and the
CMT Index rise during the same period, One-Month LIBOR may rise more rapidly
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than Six-Month LIBOR and the CMT Index. Furthermore, if the Available Funds Cap
determines the Note Rate for a Payment Date, the value of the Notes may be
temporarily or permanently reduced.
Although Owners of the Notes will be entitled to receive any Available Funds
Cap Carry Forward Amount from and to the extent of funds available therefor as
described herein, there is no assurance that such funds will be available. The
failure to pay any Available Funds Cap Carry Forward Amount due to a lack of
funds therefor will not constitute an Event of Default under the Indenture. In
addition, the Note Insurance Policy does not cover, and the ratings of the Notes
do not address the likelihood of the payment of any Available Funds Cap Carry
Forward Amount.
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 Servicer 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 The Mortgage Assets"
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 Servicer 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 Mortgage Assets" in the
Prospectus.
It is possible that some of the Home Equity Loans will be subject to the
Riegle Community Development and Regulatory Improvement Act of 1994 (the "Riegle
Act"), which incorporates the Home Ownership and Equity Protection Act of 1994.
The Riegle Act adds certain additional provisions to Regulation Z, which is the
implementing regulation of the Truth-in-Lending Act. These provisions impose
additional disclosure and other requirements on creditors with respect to
non-purchase money home equity loans with high interest rates or high upfront
fees and charges. In general, home equity loans within the purview of the Riegle
Act have annual percentage rates over 10% greater than the yield on Treasury
Securities of comparable maturity and/or fees and points which exceed the
greater of 8% of the total loan amount or $400. The provisions of the Riegle Act
apply on a mandatory basis to all home equity loans originated on or after
October 1, 1995. These provisions can impose specific statutory liabilities upon
creditors who fail to comply with their provisions and may affect the
enforceability of the related loans. In addition, any assignee of the creditor
would generally be subject to all claims and defenses that the consumer could
assert against the creditor, including, without limitation, the right to rescind
the home equity loan. The Seller will represent and warrant in the Sale and
Servicing Agreement that each Home Equity Loan was originated in compliance with
all applicable laws including the Truth-in-Lending Act, as amended.
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Risk Associated with the Note Insurer. If the protection afforded by
overcollateralization is insufficient and if, upon the occurrence of an
Overcollateralization Deficit, the Note Insurer is unable to meet its
obligations under the Note Insurance Policy, then the Owners of the Notes could
experience a loss of their investment.
THE SELLER AND SERVICER
General
The Seller and Servicer, IMC Mortgage Company, is a Florida corporation. IMC
Mortgage Company completed an initial public offering of certain shares of its
common stock on June 25, 1996 and a secondary offering of certain shares of its
common stock in April 1997. The principal executive offices of the Seller are
located at 5901 East Fowler Avenue, Tampa, Florida 33617-2362 and its telephone
number is (813) 984-8801.
The Seller has been in the mortgage lending business since its formation in
1993 and the Seller and certain other subsidiaries of the Seller are engaged in
originating, purchasing and servicing home equity loans secured by first and
second mortgages and deeds of trust on Properties located in 50 states and the
District of Columbia.
In September 1997, IMC Mortgage Company began servicing loans previously
serviced by Industry Mortgage Company, L.P., a Delaware limited partnership,
which is a subsidiary of IMC Mortgage Company and an affiliate of the Depositor.
Consequently, information on loans serviced prior to September 1997 was
generated by Industry Mortgage Company, L.P. and not by IMC Mortgage Company.
The transfer of servicing to IMC Mortgage Company is part of an ongoing effort
to consolidate mortgage banking functions of the Seller and Servicer. Since both
IMC Mortgage Company and Industry Mortgage Company, L.P. have the same
management and staff, such transfer will not result in any changes to the
management and staff previously servicing the loans for Industry Mortgage
Company, L.P. In addition, there will not be any changes made to any of the
servicing procedures previously utilized by Industry Mortgage Company, L.P.
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 Issuer, without
recourse, but subject to the terms of the Sale and Servicing Agreement, in
consideration of the net proceeds from the sale of the Notes, which are being
offered hereby. The Seller, in its capacity as Servicer, will also service each
Home Equity Loan pursuant to the Sale and Servicing Agreement.
The Servicer may not assign its obligations under the Sale and Servicing
Agreement, in whole or in part, unless it shall have first obtained consent from
the Note Insurer and confirmation in writing from the Rating Agencies that such
assignment shall not result in a downgrade or withdrawal of the ratings assigned
to the Notes by each respective Rating Agency; provided, however, that any
assignee must meet the eligibility requirements for a successor servicer set
forth in the Sale and Servicing Agreement.
The Servicer may, with the prior written consent of the Note Insurer, 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. Each Sub-Servicing Agreement shall be terminated at
such time as the Servicer resigns or is removed. See "Administration Servicing
and Sub-Servicing" herein.
The Note Insurer or the Indenture Trustee (with the prior written consent of
the Note Insurer) (or, in certain circumstances the Owners, with the consent of
the Note Insurer), may remove the Servicer, and the Servicer may resign, only in
accordance with the terms of the Sale and Servicing Agreement. No removal or
resignation shall become effective until the Indenture 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 Indenture Trustee and remitted
directly to the Indenture Trustee or the successor servicer.
Upon removal or resignation of the Servicer, the Indenture Trustee (x) may
solicit bids for a successor servicer as described in the Sale and Servicing
Agreement and (y) until such time as a successor servicer is appointed pursuant
to the terms of the Sale and Servicing Agreement, shall serve in the capacity of
Backup Servicer (the "Backup Servicer") subject to the right of the Indenture
Trustee to assign such duties to a party acceptable to the Note Insurer and
Majority
S-11
<PAGE>
Residualholders. If the Indenture Trustee is unable to obtain a qualifying bid
and is prevented by law from acting as servicer, the Indenture 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 Fannie
Mae 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 shall assume all or any part of the responsibilities,
duties or liabilities of the Servicer.
The Notes will not represent an interest in or obligation of, nor are the
Home Equity Loans guaranteed by the Depositor, the Seller, the Servicer, except
as described herein, 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 ("Fannie Mae") 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 full-service branch offices in Cincinnati, Ohio,
Ft. Washington, Pennsylvania, Lincoln, Rhode Island and Cherry Hill, New Jersey.
In addition, the Seller maintains retail branch offices throughout the United
States and 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 or adjustable 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 generally 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 $400,000. Under current policy the
Seller generally does not acquire or originate home equity loans where the
combined Loan-to-Value Ratio exceeds 90%. 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-12
<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 Fannie Mae/FHLMC forms and conform to current Fannie
Mae/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
In September 1997, the Servicer began servicing loans previously serviced by
its subsidiary, Industry Mortgage Company, L.P. IMC Mortgage Company and
Industry Mortgage Company, L.P. have the same management and staff and therefore
the transfer of servicing will not result in any changes to the management and
staff previously servicing the loans for Industry Mortgage Company, L.P. 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 and reflect information generated by IMC Mortgage Company. However,
because the total amount of loans originated or purchased by IMC Mortgage
Company and its subsidiaries has increased substantially 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. In addition, the information in the tables below has not been
adjusted to eliminate the effect of the significant growth in the size of
Industry Mortgage Company, L.P.'s home equity loan portfolio during the periods
shown. Accordingly, loss and delinquency as percentages of aggregate principal
balance of home equity loans serviced for each period would be higher than those
shown if a group of home equity loans were artificially isolated at a point in
time and the information showed the activity only in that isolated group. As a
result, 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-13
<PAGE>
Delinquency and Default Experience of the Servicer's Servicing
Portfolio of Home Equity Loans
<TABLE>
<CAPTION>
Year Ending December 31,
-----------------------------------------------------------------------
1997 1996 1995
---- ---- ----
Number of Dollar Number of Dollar Number of Dollar
Loans Amount Loans Amount Loans Amount
----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Portfolio At 102,275 $6,956,905,062 35,390 $2,148,068,446 9,376 $535,797,748
Delinquency
Percentage(1)
- --------------
30 - 59 days 2.598% 2.371% 3.390% 3.093% 2.613% 2.570%
60 - 89 days 1.438% 1.292% 1.077% 1.068% 0.672% 0.642%
90 + days 4.042% 3.886% 2.427% 2.616% 1.237% 1.223%
----- ----- ----- ----- ----- -----
Total
Delinquency 8.078% 7.549% 6.894% 6.777% 4.522% 4.435%
===== ===== ===== ===== ===== =====
Default
Percentage(2)
- --------------
Foreclosure 1.235% 1.420% 0.863% 1.003% 0.779% 0.749%
Bankruptcy(3) 1.208% 1.139% 1.064% 1.069% 0.576% 0.630%
Real Estate
Owned 0.462% 0.441% 0.276% 0.313% 0.117% 0.160%
----- ----- ----- ----- ----- -----
Total Default 2.904% 3.000% 2.204% 2.385% 1.472% 1.539%
===== ===== ===== ===== ===== =====
</TABLE>
----------
(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 account
balances on home equity loans in foreclosure, bankruptcy or real estate
owned.
(3) The bankruptcy percentage represents all home equity loans that are in
bankruptcy regardless of delinquency status.
Loan Loss Experience on the Servicer's Servicing
Portfolio of Home Equity Loans
<TABLE>
<CAPTION>
Year Ending December 31,
----------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Average Amount Outstanding(1) $4,315,237,578 $1,207,171,960 $294,251,859
Gross Losses(2) $6,274,022 $1,581,695 $278,632
Recoveries(3) $0 $1,727 $0
Net Losses(4) $6,274,022 $1,579,968 $278,632
Net Losses as a Percentage of Average
Amount Outstanding 0.145% 0.131% 0.095%
</TABLE>
- ----------
(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."
S-14
<PAGE>
THE ISSUER
The Issuer is a Delaware business trust established by the Depositor pursuant
to the Trust Agreement under the laws of the State of Delaware. After its
formation, the Issuer will not engage in any activity other than (i) acquiring,
holding and managing the Home Equity Loans and the other assets of the Trust
Estate and the proceeds therefrom, (ii) issuing the Notes and the Residual
Interest, (iii) making payments on the Notes and the Residual Interest and (iv)
engaging in other activities that are necessary, suitable or convenient to
accomplish the foregoing or are incidental thereto or in connection therewith.
The Residual Interest represents the residual interest in the assets of the
Trust Estate. The Notes and the Residual Interests will be delivered by the
Issuer to the Depositor as consideration for the Home Equity Loans pursuant to
the Sale and Servicing Agreement. The Issuer does not have, nor is it expected
in the future to have, any significant assets, other than the assets included in
the Trust Estate.
THE DEPOSITOR
The Depositor was incorporated in the State of Delaware in November 1994. The
Depositor is a subsidiary of the Seller and the Servicer. The Depositor
maintains its principal offices at 5901 East Fowler Drive, Tampa, Florida
33617-2362. None of the Issuer, the Depositor, the Seller or the Servicer or any
of their affiliates will insure or guarantee distributions on the Notes.
USE OF PROCEEDS
The Seller will sell the Home Equity Loans to the Depositor and the Depositor
will sell the Home Equity Loans to the Issuer concurrently with delivery of the
Notes. Net proceeds from the sale of the Notes will be applied by the Issuer to
purchase the Home Equity Loans from the Depositor which will use the proceeds
(i) to the purchase of the Home Equity Loans from the Seller and (ii) to pay off
extensions of credit provided by, among others, certain of the Underwriters with
respect to certain 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 Home Equity
Loans as of the Cut-Off Date.
This subsection describes generally certain characteristics of the Home
Equity Loans. Unless otherwise noted, all statistical percentages in this
Prospectus Supplement are measured by the aggregate principal balance of the
Home Equity Loans as of the Cut-Off Date. The columns entitled "% of Aggregate
Loan Balance" in the following tables may not sum to 100% due to rounding.
The Home Equity Loans to be included in the Trust Estate on the Closing Date
will consist of _____ adjustable rate conventional home equity loans evidenced
by Mortgage Notes secured by first lien deeds of trust, security deeds or
mortgages, which are located in ___ states and the District of Columbia. The
Properties securing the 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 include second and vacation
homes). All of the Home Equity Loans have a first payment date on or after
_____________, 199__. All of the Home Equity Loans are secured by first 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 Fannie Mae 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.
S-15
<PAGE>
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.
As of the Cut-Off Date, ___% of the Home Equity Loans are Six-Month LIBOR
Loans and ____% of the Home Equity Loans are CMT Loans. The Coupon Rates with
respect to all of the Home Equity Loans are subject to periodic and lifetime
rate adjustment caps.
As of the Cut-Off Date, the average Loan Balance of the Home Equity Loans was
$________. The minimum and maximum Loan Balances of the Home Equity Loans as of
the Cut-Off Date were $_______ and $________, respectively. The weighted average
Coupon Rate of the Home Equity Loans was ____%; the Coupon Rate of the Home
Equity Loans ranged from ____% to ____%; the weighted average maximum Coupon
Rate of the Home Equity Loans was ____%; the maximum Coupon Rates of the Home
Equity Loans ranged from ____% to ____%; the weighted average minimum Coupon
Rate of the Home Equity Loans was ____%; the minimum Coupon Rates of the Home
Equity Loans ranged from ____% to ____%; the weighted average Loan-to-Value
Ratio of the Home Equity Loans was ____%; the weighted average remaining term to
maturity of the Home Equity Loans was ____ months; and the remaining terms to
maturity of the Home Equity Loans ranged from ____ months to ____ months. The
weighted average gross margin of the Home Equity Loans was ____%; the minimum
gross margin of the Home Equity Loans was ____% and the maximum gross margin of
the Home Equity Loans was ____%. Home Equity Loans containing "balloon" payments
represented not more than ____% of the aggregate Loan Balance of the Home Equity
Loans. No Home Equity Loan will mature later than ________________, 20__.
Six-Month LIBOR Loans. The Six-Month LIBOR Loans consist of __________ loans
aggregating $___________________, all of which have semi-annual interest rate
and semi-annual payment adjustment frequencies. A substantial portion of the
Six-Month LIBOR Loans first adjust two or three years from the date of
origination, with the remainder of the Six-Month LIBOR Loans having their first
adjustment six months after origination. 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
initial 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 $________________,
all of 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. While a number of the CMT Loans first adjust
one year after origination, a substantial portion of the CMT Loans first adjust
two or three years from the date of origination. 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 initial periodic annual rate
adjustment 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.
S-16
<PAGE>
Geographic Distribution of Properties
The geographic distribution of the Home Equity Loans by state, as of the
Cut-Off Date, was as follows:
Number of Aggregate % of Aggregate
State Home Equity Loans Loan Balance Loan Balance
- ----- ----------------- ------------ ------------
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Total
S-17
<PAGE>
Loan-to-Value Ratios
The original loan-to-value ratios as of the origination dates of the Home
Equity Loans (based upon either appraisals made at the time of origination or
the sales price thereof) (the "Loan-to-Value Ratios") as of the Cut-Off Date
were distributed as follows:
Range of Number of Aggregate % of Aggregate
Original LTV's Home Equity Loans Loan Balance Loan Balance
- -------------- ----------------- ------------ ------------
15.01 to 20.00%
20.01 to 25.00
25.01 to 30.00
30.01 to 35.00
35.01 to 40.00
40.01 to 45.00
45.01 to 50.00
50.01 to 55.00
55.01 to 60.00
60.01 to 65.00
65.01 to 70.00
70.01 to 75.00
75.01 to 80.00
80.01 to 85.00
85.01 to 90.00
90.01 to 95.00
95.01 to 100.00
Total
Cut-Off Date Coupon Rates
The Coupon Rates borne by the Notes relating to the Home Equity Loans as of
the Cut-Off Date were distributed as follows:
Range of Number of Aggregate % of Aggregate
Coupon Rates Home Equity Loans Loan Balance Loan Balance
- ------------ ----------------- ------------ ------------
7.001 to 8.000%
8.001 to 9.000
9.001 to 10.000
10.001 to 11.000
11.001 to 12.000
12.001 to 13.000
13.001 to 14.000
14.001 to 15.000
15.001 to 16.000
16.001 to 17.000
Total
S-18
<PAGE>
Cut-Off Date Loan Balances
The distribution of the outstanding principal amounts of the Home Equity
Loans as of the Cut-Off Date was as follows:
<TABLE>
<CAPTION>
Cut-Off Date Number of Aggregate % of Aggregate
Loan Balances Home Equity Loans Loan Balance Loan Balance
- ------------- ----------------- ------------ ------------
<S> <C> <C> <C>
Up to $ 25,000.00
25,000.01 to 50,000.00
50,000.01 to 75,000.00
75,000.01 to 100,000.00
100,000.01 to 125,000.00
125,000.01 to 150,000.00
150,000.01 to 175,000.00
175,000.01 to 200,000.00
200,000.01 to 250,000.00
250,000.01 to 300,000.00
300,000.01 to 350,000.00
350,000.01 to 400,000.00
400,000.01 to 450,000.00
450,000.01 to 500,000.00
500,000.01 to 550,000.00
Over $550,000.00
Total
</TABLE>
Types of Mortgaged Properties
The Properties securing the Home Equity Loans 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
Two- to Four-Family
Condominium
Multi-Family
Townhouse
Manufactured Housing
Planned Unit Development
Total
S-19
<PAGE>
Distribution of Months Since Origination
The distribution of the number of months since the date of origination of
the Home Equity Loans as of the CutOff Date was as follows:
Number of Months Number of Aggregate % of Aggregate
Since Origination Home Equity Loans Loan Balance Loan Balance
- ----------------- ------------------ ------------ ---------------
0 to 1
2 to 12
13 to 24
Total
Distribution of Remaining Term to Maturity
The distribution of the number of months remaining to maturity of the Home
Equity Loans 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
- -------------- ------------------ ------------ ---------------
Up to 120
121 to 180
181 to 240
301 to 360
Total
Occupancy Status
The occupancy status of the Properties securing the Home Equity Loans at
origination (based on representations by the borrowers) was as follows:
Number of Aggregate % of Aggregate
Occupany Status Home Equity Loans Loan Balance Loan Balance
- --------------- ------------------ ------------ ---------------
Owner Occupied
Investor Owned
Vacation/Second Home
Total
S-20
<PAGE>
Distribution of Maximum Coupon Rates
The maximum Coupon Rates borne by the Mortgage Notes relating to the Home
Equity Loans as of the Cut-Off Date was as follows:
Range of Maximum Number of Aggregate % of Aggregate
Coupon Rates Home Equity Loans Loan Balance Loan Balance
- ---------------- ------------------ ------------ ---------------
8.001 to 9.000% $ %
9.001 to 10.000
10.001 to 11.000
11.001 to 12.000
12.001 to 13.000
13.001 to 14.000
14.001 to 15.000
15.001 to 16.000
16.001 to 17.000
17.001 to 18.000
18.001 to 19.000
19.001 to 20.000
20.001 to 21.000
21.001 to 22.000
22.001 to 23.000
23.001 to 24.000
27.001 to 28.000
28.001 to 29.000
29.001 to 30.000
30.001 to 35.000
Total %
Distribution of Minimum Coupon Rates
The minimum Coupon Rates borne by the Mortgage Notes relating to the Home
Equity Loans as of the Cut-Off Date was as follows
Range of Minimum Number of Aggregate % of Aggregate
Coupon Rates Home Equity Loans Loan Balance Loan Balance
- -------------- ------------------ ------------ --------------
5.001 to 6.000% $
6.001 to 7.000
7.001 to 8.000
8.001 to 9.000
9.001 to 10.000
10.001 to 11.000
11.001 to 12.000
12.001 to 13.000
13.001 to 14.000
14.001 to 15.000
15.001 to 16.000
16.001 to 17.000
Total
S-21
<PAGE>
Distribution of Margins
Six-Month LIBOR Loans. The margins borne by the Mortgage Notes relating to the
Six-Month LIBOR Loans as of the Cut-Off Date was as follows:
Number of Aggregate % of Aggregate
Range of Margins Home Equity Loans Loan Balance Loan Balance
- ---------------- ------------------ ------------ ---------------
2.001 to 3.000%
3.001 to 4.000
4.001 to 5.000
5.001 to 6.000
6.001 to 7.000
7.001 to 8.000
8.001 to 9.000
9.001 to 10.000
10.001 to 11.000
11.001 to 12.000
12.001 to 13.000
13.001 to 14.000
14.001 to 15.000
Subtotal
CMT Loans. The margins borne by the Mortgage Notes relating to the CMT Loans
as of the Cut-Off Date was as follows:
Number of Aggregate % of Aggregate
Range of Margins Home Equity Loans Loan Balance Loan Balance
- ---------------- ------------------ ------------ ---------------
5.001 to 6.000%
6.001 to 7.000
7.001 to 8.000
Subtotal
Total
S-22
<PAGE>
Distribution of Next Coupon Rate Change
Six-Month LIBOR Loans. The month of the next Coupon Rate change for each of
the Mortgage Notes relating to the Six-Month LIBOR Loans as of the Cut-Off Date
was as follows:
Month of Next Number of Aggregate % of Aggregate
Coupon Rate Change Home Equity Loans Loan Balance Loan Balance
- ------------------ ------------------ ------------ -------------
Subtotal
CMT Loans. The month of the next Coupon Rate change for each of the Mortgage
Notes relating to the CMT Loans as of the Cut-Off Date was as follows:
Month of Next Number of Aggregate % of Aggregate
Copuon Rate Change Home Equity Loans Loan Balance Loan Balance
- ------------------ ------------------ ------------ ---------------
Subtotal
Total
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.
S-23
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PREPAYMENT AND YIELD CONSIDERATIONS
General
The weighted average life of, and, if purchased at other than par, the
yield to maturity on, the Notes will relate to the rate of payment of principal
of the Home Equity Loans, including, for this purpose, Prepayments, liquidations
due to defaults, casualties and condemnations, and repurchases of Home Equity
Loans by the Seller. The Home Equity Loans may be prepaid by the related
Mortgagors, in whole or in part, at any time. However, approximately ____% of
the Home Equity Loans (by Loan Balance) require the payment of a fee in
connection with certain prepayments. 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.
Adjustable rate home equity loans may be subject to a greater rate of
principal prepayments in a declining interest rate environment. For example, if
prevailing interest rates fall significantly, adjustable rate 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. In
addition, the fact that a substantial majority of the Six- Month LIBOR Loans and
the CMT Loans do not adjust for substantial period of time may affect the
prepayment experience on such loans. 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 Notes, the overcollateralization provisions of the transaction result in
an additional reduction of the Note Principal Balance relative to the
amortization of the Home Equity Loans in early months of the transaction. This
creates overcollateralization which results from the excess of the aggregate
Loan Balance of the Home Equity Loans over the Note Principal Balance.
Prepayment and Yield Scenarios for the Notes
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), the yield to maturity on a Note 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 Notes 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 Notes at a premium, the actual yield to
such investor will be lower than such investor's anticipated yield.
The Final Payment Date for the Notes is _______________, 20___. This date
is the Payment Date in the twelfth month after the date on which the initial
Note Principal Balance as of the Closing Date 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 the overcollateralization mechanics of the transaction are not
used to make accelerated payments of principal to the Owners of the Notes. The
weighted average life of the Notes 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 actual final Payment Date with respect to the
Notes could occur significantly earlier than the Final Payment Date because (i)
Prepayments are likely to occur and (ii) the Majority Residualholders may cause
a redemption of the Notes on or after the Redemption Date.
"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
Notes will be influenced by the rate at which principal of the Home Equity Loans
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.
The model used in this Prospectus Supplement is the constant prepayment
rate ("CPR") 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. CPR 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 the Notes to predict the amount or the timing of
receipt of prepayments on the Home Equity Loans.
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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 Note Principal Balance outstanding and weighted average
life of the Notes set forth in the tables. In addition, since the actual Home
Equity Loans have characteristics which differ from those assumed in preparing
the tables set forth below, the payments of principal on the Notes 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 consist of pools of loans having the approximate characteristics as
set forth in the "Representative Loan Pools" table below, (ii) the Closing Date
for the Notes occurs on _____________, 199__, (iii) payments on the Notes 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 Trust Fees and Expenses, (v) the Home Equity Loans'
prepayment rates occur at the CPR rates set forth in the table, (vi) prepayments
include 30 days' interest thereon, (vii) all of the Home Equity Loans are sold
to the Issuer for inclusion in the Trust Estate as of the Closing Date; (viii)
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), (ix) the level of Six-Month LIBOR remains constant at _______%,
(x) the level of One-Month LIBOR remains constant at ______%, (xi) the level of
1 year CMT remains constant at _____%, (xii) the Coupon Rate for each Home
Equity Loan is adjusted on its next rate change date (and on subsequent rate
change dates, if necessary) to equal the sum of (a) the applicable index and (b)
the respective gross margin (subject to applicable interest rate caps and
floors), (xiii) the overcollateralization levels are set as specified in the
Sale and Servicing Agreement and (xiv) the optional redemption is exercised.
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REPRESENTATIVE LOAN POOLS
Six-Month LIBOR Loans
Months to
Pool Gross Net Coupon Rate Rate Reset
Number Loan Balance Coupon Rate Rate Change Frequency
- ------ ------------ ----------- ---------- ---------- ---------
1
2
3
4
5
6
7
Original Weighted
Initial Term of Average
Periodic Periodic Maximum Minimum Amortization Maturity
Margin Rate Cap Cap Coupon Rate Coupon Rate (in months) (in months)
- ------ -------- -------- ----------- ----------- ------------ ----------
CMT Loans (Annual Reset)
Months to
Pool Gross Net Coupon Rate Rate Reset
Number Loan Balance Coupon Rate Rate Change Frequency
- ------ ------------ ----------- ---------- ---------- ---------
Original Weighted
Initial Term of Average
Periodic Periodic Maximum Minimum Amortization Maturity
Margin Rate Cap Cap Coupon Rate Coupon Rate (in months) (in months)
- ------ -------- -------- ----------- ----------- ------------ ----------
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The following table sets forth the percentages of the initial principal amount
of the Notes that would be outstanding after each of the dates shown, based on a
rate equal to __%, ___%, ___%, ___%, ___% and ___% of the CPR (as defined
above).
PERCENTAGE OF INITIAL NOTE PRINCIPAL BALANCE(1)
Payment Date % % % % % %
----- ----- ----- ----- ----- -----
Weighted
Average
Life (Years)(2)
- ----------
(1) The percentages in the above table have been rounded to the nearest whole
number.
(2) The weighted average life of the Notes is determined by (i) multiplying the
amount of each principal payment by the number of years from the date of
issuance to the related Payment Date, (ii) adding the results, and (iii)
dividing by the initial Note Principal Balance and rounding to two decimal
places.
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ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Home Equity Loans
and the Properties is based upon the Home Equity Loans as constituted at the
close of business on the Cut-Off Date. Prior to the issuance of the Notes, 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 Sale and Servicing Agreement, if the Depositor deems such removal necessary
or appropriate. A limited number of other Home Equity Loans may be included in
the pool prior to the issuance of the Notes.
A current report on Form 8-K will be available to purchasers of the Notes
and will be filed, and incorporated by reference to the Registration Statement
together with the Indenture, the Trust Agreement and the Sale and Servicing
Agreement, with the Securities and Exchange Commission within fifteen days after
the initial issuance of the Notes. In the event Home Equity Loans are removed
from or 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 NOTES
General
The Issuer will issue the Notes pursuant to the Indenture. The Issuer
will also issue the Residual Interest pursuant to the Trust Agreement, which
represents the residual interest in the Trust Estate. The summaries of certain
provisions of the Indenture, the Sale and Servicing Agreement and the Trust
Agreement (collectively, the "Agreements") set forth below, under the caption
"Administration" herein and under the caption "The Indenture" in the Prospectus,
while complete in material respects, do not purport to be exhaustive. For more
details regarding the terms of the Agreements, prospective investors in the
Notes are advised to review the Agreements, a copy of each of which the
Depositor will provide (without exhibits) without charge upon written request
addressed to the Depositor.
The Notes will be secured by the Trust Estate created by the Indenture.
The Notes represent non-recourse obligations of the Issuer and proceeds of the
assets in the Trust Estate will be the sole source of payments of the Notes. The
Notes will not represent an interest in or obligation of the Depositor, the
Servicer, the Note Insurer, the Owner Trustee, the Indenture Trustee, the
Underwriters, any of their respective affiliates or any other entity.
Payment Dates
On each Payment Date, the Owners of the Notes will be entitled to
receive, from amounts then on deposit in a trust account established and
maintained by the Indenture Trustee in accordance with the Sale and Servicing
Agreement (the "Note Account") and until the Note Principal Balance is reduced
to zero, the aggregate payment amount as of such Payment Date as described
below. Payments will be made in immediately available funds to Owners of Notes
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 Indenture 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 Indenture 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" and "Description of the Securities Book Entry Registration"
in the Prospectus and "Description of the Notes Book Entry Registration of the
Notes" herein.
The Indenture will provide that an Owner, upon receiving the final
payment on such Owner's Notes, will be required to send such Note to the
Indenture Trustee. The Indenture additionally will provide that, in any event,
any Note as to which the final payment thereon has been made shall be deemed
canceled for all purposes of the Indenture and the Note Insurance Policy.
Each Owner of record of the Notes will be entitled to receive such
Owner's Percentage Interest in the amounts due on such Payment Date. The
"Percentage Interest" as of any date of determination will be equal to the
percentage obtained by dividing the principal balance of such Note as of the
Cut-Off Date by the Note Principal Balance as of the Cut-Off Date.
Payments
Upon receipt, the Indenture Trustee will be required to deposit into the
Note Account, (i) any Insured Payments, (ii) the proceeds of any liquidation of
the assets of the Trust Estate and (iii) all remittances made to the Indenture
Trustee by the Servicer.
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On each Payment Date, the Indenture Trustee is required to make the
following payments and transfers from monies then on deposit in the Note Account
as specified below in the following order of priority of each such transfer and
payment:
(i) first, on each Payment Date from amounts then on deposit in the Note
Account the Indenture Trustee shall distribute (A) to itself, the
Indenture Trustee Fee and the Indenture Trustee Reimbursable Expenses,
(B) to the Owner Trustee, the Owner Trustee Fee and (C) provided that no
Note Insurer Default has occurred and is continuing, the Premium Amount
for such Payment Date to the Note Insurer;
(ii) second, on each Payment Date, the Indenture Trustee shall allocate an
amount equal to the sum of (x) the Total Monthly Excess Spread as defined
herein with respect to such Payment Date plus (y) any
Overcollateralization Reduction Amount with respect to such Payment Date
(such sum being the "Total Monthly Excess Cashflow" with respect to such
Payment Date) in the following order of priority:
(A) first, such Total Monthly Excess Cashflow shall be allocated to the
payment of the Principal Distribution Amount (excluding any
Overcollateralization Increase Amount) pursuant to clause (iv)(C)
below in an amount equal to the amount, if any, by which (x) the
Principal Distribution Amount (excluding any Overcollateralization
Increase Amount) exceeds (y) the Available Funds for such Payment
Date (net of the related Current Interest and the Trust Fees and
Expenses) (the amount of such difference being an "Available Funds
Shortfall"); and
(B) second, any portion of the Total Monthly Excess Cashflow remaining
after the allocation described in clause (A) above shall be paid to
the Note Insurer in respect of amounts owed on account of any
Reimbursement Amount (as defined in the Sale and Servicing Agreement)
owed to the Note Insurer;
(iii) third, the amount, if any, of the Total Monthly Excess Cashflow 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 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 an Overcollateralization Increase Amount
to the Owners of the Notes pursuant to clause (iv)(C) below, any
Overcollateralization Deficiency Amount (as defined in the Sale and
Servicing Agreement) as of such Payment Date;
(B) second, any portion of the Net Monthly Excess Cashflow remaining
after the application described in clause (A) above shall be used to
pay any Available Funds Cap Carry Forward Amount to the Owners of the
Notes; 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 and unreimbursed Servicing Advances;
(iv) fourth, following the making by the Indenture Trustee of all allocations,
transfers and disbursements described above from amounts (including any
related Insured Payment) then on deposit in the Note Account, the
Indenture Trustee shall distribute:
(A) (x) to the Note Insurer, the amounts described in clause (ii)(B)
above and (y) to the Servicer the amounts described in clause
(iii)(C) above;
(B) to the Owners of the Notes, the Current Interest (including the
proceeds of any Insured Payments made by the Note Insurer) on a pro
rata basis without any priority among the Notes;
(C) to the Owners of the Notes, the Principal Distribution Amount until
the Note Principal Balance is reduced to zero;
(D) to the Indenture Trustee, as reimbursement of expenses of the
Indenture Trustee not reimbursed pursuant to (i) above and incurred
in connection with duties and obligations under the Indenture; and
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<PAGE>
(v) fifth, following the making by the Indenture Trustee of all allocations,
transfers and disbursements described above, from amounts then on deposit
in the Note Account, the Indenture Trustee shall distribute to the
holders of the Residual Interest, the remaining distributable amounts as
specified in the Sale and Servicing Agreement, for such Payment Date.
"Available Funds" as to each Payment Date is the amount on deposit in the
Note Account on such Payment Date (net of Total Monthly Excess Cashflow and
disregarding the amounts of any Insured Payments to be made on such Payment Date
and inclusive of any investment earnings on eligible investments therein).
"Total Available Funds" as to each Payment Date is the sum of (x) the
amount on deposit in the Note Account on such Payment Date (net of Total Monthly
Excess Cashflow) on such Payment Date and (y) any amounts of Total Monthly
Excess Cashflow to be applied on such Payment Date (disregarding the amount of
any Insured Payment to be made on such Payment Date).
The Indenture Trustee or Paying Agent (as defined in the Indenture) shall
(i) receive as attorney-in-fact of each Owner of Notes any Insured Payment from
the Note Insurer and deposit such amounts into the Note Account and (ii)
disburse the same to each Owner of Notes. The Sale and Servicing Agreement will
provide that to the extent the Note Insurer makes Insured Payments, either
directly or indirectly (as by paying through the Indenture Trustee), to the
Owners of such Notes, the Note Insurer will be subrogated to the rights of such
Owners of Notes with respect to such Insured Payments and shall receive
reimbursement for such Insured Payment as provided in the Sale and Servicing
Agreement, but only from the sources and in the manner provided in the Sale and
Servicing Agreement, such subrogation and reimbursement to have no effect on the
Note Insurer's obligations under the Note Insurance Policy.
Each Owner of a Note will be required promptly to notify the Indenture
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 Indenture Trustee.
Calculation of One-Month LIBOR
On each LIBOR Determination Date (as defined below), the Indenture
Trustee will determine LIBOR for the next Accrual Period for the Notes.
"One-Month LIBOR" means, as of any LIBOR Determination Date, the London
interbank offered rate for one-month United States dollar deposits 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 one
month. The Indenture 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 (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 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 one month.
"LIBOR Determination Date" means, with respect to any Accrual Period, the
second London business day preceding the commencement of such Accrual Period.
For purposes of determining One-Month LIBOR, a "London business day" is any day
on which dealings in deposits of United States dollars are transacted in the
London interbank market.
"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).
"Reference Banks" means leading banks selected by the Indenture Trustee
and engaged in transactions in Eurodollar deposits in the international
Eurocurrency market.
Book Entry Registration of the Notes
The Notes will originally be issued as book-entry notes (the "Book-Entry
Notes"). Persons acquiring beneficial ownership interests in such Book-Entry
Notes ("Beneficial Owners") may elect to hold their Book-Entry Notes directly
through DTC in the United States, or Cedel or Euroclear (in Europe) if they are
participants of such system ("Participants"), or indirectly through
organizations which are Participants. The Book-Entry Notes will be issued in one
or more Notes which in the aggregate equal the principal balance of such Notes
and will initially be registered in the name of Cede & Co., the nominee of DTC.
Cedel and Euroclear will hold omnibus positions on behalf of their Participants
through customers' securities accounts in Cedel's and Euroclear's names on the
books of their respective
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depositaries which in turn will hold such positions in customers' securities
accounts in the depositaries' names on the books of DTC. Citibank will act as
depositary for Cedel and Chase will act as depositary for Euroclear (in such
capacities, individually the "Relevant Depositary" and collectively the
"European Depositaries"). Investors may hold such beneficial interests in the
Book-Entry Notes in minimum denominations representing principal amounts of
$1,000 and multiples of $1 in excess thereof. Except as described below, no
Beneficial Owner will be entitled to receive a physical certificate representing
such Note (a "Definitive Note"). Unless and until Definitive Notes are issued,
it is anticipated that the only "Owner" of such Book-Entry Notes will be Cede &
Co., as nominee of DTC. Beneficial Owners will not be Owners as that term is
used in the Agreements. Beneficial Owners are only permitted to exercise their
rights indirectly through Participants and DTC.
The Beneficial Owner's ownership of a Book-Entry Note 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 Note 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 and on the records of
Cedel and Euroclear, as appropriate).
Beneficial Owners will receive all distributions of principal of, and
interest on, the Book-Entry Notes from the Indenture Trustee through DTC and DTC
Participants. While such Notes 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 Notes and is required to receive and transmit distributions of principal
of, and interest on, such Notes. Participants and indirect participants with
whom Beneficial Owners have accounts with respect to Book-Entry Notes 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 notes, 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 Notes, except under the limited
circumstances described below. Unless and until Definitive Notes are issued,
Beneficial Owners who are not Participants may transfer ownership of Notes only
through Participants and indirect participants by instructing such Participants
and indirect participants to transfer such Notes, by book-entry transfer,
through DTC for the account of the purchasers of such Notes, which account is
maintained with their respective Participants. Under the Rules and in accordance
with DTC's normal procedures, transfers of ownership of such Notes 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.
Because of time zone differences, credits of securities received in Cedel
or Euroclear as a result of a transaction with a Participant will be made during
subsequent securities settlement processing and dated the business day following
the DTC settlement date. Such credits or any transactions in such securities
settled during such processing will be reported to the relevant Euroclear or
Cedel Participants on such business day. Cash received in Cedel or Euroclear as
a result of sales of securities by or through a Cedel Participant (as defined
below) or Euroclear Participant (as defined below) to a DTC Participant will be
received with value on the DTC settlement date but will be available in the
relevant Cedel or Euroclear cash account only as of the business day following
settlements in DTC. For information with respect to tax documentation procedures
relating to the Notes, see "Certain Federal Income Tax Consequences Taxation of
Certain Foreign Investors" and " Backup Withholding" in the Prospectus and
"Global Clearance, Settlement and Tax Documentation Procedures Certain U.S.
Federal Income Tax Documentation Requirements" in Annex I hereto.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. Cedel Participants and Euroclear Participants may not deliver instructions
directly to the European Depositaries.
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,
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DTC is expected to record the positions held by each DTC Participant in the
Book-Entry Notes, whether held for its own account or as a nominee for another
person. In general, beneficial ownership of Book-Entry Notes will be subject to
the rules, regulations and procedures governing DTC and DTC Participants as in
effect from time to time.
Cedel Bank, S.A. was incorporated in 1970 as a limited company under
Luxembourg law. Cedel is owned by banks, securities dealers and financial
institutions, and currently has about 100 shareholders, including United States
financial institutions or their subsidiaries. No single entity may own more than
five percent of Cedel's stock.
Cedel is registered as a bank in Luxembourg, and as such is subject to
regulation by the Institut Monetaire Luxembourgeois, "IML," the Luxembourg
Monetary Authority, which supervises Luxembourg banks.
Cedel holds securities for its participant organizations ("Cedel
Participants") and facilitates the clearance and settlement of securities
transactions between Cedel Participants through electronic book-entry changes in
accounts of Cedel Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in Cedel in any of 28
currencies, including United States dollars. Cedel provides to its Cedel
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedel interfaces with domestic markets in several
countries. As a professional depository, Cedel is subject to regulation by the
Luxembourg Monetary Institute. Cedel Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to Cedel is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Cedel Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 32 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the "Euroclear Operator"), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear Securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries. Indirect access to Euroclear is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Payments on the Book-Entry Notes will be made on each Payment Date by the
Indenture 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 Notes 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 Notes that it represents.
Under a book-entry format, Beneficial Owners of the Book-Entry Notes may
experience some delay in their receipt of payments, since such payments will be
forwarded by the Indenture Trustee to Cede. Distributions with respect to
Book-Entry Notes held through Cedel or Euroclear will be credited to the cash
accounts of Cedel Participants or Euroclear Participants in accordance with the
relevant system's rules and procedures, to the extent received by the Relevant
Depositary. Such distributions will be subject to tax reporting in accordance
with relevant United States tax laws and regulations. Because DTC can only act
on behalf of Financial Intermediaries, the ability of a Beneficial Owner to
pledge Book-Entry Notes to persons or entities that do not participate in the
Depository system, or otherwise take
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actions in respect of such Book-Entry Notes, may be limited due to the lack of
physical certificates for such Book-Entry Notes. In addition, issuance of the
Book-Entry Notes in book-entry form may reduce the liquidity of such Notes in
the secondary market since certain potential investors may be unwilling to
purchase Notes for which they cannot obtain physical certificates.
Monthly and annual reports on the Issuer 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 and
affecting the Depository, and to the Financial Intermediaries to whose DTC
accounts the Book-Entry Notes of such Beneficial Owners are credited.
DTC has advised the Indenture Trustee that, unless and until Definitive
Notes are issued, DTC will take any action permitted to be taken by the holders
of the Book-Entry Notes under the Indenture only at the direction of one or more
Financial Intermediaries to whose DTC accounts the Book-Entry Notes are
credited, to the extent that such actions are taken on behalf of Financial
Intermediaries whose holdings include such Book-Entry Notes. Cedel or the
Euroclear Operator, as the case may be, will take any action permitted to be
taken by an Owner under the Indenture on behalf of a Cedel Participant or
Euroclear Participant only in accordance with its relevant rules and procedures
and subject to the ability of the Relevant Depositary to effect such actions on
its behalf through DTC. DTC may take actions, at the direction of the related
Participants, with respect to some Notes which conflict with actions taken with
respect to other Notes.
Definitive Notes will be issued to Beneficial Owners of the Book-Entry
Notes, or their nominees, rather than to DTC, only if (a) DTC or the Depositor
advises the Indenture 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 Notes and the Depositor or the
Indenture 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 Notes, advises the Indenture 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 Indenture Trustee will be required to notify all
Beneficial Owners of the occurrence of such event and the availability through
DTC of Definitive Notes. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Notes and instructions for
re-registration, the Indenture Trustee will issue Definitive Notes, and
thereafter the Indenture Trustee will recognize the holders of such Definitive
Notes as Owners under the Indenture.
Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of Notes among Participants of DTC, Cedel and Euroclear,
they are 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 Notes, but such pledge,
encumbrance, hypothecation or assignment shall not constitute a transfer of an
ownership interest sufficient to render the transferee an Owner of such Notes
without compliance with the provisions of the Indenture described above.
THE NOTE INSURER
The information set forth in this section has been provided by the Note
Insurer. No representation is made by the Underwriters, the Issuer, 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 Note Insurer
incorporated by reference herein.
The Note Insurer, in consideration of the payment of the premium and
subject to the terms of the Note Insurance Policy, will unconditionally and
irrevocably guarantee to any Owner that an amount equal to each full and
complete Insured Payment will be received by the Indenture Trustee or its
successor, as trustee for the Owners, on behalf of the Owners from the Note
Insurer, for distribution by the Indenture Trustee to each Owner of each Owner's
proportionate share of the Insured Payment. The Note Insurer's obligations under
the Note Insurance Policy with respect to a particular Insured Payment shall be
discharged to the extent funds equal to the applicable Insured Payment are
received by the Indenture Trustee, whether or not such funds are properly
applied by the Indenture Trustee. Insured Payments shall be made only at the
time set forth in the Note Insurance Policy and no accelerated Insured Payments
shall be made regardless of any acceleration of the Notes, unless such
acceleration is at the sole option of the Note Insurer.
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Notwithstanding the foregoing paragraph, the Note Insurance Policy does
not cover shortfalls, if any, attributable to the liability of the Issuer or the
Indenture Trustee for withholding taxes, if any (including interest and
penalties in respect of any such liability).
The Note Insurer will pay any Insured Payment that is a Preference Amount
no later than 12:00 noon, New York City time, on the later of the Payment Date
on which the related Preference Amount is due or the third Business Day
following receipt on a Business Day by the Fiscal Agent (as described below) of
(i) a certified copy of the order requiring the return of such preference
payment, (ii) an opinion of counsel satisfactory to the Note Insurer that such
order is final and not subject to appeal, (iii) an assignment in such form as is
reasonably required by the Note Insurer, irrevocably assigning to the Note
Insurer all rights and claims of the Owner relating to or arising under the
Notes against the debtor which made such preference payment or otherwise with
respect to such preference payment and (iv) appropriate instruments to effect
the appointment of the Note Insurer as agent for such Owner in any legal
proceeding related to such preference payment, such instruments being in a form
satisfactory to the Note Insurer; provided, that if such documents are received
after 12:00 noon, New York City time on such Business Day, they will be deemed
to be received on the following Business Day. Such payments shall be disbursed
to the receiver or trustee in bankruptcy named in the final order of the court
exercising jurisdiction on behalf of the Owner and not to any Owner directly
unless such Owner has returned principal or interest paid on the Notes to such
receiver or trustee in bankruptcy, in which case such payment shall be disbursed
to such Owner.
The Note Insurer will pay any other amount payable under the Note
Insurance Policy no later than 12:00 noon New York City time, on the later of
the Payment Date on which the Insured Payment is due or the second Business Day
following receipt in New York, New York, on a Business Day by State Street Bank
and Trust Company, N.A., as Fiscal Agent for the Note Insurer or any successor
fiscal agent appointed by the Note Insurer (the "Fiscal Agent") of a Notice (as
described below); provided that if such Notice is received after 12:00 noon New
York City time on such Business Day, it will be deemed to be received on the
following Business Day. If any such Notice received by the Fiscal Agent is not
in proper form or is otherwise insufficient for the purpose of making a claim
under the Note Insurance Policy, it shall be deemed not to have been received by
the Fiscal Agent for purposes of this paragraph, and the Note Insurer or the
Fiscal Agent, as the case may be, shall promptly so advise the Indenture Trustee
and the Indenture Trustee may submit an amended Notice.
Insured Payments due under the Note Insurance Policy, unless otherwise
stated therein, will be disbursed by the Fiscal Agent to the Indenture Trustee
on behalf of Owners by wire transfer of immediately available funds in the
amount of the Insured Payment less, in respect of Insured Payments related to
Preference Amounts, any amount held by the Indenture Trustee for the payment of
such Insured Payment and legally available therefor.
The Fiscal Agent is the agent of the Note Insurer only and the Fiscal
Agent shall in no event be liable to Owners for any acts of the Fiscal Agent or
any failure of the Note Insurer to deposit or cause to be deposited, sufficient
funds to make payments due under the Note Insurance Policy.
As used in the Note Insurance Policy, the following terms shall have
the following meanings:
"Agreement" means the Sale and Servicing Agreement dated as of
_______________, 199__ among IMC Securities, Inc., as Depositor, IMC
Mortgage Company, as Seller and Servicer, IMC Home Equity Loan Owner
Trust 199__-__, as Issuer, and _________________________, as Indenture
Trustee, without regard to any amendment or supplement thereto, unless
the Note Insurer shall have consented in writing thereto.
"Business Day" means any day other than a Saturday, a Sunday or a day
on which banking institutions in New York City, Tampa, Florida, the city
in which the corporate trust office of the Indenture Trustee under the
Indenture is located or the city in which the principal office of the
Note Insurer is located are authorized or obligated by law or executive
order to close.
"Insured Payment" means for any Payment Date, the excess, if any, of
(i) the sum of (a) the Current Interest, (b) the Overcollateralization
Deficit and (c) the Preference Amount (without duplication) over (ii) the
Total Available Funds (after any deduction for the Trust Fees and
Expenses and after taking into account the portion of the Principal
Distribution Amount to be actually paid on such Payment Date without
regard to any related Insured Payment to be made with respect to such
Payment Date). Insured Payments do not include the payment of any
Available Funds Cap Carry Forward Amounts.
"Notice" means the telephonic or telegraphic notice, promptly
confirmed in writing by telecopy substantially in the form of Exhibit A
attached to the Note Insurance Policy, the original of which is
subsequently delivered by registered or certified mail, from the
Indenture Trustee specifying the Insured Payment which shall be due and
owing on the applicable Payment Date.
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"Owner" means each Owner (as defined in the Indenture) who, on the
applicable Payment Date, is entitled under the terms of the applicable
Note to payment thereunder.
"Preference Amount" means any amount previously distributed to an
Owner on a Note that is recoverable and sought to be recovered as a
voidable preference by a trustee in bankruptcy pursuant to the United
States Bankruptcy Code (11 U.S.C.) as amended from time to time, in
accordance with a final nonappealable order of a court having competent
jurisdiction.
Capitalized terms used in the Note Insurance Policy and not otherwise
defined therein will have the respective meanings set forth in the Agreement as
of the date of execution of the Note Insurance Policy, without giving effect to
any subsequent amendment to or modification of the Agreement unless such
amendment or modification has been approved in writing by the Note Insurer.
Any notice under the Note Insurance Policy or service of process on the
Fiscal Agent of the Note Insurer may be made at the address listed below for the
Fiscal Agent of the Note Insurer or such other address as the Note Insurer shall
specify in writing to the Indenture Trustee.
The notice address of the Fiscal Agent is
_____________________________________________________, or such other address as
the Fiscal Agent shall specify to the Indenture Trustee in writing.
The Note Insurance Policy is being issued under and pursuant to, and
shall be construed under, the laws of the State of New York, without giving
effect to the conflict of laws principles thereof.
THE INSURANCE PROVIDED BY THE NOTE INSURANCE POLICY IS NOT COVERED BY THE
PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW
YORK INSURANCE LAW.
The Note Insurance Policy is not cancelable for any reason. The premium
on the Note Insurance Policy is not refundable for any reason including payment,
or provision being made for payment, prior to the maturity of the Notes.
CREDIT ENHANCEMENT
Note Insurance Policy
See "The Note Insurer" herein for a description of the Note Insurance
Policy.
Overcollateralization Provisions
Overcollateralization Resulting from Cash Flow Structure. The Sale and
Servicing Agreement requires that, on each Payment Date, Net Monthly Excess
Cashflow be applied on such Payment Date as an accelerated payment of principal
on the Notes, 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 during a Remittance Period (net of
the Servicing Fee and of certain miscellaneous administrative amounts) plus any
Delinquency Advances and Compensating Interest over (y) the sum of the Current
Interest and the Trust Fees and Expenses (the difference between (x) and (y) is
the "Total Monthly Excess Spread"), over (ii) the portion of the Total Monthly
Excess Cashflow that is used to cover shortfalls in Available Funds on such
Payment Date or used to reimburse the Note Insurer.
The application of Net Monthly Excess Cashflow has the effect of
accelerating the amortization of the Notes relative to the amortization of the
Home Equity Loans. To the extent that any Net Monthly Excess Cashflow is not so
used, the Sale and Servicing Agreement provides that it will be used to
reimburse the Owners of the Notes with respect to any Available Funds Cap Carry
Forward Amount and then to reimburse the Servicer with respect to any amounts
owing to it, and, thereafter, paid to the Owners of the Residual Interest.
Pursuant to the Sale and Servicing Agreement, Net Monthly Excess Cashflow
will be applied as an accelerated payment of principal on the Notes until the
Overcollateralization Amount has increased to the level required.
"Overcollateralization Amount" means, the excess, if any, of (x) the aggregate
Loan Balances of the Home Equity Loans as of the close of business on the last
day of the preceding Remittance Period over (y) the aggregate Note Principal
Balance as of such Payment Date (after taking into account the payment of the
Principal Distribution Amount (except for any Overcollateralization Reduction
Amount or Overcollateralization Increase Amount) on such Payment Date). Any
amount of Net Monthly Excess Cashflow actually applied as an accelerated payment
of principal is an "Overcollateralization Increase Amount." The required level
of the Overcollateralization Amount with respect to a Payment Date is the
"Specified Overcollateralization Amount." The Sale and Servicing Agreement
generally provides that the Specified Overcollateralization Amount may, over
time, decrease, or increase, subject to certain floors, caps
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and triggers including triggers that allow the related Specified
Overcollateralization Amount to decrease or "step down" based on the performance
on the Home Equity Loans with respect to certain tests specified in the Sale 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 Notes during the period that the Home Equity Loans
are unable to meet certain tests specified in the Sale and Servicing Agreement
based on delinquency rates and cumulative losses.
In the event that the Specified Overcollateralization Amount is permitted
to decrease or "step down" on a Payment Date in the future, the Sale and
Servicing Agreement provides that a portion of the principal which would
otherwise be distributed to the Owners of the Notes on such Payment Date shall
be distributed to the Owners of the Residual Interest over the period specified
in the Sale and Servicing Agreement. This has the effect of decelerating the
amortization of the Notes relative to the amortization of the Home Equity Loans
and of reducing the Overcollateralization Amount. With respect to any Payment
Date, the excess, if any, of (x) the Overcollateralization Amount on such
Payment Date after taking into account all distributions to be made on such
Payment Date (except for any distributions of the Overcollateralization
Reduction Amount as described in this sentence) over (y) the Specified
Overcollateralization Amount is the "Excess Overcollateralization Amount" for
such Payment Date. If, on any Payment Date, the Excess Overcollateralization
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 Overcollateralization
Amount is or would be greater than the Specified Overcollateralization Amount),
then any amounts relating to principal which would otherwise be distributed to
the Owners of the Notes on such Payment Date shall instead be distributed to the
Owners of the Residual Interest (to the extent available therefor) in an amount
equal to the lesser of (x) the Excess Overcollateralization Amount and (y) the
amount available for distribution on account of principal with respect to the
Notes on such Payment Date; such amount being the "Overcollateralization
Reduction Amount" with respect to the related Payment Date.
The Sale 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 an Overcollateralization Reduction Amount) during the
prior Remittance Period will be distributed to the Owners of the Notes 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 Sale and Servicing Agreement provides that the principal balance of any Home
Equity Loan which becomes a Liquidated Loan shall thenceforth equal zero. The
Sale and Servicing Agreement does not contain any requirement that the amount of
any Realized Loss be distributed to the Owners of the Notes on the Payment Date
which immediately follows the event of loss; i.e., the Sale and Servicing
Agreement does not require the current recovery of losses. However, the
occurrence of a Realized Loss will reduce the Overcollateralization Amount,
which to the extent that such reduction causes the Overcollateralization Amount
to be less than the related Specified Overcollateralization Amount applicable to
the related Payment Date, will require the payment of an Overcollateralization
Increase Amount on such Payment Date (or, if insufficient funds are available on
such Payment Date, on subsequent Payment Dates, until the Overcollateralization
Amount equals the Specified Overcollateralization Amount).
Overcollateralization and the Note Insurance Policy. The Sale and
Servicing Agreement defines a "Overcollateralization Deficit" with respect to a
Payment Date to be the amount, if any, by which (x) the Note Principal Balance
with respect to such Payment Date, after taking into account all distributions
to be made on such Payment Date (without regard to any Insured Payment to be
made on such Payment Date and except for any Overcollateralization Deficit),
exceeds (y) the aggregate Loan Balances of the Home Equity Loans as of the close
of business on the last day of the prior Remittance Period. The Sale and
Servicing Agreement requires the Indenture Trustee to make a claim for an
Insured Payment under the Note Insurance Policy not later than the second
Business Day prior to any Payment Date as to which the Indenture Trustee has
determined that an Overcollateralization Deficit will occur for the purpose of
applying the proceeds of such Insured Payment as a payment of principal to the
Owners of the Notes on such Payment Date. The Note Insurance Policy is thus
similar to the overcollateralization provisions described above insofar as the
Note Insurance Policy guarantees ultimate, rather than current, payment of the
amounts of any Realized Losses to the Owners of the Notes. Investors in the
Notes should realize that, under extreme loss or delinquency scenarios, 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
Notes depends in part on the ability of the Note Insurer to satisfy its
obligations under the Note Insurance Policy. In that respect and to the extent
that the Note Insurer satisfies such obligations, the Owners of the Notes are
insulated from shortfalls in Available Funds that may arise.
ADMINISTRATION
In addition to the provisions of the Agreements summarized elsewhere in
the Prospectus and this Prospectus Supplement there is set forth below a summary
of certain other provisions of the Agreements.
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Covenant of the Seller to Take Certain Actions with Respect to the Home Equity
Loans in Certain Situations
Pursuant to the Sale and Servicing Agreement, upon the discovery by the
Depositor, the Seller, the Note Insurer, any Sub-Servicer, any Owner, the
Custodian or the Indenture Trustee that the representations and warranties set
forth therein or in the Loan Sale Agreement dated as of ________________, 199__
between the Seller and the Depositor are untrue in any material respect as of
the Closing Date with the result that the interests of the Owners or of the Note
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 Note Insurer, the Seller will be
required promptly to cure such breach in all material respects or the Seller
shall on or prior to 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 Sale and
Servicing Agreement) and deliver an amount equal to the excess, if any, of the
Loan Balance of the Home Equity Loan being replaced over the outstanding
principal balance of the replacement Home Equity Loan plus interest (the
"Substitution Amount") to the Indenture Trustee on behalf of the Issuer as part
of the Monthly Remittance remitted by the Servicer on such Monthly Remittance
Date or (ii) purchase such Home Equity Loan from the Issuer at a purchase price
equal to the Loan Purchase Price (as defined below) thereof. The Seller shall
also deliver an Officer's Certificate to the Indenture Trustee and the Note
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. The obligation of the Seller to so substitute or repurchase
any Home Equity Loan as to which a representation of warranty is untrue in any
material respect and has not been remedied constitutes the sole remedy available
to the Owners and the Indenture Trustee.
"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
The Seller on the Closing Date will sell, transfer, assign, set over and
otherwise convey without recourse to the Depositor and the Depositor will sell,
transfer, assign, set over and otherwise convey without recourse to the Issuer
all its respective right, title and interest in and to each Home Equity Loan and
all its respective right, title and interest in and to principal and interest
due on each such 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 received on or before the Cut-Off Date) and
interest due on each Home Equity Loan on or prior to the Cut-Off Date (whether
or not received on or prior to the Cut-Off Date). The Issuer will pledge each
Home Equity Loan to the Indenture Trustee for the benefit of the Owners of the
Notes and the Note Insurer pursuant to the Indenture.
In connection with the transfer and assignment of the Home Equity Loans on the
Closing Date, the Seller will be required to:
(i) deliver without recourse to _____________________ (the
"Custodian") on behalf of the Indenture Trustee on the Closing Date with
respect to each Home Equity Loan identified in the Schedule of Home
Equity Loans (A) the original Mortgage Notes, endorsed in blank or to the
order of the "_________________________, as Indenture Trustee for the IMC
Adjustable Rate Home Equity Loan Asset Backed Notes, Series 199__-__",
(B) (1) 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 (2) 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 Indenture 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 (if such original Mortgage has not been returned to the
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;
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(ii) cause, within 60 days following the Closing Date, assignments of
the Mortgages to "___________________________, as Indenture Trustee for
the IMC Adjustable Rate Home Equity Loan Asset Backed Notes, Series
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
until such information is received; provided, further, that the Seller
shall not be required to record an assignment of a Mortgage (except upon
the occurrence of certain triggers specified in the Sale and Servicing
Agreement) if the Seller furnishes to the Indenture Trustee, the Note
Insurer and the Rating Agencies, on or before the Closing Date at the
Seller's expense, an opinion of counsel with respect to the relevant
jurisdiction that such recording is not required to perfect the Indenture
Trustee's interests in the Home Equity Loans (in form satisfactory to the
Indenture Trustee, the Note Insurer and the Rating Agencies); and
(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 Indenture 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).
The Indenture 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 the
date of receipt of any documents delivered to the Indenture Trustee after the
Closing Date) to ascertain that all required documents (or certified copies of
documents) have been executed and received.
If the Custodian on behalf of the Indenture 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 Indenture Trustee will be required to promptly notify the
Depositor, the Seller, the Owners and the Note Insurer. The Seller will agree 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
Indenture 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, 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 Indenture Trustee on behalf of the Owners of the
Notes as part of the Monthly Remittance Amount 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 Indenture Trustee along with the Monthly Remittance Amount
remitted by the Servicer on such Monthly Remittance Date.
In addition to the foregoing, the Custodian on behalf of the Indenture
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 Indenture Trustee and the
Servicer shall monitor no less frequently than monthly 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 Sale and Servicing Agreement, the terms of the respective Home Equity
Loans, and the servicing standards set forth in Fannie Mae's Servicing Guide
(the "Fannie Mae Guide"); provided, however, that to the extent such standards,
such obligations or the Fannie Mae Guide is amended by Fannie Mae after the date
of the Sale 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 Indenture.
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 and 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.
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 Sale 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 Fannie Mae Guide. Consistent with the foregoing, the
Servicer may in its discretion waive or permit to be waived any late payment
charge, prepayment charge, assumption
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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 Indenture 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 Indenture). 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
received after the Cut-Off Date, 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 (a) the Loan Balance of the related Home Equity Loan
immediately prior to liquidation, (b) accrued and unpaid interest on such Home
Equity Loan (net of the Servicing Fee) to the date of such liquidation and (c)
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 Mortgage 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 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
for any excess interest collected from a Mortgagor; and
(v) to clear and terminate the Principal and Interest Account
following the termination of the Trust.
The Servicer will remit to the Indenture Trustee for deposit in the Note
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 Indenture Trustee for deposit to the Note 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
Monthly 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 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 (such amount to be replaced on future
dates to the extent necessary) or from the Note 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 Sale 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
Indenture Trustee and the Note Insurer.
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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 the Servicer in its reasonable
business judgment determines that any such proposed amount 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 Note Account as provided in the Sale and Servicing 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 related 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 related 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 Indenture Trustee on such Monthly Remittance
Date. The Servicer shall not be entitled to reimbursement for amounts paid as
Compensating Interest.
In accordance with the terms of the Sale and Servicing Agreement, the
Servicer 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. 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 35
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.
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 Sale and Servicing Agreement
(upon receiving the consent of the Note Insurer) to accept applications of
Mortgagors for consent to (i) partial releases of Mortgages, (ii) alterations
thereof and (iii) removal, demolition or division of Properties. No application
for approval may be considered by the Servicer unless: (a) the provisions of the
related Mortgage Note and Mortgage have been complied with; (b) the
loan-to-value ratio and debt-to-income ratio after any release do not exceed the
loan-to-value ratio and debt-to-income ratio, respectively, of such Mortgage
Note on the Cut-Off Date provided that the loan-to-value ratio shall be
permitted to be increased by an amount not to exceed 5% unless approved by the
Note Insurer; and (c) 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 the Remittance Period related to the Final Payment Date. Notwithstanding
anything set forth in the Sale 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 Indenture Trustee and
the Note Insurer, prior to the execution of any modification, waiver or
amendment of any provision of any Home Equity Loan and shall deliver to the
Custodian, on behalf of the Indenture 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.
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As noted under "The Seller and Servicer General" herein with the consent
of the Note Insurer, the Servicer will be permitted under the Sale 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).
No Sub-Servicing arrangements will discharge the Servicer from its
servicing obligations. Notwithstanding any Sub-Servicing Agreement, the Servicer
will not be relieved of its obligations under the Sale 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; provided,
however, that nothing contained in such Sub-Servicing Agreement shall be deemed
to limit or modify the Sale and Servicing Agreement.
The Servicer (except the Indenture Trustee if it is required to succeed
the Servicer under the Sale and Servicing Agreement) has agreed to indemnify and
hold the Indenture Trustee, the Note 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 Indenture
Trustee, the Depositor, the Note 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 Sale and Servicing
Agreement. The Servicer shall immediately notify the Indenture Trustee, the
Depositor, the Note Insurer and each Owner if a claim is made by a third party
with respect to the Sale 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 Indenture
Trustee, the Note Insurer and/or Owner in respect of such claim. The Indenture
Trustee shall reimburse the Servicer from amounts otherwise distributable on the
Residual Interest 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 Sale and Servicing Agreement. The indemnification provisions
shall survive the termination of the Sale and Servicing Agreement and the
payment of the outstanding Notes.
The Servicer will be required to deliver to the Indenture Trustee, the
Note Insurer and the Rating Agencies on or before________________ of each year,
commencing in 20__: (i) an officers' certificate stating, as to each signer
thereof, that (a) a review of the activities of the Servicer during such
preceding calendar year and of performance under the Sale and Servicing
Agreement has been made under such officers' supervision, and (b) to the best of
such officers' knowledge, based on such review, the Servicer has fulfilled all
its obligations under the Sale 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 (ii)
a letter or letters of a firm of independent, nationally recognized certified
public accountants reasonably acceptable to the Note Insurer stating that such
firm has examined the Servicer's overall servicing operations in accordance with
the requirements of the Uniform Single Attestation Program for Mortgage Bankers,
and stating such firm's conclusions relating thereto.
Removal and Resignation of Servicer
The Note Insurer or the Indenture Trustee (with the prior written consent
of the Note Insurer) (or except as specified in the Sale and Servicing
Agreement, the Owners, with the consent of the Note Insurer) will have the
right, pursuant to the Sale and Servicing Agreement, to 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 Sale 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 Sale 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 Sale 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 Sale
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 Indenture Trustee
and the Note Insurer.
Upon removal or resignation of the Servicer, the Indenture Trustee may
(A) solicit bids for a successor servicer as described in the Sale and Servicing
Agreement and (B) until such time as a successor servicer is appointed pursuant
to the terms of the Sale and Servicing Agreement, shall serve in the capacity of
Backup Servicer. The Indenture 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
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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 Fannie Mae, having equity of not less than
$5,000,000, and acceptable to the Note Insurer and a majority of the Owners of
the Notes (provided that if the Note Insurer and such Owners cannot agree as to
the acceptability of such successor servicer, the decision of the Note Insurer
will 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 or a successor servicer shall have assumed the Servicer's
responsibilities and obligations in accordance with the Indenture.
Redemption of the Notes
The Notes will be subject to redemption in whole but not in part, at the
option of the Majority Residualholders, on or after the Redemption Date. Under
certain circumstances, the Note Insurer may also exercise such purchase rights
if the Majority Residualholders do not do so. The Notes will be redeemed at the
Redemption Price and the payment of the Redemption Price shall be in lieu of the
payment otherwise required to be made on such Payment Date in respect of the
Notes. The "Redemption Price" is equal to 100% of the aggregate Loan Balances of
the Home Equity Loans plus the appraised value of any REO Property as of the
Redemption Date minus amounts remitted from the Principal and Interest Account
to the Note Account representing collections of principal on the Home Equity
Loans during the current Remittance Period, plus one month's interest on such
amount plus any Available Funds Cap Carry Forward Amounts 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 plus all amounts owed to the Note Insurer under the
Insurance Agreement.
The Indenture Trustee
________________________________ will be the Indenture Trustee under the
Indenture. The Indenture will provide that the Indenture Trustee is entitled to
certain fees and reimbursement of expenses.
The Indenture also will provide that the Indenture Trustee may resign at
any time, upon notice to the Issuer, the Note Insurer, the Servicer and each
Rating Agency, in which event the Issuer (with the consent of the Note Insurer)
will be obligated to appoint a successor Indenture Trustee. The Issuer or the
Note Insurer may remove the Indenture Trustee if the Indenture Trustee ceases to
be eligible to continue as such under the Indenture Trustee and appointment of a
successor Indenture Trustee will not become effective until acceptance of the
appointment by the successor Indenture Trustee. The Indenture will provide that
the Indenture Trustee is under no obligation to exercise any of the rights or
powers vested in it by the Indenture at the request or direction of any of the
Owners, unless such Owners shall have offered to the Indenture Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which might be incurred by it in compliance with such request or direction. The
Indenture Trustee may execute any of the rights of powers granted by the
Indenture or perform any duties thereunder either directly or by or through
agents or attorneys, and the Indenture Trustee is responsible for any misconduct
or negligence on the part of any agent or attorney appointed and supervised with
due care by it thereunder. Pursuant to the Indenture, the Indenture Trustee is
not liable for any action it takes or omits to take in good faith which it
reasonably believes to be authorized by an authorized officer of any person or
within its rights or powers under the Indenture. The Indenture Trustee and any
director, officer, employee or agent of the Indenture Trustee may rely and will
be protected in acting or refraining from acting in good faith in reliance 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 under the Indenture.
Voting
Unless otherwise specified in the Indenture, with respect to any
provisions of the Indenture providing for the action, consent or approval of the
Owners evidencing specified "Voting Interests", each Owner will have a Voting
Interest equal to the Percentage Interest represented by such Owner's Note. Any
Note registered in the name of the Issuer or any affiliate thereof will be
deemed not to be outstanding and the Percentage Interest evidenced thereby shall
not be taken into account in determining whether the requisite amount of Voting
Interests necessary to take any such action, or effect any such consent, has
been obtained.
Reporting Requirements
On each Payment Date the Indenture Trustee will be required to report in
writing (based on information provided to the Indenture Trustee by the Servicer)
to each Owner, the Note Insurer , the Rating Agencies and the Note Insurer:
i) the amount of the distribution with respect the Notes (based on a
Note in the original principal amount of $1,000);
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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 (based on a Note in the original principal amount of
$1,000);
iii) the amount of such distribution allocable to interest on the
Home Equity Loans (based on a Note in the original principal amount of
$1,000);
iv) the principal amount of the Notes (based on a Note in the
original principal amount of $1,000) which will be outstanding after
giving effect to any payment of principal on such Payment Date;
v) the aggregate Loan Balance of all Home Equity Loans after giving
effect to any payment of principal on such Payment Date;
vi) the amount of any Insured Payment included in the amounts
distributed to the Owners on such Payment Date;
vii) 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; and
viii) the weighted average Coupon Rate of the Home Equity Loans;
ix) such other information as the Note Insurer may reasonably request
with respect to delinquent Home Equity Loans;
x) the amount of the Available Funds Cap Carry Forward Amount, if
any, for such Payment Date;
xi) the total of any Substitution Amounts or Loan Purchase Price
amounts included in such distribution.
Certain obligations of the Indenture 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 Indenture
Trustee will be required to distribute to each Owner, the Note Insurer and the
Rating Agencies, together with the information described above, the following
information prepared by the Servicer and furnished to the Indenture Trustee for
such purpose:
(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
calendar month 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 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 calendar month 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 calendar month 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 Indenture Trustee, as of
the close of business of the last day of the calendar month 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 calendar month immediately preceding the Payment Date;
and
(f) the amount of cumulative Realized Losses, the current period
Realized Losses (each as defined in the Sale and Servicing Agreement) and
any other loss percentages as required by the Sale and Servicing
Agreement.
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Removal of Indenture Trustee for Cause
The Indenture 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 Indenture Trustee: (i)
failure to make distributions of available amounts; (ii) certain breaches of
covenants and representations by the Indenture Trustee; (iii) certain acts of
bankruptcy or insolvency on the part of the Indenture Trustee; and (iv) failure
to meet the standards of Indenture Trustee eligibility as set forth in the
Indenture.
If any such event occurs and is continuing, then and in every such case
(i) the Note Insurer or (ii) with the prior written consent of the Note Insurer
(which is required not to be unreasonably withheld), the Issuer and the Owners
of a majority of the Percentage Interests represented by the Notes may remove
the Indenture Trustee.
Governing Law
The Agreements and each Note 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.
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 Notes. Such section must be considered only in connection with "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 Notes.
No election will be made to treat the Trust or the Trust Estate or any
portion thereof as a REMIC for federal income tax purposes.
In the opinion of Arter & Hadden LLP, special tax counsel, for federal
income tax purposes, the Notes will be treated as newly originated debt
instruments and the Issuer will not be characterized as an association (or a
publicly traded partnership or taxable mortgage pool) taxable as a corporation.
Each Owner of a Note, by its acceptance of a Note, will agree to treat the Notes
as indebtedness. It is anticipated that the Notes will be issued without
original issue discount for federal income tax purposes. However, it is possible
that the Internal Revenue Service could treat a portion of the additional
interest which would become payable on the Notes after the Redemption Date as
original issue discount. Owners are urged to consult their tax advisor with
respect to the tax consequences of holding the Notes.
The prepayment assumption that is to be used in determining whether the
Notes are issued with original issue discount and the rate of accrual of
original issue discount is a CPR of ___%. No representation is made as to the
actual rate at which the Home Equity Loans will prepay. See "Federal Income Tax
Consequences Notes" in the Prospectus.
STATE TAX CONSEQUENCES
In addition to the federal income tax consequences described in "Federal
Income Tax Consequences" herein, potential investors should consider the state
income tax consequences of the acquisition, ownership, and disposition of the
Notes. State income tax law may differ substantially from the corresponding
federal tax law, and this discussion does not purport to describe any aspect of
the income tax laws of any state. Therefore, potential investors should consult
their own tax advisors with respect to the various tax consequences of
investments in the Notes.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Code impose certain restrictions on (a) employee benefit
plans (as defined in Section 3(3) of ERISA) and plans described in Code section
4975(e)(1), including individual retirement accounts (the "Plans") and (b)
persons who have certain specified relationships to such Plans or who constitute
"disqualified persons" under Code section 4975(e)(2) with respect to such Plans
("parties in interest"). 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 Notes 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. Any Plan
fiduciary which proposes to cause a Plan to acquire any of the Notes should
consult with its counsel with respect to the potential consequences under ERISA,
and the Code, of the Plan's acquisition
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and ownership of the Notes. See "ERISA Considerations" in the Prospectus.
Investments by Plans are also 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.
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) concerning the definition of what
constitutes the assets of a Plan for purposes of ERISA and the prohibited
transaction provisions of the Code (the "Plan Asset Regulation"). The Plan Asset
Regulation describes the circumstances under which the assets of an entity in
which a Plan invests will be considered to be "plan assets" such that any person
who exercises control over such assets would be subject to ERISA's fiduciary
standards. Under the Plan Asset Regulation, generally when a Plan invests in
another entity, the Plan's assets do not include, solely by reason of such
investment, any of the underlying assets of the entity. However, the Plan Asset
Regulation provides that, if a Plan acquires an "equity interest" in any entity
that is neither a "publicly-offered security" (as defined therein) nor a
security issued by an investment company registered under the Investment Company
Act of 1940, the assets of the entity will be treated as assets of the Plan
investor unless certain exceptions apply. If the Notes were deemed to be equity
interests and no statutory, regulatory or administrative exemption applies, the
Issuer could be considered to hold plan assets by reason of a Plan's investment
in the Notes. Such plan assets would include an undivided interest in any assets
held by the Issuer. In such an event, the Servicer and other persons, in
providing services with respect to the Issuer's assets, may be parties in
interest with respect to such Plans, subject to fiduciary responsibility
provisions of Title I of ERISA, including the general fiduciary duties of
Section 404 of ERISA, the prohibited transaction provisions of Section 406 of
ERISA, and to Section 4975 of the Code with respect to transactions involving
the Trust's assets. Under the Plan Asset Regulation, the term "equity interest"
is defined as any interest in an entity other than an instrument that is treated
as indebtedness under "applicable local law" and which has no "substantial
equity features." Although the Plan Asset Regulation is silent with respect to
the question of which law constitutes "applicable local law" for this purpose,
the DOL has stated that these determinations should be made under the state law
governing interpretation of the instrument in question. In the preamble to the
Plan Asset Regulation, the DOL declined to provide a precise definition of what
features are equity features or the circumstances under which such features
would be considered "substantial," noting that the question of whether a plan's
interest has substantial equity features is an inherently factual one, but that
in making a determination it would be appropriate to take into account whether
the equity features are such that a Plan's investment would be a practical
vehicle for the indirect provision of investment management services.
Without regard to whether the Notes are treated as an equity interest
under the Plan Asset Regulation, the acquisition or holding of the Notes by or
on behalf of a Plan could be considered to give rise to a prohibited transaction
if such acquisition or holding is deemed to be a prohibited loan to a party in
interest with respect to such Plan. Certain exemptions from the prohibited
transaction rules could be applicable to the purchase and holding of the Notes
by a Plan depending on the type and circumstances of the plan fiduciary making
the decision to acquire the Notes. Included among these exemptions are:
Prohibited Transaction Class Exemption ("PTCE") 90-1, regarding certain
transactions entered into by insurance company pooled separate accounts; PTCE
95-60, regarding certain transactions entered into by insurance company general
accounts; PTCE 96-23, regarding certain transactions effected by "in-house asset
managers"; PTCE 91-38, regarding certain transactions entered into by bank
collective investment funds; and PTCE 84-14, regarding certain transactions
effected by "qualified professional asset managers."
Any Plan fiduciary considering whether to purchase any Notes on behalf of
a Plan should consult with its counsel regarding the applicability of the
fiduciary responsibility and prohibited transaction provisions of ERISA and the
Code to such investment. Among other things, before purchasing any Notes, a
fiduciary of a Plan should make its own determination as to whether the Trust,
as obligor on the Notes, is a party in interest with respect to the Plan, the
availability of the exemptive relief provided in the Plan Asset Regulations and
the availability of any other prohibited transaction exemptions. Investors
should analyze whether the decision may have an impact with respect to purchases
of the Notes.
In addition to the matters described above, purchasers of an Notes that
are insurance companies should consult with their counsel with respect to the
United States Supreme Court case interpreting the fiduciary responsibility rules
of ERISA, John Hancock Mutual Life Insurance Co. v. Harris Trust and Savings
Bank 114 S.Ct. 517 (1993). In John Hancock, the Supreme Court ruled that assets
held in an insurance company's general account may be deemed to be "plan assets"
for ERISA purposes under certain circumstances. Prospective purchasers using
insurance company general account assets should determine whether the decision
affects their ability to make purchases of the Notes.
S-45
<PAGE>
RATINGS
It is a condition of the issuance of the Notes that the Notes receive
ratings of "Aaa" by Moody's and "AAA" by Standard & Poor's. Explanations of the
significance of such ratings may be obtained from Moody's, 99 Church Street, New
York, New York 10007 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 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 Notes. A
security rating is not a recommendation to buy, sell or hold securities.
The ratings issued by Moody's and Standard & Poor's on the payment of
principal and interest on the Notes do not cover the payment of the Available
Funds Cap Carry Forward Amount. The ratings of Moody's and Standard & Poor's do
not address the possibility that, as a result of principal prepayments, Owners
of the Notes may receive a lower than anticipated yield.
The ratings of the Notes should be evaluated independently from similar
ratings on other types of securities. A security rating is not a recommendation
to buy, sell or hold securities and may be subject to revision or withdrawal at
any time by the assigning rating agency.
The Depositor has not requested a rating of the Notes offered hereby by
any rating agency other than Moody's and Standard & Poor's and the Depositor has
not provided information relating to the Notes offered hereby or the Home Equity
Loans to any rating agency other than Moody's and Standard & Poor's. However,
there can be no assurance as to whether any other rating agency will rate the
Notes offered hereby or, if another rating agency rates such Notes, what rating
would be assigned to such Notes by such rating agency. Any such unsolicited
rating assigned by another rating agency to the Notes offered hereby may be
lower than the rating assigned to such Notes by either or both of Moody's and
Standard & Poor's.
LEGAL INVESTMENT CONSIDERATIONS
The Notes will not constitute "mortgage related securities" for purposes
of SMMEA. Accordingly, many institutions with legal authority to invest in
comparably rated securities based on qualifying first home equity loans may not
be legally authorized to invest in the Notes.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement relating to the Notes (the "Underwriting Agreement"), the Underwriters
named below (the "Underwriters"), has severally agreed to purchase, the
principal amount of the Notes set forth opposite its name below:
Underwriters Principal Amount
------------- -----------------
$
Total
The Depositor and the Seller have 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 Notes offered
hereby, if any are purchased. The Depositor has been advised by the Underwriters
that they propose initially to offer the Notes to the public at the offering
price set forth on the cover page hereof and to certain dealers at such price
less a concession not in excess of ____% (expressed as a percentage of the Note
Principal Balance). The Underwriters may allow and such dealers may reallow a
discount not in excess of ____%.
After the initial public offering, such prices and discounts may be
changed.
The Underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934 (the "Exchange Act"). Over- allotment
involves syndicate sales in excess of the offering size, which creates a
syndicate short position. Stabilizing
S-46
<PAGE>
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specific maximum. Syndicate covering
transactions involve purchases of the Notes in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the Underwriters to reclaim a selling concession from a
syndicate member when the Notes originally sold by such syndicate member are
purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the Notes to be higher than it would
otherwise be in the absence of such transactions. These transactions, if
commenced, may be discontinued at any time.
REPORT OF EXPERTS
The consolidated balance sheets of the Note Insurer,
_____________________ and _______________, as of _________________, 199__ and
199__, and the consolidated statements of income, shareholders' equity and cash
flows, for each of the three years in the period ended________________, 199__,
incorporated by reference into this Prospectus Supplement, have been
incorporated by reference herein in reliance on the report of ________________,
independent accountants, given on the authority of such firm as experts in
accounting and auditing.
CERTAIN LEGAL MATTERS
Certain legal matters relating to the validity of the issuance of the
Notes will be passed upon for the Seller, the Depositor and the Issuer by Arter
& Hadden LLP, Washington, D.C. Certain legal matters relating to insolvency
issues and certain federal income tax matters concerning the Notes will be
passed upon for the Seller, Depositor, and the Issuer by Arter & Hadden LLP.
Certain legal matters relating to the validity of the issuance of the Notes will
be passed upon for the Underwriters by ______________________________________.
Certain legal matters relating to the Note Insurer and the Note Insurance Policy
will be passed upon for the Note Insurer by __________________________.
S-47
<PAGE>
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<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered
$________________ Adjustable Rate Home Equity Loan Asset Backed Notes, Series
199__-__, (the "Global Securities") will be available only in book-entry form.
Investors in the Global Securities may hold such Global Securities through any
of DTC, Cedel or Euroclear. The Global Securities will be tradeable as home
market instruments in both the European and U.S. domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors through Cedel and Euroclear
will be conducted in the ordinary way in accordance with the normal rules and
operating procedures of Cedel and Euroclear and in accordance with conventional
eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors through DTC will be conducted
according to DTC's rules and procedures applicable to U.S. corporate debt
obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Notes will be effected on a delivery-against-payment basis
through the respective Depositaries of Cedel and Euroclear (in such capacity)
and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in the name
of Cede & Co. as nominee of DTC. Investors' interests in the Global Securities
will be represented through financial institutions acting on their behalf as
direct and indirect Participants in DTC. As a result, Cedel and Euroclear will
hold positions on behalf of their participants through their Relevant Depositary
which in turn will hold such positions in their accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will
follow DTC settlement practices. Investor securities custody accounts will be
credited with their holdings against payment in same-day funds on the settlement
date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lockup" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior home
equity loan asset-backed securities issues in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC, Seller and Cedel or Euroclear Participants. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a Cedel Participant or a Euroclear Participant, the purchaser
will send instructions to Cedel or Euroclear through a Cedel Participant or
Euroclear Participant at least one business day prior to settlement. Cedel or
Euroclear will instruct the Relevant Depositary, as the case may be, to receive
the Global Securities against payment. Payment will include interest accrued on
the Global Securities from and including the last coupon payment date to and
excluding the settlement date, on the basis of the actual number of days in such
accrual period and a year assumed to consist of 360 days. For transactions
settling on the 31st of the month, payment will include interest accrued to and
excluding the first day of the following month. Payment will then be made by the
Relevant Depositary to the DTC Participant's account against delivery of the
Global Securities. After settlement has been completed, the Global Securities
will be credited to the respective clearing system and by the clearing system,
in accordance with its usual procedures, to the Cedel Participant's or Euroclear
Participant's account. The securities
I-1
<PAGE>
credit will appear the next day (European time) and the cash debt will be
back-valued to, and the interest on the Global Securities will accrue from, the
value date (which would be the preceding day when settlement occurred in New
York). If settlement is not completed on the intended value date (i.e., the
trade fails), the Cedel or Euroclear cash debt will be valued instead as of the
actual settlement date.
Cedel Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to preposition funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the Global
Securities are credited to their account one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel Participants or Euroclear Participants can elect not to preposition
funds and allow that credit line to be drawn upon to finance settlement. Under
this procedure, Cedel Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although the result will depend on each Cedel Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for crediting Global Securities
to the respective European Depositary for the benefit of Cedel Participants or
Euroclear Participants. The sale proceeds will be available to the DTC seller on
the settlement date. Thus, to the DTC Participants a cross-market transaction
will settle no differently than a trade between two DTC Participants.
Trading between Cedel or Euroclear Seller and DTC Purchaser. Due to time
zone differences in their favor, Cedel Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through the
respective Depositary, to a DTC Participant. The seller will send instructions
to Cedel or Euroclear through a Cedel Participant or Euroclear Participant at
least one business day prior to settlement. In these cases Cedel or Euroclear
will instruct the respective Depositary, as appropriate, to credit the Global
Securities to the DTC Participant's account against payment. Payment will
include interest accrued on the Global Securities from and including the last
coupon payment to and excluding the settlement date on the basis of the actual
number of days in such accrual period and a year assumed to consist to 360 days.
For transactions settling on the 31st of the month, payment will include
interest accrued to and excluding the first day of the following month. The
payment will then be reflected in the account of Cedel Participant or Euroclear
Participant the following day, and receipt of the cash proceeds in the Cedel
Participant's or Euroclear Participant's account would be back-valued to the
value date (which would be the preceding day, when settlement occurred in New
York). Should the Cedel Participant or Euroclear Participant have a line of
credit with its respective clearing system and elect to be in debt in
anticipation of receipt of the sale proceeds in its account, the back-valuation
will extinguish any overdraft incurred over that one-day period. If settlement
is not completed on the intended value date (i.e., the trade fails), receipt of
the cash proceeds in the Cedel Participant's or Euroclear Participant's account
would instead be valued as of the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase Global
Securities from DTC Participants for delivery to Cedel Participants or Euroclear
Participants should note that these trades would automatically fail on the sale
side unless affirmative action is taken. At least three techniques should be
readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the purchase
side of the trade is reflected in their Cedel or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant no
later than one day prior to settlement, which would give the Global Securities
sufficient time to be reflected in their Cedel or Euroclear account in order to
settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC Participant is at least one
day prior to the value date for the sale to the Cedel Participant or Euroclear
Participant.
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of Global Securities holding securities through Cedel
or Euroclear (or through DTC if the holder has an address outside the U.S.) will
be subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S.
Persons (as defined below),
I-2
<PAGE>
unless (i) each clearing system, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business in the
chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for Non-U.S. Persons (Form W-8). Beneficial Owners of Global
Securities that are Non-U.S. Persons (as defined below) can obtain a complete
exemption from the withholding tax by filing a signed Form W-8 (Certificate of
Foreign Status). If the information shown on Form W-8 changes, a new Form W-8
must be filed within 30 days of such change.
Exemption for Non-U.S. Persons with effectively connected income (Form
4224). A Non-U.S. Person (as defined below), including a non-U.S. corporation or
bank with a U.S. branch, for which the interest income is effectively connected
with its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a Trade
or Business in the United States).
Exemption or reduced rate for Non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons residing in a country that has a tax
treaty with the United States can obtain an exemption or reduced tax rate
(depending on the treaty terms) by filing Form 1001 (Ownership, Exemption or
Reduced Rate Certificate). If the treaty provides only for a reduced rate,
withholding tax will be imposed at that rate unless the filer alternatively
files Form W-8. Form 1001 may be filed by Note Owners or their agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Owner of a Global
Security or, in the case of a Form 1001 or a Form 4224 filer, his agent, files
by submitting the appropriate form to the person through whom it holds the
security (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W-8 and Form 1001 are effective for three
calendar years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity organized in or under
the laws of the United States or any political subdivision thereof or (iii) an
estate the income of which is includible in gross income for United States tax
purposes, regardless of its source or a trust if a court within the United
States is able to exercise primary supervision of the administration of the
trust and one or more United States fiduciaries have the authority to control
all substantial decisions of the trust. The term "Non-U.S. Person" means any
person who is not a U.S. Person. This summary does not deal with all aspects of
U.S. Federal income tax withholding that may be relevant to foreign holders of
the Global Securities. Investors are advised to consult their own tax advisors
for specific tax advice concerning their holding and disposing of the Global
Securities.
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<PAGE>
APPENDIX A
INDEX TO LOCATION OF PRINCIPAL DEFINED TERMS
Page
----
Accrual Period . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-28
Appraised Values . . . . . . . . . . . . . . . . . . . . . . . . . .S-15
Available Funds. . . . . . . . . . . . . . . . . . . . . . . . . . .S-30
Available Funds Cap Carry-Forward Amount . . . . . . . . . . . . . . S-4
Available Funds Shortfall. . . . . . . . . . . . . . . . . . . . . .S-29
Backup Servicer. . . . . . . . . . . . . . . . . . . . . . . . . . .S-11
Beneficial Owners. . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Book-Entry Notes . . . . . . . . . . . . . . . . . . . . . . . . . .S-30
Cede . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Cedel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Cedel Participants . . . . . . . . . . . . . . . . . . . . . . . . .S-32
Certificate Insurer Default. . . . . . . . . . . . . . . . . . . . . S-7
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
CMT Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8
Compensating Interest. . . . . . . . . . . . . . . . . . . . . . . .S-40
Cooperative. . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-32
Coupon Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
CPR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-24
Current Interest . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Custodian. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-37
Cut-Off Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Daily Collections. . . . . . . . . . . . . . . . . . . . . . . . . .S-39
Definitive Note. . . . . . . . . . . . . . . . . . . . . . . . . . .S-31
Delinquency Advances . . . . . . . . . . . . . . . . . . . . . . . .S-39
Delinquent . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-39
Depositor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
DOL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-45
DTC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
DTC Participants . . . . . . . . . . . . . . . . . . . . . . . . . .S-31
ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-44
Euroclear. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Euroclear Operator . . . . . . . . . . . . . . . . . . . . . . . . .S-32
Euroclear Participants . . . . . . . . . . . . . . . . . . . . . . .S-32
Excess Overcollateralization Amount. . . . . . . . . . . . . . . . .S-36
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-46
Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-12
FHLMC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-12
Final Certification. . . . . . . . . . . . . . . . . . . . . . . . .S-38
Financial Intermediary . . . . . . . . . . . . . . . . . . . . . . .S-31
Fiscal Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-34
FNMA Guide . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-38
Formula Note Rate. . . . . . . . . . . . . . . . . . . . . . . . . . S-4
Home Equity Loans. . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Indenture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Indenture Trustee Fee . . . . . . . . . . . . . . . . . . . . . . . S-1
Indenture Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Insurance Policy . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Insured Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Interest Carry Forward Amount. . . . . . . . . . . . . . . . . . . . S-3
Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
LIBOR Determination Date . . . . . . . . . . . . . . . . . . . . . .S-30
Loan Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
Loan Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . .S-37
Loan-to-Value Ratios . . . . . . . . . . . . . . . . . . . . . . . .S-18
Majority Residualholders . . . . . . . . . . . . . . . . . . . . . . S-7
Monthly Remittance Date. . . . . . . . . . . . . . . . . . . . . . . S-5
Moody's. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8
Mortgage Note. . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Mortgagor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-23
<PAGE>
Page
----
Net Liquidation Proceeds . . . . . . . . . . . . . . . . . . . . . .S-39
Net Monthly Excess Cashflow. . . . . . . . . . . . . . . . . . . . .S-29
Note Account . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-28
Note Insurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Note Insurer Default . . . . . . . . . . . . . . . . . . . . . . . . S-7
Note Principal Balance . . . . . . . . . . . . . . . . . . . . . . . S-3
Note Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
One-Month LIBOR. . . . . . . . . . . . . . . . . . . . . . . . . . .S-30
Original Aggregate Loan Balance. . . . . . . . . . . . . . . . . . . S-4
Overcollateralization Amount . . . . . . . . . . . . . . . . . . . .S-35
Overcollateralization Deficit. . . . . . . . . . . . . . . . . . . .S-36
Overcollateralization Increase Amount. . . . . . . . . . . . . . . .S-35
Overcollateralization Reduction Amount . . . . . . . . . . . . . . .S-36
Owner Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Owner Trustee Fee. . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-30
Payment Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Percentage Interest. . . . . . . . . . . . . . . . . . . . . . . . .S-28
Plan Asset Regulation. . . . . . . . . . . . . . . . . . . . . . . .S-45
Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-44
Pool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Preference Amount. . . . . . . . . . . . . . . . . . . . . . . . . . S-5
Premium Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
Prepayments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
Preservation Expenses. . . . . . . . . . . . . . . . . . . . . . . .S-40
Principal and Interest Account . . . . . . . . . . . . . . . . . . .S-39
Principal Distribution Amount. . . . . . . . . . . . . . . . . . . . S-4
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Qualified Replacement Mortgage . . . . . . . . . . . . . . . . . . .S-37
Rating Agencies. . . . . . . . . . . . . . . . . . . . . . . . . . . S-8
Realized Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . .S-36
Record Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Redemption Date. . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . .S-42
Reference Banks. . . . . . . . . . . . . . . . . . . . . . . . . . .S-30
Register . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-28
Registrar. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-28
Remittance Period. . . . . . . . . . . . . . . . . . . . . . . . . . S-5
REMIC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8
Residual Interest. . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Riegle Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-10
Rules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-31
Sale and Servicing Agreement . . . . . . . . . . . . . . . . . . . . S-2
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Servicer Termination Events. . . . . . . . . . . . . . . . . . . . .S-41
Servicing Advance. . . . . . . . . . . . . . . . . . . . . . . . . .S-40
Servicing Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
Six-Month LIBOR. . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
SMMEA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8
Specified Overcollateralization Amount . . . . . . . . . . . . . . .S-35
Standard & Poor's. . . . . . . . . . . . . . . . . . . . . . . . . . S-8
Substitution Amount. . . . . . . . . . . . . . . . . . . . . . . . .S-37
Sub-Servicers. . . . . . . . . . . . . . . . . . . . . . . . . . . .S-11
Sub-Servicing Agreements . . . . . . . . . . . . . . . . . . . . . .S-11
Telerate Page 3750 . . . . . . . . . . . . . . . . . . . . . . . . .S-30
Terms and Conditions . . . . . . . . . . . . . . . . . . . . . . . .S-32
Total Available Funds. . . . . . . . . . . . . . . . . . . . . . . .S-30
A-1
<PAGE>
Page
----
Total Monthly Excess Cashflow. . . . . . . . . . . . . . . . . . . .S-29
Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Trust Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Trust Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Trust Fees and Expense . . . . . . . . . . . . . . . . . . . . . . . S-7
Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-46
Underwriting Agreement . . . . . . . . . . . . . . . . . . . . . . .S-46
Weighted average life. . . . . . . . . . . . . . . . . . . . . . . .S-24
A-2
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
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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
Prospectus Supplement
Page
----
Summary of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . .S-
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-
The Seller and Servicer. . . . . . . . . . . . . . . . . . . . . . . .S-
The Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-
The Depositor. . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . .S-
The Home Equity Loan Pool. . . . . . . . . . . . . . . . . . . . . . .S-
Prepayment and Yield Considerations. . . . . . . . . . . . . . . . . .S-
Additional Information . . . . . . . . . . . . . . . . . . . . . . . .S-
Description of the Notes . . . . . . . . . . . . . . . . . . . . . . .S-
The Note Insurer . . . . . . . . . . . . . . . . . . . . . . . . . . .S-
Credit Enhancement . . . . . . . . . . . . . . . . . . . . . . . . . .S-
Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-
Federal Income Tax Consequences. . . . . . . . . . . . . . . . . . . .S-
State 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. . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Description of the Securities. . . . . . . . . . . . . . . . . . . . .
The Trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit Enhancement . . . . . . . . . . . . . . . . . . . . . . . . . .
Servicing of Mortgage Loans. . . . . . . . . . . . . . . . . . . . . .
The Pooling and Servicing Agreement. . . . . . . . . . . . . . . . . .
The Indenture. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Depositor. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Legal Aspects of the Mortgage Assets . . . . . . . . . . . . .
Legal Investment Matters . . . . . . . . . . . . . . . . . . . . . . .
ERISA Considerations . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Income Tax Consequences. . . . . . . . . . . . . . . . . . . .
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . .
Ratings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Information. . . . . . . . . . . . . . . . . . . . . . . . .
Index to Location of Principal Defined Terms . . . . . . . . . . . . .
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<PAGE>
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IMC HOME EQUITY LOAN
OWNER TRUST 199__-__
$_______________ ADJUSTABLE RATE
HOME EQUITY LOAN
ASSET BACKED NOTES, SERIES 199__-__,
DUE _____________, 20___
[LOGO]
IMC MORTGAGE COMPANY
Seller and Servicer
IMC SECURITIES, INC.
Depositor
------------
PROSPECTUS SUPPLEMENT
------------
[Underwriters]
================================================================================
