AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 22, 1996
REGISTRATION NO. 333-07219
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ACCREDITED HOME LENDERS, INC.
(Exact Name of Registrant as Specified in Its Charter)
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CALIFORNIA 15030 AVENUE OF SCIENCE, SUITE 100 33-0426859
(State of Incorporation) SAN DIEGO, CALIFORNIA 92128 (I.R.S. Employer Identification
(Address of principal executive No.)
offices)
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JAMES A. KONRATH
PRESIDENT
ACCREDITED HOME LENDERS, INC.
15030 AVENUE OF SCIENCE, SUITE 100
SAN DIEGO, CALIFORNIA 92128
(619) 676-2100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPIES TO:
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DAVID E. HERTZEL, ESQ. RAY M. MCKEWON CHRIS DIANGELO, ESQ.
GENERAL COUNSEL EXECUTIVE VICE PRESIDENT DEWEY BALLANTINE
ACCREDITED HOME LENDERS, INC. ACCREDITED HOME LENDERS, INC. 1301 SIXTH AVENUE
15030 AVENUE OF SCIENCE, SUITE 100 15030 AVENUE OF SCIENCE, SUITE 100 NEW YORK, NEW YORK 10019
SAN DIEGO, CALIFORNIA 92128 SAN DIEGO, CALIFORNIA 92128
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
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, 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. / /
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CALCULATION OF REGISTRATION FEE
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AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
BEING REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE(2)(3)
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Mortgage Loan Asset-Backed
Securities........................ $500,000,000 (1) $500,000,000 $172,413.50
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(1) The proposed maximum offering price per unit will be determined, from time
to time, by the Registrant in connection with the issuance by the Registrant
of the securities registered hereunder.
(2) Calculated pursuant to Rule 457(o) of the rules and regulations under the
Securities Act of 1933, as amended.
(3) Previously paid.
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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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CROSS REFERENCE SHEET
TO FORM S-3
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ITEM AND CAPTION IN FORM S-3 CAPTION OR LOCATION IN PROSPECTUS
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1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus... Forepart of Registration Statement; Outside
Front Cover Page**
2. Inside Front and Outside Back Cover Page of
Prospectus................................. Inside Front and Outside Back Cover Page**
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............... Summary of Prospectus**; 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 Page**;
Summary of Prospectus**;
Description of the Securities**;
Federal Income Tax Considerations**
10. Interests of Named Experts and Counsel..... **
11. Material Changes........................... *
12. Incorporation by Reference................. Incorporation of Certain Documents by
Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ See Page II-4
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* Not applicable or answer is negative.
** To be completed from time to time by Prospectus Supplement.
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PROSPECTUS
ACCREDITED HOME LENDERS, INC.
ASSET-BACKED NOTES
ASSET-BACKED CERTIFICATES
(ISSUABLE IN SERIES)
Accredited Home Lenders, Inc. (the "Sponsor"), may offer from time to time
under this Prospectus and related Prospectus Supplements the Asset-Backed Notes
(the "Notes") and the Asset-Backed Certificates (the "Certificates" and,
together with the Notes, the "Securities") which may be sold from time to time
in one or more series (each, a "Series").
The Certificates of a Series will evidence undivided interests in certain
assets deposited into a trust (each, a "Trust Fund") by the Sponsor or an
affiliate (references to the "Sponsor" herein shall be deemed to include such an
affiliate unless the context otherwise requires). The Notes of a Series will
represent indebtedness secured by the related Trust Fund. A Series may consist
of both Certificates and of Notes, in which case the Certificates will represent
the equity ownership of the assets of the related Trust Fund, which assets are
subject to the senior lien of the related Notes. In no event will the
Certificates and Notes issued in a single Series and with respect to a single
Trust Fund exceed the value of the property in such Trust Fund. See "Description
of the Securities" herein.
Each Series of Securities will be issued in one or more classes (each, a
"Class"). Interest on and principal of the Securities of a Series will be
payable on each Distribution Date specified in the related Prospectus
Supplement, at the times, at the rates, in the amounts and in the order of
priority set forth in the related Prospectus Supplement.
If a Series includes multiple Classes, such Classes may vary with respect to
the amount, percentage and timing of distributions of principal, interest or
both and one or more Classes may be subordinated to other Classes with respect
to distributions of principal, interest or both as described herein under
"Description of the Securities" and in the related Prospectus Supplement. If so
specified in the related Prospectus Supplement, the assets comprising the Trust
Fund may be divided into one or more groups, and each Class of the related
Series will evidence beneficial ownership of the corresponding group, as
applicable.
The Trust Fund for a Series of Securities will include (a) assets originated
by the Sponsor or acquired by the Sponsor from affiliated or unaffiliated
institutions (each, a "Seller") composed of (i) mortgage loans (the "Mortgage
Loans"), including mortgage loans secured by senior liens or junior liens on the
related mortgaged properties and closed-end and/or revolving home equity loans
or certain balances thereof, secured by mortgages primarily on one- to
four-family residential or small mixed-use properties (the "Mortgaged
Properties") and/or (ii) home improvement installment sales contracts and
installment loan agreements (the "Home Improvement Contracts") which are either
unsecured or secured by mortgages primarily on one- to four-family residential
properties, or by purchase money security interests in the home improvements
financed thereby (the "Home Improvements"), (b) all Mortgaged Properties and/or
Home Improvements (collectively, "Properties") acquired in respect of Mortgage
Loans and/or Home Improvement Contracts, respectively (collectively, the
"Loans"), and all monies due under the Loans net, to the extent described in the
related Prospectus Supplement, of certain amounts payable to the Servicer, and
(c) certain funds, Credit Enhancement (as defined herein) and other assets as
described herein under "The Trust Funds", all as specifically set forth in the
related Prospectus Supplement.
The rate of reduction of the aggregate principal balance of each Class of a
Series may depend principally upon the rate of payment (including prepayments)
with respect to the Loans. A rate of prepayment lower or higher than anticipated
will affect the yield on the Securities of a Series in the manner described
herein under "Description of the Securities--Weighted Average Life of
Securities" and in the related Prospectus Supplement. Under certain
circumstances a Series of Securities may be subject to termination or redemption
under the circumstances described herein under "Description of the
Securities--Special Redemption" and "--Optional Redemption, Purchase or
Termination" to the extent described in the related Prospectus Supplement.
SEE "RISK FACTORS", COMMENCING ON PAGE HEREOF, FOR A DISCUSSION OF CERTAIN
RISKS ASSOCIATED WITH AN INVESTMENT IN THE CERTIFICATES
NOTES OF A GIVEN SERIES REPRESENT OBLIGATIONS OF, AND CERTIFICATES OF A SERIES
EVIDENCE BENEFICIAL INTERESTS IN THE RELATED TRUST FUND ONLY AND ARE NOT
GUARANTEED BY ANY GOVERNMENTAL AGENCY OR BY THE SPONSOR, ANY SELLER, THE
TRUSTEE, THE SERVICER OR BY ANY OF THEIR RESPECTIVE AFFILIATES OR, UNLESS
OTHERWISE SPECIFIED IN THE RELATED PROSPECTUS SUPPLEMENT, BY ANY OTHER PERSON OR
ENTITY. THE SPONSOR'S ONLY OBLIGATIONS WITH RESPECT TO ANY SERIES OF SECURITIES
WILL BE PURSUANT TO CERTAIN REPRESENTATIONS AND WARRANTIES SET FORTH IN THE
RELATED POOLING AND SERVICING AGREEMENT. SEE "RISK FACTORS" COMMENCING ON PAGE
HEREOF FOR CERTAIN FACTORS TO BE CONSIDERED IN PURCHASING THE SECURITIES.
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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 PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The Securities offered by this Prospectus and by the related Prospectus
Supplement are offered by the underwriters set forth in the related Prospectus
Supplement subject to prior sale, to withdrawal, cancellation or modification of
the offer without notice, to delivery to and acceptance by the underwriters and
certain further conditions. Retain this Prospectus for future reference. This
Prospectus may not be used to consummate sales of the Securities offered hereby
unless accompanied by a Prospectus Supplement.
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PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Securities to be offered
hereunder will, among other things, set forth with respect to such Series of
Securities: (i) the aggregate principal amount, interest rate, and authorized
denominations of each Class of such Securities; (ii) certain information
concerning the related Loans, any Seller and any Subservicer; (iii) the terms of
any Credit Enhancement with respect to such Series; (iv) the terms of any
insurance related to the related Loans; (v) information concerning any other
assets in the related Trust Fund, including any Reserve Fund; (vi) the Final
Scheduled Distribution Date of each Class of such Securities; (vii) the method
to be used to calculate the amount of principal required to be applied to the
Securities of each Class of such Series on each Distribution Date, the timing of
the application of principal and the order of priority of the application of
such principal to the respective Classes and the allocation of principal to be
so applied; (viii) the Distribution Dates; (ix) additional information with
respect to the plan of distribution of such Securities; and (x) whether a REMIC
election will be made with respect to some or all of the Trust Fund for such
Series.
REPORTS TO HOLDERS
Periodic and annual reports concerning the related Trust Fund for a Series
of Securities are required under the related Pooling and Servicing Agreement to
be forwarded to the related Holders. If the Securities of a Series are to be
issued in book-entry form, such reports will be provided to the Holder of record
and beneficial owners of such Securities will have to rely on the procedures
described herein under "Description of the Securities--Book-Entry Registration."
Such reports will not be examined and reported on by an independent public
account. See "The Pooling and Servicing Agreement-- Reports to Holders". In
addition, the related Trust Fund will file certain other periodic and annual
reports with the Securities and Exchange Commission, as required by the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"). Such
reports will be examined and reported on by an independent public accountant to
the extent required by the Exchange Act.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed with respect to a Trust Fund pursuant to Section 13(a),
13(c), 14 or 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 Fund offered hereby shall be deemed to be incorporated
by reference into the Prospectus when delivered with respect to such Trust Fund.
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 Accredited Home Lenders, Inc., 15030 Avenue of Science, Suite 100,
San Diego, California 92128 (telephone number (619) 451-7044).
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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 information with respect to each Series of Securities contained in the
Prospectus Supplement to be prepared and delivered in connection with the
offering of Securities of such Series. Capitalized terms used and not otherwise
defined herein or in the related Prospectus Supplement shall have the meanings
set forth in the "GLOSSARY OF TERMS".
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THE SPONSOR AND SERVICER............ Accredited Home Lenders, Inc., a California
corporation (the "Sponsor" or the "Servicer"). See
"The Sponsor and Servicer".
SECURITIES.......................... Asset-Backed Certificates ("Certificates")
representing beneficial ownership interests in the
related Trust Fund and Asset-Backed Notes ("Notes")
representing debt secured by the assets of the
related Trust Fund, issuable in Series.
Types of Securities
Each Series of Securities will consist of one or more
Classes, one or more of which may be Classes of
Compound Interest Securities, Planned Amortization
Class ("PAC") Securities, Variable Interest
Securities, Zero Coupon Securities, Principal Only
Securities, Interest Only Securities, Participating
Securities, Senior Securities or Subordinate
Securities. Each Class may differ in, among other
things, the amounts allocated to and the priority of
principal and interest payments, Final Scheduled
Distribution Dates, Distribution Dates and interest
rates. The Securities of each Class will be issued in
fully registered form in the denominations specified
in the related Prospectus Supplement. If so specified
in the related Prospectus Supplement, the Securities
or certain Classes of such Securities offered thereby
may be available in book-entry form only. See
"Description of the Securities--Book-Entry
Registration".
Securities Will Be Recourse to the Assets of the
Related Trust Fund Only.
The sole source of payment for any Series of
Securities will be the assets of the related Trust
Fund. The Securities will not be obligations, either
recourse or nonrecourse (except for certain
nonrecourse debt described under "Federal Income Tax
Considerations"), of the Sponsor or any Person other
than the related Trust Fund. In the case of
Securities that represent beneficial ownership
interest in the related Trust Fund, such Securities
will represent the ownership of such Trust Fund; with
respect to Securities that represent debt issued with
respect to the related Trust Fund, such Securities
will be secured by the related Trust Fund.
Notwithstanding the foregoing, and as to be described
in the related Prospectus Supplement, certain types
of Credit
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Enhancement, such as a financial guaranty insurance
policy or a letter of credit, may constitute a full
recourse obligation of the issuer of such Credit
Enhancement.
THE TRUST FUNDS..................... The Trust Fund for a Series of Securities will
include (a) assets originated by the Sponsor or
acquired by the Sponsor from affiliated or
unaffiliated institutions (each, a "Seller") composed
of (i) mortgage loans (the "Mortgage Loans"),
including mortgage loans secured by senior liens or
junior liens on the related mortgaged properties and
closed-end and/or revolving home equity loans or
certain balances thereof, secured by mortgages
primarily on one- to four-family residential or small
mixed-use properties (the "Mortgaged Properties")
and/or (ii) home improvement installment sales
contracts and installment loan agreements (the "Home
Improvement Contracts") which are either unsecured or
secured by mortgages primarily on one- to four-family
residential properties, or by purchase money security
interests in the home improvements financed thereby
(the "Home Improvements"), (b) all Mortgaged
Properties and/or Home Improvements (collectively,
"Properties") acquired in respect of Mortgage Loans
and/or Home Improvement Contracts, respectively
(collectively, the "Loans"), and all monies due under
the Loans net, to the extent described in the related
Prospectus Supplement, of certain amounts payable to
the Servicer and (c) certain funds, Credit
Enhancement (as defined herein) and other assets as
described herein under "The Trust Funds", all as
specifically set forth in the related Prospectus
Supplement.
The related Prospectus Supplement will describe
certain characteristics of the Loans for a Series,
including, without limitation, and to the extent
relevant: (a) the aggregate unpaid principal balance
of the Loans (or the aggregate unpaid principal
balance included in the Trust Fund for the related
Series) and the average outstanding principal balance
of the Loans; (b) the weighted average Loan Rate on
the Loans as of the Cut-off Date; (c) the Combined
Loan-to-Value Ratios or Loan-to-Value Ratios, as
applicable, of the Loans, computed in the manner
described in the related Prospectus Supplement; (d)
the percentage (by principal balance as of the
Cut-off Date) of Loans that accrue interest at
adjustable or fixed interest rates; (e) any Credit
Enhancement relating to the Loans; (f) the percentage
(by principal balance as of the Cutoff Date) of Loans
that are secured by Properties, or are unsecured; (g)
the geographic distribution of any Properties
securing the Loans; (h) the use and type of each
Property securing a Loan; (i) the lien priority of
the Loans; (j) the credit limit utilization rates of
any Revolving Credit Line Loans; and
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(k) the delinquency status and year of origination of
the Loans.
Each Trust Fund will be established pursuant to an
agreement (each, a "Trust Agreement") by and between
the Sponsor and the Trustee named therein. Each Trust
Agreement will describe the assets of the related
Trust Fund, which will include the related Loans and,
if so specified in the related Prospectus Supplement,
may include any combination of a mortgage pool
insurance policy, letter of credit, financial
guaranty insurance policy, special hazard policy,
reserve fund or other form of Credit Enhancement.
The Loans held by each Trust Fund will be serviced by
the Servicer pursuant to a servicing agreement (each,
a "Servicing Agreement") by and between the Servicer
and the related Trustee.
With respect to Securities that represent debt
secured by the related Trust Fund, the Sponsor will
enter into an indenture (each, an "Indenture") with
the trustee named on such Indenture (the "Indenture
Trustee"), as set forth in the related Prospectus
Supplement. Securities that represent beneficial
ownership interests in the related Trust Fund will be
issued pursuant to the related Trust Agreement.
In the case of any individual Trust Fund, the
contractual arrangements relating to the
establishment of the Trust Fund, the servicing of the
related Loans and the issuance of the related
Securities may be contained in a single agreement, or
in several agreements which combine certain aspects
of the Trust Agreement, the Servicing Agreement and
the Indenture described above (for example, a pooling
and servicing agreement, or a servicing and
collateral management agreement). For purposes of
this Prospectus, the term "Pooling and Servicing
Agreement" as used with respect to a Trust Fund
means, collectively, and except as otherwise
specified, any and all agreements relating to the
establishment of the related Trust Fund, the
servicing of the related Loans and the issuance of
the related Securities.
INTEREST PAYMENTS................... Interest payments on the Securities of a Series
entitled by their terms to receive interest will be
made on each Distribution Date, to the extent set
forth in, and at the applicable rate specified in (or
determined in the manner set forth in), the related
Prospectus Supplement. The interest rate on
Securities of a Series may be variable or change with
changes in the rates of interest on the related
Loans, and/or as prepayments occur with respect to
such Loans. Interest Only Securities may be assigned
a Notional Amount set forth in the related Prospectus
Supplement for the purpose of calculating the
interest due on such Interest
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Only Securities. See "Description of the
Securities--Use of Notional Amounts". Principal Only
Securities may not be entitled to receive any
interest payments or may be entitled to receive only
nominal interest payments. Interest payable on the
Securities of a Series on a Distribution Date will
include all interest accrued during the period
specified in the related Prospectus Supplement. See
"Description of the Securities--Payments of
Interest".
PRINCIPAL PAYMENTS.................. All payments of principal of a Series of Securities
will be made in an aggregate amount determined as set
forth in the related Prospectus Supplement and will
be paid at the times and will be allocated among the
Classes of such Series in the order and amounts, and
will be applied either on a pro rata or a random lot
basis among all Securities of any such Class, all as
specified in the related Prospectus Supplement.
FINAL SCHEDULED DISTRIBUTION DATE OF
THE SECURITIES...................... The Final Scheduled Distribution Date with respect to
each Class of Notes is the date no later than which
principal thereof will be fully paid and with respect
to each Class of Certificates is the date after which
no Certificates of such Class are expected to remain
outstanding, in each case calculated on the basis of
the assumptions applicable to such Series described
in the related Prospectus Supplement. The Final
Scheduled Distribution Date of a Class will be set
forth in the related Prospectus Supplement. The
actual final Distribution Date of the Securities of a
Series will depend primarily upon the rate of payment
(including prepayments, liquidations due to default,
the receipt of proceeds from casualty insurance
policies and repurchases) of the Loans in the related
Trust Fund, and, consequently, the actual final
Distribution Date of any Security is likely to occur
earlier and may occur substantially earlier or may
occur later than its Final Scheduled Distribution
Date. The rate of payments on the Loans in the Trust
Fund for a Series will depend on a variety of
factors, including certain characteristics of such
Loans, and the prevailing level of interest rates
from time to time, as well as on a variety of
economic, demographic, tax, legal, social and other
factors. No assurance can be given as to the actual
prepayment experience with respect to a Series. See
"Yield and Maturity Considerations" herein.
OPTIONAL TERMINATION................ The Sponsor, the Servicer, or such other entity that
is specified in the related Prospectus Supplement,
may, at its option, cause an early termination of the
related Trust Fund by repurchasing all of the Loans
and/or Properties remaining in the Trust Fund on or
after the date specified in the related Prospectus
Supplement, or on or after such time as the aggregate
principal balance of the Securities of the Series or
the Mortgage Assets relating to such Series, is less
than the amount or percentage specified in the
related
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Prospectus Supplement. See "Description of the
Securities--Optional Purchase or Termination".
COLLECTION AND DISTRIBUTION
ACCOUNTS............................ All payments on or with respect to the Loans for a
Series will be remitted directly to an account (the
"Collection Account") to be established for such
Series with the Trustee or the Servicer, in the name
of the Trustee. All such amounts will be available
for (i) application to the payment of principal of
and interest on such Series of Securities on the next
Distribution Date, (ii) the making of adequate
provision for future payments on certain Classes of
Securities, (iii) for the purpose of reimbursing
expenses to other persons which may be supplying
services to the related Trust Fund (for example, a
subservicer or a provider of Credit Enhancement (a
"Credit Enhancer")), and to pay to such persons their
fees and (iv) for reinvestment in additional Loans,
as described below. After applying the funds in the
Collection Account as described above, any funds
remaining in the Collection Account may be paid over
to the Servicer, the Sponsor, the related Credit
Enhancer or deposited into a Reserve Account.
As may be described in the related Prospectus
Supplement, the related Pooling and Servicing
Agreement may provide that all or a portion of the
principal collected on or with respect to the related
Loans may be applied by the related Trustee to the
acquisition of additional Loans during a specified
period (rather than being used to fund payments of
principal to Holders during such period) with the
result that the related Securities will possess an
interest-only period, also commonly referred to as a
revolving period, which will be followed by an
amortization period. Any such interest-only or
revolving period may, upon the occurrence of certain
events to be described in the related Prospectus
Supplement, terminate prior to the end of the
specified period and result in the earlier than
expected amortization of the related Securities.
In addition, and as may be described in the related
Prospectus Supplement, the related Pooling and
Servicing Agreement may provide that all or a portion
of such collected principal may be retained by the
Trustee (and held in certain temporary investments,
including Loans) for a specified period prior to
being used to fund payments of principal to Holders.
See "Yield and Maturity Considerations."
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Pre-Funding Account................. If so specified in the related Prospectus Supplement,
a portion of the issuance proceeds of the Securities
of a particular series (such amount, (the "Pre-Funded
Amount") will be deposited in an account (the "Pre-
Funding Account") to be established with the Trustee,
which will be used to acquire additional Loans from
time to time during the time period specified in the
related Prospectus Supplement (the "Pre-Funding
Period"). Prior to the investment of the Pre-Funded
Amount in additional Loans, such Pre-Funded Amount
will be invested in one or more Eligible Investments.
Any Eligible Investment must mature no later than the
Business Day prior to the next Distribution Date. See
"The Pooling and Servicing Agreement--Assignment of
Loans--Pre-Funding Account--Pre-Funding Account."
During any Pre-Funding Period, the Sponsor will be
obligated (subject only to the availability thereof)
to transfer to the related Trust Fund, additional
Loans from time to time during such Pre-Funding
Period. Such additional Loans will be required to
satisfy certain eligibility criteria more fully set
forth in the related Prospectus Supplement which
eligibility criteria will be consistent with the
eligibility criteria of the Loans included in the
Trust Fund as of the Closing Date subject to such
exceptions as are expressly stated in such Prospectus
Supplement.
Although the specific parameters of the Pre-Funding
Account with respect to any issuance of Securities
will be specified in the related Prospectus
Supplement, it is anticipated that: (a) the
Pre-Funding Period will not exceed 120 days from the
related Closing Date, (b) that the additional Loans
to be acquired during the Pre-Funding Period will be
subject to the same representations and warranties as
the Loans included in the related Trust Fund on the
Closing Date (although additional criteria may also
be required to be satisfied, as described in the
related Prospectus Supplement) and (c) that the
Pre-Funded Amount will not exceed 25% of the
principal amount of the Securities issued pursuant to
a particular offering.
CREDIT ENHANCEMENT.................. If stated in the Prospectus Supplement relating to a
Series, the Sponsor will provide or obtain credit
support described below (collectively, "Credit
Enhancement") in favor of the Trustee on behalf of
the Holders of such Series. The Credit Enhancement
will support the payments on the Securities to the
extent and under the conditions specified in such
Prospectus Supplement. See "Credit Enhancement".
Credit Enhancement for a Series may include one or
more of the following types of Credit Enhancement.
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A. SUBORDINATE SECURITIES....... Credit Enhancement for a Series may consist of one or
more Classes of Subordinate Securities. The rights of
Holders of such Subordinate Securities to receive
distributions on any Distribution Date will be
subordinate in right and priority to the rights of
Holders of Senior Securities of the Series, but only
to the extent described in the related Prospectus
Supplement.
B. INSURANCE.................... Credit Enhancement for a Series may consist of
special hazard insurance policies, bankruptcy bonds
and other types of insurance supporting payments on
the Securities.
C. RESERVE FUNDS................ The Sponsor may deposit cash, a letter or letters of
credit, short-term investments, or other instruments
acceptable to each Rating Agency in one or more
reserve funds to be established in the name of the
Trustee (each, a "Reserve Fund"), which will be used,
as specified in the related Prospectus Supplement, by
the Trustee to make required payments of principal of
or interest on the Securities of such Series, to make
adequate provision for future payments on such
Securities or for any other purpose specified in the
Pooling and Servicing Agreement with respect to such
Series, to the extent that funds are not otherwise
available. In the alternative or in addition to such
deposit, a Reserve Fund for a Series may be funded
through application of all or a portion of the excess
cash flow from the Mortgage Assets for such Series,
to the extent described in the related Prospectus
Supplement.
D. MINIMUM PRINCIPAL PAYMENT
AGREEMENT.................... The Sponsor may enter into a minimum principal
payment agreement (the "Minimum Principal Payment
Agreement") with an entity meeting the criteria of
each Rating Agency, pursuant to which such entity
will provide funds in the event that aggregate
principal payments on the Mortgage Assets for the
related Series are not sufficient to make certain
payments, as provided in the related Prospectus
Supplement. See "Credit Enhancement-- Minimum
Principal Payment Agreement".
E. OTHER INSURANCE, GUARANTEE
AND SIMILAR INSTRUMENTS OR
AGREEMENTS................... A Trust Fund may include a guaranteed investment
contract or reinvestment agreement pursuant to which
funds held in one or more accounts will be invested
at a specified rate. If any Class of Securities has a
floating interest rate, or if any of the Loans has a
floating interest rate, the related Trust Fund may
include an interest rate swap contract, an interest
rate cap agreement or similar contract providing
limited protection against interest rate risks.
F. DEPOSIT AGREEMENT............ The Sponsor and the Trustee may enter into a
guaranteed investment contract or an investment
agreement pursuant
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to which all or a portion of amounts held in the
Collection Account, the Distribution Account or in
any Reserve Fund will be invested with the entity
specified in such Prospectus Supplement. The Trustee
will be entitled to withdraw amounts so invested,
plus interest at the related and revised rate, in the
manner specified in the Prospectus Supplement. See
"Credit Enhancement--Deposit Agreement".
G. CROSS COLLATERALIZATION...... The source of payment for Securities of each Series
will be the assets of the related Trust Fund only.
However, a Trust Fund may include the right to
receive moneys from a common pool of Credit
Enhancement which may be available for more than one
Series of Securities, such as a master reserve
account or a master insurance policy. In addition, a
Series of Securities may provide for excess cash flow
with respect to one Class of the Series to be applied
to shortfalls with respect to another Class of the
same Series. See "Credit Enhancement--Cross
Collateralization".
H. OVERCOLLATERALIZATION........ Credit Enhancement for a Series may include over-
collateralization--an excess of the aggregate
principal balance of the related Loans, or a group
thereof, over the principal balance of the related
Class of Securities. Overcollateralization is
achieved by the application of certain "excess"
portions of interest payments on Loans to the payment
of principal of one or more Classes of Securities.
This feature may continue for the life of the related
Securities or may be limited as set forth in the
related Prospectus Supplement.
Any form of credit enhancement will have certain
limitations and exclusions from coverage thereunder,
which will be described in the related Prospectus
Supplement. See "Description of the Pooling and
Servicing Agreement-- Credit Enhancements." To the
extent that shortfalls in the proceeds of the Trust
Funds occur which exceed the amount covered by the
Credit Enhancement or which are not covered by the
Credit Enhancement available to a particular Series
or Class, Holders will bear their allocable share of
any deficiencies. See "Risk Factors--Limited Assets"
herein, and to the extent applicable, in the related
Prospectus Supplement.
SERVICING........................... The Servicer will be responsible for servicing,
managing and making collections on the Loans for a
Series. In addition, the Servicer, if so specified in
the related Prospectus Supplement, will act as
custodian and will be responsible for maintaining
custody of the Loans and related documentation on
behalf of the Trustee. Advances with respect to
delinquent payments of principal or interest on a
Loan will be made by the Servicer only to the extent
described in the related Prospectus Supplement. Such
advances will be intended to provide liquidity only
and not
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credit support for the related Securities. In
performing these functions, the Servicer will
exercise the same degree of skill and care that it
customarily exercises with respect to similar
receivables or Loans owned or serviced by it. Under
certain limited circumstances, the Servicer may
resign or be removed, in which event either the
Trustee or a third-party servicer will be appointed
as successor servicer. The Servicer will receive a
periodic fee as servicing compensation (the
"Servicing Fee") and may, as specified herein and in
the related Prospectus Supplement, receive certain
additional compensation. See "Servicing of Loans--
Servicing Compensation and Payment of Expenses".
CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS...................... Securities of each Series offered hereby will, for
federal income tax purposes, constitute either (i)
interests ("Grantor Trust Securities") in a trust
treated as a grantor trust under applicable
provisions of the Code, (ii), "regular interests"
("REMIC Regular Securities") or "residual interests"
("REMIC Residual Securities") in a trust treated as a
REMIC (or, in certain instances, containing one or
more REMIC's) under Sections 860A through 860G of the
Code, (iii) debt issued by a trust ("Debt
Securities") or (iv) interests in a trust which is
treated as a partnership ("Partnership Interests").
Investors are advised to consult their tax advisors
with respect to individual tax advice regarding the
tax implications of an investment on any securities,
and to review "Federal Income Tax Considerations"
herein and in the related Prospectus Supplement. The
information set forth under such caption describes
the material tax aspects of the transactions
described herein, but is of general applicability and
may not apply to any individual taxpayer.
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. See "Erisa Considerations".
LEGAL INVESTMENT.................... Securities of each Series offered by this Prospectus
and the related Prospectus Supplement may or may not
constitute "mortgage related securities" under the
Secondary Mortgage Market Credit Enhancement Act of
1984 ("SMMEA"). Whether or not such Securities are
"mortgage related securities" will be set forth in
the related Prospectus Supplement. Investors whose
investment authority is subject to legal restrictions
should consult their own legal advisors to determine
whether and to what extent
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the Securities constitute legal investments for them.
See "Legal Investment".
USE OF PROCEEDS..................... The Sponsor will use the net proceeds from the sale
of each Series for one or more of the following
purposes: (i) to purchase the related Loans, (ii) to
repay indebtedness which has been incurred to obtain
funds to acquire such Loans, (iii) to establish any
Reserve Funds described in the related Prospectus
Supplement and (iv) to pay costs of structuring and
issuing such Securities, including the costs of
obtaining Credit Enhancement, if any. See "Use of
Proceeds".
RATINGS............................. It will be a requirement for issuance of any Series
that the Securities offered by this Prospectus and
the related Prospectus Supplement be rated by each
Rating Agency in one of its four highest applicable
rating categories. The rating or ratings applicable
to Securities of each Series offered hereby and by
the related Prospectus Supplement will be as set
forth in the related Prospectus Supplement. A
securities rating should be evaluated independently
of similar ratings on different types of securities.
A securities rating does not address the effect that
the rate of prepayments on Loans for a Series may
have on the yield to investors in the Securities of
such Series. See "Risk Factors--Rating of
Securities".
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RISK FACTORS
INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE FOLLOWING FACTORS IN
CONNECTION WITH THE PURCHASE OF THE SECURITIES.
AN INVESTMENT IN ANY SECURITY MAY BE AN ILLIQUID INVESTMENT, WHICH MAY
RESULT IN THE HOLDER HOLDING SUCH INVESTMENT TO MATURITY. 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 Holders with liquidity of investment or will continue for
the life of the Securities of such Series. The underwriters specified in the
related Prospectus Supplement may make a secondary market in the Securities, but
have no obligation to do so.
THE ASSETS OF EACH TRUST FUND, AS WELL AS ANY APPLICABLE CREDIT ENHANCEMENT,
WILL BE LIMITED AND, IF SUCH ASSETS AND/OR CREDIT ENHANCEMENT BECOMES
INSUFFICIENT TO SERVICE THE RELATED SECURITIES, LOSSES MAY RESULT. The
Securities of a Series will be payable solely from the assets of the Trust Fund
for such Securities. There is no assurance that the market value of the Loans or
any other assets for a Series will at any time be equal to or greater than the
aggregate principal amount of the Securities of such Series then outstanding,
plus accrued interest thereon. Consequently, Holders of Securities of each
Series must rely solely upon payments with respect to the Loans and the other
assets constituting the Trust Fund for a Series of Securities, including, if
applicable, any amounts available pursuant to any Credit Enhancement for such
Series, for the payment of principal of and interest on the Securities of such
Series.
The only obligations, if any, of the Sponsor with respect to the Securities
of any Series will be pursuant to certain representations and warranties. See
"The Pooling and Servicing Agreement-- Assignment of Loans".
Although any Credit Enhancement for a Series of Securities will be intended
to reduce the risk of delinquent payments or losses to Holders of Securities
entitled to the benefit thereof, the amount of such Credit Enhancement may be
limited, as set forth in the related Prospectus Supplement, and will decline and
could be depleted under certain circumstances prior to the payment in full of
the related Series of Securities, and as a result Holders may suffer losses. See
"Credit Enhancement".
THE SECURITIES DO NOT HAVE SPECIFIED PAYMENT OR DEBT SERVICE SCHEDULES, AND
PAYMENTS ON THE SECURITIES ARE SUBJECT TO THE RATE OF PAYMENT ON THE UNDERLYING
LOANS. The yield to maturity of the Securities of each Series will depend on the
rate of payment of principal (including prepayments, liquidations due to
defaults, and repurchases due to conversion of adjustable-rate mortgage loans
("ARM Loans") to fixed-rate loans or breaches of representations and warranties)
on the Loans and the price paid by Holders. Such yield may be adversely affected
by a higher or lower than anticipated rate of prepayments on the related Loans.
The yield to maturity on Principal Only or Interest Only Securities or
Securities purchased at premiums or discounted to par will be extremely
sensitive to the rate of prepayments on the related Loans. In addition, the
yield to maturity on certain other types of classes of Securities may be
relatively more sensitive to the rate of prepayment on the related Loans than
other Classes of Securities.
The Loans may be prepayable in full or in part at any time; however, a
prepayment penalty or premium may be imposed in connection therewith. The rate
of prepayments of the Loans cannot be predicted and is influenced by a wide
variety of economic, social, and other factors, including prevailing mortgage
market interest rates, the availability of alternative financing, local and
regional economic conditions and homeowner mobility. Therefore, no assurance can
be given as to the level of prepayments that a Trust Fund will experience.
Prepayments may result from mandatory prepayments relating to unused moneys
held in Pre-Funding Accounts, if any, voluntary early payments by borrowers
(including payments in connection with refinancings of related senior liens),
sales of Properties subject to "due-on-sale" provisions and liquidations due to
default, as well as the receipt of proceeds from physical damage, credit life
and disability insurance policies. In addition, repurchases or purchases of
Loans from a Trust Fund or
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substitution adjustments required to be made under the related Pooling and
Servicing Agreement will have the same effect on the Holders as a prepayment of
such Loans. The Loans may contain "due-on-sale" provisions, and the Servicer
will be required to enforce such provisions unless (i) the "due-on-sale" clause,
in the reasonable belief of the Servicer, is not enforceable under applicable
law or (ii) the Servicer reasonably believes that to permit an assumption of the
Loans would not materially and adversely affect the interests of the Holders or
of the related Credit Enhancer, if any.
NONCONFORMING CREDIT MORTGAGE LOANS MAY EXPERIENCE HIGHER RATES OF
DELINQUENCIES AND LOSSES. In general, the Sponsor originates and acquires
mortgage loans which do not meet the credit criteria required by the Federal
National Mortgage Association ("FNMA") or the Federal Home Loan Mortgage
Corporation ("FHLMC"), commonly referred to as "nonconforming credit" mortgage
loans. Such mortgage loans tend to exhibit higher levels of delinquency,
foreclosure and loss than mortgage loans which conform to the requirements of
FNMA and FHLMC. The interest rates and the loan-to-value ratios for such
mortgage loans are established at levels designed to compensate for and offset
the increased delinquency, foreclosure and loss risks presented by such loans,
and rating agencies take such increased risks into account in assigning ratings
to classes of securities which represent interests in such loans. No assurances
can be given, however, that the Loans in any Trust Fund will not exceed expected
delinquency, foreclosure and loss levels and adversely affect the value of the
related Securities and the interests of the Holders thereof.
JUNIOR LIENS MAY EXPERIENCE HIGHER RATES OF DELINQUENCIES AND LOSSES. To the
extent Mortgages are junior liens subordinate to the rights of the mortgagee
under the related senior mortgage or mortgages, the proceeds from any
liquidation, insurance or condemnation proceedings will be available to satisfy
the outstanding balance of such junior mortgage only to the extent that the
claims of such senior mortgagees have been satisfied in full, including any
related foreclosure costs. In addition, a junior mortgagee may not foreclose on
the Property securing a junior mortgage unless it forecloses subject to the
senior mortgages, in which case it must either pay the entire amount due on the
senior mortgages to the senior mortgagees at or prior to the foreclosure sale or
undertake the obligation to make payments on the senior mortgages in the event
the mortgagor is in default thereunder. The Trust Fund will not have any source
of funds to satisfy the senior mortgages or make payments due to the senior
mortgagees.
PROPERTY VALUES MAY DECLINE, LEADING TO HIGHER LOSSES. There are several
factors that could adversely affect the value of Properties such that the
outstanding balance of the related Loan, together with any senior financing on
the Properties, would equal or exceed the value of the Properties. Among the
factors that could adversely affect the value of the Properties are an overall
decline in the residential real estate market in the areas in which the
Properties are located or a decline in the general condition of the Properties
as a result of failure of borrowers to maintain adequately the Properties or of
natural disasters that are not necessarily covered by insurance, such as
earthquakes and floods. Any such decline could extinguish the value of a junior
interest in Property before having any effect on the related senior interest
therein. If such a decline occurs, the actual rates of delinquencies,
foreclosure and losses on the junior Loans could be higher than those currently
experienced in the mortgage lending industry with respect to the same types of
loans.
"BALLOON" LOANS MAY EXPERIENCE HIGHER RATES OF DELINQUENCIES AND
LOSSES. Certain of the Loans in a Trust Fund may constitute "balloon" Loans,
Loans originated with a stated maturity scheduled to occur prior to the
expiration of the corresponding amortization schedule. Upon the maturity of a
"balloon" Loan, the Mortgagor will be required to make a "balloon" payment that
will be significantly larger than such Mortgagor's previous Scheduled Payments.
The ability of such a Mortgagor to repay a "balloon" Loan at maturity frequently
will depend on such Mortgagor's ability to refinance the Loan. The ability of a
Mortgagor to refinance such a Loan will be affected by a number of factors,
including the level of available mortgage rates at the time, the value of the
related Property, the Mortgagor's equity in the related Property, the financial
condition of the Mortgagor, the tax laws and general economic conditions at the
time. A high interest rate environment may make it more difficult for the
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Mortgagor to accomplish a refinancing and may result in an increased rate of
delinquencies, foreclosures and/or losses. None of the Sponsor, the Servicer,
any Subservicer or any Trustee will be obligated to provide funds to refinance
any Loan, including "balloon" Loans.
ADJUSTABLE-RATE LOANS MAY EXPERIENCE HIGHER RATES OF DELINQUENCIES AND
LOSSES. In general, the Sponsor's underwriting guidelines provide for a
prospective borrower's repayment ability to be evaluated based on the initial
level of monthly payment required by the mortgage loan for which the borrower is
applying. However, with respect to certain types of Loans, including Loans as to
which the Loan Rate may adjust in accordance with movements in an index, the
Scheduled Payment may increase beyond the initial level of the Scheduled
Payment. To the extent the income level of the related Mortgagor may not be
sufficient to enable the Mortgagor to meet higher Scheduled Payments, the risk
of delinquency, foreclosure and loss may be increased with respect to such
Loans. In addition, certain types of these Loans may provide for "negative
amortization"--deferral of the payment of a portion of currently accrued
interest and the addition of such deferred amount to the principal balance of
the Loan. To the extent such "negative amortization" results in total liens
against a Property in excess of the value of the Property, the risk of
delinquency, foreclosure and loss with respect to the related Loan may be
further increased.
NONOWNER-OCCUPIED LOANS MAY EXPERIENCE HIGHER RATES OF DELINQUENCIES AND
LOSSES. A Loan included in a Trust Fund may be secured by a Property which is
not the primary residence of the related Mortgagor. Because the Mortgagor on
such a "nonowner-occupied" Loan may have less incentive to avoid foreclosure
than Mortgagors under Loans secured by primary residences, nonowner-occupied
Loans may experience higher rates of delinquencies and losses than
owner-occupied Loans.
BANKRUPTCY OF MORTGAGORS MAY LEAD TO HIGHER LEVELS OF LOSSES. General
economic conditions may have an impact on the ability of Mortgagors to repay
Loans. Loss of earnings, illness and other similar factors also may lead to an
increase in delinquencies and bankruptcy filings by Mortgagors. In the event of
personal bankruptcy of a Mortgagor, it is possible that a Trust Fund could
experience a loss with respect to the related Loan. In conjunction with a
Mortgagor's bankruptcy, a bankruptcy court may suspend or reduce the payments of
principal and interest to be paid with respect to such Loan or permanently
reduce the principal balance of such Loan thereby either delaying or permanently
limiting the amount received by the Trust Fund with respect to such Loan.
Moreover, in the event a bankruptcy court prevents the transfer of the related
Property to the Trust Fund, any remaining balance on such Loan may not be
recoverable. See "Certain Legal Aspects of Loans".
FORECLOSURE OF PROPERTIES MAY BE SUBJECT TO SUBSTANTIAL DELAY, RESULTING IN
LONGER MATURITY OF THE SECURITIES, AS WELL AS HIGHER LOSSES. Substantial delays
can be encountered in connection with the liquidation of defaulted Loans and
corresponding delays in the receipt of related proceeds by the related Holders
could occur. An action to foreclose on a Property securing a Loan is regulated
by state statutes, rules and judicial decisions and is subject to many of the
delays and expenses of other lawsuits if defenses or counterclaims are
interposed, sometimes requiring several years to complete. Furthermore, in some
states an action to obtain a deficiency judgment is not permitted following a
nonjudicial sale of a Property. In the event of a default by a Mortgagor, these
restrictions, among other things, may impede the ability of the Servicer to
foreclose on or sell the Property or to obtain Liquidation Proceeds sufficient
to repay all amounts due on the related Loan. The Servicer will be entitled to
deduct from Liquidation Proceeds all expenses reasonably incurred in attempting
to recover amounts due on the related liquidated Loan and not yet repaid,
including payments to prior lienholders, accrued Servicing Fees, legal fees and
costs of legal action, real estate taxes, and maintenance and preservation
expenses. In the event that any Property fails to provide adequate security for
the related Loan and insufficient funds are available from any applicable Credit
Enhancement, related Holders could experience a loss on their investment. See
"Certain Legal Aspects of Loans".
Liquidation expenses with respect to defaulted loans do not vary directly
with the outstanding principal balance of the loan at the time of default.
Therefore, assuming that a servicer took the same steps in realizing upon a
defaulted loan having a small remaining principal balance as it would in the
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case of a defaulted loan having a larger principal balance, the amount realized
after expenses of liquidation would be smaller as a percentage of the
outstanding principal balance of the smaller loan than would be the case with a
larger loan. To the extent the average outstanding principal balances of the
Loans are small relative to the size of the loans in a typical pool of first
mortgages, realizations net of liquidation expenses on defaulted Loans may also
be smaller as a percentage of the principal amount of the Loans than would such
net realizations in the case of a typical pool of first mortgage loans.
ENVIRONMENTAL RISKS. Real property pledged as security to a lender may be
subject to certain environmental risks. Under the laws of certain states,
contamination of a property may give rise to a lien on the property to assure
the costs of clean-up. In several states, such a lien has priority over the lien
of an existing mortgage or owner's interest against such property. In addition,
under the laws of some states and under the federal Comprehensive Environmental
Response, Compensation, and Liability Act of 1980 ("CERCLA"), a lender may be
liable, as an "owner" or "operator", for costs of addressing releases or
threatened releases of hazardous substances that require remedy at a property,
if agents or employees of the lender have become sufficiently involved in the
operations of the borrower, regardless of whether or not the environmental
damage or threat was caused by a prior owner. A lender also risks such liability
on foreclosure of a Property.
CERTAIN OTHER LEGAL CONSIDERATIONS REGARDING THE LOANS, MAY LIMIT
ENFORCEMENT OF THE LOANS AGAINST THE RELATED MORTGAGORS. Applicable state laws
generally regulate interest rates and other charges and require certain
disclosures. 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 Loans. 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 Loans, may entitle the borrower to a
refund of amounts previously paid and, in addition, could subject the owner of
the Loan to damages and administrative enforcement.
The Loans are also subject to federal laws, including:
(i) the Federal Truth in Lending Act and Regulation Z promulgated
thereunder and the Real Estate Settlement Procedures Act and Regulation X
promulgated thereunder, which require, among other things, certain
disclosures to have been made to a Mortgagor regarding the terms of the
related Loan;
(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 a Mortgagors' 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 Loans
and in addition could subject the Trust Fund to damages and administrative
enforcement. The Loans may be subject to the Home Ownership and Equity
Protection Act of 1994 (the "Act") which amended the Truth in Lending Act as it
applies to mortgages subject to the Act. The Act requires certain additional
disclosures, specifies the timing of such disclosures and limits or prohibits
inclusion of certain provisions in mortgages subject to the Act. The Act also
provides that any purchaser or assignee of a mortgage covered by the Act is
subject to all of the claims and defenses which the borrower could assert
against the original lender. The maximum damages that may be recovered under the
Act from an assignee is the remaining amount of indebtedness plus the total
amount paid by the borrower in connection with the Loan. If the Trust Fund
includes Loans subject to the Act, it will be subject to all of the claims and
defenses which the borrower could assert against the Sponsor or a Seller. Any
violation of the Act which would result in such liability would be a breach of
the Sponsor's or a Seller's representations and warranties, and the Sponsor or a
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Seller would be obligated to cure, repurchase or, if permitted by the Agreement,
substitute for the Loan in question. See "Certain Legal Aspects of Loans".
The Home Improvement Contracts are also subject to the Preservation of
Consumers' Claims and Defenses regulations of the Federal Trade Commission and
other similar federal and state statutes and regulations (collectively, the
"Holder in Due Course Rules"), which protect the homeowner from defective
craftsmanship or incomplete work by a contractor. These laws permit the obligor
to withhold payment if the work does not meet the quality and durability
standards agreed to by the homeowner and the contractor. The Holder in Due
Course Rules have the effect of subjecting any assignee of the seller in a
consumer credit transaction to all claims and defenses which the obligor in the
credit sale transaction could assert against the seller of the goods.
GEOGRAPHIC CONCENTRATION OF MORTGAGED PROPERTIES MAY RESULT IN HIGHER
LOSSES, IF PARTICULAR REGIONS EXPERIENCE DOWNTURNS.. Certain geographic regions
from time to time will experience weaker regional economic conditions and
housing markets than will other regions, and, consequently, will experience
higher rates of delinquency, foreclosure and loss on mortgage loans generally.
The Loans underlying certain series of Securities may be concentrated in such
regions, and such concentrations may present risk considerations in addition to
those generally present for similar mortgage loan asset-backed securities
without such concentrations. Statistical information with respect to the
geographic concentration of Properties relating to a particular Series will be
specified in the related Prospectus Supplement.
BANKRUPTCY OF THE SPONSOR MAY ADVERSELY AFFECT THE INTERESTS OF HOLDERS. In
the event of the bankruptcy of the Sponsor at a time when it or any affiliate
thereof holds a Security, a trustee in bankruptcy of the Sponsor or such
affiliate, or its creditors could attempt to recharacterize the sale of the
Loans to the related Trust Fund as a borrowing by the Sponsor or such affiliate,
with the result, if such recharacterization is upheld, that the related Holders
would be deemed creditors of the Sponsor or such affiliate, secured by a pledge
of the Loans. If such an attempt were successful, it could prevent timely
payments of amounts due to the Trust Fund.
CERTAIN LIMITATIONS ON INTEREST PAYMENTS AND FORECLOSURES MAY REDUCE THE
AMOUNTS PAYABLE ON THE LOANS AND LIMIT THE ENFORCEMENT OF THE LOANS AGAINST
CERTAIN MORTGAGORS. 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 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 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 Servicer to collect full amounts of interest on
certain of the Loans. In addition, the Relief Act imposes limitations that would
impair the ability of the Servicer to foreclose on an affected Loan during the
Mortgagor's period of active duty status. Thus, in the event that such a Loan
goes into default, there may be delays and losses occasioned by the inability to
realize upon the Property in a timely fashion.
UNCERTAINTY REGARDING ORIGINAL ISSUE DISCOUNT. Some or all classes of the
Securities may be issued with original issue discount, which generally will
result in recognition of some taxable income in advance of the receipt of the
cash attributable to such income. A Security will be considered to be issued
with original issue discount equal to the excess, if any, of its "stated
redemption price at maturity" over its "issue price." The "issue price" of a
Security is the initial offering price to the public (excluding bond houses and
brokers) at which a substantial number of the Securities was sold. See "Federal
Income Tax Considerations--Discount and Premium--Original Issue Discount."
RATINGS OF THE SECURITIES MAY BE DEPENDENT ON THE RELATED CREDIT ENHANCER,
AND FURTHER, MAY BE REDUCED OR WITHDRAWN AT ANY TIME; THERE IS NO OBLIGATION TO
MAINTAIN ANY SPECIFIC RATINGS. It will be a condition to the issuance of a
Series of Securities that they be rated in one of the four highest rating
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categories by each Rating Agency. Any such rating would be based on, among other
things, the adequacy of the value of the Loans and any Credit Enhancement with
respect to such Series. Such rating should not be deemed a recommendation to
purchase, hold or sell Securities, inasmuch as it does not address market price
or suitability for a particular investor. There is also no assurance that any
such rating will remain in effect for any given period of time or may not be
lowered or withdrawn entirely by the related Rating Agency if in its judgment
circumstances in the future so warrant. In addition to being lowered or
withdrawn due to any erosion in the adequacy of the value of the Loans, such
rating might also be lowered or withdrawn, among other reasons, because of an
adverse change in the financial or other condition of an Credit Enhancer or a
change in the rating of such Credit Enhancer's long term debt.
LOSSES MAY BE GREATER IN THE EVENT OF AN ACCELERATION. Upon an event of
default under the Pooling and Servicing Agreement for a Series of Securities and
a sale of the assets in the related Trust Fund, the Trustee, the Servicer, any
Credit Enhancer and any other service provider specified in the related
Prospectus Supplement generally will be entitled to receive the proceeds of any
such sale to the extent of unpaid fees and other amounts owing to such persons
under the related Agreement prior to distributions to Holders of Securities.
Upon any such sale, the proceeds thereof may be insufficient to pay in full the
principal of and interest on the Securities of such Series.
CERTAIN RISKS RELATING TO DIFFERING UNDERWRITING CRITERIA. The Loans
included in a particular Trust Fund may have been purchased by the Sponsor from
one or more originators, and may, to the extent described in the related
Prospectus Supplement, have been originated using underwriting criteria
different from that of the Sponsor. However, the Loans included in a particular
Trust Fund will satisfy the criteria set forth in the related Prospectus
Supplement.
LACK OF HISTORICAL PREPAYMENT RATE INFORMATION MAY CREATE UNCERTAINTY AS TO
YIELDS AND MATURITIES. The Sponsor has previously sold its Loans and does not
have any information available to it regarding its prepayment experience. As a
result, its future prepayment rates may be relatively less predictable than
those of other mortgage-backed securities issuers, which may have more
information.
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DESCRIPTION OF THE SECURITIES
GENERAL
The following summaries describe certain features which will generally be
applicable to most Series of Securities. The summaries do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, the provisions of the Pooling and Servicing Agreement and the Prospectus
Supplement relating to each Series of Securities.
Each Series of Securities will consist of one or more Classes of Securities,
one or more of which may be Compound Interest Securities, Variable Interest
Securities, PAC Securities, Zero Coupon Securities, Principal Only Securities,
Interest Only Securities or Participating Securities. A Series may also include
one or more Classes of Subordinate Securities. The Securities of each Series
will be issued only in fully registered form, without coupons, in the authorized
denominations for each Class specified in the related Prospectus Supplement.
Upon satisfaction of the conditions, if any, applicable to a Class of a Series,
as described in the related Prospectus Supplement, the transfer of the
Securities may be registered and the Securities may be exchanged at the office
of the Trustee specified in the Prospectus Supplement without the payment of any
service charge other than any tax or governmental charge payable in connection
with such registration of transfer or exchange. If specified in the related
Prospectus Supplement, one or more Classes of a Series may be available in
book-entry form only. See "--Book-Entry Registration" below.
Payments of principal of and interest on a Series of Securities will be made
on the Distribution Dates specified in the Prospectus Supplement relating to
such Series by check mailed to Holders of such Series, registered as such at the
close of business on the record date specified in the related Prospectus
Supplement applicable to such Distribution Dates at their addresses appearing on
the security register, except that (a) payments may be made by wire transfer (at
the expense of the Holder requesting payment by wire transfer) in certain
circumstances described in the related Prospectus Supplement and (b) final
payments of principal in retirement of each Security will be made only upon
presentation and surrender of such Security at the office of the Trustee
specified in the Prospectus Supplement. Notice of the final payment on a
Security will be mailed to the Holder of such Security before the Distribution
Date on which the final principal payment on any Security is expected to be made
to the Holder of such Security.
Payments of principal of and interest on the Securities will be made by the
Trustee, or a paying agent on behalf of the Trustee, as specified in the related
Prospectus Supplement. All payments with respect to the Mortgage Assets for a
Series, together with reinvestment income thereon, amounts withdrawn from any
Reserve Fund, and amounts available pursuant to any other Credit Enhancement
will be deposited directly into the Collection Account, net of certain amounts
payable to the related Servicer and any other person specified in the Prospectus
Supplement, and will thereafter be available to make payments on Securities of
such Series on the next Distribution Date, as the case may be. See "The Trust
Funds--Collection and Distribution Accounts".
PAYMENTS OF INTEREST
The Securities of each Class by their terms entitled to receive interest
will bear interest from the date and at the rate per annum specified, or
calculated in the method described, in the related Prospectus Supplement.
Interest on such Securities of a Series will be payable on the Distribution Date
specified in the related Prospectus Supplement. The rate of interest on
Securities of a Series may be variable or may change with changes in the annual
percentage rates of the Loans included in the related Trust Fund and/or as
prepayments occur with respect to such Loans. Principal Only Securities may not
be entitled to receive any interest distributions or may be entitled to receive
only nominal interest
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distributions. Any interest on Zero Coupon Securities that is not paid on the
related Distribution Date will accrue and be added to the principal thereof on
such Distribution Date.
Interest payable on the Securities on a Distribution Date will include all
interest accrued during the period specified in the related Prospectus
Supplement. In the event interest accrues during the calendar month preceding a
Distribution Date, the effective yield to Holders will be reduced from the yield
that would otherwise be obtainable if interest payable on the Securities were to
accrue through the day immediately preceding such Distribution Date.
PAYMENTS OF PRINCIPAL
On each Distribution Date for a Series, principal payments will be made to
the Holders of the Securities of such Series on which principal is then payable,
to the extent set forth in the related Prospectus Supplement. Such payments will
be made in an aggregate amount determined as specified in the related Prospectus
Supplement and will be allocated among the respective Classes of a Series in the
manner, at the times and in the priority (which may, in certain cases, include
allocation by random lot) set forth in the related Prospectus Supplement.
FINAL SCHEDULED DISTRIBUTION DATE
The Final Scheduled Distribution Date with respect to each Class of Notes is
the date no later than which principal thereof will be fully paid and, with
respect to each Class of a Series of Certificates, will be the date on which the
entire aggregate principal balance of such Class is expected to be reduced to
zero, in each case calculated on the basis of the assumptions applicable to such
Series described in the related Prospectus Supplement. The Final Scheduled
Distribution Date for each Class of a Series will be specified in the related
Prospectus Supplement. Since payments on the Loans will be used to make
distributions in reduction of the outstanding principal amount of the
Securities, it is likely that the actual final Distribution Date of any such
Class will occur earlier, and may occur substantially earlier, than its Final
Scheduled Distribution Date. Furthermore, with respect to a Series of
Certificates, as a result of delinquencies, defaults and liquidations of the
Loans in the Trust Fund, the actual final Distribution Date of any such Class
may occur later than its Final Scheduled Distribution Date. No assurance can be
given as to the actual prepayment experience with respect to a Series. See
"Yield and Maturity Considerations".
OPTIONAL REDEMPTION, PURCHASE OR TERMINATION
The Sponsor, the Servicer, or another entity designated in the related
Prospectus Supplement may, at its option, cause an early termination of a Trust
Fund by repurchasing all of the Loans and/or Properties from such Trust Fund on
or after a date specified in the related Prospectus Supplement, or on or after
such time as the aggregate outstanding principal amount of the Certificates or
Loans, is less than the amount or percentage specified in the related Prospectus
Supplement. Notice of such redemption, purchase or termination must be given by
the Sponsor or the Trustee prior to the related date. The redemption, purchase
or repurchase price will be set forth in the related Prospectus Supplement. If
specified in the related Prospectus Supplement, in the event that a REMIC
election has been made, the Trustee shall receive a satisfactory opinion of
counsel that the optional redemption, purchase or termination will be conducted
so as to constitute a "qualified liquidation" under Section 860F of the Code.
WEIGHTED AVERAGE LIFE OF THE SECURITIES
"Weighted average life" refers to the average amount of time that will
elapse from the date of issue of a security until each dollar of principal of
such security will be repaid to the investor. The weighted
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average life of the Securities of a Class will be influenced by the rate at
which the amount financed under the Loans included in the Trust Fund for a
Series is paid, which may be in the form of scheduled amortization or
prepayments.
Prepayments on loans and other receivables can be measured relative to a
prepayment standard or model. The Prospectus Supplement for a Series of
Securities will describe the prepayment standard or model, if any, used and may
contain tables setting forth the projected weighted average life of each Class
of Securities of such Series and the percentage of the original principal amount
of each Class of Securities of such Series that would be outstanding on
specified Distribution Dates for such Series based on the assumptions stated in
such Prospectus Supplement, including assumptions that prepayments on the Loans
included in the related Trust Fund are made at rates corresponding to various
percentages of the prepayment standard or model specified in such Prospectus
Supplement.
There is, however, no assurance that prepayment of the Loans included in the
related Trust Fund will conform to any level of any prepayment standard or model
specified in the related Prospectus Supplement. The rate of principal
prepayments on pools of loans is influenced by a variety of economic,
demographic, geographic, legal, tax, social and other factors.
The rate of prepayments of conventional housing loans and other receivables
has fluctuated significantly in recent years. In general, however, if prevailing
interest rates fall significantly below the interest rates on the Loans for a
Series, such loans are likely to prepay at rates higher than if prevailing
interest rates remain at or above the interest rates borne by such loans. In
this regard, it should be noted that the Loans for a Series may have different
interest rates. In addition, the weighted average life of the Securities may be
affected by the varying maturities of the Loans. If any Loans for a Series have
actual terms-to-stated maturity of less than those assumed in calculating the
Final Scheduled Distribution Date of the related Securities, one or more Classes
of the Series may be fully paid prior to their respective Final Scheduled
Distribution Dates, even in the absence of prepayments. See "Yield and Maturity
Considerations".
The Sponsor, prior to 1996, engaged in whole-loan sales of its mortgage
loans on a servicing-released basis (i.e., the purchaser acts as the servicer).
Consequently, the Sponsor has limited historical information available to it
with respect to the prepayment experience of its mortgage loans.
USE OF NOTIONAL AMOUNTS
If so provided in the related Prospectus Supplement, interest on certain
Classes of Interest Only Securities may be payable based on a schedule of
Notional Amounts rather than the actual aggregate outstanding principal balances
of the related Loans. The Notional Amounts contained in such a schedule would
not be affected by prepayments on the related Loans, thereby reducing the
disproportionate impact which prepayments have on the yield of Interest Only
Securities relative to the yields of other types of Securities which are
entitled to payments of principal. See "Yield and Maturity Considerations".
The related Prospectus Supplement will set forth the Notional Amount
schedule, if any, and will describe fee prepayment spreads used in constructing
such schedule.
BOOK-ENTRY REGISTRATION
As may be described in the related Prospectus Supplement, investors in a
given Series may hold their Securities through DTC (in the United States) or
CEDEL or Euroclear (in Europe) if they are participants of such systems, or
indirectly through organizations that are participants in such systems.
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Cede, as nominee for DTC, will hold the global Securities in respect of a
given series. CEDEL and Euroclear will hold omnibus positions on behalf of the
CEDEL Participants (as defined below) and the Euroclear Participants (as defined
below) (collectively, the "Participants"), respectively, through customers'
securities accounts in CEDEL's and Euroclear's names on the books of their
respective depositaries (collectively, the "Depositaries") which in turn will
hold such positions in customers' securities accounts in the Depositaries' names
on the books of DTC.
DTC is a limited purpose trust company organized under the laws of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York UCC and a "clearing agency" registered
pursuant to Section 17A of the Exchange Act. DTC was created to hold securities
for its Participants and to facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entries,
thereby eliminating the need for physical movement of notes or certificates.
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations. Indirect access to the DTC system also is available to
others such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants").
Transfers between DTC Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
the ordinary way in accordance with their applicable 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 its 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 its 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 Depositaries.
Because of time-zone differences, credits of securities in CEDEL or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant CEDEL
Participant or Euroclear Participant on such business day. Cash received in
CEDEL or Euroclear as a result of sales of securities by or through a CEDEL
Participant or a Euroclear Participant 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 settlement
in DTC.
The investors in a given Series that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of, or
other interests in, Securities of such Series may do so only through
Participants and Indirect Participants. In addition, investors in a given Series
will receive all distributions of principal and interest through the
Participants who in turn will receive them from DTC. Under a book-entry format,
investors in a given Series may experience some delay in their receipt of
payments, since such payments will be forwarded by the applicable Trustee to
Cede, as nominee for DTC. DTC will forward such payments to its Participants,
which thereafter will forward them to Indirect Participants or such investors.
It is anticipated that the only "Holder" in respect of any Series will be Cede,
as nominee of DTC. Investors in a given Series will not be recognized as Holders
of such Series, and such investors will be permitted to exercise the rights of
Holders of such Series only indirectly through DTC and its Participants.
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Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Securities of a given Series among Participants on whose behalf it acts with
respect to such Securities and to receive and transmit distributions of
principal of, and interest on, such Securities. Participants and Indirect
Participants with which the investors in a given Series have accounts with
respect to such Securities similarly are required to make book-entry transfers
and receive and transmit such payments on behalf of their respective investors
in such Series. Accordingly, although such investors will not possess physical
certificates, the Rules provide a mechanism by which Participants will receive
payments and will be able to transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of investors in a
given Series to pledge Securities of such Series to persons or entities that do
not participate in the DTC system, or to otherwise act with respect to such
Securities, may be limited due to the lack of a physical certificate for such
Securities.
DTC will advise the Trustee in respect of each Series that it will take any
action permitted to be taken by investors in the related Series only at the
direction of one or more Participants to whose accounts with DTC the Securities
of such Series are credited. DTC may take conflicting actions with respect to
other undivided interests to the extent that such actions are taken on behalf of
Participants whose holdings include such undivided interests.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating 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 the
Euroclear System ("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 28 currencies, including United
States dollars. The Euroclear System includes various other services, including
securities lending and borrowing and interfaces with domestic markets in several
countries generally similar to the arrangements for cross-market transfers with
DTC described above. Euroclear is operated by Morgan Guaranty Trust Company of
New York, Brussels, Belgium office, under contract with Euroclear Clearance
System, S.C., a Belgian cooperative corporation (the "Cooperative"). All
operations are conducted by the "Euroclear Operator" (as defined below), and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for the Euroclear System on behalf of Euroclear Participants. Euroclear
Participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries and may include the
underwriters for a Series. Indirect access to the Euroclear System is also
available to other firms that clear through or maintain a custodial relationship
with a Euroclear Participant, either directly or indirectly.
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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 the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System 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 relationship with persons holding through Euroclear Participants.
Except as required by law, the Trustee in respect of a Series will not have
any liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the related Securities held by
Cede, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
DEFINITIVE SECURITIES
As may be described in the related Prospectus Supplement, the Securities may
be issued in fully registered, certificated form ("Definitive Securities") to
the Holders of a given Series or their nominees, rather than to DTC or its
nominee, only if (i) the Trustee in respect of the related Series advises in
writing that DTC is no longer willing or able to discharge properly its
responsibilities as depository with respect to such Securities and such Trustee
is unable to locate a qualified successor, (ii) such Trustee, at its option,
elects to terminate the book-entry-system through DTC or (iii) after the
occurrence of an "Event of Default" under the related Pooling and Servicing
Agreement, Holders representing at least a majority of the outstanding principal
amount of such Securities advise the applicable Trustee through DTC in writing
that the continuation of a book-entry system through DTC (or a successor
thereto) is no longer in such Holders' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the applicable Trustee will be required to notify all such Holders
through Participants of the availability of Definitive Securities. Upon
surrender by DTC of the definitive certificates representing such Securities and
receipt of instructions for re-registration, the applicable Trustee will reissue
such Securities as Definitive Securities to such Holders.
Distributions of principal of, and interest on, such Securities will
thereafter be made by the applicable Trustee in accordance with the procedures
set forth in the related Indenture or Trust Agreement directly to Holders of
Definitive Securities in whose names the Definitive Securities were registered
at the close of business on the applicable Record Date specified for such
Securities in the related Prospectus Supplement. Such distributions will be made
by check mailed to the address of such Holder as it appears on the register
maintained by the applicable Trustee. The final payment on any such Security,
however, will be made only upon presentation and surrender of such Security at
the office or agency specified in the notice of final distribution to the
applicable Holders.
Definitive Securities in respect of a given Series of Securities will be
transferable and exchangeable at the offices of the applicable Trustee or of a
certificate registrar named in a notice delivered to Holders of such Definitive
Securities. No service charge will be imposed for any registration of transfer
or exchange, but the applicable Trustee may require payment of a sum sufficient
to cover any tax or other governmental charge imposed in connection therewith.
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THE TRUST FUNDS
GENERAL
The Notes of each Series will be secured by the pledge of the assets of the
related Trust Fund, and the Certificates of each Series will represent interests
in the assets of the related Trust Fund. The Trust Fund of each Series will
include assets originated by the Sponsor or acquired from affiliated or
unaffiliated institutions composed of (i) Loans, (ii) amounts available from the
reinvestment of payments on such Loans, (iii) any Credit Enhancement, (iv) any
Property that secured a Loan but which is acquired by foreclosure or deed in
lieu of foreclosure or repossession.
The Securities will be nonrecourse obligations of the related Trust Fund.
The assets of the Trust Fund specified in the related Prospectus Supplement for
a Series of Securities, unless otherwise specified in the related Prospectus
Supplement will serve as collateral only for that Series of Securities. Holders
of a Series of Notes may only proceed against such collateral securing such
Series of Notes in the case of a default with respect to such Series of Notes
and may not proceed against any assets of the Sponsor or the related Trust Fund
not pledged to secure such Notes.
The Loans for a Series will be originated by the Sponsor or acquired by the
Sponsor in the open market or in privately negotiated transactions, which may
include transactions with affiliates and will be transferred by the Sponsor to
the Trust Fund. Loans relating to a Series will be serviced by the Servicer
pursuant to the related Pooling and Servicing Agreement.
With respect to each Trust Fund, prior to the initial offering of the
related Series of Securities, the Trust Fund will have no assets or liabilities.
No Trust Fund is expected to engage in any activities other than acquiring,
managing and holding the related Loans and other assets contemplated herein and
in the related Prospectus Supplement and the proceeds thereof, issuing
Securities and making payments and distributions thereon and certain related
activities. No Trust Fund is expected to have any source of capital other than
its assets and any related Credit Enhancement.
Loans included in the Trust Fund for a Series may consist of any combination
of Mortgage Loans and Contracts, to the extent and as specified in the related
Prospectus Supplement.
THE LOANS
Mortgage Loans. The Loans for a Series may consist, in whole or in part, of
closed-end mortgage loans, including closed-end home equity loans (the
"Closed-End Loans"), and revolving home equity loans or certain balances thereof
("Revolving Credit Line Loans" and, collectively with the Closed-End Loans, the
"Mortgage Loans") secured by mortgages on Single Family Properties and small
mixed-use properties, which mortgages which may be subordinated to other
mortgages on the same Mortgaged Property. The Mortgage Loans may have fixed
interest rates or adjustable interest rates and may provide for other payment
characteristics as described below and in the related Prospectus Supplement.
Interest on each Revolving Credit Line Loan, excluding introductory rates
offered from time to time during promotional periods, may be computed and
payable monthly on the average daily outstanding principal balance of such loan.
Principal amounts on the Revolving Credit Line Loans may be drawn down (up to a
maximum amount as set forth in the related Prospectus Supplement) or repaid
under each Revolving Credit Line Loan from time to time. If specified in the
related Prospectus Supplement, new draws by borrowers under the Revolving Credit
Line Loans will automatically become part of the Trust Fund for a Series. As a
result, the aggregate balance of the Revolving Credit Line Loans will fluctuate
from day to day as new draws by borrowers are added to the Trust Fund and
principal payments are applied to such balances and such amounts will usually
differ each day, as more specifically described in the related Prospectus
Supplement. The full principal amount of a Closed-End Loan is advanced at
origination of the loan and generally is repayable in equal (or substantially
equal)
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installments of an amount sufficient to fully amortize such loan at its stated
maturity. Interest on each Closed-End Loan is calculated on the basis of the
outstanding principal balance of such loan multiplied by the Loan Rate thereon
and further multiplied by a fraction, the numerator of which is the number of
days in the period elapsed since the preceding payment of interest was made and
the denominator is the number of days in the annual period for which interest
accrues on such loan. Under certain circumstances, under either a Revolving
Credit Line Loan or a Closed-End Loan, a borrower may choose an interest only
payment option and is obligated to pay only the amount of interest which accrues
on the loan during the billing cycle. An interest only payment option may be
available for a specified period before the borrower must begin paying at least
the minimum monthly payment of a specified percentage of the average outstanding
balance of the loan.
The Mortgaged Properties will include primarily Single Family Property
(i.e., one- to four-family residential housing, including Condominium Units and
Cooperative Dwellings). The Mortgaged Properties may consist of detached
individual dwellings, individual condominiums, townhouses, duplexes, row houses,
individual units in planned unit developments and other attached dwelling units.
Each Single Family Property will be located on land owned in fee simple by the
borrower or on land leased by the borrower for a term at least five years
(unless otherwise provided in the related Prospectus Supplement) greater than
the term of the related Loan. Attached dwellings may include owner-occupied
structures where each borrower owns the land upon which the unit is built, with
the remaining adjacent land owned in common or dwelling units subject to a
proprietary lease or occupancy agreement in a cooperatively owned apartment
building.
Unless otherwise specified in the related Prospectus Supplement, Mortgages
on Cooperative Dwellings consist of a lien on the shares issued by such
Cooperative Dwelling and the proprietary lease or occupancy agreement relating
to such Cooperative Dwelling.
The aggregate principal balance of Loans secured by Mortgaged Properties
that are owner-occupied will be disclosed in the related Prospectus Supplement.
Such statistic will be based on either (i) the making of a representation by the
Mortgagor at origination of the Loan either that the underlying Mortgaged
Property will be used by the Mortgagor for a period of at least six months every
year or that the Mortgagor intends to use the Mortgaged Property as a primary
residence, or (ii) a finding that the address of the underlying Mortgaged
Property is the Mortgagor's mailing address as reflected in the Servicer's
records. To the extent specified in the related Prospectus Supplement, the
Mortgaged Properties may include nonowner-occupied investment properties and
vacation and second homes.
The initial Combined Loan-to-Value Ratio of a Loan is computed in the manner
described in the related Prospectus Supplement, taking into account the amounts
of any related senior mortgage loans.
Home Improvement Contracts. The Loans for a Series may consist, in whole or
part, of home improvement installment sales contracts and installment loan
agreements (the "Home Improvement Contracts") originated by a home improvement
contractor in the ordinary course of business. A Home Improvement Contract will
either be unsecured or secured by a Mortgage, primarily on Single Family
Properties, which will generally be subordinate to other mortgages on the same
Mortgaged Property or by a purchase money security interest in the home
improvements (the "Home Improvements") financed thereby.
The Home Improvements securing the Home Improvement Contracts include, but
are not limited to, replacement windows, house siding, new roofs, swimming
pools, satellite dishes, kitchen and bathroom remodeling goods and solar heating
panels.
Additional Information. The selection criteria which shall apply with
respect to the Loans relating to a particular Series, including, but not limited
to, the Combined Loan-to-Value Ratios or Loan-to-
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Value Ratios, as applicable, original terms-to-maturity and delinquency
information, will be specified in the related Prospectus Supplement.
The related Prospectus Supplement for each Series will provide information
with respect to the related Loans as of the Cut-off Date, including, among other
things, and to the extent relevant (a) the aggregate unpaid principal balance of
the Loans (or the aggregate unpaid principal balance included in the Trust Fund
for the related Series); (b) the range and weighted average Loan Rate on the
Loans, and, in the case of adjustable-rate Loans, the range and weighted average
of the current Loan Rates and the Lifetime Rate Caps, if any; (c) the range and
average outstanding principal balance of the Loans; (d) the weighted average
original and remaining term-to-stated maturity of the Loans and the range of
original and remaining terms-to-stated maturity, if applicable; (e) the range
and weighted average of Combined Loan-to-Value Ratios or Loan-to-Value Ratios
for the Loans, as applicable; (f) the percentage (by outstanding principal
balance as of the Cut-off Date) of Loans that accrue interest at adjustable or
fixed interest rates; (g) any special hazard insurance policy or bankruptcy bond
or other credit enhancement relating to the Loans; (h) the percentage (by
principal balance as of the Cut-off Date) of Loans that are secured by Mortgaged
Properties, Home Improvements or are unsecured; (i) the geographic distribution
of any Mortgaged Properties securing the Loans; (j) the percentage of Loans (by
principal balance as of the Cut-off Date) that are secured by Single Family
Properties, shares relating to Cooperative Dwellings, Condominium Units,
investment property and vacation or second homes; (k) the lien priority of the
Loans; (l) the credit limit utilization rate of any Revolving Credit Line Loans;
and (m) the delinquency status and year of origination of the Loans. The related
Prospectus Supplement will also specify any other limitations on the types or
characteristics of Loans for a Series.
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CREDIT ENHANCEMENT
If stated in the Prospectus Supplement relating to a Series of Securities,
simultaneously with the Sponsor's assignment of the related Loans to the
Trustee, the Sponsor will obtain an irrevocable letter of credit, surety bond or
insurance policy, issue Subordinate Securities or obtain any other form of
credit enhancement or combination thereof described below (collectively, "Credit
Enhancement") in favor of the Trustee on behalf of the Holders of the related
Series or designated Classes of such Series from an institution or by other
means acceptable to each Rating Agency. The Credit Enhancement will support the
payment of principal and interest on the Securities, and may be applied for
certain other purposes to the extent and under the conditions set forth in such
Prospectus Supplement. Credit Enhancement for a Series may include one or more
of the following forms. Any of such Credit Enhancement may be structured so as
to protect against losses relating to more than one Trust Fund.
SUBORDINATE SECURITIES
Credit Enhancement for a Series may consist of one or more Classes of
Subordinate Securities. The rights of Holders of such Subordinate Securities to
receive distributions on any Distribution Date will be subordinate in right and
priority to the rights of Holders of Senior Securities of the Series, but only
to the extent described in the related Prospectus Supplement.
INSURANCE
Credit Enhancement for a Series may consist of special hazard insurance
policies, bankruptcy bonds and other types of insurance relating to the Loans,
as described below and in the related Prospectus Supplement.
Pool Insurance Policy. The Sponsor may obtain an insurance policy for
certain of the Securities issued with respect to the related Trust Fund. The
amount and terms of any such coverage will be set forth in the related
Prospectus Supplement.
Special Hazard Insurance Policy. Although the terms of such policies vary to
some degree, a special hazard insurance policy typically provides that, where
there has been damage to Property securing a defaulted or foreclosed Loan (title
to which has been acquired by the insured) and to the extent such damage is not
covered by the standard hazard insurance policy or any flood insurance policy,
if applicable, required to be maintained with respect to such Property, or in
connection with partial loss resulting from the application of the coinsurance
clause in a standard hazard insurance policy, the special hazard insurer will
pay the lesser of (i) the cost of repair or replacement of such Property or (ii)
upon transfer of such Property to the special hazard insurer, the unpaid
principal balance of such Loan at the time of acquisition of such Property by
foreclosure or deed in lieu of foreclosure, plus accrued interest to the date of
claim settlement and certain expenses incurred by the Servicer with respect to
such Property. If the unpaid principal balance plus accrued interest and certain
expenses is paid by the special hazard insurer, the amount of further coverage
under the special hazard insurance policy will be reduced by such amount less
any net proceeds from the sale of such Property. Any amount paid as the cost of
repair of such Property will reduce coverage by such amount. Special hazard
insurance policies typically do not cover losses occasioned by war, civil
insurrection, certain governmental actions, errors in design, faulty workmanship
or materials (except under certain circumstances), nuclear reaction, flood (if
the mortgaged property is in a federally designated flood area), chemical
contamination and certain other risks.
Restoration of the Property with the proceeds described under (i) above is
expected to satisfy the condition under any pool insurance policy that such
Property be restored before a claim under such pool insurance policy may be
validly presented with respect to the defaulted Loan secured by such Property.
The payment described under (ii) above will render unnecessary presentation of a
claim in respect of
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such Loan under any pool insurance policy. Therefore, so long as such pool
insurance policy remains in effect, the payment by the special hazard insurer of
the cost of repair or of the unpaid principal balance of the related Loan plus
accrued interest and certain expenses will not affect the total insurance
proceeds paid to Holders of the Securities, but will affect the relative amounts
of coverage remaining under the special hazard insurance policy and pool
insurance policy.
Bankruptcy Bond. In the event of a bankruptcy of a borrower, the bankruptcy
court may establish the value of the Property securing the related Loan at an
amount less than the then outstanding principal balance of such Loan. The amount
of the secured debt could be reduced to such value, and the holder of such Loan
thus would become an unsecured creditor to the extent the outstanding principal
balance of such Loan exceeds the value so assigned to the Property by the
bankruptcy court. In addition, certain other modifications of the terms of a
Loan can result from a bankruptcy proceeding. See "Certain Legal Aspects of
Loans". The Sponsor or other entity specified in the related Prospectus
Supplement may obtain a bankruptcy bond or similar insurance contract (the
"bankruptcy bond") covering losses resulting from proceedings with respect to
borrowers under the Bankruptcy Code. The bankruptcy bond will cover certain
losses resulting from a reduction by a bankruptcy court of scheduled payments of
principal of and interest on a Loan or a reduction by such court of the
principal amount of a Loan and will cover certain unpaid interest on the amount
of such a principal reduction from the date of the filing of a bankruptcy
petition.
The bankruptcy bond will provide coverage in the aggregate amount specified
in the related Prospectus Supplement for all Loans in the Trust Fund for such
Series.
RESERVE FUNDS
The Sponsor may deposit into one or more funds to be established with the
Trustee as part of the Trust Fund for such Series or for the benefit of any
Credit Enhancer with respect to such Series (the "Reserve Funds") cash, a letter
or letters of credit, cash collateral accounts, Eligible Investments, or other
instruments meeting the criteria of each Rating Agency in the amount specified
in such Prospectus Supplement. In the alternative or in addition to such
deposit, a Reserve Fund for a Series may be funded over time through application
of all or a portion of the excess cash flow from the Mortgage Assets for such
Series, to the extent described in the related Prospectus Supplement.
Amounts withdrawn from any Reserve Fund will be applied by the Trustee to
make payments on the Securities of a Series, to pay expenses, to reimburse any
Credit Enhancer or for any other purpose, in the manner and to the extent
specified in the related Prospectus Supplement.
Amounts deposited in a Reserve Fund will be invested by the Trustee, in
Eligible Investments.
MINIMUM PRINCIPAL PAYMENT AGREEMENT
The Sponsor may enter into a Minimum Principal Payment Agreement with an
entity meeting the criteria of each Rating Agency pursuant to which such entity
will provide certain payments on the Securities of such Series in the event that
aggregate scheduled principal payments and/or prepayments on the Loans for such
Series are not sufficient to make certain payments on the Securities of such
Series, as provided in the Prospectus Supplement.
OTHER INSURANCE, GUARANTEE AND SIMILAR INSTRUMENTS OR AGREEMENTS
Trust Fund may include a guaranteed investment contract or reinvestment
agreement pursuant to which funds held in one or more accounts will be invested
at a specified rate. If any Class of Securities has a floating interest rate, or
if any of the Loans has a floating interest rate, the Trust may include an
interest rate swap contract, an interest rate cap agreement or similar contract
providing limited protection against interest rate risks.
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DEPOSIT AGREEMENT
The Sponsor and the Trustee for such Series of Securities will enter into a
Deposit Agreement with the entity specified in such Prospectus Supplement on or
before the sale of such Series of Securities. The purpose of a Deposit Agreement
would be to accumulate available cash for investment so that such cash, together
with income thereon, can be applied to future distributions on one or more
Classes of Securities. The Prospectus Supplement for a Series of Securities
pursuant to which a Deposit Agreement is used will contain a description of the
terms of such Deposit Agreement.
CROSS COLLATERALIZATION
The source of payment for Securities of each Series will be the assets of
the related Trust Fund only. However, a Trust Fund may include the right to
receive moneys from a common pool of Credit Enhancement which may be available
for more than one Series of Securities, such as a master reserve account or a
master insurance policy. In addition, a Series of Securities may provide for
excess cash flow with respect to one Class of the Series to be applied to
shortfalls with respect to another Class of the same Series. Notwithstanding the
foregoing, unless specifically described otherwise in the related Prospectus
Supplement, no collections on any Loans held by any Trust Fund may be applied to
the payment of Securities issued by any other Trust Fund (except to the limited
extent that certain collections in excess of amounts needed to pay the related
Securities may be deposited in a common, master reserve account that provides
Credit Enhancement for more than one Series of Securities).
OVERCOLLATERALIZATION
Credit Enhancement for a Series may include overcollateralization -- an
excess of the aggregate principal balance of the related Loans, or a group
thereof, over the principal balance of the related Class of Securities.
Overcollateralization is achieved by the application of certain "excess"
portions of interest payments on Loans to the payment of principal of one or
more Classes of Securities. This feature may continue for the life of the
related Securities or may be limited as set forth in the related Prospectus
Supplement. In the case of limited overcollateralization, once the required
level of overcollateralization is reached, such limited acceleration feature may
cease, unless necessary to maintain the required level of overcollateralization.
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SERVICING OF LOANS
GENERAL
Customary servicing functions with respect to Loans comprising the Loans in
the Trust Fund will be provided by the Servicer pursuant to the related Pooling
and Servicing Agreement, with respect to a Series of Securities. Each Pooling
and Servicing Agreement will authorize the Servicer, and the Servicer expects,
to enter into one or more subservicing agreements (each, a "Subservicing
Agreement") with one or more subservicers (each, a "Subservicer") pursuant to
which the Subservicer will agree to perform all or a portion of the Servicer's
servicing responsibilities with respect to the Loans in a Trust Fund. Any
Subservicer will be an experienced servicer of loans of the type to be
subserviced by such Subservicer and will have been approved by each Rating
Agency and any Credit Enhancer.
Notwithstanding the Servicer's engagement of any Subservicer, the Servicer
shall not be relieved of its obligations under the related Pooling and Servicing
Agreement, 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
Loans. The Servicer shall be entitled to include in any Subservicing Agreement
provisions for indemnification of the Servicer by the related Subservicer, and
nothing contained in the related Pooling and Servicing Agreement shall be deemed
to limit or modify such indemnification.
COLLECTION PROCEDURES; ESCROW ACCOUNTS
The Servicer will make reasonable efforts to collect all payments required
to be made under the Loans and will, consistent with the terms of the related
Pooling and Servicing Agreement for a Series and any applicable Credit
Enhancement, follow such collection procedures as it follows with respect to
comparable loans held in its own portfolio. Consistent with the above, the
Servicer may, in its discretion, (i) waive any assumption fee, late payment
charge, or other charge in connection with a Loan and (ii) to the extent
provided in the related Pooling and Servicing Agreement, arrange with an obligor
a schedule for the liquidation of delinquencies by extending the due dates for
Scheduled Payments on such Loan.
The Servicer may establish and maintain escrow or impound accounts ("Escrow
Accounts") with respect to Loans in which payments by obligors to pay taxes,
assessments, mortgage and hazard insurance premiums, and other comparable items
will be deposited. Loans may not require such payments under the loan related
documents, in which case the Servicer would not establish any Escrow Account
with respect to such Loans. Withdrawals from the Escrow Accounts are to be made
to effect timely payment of taxes, assessments, mortgage and hazard insurance
premiums and such other comparable items; to refund to obligors amounts
determined to be overages; to pay interest to obligors on balances in the Escrow
Account to the extent required by law; to repair or otherwise protect the
related Property; and to clear and terminate such Escrow Account. The Servicer
will be responsible for the administration of the Escrow Accounts and generally
will make advances to such account when a deficiency exists therein.
DEPOSITS TO AND WITHDRAWALS FROM THE COLLECTION ACCOUNT
The related Trustee or the Servicer will establish a separate account (the
"Collection Account") in the name of the Trustee. The Collection Account will be
an account maintained (i) at a depository institution, the short- and/or
long-term unsecured debt obligations of which at the time of any deposit therein
are rated at levels satisfactory to each Rating Agency or (ii) in an account or
accounts the deposits in which are otherwise secured in a manner meeting
requirements established by each Rating Agency.
The funds held in the Collection Account may be invested, pending remittance
to the related Trustee, in Eligible Investments. The Servicer may be entitled to
receive as additional compensation any interest or other income earned on funds
in the Collection Account.
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The Servicer will deposit into the Collection Account for each Series the
following payments and collections received or made by it:
(i) All payments on account of principal, including prepayments, on such
Loans;
(ii) All payments on account of interest on such Loans after deducting
therefrom, at the discretion of the Servicer but only to the extent of the
amount permitted to be withdrawn or withheld from the Collection Account in
accordance with the related Pooling and Servicing Agreement, the Servicing
Fee in respect of such Loans;
(iii) All amounts received by the Servicer in connection with the
liquidation of Loans or property acquired in respect thereof, whether
through foreclosure sale, repossession or otherwise, including payments in
connection with such Loans received from the obligor, other than amounts
required to be paid or refunded to the obligor pursuant to the terms of the
applicable loan documents or otherwise pursuant to law ("Liquidation
Proceeds"), exclusive of, in the discretion of the Servicer, but only to the
extent of the amount permitted to be withdrawn from the Collection Account
in accordance with the related Pooling and Servicing Agreement, the
Servicing Fee, if any, in respect of the related Loans;
(iv) All proceeds under any title insurance, hazard insurance or other
insurance policy covering any such Loan, other than proceeds to be applied
to the restoration or repair of the related Property or released to the
obligor in accordance with the related Pooling and Servicing Agreement
("Insurance Proceeds");
(v) All amounts required to be deposited therein from any applicable
Reserve Fund for such Series pursuant to the related Pooling and Servicing
Agreement;
(vi) All Advances required to be made by the Servicer pursuant to the
related Pooling and Servicing Agreement; and
(vii) All repurchase prices of any such Loans repurchased by the
Sponsor, the Servicer or any Seller pursuant to the related Pooling and
Servicing Agreement.
The Servicer will be permitted, from time to time, to make withdrawals from
the Collection Account for each Series for the following purposes:
(i) to reimburse itself for Advances for such Series made by it pursuant
to the related Pooling and Servicing Agreement; the Servicer's right to
reimburse itself being limited to amounts received on or in respect of
particular Loans (including, for this purpose, Liquidation Proceeds and
Insurance Proceeds) which represent late recoveries of Scheduled Payments
respecting which any such Advance was made;
(ii) to the extent provided in the related Pooling and Servicing
Agreement, to reimburse itself for any Advances for such Series that the
Servicer determines in good faith it will be unable to recover from amounts
representing late recoveries of Scheduled Payments respecting which such
Advance was made or from Liquidation Proceeds or Insurance Proceeds;
(iii) to reimburse itself from Liquidation Proceeds for liquidation
expenses and for amounts expended by it in good faith in connection with the
restoration of a damaged Property and, in the event deposited in the
Collection Account and not previously withheld, and to the extent that
Liquidation Proceeds after such reimbursement exceed the outstanding
principal balance of the related Loan, together with accrued and unpaid
interest thereon to the Due Date for such Loan next succeeding the date of
its receipt of such Liquidation Proceeds, to pay to itself out of such
excess the amount of any unpaid Servicing Fee and any assumption fees, late
payment charges, or other charges on the related Loan;
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(iv) in the event it has elected not to pay itself the Servicing Fee out
of the interest component of any Scheduled Payment, late payment or other
recovery with respect to a particular Loan prior to the deposit of such
Scheduled Payment, late payment or recovery into the Collection Account, to
pay to itself the Servicing Fee, as adjusted pursuant to the related Pooling
and Servicing Agreement, from any such Scheduled Payment, late payment or
such other recovery, to the extent permitted by the related Pooling and
Servicing Agreement;
(v) to reimburse itself for expenses incurred by and recoverable by or
reimbursable to it pursuant to the related Pooling and Servicing Agreement;
(vi) to pay to the applicable person with respect to each Loan or REO
Property acquired in respect thereof that has been repurchased or removed
from the Trust by the Sponsor, the Servicer or any Seller pursuant to the
related Pooling and Servicing Agreement, all amounts received thereon and
not distributed as of the date on which the related repurchase price was
determined;
(vii) to make payments to the Trustee of such Series for remittance to
the Holders of such Series in the amounts and in the manner provided for in
the related Pooling and Servicing Agreement; and
(viii) to clear and terminate the Collection Account pursuant to the
related Pooling and Servicing Agreement.
In addition, if the Servicer deposits in the Collection Account for a series
any amount not required to be deposited therein, it may, at any time, withdraw
such amount from such Collection Account.
ADVANCES AND LIMITATIONS THEREON
To the extent specified in the related Prospectus Supplement, the Servicer
will be obligated to make Advances, and such obligations may be limited in
amount, or may not be activated until a certain portion of a specified Reserve
Fund is depleted. Advances are intended to provide liquidity and, not to
guarantee or insure against losses. Accordingly, any funds advanced will be
recoverable by the Servicer out of amounts received on particular Loans which
represent late recoveries of principal or interest, Insurance Proceeds or
Liquidation Proceeds respecting which any such Advance was made. If an Advance
is made and subsequently determined to be nonrecoverable from late collections,
Insurance Proceeds or Liquidation Proceeds from the related Loan, the Servicer
may be entitled to reimbursement from other funds in the Collection Account or
from a specified Reserve Fund as applicable, to the extent specified in the
related Prospectus Supplement; such reimbursement to the Servicer will reduce
amounts available for distribution to the Holders, but since such reimbursement
will only relate to amounts previously advanced by the Servicer, such
reimbursment will not result in a net reduction of funds available for
distribution to Holders.
Reports received by Holders generally will not disclose amounts advanced, or
subject to reimbursement to the Servicer in respect of Advances, although such
reports will disclose loss and delinquency information. See "The Pooling and
Servicing Agreement--Reports to Holders."
MAINTENANCE OF INSURANCE POLICIES AND OTHER SERVICING PROCEDURES
Standard Hazard Insurance; Flood Insurance. The Servicer will be required to
maintain or to cause the obligor on each Loan to maintain a standard hazard
insurance policy providing coverage of the standard form of fire insurance with
extended coverage for certain other hazards as is customary in the state in
which the related Property is located. The standard hazard insurance policies
will provide for coverage at least equal to the applicable state standard form
of fire insurance policy with extended coverage for property of the type
securing the related Loans. In general, the standard form of fire and extended
coverage policy will cover physical damage to or destruction of, the related
Property caused by
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fire, lightning, explosion, smoke, windstorm, hail, riot, strike and civil
commotion, subject to the conditions and exclusions particularized in each
policy. Because the standard hazard insurance policies relating to the Loans
will be underwritten by different hazard insurers and will cover Properties
located in various states, such policies will not contain identical terms and
conditions. The basic terms, however, generally will be determined by state law
and generally will be similar. Most such policies typically will not cover any
physical damage resulting from war, revolution, governmental actions, floods and
other water-related causes, earth movement (including earthquakes, landslides,
and mudflows), nuclear reaction, wet or dry rot, vermin, rodents, insects or
domestic animals, theft and, in certain cases, vandalism. The foregoing list is
merely indicative of certain kinds of uninsured risks and is not intended to be
all inclusive. Uninsured risks not covered by a special hazard insurance policy
or other form of Credit Enhancement will adversely affect distributions to
Holders. When a Property securing a Loan is located in a flood area identified
by HUD pursuant to the Flood Disaster Protection Act of 1973, as amended, the
Servicer will be required to cause flood insurance to be maintained with respect
to such Property, to the extent available.
The standard hazard insurance policies covering Properties securing Loans
typically will contain a "coinsurance" clause which, in effect, will require the
insured at all times to carry hazard insurance of a specified percentage
(generally 80% to 90%) of the full replacement value of the Property, including
the improvements on any Property, in order to recover the full amount of any
partial loss. If the insured's coverage falls below this specified percentage,
such clause will provide that the hazard insurer's liability in the event of
partial loss will not exceed the greater of (i) the actual cash value (the
replacement cost less physical depreciation) of the Property, including the
improvements, if any, damaged or destroyed or (ii) such proportion of the loss,
without deduction for depreciation, as the amount of insurance carried bears to
the specified percentage of the full replacement cost of such Property and
improvements. Since the amount of hazard insurance to be maintained on the
improvements securing the Loans declines as the principal balances owing thereon
decrease, and since the value of the Properties will fluctuate in value over
time, the effect of this requirement in the event of partial loss may be that
hazard insurance proceeds will be insufficient to restore fully the damage to
the affected Property.
Coverage will be in an amount at least equal to the greater of (i) the
amount necessary to avoid the enforcement of any co-insurance clause contained
in the policy or (ii) the outstanding principal balance of the related Loan. The
Servicer will also be required to maintain, on REO Property that secured a
defaulted Loan and that has been acquired upon foreclosure, deed in lieu of
foreclosure, or repossession, a standard hazard insurance policy in an amount
that is at least equal to the maximum insurable value of such REO Property. No
earthquake or other additional insurance will be required of any obligor or will
be maintained on REO Property acquired in respect of a defaulted Loan, other
than pursuant to such applicable laws and regulations as shall at any time be in
force and shall require such additional insurance.
Any amounts collected by the Servicer under any such policies of insurance
(other than amounts to be applied to the restoration or repair of the Property,
released to the obligor in accordance with normal servicing procedures or used
to reimburse the Servicer for amounts to which it is entitled to reimbursement)
will be deposited in the Collection Account. In the event that the Servicer
obtains and maintains a blanket policy insuring against hazard losses on all of
the Loans, written by an insurer then acceptable to each Rating Agency, it will
conclusively be deemed to have satisfied its obligations to cause to be
maintained a standard hazard insurance policy for each Loan or related REO
Property. This blanket policy may contain a deductible clause, in which case the
Servicer will, in the event that there has been a loss that would have been
covered by such policy absent such deductible clause, deposit in the Collection
Account the amount not otherwise payable under the blanket policy because of the
application of such deductible clause.
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REALIZATION UPON DEFAULTED LOANS
The Servicer will use its reasonable best efforts to foreclose upon,
repossess or otherwise comparably convert the ownership of the Properties
securing the related Loans as come into and continue in default and as to which
no satisfactory arrangements can be made for collection of delinquent payments.
In connection with such foreclosure or other conversion, the Servicer will
follow such practices and procedures as it deems necessary or advisable and as
are normal and usual in its servicing activities with respect to comparable
loans serviced by it. However, the Servicer will not be required to expend its
own funds in connection with any foreclosure or towards the restoration of the
Property unless it determines that: (i) such restoration or foreclosure will
increase the Liquidation Proceeds in respect of the related Loan available to
the Holders after reimbursement to itself for such expenses and (ii) such
expenses will be recoverable by it either through Liquidation Proceeds or
Insurance Proceeds. Notwithstanding anything to the contrary herein, in the case
of a Trust Fund for which a REMIC election has been made, the Servicer shall
liquidate any Property acquired through foreclosure within two years after the
acquisition of the beneficial ownership of such Property. While the holder of a
Property acquired through foreclosure can often maximize its recovery by
providing financing to a new purchaser, the Trust Fund, if applicable, will have
no ability to do so and neither the Servicer nor the Sponsor will be required to
do so.
ENFORCEMENT OF DUE-ON-SALE CLAUSES
When any Property is about to be conveyed by the obligor, the Servicer will,
to the extent it has knowledge of such prospective conveyance and prior to the
time of the consummation of such conveyance, exercise its rights to accelerate
the maturity of the related Loan under the applicable "due-on-sale" clause, if
any, unless it reasonably believes that such clause is not enforceable under
applicable law or if the enforcement of such clause would result in loss of
coverage under any primary mortgage insurance policy. In such event, the
Servicer is authorized to accept from or enter into an assumption 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 Loan and pursuant to which the
original obligor is released from liability and such person is substituted as
the obligor and becomes liable under the Loan. Any fee collected in connection
with an assumption will be retained by the Servicer as additional servicing
compensation. The terms of a Loan may not be changed in connection with an
assumption.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicer will be entitled to a periodic fee as servicing compensation
(the "Servicing Fee") in an amount to be determined as specified in the related
Prospectus Supplement. The Servicing Fee may be fixed or variable, as specified
in the related Prospectus Supplement and will generally consist of a percentage
(to be specified in the related Prospectus Supplement) of the then-outstanding
principal amount of the related Loans, and may include the right to recover
additional servicing compensation in the form of assumption fees, late payment
charges and similar items, or excess proceeds following disposition of property
in connection with defaulted Loans.
When an obligor makes a principal prepayment in full between Due Dates on
the related Loan, the obligor will generally be required to pay interest on the
amount prepaid only to the date of prepayment. If and to the extent provided in
the related Prospectus Supplement, in order that one or more Classes of the
Holders of a Series will not be adversely affected by any resulting shortfall in
interest, the amount of the Servicing Fee may be reduced to the extent necessary
to include in the Servicer's remittance to the Trustee for deposit into the
Distribution Account an amount equal to one month's interest on the related Loan
(less the Servicing Fee). If the aggregate amount of such shortfalls in a month
exceeds the Servicing Fee for such month, the amount of funds available for
distribution to the related Holders may be reduced.
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To the extent specified in the related Prospectus Supplement, the Servicer
will be entitled to reimbursement for certain expenses incurred by it in
connection with the liquidation of defaulted Loans. The related Holders will
suffer no loss by reason of such expenses to the extent expenses are covered
under related insurance policies or from excess Liquidation Proceeds. If claims
are either not made or paid under the applicable insurance policies or if
coverage thereunder has been exhausted, the related Holders will suffer a loss
to the extent that Liquidation Proceeds, after reimbursement of the Servicer's
expenses, are less than the outstanding principal balance of and unpaid interest
on the related Loan which would be distributable to Holders. In addition, the
Servicer will be entitled to reimbursement of expenditures incurred by it in
connection with the restoration of property securing a defaulted Loan, such
right of reimbursement being prior to the rights of the Holders to receive any
related Insurance Proceeds, Liquidation Proceeds or amounts derived from other
Credit Enhancement. The Servicer is generally also entitled to reimbursement
from the Collection Account for Advances.
EVIDENCE AS TO COMPLIANCE
The related Pooling and Servicing Agreement for each Series will provide
that each year, a firm of independent public accountants will furnish a
statement to the Trustee to the effect that such firm has examined certain
documents and records relating to the servicing of the Loans by the Servicer and
that, on the basis of such examination, such firm is of the opinion that the
servicing has been conducted in compliance with such Pooling and Servicing
Agreement, except for (i) such exceptions as such firm believes to be immaterial
and (ii) such other exceptions as are set forth in such statement.
The applicable Pooling and Servicing Agreement for each Series will also
provide for delivery to the Trustee for such Series of an annual statement
signed by an officer of the Servicer to the effect that the Servicer has
fulfilled its obligations under such Pooling and Servicing Agreement, throughout
the preceding calendar year.
CERTAIN MATTERS REGARDING THE SERVICER
In the event of an Event of Default under a Pooling and Servicing Agreement,
the Servicer may be replaced by the related Credit Enhancer, if and, or the
Trustee or a successor Servicer. Such Events of Default and the rights of the
Trustee upon such a default under the related Pooling and Servicing Agreement
for the related Series will be substantially similar to those described under
"The Pooling and Servicing--Events of Default; Rights Upon Events of Default".
The Servicer will not have the right to assign its rights and delegate its
duties and obligations under the related Pooling and Servicing Agreement unless
the successor Servicer accepting such assignment or delegation (i) services
similar loans in the ordinary course of its business, (ii) is reasonably
satisfactory to the Trustee for the related Series, (iii) has a specified
minimum net worth, (iv) would not cause any Rating Agency's rating of the
Securities for such Series in effect immediately prior to such assignment, sale
or transfer to be qualified, downgraded or withdrawn as a result of such
assignment, sale or transfer and (v) executes and delivers to the Trustee an
agreement, in form and substance reasonably satisfactory to the Trustee, which
contains an assumption by such Servicer of the due and punctual performance and
observance of each covenant and condition to be performed or observed by the
Servicer under the related Pooling and Servicing Agreement from and after the
date of such agreement. No such assignment will become effective until the
Trustee or a successor Servicer has assumed the Servicer's obligations and
duties under the related Pooling and Servicing Agreement. To the extent that the
Servicer transfers its obligations to a wholly owned subsidiary or affiliate,
such subsidiary or affiliate need not satisfy the criteria set forth above;
however, in such instance, the assigning Servicer will remain liable for the
servicing obligations under the related Pooling and Servicing Agreement. Any
entity into which the Servicer is merged or consolidated or any successor
corporation resulting from any merger, conversion or consolidation will succeed
to the Servicer's
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obligations under the related Pooling and Servicing Agreement, provided that
such successor or surviving entity meets the requirements for a successor
Servicer set forth above.
Except to the extent otherwise provided therein, each Pooling and Servicing
Agreement will provide that neither the Servicer, nor any director, officer,
employee or agent of the Servicer, will be under any liability to the related
Trust Fund, the Sponsor or the Holders for any action taken or for failing to
take any action in good faith pursuant to the related Pooling and Servicing
Agreement, or for errors in judgment; provided, however, that neither the
Servicer nor any such person will be protected against any breach of warranty or
representation made under such Pooling and Servicing Agreement, or the failure
to perform its obligations in compliance with any standard of care set forth in
such Pooling and Servicing Agreement, or liability which would otherwise be
imposed by reason of willful misfeasance, bad faith or negligence in the
performance of their duties or by reason of reckless disregard of their
obligations and duties thereunder. Each Pooling and Servicing Agreement will
further provide that the Servicer and any director, officer, employee or agent
of the Servicer is entitled to indemnification from the related Trust Fund and
will be held harmless against any loss, liability or expense incurred in
connection with any legal action relating to the Pooling and Servicing Agreement
or the Securities, other than any loss, liability or expense incurred by reason
of willful misfeasance, bad faith or negligence in the performance of duties
thereunder or by reason of reckless disregard of obligations and duties
thereunder. In addition, the related Pooling and Servicing Agreement will
provide that the Servicer is not under any obligation to appear in, prosecute or
defend any legal action which is not incidental to its servicing
responsibilities under such Pooling and Servicing Agreement which, in its
opinion, may involve it in any expense or liability. The Servicer may, in its
discretion, undertake any such action which it may deem necessary or desirable
with respect to the related Pooling and Servicing Agreement and the rights and
duties of the parties thereto and the interests of the Holders thereunder. In
such event, the legal expenses and costs of such action and any liability
resulting therefrom may be expenses, costs, and liabilities of the Trust Fund
and the Servicer may be entitled to be reimbursed therefor out of the Collection
Account.
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THE POOLING AND SERVICING AGREEMENT
The following summaries describe certain provisions of the Pooling and
Servicing Agreement. The summaries do not purport to be complete and are subject
to, and qualified in their entirety by reference to, the provisions of the
Pooling and Servicing Agreements. Where particular provisions or terms used in
the Pooling and Servicing Agreements are referred to, such provisions or terms
are as specified in the related Pooling and Servicing Agreements.
ASSIGNMENT OF LOANS
General. At the time of issuance of the Securities of a Series, the Sponsor
will transfer, convey and assign to the Trust Fund all right, title and interest
of the Sponsor in the Loans and other property to be transferred to the Trust
Fund for a Series. Such assignment will include all principal and interest due
on or with respect to the Loans after the Cut-off Date specified in the related
Prospectus Supplement. The Trustee will, concurrently with such assignment,
execute and deliver the Securities.
Assignment of Loans. The Sponsor will, as to each Loan, deliver or cause to
be delivered to the Trustee, or, a custodian on behalf of the Trustee (the
"Custodian"), the Mortgage Note endorsed without recourse to the order of the
Trustee or in blank, the original Mortgage with evidence of recording indicated
thereon (except for any Mortgage not returned from the public recording office,
in which case a copy of such Mortgage will be delivered, together with a
certificate that the original of such Mortgage was delivered to such recording
office) and an assignment of the Mortgage in recordable form. The Trustee or,
the Custodian will hold such documents in trust for the benefit of the Holders.
The Sponsor will, as to each Home Improvement Contract, either deliver or
cause to be delivered to the Trustee (or the Custodian) the original Home
Improvement Contract and copies of documents and instruments related to each
Home Improvement Contract and, other than in the case of unsecured Home
Improvement Contracts, the security interest in the property securing such Home
Improvement Contract, or maintain possession (or cause the Servicer to maintain
possession) of such Home Improvement Contracts and other documents, as custodian
on behalf of the related Trust Fund. In order to give notice of the right, title
and interest of Holders to the Home Improvement Contracts, the Sponsor will
cause a UCC-1 financing statement to be executed by the Sponsor or the Seller
identifying the Trustee as the secured party and identifying all Home
Improvement Contracts as collateral. See "Certain Legal Aspects of the
Loans--The Home Improvement Contracts".
With respect to Loans secured by Mortgages, the Sponsor will, at the time of
issuance of the Securities, cause assignments to the Trustee of the Mortgages
relating to the Loans for a Series to be recorded in the appropriate public
office for real property records, except in states where, in the opinion of
counsel acceptable to the Trustee, such recording is not required to protect the
Trustee's interest in the related Loans. The Sponsor will cause such assignments
to be so recorded within a specified time period after issuance of the
Securities in which event, the Pooling and Servicing Agreement may require the
Sponsor to repurchase from the Trustee any Loan the related Mortgage of which is
not recorded within such time period, at the price described below with respect
to repurchases by reason of defective documentation. Such repurchase obligation
would constitute the sole remedy available to the Holders or the Trustee for the
failure of a Mortgage to be recorded.
Each Loan will be identified in a schedule appearing as an exhibit to the
related Pooling and Servicing Agreement (the "Loan Schedule"). Such Loan
Schedule will specify with respect to each Loan: the original principal amount
and unpaid principal balance as of the Cut-off Date; the current Loan Rate; the
current Scheduled Payment; the maturity date, if any, of the related Mortgage
Note; if the Loan is an adjustable-rate Loan, the lifetime rate cap, if any, and
the current index.
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Pre-Funding Account. If so specified in the related Prospectus Supplement, a
portion of the issuance proceeds of the Securities of a particular series (such
amount, (the "Pre-Funded Amount") will be deposited in an account (the
"Pre-Funding Account") to be established with the Trustee, which will be used to
acquire Additional Loans from time to time during the time period specified in
the related Prospectus Supplement (the "Pre-Funding Period"). Prior to the
investment of the Pre-Funded Amount in additional Loans, such Pre-Funded Amount
will be invested in one or more Eligible Investments. An "Eligible Investment"
is any of the following, in each case as determined at the time of the
investment or contractual commitment to invest therein (to the extent such
investments would not require registration of the Trust Fund as an investment
company pursuant to the Investment Company Act of 1940): (a) negotiable
instruments or securities represented by instruments in bearer or registered or
book-entry form which evidence: (i) obligations which have the benefit of the
full faith and credit of the United States of America, including depository
receipts issued by a bank as custodian with respect to any such instrument or
security held by the custodian for the benefit of the holder of such depository
receipt, (ii) demand deposits or time deposits in, or bankers' acceptances
issued by, any depositary institution or trust company incorporated under the
laws of the United States of America or any state thereof and subject to
supervision and examination by Federal or state banking or depositary
institution authorities; provided that at the time of the Trustee's investment
or contractual commitment to invest therein, the certificates of deposit or
short-term deposits (if any) or long-term unsecured debt obligations (other than
such obligations whose rating is based on collateral or on the credit of a
Person other than such institution or trust company) of such depositary
institution or trust company has a credit rating in the highest rating category
from each Rating Agency, (iii) certificates of deposit having a rating in the
highest rating category from each Rating Agency, or (iv) investments in money
market funds which are (or which are composed of instruments or other
investments which are) rated in the highest rating category from each Rating
Agency; (b) demand deposits in the name of the Trustee in any depositary
institution or trust company referred to in clause (a)(ii) above; (c) commercial
paper (having original or remaining maturities of no more than 270 days) having
a credit rating in the highest rating category from each Rating Agency; (d)
Eurodollar time deposits that are obligations of institutions whose time
deposits carry a credit rating in the highest rating category from each Rating
Agency; (e) repurchase agreements involving any Eligible Investment described in
any of clauses (a)(i), (a)(iii) or (d) above, so long as the other party to the
repurchase agreement has its long-term unsecured debt obligations rated in the
highest rating category from each Rating Agency; and (f) any other investment
with respect to which each Rating Agency rating such Securities indicates will
not result in the reduction or withdrawal of its then-existing rating of the
Securities. Any Eligible Investment must mature no later than the Business Day
prior to the next Distribution Date.
During any Pre-Funding Period, the Sponsor will be obligated (subject only
to the availability thereof) to transfer to the related Trust Fund, additional
Loans from time to time during such Pre-Funding Period. Such additional Loans
will be required to satisfy certain eligibility criteria more fully set forth in
the related Prospectus Supplement which eligibility criteria will be consistent
with the eligibility criteria of the Loans included in the Trust Fund as of the
Closing Date subject to such exceptions as are expressly stated in such
Prospectus Supplement.
Although the specific parameters of the Pre-Funding Account with respect to
any issuance of Securities will be specified in the related Prospectus
Supplement, it is anticipated that: (a) the Pre-Funding Period will not exceed
120 days from the related Closing Date, (b) that the additional loans to be
acquired during the Pre-Funding Period will be subject to the same
representations and warranties as the Loans included in the related Trust Fund
on the Closing Date (although additional criteria may also be required to be
satisfied, as described in the related Prospectus Supplement) and (c) that the
Pre-Funded Amount will not exceed 25% of the principal amount of the Securities
issued pursuant to a particular offering.
Repurchase and Substitution of Defective Loans. If any document in the file
relating to a Loan delivered by the Sponsor to the Trustee (or Custodian) is
found by the Trustee within a specified time
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period following the execution of the related Pooling and Servicing Agreement
(or promptly after the Trustee's receipt of any document permitted to be
delivered after the Closing Date) to be defective in any material respect and
the Sponsor or Seller does not cure such defect, the Sponsor or Seller will be
required to repurchase the related Loan or any property acquired in respect
thereof from the Trustee at a price equal to, (a) the outstanding principal
balance of such Loan and (b) accrued and unpaid interest to the date of the next
Scheduled Payment on such Loan at the rate set forth in the related Pooling and
Servicing Agreement (less any unreimbursed Advances respecting such Loan).
The Sponsor or Seller, as the case may be, may, rather than repurchase the
Loan as described above, remove such Loan from the Trust Fund (the "Deleted
Loan") and substitute in its place one or more other Loans (each, a "Qualifying
Substitute Loan"); provided, however, that such substitution may only occur
during a specified period.
The Sponsor or another entity will make representations and warranties with
respect to the Loans Assets for a Series. If the Sponsor or such entity cannot
cure a breach of any such representations and warranties in all material
respects within a specified time period after notification by the Trustee of
such breach, and if such breach is of a nature that materially and adversely
affects the value of such Loan, the Sponsor or such entity is obligated to
repurchase the affected Loan or, provide a Qualifying Substitute Loan therefor,
subject to the same conditions and limitations on purchases and substitutions as
described above.
No Holder of Securities of a Series, solely by virtue of such Holder's
status as a Holder, will have any right under the applicable Pooling and
Servicing Agreement for such Series to institute any proceeding with respect to
such Pooling and Servicing Agreement, unless such Holder previously has given to
the Trustee for such Series written notice of default and unless the Holders of
Securities evidencing not less than 51% of the aggregate voting rights of the
Securities for such Series have made written request upon the Trustee to
institute such proceeding in its own name as Trustee thereunder and have offered
to the Trustee reasonable indemnity, and the Trustee for 60 days has neglected
or refused to institute any such proceeding.
REPORTS TO HOLDERS
The Trustee or other entity specified in the related Prospectus Supplement
will prepare and forward to each Holder on each Distribution Date, or as soon
thereafter as is practicable, a statement setting forth, to the extent
applicable to any Series, among other things:
(i) the amount of principal distributed to Holders of the related
Securities and the outstanding principal balance of such Securities
following such distribution;
(ii) the amount of interest distributed to Holders of the related
Securities and the current interest on such Securities;
(iii) the amounts of (a) any overdue accrued interest included in such
distribution, (b) any remaining overdue accrued interest with respect to
such Securities or (c) any current shortfall in amounts to be distributed as
accrued interest to Holders of such Securities;
(iv) the amounts of (a) any overdue payments of scheduled principal
included in such distribution, (b) any remaining overdue principal amounts
with respect to such Securities, (c) any current shortfall in receipt of
scheduled principal payments on the related Loans or (d) any realized losses
or Liquidation Proceeds to be allocated as reductions in the outstanding
principal balances of such Securities;
(v) the amount received under any related Credit Enhancement, and the
remaining amount available under such Credit Enhancement;
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(vi) the amount of any delinquencies with respect to payments on the
related Loans;
(vii) the book value of any REO Property acquired by the related Trust
Fund; and
(viii) such other information as specified in the related Pooling and
Servicing Agreement.
In addition, within a reasonable period of time after the end of each
calendar year the Trustee, or other specified person, will furnish to each
Holder of record at any time during such calendar year: (a) the aggregate of
amounts reported pursuant to (i), (ii), and (iv)(d) above for such calendar year
and (b) such information specified in the related Pooling and Servicing
Agreement to enable Holders to prepare their tax returns, including, without
limitation, the amount of original issue discount accrued on the Securities, if
applicable. Information in the Distribution Date and annual statements provided
to the Holders will not have been examined and reported upon by an independent
public accountant. However, the Servicer will provide to the Trustee a report by
independent public accountants with respect to the Servicer's servicing of the
Loans. See "Servicing of Loans--Evidence as to Compliance".
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
Certificates. Events of Default under the Pooling and Servicing Agreement
for each Series of Certificates include (i) any failure by the Servicer to
deposit amounts in the Collection Account to enable the Trustee to distribute to
Holders of such Series any required payment, which failure continues unremedied
for a specified number of days after the giving of written notice of such
failure to the Servicer by the Trustee for such Series, or to the Servicer and
the Trustee by the Holders of such Series evidencing not less than 25% of the
aggregate voting rights of the Holders for such Series, (ii) any failure by the
Servicer duly to observe or perform in any material respect any other of its
covenants or agreements in the applicable Pooling and Servicing Agreement which
continues unremedied for a specified number of days after the giving of written
notice of such failure to the Servicer by the Trustee, or to the Servicer and
the Trustee by the Holders of such Series evidencing not less than 25% of the
aggregate voting rights of the Holders and (iii) certain events of insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings and certain actions by the Servicer indicating its insolvency,
reorganization or inability to pay its obligations.
So long as an Event of Default remains unremedied under the applicable
Pooling and Servicing Agreement for a Series of Securities relating to the
servicing of Loans, the related Credit Enhancer or, the Trustee for such Series
or Holders of Securities of such Series evidencing not less than 51% of the
aggregate voting rights of the Securities for such Series may terminate all of
the rights and obligations of the Servicer as the "Servicer" under the
applicable Pooling and Servicing Agreement (other than its right to recovery of
other expenses and amounts advanced pursuant to the terms of such Pooling and
Servicing Agreement which rights the Servicer will retain under all
circumstances), whereupon the Trustee will succeed to all the responsibilities,
duties and liabilities of the "Servicer" under such Pooling and Servicing
Agreement and will be entitled to reasonable servicing compensation not to
exceed the applicable Servicing Fee, together with other servicing compensation
in the form of assumption fees, late payment charges or otherwise as provided in
such Pooling and Servicing Agreement.
In the event that the Trustee is unwilling or unable so to act, it may
select, or petition a court of competent jurisdiction to appoint, a finance
institution, bank or loan servicing institution with a specified minimum net
worth to act as successor Servicer under the provisions of the applicable
Pooling and Servicing Agreement. The successor Servicer would be entitled to
reasonable servicing compensation in an amount not to exceed the related
Servicing Fee, together with the other servicing compensation in the form of
assumption fees, late payment charges or otherwise, as provided in such Pooling
and Servicing Agreement.
During the continuance of any Event of Default of the Servicer under a
Pooling and Servicing Agreement, the Trustee for such Series will have the right
to take action to enforce its rights and
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remedies and to protect and enforce the rights and remedies of the Holders of
such Series, and, the related Credit Enhancer or the Holders of Securities
evidencing not less than 51% of the aggregate voting rights of the Securities
(with the consent of the related Credit Enhancer, if any) for such Series may
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred upon that
Trustee. However, the Trustee will not be under any obligation to pursue any
such remedy or to exercise any of such trusts or powers unless such Holders have
offered the Trustee reasonable security or indemnity against the cost, expenses
and liabilities which may be incurred by the Trustee therein or thereby. Also,
the Trustee may decline to follow any such direction if the Trustee determines
that the action or proceeding so directed may not lawfully be taken or would
involve it in personal liability or be unjustly prejudicial to the nonassenting
Holders.
Notes. Events of Default for each Series of Notes include: (i) a default for
thirty (30) days or more in the payment of any principal of or interest on any
Note of such Series; (ii) failure to perform any other covenant of the Sponsor
or the Trust Fund in the related Pooling and Servicing Agreement which continues
for a specified period after notice thereof is given in accordance with the
procedures specified in the related Pooling and Servicing Agreement; (iii) any
representation or warranty made by the Sponsor or the Trust Fund in the related
Pooling and Servicing Agreement or in any certificate or other writing delivered
pursuant thereto or in connection therewith with respect to or affecting such
Series having been incorrect in a material respect as of the time made, and such
breach is not cured within a specified period after notice thereof is given in
accordance with the procedures described in the related Pooling and Servicing
Agreement; (iv) certain events of bankruptcy, insolvency, receivership or
liquidation of the Sponsor or the Trust Fund; or (v) any other Event of Default
provided with respect to Notes of that Series.
If an Event of Default with respect to the Notes of any Series at the time
outstanding occurs and is continuing, the related Credit Enhancer or either the
Trustee or the Holders of a majority of the then aggregate outstanding amount of
the Notes of such Series (with the consent of the related Credit Enhancer, if
any) may declare the principal amount of all the Notes of such Series to be due
and payable immediately. Such declaration may, under certain circumstances, be
rescinded and annulled by the related Credit Enhancer or the Holders of a
majority in aggregate outstanding amount of the Notes of such Series.
If, following an Event of Default with respect to any Series of Notes, the
Notes of such Series have been declared to be due and payable, the related
Credit Enhancer or the Trustee (with the consent of the related Credit Enhancer,
if any) may, in its discretion, notwithstanding such acceleration, elect to
maintain possession of the collateral securing the Notes of such Series and to
continue to apply distributions on such collateral as if there had been no
declaration of acceleration if such collateral continues to provide sufficient
funds for the payment of principal of and interest on the Notes of such Series
as they would have become due if there had not been such a declaration. In
addition, the Trustee may not sell or otherwise liquidate the collateral
securing the Notes of a Series following an Event of Default, other than a
default in the payment of any principal or interest on any Note of such Series,
unless (a) the related Credit Enhancer or the Holders of 100% of the then
aggregate outstanding amount of the Notes of such Series (with the consent of
the related Credit Enhancer, if any) consent to such sale, (b) the proceeds of
such sale or liquidation are sufficient to pay in full the principal of and
accrued interest, due and unpaid, on the outstanding Notes of such Series at the
date of such sale or (c) the Trustee determines that such collateral would not
be sufficient on an ongoing basis to make all payments on such Notes as such
payments would have become due if such Notes had not been declared due and
payable, and the Trustee obtains the consent of the Holders of 66 2/3% of the
then aggregate outstanding amount of the Notes of such Series.
In the event that the Trustee liquidates the collateral in connection with
an Event of Default involving a default in the payment of principal of or
interest on the Notes of a Series, the Trustee will
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have a prior lien on the proceeds of any such liquidation for unpaid fees and
expenses. As a result, upon the occurrence of such an Event of Default, the
amount available for distribution to the Noteholders would be less than would
otherwise be the case. However, the Trustee may not institute a proceeding for
the enforcement of its lien except in connection with a proceeding for the
enforcement of the lien of the related Pooling and Servicing Agreement for the
benefit of the Noteholders after the occurrence of such an Event of Default.
In the event the principal of the Notes of a Series is declared due and
payable, as described above, the Holders of any such Notes issued at a discount
from par may be entitled to receive no more than an amount equal to the unpaid
principal amount thereof less the amount of such discount which is unamortized.
Subject to the provisions of the related Pooling and Servicing Agreement
relating to the duties of the Trustee, in case an Event of Default shall occur
and be continuing with respect to a Series of Notes, the Trustee shall be under
no obligation to exercise any of the rights or powers under the related Pooling
and Servicing Agreement at the request or direction of any of the Holders of
Notes of such Series, unless such Holders offer to the Trustee security or
indemnity satisfactory to it against the costs, expenses and liabilities which
might be incurred by it in complying with such request or direction. Subject to
such provisions for indemnification and certain limitations contained in the
related Pooling and Servicing Agreement, the related Credit Enhancer or the
Holders of a majority of the then aggregate outstanding amount of the Notes of
such Series (with the consent of the related Credit Enhancer, if any) shall have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee or exercising any trust or power conferred
on the Trustee with respect to the Notes of such Series, and the related Credit
Enhancer or the Holders of a majority of the then aggregate outstanding amount
of the Notes of such Series (with the consent of the related Credit Enhancer, if
any) may, in certain cases, waive any default with respect thereto, except a
default in the payment of principal or interest or a default in respect of a
covenant or provision of the Indenture that cannot be modified without the
waiver or consent of all the Holders of the outstanding Notes of such Series
affected thereby.
THE TRUSTEE
The identity of the commercial bank, savings and loan association or trust
company named as the Trustee for each Series of Securities will be set forth in
the related Prospectus Supplement. The entity serving as Trustee may have normal
banking relationships with the Sponsor or the Servicer. In addition, for the
purpose of meeting the legal requirements of certain local jurisdictions, the
Trustee will have the power to appoint co-trustees or separate trustees of all
or any part of the Trust Fund relating to a Series of Securities. In the event
of such appointment, all rights, powers, duties and obligations conferred or
imposed upon the Trustee by the related Pooling and Servicing Agreement relating
to such Series will be conferred or imposed upon the Trustee and each such
separate trustee or co-trustee jointly, or, in any jurisdiction in which the
Trustee shall be incompetent or unqualified to perform certain acts, singly upon
such separate trustee or co-trustee who shall exercise and perform such rights,
powers, duties and obligations solely at the direction of the Trustee. The
Trustee may also appoint agents to perform any of the responsibilities of the
Trustee, which agents shall have any or all of the rights, powers, duties and
obligations of the Trustee conferred on them by such appointment; provided that
the Trustee shall continue to be responsible for its duties and obligations
under the related Pooling and Servicing Agreement.
DUTIES OF THE TRUSTEE
The Trustee makes no representations as to the validity or sufficiency of
the related Pooling and Servicing Agreement, the Securities or of any Loan or
related documents. If no Event of Default (as
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defined in the related Agreement) has occurred, the Trustee is required to
perform only those duties specifically required of it under the related Pooling
and Servicing Agreement.
The Trustee may be held liable for its own negligent action or failure to
act, or for its own misconduct; provided, however, that the Trustee will not be
personally liable with respect to any action taken, suffered or omitted to be
taken by it in good faith in accordance with the direction of the Holders in an
Event of Default. The Trustee is not required to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
under the related Pooling and Servicing Agreement, or in the exercise of any of
its rights or powers, if it has reasonable grounds for believing that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
RESIGNATION OF TRUSTEE
The Trustee may, upon written notice to the Sponsor, resign at any time, in
which event the Sponsor will be obligated to use its best efforts to appoint a
successor Trustee. If no successor Trustee has been appointed and has accepted
the appointment within 30 days after giving such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for
appointment of a successor Trustee. The Trustee may also be removed at any time
(i) if the Trustee ceases to be eligible to continue as such under the related
Pooling and Servicing Agreement, (ii) if the Trustee becomes insolvent or (iii)
related Credit Enhancer or by the Holders of Securities evidencing over 50% of
the aggregate voting rights of the Securities in the Trust Fund (with the
consent of the related Credit Enhancer, if any) upon written notice to the
Trustee and to the Sponsor. 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.
AMENDMENT OF AGREEMENT
The related Pooling and Servicing Agreement may be amended by the Sponsor,
the Servicer (with respect to a Series relating to Loans), and the Trustee with
respect to such Series, without notice to or consent of the Holders, but with
the consent of the related Credit Enhancer (i) to cure any ambiguity, (ii) to
correct any defective provisions or to correct or supplement any provision
therein, (iii) to add to the duties of the Sponsor, the Trust Fund or Servicer,
(iv) to add any other provisions with respect to matters or questions arising
under such Pooling and Servicing Agreement or related Credit Enhancement, (v) to
add or amend any provisions of such Pooling and Servicing Agreement as required
by a Rating Agency in order to maintain or improve the rating of the Securities,
or (vi) to comply with any requirements imposed by the Code; provided that any
such amendment except pursuant to clause (vi) above will not adversely affect in
any material respect the interests of any Holders of such Series, as evidenced
by an opinion of counsel. Any such amendment, except pursuant to clause (vi) of
the preceding sentence, shall be deemed not to adversely affect in any material
respect the interests of any Holder if the Trustee receives written confirmation
from each Rating Agency that such amendment will not cause such Rating Agency to
reduce the then current rating thereof. Supplement, the Pooling and Servicing
Agreement for each Series may also be amended by the Trustee, the Servicer, if
applicable, and the Sponsor (with the consent of the related Credit Enhancer, if
any) with respect to such Series with the consent of the Holders possessing not
more than 50% of the aggregate outstanding principal amount of the Securities of
such Series or, if only certain Classes of such Series are affected by such
amendment, more than 50% of the aggregate outstanding principal amount of the
Securities of each Class of such Series affected thereby, for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of such Pooling and Servicing Agreement or modifying in any manner
the rights of Holders of such Series; provided, however, that no such amendment
may (a) reduce the amount or delay the timing of payments on any Security
without the consent of the Holder of such Security; or (b) reduce the aforesaid
percentage of the aggregate outstanding principal
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amount of Securities of each Class, the Holders of which are required to consent
to any such amendment without the consent of the Holders of 100% of the
aggregate outstanding principal amount of each Class of Securities affected
thereby.
VOTING RIGHTS
The related Prospectus Supplement will set forth the method of determining
allocation of voting rights with respect to a Series.
LIST OF HOLDERS
Upon written request of three or more Holders of record of a Series for
purposes of communicating with other Holders with respect to their rights under
the related Pooling and Servicing Agreement, which request is accompanied by a
copy of the communication which such Holders propose to transmit, the Trustee
will afford such Holders access during business hours to the most recent list of
Holders of that Series held by the Trustee.
No Pooling and Servicing Agreement will provide for the holding of any
annual or other meeting of Holders.
REMIC ADMINISTRATOR
For any Series with respect to which a REMIC election is made, preparation
of certain reports and certain other administrative duties with respect to the
Trust Fund may be performed by a REMIC administrator, who may be the Servicer.
TERMINATION
Certificates. The obligations created by the Pooling and Servicing Agreement
for a Series of Certificates will terminate upon the distribution to Holders of
all amounts distributable to them pursuant to such Pooling and Servicing
Agreement after the earlier of (i) the later of (a) the final payment or other
liquidation of the last Loan remaining in the Trust Fund for such Series and (b)
the disposition of all property acquired upon foreclosure or deed in lieu of
foreclosure or repossession in respect of any Loan or (ii) the repurchase, as
described below, by the Servicer or other entity specified in the related
Prospectus Supplement from the Trustee for such Series of all Loans and other
property at that time subject to such Pooling and Servicing Agreement. The
Pooling and Servicing Agreement for each Series permits, but does not require,
the Servicer or other entity specified in the related Prospectus Supplement to
purchase from the Trust Fund for such Series all remaining Loans at a price
equal to, unless otherwise specified in the related Prospectus Supplement, 100%
of the aggregate principal balance of such Loans plus, with respect to any
property acquired in respect of a Loan, if any, the outstanding principal
balance of the related Loan at the time of foreclosure, less, in either case,
related unreimbursed Advances (in the case of the Loans, only to the extent not
already reflected in the computation of the aggregate principal balance of such
Loans) and unreimbursed expenses (that are reimbursable pursuant to the terms of
the Pooling and Servicing Agreement) plus, in either case, accrued interest
thereon at the weighted average interest rate on the related Loans through the
last day of the month in which such repurchase occurs; provided, however, that
if an election is made for treatment as a REMIC under the Code, the repurchase
price may equal the greater of (a) 100% of the aggregate principal balance of
such Loans, plus accrued interest thereon at the applicable interest rates on
the Loans through the last day of the month of such repurchase and (b) the
aggregate fair market value of such Loans plus the fair market value of any
property acquired in respect of a Loan and remaining in the Trust Fund. The
exercise of such right will effect early retirement of the Securities of such
Series, but such entity's right to so purchase is subject to the aggregate
principal balance of the Loans at the time of repurchase being less than a fixed
percentage, to be set forth in the related
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Prospectus Supplement, of the aggregate principal balance of the Loans as of the
Cut-off Date. In no event, however, will the trust created by Pooling and
Servicing Agreement continue beyond the expiration of 21 years from the death of
the last survivor of certain persons identified therein. For each Series, the
Servicer or the Trustee, as applicable, will give written notice of termination
of the Pooling and Servicing Agreement to each Holder, and the final
distribution will be made only upon surrender and cancellation of the Securities
at an office or agency specified in the notice of termination. If so provided in
the related Prospectus Supplement for a Series, the Sponsor or another entity
may effect an optional termination of the Trust Fund under the circumstances
described in such Prospectus Supplement. See "Description of The
Securities--Optional Purchase or Termination".
Notes. The Pooling and Servicing Agreement will be discharged with respect
to a Series of Notes (except with respect to certain continuing rights specified
in the Pooling and Servicing Agreement) upon the delivery to the Trustee for
cancellation of all the Notes of such Series or, with certain limitations, upon
deposit with the Trustee of funds sufficient for the payment in full of all of
the Notes of such Series.
In addition to such discharge with certain limitations, the related Pooling
and Servicing Agreement will provide that, if so specified with respect to the
Notes of any Series, the related Trust Fund will be discharged from any and all
obligations in respect of the Notes of such Series (except for certain
obligations relating to temporary Notes and exchange of Notes, to register the
transfer of or exchange Notes of such Series, to replace stolen, lost or
mutilated Notes of such Series, to maintain paying agencies and to hold monies
for payment in trust) upon the deposit with the Trustee, in trust, of money
and/or direct obligations of or obligations guaranteed by the United States of
America which through the payment of interest and principal in respect thereof
in accordance with their terms will provide money in an amount sufficient to pay
the principal of and each installment of interest on the Notes of such Series on
the Final Scheduled Distribution Date for such Notes and any installment of
interest on such Notes in accordance with the terms of the Pooling and Servicing
Agreement and the Notes of such Series. In the event of any such defeasance and
discharge of Notes of such Series, Holders of Notes of such Series would be able
to look only to such money and/or direct obligations for payment of principal
and interest, if any, on their Notes until maturity.
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YIELD AND MATURITY CONSIDERATIONS
The yield to maturity of a Security will depend on the price paid by the
Holder for such Security, the interest rate on such Security (which interest
rate may vary if so specified in the related Prospectus Supplement), the rate of
payment of principal on such Security (or the rate at which the Notional Amount
thereof is reduced if such Security is not entitled to payments of principal)
and other factors.
In general, if a Class of Securities is purchased at initial issuance at a
premium and payments of principal on the related Loans occur at a rate faster
than anticipated at the time of purchase, the purchaser's actual yield to
maturity will be lower than that assumed at the time of purchase. In addition,
if a Class of Securities is purchased at initial issuance at a discount and
payments of principal on the related Loans occur at a rate slower than that
assumed at the time of purchase, the purchaser's actual yield to maturity will
be lower than that originally anticipated. The effect of principal prepayments,
liquidations and purchases on yield will be particularly significant in the case
of a Series of Securities having a Class entitled to payments of interest only
or to payments of interest that are disproportionately high relative to the
principal payments to which such Class is entitled. Such a Class will likely be
sold at a substantial premium to its principal balance, if any, and any faster
than anticipated rate of prepayments will adversely affect the yield to Holders
thereof. In certain circumstances, rapid prepayments may result in the failure
of such Holders to recoup their original investment. In addition, the yield to
maturity on certain other types of Classes of Securities, may be relatively more
sensitive to the rate of prepayment on the related Loans than other Classes of
Securities.
The timing of changes in the rate of principal payments on or repurchases of
the Loans may significantly affect an investor's actual yield to maturity, even
if the average rate of principal payments experienced over time is consistent
with an investor's expectation. In general, the earlier a prepayment of
principal on the underlying Loans or a repurchase thereof, the greater will be
the effect on an investor's yield to maturity. As a result, the effect on an
investor's yield of principal payments and repurchases occurring at a rate
higher (or lower) than the rate anticipated by the investor during the period
immediately following the issuance of a Series of Securities would not be fully
offset by a subsequent like reduction (or increase) in the rate of principal
payments.
When a full prepayment is made on a Loan, the Mortgagor is charged interest
on the principal amount of the Loan so prepaid for the number of days in the
month actually elapsed up to the date of the prepayment, at a daily rate
determined by dividing the Loan Rate by 365. A Series of Securities may provide
that the Servicer is obligated to deposit into the Distribution Account, for
distribution to Holders of the Series, an amount, not to exceed the Servicer's
aggregate Servicing Fee for such Series for the related month, equal to the
difference between (a) a full months' interest (net of the Servicing Fee) on a
Loan which has prepaid in full and (b) the amount of interest actually paid with
such prepayment in full. See "Servicing of Loans--Servicing Compensation and
Payment of Expenses". To the extent the Servicer is not obligated to deposit for
distribution to the related Holders the full amount of such difference, the
effect of prepayments in full will be to reduce the amount of interest paid in
the next succeeding month to Holders of Securities entitled to payments of
interest because interest on the principal amount of any Loan so prepaid will be
paid only to the date of prepayment rather than for a full month. A partial
prepayment of principal is applied so as to reduce the outstanding principal
balance of the related Loan as of the first day of the month in which such
partial prepayment is received. As a result, the effect of a partial prepayment
on a Loan will be to reduce the amount of interest passed through to Holders of
Securities on the Distribution Date following the receipt of such partial
prepayment by an amount equal to one month's interest at the applicable
pass-through rate, as the case may be, on the prepaid amount. Neither full nor
partial principal prepayments are passed through until the month following
receipt.
A number of factors affect principal prepayment rates, including homeowner
mobility, economic conditions, mortgage market interest rates, the availability
of mortgage funds and the enforceability of due-on-sale clauses. Many Loans will
contain due-on-sale provisions permitting the mortgagee to
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accelerate the maturity of the Loan upon sale or certain transfers by the
Mortgagor of the underlying Property. The Servicer will generally enforce any
due-on-sale clause to the extent it has knowledge of the conveyance or proposed
conveyance of the underlying Property and it is entitled to do so under
applicable law; provided, however, that the Servicer will not take any action in
relation to the enforcement of any due-on-sale provision which would adversely
affect the interests of the Holders or adversely affect or jeopardize coverage
under any applicable insurance policy. The extent to which the Loans are assumed
by purchasers of the Properties rather than prepaid by the related Mortgagors in
connection with the sales of the Properties will affect the yield of the related
Series of Securities.
The yield on the Securities also will be effected by liquidations of Loans
following Mortgagor defaults and by purchases of Loans required by the Pooling
and Servicing Agreement in the event of breaches of representations made in
respect of such Mortgage Loans by the Sponsor, the related Seller if any, the
Servicer and others, or repurchases due to conversions of ARM Loans to a fixed
interest rate. See "Descriptions of the Securities--Assignment of Loans" above.
Under certain circumstances, the Servicer, the Sponsor or, if specified in the
related Prospectus Supplement, the Holders of the REMIC residual interest or the
Credit Enhancer may have the option to purchase the Loans in a Trust Fund. See
"Description of the Securities--Optional Termination."
The rate of prepayments with respect to fixed-rate mortgage loans has
fluctuated significantly in recent years. In general, if prevailing interest
rates fall significantly below the interest rates on fixed-rate mortgage loans,
such mortgage loans are likely to be subject to higher prepayment rates than if
prevailing rates remain at or above the interest rate on such mortgage loans.
Conversely, if prevailing interest rates rise appreciably above the interest
rates on fixed-rate mortgage loans, such mortgage loans are likely to experience
a lower prepayment rate than if prevailing rates remain at or below the interest
rates on such mortgage loans.
Although the Loan Rates on ARM Loans will be subject to periodic
adjustments, such adjustments will, generally, (i) not increase or decrease such
Loan Rates by more than a fixed percentage amount on each adjustment date, (ii)
not increase such Loan Rates over a fixed percentage amount during the life of
any ARM Loan and (iii) be based on an index (which may not rise and fall
consistently with mortgage interest rates) plus the related margin (which may be
different from margins being used at the time for newly originated adjustable
rate mortgage loans). As a result, the Loan Rates on the ARM Loans in a Trust
Fund at any time may not equal the prevailing rates for similar, newly
originated adjustable-rate mortgage loans. In certain rate environments, the
prevailing rates on fixed-rate mortgage loans may be sufficiently low in
relation to the then-current Loan Rates on ARM Loans that the rate of prepayment
may increase as a result of refinancings.
As may be described in the related Prospectus Supplement, the related
Pooling and Servicing Agreement may provide that all or a portion of the
principal collected on or with respected to the related Loans may be applied by
the related Trustee to the acquisition of additional Loans during a specified
period (rather than used to fund payments of principal to Holders during such
period) with the result that the related Securities possess an interest-only
period, also commonly referred to as a revolving period, which will be followed
by an amortization period. Any such interest-only or revolving period may, upon
the occurrence of certain events to be described in the related Prospectus
Supplement, terminate prior to the end of the specified period and result in the
earlier than expected amortization of the related Securities.
In addition, and as may be described in the related Prospectus Supplement,
the related Pooling and Servicing Agreement may provide that all or a portion of
such collected principal may be retained by the Trustee (and held in certain
temporary investments, including Loans) for a specified period prior to being
used to fund payments of principal to Holders. The result of such retention and
temporary investment by the Trustee of such principal would be to slow the
amortization rate of the related Securities relative to the amortization rate of
the related Loans, or to attempt to match the amortization rate of the related
Securities to an amortization schedule established at the time such Securities
are
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issued. Any such feature applicable to any Securities may terminate upon the
occurrence of events to be described in the related Prospectus Supplement,
resulting in the current funding of principal payments to the related Holders
and an acceleration of the amortization of such Securities.
In addition to its impact on a Security's yield to maturity the rate of
principal prepayments on the Loans related to the Security will affect the
weighted average life of the Security. "Weighted average life" refers to the
average amount of time from the date of issuance of a security until each dollar
of principal of the security is repaid to the investor.
There can be no assurance as to the rate of prepayment of the Loans. The
Sponsor is not aware of any reliable, publicly available statistics relating to
the principal prepayment experience of diverse portfolios of mortgage loans such
as the Loans over an extended period of time. All statistics known to the
Sponsor that have been compiled with respect to prepayment experience on
mortgage loans indicate that while some mortgage loans may remain outstanding
until their stated maturities, a substantial number will be paid prior to their
respective stated maturities.
The effective yield to maturity to each Holder of fixed-rate Securities
entitled to payments of interest will be below that otherwise produced by the
applicable interest rate and purchase price of such Security because, while
interest will accrue on each Loan from the first day of each month, the payment
of such interest to the Holders will be made on a specified day (for example,
the twenty-fifth day) of the month (or, in the case of quarterly pay Securities,
the twenty-fifth day of every third month, or, in the case of semiannually pay
Securities, the twenty-fifth day of every sixth month) following the month of
accrual.
The Loan Rates on certain ARM Loans subject to negative amortization adjust
monthly and their amortization schedules adjust less frequently. During a period
of rising interest rates as well as immediately after origination (initial Loan
Rates are generally lower than the sum of the indices applicable at origination
and the related Loan margins) the amount of interest accruing on the principal
balance of such Loans may exceed the amount of the minimum scheduled monthly
payment thereon. As a result, a portion of the accrued interest on negatively
amortizing Loans may become deferred interest that will be added to the
principal balance thereof and will bear interest at the applicable Loan Rate.
The addition of any such deferred interest to the principal balance will
lengthen the weighted average life of the Securities evidencing interests in
such Loans and may adversely affect yield to Holders thereof depending upon the
price at which such Securities were purchased. In addition, with respect to
certain ARM Loans subject to negative amortization, during a period of declining
interest rates, it might be expected that each minimum scheduled monthly payment
on such a Loan would exceed the amount of scheduled principal and accrued
interest on the principal balance thereof, and since such excess will be applied
to reduce such principal balance, the weighted average life of such Securities
will be reduced and may adversely affect yield to Holders thereof depending upon
the price at which such Securities were purchased.
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CERTAIN LEGAL ASPECTS OF LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans, home improvement installment sales contracts and home
improvement installment loan agreements which are general in nature. Because
certain of such legal aspects are governed by applicable state law (which laws
may differ substantially), the summaries do not purport to be complete nor
reflect the laws of any particular state, nor encompass the laws of all states
in which the properties securing the Loans are situated. In the event that a
particular Trust Fund contains Loans with a concentration in a particular state,
and such state's laws vary materially from the general discussion below, the
related Prospectus Supplement will elaborate on the relevant laws of such state.
The summaries are qualified in their entirety by reference to the applicable
federal and state laws governing the Loans.
MORTGAGES
General. The Loans for a Series will and certain Home Improvement Contracts
for a Series may be secured by either mortgages or deeds of trust or deeds to
secure debt (such Mortgage Loans and Home Improvement Contracts are hereinafter
referred to in this Section as "mortgage loans"), depending upon the prevailing
practice in the state in which the property subject to a mortgage loan is
located. The filing of a mortgage, deed of trust or deed to secure debt creates
a lien or title interest upon the real property covered by such instrument and
represents the security for the repayment of an obligation that is customarily
evidenced by a promissory note. It is not prior to the lien for real estate
taxes and assessments or other charges imposed under governmental police powers
and may also be subject to other liens pursuant to the laws of the jurisdiction
in which the Mortgaged Property is located. Priority with respect to such
instruments depends on their terms, the knowledge of the parties to the mortgage
and generally on the order of recording with the applicable state, county or
municipal office. There are two parties to a mortgage, the mortgagor, who is the
borrower/property owner or the land trustee (as described below), and the
mortgagee, who is the lender. Under the mortgage instrument, the mortgagor
delivers to the mortgagee a note or bond and the mortgage. In the case of a land
trust, there are three parties because title to the property is held by a land
trustee under a land trust agreement of which the borrower/property owner is the
beneficiary; at origination of a mortgage loan, the borrower executes a separate
undertaking to make payments on the mortgage note. A deed of trust transaction
normally has three parties, the trustor, who is the borrower/property owner; the
beneficiary, who is the lender, and the trustee, a third-party grantee. Under a
deed of trust, the trustor grants the property, irrevocably until the debt is
paid, in trust, generally with a power of sale, to the trustee to secure payment
of the obligation. The mortgagee's authority under a mortgage and the trustee's
authority under a deed of trust are governed by the law of the state in which
the real property is located, the express provisions of the mortgage or deed of
trust, and, in some cases, in deed of trust transactions, the directions of the
beneficiary.
Foreclosure on Mortgages. Foreclosure of a mortgage is generally
accomplished by judicial action. Generally, the action is initiated by the
service of legal pleadings upon all parties having an interest of record in the
real property. Delays in completion of the foreclosure occasionally may result
from difficulties in locating necessary parties defendant. When the mortgagee's
right to foreclosure is contested, the legal proceedings necessary to resolve
the issue can be time-consuming and expensive. After the completion of a
judicial foreclosure proceeding, the court may issue a judgment of foreclosure
and appoint a receiver or other officer to conduct the sale of the property. In
some states, mortgages may also be foreclosed by advertisement, pursuant to a
power of sale provided in the mortgage. Foreclosure of a mortgage by
advertisement is essentially similar to foreclosure of a deed of trust by
nonjudicial power of sale.
Foreclosure of a deed of trust is generally accomplished by a nonjudicial
trustee's sale under a specific provision in the deed of trust which authorizes
the trustee to sell the property upon any default
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by the borrower under the terms of the note or deed of trust. In certain states,
such foreclosure also may be accomplished by judicial action in the manner
provided for foreclosure of mortgages. In some states, the trustee must record a
notice of default and send a copy to the borrower/trustor and to any person who
has recorded a request for a copy of a notice of default and notice of sale. In
addition, the trustee in some states must provide notice to any other individual
having an interest in the real property, including any junior lienholders. If
the deed of trust is not reinstated within any applicable cure period, a notice
of sale must be posted in a public place and, in most states, published for a
specified period of time in one or more newspapers. In addition, some state laws
require that a copy of the notice of sale be posted on the property and sent to
all parties having an interest of record in the property. The trustor, borrower,
or any person having a junior encumbrance on the real estate, may, during a
reinstatement period, cure the default by paying the entire amount in arrears
plus the costs and expenses incurred in enforcing the obligation. Generally,
state law controls the amount of foreclosure expenses and costs, including
attorney's fees, which may be recovered by a lender. If the deed of trust is not
reinstated, a notice of sale must be posted in a public place and, in most
states, published for a specified period of time in one or more newspapers. In
addition, some state laws require that a copy of the notice of sale be posted on
the property, recorded and sent to all parties having an interest in the real
property.
An action to foreclose a mortgage is an action to recover the mortgage debt
by enforcing the mortgagee's rights under the mortgage. It is regulated by
statutes and rules and subject throughout to the court's equitable powers.
Generally, a mortgagor is bound by the terms of the related mortgage note and
the mortgage as made and cannot be relieved from his default if the mortgagee
has exercised his rights in a commercially reasonable manner. However, since a
foreclosure action historically was equitable in nature, the court may exercise
equitable powers to relieve a mortgagor of a default and deny the mortgagee
foreclosure on proof that either the mortgagor's default was neither willful nor
in bad faith or the mortgagee's action established a waiver, fraud, bad faith,
or oppressive or unconscionable conduct such as to warrant a court of equity to
refuse affirmative relief to the mortgagee. Under certain circumstances a court
of equity may relieve the mortgagor from an entirely technical default where
such default was not willful.
A foreclosure action is subject to most of the delays and expenses of other
lawsuits if defenses or counter claims are interposed, sometimes requiring up to
several years to complete. Moreover, a non-collusive, regularly conducted
foreclosure sale may be challenged as a fraudulent conveyance, regardless of the
parties' intent, if a court determines that the sale was for less than fair
consideration and such sale occurred while the mortgagor was insolvent and
within one year (or within the state statute of limitations if the trustee in
bankruptcy elects to proceed under state fraudulent conveyance law) of the
filing of bankruptcy. Similarly, a suit against the debtor on the related
mortgage note may take several years and, generally, is a remedy alternative to
foreclosure, the mortgagee being precluded from pursuing both at the same time.
In the case of foreclosure under either a mortgage or a deed of trust, the
sale by the referee or other designated officer or by the trustee is a public
sale. However, because of the difficulty potential third-party purchasers at the
sale have in determining the exact status of title and because the physical
condition of the property may have deteriorated during the foreclosure
proceedings, it is uncommon for a third party to purchase the property at a
foreclosure sale. Rather, it is common for the lender to purchase the property
from the trustee or referee for an amount which may be equal to the unpaid
principal amount of the mortgage note secured by the mortgage or deed of trust
plus accrued and unpaid interest and the expenses of foreclosure, in which event
the mortgagor's debt will be extinguished or the lender may purchase for a
lesser amount in order to preserve its right against a borrower to seek a
deficiency judgment in states where such a judgment is available. Thereafter,
subject to the right of the borrower in some states to remain in possession
during the redemption period, the lender will assume the burdens of ownership,
including obtaining hazard insurance, paying taxes and making such repairs at
its own expense as are necessary to render the property suitable for sale. The
lender will commonly obtain the services of a real estate broker and pay the
broker's commission in connection with the sale of
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the property. Depending upon market conditions, the ultimate proceeds of the
sale of the property may not equal the lender's investment in the property. Any
loss may be reduced by the receipt of any mortgage guaranty insurance proceeds.
Rights of Redemption. In some states, after sale pursuant to a deed of trust
or foreclosure of a mortgage, the trustor or mortgagor and foreclosed junior
lienors are given a statutory period in which to redeem the property from the
foreclosure sale. The right of redemption should be distinguished from the
equity of redemption, which is a non-statutory right that must be exercised
prior to the foreclosure sale. In some states, redemption may occur only upon
payment of the entire principal balance of the loan, accrued interest and
expenses of foreclosure. In other states, redemption may be authorized if the
former borrower pays only a portion of the sums due. The effect of a statutory
right of redemption is to diminish the ability of the lender to sell the
foreclosed property. The exercise of a right of redemption would defeat the
title of any purchaser at a foreclosure sale, or of any purchaser from the
lender subsequent to foreclosure or sale under a deed of trust. Consequently the
practical effect of a right of redemption is to force the lender to retain the
property and pay the expenses of ownership until the redemption period has run.
In some states, there is no right to redeem property after a trustee's sale
under a deed of trust.
Junior Mortgages; Rights Of Senior Mortgages. The mortgage loans included in
the Trust Fund for a Series will be secured by mortgages or deeds of trust which
may be second or more junior mortgages to other mortgages held by other lenders
or institutional investors. The rights of the Trust Fund (and therefore the
Holders), as mortgagee under a junior mortgage, are subordinate to those of the
mortgagee under the senior mortgage, including the prior rights of the senior
mortgagee to receive hazard insurance and condemnation proceeds and to cause the
property securing the mortgage loan to be sold upon default of the mortgagor,
thereby extinguishing the junior mortgagee's lien unless the junior mortgagee
asserts its subordinate interest in the property in foreclosure litigation and,
possibly, satisfies the defaulted senior mortgage. A junior mortgagee 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 mortgage or deed of trust, no notice of default is required to
be given to a junior mortgagee.
The standard form of the mortgage used by most institutional lenders confers
on the mortgagee the right both to receive all proceeds collected under any
hazard insurance policy and all awards made in connection with condemnation
proceedings, and to apply such proceeds and awards to any indebtedness secured
by the mortgage, in such order as the mortgagee may determine. Thus, in the
event improvements on the property are damaged or destroyed by fire or other
casualty, or in the event the property is taken by condemnation, the mortgagee
or beneficiary under underlying senior mortgages will have the prior right to
collect any insurance proceeds payable under a hazard insurance policy and any
award of damages in connection with the condemnation and to apply the same to
the indebtedness secured by the senior mortgages. Proceeds in excess of the
amount of senior mortgage indebtedness, in most cases, may be applied to the
indebtedness of a junior mortgage.
Another provision sometimes found in the form of the mortgage or deed of
trust used by institutional lenders obligates the mortgagor 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 under the mortgage. Upon a
failure of the mortgagor to perform any of these obligations, the mortgagee is
given the right under certain mortgages to perform the obligation itself, at its
election, with the mortgagor agreeing to reimburse the mortgagee for any sums
expended by the mortgagee on behalf of the mortgagor. All sums so expended by
the mortgagee become part of the indebtedness secured by the mortgage.
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The form of credit line trust deed or mortgage used by most institutional
lenders which make revolving home equity loans typically contains a "future
advance" clause, which provides, in essence, that additional amounts advanced to
or on behalf of the borrower by the beneficiary or lender are to be secured by
the deed of trust or mortgage. The priority of the lien securing any advance
made under the clause may depend in most states on whether the deed of trust or
mortgage is called and recorded as a credit line deed of trust or mortgage. If
the beneficiary or lender advances additional amounts, the advance is entitled
to receive the same priority as amounts initially advanced under the trust deed
or mortgage, notwithstanding the fact that there may be junior trust deeds or
mortgages and other liens which intervene between the date of recording of the
trust deed or mortgage and the date of the future advance, and notwithstanding
that the beneficiary or lender had actual knowledge of such intervening junior
trust deeds or mortgages and other liens at the time of the advance. In most
states, the trust deed or mortgage lien securing mortgage loans of the type
which includes revolving home equity credit lines applies retroactively to the
date of the original recording of the trust deed or mortgage, provided that the
total amount of advances under the home equity credit line does not exceed the
maximum specified principal amount of the recorded trust deed or mortgage,
except as to advances made after receipt by the lender of a written notice of
lien from a judgment lien creditor of the trustor.
Anti-Deficiency Legislation and Other Limitations on Lenders. Certain states
have imposed statutory prohibitions which limit the remedies of a beneficiary
under a deed of trust or a mortgagee under a mortgage. In some states, statutes
limit the right of the beneficiary or mortgagee to obtain a deficiency judgment
against the borrower following foreclosure or sale under a deed of trust. A
deficiency judgment is a personal judgment against the former borrower equal in
most cases to the difference between the net amount realized upon the public
sale of the real property and the amount due to the lender. Other statutes
require the beneficiary or mortgagee to exhaust the security afforded under a
deed of trust or mortgage by foreclosure in an attempt to satisfy the full debt
before bringing a personal action against the borrower. In certain other states,
the lender has the option of bringing a personal action against the borrower on
the debt without first exhausting such security; however, in some of these
states, the lender, following judgment on such personal action, may be deemed to
have elected a remedy and may be precluded from exercising remedies with respect
to the security. Consequently, the practical effect of the election requirement,
when applicable, is that lenders will usually proceed first against the security
rather than bringing a personal action against the borrower. Finally, other
statutory provisions limit any deficiency judgment against the former borrower
following a foreclosure 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 foreclosure sale.
In addition to laws limiting or prohibiting deficiency judgments, numerous
other statutory provisions, including the federal bankruptcy laws, the federal
Soldiers' and Sailors' Relief Act, and state laws affording relief to debtors,
may interfere with or affect the ability of the secured lender to realize upon
collateral and/or enforce a deficiency judgment. For example, with respect to
federal bankruptcy law, the filing of a petition acts as a stay against the
enforcement of remedies for collection of a debt. Moreover, a court with federal
bankruptcy jurisdiction may permit a debtor through a Chapter 13 Bankruptcy Code
rehabilitative plan to cure a monetary default with respect to a loan on a
debtor's residence by paying arrearages within a reasonable time period and
reinstating the original loan payment schedule even though the lender
accelerated the loan and the lender has taken all steps to realize upon his
security (provided no sale of the property has yet occurred) prior to the filing
of the debtor's Chapter 13 petition. Some courts with federal bankruptcy
jurisdiction have approved plans, based on the particular facts of the
reorganization case, that effected the curing of a loan default by permitting
the obligor to pay arrearages over a number of years.
Courts with federal bankruptcy jurisdiction have also indicated that the
terms of a mortgage loan may be modified if the borrower has filed a petition
under Chapter 13. These courts have suggested that
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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. In all cases, the secured creditor is entitled to the value of its
security plus post-petition interest, attorney's fees and costs to the extent
the value of the security exceeds the debt.
In a Chapter 11 case under the Bankruptcy Code, the lender is precluded from
foreclosing without authorization from the bankruptcy court. The lender's lien
may be transferred to other collateral and/or be limited in amount to the value
of the lender's interest in the collateral as of the date of the bankruptcy. The
loan term may be extended, the interest rate may be adjusted to market rates and
the priority of the loan may be subordinated to bankruptcy court-approved
financing. The bankruptcy court can, in effect, invalidate due-on-sale clauses
through confirmed Chapter 11 plans of reorganization.
The Bankruptcy Code provides priority to certain tax liens over the lender's
security. This may delay or interfere with the enforcement of rights in respect
of a defaulted Loan. In addition, substantive requirements are imposed upon
lenders in connection with the organization and the servicing of mortgage loans
by numerous federal and some state consumer protection laws. The laws include
the federal Truth in Lending Act, Real Estate Settlement Procedures Act, Equal
Credit Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act and
related statutes and regulations. These federal laws impose specific statutory
liabilities upon lenders who originate loans and who fail to comply with the
provisions of the law. In some cases, this liability may affect assignees of the
loans.
Due-on-Sale Clauses in Mortgage Loans. Due-on-sale clauses permit the lender
to accelerate the maturity of the loan if the borrower sells or transfers,
whether voluntarily or involuntarily, all or part of the real property securing
the loan without the lender's prior written consent. The enforceability of these
clauses has been the subject of legislation or litigation in many states, and in
some cases, typically involving single-family residential mortgage transactions,
their enforceability has been limited or denied. The Garn-St. Germain Sponsory
Institutions Act of 1982 (the "Garn-St. Germain Act") preempts state
constitutional, statutory and case law that prohibits the enforcement of
due-on-sale clauses and permits lenders to enforce these clauses in accordance
with their terms, subject to certain exceptions. As a result, due-on-sale
clauses have become generally enforceable except in those states whose
legislatures exercised their authority to regulate the enforceability of such
clauses with respect to mortgage loans that were (i) originated or assumed
during the "window period" under the Garn-St. Germain Act which ended in all
cases not later than October 15, 1982, and (ii) originated by lenders other than
national banks, federal savings institutions and federal credit unions. FHLMC
has taken the position in its published mortgage servicing standards that, out
of a total of eleven "window period states," five states (Arizona, Michigan,
Minnesota, New Mexico and Utah) have enacted statutes extending, on various
terms and for varying periods, the prohibition on enforcement of due-on-sale
clauses with respect to certain categories of "window period" loans. Also, 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.
In addition, under federal bankruptcy law, due-on-sale clauses may not be
enforceable in bankruptcy proceedings and may, under certain circumstances, be
eliminated in any modified mortgage resulting from such bankruptcy proceeding.
Enforceability of Prepayment and Late Payment Fees. Forms of notes,
mortgages and deeds of trust used by lenders may contain provisions obligating
the borrower to pay a late charge if payments are not timely made, and in some
circumstances may provide for prepayment fees or penalties if the obligation is
paid prior to maturity. In certain states, there are or may be specific
limitations upon the
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late charges which a lender may collect from a borrower for delinquent payments.
Certain states also limit the amounts that a lender may collect from a borrower
as an additional charge if the loan is prepaid. Late charges and prepayment fees
are typically retained by servicers as additional servicing compensation.
Equitable Limitations on Remedies. In connection with lenders' attempts to
realize upon their security, courts have invoked general equitable principles.
The equitable principles are generally designed to relieve the borrower from the
legal effect of the borrower's default under the loan documents. Such equitable
relief has included court-imposed requirements that the lender undertake
affirmative and sometimes costly actions to determine the causes of the
borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have required that lenders reinstate
loans or recast payment schedules in order to accommodate borrowers who are
suffering from temporary financial disability. In other cases, courts have
limited the right of a lender to realize upon its security if the default under
the security agreement is not monetary, such as the borrower's failure to
adequately maintain the property or the borrower's execution of secondary
financing affecting the property. Finally, some courts have considered whether
federal or state constitutional requirements of "due process" require that
borrowers under security agreements receive notices in addition to the
statutorily prescribed minimums. For the most part, these cases have upheld the
notice provisions as being reasonable or have found that, in cases involving the
sale by a trustee under a deed of trust or by a mortgagee under a mortgage
having a power of sale, there is insufficient state action to afford
constitutional protections to the borrower.
Most conventional single-family mortgage loans may be prepaid in full or in
part without penalty. The regulations of the Federal Home Loan Bank Board
prohibit the imposition of a prepayment penalty or equivalent fee for or in
connection with the acceleration of a loan by exercise of a due-on-sale clause.
A mortgagee to whom a prepayment in full has been tendered may be compelled to
give either a release of the mortgage or an instrument assigning the existing
mortgage. The absence of a restraint on prepayment, particularly with respect to
mortgage loans having higher mortgage rates, may increase the likelihood of
refinancing or other early retirements of such mortgage loans.
Applicability of Usury Laws. Title V of the Sponsory Institutions
Deregulation and Monetary Control Act of 1980, enacted in March 1980 ("Title
V"), provides that state usury limitations shall not apply to certain types of
residential first mortgage loans originated by certain lenders after March 31,
1980. Similar federal statutes were in effect with respect to mortgage loans
made during the first three months of 1980. The Federal Home Loan Bank Board is
authorized to issue rules and regulations and to publish interpretations
governing implementation of Title V. Title V authorizes any state to reimpose
interest rate limits by adopting, before April 1, 1983, a state law, or by
certifying that the voters of such state have voted in favor of any provision,
constitutional or otherwise, which expressly rejects an application of the
federal law. Fifteen states adopted such a law prior to the April 1, 1983
deadline. In addition, even where Title V is not so rejected, any state is
authorized by the law to adopt a provision limiting discount points or other
charges on mortgage loans covered by Title V.
THE HOME IMPROVEMENT CONTRACTS
General. Home Improvement Contracts that are secured by the Home
Improvements financed thereby grant to the originator of such contracts a
purchase money security interest in such Home Improvements to secure all or part
of the purchase price of such Home Improvements and related services. A
financing statement generally is not required to be filed to perfect a purchase
money security interest in consumer goods. Such purchase money security
interests are assignable. In general, a purchase money security interest grants
to the holder a security interest that has priority over a conflicting security
interest in the same collateral and the proceeds of such collateral. However, to
the extent that the collateral subject to a purchase money security interest
becomes a fixture, in order for the related purchase money security interest to
take priority over a conflicting interest in the fixture, the
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holder's interest in such collateral must generally be perfected by a timely
fixture filing. In general, under the Uniform Commercial Code (the "UCC"), a
security interest does not exist under the UCC in ordinary building material
incorporated into an improvement on land. Home Improvement Contracts that
finance lumber, bricks, other types of ordinary building material or other goods
that are deemed to lose such characterization, upon incorporation of such
materials into the related property, will not be secured by a purchase money
security interest in the Home Improvement being financed.
Enforcement of Security Interest in Home Improvements. So long as Home
Improvements have not become fixtures subject to real property laws, a creditor
can repossess Home Improvements securing a Home Improvement Contract by
voluntary surrender, by "self-help" repossession that is peaceful (i.e., without
breach of the peace) or, in the absence of voluntary surrender and the ability
to repossess without breach of the peace, by judicial process. The holder of
such a Home Improvement Contract must give the debtor a number of days' notice,
which varies from 10 to 30 days depending on the state, prior to commencement of
any repossession. The UCC and consumer protection laws in most states place
restrictions on repossession sales, including requiring prior notice to the
debtor and commercial reasonableness in effecting such a sale. The laws in most
states also require that the debtor be given notice of any sale prior to resale
of the unit so that the debtor may redeem it at or before such resale.
Under the laws applicable in most states, a creditor is entitled to obtain a
deficiency judgement from a debtor for any deficiency following repossession and
resale of the property securing the debtor's loan. However, some states impose
prohibitions or limitations on deficiency judgements, and in many cases the
defaulting borrower would have no assets with which to pay a judgement.
Certain other statutory provisions, including federal and state bankruptcy
and insolvency laws and general equitable principles may limit or delay the
ability of a lender to repossess and resell collateral or enforce a deficiency
judgment.
Consumer Protection Laws. The so-called "Holder-in-Due-Course" rule of the
Federal Trade Commission is intended to defeat the ability of the transferor of
a consumer credit contract, if such transferor is the seller of the goods which
gave rise to the transaction (and certain related lenders and assignees), to
transfer such contract free of notice of claims by the debtor thereunder. The
effect of the rule is to subject the assignee of such a contract to all claims
and defenses which the debtor could assert against the seller of goods.
Liability under this rule is limited to amounts paid under a contract; however,
the obligor also may be able to assert the rule to offset remaining amounts due
as a defense against a claim brought by the assignee against such obligor.
Numerous other federal and state consumer protection laws impose requirements
applicable to the Home Improvement Contracts, including the Truth in Lending
Act, the Federal Trade Commission Act, the Fair Credit Billing Act, the Fair
Credit Reporting Act, the Equal Credit Opportunity Act, the Fair Debt Collection
Practices Act and the Uniform Consumer Credit Code. In the case of some of these
laws, the failure to comply with their provisions may affect the enforceability
of the related contract.
Applicability of Usury Laws. Title V provides that, subject to certain
conditions, state usury limitations shall not apply to any contract which is
secured by a first lien on certain kinds of consumer goods. In the case of Home
Improvement Contracts secured by Home Improvements which have not become
fixtures, such conditions include, among other things, restrictions on
prepayment fees, late charges and deferral fees and a 30-day notice period prior
to instituting any action leading to repossession of the related unit.
Title V authorized any state to reimpose limitations on interest rates and
finance charges by adopting, before April 1, 1983, a law or constitutional
provision which expressly rejects application of the federal law. Fifteen states
adopted such a law prior to the April 1, 1983 deadline. In addition, even where
Title V was not so rejected, any state is authorized by the law to adopt a
provision limiting discount points or other charges on loans covered by Title V.
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INSTALLMENT CONTRACTS
The Loans may also consist of installment contracts (each, an "Installment
Contract"). Under an Installment Contract, the seller retains legal title to the
property and enters into an agreement with the purchaser for the payment of the
purchase price, plus interest, over the term of such contract. Only after full
performance by the purchaser of the contract is the seller obligated to convey
title to the property to the purchaser. As with mortgage or deed of trust
financing, during the term of the Installment Contract, the purchaser is
generally responsible for maintaining the property in good condition and for
paying real estate taxes, assessments and hazard insurance premiums associated
with the property.
The method of enforcing the rights of the seller under an Installment
Contract varies on a state-by-state basis depending upon the extent to which
state courts are willing, or able pursuant to state statute, to enforce the
contract strictly according to the terms. The terms of Installment Contracts
generally provide that upon a default by the purchaser, the purchaser loses his
or her right to occupy the property, the entire indebtedness is accelerated, and
the purchaser's equitable interest in the property is forfeited. The seller in
such a situation does not have to foreclose in order to obtain title to the
property, although in some cases, a quiet title action is in order if the
purchaser has filed the Installment Contract in local land records, and an
ejectment action may be necessary to recover possession. In a few states,
particularly in cases of a purchaser default during the early years of an
Installment Contract, the courts will permit ejectment of the purchaser and a
forfeiture of his or her interest in the property. However, most state
legislatures have enacted provisions by analogy to mortgage law protecting
purchasers under Installment Contracts from the harsh consequences of
forfeiture. Under such statutes, a judicial or nonjudicial foreclosure may be
required, the seller may be required to give notice of default, the purchaser
may be granted some grace period during which the Installment Contract may be
reinstated upon full payment of the default amount, and the purchaser may have a
post-foreclosure statutory redemption right. In other states, courts in equity
may permit a purchaser with significant investment in the property under an
Installment Contract for the sale of real estate to share in the proceeds of
sale of the property after the indebtedness is repaid or may otherwise refuse to
enforce the forfeiture clause. Nevertheless, generally speaking, the seller's
procedures for obtaining possession and clear title under an Installment
Contract in a given state are simpler and less time-consuming and costly than
are the procedures for foreclosing and obtaining clear title to a property
subject to one or more liens.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the Soldiers' and Sailors' Civil Relief Act of 1940, members of all
branches of the military on active duty, including draftees and reservists in
military service, (i) are entitled to have interest rates reduced and capped at
6% per annum, on obligations (including Loans) incurred prior to the
commencement of military service for the duration of military service, (ii) may
be entitled to a stay of proceedings on any kind of foreclosure or repossession
action in the case of defaults on such obligations entered into prior to
military service for the duration of military service and (iii) may have the
maturity of such obligations incurred prior to military service extended, the
payments lowered and the payment schedule readjusted for a period of time after
the completion of military service. However, the benefits of (i), (ii), or (iii)
above are subject to challenge by creditors, and if, in the opinion of the
court, the ability of a person to comply with such obligations is not materially
impaired by military service, the court may apply equitable principles
accordingly. If a borrower's obligation to repay amounts otherwise due on a Loan
included in a Trust Fund for a Series is relieved pursuant to the Soldiers' and
Sailors' Civil Relief Act of 1940, none of the Trust Fund, the Servicer, the
Sponsor nor the Trustee will be required to advance such amounts, and any loss
in respect thereof may reduce the amounts available to be paid to the Holders of
the Securities of such Series. Unless otherwise specified in the related
Prospectus Supplement, any shortfalls in interest collections on Loans included
in a Trust Fund for a Series resulting from application of the Soldiers' and
Sailors' Civil Relief Act of 1940 will be allocated to each Class of Securities
of such Series that is entitled to receive interest in respect of such Loans in
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proportion to the interest that each such Class of Securities would have
otherwise been entitled to receive in respect of such Loans had such interest
shortfall not occurred.
THE SPONSOR AND SERVICER
Accredited Home Lenders, Inc. ("Accredited"), is a California corporation
engaged primarily in the origination and sale of nonconforming mortgage loans.
Accredited commenced operations in 1990 as a retail mortgage broker, and now
operates primarily as a wholesale mortgage banker, funding mortgage loans to
borrowers who are direct clients of mortgage brokers or other mortgage lenders
with which Accredited cultivates and maintains relationships. Accredited also
purchases funded mortgage loans which have been originated by other lenders in
accordance with Accredited's underwriting guidelines or which have been
reunderwritten by Accredited to ensure conformance to Accredited's underwriting
criteria. Accredited currently funds or purchases mortgage loans in over twenty
different states.
In 1996, Accredited began retaining the servicing rights to its mortgage
loan production, but it currently subcontracts substantially all of its
servicing obligations.
Accredited's headquarters are located at 15030 Avenue of Science, Suite 100,
San Diego, California 92128, and its telephone number is (619) 676-2100.
The related Holders will not have the right to direct the day-to-day
operations of the Sponsor or of the Servicer with respect to the related
Mortgage Assets. The Holders or, if specified in the related Prospectus
Supplement, the related Credit Enhancer, will have the right to terminate the
Servicer in connection with a Servicer default. See "The Pooling and Servicing
Agreement--Events of Default; Rights Upon Events of Default".
USE OF PROCEEDS
The Sponsor will apply all or substantially all of the net proceeds from the
sale of each Series of Securities for one or more of the following purposes: (i)
to purchase the related Mortgage Assets, (ii) to repay indebtedness which has
been incurred to obtain funds to acquire such Mortgage Assets, (iii) to
establish any Reserve Funds described in the related Prospectus Supplement and
(iv) to pay costs of structuring and issuing such Securities, including the
costs of obtaining Credit Enhancement, if any.
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FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of the material anticipated federal
income tax considerations to investors of the purchase, ownership and
disposition of the Securities offered hereby. The discussion is based upon laws,
regulations, rulings and decisions now in effect, all of which are subject to
change. The discussion below does not purport to deal with all federal tax
considerations 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 Securities.
Dewey Ballantine, New York, New York, or other counsel specified in the
related Prospectus Supplement will serve as special tax counsel with respect to
each Series.
The following discussion addresses securities of three general types: (i)
securities ("Grantor Trust Securities") representing interests in a Trust Fund(a
"Grantor Trust Fund") which the Sponsor will covenant not to elect to have
treated as a real estate mortgage investment conduit (a "REMIC"); (ii)
securities ("REMIC Securities") representing interests in a Trust Fund, or a
portion thereof, which the Sponsor will covenant to elect to have treated as a
REMIC under Sections 860A through 860G of the Internal Revenue Code of 1986, as
amended (the "Code"); and (iii) securities ("Debt Securities") that are intended
to be treated for federal income tax purposes as indebtedness secured by the
Loans. This Prospectus does not address the tax treatment of partnership
interests. Such a discussion will be set forth in the related Prospectus
Supplement for any Trust Fund issuing Securities characterized as partnership
interests. The Prospectus Supplement for each Series of Securities will indicate
whether a REMIC election (or elections) will be made for the related Trust Fund
and, if a REMIC election is to be made, will identify all "regular interests"
and "residual interests" in the REMIC.
GRANTOR TRUST SECURITIES
With respect to each series of Grantor Trust Securities, special tax counsel
to the Sponsor will deliver its opinion to the Sponsor that (unless otherwise
limited in the related Prospectus Supplement) the related Grantor Trust Fund
will be classified as a grantor trust and not as a partnership or an association
taxable as a corporation. Accordingly, each Holder of a Grantor Trust Security
will generally be treated as the owner of an interest in the Loans included in
the Grantor Trust Fund.
For purposes of the following discussion, a Grantor Trust Security
representing an undivided equitable ownership interest in the principal of the
Loans constituting the related Grantor Trust Fund, together with interest
thereon at a pass-through rate, will be referred to as a "Grantor Trust
Fractional Security." A Grantor Trust Security representing ownership of all or
a portion of the difference between interest paid on the Loans constituting the
related Grantor Trust Fund and interest paid to the Holders of Grantor Trust
Fractional Interest Securities issued with respect to such Grantor Trust Fund
will be referred to as a "Grantor Trust Strip Security."
SPECIAL TAX ATTRIBUTES
Special tax counsel to the Sponsor will deliver its opinion to the Sponsor
that (a) Grantor Trust Fractional Interest Securities will represent interests
in (i) "qualifying real property loans" within the meaning of Section 593(d) of
the Code; (ii) "loans . . . secured by an interest in real property" within the
meaning of Section 7701(a)(19)(C)(v) of the Code; and (iii) "obligation[s]
(including any participation or certificate of beneficial ownership therein)
which . . . [are] principally secured by an interest in real property" within
the meaning of Section 860G(a)(3)(A) of the Code; and (b) interest on Grantor
Trust Fractional Interest Securities will be considered "interest on obligations
secured by mortgages on real property or on interests in real property" within
the meaning of Section 856(c)(3)(B) of the Code. In addition, the Grantor Trust
Strip Securities will be "obligation[s] (including any participation or
certificate of beneficial ownership therein) . . . principally secured by an
interest in real property" within the meaning of Section 960G(a)(3)(A) of the
Code.
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TAXATION OF HOLDERS OF GRANTOR TRUST SECURITIES
Holders of Grantor Trust Fractional Interest Securities generally will be
required to report on their federal income tax returns their respective shares
of the income from the Loans (including amounts used to pay reasonable servicing
fees and other expenses but excluding amounts payable to Holders of any
corresponding Grantor Trust Strip Securities) and, subject to the limitations
described below, will be entitled to deduct their shares of any such reasonable
servicing fees and other expenses. If a Holder acquires a Grantor Trust
Fractional Interest Security for an amount that differs from its outstanding
principal amount, the amount includible in income on a Grantor Trust Fractional
Interest Security may differ from the amount of interest distributable thereon.
See "Federal Income Tax Considerations-- Discount and Premium". Individuals
holding a Grantor Trust Fractional Interest Security directly or through certain
pass-through entities will be allowed a deduction for such reasonable servicing
fees and expense only to the extent that the aggregate of such Holder's
miscellaneous itemized deductions exceeds 2% of such Holder's adjusted gross
income. Further, Holders (other than corporations) subject to the alternative
minimum tax may not deduct miscellaneous itemized deductions in determining
alternative minimum taxable income.
Holders of Grantor Trust Strip Securities generally will be required to
treat such Securities as "stripped coupons" under Section 1286 of the Code.
Accordingly, such a Holder will be required to treat the excess of the total
amount of payments on such a Security over the amount paid for such Security as
original issue discount and to include such discount in income as it accrues
over the life of such Security. See "Federal Income Tax Considerations--Discount
and Premium".
Grantor Trust Fractional Interest Securities may also be subject to the
coupon stripping rules if a Class of Grantor Trust Strip Securities is issued as
part of the same Series of Securities. The consequences of the application of
the coupon stripping rules would appear to be that any discount arising upon the
purchase of such a Security (and perhaps all stated interest thereon) would be
classified as original issue discount and includible in the Holder's income as
it accrues (regardless of the Holder's method of accounting), as described below
under "Federal Income Tax Considerations--Discount and Premium." The coupon
stripping rules will not apply, however, if (i) the pass-through rate is no more
than 100 basis points lower than the gross rate of interest payable on the
related Loans and (ii) the difference between the outstanding principal balance
on the Security and the amount paid for such Security is less than 0.25% of such
principal balance times the weighted average remaining maturity of the Security.
SALES OF GRANTOR TRUST SECURITIES
Any gain or loss recognized on the sale of a Grantor Trust Security (equal
to the difference between the amount realized on the sale and the adjusted basis
of such Grantor Trust Security) will be capital gain or loss, except to the
extent of accrued and unrecognized market discount, which will be treated as
ordinary income, and in the case of banks and other financial institutions
except as provided under Section 582(c) of the Code. The adjusted basis of a
Grantor Trust Security will generally equal its cost, increased by any income
reported by the seller (including original issue discount and market discount
income) and reduced (but not below zero) by any previously reported losses, any
amortized premium and by any distributions of principal.
GRANTOR TRUST REPORTING
The related Trustee will furnish to each Holder of a Grantor Trust
Fractional Interest Security with each distribution a statement setting forth
the amount of such distribution allocable to principal on the Loans and to
interest thereon at the rate at which interest is payable on such Security. In
addition, within a reasonable time after the end of each calendar year, based on
information provided by the Servicer, the related Trustee will furnish to each
Holder during such year such customary factual information as the Servicer deems
necessary or desirable to enable Holders of Grantor Trust Securities
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to prepare their tax returns and will furnish comparable information to the
Internal Revenue Service (the "IRS") as and when required to do so by law.
REMIC SECURITIES
If provided in a related Prospectus Supplement, an election will be made to
treat a Trust Fund as a REMIC under the Code. Qualification as a REMIC requires
ongoing compliance with certain conditions. With respect to each Series of
Securities for which such an election is made, special tax counsel to the
Sponsor will deliver its opinion to the Sponsor that (unless otherwise limited
in the related Prospectus Supplement), assuming compliance with the Pooling and
Servicing Agreement, the Trust Fund will be treated as a REMIC for federal
income tax purposes. A Trust Fund for which a REMIC election is made will be
referred to herein as a "REMIC Trust." The Securities of each class will be
designated as "regular interests" in the REMIC Trust except that a separate
class will be designated as the "residual interest" in the REMIC Trust. The
Prospectus Supplement for each series of Securities will state whether
Securities of each Class will constitute a regular interest (a "REMIC Regular
Security") or a residual interest (a "REMIC Residual Security").
A REMIC Trust will not be subject to federal income tax except with respect
to income from prohibited transactions and in certain other instances described
below. See "--Taxes on a REMIC Trust." Generally, the total income from the
Loans in a REMIC Trust will be taxable to the Holders of the Securities of that
Series, as described below.
Regulations issued by the Treasury Department on December 23, 1992 (the
"REMIC Regulations") provide some guidance regarding the federal income tax
consequences associated with the purchase, ownership and disposition of REMIC
Securities. While certain material provisions of the REMIC Regulations are
discussed below, investors should consult their own tax advisors regarding the
possible application of the REMIC Regulations in their specific circumstances.
SPECIAL TAX ATTRIBUTES
REMIC Regular Securities and REMIC Residual Securities will be "regular or
residual interests in a REMIC" within the meaning of Section 7701(a)(19)(C)(xi)
of the Code, "qualifying real property loans" within the meaning of Section
593(d) of the Code and "real estate assets" within the meaning of Section
856(c)(5)(A) of the Code. If at any time during a calendar year less than 95% of
the assets of a REMIC Trust consist of "qualified mortgages" (within the meaning
of Section 860G(a)(3) of the Code) then the portion of the REMIC Regular
Securities and REMIC Residual Securities that are qualifying assets under those
Sections during such calendar year may be limited to the portion of the assets
of such REMIC Trust that are qualified mortgages. Similarly, income on the REMIC
Regular Securities and REMIC Residual Securities will be treated as "interest on
obligations secured by mortgages on real property" within the meaning of Section
856(c)(3)(B) of the Code, subject to the same limitation as set forth in the
preceding sentence. For purposes of applying this limitation, a REMIC Trust
should be treated as owning the assets represented by the qualified mortgages.
REMIC Regular Securities and REMIC Residual securities held by a financial
institution to with Section 585, 586 or 593 of the Code applies will be treated
as evidences of indebtedness for purposes of Section 582(c)(1) of the Code.
REMIC Regular Securities will also be qualified mortgages with respect to other
REMICs.
TAXATION OF HOLDERS OF REMIC REGULAR SECURITIES
Except as indicated below in this federal income tax discussion, the REMIC
Regular Securities will be treated for federal income tax purposes as debt
instruments issued by the REMIC Trust on the date such Securities are first sold
to the public (the "Closing Date") and not as ownership interests in the REMIC
Trust or its assets. Holders of REMIC Regular Securities that otherwise report
income under a cash method of accounting will be required to report income with
respect to such Securities under an accrual method. For additional tax
consequences relating to REMIC Regular Securities
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purchased at a discount or with premium, see "Federal Income Tax
Considerations--Discount and Premium," below.
TAXATION OF HOLDERS OF REMIC RESIDUAL SECURITIES
Daily Portions. Except as indicated below, a Holder of a REMIC Residual
Security for a REMIC Trust generally will be required to report its daily
portion of the taxable income or net loss of the REMIC Trust for each day during
a calendar quarter that the Holder owned such REMIC Residual Security. For this
purpose, the daily portion shall be determined by allocating to each day in the
calendar quarter its ratable portion of the taxable income or net loss of the
REMIC Trust for such quarter and by allocating the amount so allocated among all
related Holders of REMIC Residual Securities (on such day) in accordance with
their percentage interests on such day. Any amount included in the gross income
or allowed as a loss of any Holder of a REMIC Residual Security by virtue of
this paragraph will be treated as ordinary income or loss.
The requirement that each Holder of a REMIC Residual Security report its
daily portion of the taxable income or net loss of the REMIC Trust will continue
until there are no Securities of any related Class outstanding, even though the
Holder of the REMIC Residual Security may have received full payment of the
stated interest and principal on its REMIC Residual Security.
The Trustee will provide to Holders of REMIC Residual Securities of each
Series of Securities (i) such information as is necessary to enable them to
prepare their federal income tax returns and (ii) any reports regarding the
Securities of such Series that may be required under the Code.
Taxable Income or Net Loss of a REMIC Trust. The taxable income or net loss
of a REMIC Trust will be the income from the qualified mortgages it holds and
any reinvestment earnings less deductions allowed to the REMIC Trust. Such
taxable income or net loss for a given calendar quarter will be determined in
the same manner as for an individual having the calendar year as the taxable
year and using the accrual method of accounting, with certain modifications.
First, a deduction will be allowed for accruals of interest (including any
original issue discount, but without regard to the investment interest
limitation in Section 163(d) of the Code) on the REMIC Regular Securities (but
not the REMIC Residual securities), even though REMIC Regular Securities are for
non-tax purposes evidences of beneficial ownership rather than indebtedness of a
REMIC Trust. Second, market discount or premium equal to the difference between
the total stated principal balances of the qualified mortgages and the basis of
the REMIC Trust therein generally will be included in income (in the case of
discount) or deductible (in the case of premium) by the REMIC Trust as it
accrues under a constant yield method, taking into account the "Prepayment
Assumption" (as defined in the related Prospectus Supplement, see "Federal
Income Tax Considerations--Discount and Premium--Original Issue Discount,"
below). The basis of a REMIC Trust in the qualified mortgages is the aggregate
of the issue prices of all the REMIC Regular Securities and REMIC Residual
Securities in the REMIC Trust on the related Closing Date. If, however, a
substantial amount of a Class of REMIC Regular Securities or REMIC Residual
Securities has not been sold to the public, then the fair market value of all
the REMIC Regular Securities or REMIC Residual Securities in that Class as of
the related Closing Date should be substituted for the issue price.
Third, no item of income, gain, loss or deduction allocable to a prohibited
transaction (see "Federal Income Tax Considerations--REMIC Securities--Taxes on
a REMIC Trust--Prohibited Transactions") will be taken into account. Fourth, a
REMIC Trust generally may not deduct any item that would not be allowed in
calculating the taxable income of a partnership by virtue of Section 703(a)(2)
of the Code. Finally, the limitation on miscellaneous itemized deductions
imposed on individuals by Section 67 of the Code will not be applied at the
REMIC Trust level to any servicing and guaranty fees (see, however,
"--Pass-Through of Servicing and Guaranty fees to Individuals"). In addition,
under the REMIC Regulations, any expenses that are incurred in connection with
the formation of a REMIC Trust and the issuance of the REMIC Regular Securities
and REMIC Residual Securities are not treated as expenses of the REMIC Trust for
which a deduction is allowed. If the deductions allowed to a
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REMIC Trust exceed its gross income for a calendar quarter, such excess will be
a net loss for the REMIC Trust for that calendar quarter. The REMIC Regulations
also provide that any gain or loss to a REMIC Trust from the disposition of any
asset, including a qualified mortgage or "permitted investment" (as defined in
Section 860G(a)(5) of the Code) will be treated as ordinary gain or loss.
A Holder of a REMIC Residual Security may be required to recognize taxable
income without being entitled to receive a corresponding amount of cash. This
could occur, for example, if the qualified mortgages are considered to be
purchased by the REMIC Trust at a discount, some or all of the REMIC Regular
Securities are issued at a discount, and the discount included as a result of a
prepayment on a Loan that is used to pay principal on the REMIC Regular
Securities exceeds the REMIC Trust's deduction for unaccrued original issue
discount relating to such REMIC Regular Securities. Taxable income may also be
greater in earlier years because interest expense deductions, expressed as a
percentage of the outstanding principal amount of the REMIC Regular Securities,
may increase over time as the earlier classes of REMIC Regular Securities are
paid, whereas interest income with respect to any given Loan expressed as a
percentage of the outstanding principal amount of that Loan, will remain
constant over time.
Basis Rules and Distributions. A Holder of a REMIC Residual security has an
initial basis in its Security equal to the amount paid for such REMIC Residual
Security. Such basis is increased by amounts included in the income of the
Holder and decreased by distributions and by any net loss taken into account
with respect to such REMIC Residual Security. A distribution on a REMIC Residual
Security to a Holder is not included in gross income to the extent it does not
exceed such Holder's basis in the REMIC Residual Security (adjusted as described
above) and, to the extent it exceeds the adjusted basis of the REMIC Residual
Security, shall be treated as gain from the sale of the REMIC Residual Security.
A Holder of a REMIC Residual Security is not allowed to take into account
any net loss for any calendar quarter to the extent such net loss exceeds such
Holder's adjusted basis in its REMIC Residual Security as of the close of such
calendar quarter (determined without regard to such net loss). Any loss
disallowed by reason of this limitation may be carried forward indefinitely to
future calendar quarters and, subject to the same limitation, may be used only
to offset income from the REMIC Residual Security.
Excess Inclusions. Any "excess inclusions" with respect to a REMIC Residual
Security are subject to certain special tax rules. With respect to a Holder of a
REMIC Residual Security, the "excess inclusions" for any calendar quarter is
defined as the excess (if any) of the daily portions of taxable income over the
sum of the "daily accruals" for each day during such quarter that such REMIC
Residual Security was held by such Holder. The "daily accruals" are determined
by allocating to each day during a calendar quarter its ratable portion of the
product of the "adjusted issue price" of the REMIC Residual Security at the
beginning of the calendar quarter and 120% of the "federal long-term rate" in
effect on the related Closing Date, based on quarterly compounding and properly
adjusted for the length of such quarter. For this purpose, the "adjusted issue
price" of a REMIC Residual Security as of the beginning of any calendar quarter
is equal to the "issue price" of the REMIC Residual Security, increased by the
amount of daily accruals for all prior quarters and decreased by any
distributions made with respect to such REMIC Residual Security before the
beginning of such quarter. The "issue price" of a REMIC Residual Security is the
initial offering price to the public (excluding bond houses and brokers) at
which a substantial number of the REMIC Residual Security was sold. The "federal
long-term rate" is a blend of current yields on Treasury securities having a
maturity of more than nine years, computed and published monthly by the IRS.
For Holders of REMIC Residual Securities that are thrift institutions
described in Section 593 of the Code, income from a REMIC Residual Security
generally may be offset by losses from other activities. Under the REMIC
Regulations, such an organization is treated as having applied its allowable
deductions for the year first to offset income that is not an excess inclusion
and then to offset
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that portion of its income that is an excess inclusion. For other Holders of
REMIC Residual Securities, any excess inclusions cannot be offset by losses from
other activities. For Holders that are subject to tax only on unrelated business
taxable income (as defined in Section 511 of the Code), an excess inclusion of
such Holder is treated as unrelated business taxable income. With respect to
variable contracts (within the meaning of Section 817 of the Code), a life
insurance company cannot adjust its reserve to the extent of any excess
inclusion, except as provided in regulations. The REMIC Regulations indicate
that if a Holder of a REMIC Residual Security is a member of an affiliated group
filing a consolidated income tax return, the taxable income of the affiliated
group cannot be less than the sum of the excess inclusions attributable to all
residual interests in REMICS held by members of the affiliated group. For a
discussion of the effect of excess inclusions on certain foreign investors that
own REMIC Residual Securities, see "Federal Income Tax Considerations--Foreign
Investors" below.
The REMIC Regulations provide that an organization to which Section 593 of
the Code applies and which is the Holder of a REMIC Residual Security may not
use its allowable deductions to offset any excess inclusions with respect to
such Security if such Security does not have "significant value." For this
purpose, a REMIC Residual Security has "significant value" under the REMIC
Regulations if (i) its issue price is at least 2% of the aggregate of the issue
prices of all the REMIC Regular Securities and REMIC Residual Securities in that
REMIC Trust and (ii) its "anticipated weighted average life" is at least 20% of
the anticipated weighted average life of such REMIC Trust.
In determining whether a REMIC Residual Security has significant value, the
"anticipated weighted average life" of such Security is based in part on the
Prepayment Assumption, except that all anticipated payments on such Security are
taken into account, regardless to their designation as principal or interest.
The anticipated weighted average life of a REMIC Trust is the weighted average
of the anticipated weighted average lives of the Securities.
The Treasury Department also has the authority to issue regulations that
would treat all taxable income of a REMIC Trust as excess inclusions if the
REMIC Residual Security does not have significant value. Although the Treasury
Department did not exercise this authority in the REMIC Regulations, future
regulations may contain such a rule. If such a rule were adopted, it is unclear
whether the test for significant value that is contained in the REMIC
Regulations and discussed in the two preceding paragraphs would be applicable.
If no such rule is applicable, excess inclusions would be calculated as
discussed above.
In the case of any REMIC Residual Securities that are held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Securities reduced (but not below zero) by the real estate investment
trust taxable income (within the meaning of Section 857(b)(2) of the Code,
excluding any net capital gain) will be allocated among the shareholders of such
trust in proportion to the dividends received by such shareholders from such
trust, and any amount so allocated will be treated as an excess inclusion with
respect to a REMIC Residual Security as if held directly by such shareholder.
Similar rules will apply in the case of regulated investment companies, common
trust funds and certain cooperatives that hold a REMIC Residual Security.
Pass-Through of Servicing and Guaranty Fees to Individuals. A Holder of a
REMIC Residual Security who is an individual will be required to include in
income a share of any servicing and guaranty fees. A deduction for such fees
will be allowed to such Holder only to the extent that such fees, along with
certain of such Holder's other miscellaneous itemized deductions exceed 2% of
such Holder's adjusted gross income. In addition, a Holder of a REMIC Residual
Security may not be able to deduct any portion of such fees in computing such
Holder's alternative minimum tax liability. A Holder's share of such fees will
generally be determined by (i) allocating the amount of such expenses for each
calendar quarter on a pro rata basis to each day in the calendar quarter, and
(ii) allocating the daily amount among the Holders in proportion to their
respective holdings on such day.
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TAXES ON A REMIC TRUST
Prohibited Transactions. The Code imposes a tax on a REMIC equal to 100% of
the net income derived from "prohibited transactions." In general, a "prohibited
transaction" means the disposition of a qualified mortgage other than pursuant
to certain specified exceptions, the receipt of investment income from a source
other than a qualified mortgage or certain other permitted investments, the
receipt of compensation for services, or the disposition of an asset purchased
with payments on qualified mortgages for temporary investment pending
distributions on the regular and residual interests.
Contributions to a REMIC after the Startup Day. The Code imposes a tax on a
REMIC equal to 100% of the value of any property contributed to the REMIC after
the "startup day" (generally the same as the related Closing Date). Exceptions
are provided for cash contributions to a REMIC (i) during the three-month period
beginning on the startup day, (ii) made to a qualified reserve fund by a Holder
of a residual interest, (iii) in the nature of a guarantee, (iv) made to
facilitate a qualified liquidation or clean-up call, and (v) as otherwise
permitted by Treasury regulations.
Net Income from Foreclosure Property. The Code imposes a tax on a REMIC
equal to the highest corporate rate on "net income from foreclosure property."
The terms "foreclosure property" (which includes property acquired by deed in
lieu of foreclosure) and "net income from foreclosure property" are defined by
reference to the rules applicable to real estate investment trusts. Generally,
foreclosure property would be treated as such for a period of two years, with
possible extensions. Net income from foreclosure property generally means gain
from the sale of foreclosure property that is inventory property and gross
income from foreclosure property other than qualifying rents and other
qualifying income for a real estate investment trust.
SALES OF REMIC SECURITIES
General. Except as provided below, if a REMIC Regular or Residual Security
is sold, the seller will recognize gain or loss equal to the difference between
the amount realized on the sale and its "adjusted basis" in the Security. The
"adjusted basis" of a REMIC Regular Security generally will equal the cost of
such Security to the seller, increased by any original issue discount or market
discount included in the seller's gross income with respect to such Security and
reduced by distribution on such Security previously received by the seller of
amounts included in the stated redemption price at maturity and by any premium
that has reduced the seller's interest income with respect to such Security. See
"Federal Income Tax Considerations--Discount and Premium". The adjusted basis of
a REMIC Residual Security is determined as described above under "Federal Income
Tax Considerations--REMIC Securities--Taxation of Holder of REMIC Residual
Securities--Basis Rules and Distributions". Except as provided in the following
paragraphs or under Section 582(c) of the Code, any such gain or loss will be
capital gain or loss, provided such Security is held as a "capital asset"
(generally, property held for investment) within the meaning of Section 1221 of
the Code. Section 1221 of the Code provides that capital gain or loss can be
recognized only if there has been a sale or exchange of a capital asset. Capital
assets include all property except inventory and property held primarily for
sale, depreciable property, receivables acquired in the ordinary course of
business, and certain government obligations.
Gains from the sale of a REMIC 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 income of the Holder of a REMIC Regular Security had income
accrued at a rate equal to 110% of the "applicable federal rate" (generally, an
average of current yields on Treasury securities) as of the date of purchase
over (ii) the amount actually includible in such Holder's income. In addition,
gain recognized on such a sale by a Holder of a REMIC Regular Security who
purchased such a Security at a market discount would also be taxable as ordinary
income in an amount not exceeding the portion of such discount that accrued
during the period such Security was held by such Holder, reduced by any market
discount includible in income under the rules described below under "Federal
Income Tax Considerations--Discount and Premium".
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If a Holder of a REMIC Residual Security sells such Security at a loss, the
loss will not be recognized if, within six months before or after the sale of
the REMIC Residual Security, such Holder purchases another residual interest in
any REMIC or any interest in a taxable mortgage pool (as defined in Section
7701(i) of the Code) comparable to a residual interest in a REMIC. Such
disallowed loss would be allowed upon the sale of the other residual interest
(or comparable interest) if the rule referred to in the preceding sentence does
not apply to that sale. While this rule may be modified by Treasury regulations,
to date such regulations have not been published.
Transfer of REMIC Residual Securities. Section 860E(c) of the Code imposes a
substantial tax, payable by the transferor (or, if a transfer is through a
broker, nominee or other middleman as the transferee's agent, payable by that
agent) upon any transfer of a REMIC Residual Security to a "disqualified
organization" and upon a pass-through entity (including regulated investment
companies, real estate investment trusts, common trust funds, partnerships,
trusts, estates, certain cooperatives, and nominees) that owns a REMIC Residual
Security if such pass-through entity has a disqualified organization as a
record-holder. For purposes of the preceding sentence, a transfer includes any
transfer of record or beneficial ownership, whether pursuant to a purchase, a
default under a secured lending agreement or otherwise.
The term "disqualified organization" includes the United States, any state
or political subdivision thereof, any foreign government, any international
organization, or any agency or instrumentality of the foregoing (other than
certain taxable instrumentalities), any cooperative organization furnishing
electric energy or providing telephone service to persons in rural areas, or any
organization (other than a farmers' cooperative) that is exempt from federal
income tax, unless such organization is subject to the tax on unrelated business
income. Moreover, an entity will not qualify as a REMIC unless there are
reasonable arrangements designed to ensure that (i) residual interests in such
entity are not held by disqualified organizations and (ii) information necessary
for the application of the tax described herein will be made available.
Restrictions on the transfer of a REMIC Residual Security and certain other
provisions that are intended to meet this requirement will be described in the
related Pooling and Servicing Agreement, and will be discussed more fully in the
related Prospectus Supplement relating to the offering of any REMIC Residual
Security. In addition, a pass-through entity (including a nominee) that holds a
REMIC Residual Security may be subject to additional taxes if a disqualified
organization is a record-holder therein. A transferor of a REMIC Residual
Security (or an agent of a transferee of a REMIC Residual Security, as the case
may be) will be relieved of such tax liability with respect to a transfer if (i)
the transferee furnishes to the transferor an affidavit that the transferee is
not a disqualified organization, and (ii) the transferor (or the transferee's
agent) does not have actual knowledge that the affidavit is false at the time of
the transfer. Similarly, no such tax will be imposed on a pass-through entity
for a period with respect to an interest therein owned by a disqualified
organization if (i) the record-holder of such interest furnishes to the
pass-through entity an affidavit that it is not a disqualified organization, and
(ii) during such period, the pass-through entity has no actual knowledge that
the affidavit is false.
Under the REMIC Regulations, a transfer of a "noneconomic residual interest"
to a U.S. Person (as defined below under "Federal Income Tax
Considerations--Foreign Investors--Grantor Trust Securities and REMIC Regular
Securities") will be disregarded for all federal tax purposes unless no
significant purpose of the transfer is to impede the assessment or collection of
tax. A REMIC Residual Security would be treated as constituting a "noneconomic
residual interest" unless, at the time of the transfer, (i) the present value of
the expected future distributions on the REMIC Residual Securities is no less
than the product of the present value of the "anticipated excess inclusions"
with respect to such Security and the highest corporate rate of tax for the year
in which the transfer occurs, and (ii) the transferor reasonably expects that
the transferee will receive distributions from the applicable REMIC Trust in an
amount sufficient to satisfy the liability for income tax on any excess
inclusions at or after the time when such liability accrues. "Anticipated excess
inclusions" are the excess inclusions that are anticipated to be allocated to
each calendar quarter (or portion thereof) following the transfer of a
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REMIC Residual Security, determined as of the date such Security is transferred
and based on events that have occurred as of that date and on the Prepayment
Assumption. See "Federal Income Tax Considerations--Discount and Premium" and
"Federal Income Tax Considerations--REMIC Securities--Taxation of Holders of
REMIC Residual Securities--Excess Inclusions".
The REMIC Regulations provide that a significant purpose to impede the
assessment or collection of tax exists if, at the time of the transfer, a
transferor of a REMIC Residual Security has "improper knowledge" (i.e., either
knew, or should have known, that the transferee would be unwilling or unable to
pay taxes due on its share of the taxable income of the REMIC Trust). A
transferor is presumed not to have improper knowledge if (i) the transferor
conducts, at the time of a transfer, a reasonable investigation of the financial
condition of the transferee and, as a result of the investigation, the
transferor finds that the transferee has historically paid its debts as they
come due and finds no significant evidence to indicate that the transferee will
not continue to pay its debts as they come due in the future, and (ii) the
transferee makes certain representations to the transferor in the affidavit
relating to disqualified organizations discussed above. Transferors of a REMIC
Residual Security should consult with their own tax advisors for further
information regarding such transfers.
REPORTING AND OTHER ADMINISTRATIVE MATTERS.
For purposes of the administrative provisions of the Code, each REMIC Trust
will be treated as a partnership and the Holders of REMIC Residual Securities
will be treated as partners. Unless otherwise specified in the related
Prospectus Supplement, the related Trustee will prepare, sign and file federal
income tax returns for each REMIC Trust, which returns are subject to audit by
the IRS. Moreover, within a reasonable time after the end of each calendar year,
the related Trustee will furnish to each Holder that received a distribution
during such year a statement setting forth the portions of any such
distributions that constitute interest distributions, original issue discount,
and such other information as is required by Treasury regulations and, with
respect to Holders of REMIC Residual Securities in a REMIC Trust, information
necessary to compute the daily portions of the taxable income (or net loss) of
such REMIC Trust for each day during such year. Unless otherwise specified in
the related Prospectus Supplement, the Trustee will also act as the tax matters
partner for each REMIC Trust, either in its capacity as a Holder of a REMIC
Residual Security or in a fiduciary capacity. Each Holder of a REMIC Residual
Security, by the acceptance of its REMIC Residual Security, will be agreeing
that the Trustee will act as its fiduciary in the performance of any duties
required of it in the event that it is the tax matters partner.
Each Holder of a REMIC Residual Security is required to treat items on its
return consistently with the treatment on the return of the REMIC Trust, unless
the Holder either files a statement identifying the inconsistency or establishes
that the inconsistency resulted from incorrect information received from the
REMIC Trust. The IRS may assert a deficiency resulting from a failure to comply
with the consistency requirement without instituting an administrative
proceeding at the REMIC Trust level. Unless otherwise specified in the related
Prospectus Supplement, the Trustee does not intend to register any REMIC Trust
as a tax shelter pursuant to Section 6111 of the Code.
TERMINATION
In general, no special tax consequences will apply to a Holder of a REMIC
Regular Security upon the termination of a REMIC Trust by virtue of the final
payment or liquidation of the last of the Mortgage Assets remaining in the Trust
Fund. If a Holder's adjusted basis in its REMIC Residual Security at the time
such termination occurs exceeds the amount of cash distributed to such Holder in
liquidation of its interest, although the matter is not entirely free from
doubt, it would appear that the Holder of the REMIC Residual Security is
entitled to a loss equal to the amount of such excess.
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DEBT SECURITIES
GENERAL
With respect to each Series of Debt Securities, special tax counsel to the
Sponsor will deliver its opinion to the Sponsor that (unless otherwise limited
in the related Prospectus Supplement ) the Securities will be classified as debt
of the Sponsor secured by the related Loans. Consequently, the Debt Securities
will not be treated as ownership interests in the Loans or the Trust Fund.
Holders will be required to report income received with respect to the Debt
Securities in accordance with their normal method of accounting. For additional
tax consequences relating to Debt Securities purchased at a discount or with
premium, see "Federal Income Tax Considerations--Discount and Premium," below.
SPECIAL TAX ATTRIBUTES
As described above, Grantor Trust Securities will possess certain special
tax attributes by virtue of their being ownership interests in the related
Loans. Similarly, REMIC Securities will possess similar attributes by virtue of
the REMIC provisions of the Code. In general, Debt Securities will not possess
such special tax attributes. Investors to whom such attributes are important
should consult their own tax advisors regarding investment in Debt Securities.
SALE OR EXCHANGE
If a Holder of a Debt Security sells or exchanges such Security, the Holder
will recognize gain or loss equal to the difference, if any, between the amount
received and the Holder's adjusted basis in the Security. The adjusted basis in
the Security 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 Security and reduced by the payments previously
received on the Security, other than payments of qualified stated interest, and
by any amortized premium.
In general (except as described under "Federal Income Tax
Considerations--Discount and Premium--Market Discount," below), except for
certain financial institutions subject to Section 582(c) of the Code, any gain
or loss on the sale or exchange of a Debt Security recognized by a Holder who
holds the Security as a capital asset (within the meaning of Section 1221 of the
Code), will be capital gain or loss and will be long-term or short-term
depending on whether the Security has been held for more than one year.
DISCOUNT AND PREMIUM
A Security purchased for an amount other than its outstanding principal
amount will be subject to the rules governing original issue discount, market
discount or premium. In addition, all Grantor Trust Strip Securities and certain
Grantor Trust Fractional Interest Securities will be treated as having original
issue discount by virtue of the coupon stripping rules in Section 1286 of the
Code. In very general terms, (i) original issue discount is treated as a form of
interest and must be included in a Holder's income as it accrues (regardless of
the Holder's regular method of accounting) using a constant yield method; (ii)
market discount is treated as ordinary income and must be included in a Holder's
income as principal payments are made on the Security (or upon a sale of a
Security); and, (iii) if a Holder so elects, premium may be amortized over the
life of the Security and offset against inclusions of interest income. These tax
consequences are discussed in greater detail below.
ORIGINAL ISSUE DISCOUNT
In general, a Security will be considered to be issued with original issue
discount equal to the excess, if any, of its "stated redemption price at
maturity" over its "issue price." The "issue price" of a Security is the initial
offering price to the public (excluding bond houses and brokers) at which a
substantial number of the Securities was sold. The issue price also includes any
accrued interest attributable to the period between the beginning of the first
remittance period and the related Closing Date. The stated redemption price at
maturity of a Security that has a notional principal amount or
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receives principal only, or that is or may be a Security with respect to which
certain accrued interest is not distributed but added to the principal or
notional amount, is equal to the sum of all distributions to be made under such
Security. The "stated redemption price at maturity" of any other Security is its
stated principal amount, plus an amount equal to the excess (if any) of the
interest payable on the first Distribution Date for the Security over the
interest that accrues for the period from the related Closing Date to such first
Distribution Date.
Notwithstanding the general definition, original issue discount will be
treated as zero if such discount is less than 0.25 % of the stated redemption
price at maturity multiplied by its weighted average life. The weighted average
life of a Security is apparently computed for this purpose as the sum, for all
distributions included in the stated redemption price at maturity of the amounts
determined by multiplying (i) the number of complete years (rounding down for
partial years) from the related Closing Date until the date on which each such
distribution is expected to be made under the assumption that the Loans prepay
at the rate specified in the related Prospectus Supplement (the "Prepayment
Assumption"), by (ii) a fraction, the numerator of which is the amount of such
distribution and the denominator of which is the Security's stated redemption
price at maturity. If original issue discount is treated as zero under this
rule, the actual amount of original issue discount must be allocated to the
principal distributions on the Security and, when each such distribution is
received, gain equal to the discount allocated to such distribution will be
recognized.
Section 1272(a)(6) of the Code contains special original issue discount
rules directly applicable to REMIC Securities and Debt Securities and applicable
by analogy to Grantor Trust Securities. Investors in Grantor Trust Securities
should be aware that there can be no assurance that the rules described below
will be applied to such Securities. In particular with respect to Grantor Trust
Strip Securities, on June 12, 1996 the Treasury issued regulations concerning
the tax treatment of debt instruments that provide for one or more contingent
payments (the "Contingent Payment Regulations"). Investors should be aware that
while the Contingent Payment Regulations do not specifically address the
taxation of Grantor Trust Strip Securities, the IRS may take the position that
Grantor Trust Strip Securities should be taxed under the methods described in
those regulations. In the absence of specific guidance, however, the Trustee
will apply the rules of Section 1272(a)(2) to calculate accruals of original
issue discount on the Grantor Trust Securities. Under these rules (described in
greater detail below), (i) the amount and rate of accrual of original issue
discount on each Series of Securities will be based on (x) the Prepayment
Assumption, and (y) in the case of a Security calling for a variable rate of
interest, an assumption that the value of the index upon which such variable
rate is based remains equal to the value of that rate on the related Closing
Date, (and (ii) adjustments will be made in the amount of discount accruing in
each taxable year in which the actual prepayment rate differs from the
Prepayment Assumption.
Section 1272(A)(6)(b)(iii) of the Code requires that the prepayment
assumption used to calculate original issue discount be determined in the manner
prescribed in Treasury regulations. To date, no such
regulations have been promulgated. The legislative history of this Code
provision indicates that the assumed prepayment rate must be the rate used by
the parties in pricing the particular transaction. The Sponsor anticipates that
the Prepayment Assumption for each Series of Securities will be consistent with
this standard. The Sponsor makes no representation, however, that the Loans for
a given Series will prepay at the rate reflected in the Prepayment Assumption
for that Series or at any other rate. Each investor must make its own decision
as to the appropriate prepayment assumption to be used in deciding whether or
not to purchase any of the Securities.
Each Holder of a Security must include in gross income the sum of the "daily
portions" of original issue discount on its Security for each day during its
taxable year on which it held such Security. For this purpose, in the case of an
original Holder, the "daily portions" of original issue discount will be
determined as described in the following paragraph.
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A calculation will first be made of the portion of the original issue
discount that accrued during each "accrual period." The related Trustee will
supply, at the time and in the manner required by the IRS, to Holders of
Securities, brokers and middlemen information with respect to the original issue
discount accruing on the Securities. Unless otherwise disclosed in the related
Prospectus Supplement, the Trustee will report original issue discount based on
accrual periods of one month, each beginning on a Distribution Date (or, in the
case of the first such period, the related Closing Date) and ending on the day
before the next Distribution Date. Under Section 1727(a)(6) of the Code, the
portion of original issue discount treated as accruing for any accrual period
will equal the excess, if any, of (i) the sum of (A) the present values of all
the distributions remaining to be made on the Security, if any, as of the end of
the accrual period and (B) the distribution made on such Security during the
accrual period of amounts included in the stated redemption price at maturity
over (ii) the "adjusted issue price" of such Security at the beginning of the
accrual period. The present value of the remaining distributions referred to in
the preceding sentence will be calculated based on (i) the yield to maturity of
the Security, calculated as of the related Closing Date, giving effect to the
Prepayment Assumption, (ii) events (including actual prepayments) that have
occurred prior to the end of the accrual period, (iii) the Prepayment
Assumption, and (iv) in the case of a Security calling for a variable rate of
interest, and assumption that the value of the index upon which such variable
rate is based remains the same as its value on the related Closing Date over the
entire life of such Security. The "adjusted issued price" of a Security at any
time will equal the issue price of such Security, increased by the aggregate
amount of previously accrued original issue discount with respect to such
Security, and reduced by the amount of any distributions made on such Security
as of that time of amounts included in the stated redemption price at maturity.
The original issue discount accruing during any accrual period will then be
allocated ratably to each day during the period to determine the daily portion
of original issue discount.
In the case of Grantor Trust Strip Securities and certain REMIC Securities,
the calculation described in the preceding paragraph may produce a negative
amount of original issue discount for one or more accrual periods. No definitive
guidance has been issued regarding the treatment of such negative amounts. The
legislative history of Section 1272(a)(6) indicates that such negative amounts
may be used to offset subsequent positive accruals, but may not offset prior
accruals and may not be allowed as a deduction item in a taxable year in which
negative accruals exceed positive accruals. Holders of such Securities should
consult their own tax advisors concerning the treatment of such negative
accruals.
A subsequent purchaser of a Security that purchases such Security at a cost
less than its remaining stated redemption price at maturity also will be
required to include in gross income for each day on which its holds such
Security, the daily portion of original issue discount with respect to such
Security (but reduced, if the cost of such Security to such purchaser exceeds
its adjusted issue price, by an amount equal to the product of (i) such daily
portion and (ii) a constant fraction, the numerator of which is such excess and
the denominator of which is the sum of the daily portions of original issue
discount on such Security for all days on or after the day of purchase).
MARKET DISCOUNT
A Holder that purchases a Security at a market discount, that is, at a
purchase price less than the remaining stated redemption price at maturity of
such Security (or, in the case of a Security with original issue discount, its
adjusted issue price), will be required to allocate each principal distribution
first to accrued market discount on the Security, and recognize ordinary income
to the extent that such distribution does not exceed the aggregate amount of
accrued market discount on such Security not previously included in income. With
respect to Securities that have unaccrued original issue discount, such market
discount must be included in income in addition to any original issue discount.
A Holder that incurs or continues indebtedness to acquire a Security at a market
discount may also be required to defer the deduction of all or a portion of the
interest on such indebtedness until the corresponding amount of market discount
is included in income. In general terms, market discount on a Security may be
treated as accruing either (i) under a constant yield method or (ii) in
proportion to remaining
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accruals of original issue discount, if any, or if none, in proportion to
remaining distributions of interest on the Security, in any case taking into
account the Prepayment Assumption. The Trustee will make available, as required
by the IRS, to Holders of Securities information necessary to compute the
accrual of market discount.
Notwithstanding the above rules, market discount on a Security will be
considered to be zero if such discount is less than 0.25% of the remaining
stated redemption price at maturity of such Security multiplied by its weighted
average remaining life. Weighted average remaining life presumably would be
calculated in a manner similar to weighted average life, taking into account
payments (including prepayments) prior to the date of acquisition of the
Security by the subsequent purchaser. If market discount on a Security is
treated as zero under this rule, the actual amount of market discount must be
allocated to the remaining principal distributions on the Security and, when
each such distribution is received, gain equal to the discount allocated to such
distribution will be recognized.
SECURITIES PURCHASED AT A PREMIUM
A purchaser of a Security that purchases such Security at a cost greater
than its remaining stated redemption price at maturity will be considered to
have purchased such Security (a "Premium Security") at a premium. Such a
purchaser need not include in income any remaining original issue discount and
may elect, under Section 171(c)(2) of the Code, to treat such premium as
"amortizable bond premium." If a Holder makes such an election, the amount of
any interest payment that must be included in such Holder's income of each
period ending on a Distribution Date will be reduced by the portion of the
premium allocable to such period based on the Premium Security's yield to
maturity. The legislative history of the Tax Reform Act of 1986 states that such
premium amortization should be made under principles analogous to those
governing the accrual of market discount (as discussed above under "Federal
Income Tax Considerations--Discount and Premium--Market Discount"). If such
election is made by the Holder, the election will also apply to all bonds the
interest on which is not excludible from gross income ("fully taxable bonds")
held by the Holder at the beginning of the first taxable year to which the
election applies and to all such fully taxable bonds thereafter acquired by it,
and is irrevocable without the consent of the IRS. If such an election is not
made, (i) such a Holder must include the full amount of each interest payment in
income as it accrues, and (ii) the premium must be allocated to the principal
distributions on the Premium Security and, when each such distribution is
received, a loss equal to the premium allocated to such distribution will be
recognized. Any tax benefit from the premium not previously recognized will be
taken into account in computing gain or loss upon the sale or disposition of the
Premium Security.
Some Securities may provide for only nominal distributions of principal in
comparison to the distributions of interest thereon. It is possible that the IRS
or the Treasury Department may issue guidance excluding such Securities from the
rules generally applicable to debt instruments issued at a premium. In
particular, it is possible that such a Security will be treated as having
original issue discount equal to the excess of the total payments to be received
thereon over its issue price. In such event, Section 1272(a)(6) of the Code
would govern the accrual of such original issue discount, but a Holder would
recognize substantially the same income in any given period as would be
recognized if an election were made under Section 171(e)(2) of the Code. Unless
and until the Treasury Department or the IRS publishes specific guidance
relating to the tax treatment of such Securities, the Trustee intends to furnish
tax information to Holders of such Securities in accordance with the rules
described in the preceding paragraph.
SPECIAL ELECTION
For any Security acquired on or after April 4, 1994, a Holder may elect to
include in gross income all "interest" that accrues on the Security by using a
constant yield method. For purposes of the election, the term "interest"
includes stated interest, acquisition discount, original issue discount, de
minimis original issue discount, market discount, de minimus market discount and
unstated interest as adjusted by any amortizable bond premium or acquisition
premium. A Holder should consult it own tax
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advisor regarding the time and manner of making and the scope of the election
and the implementation of the constant yield method.
BACKUP WITHHOLDING
Distributions of interest and principal, as well as distributions of
proceeds from the sale of Securities, may be subject to the "backup withholding
tax" under Section 3406 of the Code at rate of 31% if recipients of such
distributions fail to furnish to the payor certain information, including their
taxpayer identification numbers, or otherwise fail to establish an exemption
from such tax. Any amounts deducted and withheld from a distribution to a
recipient would be allowed as a credit against such recipient's federal income
tax. Furthermore, certain penalties may be imposed by the IRS on a recipient of
distributions that is required to supply information but that does not do so in
the proper manner.
FOREIGN INVESTORS
GRANTOR TRUST SECURITIES AND REMIC REGULAR SECURITIES
Distributions made on a Grantor Trust Security or a REMIC Regular Security
to, or on behalf of, a Holder that is not a "U.S. Person" generally will be
exempt from United States federal income and withholding taxes. 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 trust that is
subject to United States federal income tax regardless of the source of its
income. This exemption is applicable provided (a) the Holder is not subject to
United States tax as a result of a connection to the United States other than
ownership of the Security, (b) the Holder signs a statement under penalties of
perjury that certifies that such Holder is not a U.S. Person, and provides the
name and address of such Holder, and (c) the last U.S. Person in the chain of
payment to the Holder receives such statement from such Holder or a financial
institution holding on its behalf and does not have actual knowledge that such
statement is false. Holders should be aware that the IRS might take the position
that this exemption does not apply to a Holder that also owns 10% or more of the
REMIC Residual Securities of any REMIC Trust, or to a Holder that is a
"controlled foreign corporation" described in Section 881(c)(3)(C) of the Code.
REMIC RESIDUAL SECURITIES
Amounts distributed to a Holder of a REMIC Residual Security that is not a
U.S. Person generally will be treated as interest for purposes of applying the
30% (or lower treaty rate) withholding tax on income that is not effectively
connected with a United States trade or business. Temporary Treasury regulations
clarify that amounts not constituting excess inclusions that are distributed on
a REMIC Residual Security to a Holder that is not a U.S. Person generally will
be exempt from United States federal income and withholding tax, subject to the
same conditions applicable to distributions on Grantor Trust Securities and
REMIC Regular Securities, as described above, but only to the extent that the
obligations directly underlying the REMIC Trust that issued the REMIC Residual
Security (e.g., Loans or regular interests in another REMIC) were issued after
July 18, 1984. In no case will any portion of REMIC income that constitutes an
excess inclusion be entitled to any exemption from the withholding tax or a
reduced treaty rate for withholding. See "Federal Income Tax
Considerations--REMIC Securities--Taxation of Holders of REMIC Residual
Securities--Excess Inclusions".
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STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Federal
Income Tax Considerations," potential investors should consider the state and
local income tax consequences of the acquisition, ownership, and disposition of
the Securities. State and local income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe any
aspect of the income tax laws of any state or locality. Therefore, potential
investors should consult their own tax advisors with respect to the various
state and local tax consequences of an investment in the Securities.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA")
and the Code impose certain restrictions on employee benefit plans subject to
ERISA and on plans and other arrangements subject to Section 4975 of the Code
("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 Securities 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 investment in an "equity
interest" 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 Fund may be deemed to hold plan
assets by reason of a Plan's investment in a Security; such plan assets would
include an undivided interest in the Loans and any other assets held by the
Trust Fund. In such an event, persons providing services with respect to the
assets of the Trust Fund 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.
Under the regulation, a Plan will not be considered to have invested in an
"equity interest" if the interest described is treated as indebtedness under
applicable local law and has no substantial equity features. Generally, a
profits interest in a partnership, an undivided ownership interest in property
and a beneficial ownership interest in a trust are deemed to be "equity
interests" under the final regulation. If Notes of a particular Series were
deemed to be indebtedness under applicable local law without any substantial
equity features, an investing Plan's assets would include such Notes, but not,
by reason of such purchase, the underlying assets of the Trust Fund.
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An exception applies if the class of equity interests in question is: (i)
"widely held" (held by 100 or more investors who are independent of the Sponsor
and each other); (ii) freely transferable; and (iii) sold as part of an offering
pursuant to (A) an effective registration statement under the Securities Act of
1933, and then subsequently registered under the Securities Exchange Act of 1934
or (B) an effective registration statement under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934 ("Publicly Offered Securities"). In addition,
the regulation provides that if at all times more than 75% of the value of all
classes of equity interests in the Sponsor or the Trust Fund 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 Fund.
If an investing Plan's assets are considered to include the underlying
assets of the Trust Fund, an exemption may be available. Various underwriters
and placement agents have been granted individual exemptions by the DOL from
certain of the prohibited transaction rules of ERISA with respect to the initial
purchase, the holding and the subsequent resale by Plans of securities
representing interests in, and the operation of, asset-backed pass-through
trusts that consist of certain receivables, loans and other obligations that
meet the conditions and requirements of such exemptions (each such exemption is
referred to hereafter as the "Exemption"). These securities may include the
Certificates. The obligations that may be held in trust covered by the Exemption
include obligations such as the Loans (but would not include, for example, Home
Improvement Contracts that are unsecured). The Exemption will apply to the
acquisition, holding and resale of the Securities by a Plan, provided that
certain conditions (certain of which are described below) are met.
Among the conditions which must be satisfied for the Exemption to apply are
the following:
(i) The acquisition of the Certificates by a Plan is on terms (including
the price for the Certificates) that are at least as favorable to the Plan
as they would be in an arm's-length transaction with an unrelated party;
(ii) The rights and interests evidenced by the Certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by other
securities of the trust;
(iii) The Certificates acquired by the Plan have received a rating at
the time of such acquisition that is in one of the three highest generic
rating categories from either Standard & Poor's Ratings Group ("Standard &
Poor's"), Moody's Investors Service, Inc. ("Moody's"), Duff & Phelps Inc.
("D&P") or Fitch Investors Service, Inc. ("Fitch");
(iv) The sum of all payments made to the underwriter 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 seller pursuant to the sale of the obligations to the
trust represents not more than the fair market value of such obligations.
The sum of all payments made to and retained by the servicer represents not
more than reasonable compensation for the servicer's services under the
related servicing agreement and reimbursement of the servicer's reasonable
expenses in connection therewith;
(v) The Trustee is not an affiliate of any other member of the
Restricted Group (as defined below); and
(vi) 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.
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The trust also must meet the following requirements:
(i) the corpus of the trust must consist solely of assets of the type
which have been included in other investment pools;
(ii) securities in such other investment pools must have been rated in
one of the three highest rating categories of Standard & Poor's, Moody's,
D&P or Fitch for at least one year prior to the Plan's acquisition of
securities; and
(iii) securities evidencing interests in such other investment pools
must have been purchased by investors other than Plans for at least one year
prior to any Plan's acquisition of Securities.
Moreover, the Exemption provides relief from certain self-dealing/conflict
of interest prohibited transactions that may occur when the Plan fiduciary
causes a Plan to acquire securities in a trust in which the fiduciary (or its
affiliate) is an obligor on the receivables held in the trust provided that,
among other requirements: (i) in the case of an acquisition in connection with
the initial issuance of Certificates, at least fifty (50) percent of each Class
of Certificates in which Plans have invested is acquired by persons independent
of the Restricted Group and at least fifty (50) percent of the aggregate
interest in the trust is acquired by persons independent of the Restricted
Group; (ii) such fiduciary (or its affiliate) is an obligor with respect to five
(5) percent or less of the fair market value of the obligations contained in the
trust; (iii) the Plan's investment in Certificates does not exceed twenty-five
(25) percent of all of the Certificates outstanding after the acquisition; and
(iv) no more than twenty-five (25) percent of the assets of the Plan are
invested in securities 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 Sponsor, the underwriters of the Certificates, the
Trustee, the Servicer, any obligor with respect to obligations included in a
Trust Fund constituting more than five (5) percent of the aggregate unamortized
principal balance of the assets in a Trust Fund, or any affiliate of such
parties (the "Restricted Group").
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the potential application of the
regulation described above or the Exemption to the purchase and holding of the
Securities and the potential consequences to their specific circumstances, prior
to making an investment in the Securities. Moreover, each Plan fiduciary should
determine whether under the general fiduciary standards of investment procedure
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. In this regard, purchasers 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 purposes of ERISA under certain circumstances.
Prospective purchasers should determine whether the decision affects their
ability to purchase the Securities.
LEGAL INVESTMENT
Unless otherwise specified in the related Prospectus Supplement, the
Securities will not constitute "mortgage-related securities" within the meaning
of SMMEA. Accordingly, investors whose investment authority is subject to legal
restrictions should consult their own legal advisors to determine whether and to
what extent the Securities constitute legal investments for them.
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PLAN OF DISTRIBUTION
The Securities offered hereby and by the related Prospectus Supplement will
be offered in Series through one or more of the methods described below. The
Prospectus Supplement prepared for each Series will describe the method of
offering being utilized for that Series and will state the public offering or
purchase price of such Series and the net proceeds to the Sponsor from such
sale.
The Sponsor intends that Securities will be offered through the following
methods from time to time and that offerings may be made concurrently through
more than one of these methods or that an offering of a particular Series of
Securities may be made through a combination of two or more of these methods.
Such methods are as follows:
1. By negotiated firm commitment or best efforts underwriting and
public re-offering by underwriters;
2. By placements by the Sponsor with institutional investors through
dealers;
3. By direct placements by the Sponsor with institutional investors;
and
4. By competitive bid.
If underwriters are used in a sale of any Securities (other than in
connection with an underwriting on a best efforts basis), such Securities will
be acquired by the underwriters for their own account and may be resold from
time to time in one or more transactions, including negotiated transactions, at
fixed public offering prices or at varying prices to be determined at the time
of sale or at the time of commitment therefor. The 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 Sponsor 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 Sponsor 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 "Securities Act"). The Prospectus Supplement will describe
any such compensation paid by the Sponsor.
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 (other than in
connection with an underwriting on a best efforts basis) and that, in limited
circumstances, the Sponsor will indemnify the several underwriters and the
underwriters will indemnify the Sponsor against certain civil liabilities,
including liabilities under the Securities Act or will contribute to payments
required to be made in respect thereof.
The Prospectus Supplement with respect to any Series offered by placements
through dealers will contain information regarding the nature of such offering
and any agreements to be entered into between the Sponsor and purchasers of
Securities of such Series.
Purchasers of Securities, including dealers, may, depending on the facts and
circumstances of such purchases, be deemed to be "underwriters" within the
meaning of the Securities Act in connection with reoffers and sales by them of
Securities. Holders of Securities should consult with their legal advisors in
this regard prior to any such reoffer or sale.
LEGAL MATTERS
Certain legal matters in connection with the Securities will be passed upon
for the Sponsor by Dewey Ballantine, New York, New York.
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GLOSSARY OF TERMS
The following are abbreviated definitions of certain capitalized terms used
in this Prospectus. Unless otherwise provided in a "Supplemental Glossary" in
the Prospectus Supplement for a Series, such definitions shall apply to
capitalized terms used in such Prospectus Supplement. The definitions may vary
from those in the related Agreement for a Series and the related Agreement for a
Series generally provides a more complete definition of certain of the terms.
Reference should be made to the related Agreement for a Series for a more
compete definition of such terms.
"Advance" means cash advanced by the Servicer in respect of delinquent
payments of principal of and interest on a Loan, and for any other purposes
specified in the related Prospectus Supplement.
"Bankruptcy Code" means the federal bankruptcy code, 11 United States Code
101 et seq., and related rules and regulations promulgated thereunder.
"Business Day" means a day that, in the City of New York or in the city or
cities in which the corporate trust office of the Trustee are located, is
neither a legal holiday nor a day on which banking institutions are authorized
or obligated by law, regulations or executive order to be closed.
"Certificate" means the Asset-Backed Certificates.
"Certificateholder" means a Holder of a Certificate.
"Class" means a Class of Securities of a Series.
"Closing Date" means, with respect to a Series, the date specified in the
related Prospectus Supplement as the date on which Securities of such Series are
first issued.
"Code" means the Internal Revenue Code of 1986, as amended, and regulations
(including proposed regulations) or other pronouncements of the IRS promulgated
thereunder.
"Collection Account" means, with respect to a Series, the account
established in the name of the Servicer for the deposit by the Servicer of
payments received from the Loans.
"Combined Loan-to-Value Ratio" means, with respect to a Loan, the ratio
determined as set forth in the related Prospectus Supplement taking into account
the amounts of any related senior mortgage loans on the related Mortgaged
Property.
"Commission" means the Securities and Exchange Commission.
"Compound Interest Security" means any Security of a Series on which all or
a portion of the interest accrued thereon is added to the principal balance of
such Security on each Distribution Date, through the accrual termination date
specified in the related Prospectus Supplement, and with respect to which no
interest shall be payable until such accrual termination date, after which
interest payments will be made on the Compound Value thereof.
"Compound Value" means, with respect to a Class of Compound Interest
Securities, the original principal balance of such Class, plus all accrued and
unpaid interest, if any, previously added to the principal balance thereof and
reduced by any payments of principal previously made on such Class of Compound
Interest Securities.
"Condominium" means a form of ownership of real property wherein each owner
is entitled to the exclusive ownership and possession of his or her individual
Condominium Unit and also owns a proportionate undivided interest in all parts
of the Condominium Building (other than the individual Condominium Units) and
all areas or facilities, if any, for the common use of the Condominium Units.
"Condominium Building" means a multi-unit building or buildings, or a group
of buildings whether or not attached to each other, located on property subject
to Condominium ownership.
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"Condominium Loan" means a Loan secured by a Mortgage on a Condominium Unit
(together with its appurtenant interest in the common elements).
"Condominium Unit" means an individual housing unit in a Condominium
Building.
"Cooperative" means a corporation owned by tenant-stockholders who, through
the ownership of stock, shares or membership securities in the corporation,
receive proprietary leases or occupancy agreements which confer exclusive rights
to occupy specific units and which is described in Section 216 of the Code.
"Cooperative Dwelling" means an individual housing unit in a building owned
by a Cooperative.
"Credit Enhancement" means the credit enhancement for a Series, if any,
specified in the related Prospectus Supplement.
"Credit Enhancer" means the provider of the Credit Enhancement for a Series
specified in the related Prospectus Supplement.
"Cut-off Date" means the date designated as such in the related Prospectus
Supplement for a Series.
"Debt Securities" means Securities characterized as indebtedness for federal
income tax purposes.
"Deposit Agreement" means a guaranteed investment contract or reinvestment
agreement providing for the investment of funds held in a fund or account,
guaranteeing a minimum or a fixed rate of return on the investment of moneys
deposited therein.
"Distribution Account" means, with respect to a Series, the account
established in the name of the Trustee for the deposit of remittances received
from the Servicer with respect to the Loans.
"Distribution Date" means, with respect to a Series or Class of Securities,
each date specified as a distribution date for such Series or Class in the
related Prospectus Supplement.
"Due Date" means each date, as specified in the related Prospectus
Supplement for a Series, on which any payment of principal or interest is due
and payable by the obligor on any Loan pursuant to the terms thereof.
"Eligible Investments" means any one or more of the obligations or
securities described as such in the related Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Account" means an account, established and maintained by the
Servicer for a Loan, into which payments by borrowers to pay taxes, assessments,
mortgage and hazard insurance premiums and other comparable items required to be
paid to the mortgagee are deposited.
"FHLMC" means the Federal Home Loan Mortgage Corporation.
"Final Scheduled Distribution Date" means, with respect to a Class of Notes
of a Series, the date no later than which principal thereof will be fully paid
and with respect to a Class of Certificates of a Series, the date after which no
Certificates of such Class will remain outstanding, in each case based on the
assumptions set forth in the related Prospectus Supplement.
"FNMA" means the Federal National Mortgage Association.
"Holder" means the person or entity in whose name a Security is registered.
"Home Improvements" means the home improvements financed by a Home
Improvement Contract.
78
<PAGE>
"Home Improvement Contract" means any home improvement installment sales
contracts and installment loan agreements which may be unsecured or secured by
purchase money security interests in the Home Improvements financed thereby.
"HUD" means the United States Department of Housing and Urban Development.
"Index" means the index applicable to any adjustments in the Loan Rates of
any adjustable-rate Loans.
"Insurance Policies" means certain mortgage insurance, hazard insurance and
other insurance policies required to be maintained with respect to Loans.
"Insurance Proceeds" means amounts paid by the insurer under any of the
Insurance Policies covering any Loan or Property.
"Interest Only Securities" means a Class of Securities entitled solely or
primarily to distributions of interest and which is identified as such in the
related Prospectus Supplement.
"IRS" means the Internal Revenue Service.
"Lifetime Rate Cap" means the lifetime limit, if any, on the Loan Rate
during the life of each adjustable-rate Loan.
"Liquidation Proceeds" means amounts received by the Servicer in connection
with the liquidation of a Loan, net of liquidation expenses.
"Loan Rate" means, unless otherwise indicated herein or in the Prospectus
Supplement, the interest rate borne by a Loan.
"Loans" means Mortgage Loans and/or Home Improvement Contracts,
collectively.
"Loan-to-Value Ratio" means, with respect to a Loan, the ratio determined as
set forth in the related Prospectus Supplement.
"Minimum Principal Payment Agreement" means a minimum principal payment
agreement with an entity meeting the criteria of each Rating Agency.
"Mortgage" means the mortgage, deed of trust or other similar security
instrument securing a Mortgage Note.
"Mortgage Loan" means a mortgage loan included in a Trust Fund, including a
mortgage loan secured by a senior lien or junior lien on the related Mortgaged
Property and a closed-end and/or revolving home equity loan or balance thereof
secured by a Mortgaged Property.
"Mortgage Note" means the note or other evidence of indebtedness of a
Mortgagor under the Loan.
"Mortgaged Property" means the real property securing a Mortgage Loan.
"Mortgagor" means the obligor on a Mortgage Note.
"Noteholder" means the Holder of a Note.
"Notes" means the Asset-Backed Notes.
"Notional Amount" means the amount set forth in the related Prospectus
Supplement for a Class of Interest Only Securities.
"PAC" ("Planned Amortization Class Securities") means a Class of Securities
of a Series on which payments of principal are made in accordance with a
schedule specified in the related Prospectus Supplement, based on certain
assumptions stated therein.
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<PAGE>
"Participating Securities" means Securities entitled to receive payments of
principal and interest and an additional return on investment as described in
the related Prospectus Supplement.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint stock company, trust (including any
beneficiary thereof), unincorporated organization, or government or any agency
or political subdivision thereof.
"Pooling and Servicing Agreement" means collectively, any and all agreements
relating to the establishment of the related Trust Fund, the servicing of the
related Loans and the issuance of the related Securities.
"Principal Only Securities" means a Class of Securities entitled solely or
primarily to distributions of principal and identified as such in the Prospectus
Supplement.
"Property" means either a Home Improvement or a Mortgaged Property securing
a Loan, as the context requires.
"Rating Agency" means a nationally recognized statistical rating
organization which was requested by the Sponsor to rate the Securities upon the
original issuance thereof.
"REMIC" means a real estate mortgage investment conduit.
"REMIC Administrator" means the Person, if any, specified in the related
Prospectus Supplement for a Series for which a REMIC election is made, to serve
as administrator of the Series.
"REO Property" means real property which secured a defaulted Loan,
beneficial ownership of which has been acquired upon foreclosure, deed in lieu
of foreclosure, repossession or otherwise.
"Reserve Fund" means, with respect to a Series, any Reserve Fund established
pursuant to the related Pooling and Servicing Agreement.
"Retained Interest" means, with respect to a Loan, the amount or percentaged
specified in the related Prospectus Supplement which is not included in the
Trust Fund for the related Series.
"Scheduled Payment" means the scheduled payment of principal and interest
required to be made by the Mortgagor on a Loan.
"Securities" means the Notes or the Certificates.
"Seller" means a seller of Loans to the Sponsor identified in the related
Prospectus Supplement for a Series.
"Senior Securities" means a Class of Securities as to which the Holders'
rights to receive distributions of principal and interest are senior to the
rights of Holders of Subordinate Securities, to the extent specified in the
related Prospectus Supplement.
"Series" means a separate series of Securities sold pursuant to this
Prospectus and the related Prospectus Supplement.
"Servicer" means Accredited Home Lenders, Inc.
"Servicing Fee" means the periodic fee payable to the Servicer as
compensation for servicing Loans.
"Single Family Property" means property securing a Loan consisting of one-to
four-family attached or detached residential housing, including Cooperative
Dwellings.
"Sponsor" means Accredited Home Lenders, Inc.
"Subordinated Securities" means a Class of Securities as to which the rights
of Holders to receive distributions of principal, interest or both is
subordinated to the rights of Holders of Senior Securities,
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<PAGE>
and may be allocated losses and shortfalls prior to the allocation thereof to
other Classes of Securities, to the extent and under the circumstances specified
in the related Prospectus Supplement.
"Treasury" or "Treasury Department" means the United States Department of
the Treasury.
"Trustee" means the trustee under the applicable Pooling and Servicing
Agreement and its successors.
"Trust Fund" means, with respect to any Series of Securities, the trust
holding all money, instruments, securities and other property, including all
proceeds thereof, which are, with respect to a Series of Certificates, held for
the benefit of the Holders by the Trustee or, with respect to a Series of Notes,
pledged to the Trustee as a security for such Notes, including, without
limitation, the Loans (except any Retained Interests), all amounts in the
Distribution Account, Collection Account or Reserve Funds, distributions on the
Loans (net of Servicing Fees), and reinvestment earnings on such net
distributions and any Credit Enhancement and all other property and interests
held by or pledged to the Trustee pursuant to the related Pooling and Servicing
Agreement for such Series.
"UCC" means the Uniform Commercial Code.
"Variable Interest Security" means a Security on which interest accrues at a
rate that is adjusted, based upon a predetermined index, at fixed periodic
intervals, all as set forth in the related Prospectus Supplement.
"Zero Coupon Security" means a Security entitled to receive payments of
principal only.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the amount of fees and expenses (other
than underwriting discounts and commissions) to be incurred in connection with
the issuance and distribution of the Offered Certificates.
<TABLE>
<CAPTION>
<S> <C>
SEC Filing Fee.............................................. $ 172,413.50
Trustee's Fees and Expenses*................................ 25,000.00
Legal Fees and Expenses*.................................... 150,000.00
Accounting Fees and Expenses*............................... 75,000.00
Printing and Engraving Expenses*............................ 150,000.00
Blue Sky Qualification and Legal Investment Fees and
Expenses*................................................... 30,000.00
Rating Agency Fees*......................................... 60,000.00
Certificate Insurer's Fee*.................................. 50,000.00
Miscellaneous*.............................................. 20,000.00
------------
TOTAL..................................................... $ 732,415.50
------------
------------
</TABLE>
- ------------
* Estimated in accordance with Item 511 of Regulation S-K.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Each Pooling and Servicing Agreement will provide that no director, officer,
employee or agent of the Registrant is liable to the Trust Fund or the Holders,
except for such person's own willful misfeasance, bad faith or gross negligence
in the performance of duties or reckless disregard of obligations and duties.
Each Pooling and Servicing Agreement will further provide that, with the
exceptions stated above, a director, officer, employee or agent of the
Registrant is entitled to be indemnified against any loss, liability or expense
incurred in connection with legal action relating to such and related
Securities.
Section 317 of the California Corporations Code allows for the
indemnification of officers, directors and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended (the "Act"). Article IV of the Registrant's
Restated Articles of Incorporation (Exhibit 3.1 hereto) and Section 12 Article V
of the Registrant's Bylaws (Exhibit 3.2 hereto) provide for indemnification of
the Registrant's directors, officers, employees and other agents to the extent
and under the circumstances permitted by the California Corporations Code.
The forms of the Underwriting Agreement, to be incorporated by reference as
Exhibit 1.1 and Exhibit 1.2 to this Registration Statement, provide that the
registrant will indemnify and reimburse the underwriter(s) and each director,
officer and controlling person of the underwriter(s) with respect to certain
expenses and liabilities, including liabilities under the 1933 Act or other
federal or state regulations or under the common law, which arise out of or are
based on certain material misstatements or omissions in the Registration
Statement. In addition, the Underwriting Agreements provide that the
underwriter(s) will similarly indemnify and reimburse the registrant and each
director, officer and controlling person of the registrant with respect to
certain material misstatements or omission in the Registration Statement which
are based on certain written information furnished by the underwriter(s) for use
in connection with the preparation of the Registration Statement.
II-1
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
<S> <C>
1.1* --Form of Underwriting Agreement.
3.1+ --Articles of Incorporation of the Registrant.
3.2+ --Bylaws of the Registrant.
4.1* --Form of Pooling and Servicing Agreement among the Sponsor, the Servicer and the
Trustee.
4.2* --Form of Indenture.
4.3* --Form of Trust Agreement.
4.4* --Form of Surety Bond.
4.5* --Form of Prospectus Supplement.
5.1* --Opinion of Dewey Ballantine with respect to validity.
8.1* --Opinion of Dewey Ballantine with respect to tax matters.
23.1 --Consents of Dewey Ballantine are included in its opinions filed as Exhibit 5.1
and 8.1 hereof.
24.1+ --Power of Attorney (included on the signature page to this Registration
Statement).
</TABLE>
- ------------
* Filed herewith.
+ Filed with Pre-Effective Amendment No. 1.
ITEM 17. UNDERTAKINGS.
A. Undertaking in respect of indemnification
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described above
in Item 15, or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by the registrant is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
B. Undertaking pursuant to Rule 415.
The 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
Act;
(ii) to reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement;
II-2
<PAGE>
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change of such information in the Registration Statement;
provided, however, that paragraphs (i) and (ii) do not apply if the
information required to be included in the post-effective amendment is
contained in periodic reports filed by the registrant pursuant to Section
13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the Act,
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.
C. Undertaking pursuant to Rule 430A.
The registrant hereby undertakes:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Pre-Effective
Amendment No. 3 to Registration Statement No. 333-07219 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Diego,
State of California on August 22, 1996.
ACCREDITED HOME LENDERS, INC.
By: /s/ JAMES A.
KONRATH
..................................
James A. Konrath
President
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
LOCATION OF EXHIBIT
EXHIBIT IN SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT NUMBERING SYSTEM
- ------ ------------------------------------------------------------------- -------------------
<S> <C> <C>
1.1* --Form of Underwriting Agreement.
3.1+ --Articles of Incorporation of the Registrant.
3.2+ --Bylaws of the Registrant.
4.1* --Form of Pooling and Servicing Agreement among the Sponsor, the
Servicer and the Trustee.
4.2* --Form of Indenture.
4.3* --Form of Trust Agreement.
4.4* --Form of Surety Bond
4.5* --Form of Prospectus Supplement.
5.1* --Opinion of Dewey Ballantine with respect to validity.
8.1* --Opinion of Dewey Ballantine with respect to tax matters.
23.1 --Consents of Dewey Ballantine are included in its opinions filed
as Exhibit 5.1 and 8.1 hereof.
24.1+ --Power of Attorney.
</TABLE>
- ------------
* Filed herewith.
+ Filed with Pre-Effective Amendment No. 1.
EXHIBIT 1.1
ACCREDITED HOME LENDERS, INC.
Mortgage Loan Asset-Backed Certificates,
Series 199_-_, Class A Certificates
UNDERWRITING AGREEMENT
----------------------
__________, 199_
LEHMAN BROTHERS INC.
As Representative of the Underwriters
named in Schedule I
3 World Financial Center
New York, New York 10285
Ladies and Gentlemen:
Accredited Home Lenders, Inc. (the "Company") has authorized the
issuance and sale of Mortgage Loan Asset-Backed Certificates, Series 199_-_,
(the "Certificates") consisting of the Class A-1 Group I Certificates ("Class A-
1 Certificates"), the Class A-2 Group I Certificates ("Class A-2 Certificates"),
the Class A-3 Group I Certificates (the "Class A-3 Certificates"), the Class A-4
Group I Certificates (the "Class A-4 Certificates"), the Class A-5 Group I
Certificates ("Class A-5 Certificates"), the Class A-6 Group I Certificates
("Class A-6 Certificates"), the Class A-7 Group I Certificates ("Class A-7
Certificates" together with 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, the "Group I
Certificates"), and the Class A-8 Group II Certificates ("Class A-8
Certificates," or "Group II Certificates" together with the Group I
Certificates, the "Offered Certificates") and of an additional class of
subordinate certificates (the "Subordinate Certificates" or the "Class R
Certificates"). The Certificates will be issued by the Accredited Mortgage Loan
Trust 199_-_ (the "Trust"), and will evidence in the aggregate the entire
beneficial interest in a trust estate (the "Trust Estate") consisting primarily
of two segregated pools (the "Mortgage Pools") of closed-end mortgage loans (the
"Mortgage Loans"), and certain related property. The Mortgage Loans shall have,
as of the close of business on __________, 199_ (the "Cut-off Date"), an
aggregate principal balance of approximately $___________. The certificates are
to be issued under a pooling and servicing agreement, to be dated as of
__________, 199_ (the "Pooling and Servicing
1
<PAGE>
Agreement"), among the Company, as sponsor, _______________, as master servicer,
and ______________________, as trustee (the "Trustee").
On or prior to the date of issuance of the Certificates, the Company
will obtain a guaranty insurance policy (the "Policy") issued by
__________________________ (the "Insurer") which will unconditionally and
irrevocably guarantee to the Trustee for the benefit of the holders of the
Offered Certificates the amount by which the sum of the related Group Interest
Distribution Amount and the related Subordination Deficit, if any, exceeds the
related Total Available Funds.
Only the Offered Certificates are being purchased by the Underwriters.
The Certificates are more fully described in a Registration Statement
which the Company has furnished to the Underwriters. Capitalized terms used but
not defined herein shall have the meanings given to them in the Pooling and
Servicing Agreement.
Simultaneously with the execution of the Pooling and Servicing
Agreement, the Company will enter into a conveyance agreement pursuant to the
Master Loan Transfer Agreement dated as of ___________, 199_ among the Trustee,
and the Affiliated Originators named thereon (together, the "Purchase
Agreement"), pursuant to which the Affiliated Originators will transfer to the
Company all of their right, title and interest in and to the Mortgage Loans as
of the Cut-Off Date.
[The Company will also enter into an Indemnification Agreement (the
"Indemnification Agreement") dated as of ___________, 199_, among the
Underwriters, the Company and the Certificate Insurer, governing the liability
of the several parties with respect to the losses resulting from material
misstatements or omissions contained in the Prospectus Supplement.]
SECTION I. Representations and Warranties of the Company. The
---------------------------------------------
Company represents and warrants to, and agrees with the Underwriters that:
A. Registration Statements on Form S-3, as amended by
Post-Effective Amendments thereto, have (i) been prepared by the
Company in conformity with the requirements of the Securities Act of
1933 (the "Securities Act") and the rules and regulations (the "Rules
and Regulations") of the United States Securities and Exchange
Commission (the "Commission") thereunder, (ii) been filed
2
<PAGE>
with the Commission under the Securities Act and (iii) become
effective under the Securities Act. Copies of such Registration
Statements have been delivered by the Company to the Underwriters. As
used in this Agreement, "Effective Time" means the date and the time
as of which such Registration Statements, or the most recent
post-effective amendment thereto, if any, was declared effective by
the Commission; "Effective Date" means the date of the Effective Time;
"Preliminary Prospectus" means each prospectus included in such
Registration Statements, or amendments thereof, including a
preliminary prospectus supplement which, as completed, is proposed to
be used in connection with the sale of the Offered Certificates and
any prospectus filed with the Commission by the Company with the
consent of the Underwriters pursuant to Rule 424(a) of the Rules and
Regulations; "Registration Statement" means such registration
statements, as amended by all Post-Effective Amendments thereto
heretofore filed with the Commission, at the Effective Time, including
any documents incorporated by reference therein at such time; and
"Prospectus" means such final prospectus, as first supplemented by a
prospectus supplement (the "Prospectus Supplement") relating to the
Offered Certificates, as first filed with the Commission pursuant to
paragraph (1) or (4) of Rule 424(b) of the Rules and Regulations.
Reference made herein to any Preliminary Prospectus or to the
Prospectus shall be deemed to refer to and include any documents
incorporated by reference therein pursuant to Item 12 of Form S-3
under the Securities Act, as of the date of such Preliminary
Prospectus or the Prospectus, as the case may be, and any reference to
any amendment or supplement to any Preliminary Prospectus or the
Prospectus shall be deemed to refer to and include any document filed
under the Securities Exchange Act of 1934 (the "Exchange Act") after
the date of such Preliminary Prospectus or the Prospectus, as the case
may be, and incorporated by reference in such Preliminary Prospectus
or the Prospectus, as the case may be; and any reference to any
amendment to the Registration Statement shall be deemed to include any
report of the Company filed with the Commission pursuant to Section
13(a) or 15(d) of the Exchange Act after the Effective Time that is
incorporated by reference in the Registration Statement. The
Commission has not issued any order preventing or suspending the use
of any Preliminary Prospectus. There are no contracts or
3
<PAGE>
documents of the Company which are required to be filed as exhibits to
the Registration Statement pursuant to the Securities Act or the Rules
and Regulations which have not been so filed or incorporated by
reference therein on or prior to the Effective Date of the
Registration Statements. The conditions for use of Form S-3, as set
forth in the General Instructions thereto, have been satisfied.
To the extent that any Underwriter (i) has provided to the
Company Collateral term sheets (as hereinafter defined that such
Underwriter has provided to a prospective investor, the Company has
filed such Collateral term sheets as an exhibit to a report on Form 8-
K within two business days of its receipt thereof, or (ii) has
provided to the Company Structural term sheets or computational
materials (each as defined below) that such Underwriter has provided
to a prospective investor, the Company will file or cause to be filed
with the Commission a report on Form 8-K containing such Structural
term sheet and computational materials, as soon as reasonably
practicable after the date of this Agreement, but in any event, not
later than the date on which the Prospectus is filed with the
Commission pursuant to Rule 424 of the Rules and Regulations.
B. The Registration Statement conforms, and the Prospectus and
any further amendments or supplements to the Registration Statement or
the Prospectus will, when they become effective or are filed with the
Commission, as the case may be, conform in all respects to the
requirements of the Securities Act and the Rules and Regulations. The
Registration Statement, as of the Effective Date thereof and of any
amendment thereto, did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. The
Prospectus as of its date, and as amended or supplemented as of the
Closing Date does not and will not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided that no representation
--------
or warranty is made as to information contained in or omitted from the
Registration Statement or the Prospectus in reliance upon and in
conformity with written information furnished to the Company in
4
<PAGE>
writing by the Underwriters expressly for use therein.
C. The documents incorporated by reference in the Prospectus,
when they became effective or were filed with the Commission, as the
case may be, conformed in all material respects to the requirements of
the Securities Act or the Exchange Act, as applicable, and the rules
and regulations of the Commission thereunder, and none of such
documents contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; and any further documents
so filed and incorporated by reference in the Prospectus, when such
documents become effective or are filed with the Commission, as the
case may be, will conform in all material respects to the requirements
of the Securities Act or the Exchange Act, as applicable, and the
rules and regulations of the Commission thereunder and will not
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading.
D. Since the respective dates as of which information is given
in the Prospectus, there has not been any material adverse change in
the general affairs, management, financial condition, or results of
operations of the Company, otherwise than as set forth or contemplated
in the Prospectus as supplemented or amended as of the Closing Date.
E. The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, is duly qualified to do business and is
in good standing as a foreign corporation in each jurisdiction in
which its ownership or lease of property or the conduct of its
business requires such qualification, and has all power and authority
necessary to own or hold its properties, to conduct the business in
which it is engaged and to enter into and perform its obligations
under this Agreement, the Pooling and Servicing Agreement, the
Purchase Agreement, the Indemnification Agreement and the Insurance
Agreement, and to cause the Certificates to be issued.
5
<PAGE>
F. There are no actions, proceedings or investigations pending
before or threatened by any court, administrative agency or other
tribunal to which the Company is a party or of which any of its
properties is the subject (a) which if determined adversely to the
Company would have a material adverse effect on the business or
financial condition of the Company, (b) asserting the invalidity of
this Agreement, the Pooling and Servicing Agreement, the Insurance
Agreement, the Purchase Agreement, the Indemnification Agreement or
the Certificates, (c) seeking to prevent the issuance of the
Certificates or the consummation by the Company of any of the
transactions contemplated by the Pooling and Servicing Agreement, the
Purchase Agreement, the Insurance Agreement, the Indemnification
Agreement or this Agreement, as the case may be, or (d) which might
materially and adversely affect the performance by the Company of its
obligations under, or the validity or enforceability of, the Pooling
and Servicing Agreement, the Insurance Agreement, the Purchase
Agreement, this Agreement, the Indemnification Agreement or the
Certificates.
G. This Agreement has been, and the Pooling and Servicing
Agreement, the Purchase Agreement, the Indemnification Agreement and
the Insurance Agreement when executed and delivered as contemplated
hereby and thereby will have been, duly authorized, executed and
delivered by the Company, and this Agreement constitutes, and the
Pooling and Servicing Agreement, the Purchase Agreement, the
Indemnification Agreement and the Insurance Agreement, when executed
and delivered as contemplated herein, will constitute, legal, valid
and binding instruments enforceable against the Company in accordance
with their respective terms, subject as to enforceability to (x)
applicable bankruptcy, reorganization, insolvency, moratorium or other
similar laws affecting creditors' rights generally, (y) general
principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law), and (z) with respect to rights of
indemnity under this Agreement, the Indemnification Agreement and the
Insurance Agreement, limitations of public policy under applicable
securities laws.
H. The execution, delivery and performance of this Agreement,
the Pooling and Servicing Agreement, the Purchase Agreement,
6
<PAGE>
the Indemnification Agreement and the Insurance Agreement by the
Company and the consummation of the transactions contemplated hereby
and thereby, and the issuance and delivery of the Certificates do not
and will not conflict with or result in a breach or violation of any
of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument to which the Company is a party, by which the Company
is bound or to which any of the property or assets of the Company
or any of its subsidiaries is subject, nor will such actions result in
any violation of the provisions of the articles of incorporation or
by-laws of the Company or any statute or any order, rule or regulation
of any court or governmental agency or body having jurisdiction over
the Company or any of its properties or assets.
I. Arthur Andersen LLP are independent public accountants with
respect to the Company as required by the Securities Act and the Rules
and Regulations.
J. The direction by the Company to the Trustee to execute,
authenticate, issue and deliver the Certificates has been duly
authorized by the Company, and assuming the Trustee has been duly
authorized to do so, when executed, authenticated, issued and
delivered by the Trustee in accordance with the Pooling and Servicing
Agreement, the Certificates will be validly issued and outstanding and
will be entitled to the benefits provided by the Pooling and Servicing
Agreement.
K. No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body of
the United States is required for the issuance of the Certificates and
the sale of the Offered Certificates to the Underwriters, or the
consummation by the Company of the other transactions contemplated by
this Agreement, the Pooling and Servicing Agreement, the Purchase
Agreement, the Indemnification Agreement and the Insurance Agreement,
except such consents, approvals, authorizations, registrations or
qualifications as may be required under State securities or Blue Sky
laws in connection with the purchase and distribution of the Class A
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Certificates by the Underwriters or as have been obtained.
L. The Company possesses all material licenses, certificates,
authorities or permits issued by the appropriate State, Federal or
foreign regulatory agencies or bodies necessary to conduct the
business now conducted by it and as described in the Prospectus, and
the Company has not received notice of any proceedings relating to the
revocation or modification of any such license, certificate, authority
or permit which if decided adversely to the Company would, singly or
in the aggregate, materially and adversely affect the conduct of its
business, operations or financial condition.
M. At the time of execution and delivery of the Pooling and
Servicing Agreement, the Company will: (i) have good title to the
interest in the Mortgage Loans conveyed by the Affiliated Originators,
free and clear of any lien, mortgage, pledge, charge, encumbrance,
adverse claim or other security interest (collectively, "Liens"); (ii)
not have assigned to any person any of its right, title or interest in
the Mortgage Loans, in the Purchase Agreement, in the Pooling and
Servicing Agreement or in the Offered Certificates being issued
pursuant thereto; and (iii) have the power and authority to sell its
interest in the Mortgage Loans to the Trustee and to sell the Offered
Certificates to the Underwriters. Upon execution and delivery of the
Pooling and Servicing Agreement by the Trustee, the Trustee will have
acquired beneficial ownership of all of the Company's right, title and
interest in and to the Mortgage Loans. Upon delivery to the
Underwriters of the Offered Certificates, the Underwriters will have
good title to the Offered Certificates, free of any Liens.
N. As of the Cut-off Date, each of the Mortgage Loans will meet
the eligibility criteria described in the Prospectus and will conform
to the descriptions thereof contained in the Prospectus.
O. Neither the Company nor the Trust created by the Pooling and
Servicing Agreement is an "investment company" within the meaning of
such term under the Investment Company Act of 1940 (the "1940 Act")
and the rules and regulations of the Commission thereunder.
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P. At the Closing Date, the Certificates and the Pooling and
Servicing Agreement will conform in all material respects to the
descriptions thereof contained in the Prospectus.
Q. At the Closing Date, the Offered Certificates shall have been
rated in the highest rating category by at least two nationally
recognized rating agencies.
R. Any taxes, fees and other governmental charges in connection
with the execution, delivery and issuance of this Agreement, the
Pooling and Servicing Agreement, the Purchase Agreement, the Insurance
Agreement, the Indemnification Agreement and the Certificates have
been paid or will be paid at or prior to the Closing Date.
S. At the Closing Date, each of the representations and
warranties of the Company set forth in the Pooling and Servicing
Agreement and the Insurance Agreement will be true and correct in all
material respects.
Any certificate signed by an officer of the Company and delivered to
the Representative or counsel for the Underwriters in connection with an
offering of the Offered Certificates shall be deemed, and shall state that it
is, a representation and warranty as to the matters covered thereby to each
person to whom the representations and warranties in this Section I are made.
SECTION II. Purchase and Sale. The commitment of the Underwriters to
-----------------
purchase the Offered Certificates pursuant to this Agreement shall be deemed to
have been made on the basis of the representations and warranties herein
contained and shall be subject to the terms and conditions herein set forth.
The Company agrees to instruct the Trustee to issue and agrees to sell to the
Underwriters, and the Underwriters agree (except as provided in Sections X and
XI hereof) to purchase from the Company the aggregate initial principal amounts
of Offered Certificates set forth on Schedule A, at the purchase price or prices
set forth in Schedule A.
The obligations of the Underwriters hereunder to purchase the Offered
Certificates of each Class shall be several and not joint. Each Underwriter's
obligation shall be to purchase the aggregate principal amount of Offered
Certificates of the related Class as is indicated with respect to each
Underwriter under the caption "Underwriting" in the Prospectus. The right of
the Company and a non-
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defaulting Underwriter shall be as set forth in Section XIII hereof.
SECTION III. Delivery and Payment. Delivery of and payment for the
--------------------
Offered Certificates to be purchased by the Underwriters shall be made at the
offices of Dewey Ballantine, 1301 Sixth Avenue, New York, New York 10019, or at
such other place as shall be agreed upon by the Representative and the Company
at 10:00 A.M. New York City time on February 15, 1996 or at such other time or
date as shall be agreed upon in writing by the Representative and the Company
(such date being referred to as the "Closing Date"). Payment shall be made to
the Company by wire transfer of same day funds payable to the account of the
Company. Delivery of the Offered Certificates shall be made to the
Representative for the accounts of the Underwriters against payment of the
purchase price thereof. The Offered Certificates shall be in such denominations
and registered in such names as the Representative may request in writing at
least two business days prior to the Closing Date. The Offered Certificates
will be made available for examination by the Representative no later than 2:00
p.m. New York City time on the first business day prior to the Closing Date.
SECTION IV. Offering by the Underwriters. It is understood that,
----------------------------
subject to the terms and conditions hereof, the Underwriters proposes to offer
the Offered Certificates for sale to the public as set forth in the Prospectus.
SECTION V. Covenants of the Company. The Company agrees as follows:
------------------------
A. To prepare the Prospectus in a form approved by the
Representative and to file such Prospectus pursuant to Rule 424(b)
under the Securities Act not later than the Commission's close of
business on the second business day following the execution and
delivery of this Agreement; to make no further amendment or any
supplement to the Registration Statement or to the Prospectus prior to
the Closing Date except as permitted herein; to advise the
Representative, promptly after it receives notice thereof, of the time
when any amendment to the Registration Statement has been filed or
becomes effective or any supplement to the Prospectus or any amended
Prospectus has been filed and to furnish the Representative with
copies thereof; to file promptly all reports and any definitive proxy
or information statements required to be filed by the Company with the
Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act subsequent to the date of the Prospectus and, for
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so long as the delivery of a prospectus is required in connection with
the offering or sale of the Offered Certificates, to promptly advise
the Representative of its receipt of notice of the issuance by the
Commission of any stop order or of: (i) any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus;
(ii) the suspension of the qualification of the Offered Certificates
for offering or sale in any jurisdiction; (iii) the initiation of or
threat of any proceeding for any such purpose; (iv) any request by the
Commission for the amending or supplementing of the Registration
Statement or the Prospectus or for additional information. In the
event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus or
suspending any such qualification, the Company promptly shall use its
best efforts to obtain the withdrawal of such order or suspension.
B. To furnish promptly to the Representative and to counsel for
the Underwriters a signed copy of the Registration Statement as
originally filed with the Commission, and of each amendment thereto
filed with the Commission, including all consents and exhibits filed
therewith.
C. To deliver promptly to the Representative such number of the
following documents as the Representative shall reasonably request:
(i) conformed copies of the Registration Statement as originally filed
with the Commission and each amendment thereto (in each case including
exhibits); (ii) each Preliminary Prospectus, the Prospectus and any
amended or supplemented Prospectus; and (iii) any document
incorporated by reference in the Prospectus (including exhibits
thereto). If the delivery of a prospectus is required at any time
prior to the expiration of nine months after the Effective Time in
connection with the offering or sale of the Offered Certificates, and
if at such time any events shall have occurred as a result of which
the Prospectus as then amended or supplemented would include any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made when such Prospectus is
delivered, not misleading, or, if for any other reason it shall be
necessary during such same period to amend or supplement the
Prospectus or to file under the Exchange Act any
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document incorporated by reference in the Prospectus in order to
comply with the Securities Act or the Exchange Act, the Company shall
notify the Representative and, upon the Representative's request,
shall file such document and prepare and furnish without charge to the
Underwriters and to any dealer in securities as many copies as the
Representative may from time to time reasonably request of an amended
Prospectus or a supplement to the Prospectus which corrects such
statement or omission or effects such compliance, and in case any of
the Underwriters are required to deliver a Prospectus in connection
with sales of any of the Offered Certificates at any time nine months
or more after the Effective Time, upon the request of the
Representative but at the expense of such Underwriter, the Company
shall prepare and deliver to such Underwriter as many copies as such
Underwriter may reasonably request of an amended or supplemented
Prospectus complying with Section 10(a)(3) of the Securities Act.
D. To file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the
Prospectus that may, in the judgment of the Company or the
Representative, be required by the Securities Act or requested by the
Commission.
E. Prior to filing with the Commission any (i) Preliminary
Prospectus, (ii) amendment to the Registration Statement or supplement
to the Prospectus, or document incorporated by reference in the
Prospectus, or (iii) Prospectus pursuant to Rule 424 of the Rules and
Regulations, to furnish a copy thereof to the Representative and
counsel for the Underwriters and obtain the consent of the
Representative to the filing.
F. To make generally available to holders of the Offered
Certificates as soon as practicable, but in any event not later than
90 days after the close of the period covered thereby, a statement of
earnings of the Trust (which need not be audited) complying with
Section 11(a) of the Securities Act and the Rules and Regulations
(including, at the option of the Company, Rule 158) and covering a
period of at least twelve consecutive months beginning not later than
the first day of the first fiscal quarter following the Closing Date.
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G. To use its best efforts, in cooperation with the
Representative, to qualify the Offered Certificates for offering and
sale under the applicable securities laws of such states and other
jurisdictions of the United States as the Representative may
designate, and maintain or cause to be maintained such qualifications
in effect for as long as may be required for the distribution of the
Offered Certificates. The Company will file or cause the filing of
such statements and reports as may be required by the laws of each
jurisdiction in which the Offered Certificates have been so qualified.
H. Not, without the Representative's prior written consent, to
publicly offer or sell or contract to sell any mortgage pass-through
securities, collateralized mortgage obligations or other similar
securities representing interests in or secured by other
mortgage-related assets originated or owned by the Company for a
period of 5 business days following the commencement of the offering
of the Offered Certificates to the public.
I. So long as the Offered Certificates shall be outstanding, to
deliver to the Representative as soon as such statements are furnished
to the Trustee: (i) the annual statement as to compliance delivered to
the Trustee pursuant to Section 8.16 of the Pooling and Servicing
Agreement; (ii) the annual statement of a firm of independent public
accountants furnished to the Trustee pursuant to Section 8.17 of the
Pooling and Servicing Agreement; and (iii) the Monthly Statement
furnished to the Certificateholders pursuant to Section 7.8 of the
Pooling and Servicing Agreement.
J. To apply the net proceeds from the sale of the Offered
Certificates in the manner set forth in the Prospectus.
SECTION VI. Conditions to the Underwriters' Obligations. The
-------------------------------------------
obligations of the Underwriters to purchase the Offered Certificates pursuant to
this Agreement are subject to: (i) the accuracy on and as of the Closing Date of
the representations and warranties on the part of the Company herein contained;
(ii) the performance by the Company of all of their respective obligations
hereunder; and (iii) the following conditions as of the Closing Date:
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A. The Representative shall have received confirmation of the
effectiveness of the Registration Statement. No stop order suspending
the effectiveness of the Registration Statement or any part thereof
shall have been issued and no proceeding for that purpose shall have
been initiated or threatened by the Commission. Any request of the
Commission for inclusion of additional information in the Registration
Statement or the Prospectus shall have been complied with.
B. None of the Underwriters shall have discovered and disclosed
to the Company on or prior to the Closing Date that the Registration
Statement or the Prospectus or any amendment or supplement thereto
contains an untrue statement of a fact or omits to state a fact which,
in the opinion of Dewey Ballantine, counsel for the Underwriters, is
material and is required to be stated therein or is necessary to make
the statements therein not misleading.
C. All corporate proceedings and other legal matters relating to
the authorization, form and validity of this Agreement, the Pooling
and Servicing Agreement, the Purchase Agreement, the Indemnification
Agreement, the Offered Certificates, the Registration Statement and
the Prospectus, and all other legal matters relating to this Agreement
and the transactions contemplated hereby shall be satisfactory in all
respects to counsel for the Underwriters, and the Company shall have
furnished to such counsel all documents and information that they may
reasonably request to enable them to pass upon such matters.
D. The Representative shall have received the favorable opinion
of Dewey Ballantine, special counsel to the Company with respect to
the following items, dated the Closing Date, to the effect that:
1. The Company has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of
Delaware, and is qualified to do business in each state necessary to
enable it to perform its obligations as Sponsor under the Pooling and
Servicing Agreement. The Company has the requisite power and
authority to execute and deliver, engage in the transactions
contemplated by, and perform and observe the conditions of, this
Agreement, the
14
<PAGE>
Pooling and Servicing Agreement, the Insurance Agreement, the
Purchase Agreement and the Indemnification Agreement.
2. This Agreement, the Certificates, the Pooling and Servicing
Agreement, the Insurance Agreement, the Purchase Agreement and the
Indemnification Agreement have been duly and validly authorized,
executed and delivered by the Company, all requisite corporate action
having been taken with respect thereto, and each (other than the
Certificates) constitutes the valid, legal and binding agreement of
the Company.
3. Neither the transfer of the Mortgage Loans to the Trust, the
issuance or sale of the Certificates nor the execution, delivery or
performance by the Company of the Pooling and Servicing Agreement,
this Agreement, the Insurance Agreement, the Purchase Agreement or the
Indemnification Agreement (A) conflicts or will conflict with or
results or will result in a breach of, or constitutes or will
constitute a default under, (i) any term or provision of the
certificate of incorporation or bylaws of the Company; (ii) any term
or provision of any material agreement, contract, instrument or
indenture, to which the Company is a party or is bound and known to
such counsel; or (iii) any order, judgment, writ, injunction or decree
of any court or governmental agency or body or other tribunal having
jurisdiction over the Company and known to such counsel; or (B)
results in, or will result in the creation or imposition of any lien,
charge or encumbrance upon the Trust Estate or upon the Certificates,
except as otherwise contemplated by the Pooling and Servicing
Agreement.
4. The endorsement and delivery of each Note, and the
preparation, delivery and recording of an Assignment with respect to
each Mortgage is sufficient to fully transfer to the Trustee for the
benefit of the Owners all right, title and interest of the Company in
the Note and Mortgage, as noteholder and mortgagee or assignee
thereof, subject to any exceptions set forth in such opinion, and will
be sufficient to permit the Trustee to avail itself of all protection
available under applicable law against the claims of any present or
future creditors of the Company and to prevent any other sale,
transfer, assignment, pledge or other encumbrance of the
15
<PAGE>
Mortgage Loans by the Company from being enforceable.
5. No consent, approval, authorization or order of,
registration or filing with, or notice to, courts, governmental agency
or body or other tribunal is required under the laws of the State of
New York, for the execution, delivery and performance of the Pooling
and Servicing Agreement, the Insurance Agreement, this Agreement, the
Indemnification Agreement, the Purchase Agreement or the offer,
issuance, sale or delivery of the Certificates or the consummation of
any other transaction contemplated thereby by the Company, except such
which have been obtained.
6. There are no actions, proceedings or investigations, to such
counsel's knowledge, pending or threatened against the Company before
any court, governmental agency or body or other tribunal (i) asserting
the invalidity of the Pooling and Servicing Agreement, the Insurance
Agreement, this Agreement, the Indemnification Agreement, the Purchase
Agreement or the Certificates (ii) seeking to prevent the issuance of
the Certificates or the consummation of any of the transactions
contemplated by the Pooling and Servicing Agreement, the
Indemnification Agreement, the Insurance Agreement or this Agreement,
(iii) which would materially and adversely affect the performance by
the Company of obligations under, or the validity or enforceability
of, the Pooling and Servicing Agreement, the Certificates, the
Indemnification Agreement, the Insurance Agreement, the Purchase
Agreement or this Agreement or (iv) that would adversely affect the
status of the Group I Mortgages as a "real estate mortgage investment
conduit" ("REMIC") as such term is defined in the Internal Revenue
Code of 1986, as amended.
7. To the best of the knowledge of such counsel, the Commission
has not issued any stop order suspending the effectiveness of the
Registration Statement or any order directed to any prospectus
relating to the Certificates (including the Prospectus), and has not
initiated or threatened any proceeding for that purpose.
8. The Registration Statement and the Prospectus (other than
the financial and statistical data included therein, as to which such
counsel need express no opinion), including
16
<PAGE>
the Incorporated Documents, as of the date on which the Registration
Statement was declared effective and as of the date hereof, comply as
to form in all material respects with the requirements of the 1933 Act
and the rules and regulations thereunder and the Exchange Act and the
rules and regulations thereunder, and such counsel does not know of
any amendment to the Registration Statement required to be filed, or
of any contracts, indentures or other documents of a character
required to be filed as an exhibit to the Registration Statement or
required to be described in the Registration Statement which has not
been filed or described as required.
9. Neither the qualification of the Pooling and Servicing
Agreement under the Trust Indenture Act of 1939 nor the registration
of the Trust created by such Agreement under the Investment Company
Act of 1940 is presently required.
10. The statements in the Prospectus set forth under the
captions "DESCRIPTION OF THE SECURITIES," "THE POOLING AND SERVICING
AGREEMENT" and "DESCRIPTION OF THE CERTIFICATES" to the extent such
statements purport to summarize certain provisions of the Certificates
or of the Pooling and Servicing Agreement, are fair and accurate in
all material respects.
11. The statements in the Prospectus set forth under the
captions "ERISA CONSIDERATIONS," "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES," and "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND
RELATED MATTERS" to the extent that they constitute matters of
federal, New York or California law, or federal, New York or
California legal conclusions provide a fair and accurate summary of
such law or conclusions.
12. Assuming that (a) the Trustee causes the Trust created under
the Pooling and Servicing Agreement to elect, as the Trustee has
covenanted to do in the Pooling and Servicing Agreement, to be treated
as a REMIC and (b) the parties to the Pooling and Servicing Agreement
comply with the terms thereof, the Trust will be treated as a REMIC,
the Class A-1, A-2, A-3, A-4, A-5, A-6, A-7 and A-8 Certificates
issued pursuant to the Pooling and Servicing Agreement will be treated
as the "regular interests" in the REMIC and the Class R Certificates
issued pursuant to the Pooling and Servicing Agreement will be treated
as
17
<PAGE>
the sole "residual interest" in the REMIC. The Trust will not be
subject to tax upon its income or assets by any taxing authority of
the State of New York or New York City or of the State of California
(except that no opinion need be expressed with respect to any minimum
tax).
13. Such opinion shall also relate to comparable matters with
respect to the Affiliated Originators and Advanta Mortgage Holding
Company.
14. No information has come to such counsel's attention which
causes them to believe that the Prospectus (other than the financial
statement and other financial and statistical data contained therein,
as to which such counsel need express no opinion), as of the date
thereof, contained any untrue statement of a material fact or omitted
to state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
15. Such other matters as the Representative may reasonably
request.
In rendering its opinions, the counsel described above may rely, as to
matters of fact, on certificates of responsible officers of the Company, the
Trustee and public officials. Such opinions may also assume the due
authorization, execution and delivery of the instruments and documents referred
to therein by the parties thereto other than the Company.
E. The Representative shall have received letters, including
bring-down letters, from Arthur Andersen and Co., dated on or before
the Closing Date, in form and substance satisfactory to the
Representative and counsel for the Underwriters, to the effect that
they have performed certain specified procedures requested by the
Representative with respect to the information set forth in the
Prospectus and certain matters relating to the Company.
F. The Offered Certificates shall have been rated in the
highest rating category by Standard & Poor's Corporation and by
Moody's Investor Services, Inc., and such ratings shall not have been
rescinded. The Representative and counsel for the Underwriters shall
have received copies of any opinions of counsel supplied to the rating
organizations relating to any matters with respect
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<PAGE>
to the Certificates. Any such opinions shall be dated the Closing
Date and addressed to the Underwriters or accompanied by reliance
letters to the Underwriters or shall state that the Underwriters may
rely upon them.
G. The Representative shall have received from the Company a
certificate, signed by the president, a senior vice president or a
vice president of the Company, dated the Closing Date, to the effect
that the signer of such certificate has carefully examined the
Registration Statement, the Pooling and Servicing Agreement and this
Agreement and that, to the best of his or her knowledge based upon
reasonable investigation:
1. the representations and warranties of the Company in this
Agreement and in the Indemnification Agreement, as of the Closing
Date, and in the Pooling and Servicing Agreement, the Insurance
Agreement, the Purchase Agreement and in all related agreements, as of
the date specified in such agreements, are true and correct, and the
Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to the
Closing Date;
2. there are no actions, suits or proceedings pending, or to the
best of such officer's knowledge, threatened against or affecting the
Company which if adversely determined, individually or in the
aggregate, would be reasonably likely to adversely affect the
Company's obligations under the Pooling and Servicing Agreement, the
Insurance Agreement, this Agreement, the Purchase Agreement or under
the Indemnification Agreement in any material way; and no merger,
liquidation, dissolution or bankruptcy of the Company is pending or
contemplated;
3. the information contained in the Registration Statement and
the Prospectus relating to the Company, the Mortgage Loans or the
servicing procedures of it or its affiliates or subservicer is true
and accurate in all material respects and nothing has come to his or
her attention that would lead such officer to believe that the
Registration Statement or Prospectus includes any untrue statement of
a material fact or omits to state a material fact necessary to make
the statements therein not misleading;
19
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4. the information set forth in the Schedule of Mortgage Loans
required to be furnished pursuant to the Pooling and Servicing
Agreement is true and correct in all material respects;
5. there has been no amendment or other document filed affecting
the articles of incorporation or bylaws of the Company since March 31,
1995, and no such amendment has been authorized. No event has
occurred since March 31, 1995, which has affected the good standing of
the Company under the laws of the State of Delaware;
6. there has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from
March 31, 1995;
7. on or prior to the Closing Date, there has been no
downgrading, nor has any notice been given of (A) any intended or
potential downgrading or (B) any review or possible changes in rating
the direction of which has not been indicated, in the rating, if any,
accorded the Company or in any rating accorded any securities of the
Company, if any, by any "nationally recognized statistical rating
organization," as such term is defined for purposes of the 1933 Act;
and
8. each person who, as an officer or representative of the
Company, signed or signs the Registration Statement, the Pooling and
Servicing Agreement, this Agreement, the Indemnification Agreement,
the Insurance Agreement, or any other document delivered pursuant
hereto, on the date of such execution, or on the Closing Date, as the
case may be, in connection with the transactions described in the
Pooling and Servicing Agreement, the Indemnification Agreement, the
Insurance Agreement, the Purchase Agreement and this Agreement was, at
the respective times of such signing and delivery, and is now, duly
elected or appointed, qualified and acting as such officer or
representative, and the signatures of such persons appearing on such
documents are their genuine signatures.
The Company shall attach to such certificate a true and correct copy
of its certificate or articles of incorporation, as appropriate, and bylaws
which are in full
20
<PAGE>
force and effect on the date of such certificate and a certified true copy of
the resolutions of its Board of Directors with respect to the transactions
contemplated herein.
H. The Representative shall have received a favorable opinion
of counsel to the Trustee, dated the Closing Date and in form and
substance satisfactory to the Representative, to the effect that:
1. the Trustee is a national banking association duly organized,
validly existing and in good standing under the laws of the United
States and has the power and authority to enter into and to take all
actions required of it under the Pooling and Servicing Agreement;
2. the Pooling and Servicing Agreement has been duly authorized,
executed and delivered by the Trustee and the Pooling and Servicing
Agreement constitutes the legal, valid and binding obligation of the
Trustee, enforceable against the Trustee in accordance with its terms,
except as enforceability thereof may be limited by (A) bankruptcy,
insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally, as such laws would apply
in the event of a bankruptcy, insolvency or reorganization or similar
occurrence affecting the Trustee, and (B) general principles of equity
regardless of whether such enforcement is sought in a proceeding at
law or in equity;
3. no consent, approval, authorization or other action by any
governmental agency or body or other tribunal is required on the part
of the Trustee in connection with its execution and delivery of the
Pooling and Servicing Agreement or the performance of its obligations
thereunder;
4. the Certificates have been duly executed, authenticated and
delivered by the Trustee; and
5. the execution and delivery of, and performance by the Trustee
of its obligations under, the Pooling and Servicing Agreement do not
conflict with or result in a violation of any statute or regulation
applicable to the Trustee, or the charter or bylaws of the Trustee, or
to the best knowledge of such counsel, any governmental authority
having jurisdiction over the Trustee or the terms of any indenture or
other agreement or
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instrument to which the Trustee is a party or by which it is bound.
In rendering such opinion, such counsel may rely, as to matters of
fact, on certificates of responsible officers of the Company, the Trustee and
public officials. Such opinion may also assume the due authorization, execution
and delivery of the instruments and documents referred to therein by the parties
thereto other than the Trustee.
I. The Representative shall have received from the Trustee a
certificate, signed by the President, a senior vice president or a
vice president of the Trustee, dated the Closing Date, to the effect
that each person who, as an officer or representative of the Trustee,
signed or signs the Certificates, the Pooling and Servicing Agreement
or any other document delivered pursuant hereto, on the date hereof or
on the Closing Date, in connection with the transactions described in
the Pooling and Servicing Agreement was, at the respective times of
such signing and delivery, and is now, duly elected or appointed,
qualified and acting as such officer or representative, and the
signatures of such persons appearing on such documents are their
genuine signatures.
J. The Policy relating to the Certificates shall have been duly
executed and issued at or prior to the Closing Date and shall conform
in all material respects to the description thereof in the Prospectus.
K. The Representative shall have received a favorable opinion
of in-house counsel to the Insurer, dated the Closing Date and in form
and substance satisfactory to counsel for the Underwriters, to the
effect that:
1. The Insurer is a stock insurance corporation, duly
incorporated and validly existing under the laws of the State of New
York. The Insurer is validly licensed and authorized to issue the
Policy and perform its obligations under the Policy in accordance with
the terms thereof, under the laws of the State of New York.
2. The execution and delivery by the Insurer of the Policy, the
Insurance Agreement and the Indemnification Agreement are within the
corporate power of the Insurer and have been authorized by all
necessary corporate action on
22
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the part of the Insurer; the Policy has been duly executed and is the
valid and binding obligation of the Insurer enforceable in accordance
with its terms except that the enforcement of the Policy may be
limited by laws relating to bankruptcy, insolvency, reorganization,
moratorium, receivership and other similar laws affecting creditors'
rights generally and by general principles of equity.
3. The Insurer is authorized to deliver the Insurance Agreement
and the Indemnification Agreement, and such agreements have been duly
executed and delivered and constitute the legal, valid and binding
obligations of the Insurer enforceable in accordance with its terms
except that the enforcement of the Insurance Agreement and the
Indemnification Agreement may be limited by laws relating to
bankruptcy, insolvency, reorganization, moratorium, receivership and
other similar laws affecting creditors' rights generally and by
general principles of equity and by public policy considerations
relating to indemnification for securities law violations.
4. No consent, approval, authorization or order of any state or
federal court or governmental agency or body is required on the part
of the Insurer, the lack of which would adversely affect the validity
or enforceability of the Policy; to the extent required by applicable
legal requirements that would adversely affect validity or
enforceability of the Policy, the form of the Policy has been filed
with, and approved by, all governmental authorities having
jurisdiction over the Insurer in connection with the Policy.
5. The Certificate Insurance Policy is not required to be
registered under the Securities Act.
6. The information set forth under the caption "THE CERTIFICATE
INSURANCE POLICY" and "THE CERTIFICATE INSURER" in the Prospectus
forming a part of the Registration Statement, insofar as such
statements constitute a description of the Policy, accurately
summarizes the Policy.
In rendering this opinion, such counsel may rely, as to matters of
fact, on certificates of responsible officers of the Company, the Trustee, the
Insurer and public
23
<PAGE>
officials. Such opinion may assume the due authorization, execution and
delivery of the instruments and documents referred to therein by the parties
thereto other than the Insurer.
L. On or prior to the Closing Date, there has been no
downgrading, nor has any notice been given of (A) any intended or
potential downgrading or (B) any review or possible changes in rating
the direction of which has not been indicated, in the rating, if any,
accorded the Company or in any rating accorded any securities of the
Company, if any, by any "nationally recognized statistical rating
organization," as such term is defined for purposes of the 1933 Act.
M. On or prior to the Closing Date there shall not have
occurred any downgrading, nor shall any notice have been given of (A)
any intended or potential downgrading or (B) any review or possible
change in rating the direction of which has not been indicated, in the
rating accorded the Insurer's claims paying ability by any "nationally
recognized statistical rating organization," as such term is defined
for purposes of the 1933 Act.
N. There has not occurred any change, or any development
involving a prospective change, in the condition, financial or
otherwise, or in the earnings, business or operations, since
December 31, 1995, of (A) the Company and its subsidiaries or (B) the
Insurer, that is in the Representative's judgment material and adverse
and that makes it in the Representative's judgment impracticable to
market the Offered Certificates on the terms and in the manner
contemplated in the Prospectus.
O. The Representative shall have received from the Insurer a
certificate, signed by the President, a senior vice president or a
vice president of the Insurer, dated the Closing Date, to the effect
that the signer of such certificate has carefully examined the Policy,
the Insurance Agreement, the Indemnification Agreement and the related
documents and that, to the best of his or her knowledge based on
reasonable investigation:
1. there are no actions, suits or proceedings pending or
threatened against or affecting the Insurer which, if adversely
determined, individually or in the aggregate, would adversely affect
the Insurer's performance
24
<PAGE>
under the Policy, the Insurance Agreement or the Indemnification
Agreement;
2. each person who as an officer or representative of the
Insurer, signed or signs the Policy, the Insurance Agreement, the
Indemnification Agreement or any other document delivered pursuant
hereto, on the date thereof, or on the Closing Date, in connection
with the transactions described in this Agreement was, at the
respective times of such signing and delivery, and is now, duly
elected or appointed, qualified and acting as such officer or
representative, and the signatures of such persons appearing on such
documents are their genuine signatures;
3. the information contained in the Prospectus under the
captions "THE CERTIFICATE INSURANCE POLICY" and "THE CERTIFICATE
INSURER" is true and correct in all material respects and does not
omit to state a material fact with respect to the description of the
Policy or the ability of the Insurer to meet its payment obligations
under the Policy;
4. the tables regarding the Insurer's capitalization set forth
under the heading "THE CERTIFICATE INSURANCE POLICY" and "THE
CERTIFICATE INSURER" presents fairly the capitalization of the Insurer
as of December 31, 1994 and September 30, 1995, respectively;
5. on or prior to the Closing Date, there has been no
downgrading, nor has any notice been given of (A) any intended or
potential downgrading or (B) any review or possible changes in rating
the direction of which has not been indicated, in the rating accorded
the claims paying ability of the Insurer by any "nationally recognized
statistical rating organization," as such term is defined for purposes
of the 1933 Act;
6. the audited balance sheet of the Insurer as of December 31,
1994 and the related statement of income and retained earnings for the
fiscal year then ended, and the accompanying footnotes, together with
opinions thereon dated January 20, 1995 and January 21, 1993 of KPMG
Peat Marwick and Ernst & Young respectively, independent certificated
public accountants, copies of which are included in the Prospectus,
fairly present in all material respects the financial condition of the
Insurer as of such date and for the period
25
<PAGE>
covered by such statements in accordance with generally accepted
accounting principles consistently applied; the unaudited balance
sheet of the Insurer as of September 30, 1995 and the related
statement of income and retained earnings for the three-month period
then ended, copies of which are included in the Prospectus, fairly
present in all material respects the financial condition of the
Insurer as of such date and for the period covered by such statements
in accordance with generally accepted accounting principles applied
consistently with those principles applied in preparing the December
31, 1994 audited statements.
7. to the best knowledge of such officer, since September 30,
1995, no material adverse change has occurred in the financial
position of the Insurer other than as set forth in the Prospectus.
The officer of the Insurer certifying to items 5-7 shall be an officer
in charge of a principal financial function.
The Insurer shall attach to such certificate a true and correct copy
of its certificate or articles of incorporation, as appropriate, and its bylaws,
all of which are in full force and effect on the date of such certificate.
P. The Representative shall have received from Dewey
Ballantine, special counsel to the Company, a survey in form and
substance satisfactory to the Representative, indicating the
requirements of applicable local law which must be complied with in
order to transfer and service the Mortgage Loans pursuant to the
Pooling and Servicing Agreement and the Company shall have complied
with all such requirements.
Q. The Representative shall have received from Dewey
Ballantine, special counsel to the Underwriters, such opinion or
opinions, dated the Closing Date, with respect to the issuance and
sale of the Certificates, the Prospectus and such other related
matters as the Representative shall reasonably require.
R. The Representative and counsel for the Underwriters shall
have received copies of any opinions of counsel to the Company or the
Insurer supplied to the Trustee relating to matters with
26
<PAGE>
respect to the Certificates or the Policy. Any such opinions shall be
dated the Closing Date and addressed to the Underwriters or
accompanied by reliance letters to the Underwriters or shall state the
Underwriters may rely thereon.
S. The Representative shall have received such further
information, certificates and documents as the Representative may
reasonably have requested not fewer than three (3) full business days
prior to the Closing Date.
T. There shall have been executed and delivered by Advanta
Mortgage Holding Company, the corporate parent of the Company
("AMHC"), a letter agreement with the Trustee and the Insurer,
pursuant to which AMHC agrees to become jointly and severally liable
with the Company and Advanta Mortgage Corp. USA for the payment of the
Joint and Several Obligations (as defined in such letter agreement).
U. Prior to the Closing Date, counsel for the Underwriters shall
have been furnished with such documents and opinions as they may
reasonably require for the purpose of enabling them to pass upon the
issuance and sale of the Offered Certificates as herein contemplated
and related proceedings or in order to evidence the accuracy and
completeness of any of the representations and warranties, or the
fulfillment of any of the conditions, herein contained, and all
proceedings taken by the Company in connection with the issuance and
sale of the Certificates as herein contemplated shall be satisfactory
in form and substance to the Representative and counsel for the
Underwriters.
V. Subsequent to the execution and delivery of this Agreement
none of the following shall have occurred: (i) trading in securities
generally on the New York Stock Exchange, the American Stock Exchange
or the over-the-counter market shall have been suspended or minimum
prices shall have been established on either of such exchanges or such
market by the Commission, by such exchange or by any other regulatory
body or governmental authority having jurisdiction; (ii) a banking
moratorium shall have been declared by Federal or state authorities;
(iii) the United States shall have become engaged in hostilities,
there shall have been an escalation of hostilities involving the
United States or there shall have been a
27
<PAGE>
declaration of a national emergency or war by the United States; or
(iv) there shall have occurred such a material adverse change in
general economic, political or financial conditions (or the effect of
international conditions on the financial markets of the United States
shall be such) as to make it, in the judgment of the Representative,
impractical or inadvisable to proceed with the public offering or
delivery of the Certificates on the terms and in the manner
contemplated in the Prospectus.
If any condition specified in this Section VI shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be terminated
by the Representative by notice to the Company at any time at or prior to the
Closing Date, and such termination shall be without liability of any party to
any other party except as provided in Section VII.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Underwriters.
SECTION VII. Payment of Expenses. The Company agrees to pay: (a) the
-------------------
costs incident to the authorization, issuance, sale and delivery of the Offered
Certificates and any taxes payable in connection therewith; (b) the costs
incident to the preparation, printing and filing under the Securities Act of the
Registration Statement and any amendments and exhibits thereto; (c) the costs of
distributing the Registration Statement as originally filed and each amendment
thereto and any post-effective amendments thereof (including, in each case,
exhibits), the Preliminary Prospectus, the Prospectus and any amendment or
supplement to the Prospectus or any document incorporated by reference therein,
all as provided in this Agreement; (d) the costs of reproducing and distributing
this Agreement; (e) the fees and expenses of qualifying the Offered Certificates
under the securities laws of the several jurisdictions as provided in Section
V(G) hereof and of preparing, printing and distributing a Blue Sky Memorandum
and a Legal Investment Survey (including related fees and expenses of counsel to
the Underwriters); (f) any fees charged by securities rating services for rating
the Offered Certificates; and (g) all other costs and expenses incident to the
performance of the obligations of the Company (including costs and expenses of
your counsel); provided that, except as provided in this Section VII, the
--------
Underwriters shall pay their own costs and expenses, including the costs and
expenses of Dewey Ballantine, any transfer taxes on the Offered Certificates
28
<PAGE>
which they may sell and the expenses of advertising any offering of the Offered
Certificates made by the Underwriters.
If this Agreement is terminated by the Representative, in accordance
with the provisions of Section VI or Section X, the Company shall reimburse the
Underwriters for their respective reasonable out-of-pocket expenses, including
fees and disbursements of Dewey Ballantine, counsel for the Underwriters.
SECTION VIII. Indemnification and Contribution. A. The Company
--------------------------------
agrees to indemnify and hold harmless each Underwriter and each person, if any,
who controls such Underwriter within the meaning of Section 15 of the Securities
Act from and against any and all loss, claim, damage or liability, joint or
several, or any action in respect thereof (including, but not limited to, any
loss, claim, damage, liability or action relating to purchases and sales of the
Offered Certificates), to which such Underwriter or any such controlling person
may become subject, under the Securities Act or otherwise, insofar as such loss,
claim, damage, liability or action arises out of, or is based upon, (i) any
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, (iii) any untrue statement or alleged untrue statement
of a material fact contained in the Prospectus or (iv) the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading and shall reimburse such Underwriter
and each such controlling person promptly upon demand for any legal or other
expenses reasonably incurred by such Underwriter or such controlling person in
connection with investigating or defending or preparing to defend against any
such loss, claim, damage, liability or action as such expenses are incurred;
provided, however, that the Company shall not be liable in any such case to the
- -------- -------
extent that any such loss, claim, damage, liability or action arises out of, or
is based upon, any untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Prospectus or the
Registration Statement in reliance upon and in conformity with written
information (including any Derived Information) furnished to the Company through
the Representative specifically for inclusion therein; and provided further that
-------- -------
as to any Preliminary Prospectus this indemnity shall not inure to the benefit
of any Underwriter or any controlling person on account of any loss, claim,
damage, liability or action arising from the sale of the Offered
29
<PAGE>
Certificates to any person by such Underwriter if such Underwriter failed to
send or give a copy of the Prospectus, as amended or supplemented, to that
person within the time required by the Securities Act, and the untrue statement
or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact in the Preliminary Prospectus was corrected in
the Prospectus, unless such failure resulted from non-compliance by the Company
with Section V(C). For purposes of the last proviso to the immediately
preceding sentence, the term "Prospectus" shall not be deemed to include the
documents incorporated therein by reference, and none of the Underwriters shall
be obligated to send or give any supplement or amendment to any document
incorporated therein by reference to any person other than a person to whom such
Underwriter had delivered such incorporated document or documents in response to
a written request therefor. The foregoing indemnity agreement is in addition to
any liability which the Company may otherwise have to any Underwriters or any
controlling person of such Underwriter.
B. Each Underwriter agrees severally, and not jointly to indemnify
and hold harmless the Company, each of its directors, each of its officers who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act against any and
all loss, claim, damage or liability, or any action in respect thereof, to which
the Company or any such director, officer or controlling person may become
subject, under the Securities Act or otherwise, insofar as such loss, claim,
damage, liability or action arises out of, or is based upon, (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, (iii) any untrue statement or alleged untrue statement
of a material fact contained in the Prospectus or (iv) the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, but in each case only to the extent
that the untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company by or on behalf of such Underwriter specifically for
inclusion therein, and shall reimburse the Company and any such director,
officer or controlling person for any legal or other expenses reasonably
incurred by the Company or any director, officer or controlling person in
connection with investigating or defending or preparing to defend against any
such loss, claim, damage, liability or action as such expenses are
30
<PAGE>
incurred. The foregoing indemnity agreement is in addition to any liability
which any Underwriter may otherwise have to the Company or any such director,
officer or controlling person.
C. Promptly after receipt by any indemnified party under this Section
VIII of notice of any claim or the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against any
indemnifying party under this Section VIII, notify the indemnifying party in
writing of the claim or the commencement of that action; provided, however, that
-------- -------
the failure to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section VIII except to the extent it has
been materially prejudiced by such failure and, provided further, that the
-------- -------
failure to notify any indemnifying party shall not relieve it from any liability
which it may have to any indemnified party otherwise than under this Section
VIII.
If any such claim or action shall be brought against an indemnified
party, and it shall notify the indemnifying party thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it
wishes, jointly with any other similarly notified indemnifying party, to assume
the defense thereof with counsel reasonably satisfactory to the indemnified
party. After notice from the indemnifying party to the indemnified party of its
election to assume the defense of such claim or action, the indemnifying party
shall not be liable to the indemnified party under this Section VIII for any
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof other than reasonable costs of
investigation.
Any indemnified party shall have the right to employ separate counsel
in any such action and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless: (i) the employment thereof has been specifically authorized by the
indemnifying party in writing; (ii) such indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
indemnifying party and in the reasonable judgment of such counsel it is
advisable for such indemnified party to employ separate counsel; or (iii) the
indemnifying party has failed to assume the defense of such action and employ
counsel reasonably satisfactory to the indemnified party, in which case, if such
indemnified party notifies the indemnifying party in writing that it elects to
employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to
31
<PAGE>
assume the defense of such action on behalf of such indemnified party, it being
understood, however, the indemnifying party shall not, in connection with any
one such action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate firm of
attorneys (in addition to local counsel) at any time for all such indemnified
parties, which firm shall be designated in writing by the Underwriters, if the
indemnified parties under this Section VIII consist of the Underwriters or any
of their controlling persons, or by the Company, if the indemnified parties
under this Section VIII consist of the Company or any of the Company's
directors, officers or controlling persons.
Each indemnified party, as a condition of the indemnity agreements
contained in Section VIII(A) and (B), shall use its best efforts to cooperate
with the indemnifying party in the defense of any such action or claim. No
indemnifying party shall be liable for any settlement of any such action
effected without its written consent (which consent shall not be unreasonably
withheld), but if settled with its written consent or if there be a final
judgment for the plaintiff in any such action, the indemnifying party agrees to
indemnify and hold harmless any indemnified party from and against any loss or
liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified
party shall have requested an indemnifying party to reimburse the indemnified
party for fees and expenses of counsel, the indemnifying party agrees that it
shall be liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 30 days after
receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in accordance
with such request prior to the date of such settlement.
D. Each Underwriter agrees to deliver to the Company no later
than the date on which the Prospectus Supplement is required to be
filed pursuant to Rule 424 with a copy of its Derived Information
-------------------
(defined below) for filing with the Commission on Form 8-K.
E. Each Underwriter agrees, assuming all Company-Provided
Information (defined below) is accurate and complete in all material
respects, to severally and not jointly indemnify and hold harmless the
Company, each of the Company's
32
<PAGE>
officers and directors and each person who controls the Company within
the meaning of Section 15 of the Securities Act against any and all
losses, claims, damages or liabilities, joint or several, to which
they may become subject under the Securities Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement of a
material fact contained in the Derived Information provided by such
Underwriter, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, and
agrees to reimburse each such indemnified party for any legal or other
expenses reasonably incurred by him, her or it in connection with
investigating or defending or preparing to defend any such loss,
claim, damage, liability or action as such expenses are incurred. The
obligations of each of the Underwriters under this Section VIII(E)
shall be in addition to any liability which such Underwriter may
otherwise have.
The procedures set forth in Section VIII(C) shall be equally
applicable to this Section VIII(E).
F. For purposes of this Section VIII, the term "Derived
Information" means such portion, if any, of the information delivered
to the Company pursuant to Section VIII(D) for filing with the
Commission on Form 8-K as:
(i) is not contained in the Prospectus without taking into
account information incorporated therein by reference;
(ii) does not constitute Company-Provided Information; and
(iii) is of the type of information defined as Collateral
term sheets, structural term sheets or Computational
Materials (as such terms are interpreted in the No-
Action Letters).
"Company-Provided Information" means any computer tape furnished to
the Underwriters by the Company
33
<PAGE>
concerning the Mortgage Loans comprising the Trust.
The terms "Collateral term sheet" and "Structural term sheet"
shall have the respective meanings assigned to them in the February
13, 1995 letter (the "PSA Letter") of Cleary, Gottlieb, Steen &
Hamilton on behalf of the Public Securities Association (which letter,
and the SEC staff's response thereto, were publicly available February
17, 1995). The term "Collateral term sheet" as used herein includes
any subsequent Collateral term sheet that reflects a substantive
change in the information presented. The term "Computational
Materials" has the meaning assigned to it in the May 17, 1994 letter
(the "Kidder letter" and together with the PSA Letter, the No-Action
Letters") of Brown & Wood on behalf of Kidder, Peabody & Co., Inc.
(which letter, and the SEC staff's response thereto, are publicly
available May 20, 1994).
G. If the indemnification provided for in this Section VIII
shall for any reason be unavailable to or insufficient to hold
harmless an indemnified party under Section VIII(A) or (B) in respect
of any loss, claim, damage or liability, or any action in respect
thereof, referred to therein, then each indemnifying party shall, in
lieu of indemnifying such indemnified party, contribute to the amount
paid or payable by such indemnified party as a result of such loss,
claim, damage or liability, or action in respect thereof, (i) in such
proportion as shall be appropriate to reflect the relative benefits
received by the Company on the one hand and the Underwriters on the
other from the offering of the Offered Certificates or (ii) if the
allocation provided by clause (i) above is not permitted by applicable
law or if the indemnified party failed to give the notice required
under Section VIII(C), in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company on the one hand and the
Underwriters on the other with respect to the statements or omissions
which resulted in such loss, claim, damage or liability, or action in
respect thereof, as well as any other relevant equitable
considerations.
The relative benefits of the Underwriters and the Company shall be
deemed to be in such proportion so that the Underwriters are responsible for
that portion represented by
34
<PAGE>
the percentage that the underwriting discount appearing on the cover page of the
Final Prospectus bears to the public offering price appearing on the cover page
of the Final Prospectus.
The relative fault of the Underwriters and the Company shall be
determined by reference to whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Company or by one of the Underwriters, the intent
of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such statement or omission and other equitable
considerations.
The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section VIII(G) were to be
determined by pro rata allocation or by any other method of allocation which
does not take into account the equitable considerations referred to herein. The
amount paid or payable by an indemnified party as a result of the loss, claim,
damage or liability, or action in respect thereof, referred to above in this
Section VIII(G) shall be deemed to include, for purposes of this Section
VIII(G), any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
In no case shall any Underwriter be responsible for any amount in
excess of the Underwriting discount applicable to the Certificates purchased by
such Underwriter hereunder. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
H. The Underwriters severally confirm that the information set
forth (i) in the Prospectus Supplement relating to market making and
(ii) in the fourth paragraph under the caption "Underwriting" in the
Prospectus Supplement, together with the Derived Information, is
correct and constitutes the only information furnished in writing to
the Company by or on behalf of the Underwriters specifically for
inclusion in the Registration Statement and the Prospectus.
SECTION IX. Representations, Warranties and Agreements to Survive
-----------------------------------------------------
Delivery. All representations, warranties and agreements contained in this
- --------
Agreement or contained in certificates of officers of the Company submitted
pursuant hereto shall remain operative and in full force and effect, regardless
of any investigation made by or
35
<PAGE>
on behalf of the Underwriters or controlling persons thereof, or by or on behalf
of the Company and shall survive delivery of any Offered Certificates to the
Underwriters.
SECTION X. Termination of Agreement. The Representative may
------------------------
terminate this Agreement immediately upon notice to the Company, at any time at
or prior to the Closing Date if any of the events or conditions described in
Section VI(Y) of this Agreement shall occur and be continuing. In the event of
any such termination, the covenant set forth in Section V(G), the provisions of
Section VII, the indemnity agreement set forth in Section VIII, and the
provisions of Sections IX and XIII shall remain in effect.
SECTION XI. Notices. All statements, requests, notices and
-------
agreements hereunder shall be in writing, and:
A. if to the Underwriters, shall be delivered or sent by mail,
telex or facsimile transmission to Lehman Brothers Inc., as
Representative of the Underwriters, 3 World Financial Center, New
York, New York, 10285-1100, Attention: Syndicate Registration
Department (Fax: 212-528-8822);
B. if to the Company, shall be delivered or sent by mail, telex
or facsimile transmission to Accredited Home Lenders, Inc., 15030
Avenue of Science, Suite 100, San Diego, California 92128 Attention:
General Counsel (Fax: ___________).
SECTION XII. Persons Entitled to the Benefit of this Agreement. This
-------------------------------------------------
Agreement shall inure to the benefit of and be binding upon the Underwriters and
the Company, and their respective successors. This Agreement and the terms and
provisions hereof are for the sole benefit of only those persons, except that
the representations, warranties, indemnities and agreements contained in this
Agreement shall also be deemed to be for the benefit of the person or persons,
if any, who control the Underwriters within the meaning of Section 15 of the
Securities Act, and for the benefit of directors of the Company, officers of the
Company who have signed the Registration Statement and any person controlling
the Company within the meaning of Section 15 of the Securities Act. Nothing in
this Agreement is intended or shall be construed to give any person, other than
the persons referred to in this Section XII, any legal or equitable right,
remedy or claim under or in respect of this Agreement or any provision contained
herein.
SECTION XIII. Default by One of the Underwriters. If one of the
----------------------------------
Underwriters shall fail on the Closing Date to
36
<PAGE>
purchase the Offered Certificates which it is obligated to purchase hereunder
(the "Defaulted Certificates"), the remaining Underwriters (the "Non-Defaulting
Underwriter"), shall have the right, but not the obligation within one (1)
Business Day thereafter, to make arrangements to purchase all, but not less than
all, of the Defaulted Certificates upon the terms herein set forth; if, however,
the Non-Defaulting Underwriter shall not have completed such arrangements within
such one (1) Business Day period, then this Agreement shall terminate without
liability on the part of the Non-Defaulting Underwriter.
No action taken pursuant to this Section XIII shall relieve the defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a
termination of this Agreement, either the Non-Defaulting Underwriter or the
Company shall have the right to postpone the Closing Date for a period not
exceeding seven days in order to effect any required changes in the Registration
Statement or Prospectus or in any other documents or arrangements.
SECTION XIV. Survival. The respective indemnities, representations,
--------
warranties and agreements of the Company and the Underwriters contained in this
Agreement, or made by or on behalf of them, respectively, pursuant to this
Agreement, shall survive the delivery of and payment for the Certificates and
shall remain in full force and effect, regardless of any investigation made by
or on behalf of any of them or any person controlling any of them.
SECTION XV. Definition of the Term "Business Day". For purposes of
-------------------------------------
this Agreement, "Business Day" means any day on which the New York Stock
Exchange, Inc. is open for trading.
SECTION XVI. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND SHALL BE
CONSTRUED IN ACCORDANCE WITH SUCH LAWS WITHOUT REGARD TO PRINCIPLES OF CONFLICTS
OF LAW, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION XVII. Counterparts. This Agreement may be executed in
------------
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
SECTION XVIII. Headings. The headings herein are inserted for
--------
convenience of reference only and are not
37
<PAGE>
intended to be part of, or to affect the meaning or interpretation of, this
Agreement.
SECTION XIX. Representations of Underwriters. The Representative
-------------------------------
will act for the several Underwriters in connection with the transactions
contemplated by this Agreement, and any action under this Agreement taken by the
Representative will be binding upon all of the Underwriters.
38
<PAGE>
If the foregoing correctly sets forth the agreement between the
Company and the Underwriters, please indicate your acceptance in the space
provided for that purpose below.
Very truly yours,
ACCREDITED HOME LENDERS INC.
By:______________________
CONFIRMED AND ACCEPTED, as of
the date first above written:
LEHMAN BROTHERS INC.,
as Representative of the Underwriters
By:______________________
[Underwriting Agreement]
<PAGE>
SCHEDULE A
Purchase Price
Initial Principal Amount to Underwriters
of Offered Certificates disregarding
Class Purchased by accrued interest
----- ------------ ----------------
Underwriters
------------
Class A-1 $ %
Class A-2 $ %
Class A-3 $ %
Class A-4 $ %
Class A-5 $ %
Class A-6 $ %
Class A-7 $ %
Class A-8 $ %
40
Exhibit 4.1
DB Draft 7/19/96
----------------
POOLING AND SERVICING AGREEMENT
Relating to
ACCREDITED MORTGAGE LOAN TRUST
1996-1
Among
ACCREDITED HOME LENDERS,
as Sponsor and Master Servicer
and
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.,
as Trustee
Dated as of _________ __, 1996
164
<PAGE>
TABLE OF CONTENTS
(Not a Part of this Agreement)
Page
Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Recitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION . . . . . . . . . . . 2
1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . 2
Account . . . . . . . . . . . . . . . . . . . . . . . . . 2
Accredited Mortgage Files . . . . . . . . . . . . . . . . 2
Accredited Servicing Fee . . . . . . . . . . . . . . . . 2
Advanta Servicing Fee . . . . . . . . . . . . . . . . . . 2
Agreement . . . . . . . . . . . . . . . . . . . . . . . . 2
Appraised Value . . . . . . . . . . . . . . . . . . . . . 2
Authorized Officer . . . . . . . . . . . . . . . . . . . 2
Available Funds . . . . . . . . . . . . . . . . . . . . . 3
Balloon Loan . . . . . . . . . . . . . . . . . . . . . . 3
Base Group I Principal Distribution Amount . . . . . . . 3
Base Group II Principal Distribution Amount . . . . . . . 3
Business Day . . . . . . . . . . . . . . . . . . . . . . 3
Carry-Forward Amount . . . . . . . . . . . . . . . . . . 4
Certificate . . . . . . . . . . . . . . . . . . . . . . . 4
Certificate Account . . . . . . . . . . . . . . . . . . . 4
Certificate Insurance Policy . . . . . . . . . . . . . . 4
Certificate Insurer . . . . . . . . . . . . . . . . . . . 4
Certificate Insurer Default . . . . . . . . . . . . . . . 4
Certificate Insurer Premium Rate . . . . . . . . . . . . 4
Certificate Principal Balance . . . . . . . . . . . . . . 4
Class . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Class A Certificate . . . . . . . . . . . . . . . . . . . 5
Class A Group I Certificates . . . . . . . . . . . . . . 5
Class A Group I Distribution Account . . . . . . . . . . 5
Class A Group II Certificates . . . . . . . . . . . . . . 5
Class A Group II Distribution Account . . . . . . . . . . 5
Class A-1 Certificate . . . . . . . . . . . . . . . . . . 5
Class A-1 Certificate Principal Balance . . . . . . . . . 5
Class A-1 Certificate Termination Date . . . . . . . . . 5
Class A-1 Distribution Amount . . . . . . . . . . . . . . 5
Class A-1 Interest Carry-Forward Amount . . . . . . . . . 6
Class A-1 Interest Distribution Amount . . . . . . . . . 6
Class A-1 Pass-Through Rate . . . . . . . . . . . . . . . 6
Class A-1 Principal Carry-Forward Amount . . . . . . . . 6
Class A-1 Principal Distribution Amount . . . . . . . . . 6
Class A-1 Termination Date . . . . . . . . . . . . . . . 6
Class A-2 Certificate . . . . . . . . . . . . . . . . . . 6
Class A-2 Certificate Principal Balance . . . . . . . . . 7
Class A-2 Certificate Termination Date . . . . . . . . . 7
Class A-2 Distribution Amount . . . . . . . . . . . . . . 7
<PAGE>
Class A-2 Interest Carry-Forward Amount . . . . . . . . . 7
Class A-2 Interest Distribution Amount . . . . . . . . . 7
Class A-2 Pass-Through Rate . . . . . . . . . . . . . . . 7
Class A-2 Principal Carry-Forward Amount . . . . . . . . 7
Class A-2 Principal Distribution Amount . . . . . . . . . 8
Class A-3 Certificate . . . . . . . . . . . . . . . . . . 8
Class A-3 Certificate Principal Balance . . . . . . . . . 8
Class A-3 Certificate Termination Date . . . . . . . . . 8
Class A-3 Distribution Amount . . . . . . . . . . . . . . 8
Class A-3 Interest Carry-Forward Amount . . . . . . . . . 8
Class A-3 Interest Distribution Amount . . . . . . . . . 9
Class A-3 Pass-Through Rate . . . . . . . . . . . . . . . 9
Class A-3 Principal Carry-Forward Amount . . . . . . . . 9
Class A-3 Principal Distribution Amount . . . . . . . . . 9
Class A-4 Certificate . . . . . . . . . . . . . . . . . . 9
Class A-4 Certificate Principal Balance . . . . . . . . . 10
Class A-4 Certificate Termination Date . . . . . . . . . 10
Class A-4 Distribution Amount . . . . . . . . . . . . . . 10
Class A-4 Interest Carry-Forward Amount . . . . . . . . . 10
Class A-4 Interest Distribution Amount . . . . . . . . . 10
Class A-4 Pass-Through Rate . . . . . . . . . . . . . . . 10
Class A-4 Principal Carry-Forward Amount . . . . . . . . 10
Class A-4 Principal Distribution Amount . . . . . . . . . 11
Class A-5 Certificate . . . . . . . . . . . . . . . . . . 11
Class A-5 Certificate Principal Balance . . . . . . . . . 11
Class A-5 Certificate Termination Date . . . . . . . . . 11
Class A-5 Distribution Amount . . . . . . . . . . . . . . 11
Class A-5 Interest Carry-Forward Amount . . . . . . . . . 11
Class A-5 Interest Distribution Amount . . . . . . . . . 12
Class A-5 Pass-Through Rate . . . . . . . . . . . . . . . 12
Class A-5 Principal Carry-Forward Amount . . . . . . . . 12
Class A-5 Principal Distribution Amount . . . . . . . . . 12
Class A-6 Certificate . . . . . . . . . . . . . . . . . . 12
Class A-6 Certificate Principal Balance . . . . . . . . . 12
Class A-6 Distribution Account . . . . . . . . . . . . . 13
Class A-6 Distribution Amount . . . . . . . . . . . . . . 13
Class A-6 Formula Distribution Amount . . . . . . . . . . 13
Class A-6 Formula Pass-Through Rate . . . . . . . . . . . 13
Class A-6 Full Distribution Amount . . . . . . . . . . . 13
Class A-6 Full Interest Distribution Amount . . . . . . . 13
Class A-6 Insured Payment . . . . . . . . . . . . . . . . 13
Class A-6 Interest Carry-Forward Amount . . . . . . . . . 14
Class A-6 Interest Distribution Amount . . . . . . . . . 14
Class A-6 Pass-Through Rate . . . . . . . . . . . . . . . 14
Class A-6 Preference Amount . . . . . . . . . . . . . . . 14
Class A-6 Principal Carry-Forward Amount . . . . . . . . 14
Class A-6 Principal Distribution Amount . . . . . . . . . 14
Class A-6 Reimbursement Amount . . . . . . . . . . . . . 14
Class LT1 Certificates . . . . . . . . . . . . . . . . . 18
ii
<PAGE>
Class LT2 Certificates . . . . . . . . . . . . . . . . . 18
Class LT3 Certificates . . . . . . . . . . . . . . . . . 18
Class LT4 Certificates . . . . . . . . . . . . . . . . . 18
Class LT5 Certificates . . . . . . . . . . . . . . . . . 18
Class LT6 Certificates . . . . . . . . . . . . . . . . . 18
Class R Distribution Account . . . . . . . . . . . . . . 18
Class RL Certificates . . . . . . . . . . . . . . . . . . 18
Class RU Certificates . . . . . . . . . . . . . . . . . . 19
Clean-Up Call Date . . . . . . . . . . . . . . . . . . . 19
Code . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Combined Loan-to-Value Ratio . . . . . . . . . . . . . . 19
Compensating Interest . . . . . . . . . . . . . . . . . . 19
Coupon Rate . . . . . . . . . . . . . . . . . . . . . . . 19
Cut-Off Date . . . . . . . . . . . . . . . . . . . . . . 19
Date-of-Payment Loan . . . . . . . . . . . . . . . . . . 19
Delinquency Advance . . . . . . . . . . . . . . . . . . . 19
Delinquent . . . . . . . . . . . . . . . . . . . . . . . 19
Delivery Order . . . . . . . . . . . . . . . . . . . . . 20
Depository . . . . . . . . . . . . . . . . . . . . . . . 20
Designated Depository Institution . . . . . . . . . . . . 20
Determination Date . . . . . . . . . . . . . . . . . . . 20
Direct Participant" or "DTC Participant . . . . . . . . . 20
Disqualified Organization . . . . . . . . . . . . . . . . 21
Document Delivery Requirements . . . . . . . . . . . . . 21
Eligible Investments . . . . . . . . . . . . . . . . . . 21
Excess Spread Rate . . . . . . . . . . . . . . . . . . . 21
Excess Subordinated Amount . . . . . . . . . . . . . . . 22
Event of Default . . . . . . . . . . . . . . . . . . . . 22
FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . 22
File . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Final Determination . . . . . . . . . . . . . . . . . . . 22
First Mortgage Loan . . . . . . . . . . . . . . . . . . . 22
FNMA . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Gross Margin . . . . . . . . . . . . . . . . . . . . . . 22
Group I . . . . . . . . . . . . . . . . . . . . . . . . . 22
Group I Amortized Subordinated Amount Requirement . . . . 23
Group I Available Funds . . . . . . . . . . . . . . . . . 23
Group I Certificate Principal Balance . . . . . . . . . . 23
Group I Certificates . . . . . . . . . . . . . . . . . . 23
Group I Deficiency Amount . . . . . . . . . . . . . . . . 23
Group I Formula Distribution Amount . . . . . . . . . . . 23
Group I Initial Specified Subordinated Amount . . . . . . 24
Group I Insured Distribution Amount . . . . . . . . . . . 24
Group I Insured Interest Distribution Amount . . . . . . 24
Group I Insured Payment . . . . . . . . . . . . . . . . . 24
iii
<PAGE>
Group I Insured Principal Distribution Amount . . . . . . 24
Group I Interest Distribution Amount . . . . . . . . . . 24
Group I Interest Remittance Amount . . . . . . . . . . . 24
Group I Monthly Remittance Amount . . . . . . . . . . . . 25
Group I Net Funds Cap Rate . . . . . . . . . . . . . . . 25
Group I Preference Amount . . . . . . . . . . . . . . . . 25
Group I Premium Amount . . . . . . . . . . . . . . . . . 26
Group I Principal Carry-Forward Amount . . . . . . . . . 26
Group I Principal Distribution Amount . . . . . . . . . . 26
Group I Principal Remittance Amount . . . . . . . . . . . 27
Group I Projected Net Monthly Excess Cashflow . . . . . . 28
Group I Reimbursement Amount . . . . . . . . . . . . . . 28
Group I Specified Subordinated Amount . . . . . . . . . . 28
Group I Subordinated Amount . . . . . . . . . . . . . . . 28
Group I Subordination Deficiency Amount . . . . . . . . . 28
Group I Subordination Deficit . . . . . . . . . . . . . . 28
Group I Subordination Increase Amount . . . . . . . . . . 29
Group I Subordination Reduction Amount . . . . . . . . . 29
Interest Account . . . . . . . . . . . . . . . . . . . . 29
Group I Total Available Funds . . . . . . . . . . . . . . 29
Group I Total Monthly Excess Spread . . . . . . . . . . . 29
Group I Weighted Average Net Loan Rate . . . . . . . . . 29
Group I Weighted Average Pass-Through Rate . . . . . . . 30
Group II . . . . . . . . . . . . . . . . . . . . . . . . 30
Group II Amortized Subordinated Amount Requirement . . . 30
Group II Available Funds . . . . . . . . . . . . . . . . 30
Group II Deficiency Amount . . . . . . . . . . . . . . . 30
Group II Initial Specified Subordinated Amount . . . . . 30
Group II Insured Distribution Amount . . . . . . . . . . 30
Group II Insured Interest Distribution Amount . . . . . . 31
Group II Insured Payment . . . . . . . . . . . . . . . . 31
Group II Insured Principal Distribution Amount . . . . . 31
Group II Interest Remittance Amount . . . . . . . . . . . 31
Group II Monthly Remittance Amount . . . . . . . . . . . 31
Group II Preference Amount . . . . . . . . . . . . . . . 31
Group II Premium Amount" . . . . . . . . . . . . . . . . 31
Group II Principal Carry-Forward Amount . . . . . . . . . 31
Group II Principal Distribution Amount . . . . . . . . . 32
Group II Principal Remittance Amount . . . . . . . . . . 32
Group II Projected Net Monthly Excess Cashflow . . . . . 32
Group II Specified Subordinated Amount . . . . . . . . . 32
Group II Subordinated Amount . . . . . . . . . . . . . . 32
iv
<PAGE>
Group II Subordination Deficiency Amount . . . . . . . . 32
Group II Subordination Deficit . . . . . . . . . . . . . 33
Group II Subordination Increase Amount . . . . . . . . . 33
Group II Supplemental Interest Account . . . . . . . . . 33
Group II Total Available Funds . . . . . . . . . . . . . 33
Indemnification Agreement . . . . . . . . . . . . . . . . 33
Index . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Indirect Participant . . . . . . . . . . . . . . . . . . 33
Initial Premiums . . . . . . . . . . . . . . . . . . . . 33
Insurance Agreement . . . . . . . . . . . . . . . . . . . 33
Insurance Policy . . . . . . . . . . . . . . . . . . . . 33
Insured Payment . . . . . . . . . . . . . . . . . . . . . 34
Interest Accrual Period . . . . . . . . . . . . . . . . . 34
Interest Advance . . . . . . . . . . . . . . . . . . . . 34
Interest Determination Date . . . . . . . . . . . . . . . 34
Interest Rate Adjustment Date . . . . . . . . . . . . . . 34
Late Payment Rate . . . . . . . . . . . . . . . . . . . . 34
LIBOR . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Liquidated Loan . . . . . . . . . . . . . . . . . . . . . 35
Liquidation Expenses . . . . . . . . . . . . . . . . . . 35
Liquidation Proceeds . . . . . . . . . . . . . . . . . . 35
Loan Balance . . . . . . . . . . . . . . . . . . . . . . 35
Loan Purchase Price . . . . . . . . . . . . . . . . . . . 35
London Business Day . . . . . . . . . . . . . . . . . . . 36
Lower Tier Distribution Amount . . . . . . . . . . . . . 36
Lower-Tier Interests . . . . . . . . . . . . . . . . . . 36
Lower-Tier REMIC . . . . . . . . . . . . . . . . . . . . 36
Master Servicer . . . . . . . . . . . . . . . . . . . . . 36
Master Servicer's Trust Receipt . . . . . . . . . . . . . 36
Master Servicing Fee . . . . . . . . . . . . . . . . . . 36
Monthly Remittance Amount . . . . . . . . . . . . . . . . 36
Moody's . . . . . . . . . . . . . . . . . . . . . . . . . 36
Mortgage . . . . . . . . . . . . . . . . . . . . . . . . 36
Mortgage Loan Group . . . . . . . . . . . . . . . . . . . 36
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . 36
Mortgagor . . . . . . . . . . . . . . . . . . . . . . . . 37
Net Liquidation Proceeds . . . . . . . . . . . . . . . . 37
Net Monthly Excess Cashflow . . . . . . . . . . . . . . . 37
Note . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Officer's Certificate . . . . . . . . . . . . . . . . . . 37
Operative Documents . . . . . . . . . . . . . . . . . . . 37
Original Aggregate Loan Balance . . . . . . . . . . . . . 37
Original Certificate Principal Balance . . . . . . . . . 38
Original Principal Amount . . . . . . . . . . . . . . . . 38
Originator . . . . . . . . . . . . . . . . . . . . . . . 38
Outstanding . . . . . . . . . . . . . . . . . . . . . . . 38
Overfunded Interest Amount . . . . . . . . . . . . . . . 38
Owner . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Pass-Through Rate . . . . . . . . . . . . . . . . . . . . 39
Payment Date . . . . . . . . . . . . . . . . . . . . . . 39
v
<PAGE>
Percentage Interest . . . . . . . . . . . . . . . . . . . 39
Person . . . . . . . . . . . . . . . . . . . . . . . . . 40
Pool Cumulative Realized Losses . . . . . . . . . . . . . 40
Pool Delinquency Rate . . . . . . . . . . . . . . . . . . 40
Pool Principal Balance . . . . . . . . . . . . . . . . . 40
Pool Rolling Three Month Delinquency Rate . . . . . . . . 40
Premium Amount . . . . . . . . . . . . . . . . . . . . . 40
Premium Percentage . . . . . . . . . . . . . . . . . . . 40
Prepaid Installment . . . . . . . . . . . . . . . . . . . 41
Prepayment . . . . . . . . . . . . . . . . . . . . . . . 41
Preservation Expenses . . . . . . . . . . . . . . . . . . 41
Principal and Interest Account . . . . . . . . . . . . . 41
Principal Remittance Amount . . . . . . . . . . . . . . . 41
Prohibited Transaction . . . . . . . . . . . . . . . . . 41
Property . . . . . . . . . . . . . . . . . . . . . . . . 41
Purchase Option Period . . . . . . . . . . . . . . . . . 41
Qualified Liquidation . . . . . . . . . . . . . . . . . . 41
Qualified Mortgage . . . . . . . . . . . . . . . . . . . 41
Qualified Replacement Mortgage . . . . . . . . . . . . . 42
Realized Loss . . . . . . . . . . . . . . . . . . . . . . 42
Record Date . . . . . . . . . . . . . . . . . . . . . . . 42
Reference Banks . . . . . . . . . . . . . . . . . . . . . 43
Register . . . . . . . . . . . . . . . . . . . . . . . . 43
Registrar . . . . . . . . . . . . . . . . . . . . . . . . 43
Registration Statement . . . . . . . . . . . . . . . . . 43
Reimbursement Amount . . . . . . . . . . . . . . . . . . 43
Reimbursement Rate . . . . . . . . . . . . . . . . . . . 43
REMIC . . . . . . . . . . . . . . . . . . . . . . . . . . 43
REMIC Provisions . . . . . . . . . . . . . . . . . . . . 43
REMIC Trust . . . . . . . . . . . . . . . . . . . . . . . 43
Remittance Date . . . . . . . . . . . . . . . . . . . . . 44
Remittance Period . . . . . . . . . . . . . . . . . . . . 44
REO Property . . . . . . . . . . . . . . . . . . . . . . 44
Replacement Cut-Off Date . . . . . . . . . . . . . . . . 44
Representation Letter . . . . . . . . . . . . . . . . . . 44
Reserve Interest Rate . . . . . . . . . . . . . . . . . . 44
Residual Certificate . . . . . . . . . . . . . . . . . . 44
Residual Net Monthly Excess Cashflow . . . . . . . . . . 44
Schedules of Mortgage Loans . . . . . . . . . . . . . . . 45
Second Mortgage Loan . . . . . . . . . . . . . . . . . . 45
Securities Act . . . . . . . . . . . . . . . . . . . . . 45
Senior Lien . . . . . . . . . . . . . . . . . . . . . . . 45
Servicer Affiliate . . . . . . . . . . . . . . . . . . . 45
Servicing Advance . . . . . . . . . . . . . . . . . . . . 45
Servicing Fee . . . . . . . . . . . . . . . . . . . . . . 45
Specified Subordinated Amount . . . . . . . . . . . . . . 45
Sponsor . . . . . . . . . . . . . . . . . . . . . . . . . 45
Standard & Poor's . . . . . . . . . . . . . . . . . . . . 45
Startup Day . . . . . . . . . . . . . . . . . . . . . . . 45
vi
<PAGE>
Step-up Payment Date . . . . . . . . . . . . . . . . . . 46
Subordinated Amount . . . . . . . . . . . . . . . . . . . 46
Subordination Deficiency Amount . . . . . . . . . . . . . 46
Subordination Increase Amount . . . . . . . . . . . . . . 46
Subordination Reduction Amount . . . . . . . . . . . . . 46
Substitution Amount . . . . . . . . . . . . . . . . . . . 46
Sub-Servicer . . . . . . . . . . . . . . . . . . . . . . 46
Sub-Servicing Agreement . . . . . . . . . . . . . . . . . 46
Supplemental Interest Payment Account . . . . . . . . . . 47
Supplemental Interest Payment Amount Available . . . . . 47
Supplemental Interest Trust . . . . . . . . . . . . . . . 47
Tax Matters Person . . . . . . . . . . . . . . . . . . . 47
Termination Notice . . . . . . . . . . . . . . . . . . . 47
Termination Price . . . . . . . . . . . . . . . . . . . . 47
Total Monthly Excess Cashflow . . . . . . . . . . . . . . 47
Total Monthly Excess Spread . . . . . . . . . . . . . . . 47
Transaction Documents . . . . . . . . . . . . . . . . . . 47
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Trust Estate . . . . . . . . . . . . . . . . . . . . . . 47
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . 48
Trustee's Fees . . . . . . . . . . . . . . . . . . . . . 48
Underwriter . . . . . . . . . . . . . . . . . . . . . . . 48
Upper-Tier REMIC . . . . . . . . . . . . . . . . . . . . 48
1.2. Use of Words and Phrases . . . . . . . . . . . . . . . . . 48
1.3. Captions; Table of Contents . . . . . . . . . . . . . . . 48
1.4. Opinions . . . . . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE II ESTABLISHMENT AND ORGANIZATION OF THE TRUST . . . . . . . 49
2.1. Establishment of the Trust . . . . . . . . . . . . . . . . 49
2.2. Office . . . . . . . . . . . . . . . . . . . . . . . . . . 49
2.3. Purposes and Powers . . . . . . . . . . . . . . . . . . . 49
2.4. Appointment of the Trustee; Declaration of Trust . . . . . 49
2.5. Expenses of the Trust . . . . . . . . . . . . . . . . . . 50
2.6. Ownership of the Trust . . . . . . . . . . . . . . . . . . 50
2.7. Situs of the Trust . . . . . . . . . . . . . . . . . . . . 50
2.8. Miscellaneous REMIC Provisions . . . . . . . . . . . . . . 50
ARTICLE III REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
SPONSOR AND THE MASTER SERVICER; COVENANT OF
SPONSOR TO CONVEY MORTGAGE LOANS . . . . . . . . . . . . 52
3.1. Representations and Warranties of the Sponsor . . . . . . 52
3.2. Representations and Warranties of the Master Servicer . . 55
vii
<PAGE>
3.3. Representations and Warranties of the Sponsor with
Respect to the Mortgage Loans . . . . . . . . . . . . . . 58
3.4. Covenants of Sponsor to Take Certain Actions with Respect
to the Mortgage Loans In Certain Situations . . . . . . . 66
3.5. Conveyance of the Mortgage Loans . . . . . . . . . . . . . 68
3.6. Acceptance by Trustee; Certain Substitutions of Mortgage
Loans; Certification by Trustee . . . . . . . . . . . . . 70
3.7. Cooperation Procedures . . . . . . . . . . . . . . . . . . 71
3.8. Conveyance of the Subsequent Mortgage Loans . . . . . . . 72
ARTICLE IV ISSUANCE AND SALE OF CERTIFICATES . . . . . . . . . . . . 75
4.1. Issuance of Certificates . . . . . . . . . . . . . . . . . 75
4.2. Sale of Certificates . . . . . . . . . . . . . . . . . . . 75
ARTICLE V CERTIFICATES AND TRANSFER OF INTERESTS . . . . . . . . . 76
5.1. Terms . . . . . . . . . . . . . . . . . . . . . . . . . . 76
5.2. Forms . . . . . . . . . . . . . . . . . . . . . . . . . . 77
5.3. Execution, Authentication and Delivery . . . . . . . . . . 77
5.4. Registration and Transfer of Certificates . . . . . . . . 77
5.5. Mutilated, Destroyed, Lost or Stolen Certificates . . . . 80
5.6. Persons Deemed Owners . . . . . . . . . . . . . . . . . . 81
5.7. Cancellation . . . . . . . . . . . . . . . . . . . . . . . 81
5.8. Limitation on Transfer of Ownership Rights . . . . . . . . 81
5.9. Assignment of Rights . . . . . . . . . . . . . . . . . . . 82
ARTICLE VI COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . 83
6.1. Distributions . . . . . . . . . . . . . . . . . . . . . . 83
6.2. Money for Distributions to be Held in Trust; Withholding . 83
6.3. Protection of Trust Estate . . . . . . . . . . . . . . . . 84
6.4. Performance of Obligations . . . . . . . . . . . . . . . . 85
6.5. Negative Covenants . . . . . . . . . . . . . . . . . . . . 85
6.6. No Other Powers . . . . . . . . . . . . . . . . . . . . . 86
6.7. Limitation of Suits . . . . . . . . . . . . . . . . . . . 86
6.8. Unconditional Rights of Owners to Receive Distributions . 87
6.9. Rights and Remedies Cumulative . . . . . . . . . . . . . . 87
6.10. Delay or Omission Not Waiver . . . . . . . . . . . . . . . 87
6.11. Control by Owners . . . . . . . . . . . . . . . . . . . . 87
ARTICLE VII ACCOUNTS, DISBURSEMENTS AND RELEASES . . . . . . . . . . 88
7.1. Collection of Money . . . . . . . . . . . . . . . . . . . 88
viii
<PAGE>
7.2. Establishment of Accounts . . . . . . . . . . . . . . . . 88
7.3. The Certificate Insurance Policy . . . . . . . . . . . . . 89
7.4. Pre-Funding Account and Capitalized Interest Account . . . 92
7.5. Flow of Funds . . . . . . . . . . . . . . . . . . . . . . 93
7.6. Investment of Accounts . . . . . . . . . . . . . . . . . . 102
7.7. Eligible Investments . . . . . . . . . . . . . . . . . . . 103
7.8. Reports by Trustee . . . . . . . . . . . . . . . . . . . . 104
7.9. Additional Reports by Trustee . . . . . . . . . . . . . . 108
7.10. Supplemental Interest Payment Account, Supplement
Interest Payments . . . . . . . . . . . . . . . . . . . . 109
7.11. Allocation of Realized Losses . . . . . . . . . . . . . . 110
ARTICLE VIII SERVICING AND ADMINISTRATION OF MORTGAGE LOANS . . . . . 110
8.1. Master Servicer and Sub-Servicers . . . . . . . . . . . . 110
8.2. The Servicing Account . . . . . . . . . . . . . . . . . . 113
8.3. Collection of Certain Mortgage Loan Payments . . . . . . . 115
8.4. Delinquency Advances and Master Servicer Advances . . . . 115
8.5. Sub-Servicing Agreements Between Master Servicer and
Sub-Servicers . . . . . . . . . . . . . . . . . . . . . . 116
8.6. Successor Sub-Servicers . . . . . . . . . . . . . . . . . 117
8.7. Liability of Master Servicer . . . . . . . . . . . . . . . 117
8.8. No Contractual Relationship Between Sub-Servicer and
Trustee or the Owners . . . . . . . . . . . . . . . . . . 117
8.9. Assumption or Termination of Sub-Servicing Agreement by
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . 117
8.10. Principal and Interest Account . . . . . . . . . . . . . . 118
8.11. Purchase of Mortgage Loans . . . . . . . . . . . . . . . . 120
8.12. Maintenance of Insurance . . . . . . . . . . . . . . . . . 120
8.13. Due-on-Sale Clauses; Assumption and Substitution
Agreements . . . . . . . . . . . . . . . . . . . . . . . . 121
8.14. Realization Upon Defaulted Mortgage Loans . . . . . . . . 122
8.15. Trustee to Cooperate; Release of Files . . . . . . . . . . 124
8.16. Servicing Compensation . . . . . . . . . . . . . . . . . . 125
8.17. Annual Statement as to Compliance . . . . . . . . . . . . 125
8.18. Annual Independent Certified Public Accountants' Reports . 126
8.19. Access to Certain Documentation and Information Regarding
the Mortgage Loans; Confidentiality . . . . . . . . . . . 126
8.20. Payment of Taxes, Insurance and Other Charges . . . . . . 126
8.21. Assignment of Agreement . . . . . . . . . . . . . . . . . 127
8.22. Removal of Master Servicer; Resignation of Master
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . 127
ix
<PAGE>
8.23. Inspections by Certificate Insurer; Errors and Omissions
Insurance . . . . . . . . . . . . . . . . . . . . . . . . 133
8.24. Merger, Conversion, Consolidation or Succession to
Business of Master Servicer . . . . . . . . . . . . . . . 133
8.25. Notices of Material Events . . . . . . . . . . . . . . . . 133
ARTICLE IX TERMINATION OF TRUST . . . . . . . . . . . . . . . . . . 134
9.1. Termination of Trust . . . . . . . . . . . . . . . . . . . 134
9.2. Termination Upon Option of Master Servicer . . . . . . . . 135
9.3. Termination Upon Loss of REMIC Status . . . . . . . . . . 136
9.4. Disposition of Proceeds . . . . . . . . . . . . . . . . . 138
9.5. Netting of Amounts . . . . . . . . . . . . . . . . . . . . 138
ARTICLE X THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . 138
10.1. Certain Duties and Responsibilities . . . . . . . . . . . 138
10.2. Removal of Trustee for Cause . . . . . . . . . . . . . . . 140
10.3. Certain Rights of the Trustee . . . . . . . . . . . . . . 142
10.4. Not Responsible for Recitals or Issuance of Certificates . 143
10.5. May Hold Certificates . . . . . . . . . . . . . . . . . . 143
10.6. Money Held in Trust . . . . . . . . . . . . . . . . . . . 143
10.7. No Lien for Fees . . . . . . . . . . . . . . . . . . . . . 143
10.8. Corporate Trustee Required; Eligibility . . . . . . . . . 143
10.9. Resignation and Removal; Appointment of Successor . . . . 144
10.10. Acceptance of Appointment by Successor Trustee . . . . . . 146
10.11. Merger, Conversion, Consolidation or Succession to
Business of the Trustee . . . . . . . . . . . . . . . . . 146
10.12. Reporting; Withholding . . . . . . . . . . . . . . . . . . 147
10.13. Liability of the Trustee . . . . . . . . . . . . . . . . . 147
10.14. Appointment of Co-Trustee or Separate Trustee . . . . . . 148
ARTICLE XI MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . 149
11.1. Compliance Certificates and Opinions . . . . . . . . . . . 149
11.2. Form of Documents Delivered to the Trustee . . . . . . . . 150
11.3. Acts of Owners . . . . . . . . . . . . . . . . . . . . . . 151
11.4. Notices, etc. to Trustee . . . . . . . . . . . . . . . . . 152
11.5. Notices and Reports to Owners; Waiver of Notices . . . . . 152
11.6. Rules by Trustee and Sponsor . . . . . . . . . . . . . . . 152
11.7. Successors and Assigns . . . . . . . . . . . . . . . . . . 153
11.8. Severability . . . . . . . . . . . . . . . . . . . . . . . 153
11.9. Benefits of Agreement . . . . . . . . . . . . . . . . . . 153
11.10. Legal Holidays . . . . . . . . . . . . . . . . . . . . . . 153
11.11. Governing Law . . . . . . . . . . . . . . . . . . . . . . 153
x
<PAGE>
11.12. Counterparts . . . . . . . . . . . . . . . . . . . . . . . 153
11.13. Usury . . . . . . . . . . . . . . . . . . . . . . . . . . 154
11.14. Amendment . . . . . . . . . . . . . . . . . . . . . . . . 154
11.15. REMIC Status; Taxes . . . . . . . . . . . . . . . . . . . 155
11.16. Additional Limitation on Action and Imposition of Tax . . 157
11.17. Appointment of Tax Matters Person . . . . . . . . . . . . 158
11.18. The Certificate Insurer . . . . . . . . . . . . . . . . . 158
11.19. Maintenance of Records . . . . . . . . . . . . . . . . . . 158
11.20. Notices . . . . . . . . . . . . . . . . . . . . . . . . . 158
xi
<PAGE>
SCHEDULE I -- Schedules of Mortgage Loans
EXHIBIT A-1 -- Form of Class A-1 Certificate
EXHIBIT A-2 -- Form of Class A-2 Certificate
EXHIBIT A-3 -- Form of Class A-3 Certificates
EXHIBIT A-4 -- Form of Class A-4 Certificates
EXHIBIT A-5 -- Form of Class A-5 Certificates
EXHIBIT A-6 -- Form of Class A-6 Certificates
EXHIBIT B-1 -- Form of Class B Group I Certificate
EXHIBIT B-2 -- Form of Class B Group II Certificate
EXHIBIT B-3 -- Form of Class B I-S Certificate
EXHIBIT B-4 -- Form of Class B II-S Certificate
EXHIBIT C -- Form of Residual Certificates
EXHIBIT D -- Form of Certificate Re: Mortgage Loans Prepaid in full
After the Cut-Off Date
EXHIBIT E -- Form of Trustee's Acknowledgement of Receipt
EXHIBIT F -- Form of Certification
EXHIBIT G -- Form of Delivery Order
EXHIBIT H -- Form of Class RS Tax Matters Transfer Certificate
EXHIBIT I -- Contents of Mortgage Loan File
EXHIBIT J -- Form of Monthly Report
EXHIBIT K -- Form of Master Servicer's Trust Receipt
xii
<PAGE>
POOLING AND SERVICING AGREEMENT, relating to ACCREDITED MORTGAGE
LOAN TRUST 1996-1, dated as of ________ __, 1996, between ACCREDITED HOME
LENDERS, INC., a California corporation, in its capacity as Sponsor of the
Trust (the "Sponsor") and as master servicer (the "Master Servicer"), and
BANKERS TRUST COMPANY OF CALIFORNIA, N.A., a national banking association,
in its capacity as trustee (the "Trustee").
WHEREAS, the Sponsor wishes to establish a trust and two
subtrusts, and to provide for the allocation and sale of the beneficial
interests therein and the maintenance and distribution of the trust estate;
WHEREAS, the Master Servicer has agreed to service the Mortgage
Loans, which constitute the principal assets of the trust estate;
WHEREAS, all things necessary to make the Certificates, when
executed and authenticated by the Trustee valid instruments, and to make
this Agreement a valid agreement, in accordance with their and its terms,
have been done;
WHEREAS, Bankers Trust Company of California, N.A. is willing to
serve in the capacity of Trustee hereunder; and
WHEREAS, Financial Guaranty Insurance Company (the "Certificate
Insurer") is intended to be a third party beneficiary of this Agreement and
is hereby recognized by the parties hereto to be a third-party beneficiary
of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the Sponsor, the Master Servicer and the
Trustee hereby agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
Section 1.1. Definitions. For all purposes of this Agreement,
-----------
the following terms shall have the meanings set forth below, unless the
context clearly indicates otherwise:
"Account": Any account established in accordance with Section
-------
7.2 or 8.8 hereof each of which shall be established at a Designated
Depository Institution.
"Accredited Mortgage Files": For any Mortgage Loan identified on
-------------------------
the related Schedule of Mortgage Loans with an "A" Code, the items listed
as (a), (b), (c), (d) and (f) on Exhibit B hereto.
"Accredited Servicing Fee": An amount retained by the Master
------------------------
Servicer or by any successor thereto as compensation for servicing and
administration duties relating to such Mortgage Loan pursuant to Section
8.15 hereof and equal to ___% per annum of the then outstanding Loan
Balance of such Mortgage Loan as of the opening of business on the first
day of each calendar month payable on a monthly basis.
"Advanta Servicing Fee": An amount paid to the Sub-Servicer as
---------------------
compensation for servicing and administration duties relating to such
Mortgage Loan pursuant to Section ____ hereof and equal to ___% per annum
of the then outstanding Loan Balance of such Mortgage Loan as of the
opening of business on the first day of each calendar month payable on a
monthly basis.
"Agreement": This Pooling and Servicing Agreement, as it may be
---------
amended from time to time, and including the Exhibits hereto.
"Appraised Value": The appraised value of any Property based
---------------
upon the appraisal or other valuation made at the time of the origination
of the related Mortgage Loan, or, in the case of a Mortgage 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 person who
------------------
is authorized to act for such Person in matters relating to this Agreement,
and whose action is binding upon such Person and, with respect to the
Trustee, the Sponsor and the Master Servicer, initially including those
individuals whose names appear on the lists of Authorized Officers
delivered on the Startup Day.
2
<PAGE>
"Available Funds": With respect to Group I, the Group I
---------------
Available Funds and with respect to Group II, the Group II Available Funds.
"Balloon Loan": Any Mortgage Loan which has an amortization
------------
schedule which extends beyond its maturity date, resulting in a relatively
large unamortized principal balance due in a single payment at maturity.
"Base Group I Principal Distribution Amount": As to any Payment
------------------------------------------
Date, an amount equal to (x) the sum, without duplication, of (i) the
principal portion of all scheduled and unscheduled payments received by the
Master Servicer on the Group I Mortgage Loans during the related Remittance
Period, including any Prepayments and any Net Proceeds, (ii) the principal
portion of all Substitution Amounts and the principal portion of all Loan
Purchase Prices deposited into the Principal and Interest Accounts with
respect to the Group I Mortgage Loans on the related Remittance Date, and
(iii) the proceeds received by the Trustee with respect to the Group I
Mortgage Loans in connection with any termination of the Trust pursuant to
Article VIII hereof, to the extent such proceeds relate to principal, minus
-----
(y) the amount of any Group I Subordination Reduction Amount for such
Payment Date.
"Base Group II Principal Distribution Amount": As to any Payment
-------------------------------------------
Date, an amount equal to (x) the sum, without duplication, of (i) the
principal portion of all scheduled and unscheduled payments received by the
Master Servicer on the Group II Mortgage Loans during the related
Remittance Period, including any Prepayments and any Net Proceeds, (ii) the
principal portion of all Substitution Amounts and the principal portion of
all Loan Purchase Prices deposited into the Principal and Interest Accounts
with respect to the Group II Mortgage Loans on the related Remittance Date,
and (iii) the proceeds received by the Trustee with respect to the Group II
Mortgage Loans in connection with any termination of the Trust pursuant to
Article VIII hereof, to the extent such proceeds relate to principal, minus
-----
(y) the amount of any Group II Subordination Reduction Amount for such
Payment Date.
"Business Day": Any day that is not a Saturday, Sunday or other
------------
day on which commercial banking institutions in the State of New York, the
State of California or in the city in which the principal corporate trust
office of the Trustee is located, are authorized or obligated by law or
executive order to be closed.
"Capitalized Interest Account": The Capitalized Interest Account
----------------------------
established in accordance with Section 7.2 hereof and maintained by the
Trustee.
3
<PAGE>
"Carry-Forward Amount": The Class A-1 Interest Carry-Forward
--------------------
Amount, the Class A-2 Interest Carry-Forward Amount, the Class A-3 Interest
Carry-Forward Amount, the Class A-4 Interest Carry-Forward Amount, the
Class A-5 Interest Carry-Forward Amount, the Class A-6 Interest Carry-
Forward Amount, the Class A-1 Principal Carry-Forward Amount, the Class A-2
Principal Carry-Forward Amount, the Class A-3 Principal Carry-Forward
Amount, the Class A-4 Principal Carry-Forward Amount, the Class A-5
Principal Carry-Forward Amount, the Class A-6 Principal Carry-Forward
Amount, the Class B Group I Carry-Forward Amount or the Class B Group II
Carry-Forward Amount.
"Certificate": Any one of the Class A Certificates, the Class B
-----------
Certificates or the Residual Certificates, each representing the interests
and the rights described in this Agreement.
"Certificate Account": The Certificate Account established in
-------------------
accordance with Section 7.2 hereof and maintained by the Trustee.
"Certificate Insurance Policy": The certificate guaranty
----------------------------
insurance policy dated _______ __, 1996 issued by the Certificate Insurer
to the Trustee for the benefit of the Owners of the Class A Certificates.
"Certificate Insurer": Financial Guaranty Insurance Company or
-------------------
any successor thereto, as issuer of the Certificate Insurance Policy.
"Certificate Insurer Default": Any period during which the
---------------------------
Certificate Insurer has failed (or continued to fail) to honor a proper
claim made under the Certificate Insurance Policy and as to which the
Certificate Insurer has not provided a reasonable explanation regarding the
invalidity of such claim to the Sponsor.
"Certificate Insurer Premium Rate": ___% per annum.
--------------------------------
"Certificate Principal Balance": As to the Class A-1
-----------------------------
Certificates, the Class A-1 Certificate Principal Balance; as to the Class
A-2 Certificates, the Class A-2 Certificate Principal Balance; as to the
Class A-3 Certificates, the Class A-3 Certificate Principal Balance; as to
the Class A-4 Certificates, the Class A-4 Certificate Principal Balance; as
to the Class A-5 Certificates, the Class A-5 Certificate Principal Balance;
and as to the Class A-6 Certificates, the Class A-6 Certificate Principal
Balance. As to any particular Class A Certificate, the product of the
Percentage Interest evidenced thereby and the Certificate Principal Balance
of all Class A Certificates of the same Class. The Residual Certificates
do not have a "Certificate Principal Balance".
4
<PAGE>
"Class": All of the Class A Group I Group Certificates, all of
-----
the Class A Group II Certificates, all of the Class B Group I Certificates,
all of the Class B Group II Certificates or all of the Residual
Certificates.
"Class A Certificate": Any one 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, or the Class A-6 Certificates.
"Class A Group I Certificates": The Class A-2 Certificates, the
----------------------------
Class A-3 Certificates, the Class A-4 Certificates and the Class A-5
Certificates.
"Class A Group I Distribution Account": The Class A Group I
------------------------------------
Distribution Account created pursuant to Section 7.2 hereof.
"Class A Group II Certificates": All of the Class A-6
-----------------------------
Certificates.
"Class A Group II Distribution Account": The Class A Group II
-------------------------------------
Distribution Account created pursuant to Section 7.2 hereof.
"Class A-1 Certificate": Any Certificate designated as a "Class
---------------------
A-1 Certificate" on the face thereof, in the form of Exhibit A-1 hereto.
The Class A-1 Certificates shall be issued with an initial aggregate
Certificate Principal Balance equal to the Original Certificate Principal
Balance therefor.
"Class A-1 Certificate Principal Balance": As of any time of
---------------------------------------
determination, the Original Certificate Principal Balance of the Class A-1
Certificates less any amounts actually distributed as part of the Class A-1
Distribution Amount pursuant to Section 7.5 hereof made with respect to
principal thereon on all prior Payment Dates; provided, that, this amount
-------- ----
is exclusive of Insured Payments for the sole purpose of effecting the
Certificate Insurer's subrogation rights.
"Class A-1 Certificate Termination Date": The Payment Date on
--------------------------------------
which the Class A-1 Certificate Principal Balance is reduced to zero.
"Class A-1 Distribution Amount": As of any Payment Date, the sum
-----------------------------
of (i) the Class A-1 Principal Distribution Amount for such Payment Date,
(ii) the Class A-1 Interest Distribution Amount for such Payment Date,
(iii) the Class A-1 Interest Carry-Forward Amount for such Payment Date and
(iv) the Class A-1 Principal Carry-Forward Amount for such Payment Date.
5
<PAGE>
"Class A-1 Interest Carry-Forward Amount": As of any Payment
---------------------------------------
Date, the sum of (i) the amount, if any, by which (x) the Class A-1
Interest Distribution Amount as of the immediately preceding Payment Date
exceeded (y) the amount of the actual distribution, exclusive of any
portion of any Insured Payment, made to the Owners of the Class A-1 Group I
Certificates pursuant to Section 7.3(c)(i)(A) hereof on such immediately
preceding Payment Date and allocable to the Class A-1 Interest Distribution
Amount on such immediately preceding Payment Date and (ii) interest on the
amount, if any, described in clause (i) at one-twelfth of the Class A-1
Pass-Through Rate from such immediately preceding Payment Date.
"Class A-1 Interest Distribution Amount": As of any Payment
--------------------------------------
Date, interest accrued during the related Accrual Period at the Class A-1
Pass-Through Rate on the Class A-1 Principal Balance immediately prior to
such Payment Date.
"Class A-1 Pass-Through Rate": ____% per annum.
---------------------------
"Class A-1 Principal Carry-Forward Amount": As of any Payment
----------------------------------------
Date, the sum of (i) the amount, if any, by which (x) the Class A-1
Principal Distribution Amount as of the immediately preceding Payment Date
exceeded (y) the amount of the actual distribution, exclusive of any
portion of any Insured Payment, made to the Owners of the Class A-1 Group I
Certificates pursuant to Section 7.3(c)(i)(A) hereof on such immediately
preceding Payment Date and allocable to the Class A-1 Principal
Distribution Amount on such immediately preceding Payment Date and (ii)
interest on the amount, if any, described in clause (i) at one-twelfth of
the Class A-1 Pass-Through Rate from such immediately preceding Payment
Date.
"Class A-1 Principal Distribution Amount": With respect to any
---------------------------------------
Payment Date on or prior to the Class A-1 Termination Date, an amount equal
to the lesser of (x) the Group I Principal Distribution Amount for such
Payment Date and (y) the amount necessary to reduce the Class A-1 Principal
Balance (as it was immediately prior to such Payment Date) to zero. On the
Class A-1 Termination Date any portion of the Group I Principal
Distribution Amount for such Payment Date remaining on such Payment Date
following the reduction to zero of the Class A-1 Principal Balance shall be
distributed as the initial principal distribution on the Class A-2 Group I
Certificates.
"Class A-1 Termination Date": The Payment Date on which the
--------------------------
Class A-1 Principal Balance is reduced to zero.
"Class A-2 Certificate": Any Certificate designated as a "Class
---------------------
A-2 Certificate" on the face thereof, in the form
6
<PAGE>
of Exhibit A-2 hereto. The Class A-2 Certificates shall be issued with an
initial aggregate Certificate Principal Balance equal to the Original
Certificate Principal Balance therefor.
"Class A-2 Certificate Principal Balance": As of any time of
---------------------------------------
determination, the Original Certificate Principal Balance of the Class A-2
Certificates less any amounts actually distributed as part of the Class A-2
Distribution Amount pursuant to Section 7.5 hereof made with respect to
principal thereon on all prior Payment Dates; provided, that, this amount
-------- ----
is exclusive of Insured Payments for the sole purpose of effecting the
Certificate Insurer's subrogation rights.
"Class A-2 Certificate Termination Date": The Payment Date on
--------------------------------------
which the Class A-2 Certificate Principal Balance is reduced to zero.
"Class A-2 Distribution Amount": As of any Payment Date, the sum
-----------------------------
of (i) the Class A-2 Principal Distribution Amount for such Payment Date,
(ii) the Class A-2 Interest Distribution Amount for such Payment Date,
(iii) the Class A-2 Interest Carry-Forward Amount for such Payment Date and
(iv) the Class A-2 Principal Carry-Forward Amount for such Payment Date.
"Class A-2 Interest Carry-Forward Amount": With respect to any
---------------------------------------
Payment Date, the sum of (i) the amount, if any, by which (x) the Class A-2
Interest Distribution Amount as of the immediately preceding Payment Date
exceeded (y) the amount of the actual distribution made to the Owners of
the Class A-2 Certificates on such immediately preceding Payment Date on
account of the Class A-2 Interest Distribution Amount and (ii) 30 days'
interest on such amount at the Class A-2 Pass-Through Rate.
"Class A-2 Interest Distribution Amount": As of any Payment
--------------------------------------
Date, interest accrued during the related Accrual Period at the Class A-2
Pass-Through Rate on the Class A-2 Principal Balance immediately prior to
such Payment Date.
"Class A-2 Pass-Through Rate": ___% per annum.
---------------------------
"Class A-2 Principal Carry-Forward Amount": As of any Payment
----------------------------------------
Date, the sum of (i) the amount, if any, by which (x) the Class A-2
Principal Distribution Amount as of the immediately preceding Payment Date
exceeded (y) the amount of the actual distribution, exclusive of any
portion of any Insured Payment, to the Owners of the Class A-2 Group I
Certificates made pursuant to Section 7.3(c)(i)(B) hereof on such
immediately preceding Payment Date and allocable to the Class A-2 Principal
Distribution Amount on such immediately preceding Payment Date and (ii)
interest on the amount, if
7
<PAGE>
any, described in clause (i) at one-twelfth of the Class A-2 Pass-Through
Rate from such immediately preceding Payment Date.
"Class A-2 Principal Distribution Amount": With respect to any
---------------------------------------
Payment Date following the Class A-1 Termination Date, an amount equal to
the lesser of (x) the Group I Principal Distribution Amount for such
Payment Date and (y) the amount necessary to reduce the Class A-2 Principal
Balance (as it was immediately prior to such Payment Date) to zero. On the
Class A-1 Termination Date any portion of the Group I Principal
Distribution Amount for such Payment Date remaining on such Payment Date
following the reduction to zero of the Class A-1 Principal Balance shall be
distributed as the initial principal distribution on the Class A-2 Group I
Certificates. On the Class A-2 Termination Date any portion of the Group I
Principal Distribution Amount remaining on such Payment Date following the
reduction to zero of the Class A-2 Principal Balance shall be distributed
as the initial principal distribution on the Class A-3 Group I
Certificates.
"Class A-3 Certificate": Any Certificate designated as a "Class
---------------------
A-3 Certificate" on the face thereof, in the form of Exhibit A-3 hereto.
The Class A-3 Certificates shall be issued with an initial aggregate
Certificate Principal Balance equal to the Original Certificate Principal
Balance therefor.
"Class A-3 Certificate Principal Balance": As of any time of
---------------------------------------
determination, the Original Certificate Principal Balance of the Class A-3
Certificates less any amounts actually distributed as part of the Class A-3
Distribution Amount pursuant to Section 7.5 hereof made with respect to
principal thereon on all prior Payment Dates; provided, that, this amount
-------- ----
is exclusive of Insured Payments for the sole purpose of effecting the
Certificate Insurer's subrogation rights.
"Class A-3 Certificate Termination Date": The Payment Date on
--------------------------------------
which the Class A-3 Certificate Principal Balance is reduced to zero.
"Class A-3 Distribution Amount": As of any Payment Date, the sum
-----------------------------
of (i) the Class A-3 Principal Distribution Amount for such Payment Date,
(ii) the Class A-3 Interest Distribution Amount for such Payment Date,
(iii) the Class A-3 Interest Carry-Forward Amount for such Payment Date and
(iv) the Class A-3 Principal Carry-Forward Amount for such Payment Date.
"Class A-3 Interest Carry-Forward Amount": As of any Payment
---------------------------------------
Date, the sum of (i) the amount, if any, by which (x) the Class A-3
Interest Distribution Amount as of the immediately preceding Payment Date
exceeded (y) the amount of
8
<PAGE>
the actual distribution, exclusive of any portion of any Insured Payment,
made to the Owners of the Class A-3 Group I Certificates pursuant to
Section 7.3(c)(i)(C) hereof on such immediately preceding Payment Date and
allocable to the Class A-3 Interest Distribution Amount on such immediately
preceding Payment Date and (ii) interest on the amount, if any, described
in clause (i) at one-twelfth of the Class A-3 Pass-Through Rate from such
immediately preceding Payment Date.
"Class A-3 Interest Distribution Amount": As of any Payment
--------------------------------------
Date, interest accrued during the related Accrual Period at the Class A-3
Pass-Through Rate on the Class A-3 Principal Balance immediately prior to
such Payment Date.
"Class A-3 Pass-Through Rate": ____% per annum.
---------------------------
"Class A-3 Principal Carry-Forward Amount": As of any Payment
----------------------------------------
Date, the sum of (i) the amount, if any, by which (x) the Class A-3
Principal Distribution Amount as of the immediately preceding Payment Date
exceeded (y) the amount of the actual distribution, exclusive of any
portion of any Insured Payment, to the Owners of the Class A-3 Group I
Certificates made pursuant to Section 7.3(c)(i)(C) hereof on such
immediately preceding Payment Date and allocable to the Class A-3 Principal
Distribution Amount on such immediately preceding Payment Date and (ii)
interest on the amount, if any, described in clause (i) at one-twelfth of
the Class A-3 Pass-Through Rate from such immediately preceding Payment
Date.
"Class A-3 Principal Distribution Amount": With respect to any
---------------------------------------
Payment Date following the Class A-2 Termination Date, an amount equal to
the lesser of (x) the Group I Principal Distribution Amount for such
Payment Date and (y) the amount necessary to reduce the Class A-3 Principal
Balance (as it was immediately prior to such Payment Date) to zero. On the
Class A-2 Termination Date any portion of the Group I Principal
Distribution Amount for such Payment Date remaining on such Payment Date
following the reduction to zero of the Class A-2 Principal Balance shall be
distributed as the initial principal distribution on the Class A-3 Group I
Certificates. On the Class A-3 Termination Date any portion of the Group I
Principal Distribution Amount remaining on such Payment Date following the
reduction to zero of the Class A-3 Principal Balance shall be distributed
as the initial principal distribution on the Class A-4 Group I
Certificates.
"Class A-4 Certificate": Any Certificate designated as a "Class
---------------------
A-4 Certificate" on the face thereof, in the form of Exhibit A-4 hereto.
The Class A-4 Certificates shall be issued with an initial aggregate
Certificate Principal Balance equal to the Original Certificate Principal
Balance therefor.
9
<PAGE>
"Class A-4 Certificate Principal Balance": As of any time of
---------------------------------------
determination, the Original Certificate Principal Balance of the Class A-4
Certificates less any amounts actually distributed as part of the Class A-4
Distribution Amount pursuant to Section 7.5 hereof made with respect to
principal thereon on all prior Payment Dates; provided, that, this amount
-------- ----
is exclusive of Insured Payments for the sole purpose of effecting the
Certificate Insurer's subrogation rights.
"Class A-4 Certificate Termination Date": The Payment Date on
--------------------------------------
which the Class A-4 Certificate Principal Balance is reduced to zero.
"Class A-4 Distribution Amount": As of any Payment Date, the sum
-----------------------------
of (i) the Class A-4 Principal Distribution Amount for such Payment Date,
(ii) the Class A-4 Interest Distribution Amount for such Payment Date,
(iii) the Class A-4 Interest Carry-Forward Amount for such Payment Date and
(iv) the Class A-4 Principal Carry-Forward Amount for such Payment Date.
"Class A-4 Interest Carry-Forward Amount": As of any Payment
---------------------------------------
Date, the sum of (i) the amount, if any, by which (x) the Class A-4
Interest Distribution Amount as of the immediately preceding Payment Date
exceeded (y) the amount of the actual distribution, exclusive of any
portion of any Insured Payment, made to the Owners of the Class A-4 Group I
Certificates pursuant to Section 7.3(c)(i)(D) hereof on such immediately
preceding Payment Date and allocable to the Class A-4 Interest Distribution
Amount on such immediately preceding Payment Date and (ii) interest on the
amount, if any, described in clause (i) at one-twelfth of the Class A-4
Pass-Through Rate from such immediately preceding Payment Date.
"Class A-4 Interest Distribution Amount": As of any Payment
--------------------------------------
Date, interest accrued during the related Accrual Period at the Class A-4
Pass-Through Rate on the Class A-4 Principal Balance immediately prior to
such Payment Date.
"Class A-4 Pass-Through Rate": ____% per annum.
---------------------------
"Class A-4 Principal Carry-Forward Amount": As of any Payment
----------------------------------------
Date, the sum of (i) the amount, if any, by which (x) the Class A-4
Principal Distribution Amount as of the immediately preceding Payment Date
exceeded (y) the amount of the actual distribution, exclusive of any
portion of any Insured Payment, to the Owners of the Class A-4 Group I
Certificates made pursuant to Section 7.3(c)(i)(D) hereof on such
immediately preceding Payment Date and allocable to the Class A-4 Principal
Distribution Amount on such immediately preceding Payment Date and (ii)
interest on the amount, if
10
<PAGE>
any, described in clause (i) at one-twelfth of the Class A-4 Pass-Through
Rate from such immediately preceding Payment Date.
"Class A-4 Principal Distribution Amount": With respect to any
---------------------------------------
Payment Date following the Class A-3 Termination Date, an amount equal to
the lesser of (x) the Group I Principal Distribution Amount for such
Payment Date and (y) the amount necessary to reduce the Class A-4 Principal
Balance (as it was immediately prior to such Payment Date) to zero. On the
Class A-3 Termination Date any portion of the Group I Principal
Distribution Amount for such Payment Date remaining on such Payment Date
following the reduction to zero of the Class A-3 Principal Balance shall be
distributed as the initial principal distribution on the Class A-4 Group I
Certificates. On the Class A-4 Termination Date any portion of the Group I
Principal Distribution Amount remaining on such Payment Date following the
reduction to zero of the Class A-4 Principal Balance shall be distributed
as the initial principal distribution on the Class A-5 Group I
Certificates.
"Class A-5 Certificate": Any Certificate designated as a "Class
---------------------
A-5 Certificate" on the face thereof, in the form of Exhibit A-5 hereto.
The Class A-5 Certificates shall be issued with an initial aggregate
Certificate Principal Balance equal to the Original Certificate Principal
Balance therefor.
"Class A-5 Certificate Principal Balance": As of any time of
---------------------------------------
determination, the Original Certificate Principal Balance of the Class A-5
Certificates less any amounts actually distributed as part of the Class A-5
Distribution Amount pursuant to Section 7.5 hereof made with respect to
principal thereon on all prior Payment Dates; provided, that, this amount
-------- ----
is exclusive of Insured Payments for the sole purpose of effecting the
Certificate Insurer's subrogation rights.
"Class A-5 Certificate Termination Date": The Payment Date on
--------------------------------------
which the Class A-5 Certificate Principal Balance is reduced to zero.
"Class A-5 Distribution Amount": As of any Payment Date, the sum
-----------------------------
of (i) the Class A-5 Principal Distribution Amount for such Payment Date,
(ii) the Class A-5 Interest Distribution Amount for such Payment Date,
(iii) the Class A-5 Interest Carry-Forward Amount for such Payment Date and
(iv) the Class A-5 Principal Carry-Forward Amount for such Payment Date.
"Class A-5 Interest Carry-Forward Amount": As of any Payment
---------------------------------------
Date, the sum of (i) the amount, if any, by which (x) the Class A-5
Interest Distribution Amount as of the immediately preceding Payment Date
exceeded (y) the amount of
11
<PAGE>
the actual distribution, exclusive of any portion of any Insured Payment,
made to the Owners of the Class A-5 Group I Certificates pursuant to
Section 7.3(c)(i)(E) hereof on such immediately preceding Payment Date and
allocable to the Class A-5 Interest Distribution Amount on such immediately
preceding Payment Date and (ii) interest on the amount, if any, described
in clause (i) at one-twelfth of the Class A-5 Pass-Through Rate from such
immediately preceding Payment Date.
"Class A-5 Interest Distribution Amount": As of any Payment
--------------------------------------
Date, interest accrued during the related Accrual Period at the Class A-5
Pass-Through Rate on the Class A-5 Principal Balance immediately prior to
such Payment Date.
"Class A-5 Pass-Through Rate": ____% per annum, subject to the
---------------------------
Group I Net Funds Cap Rate.
"Class A-5 Principal Carry-Forward Amount": As of any Payment
----------------------------------------
Date, the sum of (i) the amount, if any, by which (x) the Class A-5
Principal Distribution Amount as of the immediately preceding Payment Date
exceeded (y) the amount of the actual distribution, exclusive of any
portion of any Insured Payment, to the Owners of the Class A-5 Group I
Certificates made pursuant to Section 7.3(c)(i)(E) hereof on such
immediately preceding Payment Date and allocable to the Class A-5 Principal
Distribution Amount on such immediately preceding Payment Date and (ii)
interest on the amount, if any, described in clause (i) at one-twelfth of
the Class A-5 Pass-Through Rate from such immediately preceding Payment
Date.
"Class A-5 Principal Distribution Amount": With respect to any
---------------------------------------
Payment Date following the Class A-4 Termination Date, an amount equal to
the lesser of (x) the Group I Principal Distribution Amount for such
Payment Date and (y) the amount necessary to reduce the Class A-5 Principal
Balance (as it was immediately prior to such Payment Date) to zero. On the
Class A-4 Termination Date any portion of the Group I Principal
Distribution Amount for such Payment Date remaining on such Payment Date
following the reduction to zero of the Class A-4 Principal Balance shall be
distributed as the initial principal distribution on the Class A-5 Group I
Certificates.
"Class A-6 Certificate": Any Certificate designated as a "Class
---------------------
A-6 Certificate" on the face thereof, in the form of Exhibit A-6 hereto.
The Class A-6 Certificates shall be issued with an initial aggregate
Certificate Principal Balance equal to the Original Certificate Principal
Balance therefor.
"Class A-6 Certificate Principal Balance": As of any time of
---------------------------------------
determination, the Original Certificate Principal
12
<PAGE>
Balance of the Class A-6 Certificates less amounts actually distributed as
part of the Class A-6 Distribution Amount pursuant to Section 7.5 hereof
made with respect to principal thereon on all prior Payment Dates;
provided, that, this amount is exclusive of Insured Payments for the sole
- -------- ----
purpose of effecting the Certificate Insurer's subrogation rights.
"Class A-6 Distribution Account": The Class A-6 Distribution
------------------------------
Account created by Section 7.2 hereof.
"Class A-6 Distribution Amount": As of any Payment Date, the sum
-----------------------------
of (i) the Class A-6 Principal Distribution Amount for such Payment Date,
(ii) the Class A-6 Interest Distribution Amount for such Payment Date,
(iii) the Class A-6 Interest Carry-Forward Amount for such Payment Date and
(iv) the Class A-6 Principal Carry-Forward Amount for such Payment Date.
"Class A-6 Formula Distribution Amount": With respect to the
-------------------------------------
Class A-6 Certificates for any Payment Date, the sum of (x) the Class A-6
Interest Distribution Amount for such Payment Date and (y) the Class A-6
Principal Distribution Amount for such Payment Date.
"Class A-6 Formula Interest Shortfall": As defined in Section
------------------------------------
7.9(b) hereof.
"Class A-6 Formula Pass-Through Rate": As of any Payment Date,
-----------------------------------
the rate described in clause (i) of the definition of "Class A-6 Pass-
Through Rate".
"Class A-6 Full Distribution Amount": With respect to any
----------------------------------
Payment Date, the sum of (x) the Class A-6 Full Interest Distribution
Amount for such Payment Date and (y) the Class A-6 Principal Distribution
Amount for such Payment Date.
"Class A-6 Full Interest Distribution Amount": With respect to
-------------------------------------------
any Payment Date, the Class A-6 Interest Distribution Amount for such
Payment Date calculated using the Class A-6 Formula Pass-Through Rate for
such Payment Date rather than the Class A-6 Pass-Through Rate for such
Payment Date plus, if the full amount of the Class A-6 Formula Interest
Shortfall, if any, was not funded on any prior Payment Date and remains
unpaid on such Payment Date, such amount, together with interest thereon
(from the Payment Date on which such Class A-6 Formula Interest Shortfall
was calculated) at the Class A-6 Formula Pass-Through Rate for such Payment
Date.
"Class A-6 Insured Payment": An amount equal to the sum of
-------------------------
(i) as of each Payment Date, the Group II Deficiency Amount and (ii) any
unpaid Class A-6 Preference Amount.
13
<PAGE>
"Class A-6 Interest Carry-Forward Amount": As of any Payment
---------------------------------------
Date, the sum of (i) the amount, if any, by which (x) the Class A-6
Interest Distribution Amount as of the immediately preceding Payment Date
exceeded (y) the amount of the actual distribution, exclusive of any
portion of any Insured Payment, made to the Owners of the Class A-6 Group
II Certificates pursuant to Section 7.3(c)(ii) hereof on such immediately
preceding Payment Date and allocable to the Class A-6 Interest Distribution
Amount on such immediately preceding Payment Date and (ii) interest on the
amount, if any, described in clause (i) at one-twelfth of the Class A-6
Pass-Through Rate from such immediately preceding Payment Date.
"Class A-6 Interest Distribution Amount": As of any Payment
--------------------------------------
Date, interest accrued during the related Accrual Period at the Class A-6
Pass-Through Rate on the Class A-6 Principal Balance immediately prior to
such Payment Date.
"Class A-6 Pass-Through Rate": With respect to any Payment Date
---------------------------
and Accrual Period, the lesser of (i) LIBOR as of the second to last
Business Day prior to the immediately preceding Payment Date (or prior to
the Startup Day, in the case of the initial Payment Date) plus ___% per
annum, or (ii) the Net Weighted Average Coupon Rate for the Group II
Mortgage Loans for such Payment Date.
"Class A-6 Preference Amount": As defined in the Certificate
---------------------------
Insurance Policy.
"Class A-6 Principal Carry-Forward Amount": As of any Payment
----------------------------------------
Date, the sum of (i) the amount, if any, by which (x) the Class A-6
Principal Distribution Amount as of the immediately preceding Payment Date
exceeded (y) the amount of the actual distribution, exclusive of any
portion of any Insured Payment, made to the Owners of the Class A-6 Group
II Certificates made pursuant to Section 7.3(c)(ii) hereof on such
immediately preceding Payment Date and allocable to the Class A-6 Principal
Distribution Amount on such immediately preceding Payment Date and (ii)
interest on the amount, if any, described in clause (i) at one-twelfth of
the Class A-6 Pass-Through Rate from such immediately preceding Payment
Date.
"Class A-6 Principal Distribution Amount": With respect to any
---------------------------------------
Payment Date, an amount equal to the lesser of (x) the Group II Principal
Distribution Amount for such Payment Date and (y) the amount necessary to
reduce the Class A-6 Principal Balance (as it was immediately prior to such
Payment Date) to zero.
"Class A-6 Reimbursement Amount": As of any Payment Date, the
------------------------------
sum of (x)(i) all Class A-6 Insured Payments previously received by the
Trustee not previously repaid to
14
<PAGE>
the Certificate Insurer pursuant to Sections 7.5(c)(iv)(C) and
7.5(c)(iv)(D) hereof plus (ii) interest accrued on each such Class A-6
Insured Payment not previously repaid calculated from the date the Trustee
received the related Class A-6 Insured Payment at the Class A-6 Pass-
Through Rate applicable to such date and (y)(i) any amounts then due and
owing to the Certificate Insurer relating to the Class A-6 Certificates
under the Insurance Agreement plus (ii) interest on such amounts at the
Late Payment Rate. The Certificate Insurer shall notify the Trustee and
the Sponsor of the amount of any Class A-6 Reimbursement Amount.
"Class B Certificates": Collectively, the Class B Group I
--------------------
Certificates, the Class B Group II Certificates, the Class BI-S
Certificates, and the Class BII-S Certificates.
"Class B Group I Carry-Forward Amount": As of any Payment Date,
------------------------------------
the amount, if any, by which (x) the Class B Group I Distribution Amount as
of the immediately preceding Payment Date exceeded (y) the amount of the
actual distribution to the Owners of the Class B Group I Certificates made
pursuant to Section 7.5(c)(iv) hereof on such immediately preceding Payment
Date.
"Class B Group I Certificates": Those certificates in
----------------------------
substantially the form set forth in Exhibit B-1 hereto.
"Class B Group I Distribution Account": The Class B Group I
------------------------------------
Distribution Account created pursuant to Section 7.2 hereof.
"Class B Group I Distribution Amount": As of any Payment Date,
-----------------------------------
the sum of (i) the Class B Group I Interest Distribution Amount for such
Payment Date, (ii) the Group I Subordination Reduction Amount, if any, for
such Payment Date, (iii) any portion of the Group II Subordination
Reduction Amount described in Section 7.5(c)(iv)(E)(ii) hereof and (iv) the
Class B Group I Carry-Forward Amount, if any, as of such Payment Date.
"Class B Group I Interest": As of any Payment Date, the excess
------------------------
of (i) the product of (x) the Net Weighted Average Coupon Rate of the Group
I Mortgage Loans for the immediately preceding Remittance Period, times the
actual number of days in such Remittance Period divided by 365 (or 366, as
appropriate), and (y) the Group I Pool Principal Balance as of the opening
of business on the first day of the immediately preceding Remittance Period
over (ii) the Group I Insured Interest Distribution Amount on such Payment
Date.
"Class B Group I Interest Distribution Amount": As of any
--------------------------------------------
Payment Date, the Class B Group I Interest for such Payment Date minus the
-----
sum of (i) the amount of any Group I
15
<PAGE>
Subordination Increase Amount actually paid to the Owners of the Class A
Group I Certificates on such Payment Date as all or a portion of the Group
I Subordination Increase Amount on such Payment Date pursuant to Section
7.5(c)(iv)(C)(i) hereof and (ii) the amount of any Class B Group I Interest
actually paid to the Owners of the Class A-6 Certificates as all or a
portion of (x) the Group II Insured Distribution Amount on such Payment
Date, pursuant to Section 7.5(c)(iv)(B)(i) hereof or (y) the portion of any
Group II Subordination Increase Amount allocated to the Class A Group II
Distribution Account with respect to a Group II Subordination Deficiency on
such Payment Date, pursuant to Section 7.5(c)(iv)(D)(i) hereof.
"Class B Group I Principal Balance": The Class B Group I
---------------------------------
Principal Balance shall be (x) increased on each Payment Date by the
amounts, if any, of the Class B Group I Interest (i) actually paid to the
Owners of the Class A Group I Certificates on such Payment Date as all or a
portion of the Group I Insured Principal Distribution Amount or as all or a
portion of the Group I Subordination Increase Amount on such Payment Date
pursuant to Sections 7.5(c)(iv)(A)(iii) and 7.5(c)(iv)(C)(i) hereof or (ii)
actually paid to the Owners of the Class A-6 Certificates on such Payment
Date as all or a portion of the Group II Insured Distribution Amount or as
all or a portion of the Group II Subordination Deficiency Amount on such
Payment Date, pursuant to Sections 7.5(c)(iv)(B)(i) and 7.5(c)(iv)(D)(i)
hereof and (y) decreased on each Payment Date by the amounts of (i) any
Group I Subordination Reduction Amount paid to the Owners of the Class B
Group I Certificates on such Payment Date pursuant to Section
7.5(c)(iv)(G)(i) hereof, (ii) any Group II Subordination Reduction Amount
paid to the Owners of the Class B Group I Certificates on such Payment Date
pursuant to Section 7.5(c)(iv)(E)(ii) hereof and (iii) the amount of any
Group I Allocable Losses allocated as a reduction of the Class B Group I
Principal Balance on such Payment Date pursuant to Section 7.11(a) hereof.
The Class B Group I Principal Balance shall in no event be less than zero.
"Class B Group II Carry-Forward Amount": As of any Payment Date,
-------------------------------------
the amount, if any, by which (x) the Class B Group II Distribution Amount
as of the immediately preceding Payment Date exceeded (y) the amount of the
actual distribution to the Owners of the Class B Group II Certificates made
pursuant to Section 7.5(d)(v) hereof on such immediately preceding Payment
Date.
"Class B Group II Certificates": Those certificates in
-----------------------------
substantially the form set forth in Exhibit B-2 hereto.
"Class B Group II Distribution Account": The Class B Group II
-------------------------------------
Distribution Account created pursuant to Section 7.2 hereof.
16
<PAGE>
"Class B Group II Distribution Amount": As of any Payment Date,
------------------------------------
the sum of (i) the Class B Group II Interest Distribution Amount for such
Payment Date, (ii) the Group II Subordination Reduction Amount, if any, for
such Payment Date, (iii) any portion of the Group I Subordination Reduction
Amount described in Section 7.5(c)(iv)(E)(i) hereof and (iv) the Class B
Group II Carry-Forward Amount, if any, as of such Payment Date.
"Class B Group II Interest": As of any Payment Date, the excess
-------------------------
of (i) the product of (x) the Net Weighted Average Coupon Rate of the Group
II Mortgage Loans for the immediately preceding Remittance Period, times
the actual number of days in such Remittance Period divided by 360 and (y)
the Group II Pool Principal Balance as of the opening of business on the
first day of the immediately preceding Remittance Period over (ii) the
Group II Insured Interest Distribution Amount on such Payment Date.
"Class B Group II Interest Distribution Amount": As of any
---------------------------------------------
Payment Date, the Class B Group II Interest for such Payment Date minus the
-----
sum of (i) the amount of any Group II Subordination Increase Amount
actually paid to the Owners of the Class A-6 Group II Certificates on such
Payment Date as all or a portion of the Group II Subordination Increase
Amount on such Payment Date pursuant to Section 7.5(c)(iv)(C)(ii) hereof
and (ii) the amount of any Class B Group II Interest actually paid to the
Owners of the Class A Group I Certificates as all or a portion of (x) the
Group I Insured Distribution Amount on such Payment Date pursuant to
Section 7.5(c)(iv)(B)(ii) hereof or (y) the portion of any Group I
Subordination Increase Amount made with respect to a Group I Subordination
Deficiency on such Payment Date, pursuant to Section 7.5(c)(iv)(D)(ii)
hereof.
"Class B Group II Principal Balance": The Class B Group II
----------------------------------
Principal Balance shall be (x) increased on each Payment Date by the
amounts, if any, of the Class B Group II Interest (i) actually paid to the
Owners of the Class A-6 Certificates on such Payment Date as all or a
portion of the Group II Insured Principal Distribution Amount or all or a
portion of the Group II Subordination Increase Amount on such Payment Date
pursuant to Sections 7.5(c)(iv)(A)(v) and 7.5(c)(iv)(C)(ii) hereof or (ii)
actually paid to the Owners of the Class A Group I Certificates on such
Payment Date as all or a portion of the Group I Insured Distribution Amount
or as all or a portion of the Group I Subordination Deficiency Amount on
such Payment Date, pursuant to Section 7.5(c)(iv)(B)(ii) and
7.5(c)(iv)(D)(ii) hereof and (y) decreased on each Payment Date by the
amounts of (i) any Group II Subordination Reduction Amount paid to the
Owners of the Class B Group II Certificates on such Payment Date pursuant
to Section 7.5(c)(iv)(G)(ii) hereof, (ii) any Group I
17
<PAGE>
Subordination Reduction Amount paid to the Owners of the Class B Group II
Certificates on such Payment Date pursuant to Section 7.5(c)(iv)(E)(i)
hereof and (iii) the amount of any Group II Allocable Losses allocated as a
reduction of the Class B Group II Principal Balance on such Payment Date
pursuant to Section 7.11(b) hereof. The Class B Group II Principal Balance
shall in no event be less than zero.
"Class BI-S Certificate": Any of those Certificates representing
----------------------
the right to receive excess amounts in the Group I Supplemental Interest
Payment Account, and designated as a "Class BI-S Certificate" on the face
thereof, in the form of Exhibit B-3 hereto.
"Class BII-S Certificate": Any of those Certificates
-----------------------
representing the right to receive excess amounts on the Group II
Supplemental Interest Payment Account, and designated as a "Class BII-S
Certificate" on the face thereof, in the form of Exhibit B-3 hereto.
"Class LT1 Certificates": The uncertificated class of interests
----------------------
in the Lower-Tier REMIC, as described in and designated in Section 2.8
hereof.
"Class LT2 Certificates": The uncertificated class of interests
----------------------
in the Lower-Tier REMIC, as described in and designated in Section 2.8
hereof.
"Class LT3 Certificates": The uncertificated class of interests
----------------------
in the Lower-Tier REMIC, as described in and designated in Section 2.8
hereof.
"Class LT4 Certificates": The uncertificated class of interests
----------------------
in the Lower-Tier REMIC, as described in and designated in Section 2.8
hereof.
"Class LT5 Certificates": The uncertificated class of interests
----------------------
in the Lower-Tier REMIC, as described in and designated in Section 2.8
hereof.
"Class LT6 Certificates": The uncertificated class of interests
----------------------
in the Lower-Tier REMIC, as described in and designated in Section 2.8
hereof.
"Class R Distribution Account": The Class R Distribution Account
----------------------------
established in accordance with Section 7.2 hereof and maintained by the
Trustee.
"Class RL Certificates": Those certificates representing certain
---------------------
residual rights to distributions from the Lower-Tier REMIC in substantially
the form set forth as Exhibit C-1 hereto.
18
<PAGE>
"Class RU Certificates": Those certificates representing certain
---------------------
residual rights to distributions from the Upper-Tier REMIC in substantially
the form set forth as Exhibit C-2 hereto.
"Clean-Up Call Date": The first Remittance Date following the
------------------
date on which the aggregate Loan Balances of all Mortgage Loans has
declined to 10% or less of the aggregate principal balance of the Mortgage
Loans as of the Closing Date.
"Code": The Internal Revenue Code of 1986, as amended and any
----
successor statute.
"Combined Loan-to-Value Ratio": With respect to any First
----------------------------
Mortgage Loan, the percentage equal to the Original Principal Amount of the
related Note divided by the Appraised Value of the related Property and
with respect to any Second Mortgage Loan or Third Mortgage Loan, the
percentage equal to (a) the sum of (i) the remaining principal balance, as
of origination of the Second Mortgage Loan or Third Mortgage Loan, as
appropriate, of the Senior Lien note(s) relating to such Second Mortgage
Loan or Third Mortgage Loan, as appropriate, and (ii) the Original
Principal Amount of the Note relating to such Second Mortgage Loan or Third
Mortgage Loan, as appropriate, divided by (b) the Appraised Value.
"Compensating Interest": As defined in Section 8.9(b) hereof.
---------------------
"Coupon Rate": The rate of interest borne by each Note.
-----------
"Cut-Off Date": The date as of which Mortgage Loans are
------------
transferred and assigned to the Trust, the opening of business ________ __,
1996.
"Date-of-Payment Loan": Any Mortgage Loan as to which, pursuant
--------------------
to the Note relating thereto, interest is computed and charged to the
Mortgagor at the Coupon Rate on the outstanding principal balance of such
Note based on the number of days elapsed between receipt of the Mortgagor's
last payment through receipt of the Mortgagor's most current payment.
"Delinquency Advance": As defined in Section 8.9(a) hereof.
-------------------
"Delinquent": A Mortgage Loan is "delinquent" if any payment due
----------
thereon is not made by the close of business on the day such payment is
scheduled to be due. A Mortgage Loan is "30 days delinquent" if such
payment has not been received by the close of business on the corresponding
day of
19
<PAGE>
the month immediately succeeding the month in which such payment was due,
or, if there is no such corresponding day (e.g., as when a 30-day month
follows a 31-day month in which a payment was due on the 31st day of such
month) then on the last day of such immediately succeeding month.
Similarly for "60 days delinquent," "90 days delinquent" and so on.
"Delivery Order": The delivery order in the form set forth as
--------------
Exhibit G hereto and delivered by the Sponsor to the Trustee on the Startup
Day pursuant to Section 4.1 hereof.
"Depository": The Depository Trust Company, 7 Hanover Square,
----------
New York, New York 10004 and any successor Depository hereafter named.
"Designated Depository Institution": With respect to each
---------------------------------
Account, an institution whose deposits are insured by the Bank Insurance
Fund or the Savings Association Insurance Fund of the FDIC, the long-term
deposits of which shall be rated (x) A or better by Standard & Poor's and
(y) A2 or better by Moody's and in one of the two highest short-term rating
categories for S&P and the highest short-term rating category for Moody's,
unless otherwise approved in writing by the Certificate Insurer and each of
Moody's and Standard & Poor's, and which is any of the following: (i) a
federal savings and loan association duly organized, validly existing and
in good standing under the federal banking laws, (ii) an institution duly
organized, validly existing and in good standing under the applicable
banking laws of any state, (iii) a national banking association duly
organized, validly existing and in good standing under the federal banking
laws, (iv) a principal subsidiary of a bank holding company, or
(v) approved in writing by the Certificate Insurer, Moody's and Standard &
Poor's and, in each case acting or designated by the Master Servicer as the
depository institution for the Principal and Interest Account; provided,
--------
however, that any such institution or association shall have combined
- -------
capital, surplus and undivided profits of at least $100,000,000.
Notwithstanding the foregoing, an Account may be held by an institution
otherwise meeting the preceding requirements except that the only
applicable rating requirement shall be that the unsecured and
uncollateralized debt obligations thereof shall be rated Baa3 or better by
Moody's if such institution has trust powers and the Principal and Interest
Account is held by such institution in its corporate trust department.
"Determination Date": As to each Payment Date, the third
------------------
Business Day preceding such Payment Date or such earlier day as shall be
agreed by the Certificate Insurer and Trustee.
"Direct Participant" or "DTC Participant" means any broker-
------------------ ---------------
dealer, bank or other financial institution for which
20
<PAGE>
the Depository holds Class A Certificates from time to time as a securities
depository.
"Disqualified Organization": "Disqualified Organization" shall
-------------------------
have the meaning set forth from time to time in the definition thereof at
Section 860E(e)(5) of the Code (or any successor statute thereto) and
applicable to the Trust.
"Document Delivery Requirements": The Sponsor's obligations to
------------------------------
deliver certain legal documents, to prepare and record certain Mortgage
assignments or to deliver certain opinions relating to Mortgage
assignments, in each case with respect to the Mortgage Loans and as set
forth in Section 3.5 hereof.
"Eligible Investments": Those investments so designated pursuant
--------------------
to Section 7.7 hereof.
"Excess Pre-Funding Earnings": With respect to the ____________,
---------------------------
Payment Date, an amount equal to the product of (x) all investment earnings
received by the Trustee on Pre-Funding Account moneys during the period
__________, 1996 through __________, 1996 (inclusive) and (y) a fraction,
the numerator of which is the difference between (i) the Original Pre-
Funded Amount and (ii) the amount remaining in the Pre-Funding Account at
the close of business on ____________, 1996 and the denominator of which is
the Original Pre-Funded Amount. With respect to the __________, 1996
Payment Date, an amount equal to the product of (x) all investment earnings
received by the Trustee on Pre-Funding Account moneys during the period
__________, 1996 through __________, 1996 (inclusive) and (y) a fraction,
the numerator of which is the difference between (i) the amount on deposit
in the Pre-Funding Account at the close of business on _________, 1996.
With respect to the ___________, 1996 Payment Date, an amount equal to the
product of (x) all investment earnings received by the Trustee on Pre-
Funding Account moneys during the period __________, 1996 through
___________, 1996 (inclusive) and (y) a fraction, the numerator of which is
the difference between (i) the amount on deposit in the Pre-Funding Account
at the close of business on __________, 1996 and (ii) the amount remaining
in the Pre-Funding Account at the close of business on ___________, 1996
and the denominator of which is the amount on deposit in the Pre-Funding
Account at the close of business on __________, 1996.
"Excess Spread Rate": With respect to any Group II Mortgage Loan
------------------
and for any Payment Date, the excess, if any, of (a) the Coupon Rate as of
the beginning of the related Remittance Period for such Mortgage Loan minus
-----
the sum of (i) the rate at which the Servicing Fee for such Group II
Mortgage Loan is calculated and (ii) the rate at which the Trustee's
21
<PAGE>
Fees are calculated over (b) the Group II Adjusted Pass-Through Rate for
such Payment Date.
"Excess Subordinated Amount": With respect to any Mortgage Loan
--------------------------
Group and Payment Date, the excess, if any, of (x) the Subordinated Amount
that would apply to the related Mortgage Loan Group on such Payment Date
after taking into account the payment of the related Group Principal
Distribution Amount on such Payment Date (except for any distributions of
related Subordination Reduction Amounts on such Payment Date) over (y) the
related Specified Subordinated Amount for such Payment Date.
"Event of Default": Any event described in clauses (a) or (b) of
----------------
Section 8.20 hereof.
"FDIC": The Federal Deposit Insurance Corporation, or any
----
successor thereto.
"Freddie Mac": The Federal Home Loan Mortgage Corporation, a
-----------
corporate instrumentality of the United States created pursuant to the
Emergency Home Finance Act of 1970, as amended, or any successor thereof.
"File": The documents delivered to the Trustee pursuant to
----
Section 3.5 hereof pertaining to a particular Mortgage Loan and any
additional documents required to be added to the Mortgage File pursuant to
this Agreement.
"Final Determination": As defined in Section 9.3(a) hereof.
-------------------
"First Mortgage Loan": A Mortgage Loan which constitutes a first
-------------------
priority mortgage lien with respect to any Property.
"FNMA": The Federal National Mortgage Association, a
----
federally-chartered and privately-owned corporation existing under the
Federal National Mortgage Association Charter Act, as amended, or any
successor thereof.
"Gross Margin": With respect to each Mortgage Loan with an
------------
adjustable rate, the fixed percentage amount set forth in the related
Mortgage Note which amount is added to the Index in accordance with the
terms of the related Mortgage Note to determine, on each Interest Rate
Adjustment Date, the Coupon Rate for such Mortgage Loan, subject to any
maximum.
"Group I": The pool of Mortgage Loans identified in the related
-------
Schedule of Mortgage Loans as having been assigned to Group I, including
any Qualified Replacement Mortgages delivered in replacement thereof.
22
<PAGE>
"Group I Amortized Subordinated Amount Requirement": shall have
-------------------------------------------------
the meaning specified in the Insurance Agreement.
"Group I Available Funds": As defined in Section 7.3(a) hereof.
-----------------------
"Group I Capitalized Interest Requirement": With respect to the
----------------------------------------
Payment Dates occurring in ___________ and __________ of 1996, the
difference, if any, between (x) the interest due on the Group I
Certificates on such Payment Date and (y) the sum of (i) one month's
interest on the aggregate Loan Balances of all Mortgage Loans in Group I as
of the close of business on the last day of the immediately preceding
Remittance Period, calculated at the Group I Weighted Average Pass-Through
Rate as of such Payment Date and (ii) any Group I Pre-Funding Earnings to
be transferred to the Certificate Account on such Payment Date pursuant to
Section 7.4(f)(i) hereof.
"Group I Certificate Principal Balance": With respect to any
-------------------------------------
Payment Date, the sum of (i) the Class A-1 Certificate Principal Balance as
of such Payment Date, (ii) the Class A-2 Certificate Principal Balance as
of such Payment Date, (iii) the Class A-3 Certificate Principal Balance as
of such Payment Date, (iv) the Class A-4 Certificate Principal Balance as
of such Payment Date and (v) the Class A-5 Certificate Principal Balance as
of such Payment Date.
"Group I Certificates": Together, the Class A-1 Certificates, the
--------------------
Class A-2 Certificates, the Class A-3 Certificates, the Class A-4
Certificates and the Class A-5 Certificates and the Class B Group I
Certificates.
"Group I Cumulative Crossover Amount": As of any Payment Date,
-----------------------------------
the excess of (x) the aggregate, cumulative amounts allocated to the Class
A Group I Distribution Account on all prior Payment Dates pursuant to
sections 7.5(c)(iv)(B)(ii) and 7.5(c)(iv)(D)(ii) over (y) the aggregate,
cumulative amounts allocated to the Class B Group II Distribution Account
on all prior Payment Dates pursuant to Section 7.5(c)(iv)(E)(i) hereof.
"Group I Deficiency Amount": As defined in Section 7.5(c)(i)
-------------------------
hereof.
"Group I Formula Distribution Amount": With respect to the Group
-----------------------------------
I Certificates for any Payment Date, the sum of (i) the Class A-1 Formula
Distribution Amount for such Payment Date, (ii) the Class A-2 Formula
Distribution Amount for such Payment Date, (iii) the Class A-3 Formula
Distribution Amount for such Payment Date, (iv) the Class A-4 Formula
Distribution
23
<PAGE>
Amount for such Payment Date and (v) the Class A-5 Formula Distribution
Amount for such Payment Date.
"Group I Initial Specified Subordinated Amount": shall have the
---------------------------------------------
meaning specified in the Insurance Agreement.
"Group I Insured Distribution Amount": With respect to any
-----------------------------------
Payment Date, the sum of (i) Group I Insured Interest Distribution Amount
for such Payment Date and (ii) the Group I Insured Principal Distribution
Amount for such Payment Date.
"Group I Insured Interest Distribution Amount": With respect to
--------------------------------------------
any Payment Date, the sum of (i) the Class A-1 Interest Distribution
Amount, (ii) the Class A-2 Interest Distribution Amount, (iii) the
Class A-3 Interest Distribution Amount, (iv) the Class A-4 Interest
Distribution Amount, (v) the Class A-5 Interest Distribution Amount,
(vi) the Class A-1 Interest Carry-Forward Amount, (vii) the Class A-2
Interest Carry-Forward Amount, (viii) the Class A-3 Interest Carry-Forward
Amount, (ix) the Class A-4 Interest Carry-Forward Amount and (x) the Class
A-5 Interest Carry-Forward Amount, in each case for such Payment Date.
"Group I Insured Payment": As of any Payment Date, the sum of
-----------------------
(x) the Group I Shortfall Amount for such Payment Date and (y) any
Preference Amounts with respect to the Group I Certificates with respect to
which the affected Owners have complied with the provisions of Section
7.3(g) hereof during the related Remittance Period.
"Group I Insured Principal Distribution Amount": With respect to
---------------------------------------------
any Payment Date, the sum of (i) the Group I Subordination Deficit, (ii)
the Class A-1 Principal Carry-Forward Amount, (iii) the Class A-2 Principal
Carry-Forward Amount, (iv) the Class A-3 Principal Carry-Forward Amount,
(v) the Class A-4 Principal Carry-Forward Amount and (vi) the Class A-5
Principal Carry-Forward Amount, in each case for such Payment Date.
"Group I Interest Distribution Amount": As of any Payment Date
-------------------------------------
the sum of (i) the Class A-1 Interest Distribution Amount for such Payment
Date, (ii) the Class A-2 Interest Distribution Amount for such Payment
Date, (iii) the Class A-3 Interest Distribution Amount for such Payment
Date, (iv) the Class A-4 Interest Distribution Amount for such Payment Date
and (v) the Class A-5 Interest Distribution Amount for such Payment Date.
"Group I Interest Remittance Amount": As of any Remittance Date,
----------------------------------
the sum, without duplication, of (i) all interest collected by the Master
Servicer during the related Remittance Period with respect to the Mortgage
Loans in Group I, (ii) all Delinquency Advances made by the Master Servicer
24
<PAGE>
on such Remittance Date with respect to Group I and (iii) all Compensating
Interest paid by the Master Servicer on such Remittance Date with respect
to Group I, net of amounts allowed to be retained pursuant to Section
8.8(c).
"Group I Monthly Remittance Amount": As of any Remittance Date,
---------------------------------
the sum of (i) the Group I Interest Remittance Amount for such Remittance
Date and (ii) the Group I Principal Remittance Amount for such Remittance
Date.
"Group I Net Funds Cap Rate": As of any Payment Date, a per
--------------------------
annum rate, expressed as a percentage, equal to the product of (x) 100 and
(y) a fraction, the numerator of which is an amount equal to (i) the sum of
--- --------- -- -----
(A) a full month's scheduled interest due on all of the Group I Mortgage
Loans during the immediately preceding Remittance Period and (B) the amount
of any Group I Subordination Reduction Amount for such Payment Date minus
-----
(ii) the sum of (A) the sum of the Class A-1 Interest Distribution Amount,
the Class A-2 Interest Distribution Amount, the Class A-3 Interest
Distribution Amount and the Class A-4 Interest Distribution Amount and in
each case as of such Payment Date, (B) the product of (1) one-twelfth of
the rate at when the Servicing Fee applicable to Group I is then calculated
and (2) the aggregate Loan Balances of the Group I Mortgage Loans as of the
beginning of the immediately preceding Remittance Period, (C) the Group I
Premium Amount, and (D) Trustee's Fees and the denominator of which is one-
--- ----------- -- -----
twelfth of the Class A-5 Certificate Principal Balance immediately prior to
such Payment Date.
"Group I Pre-Funding Earnings": With respect to the __________,
----------------------------
1996 Payment Date, the actual investment earnings earned during the period
___________, 1996 through ___________, 1996 (inclusive) on the Pre-Funding
Account during such period as calculated by the Sponsor pursuant to Section
3.8(f) hereof; with respect to the __________, 1996 Payment Date the actual
investment earnings during the period ________, 1996 through __________,
1996 (inclusive) on the Pre-Funding Account during such period as
calculated by the Sponsor pursuant to Section 3.8(f) hereof; with respect
to the __________, 1996 Payment Date the actual investment earnings during
the period __________, 1996 through __________, 1996 (inclusive) on the
Pre-Funding Account during such period as calculated by the Sponsor
pursuant to Section 3.8(f) hereof.
"Group I Pool Principal Balance": As of any date of
------------------------------
determination, the aggregate Principal Balances of all of the Group I
Mortgage Loans as of the close of business on such date.
"Group I Preference Amount": As defined in the Certificate
-------------------------
Insurance Policy.
25
<PAGE>
"Group I Premium Amount": As to any Payment Date, the product of
----------------------
(x) one-twelfth of the Premium Percentage and (y) the Group I Certificate
Principal Balance on such Payment Date (after taking into account any
distributions of the Group I Principal Distribution Amount to be made on
such Payment Date); provided, however, that in the event that, as of any
-------- -------
Payment Date, (i) the sum of (x) the Group I Weighted Average Pass-Through
Rate applicable to such Payment Date and (y) the Premium Percentage exceeds
(ii) the product of (a) the weighted average Coupon Rate of the Group I
Mortgage Loans as of the beginning of the related Remittance Period less
____% and (b) a fraction, the numerator of which is the Group I Certificate
--- --------- -- -----
Principal Balance immediately prior to such Payment Date and the
denominator of which is the aggregate Loan Balance of the Group I Mortgage
- ----------- -- -----
Loans as of the beginning of the related Remittance Period, then the Group
I Premium Amount for such Payment Date shall be reduced by an amount equal
to the lesser of (x) the product of (a) one-twelfth of such excess and
(b) the Group I Certificate Principal Balance as of such Payment Date
(after taking into account any distributions of principal on such Payment
Date) and (y) the product of (a) one-twelfth of the Premium Percentage and
(b) the Group I Certificate Principal Balance as of such Payment Date
(after taking into account any distributions of principal on such Payment
Date).
"Group I Principal Carry-Forward Amount": With respect to any
--------------------------------------
Payment Date, the amount, if any, by which (x) the Group I Subordination
Deficit, if any, as of the immediately preceding Payment Date exceeded
(y) the amount of the actual distribution made to the Owners of the Group I
Certificates on such immediately preceding Payment Date on account of the
Group I Principal Distribution Amount.
"Group I Principal Distribution Amount": With respect to the
-------------------------------------
Group I Certificates for any Payment Date, the lesser of:
(i) the excess of (a) the sum, as of such Payment Date, of
(x) the Group I Total Available Funds and (y) any Group I
Insured Payment over (b) the Group I Interest Distribution
Amount (calculated, for this purpose only, using ____% as
the Class A-5 Pass-Through Rate); and
(ii) the sum, without duplication, of:
(a) the Group I Principal Carry-Forward Amount,
(b) the principal actually collected by the Master Servicer with
respect to the Mortgage Loans in Group I during the related Remittance
Period,
26
<PAGE>
(a) the Loan Balance of each Mortgage Loan in Group I that
either was repurchased by an Originator or by the Sponsor or purchased by
the Master Servicer on the related Remittance Date, to the extent such Loan
Balance is actually received by the Trustee,
(b) any Substitution Amounts delivered by the Sponsor on the
related Remittance Date in connection with a substitution of a Mortgage
Loan in Group I, to the extent such Substitution Amounts are actually
received by the Trustee,
(c) all Net Liquidation Proceeds actually collected by the
Master Servicer with respect to the Mortgage Loans in Group I during the
related Remittance Period (to the extent such Net Liquidation Proceeds
related to principal),
(d) the amount of any Group I Subordination Deficit for such
Payment Date,
(e) the proceeds received by the Trustee of any termination of
Group I (to the extent such proceeds related to principal),
(f) any moneys released from the Pre-Funding Account with
respect to Group I on the Payment Date which immediately follows the end of
the Pre-Funding Period pursuant to Section 7.4(c)(i) hereof as a prepayment
of the Group I Certificates on such Payment Date,
(g) the amount of any Subordination Increase Amount with respect
to Group I for such Payment Date, to the extent of any Net Monthly Excess
Cashflow available for such purpose;
minus
-----
(h) the amount of any Subordination Reduction Amount with
respect to Group I for such Payment Date.
"Group I Principal Remittance Amount": As of any Remittance
-----------------------------------
Date, the sum, without duplication, of (i) the principal actually collected
by the Master Servicer with respect to Mortgage Loans in Group I during the
related Remittance Period, (ii) the Loan Balance of each such Mortgage Loan
in Group I that either was repurchased by an Originator or by the Sponsor
or purchased by the Master Servicer on such Remittance Date, to the extent
such Loan Balance was actually deposited in the Principal and Interest
Account, (iii) any Substitution Amounts delivered by the Sponsor in
connection with a substitution of a Mortgage Loan in Group I, to the extent
such Substitution Amounts were actually deposited in the Principal and
Interest Account on such Remittance Date, and (iv) all Net Liquidation
Proceeds actually collected by the Master Servicer with respect to such
Mortgage Loans in
27
<PAGE>
Group I during the related Remittance Period (to the extent such
Liquidation Proceeds related to principal) net of amounts allowed to be
retained pursuant to Section 8.8(c).
"Group I Projected Net Monthly Excess Cashflow": As of any date
---------------------------------------------
of calculation, five times Net Monthly Excess Cashflow relating to Group I,
as calculated pursuant to Section 7.5(c)(iv) hereof on the Payment Date
immediately preceding such date of calculation.
"Group I Reimbursement Amount": As of any Payment Date, the sum
----------------------------
of (x)(i) all Group I Insured Payments previously received by the Trustee
and all Group I Preference Amounts previously paid by the Certificate
Insurer and in each case not previously repaid to the Certificate Insurer
pursuant to Section 7.5(c)(iv)(C) or Section 7.5(c)(iv)(D) hereof plus
(ii) interest accrued on each such Group I Insured Payment not previously
repaid calculated at the Group I Weighted Average Pass-Through Rate from
the date the Trustee received the related Group I Insured Payment and
(y)(i) any amounts then due and owing to the Certificate Insurer relating
to Group I under the Insurance Agreement plus (ii) interest on such amounts
at the Late Payment Rate. The Certificate Insurer shall notify the Trustee
and the Sponsor of the amount of any Group I Reimbursement Amount.
"Group I Specified Subordinated Amount": shall have the meaning
-------------------------------------
specified in the Insurance Agreement.
"Group I Subordinated Amount": As of any Payment Date, the
---------------------------
excess, if any, between (x) the sum of (i) the aggregate Loan Balances of
the Mortgage Loans in Group I as of the close of business on the last day
of the related Remittance Period and (ii) any amount on deposit in the Pre-
Funding Account at such time and allocated to Group I and (y) the Group I
Certificate Principal Balance as of such Payment Date (after taking into
account the payment of the Group I Principal Distribution Amount on such
Payment Date except for any portion thereof related to a Group I Insured
Payment).
"Group I Subordination Deficiency Amount": As of any Payment
---------------------------------------
Date, the excess, if any, of (i) the Group I Specified Subordinated Amount
applicable to such Payment Date
over (ii) the Group I Subordinated Amount applicable to such Payment Date
prior to taking into account the payment of any related Group I
Subordination Increase Amounts on such Payment Date.
"Group I Subordination Deficit": With respect to Mortgage Loan
-----------------------------
Group I as of any Payment Date, the amount, if any, by which (x) the
aggregate Group I Certificate Principal Balance, after taking into account
the payment of the Group I
28
<PAGE>
Principal Distribution Amount (calculated for this purpose only without
regard to clause (ii)(f) thereof) on such Payment Date, exceeds (y) the sum
of (i) the aggregate Loan Balances of the Mortgage Loans in Mortgage Loan
Group I as of the close of business on the last day of the prior Remittance
Period and (ii) any Pre-Funding Account moneys allocable to Mortgage Loan
Group I as of the close of business on the last day of the prior Remittance
Period.
"Group I Subordination Increase Amount": With respect to any
-------------------------------------
Payment Date, the lesser of (x) the Group I Subordination Deficiency Amount
as of such Payment Date and (y) the sum of (i) the Class B Group I Interest
as of such Payment Date and (ii) any portion of the Class B Group II
Interest applied to the funding of a Group I Subordination Increase Amount
on such Payment Date pursuant to Section 7.3(b)(iv)(D)(ii) hereof.
"Group I Subordination Reduction Amount": With respect to any
--------------------------------------
Payment Date, an amount equal to the lesser of (x) the Group I Excess
Subordinated Amount and (y) the amount described in clause (x) of the
definition of Base Group I Principal Distribution Amount, in each case as
of such Payment Date.
"Group I Interest Account": Interest Account established in
------------------------
accordance with Section 7.10(a) hereof and maintained by the Trustee.
"Group I Total Available Funds": As defined in Section 7.3(a)
-----------------------------
hereof.
"Group I Total Monthly Excess Spread": With respect to Mortgage
-----------------------------------
Loan Group I as of any Payment Date, the excess of (i) the interest which
is collected on the Mortgage Loans in Mortgage Loan Group I during the
prior Remittance Period, less the related Servicing Fees, less the
Trustee's Fees, plus any Delinquency Advances and Compensating Interest
paid by the Master Servicer with respect to Mortgage Loan Group I with
respect to such Remittance Period over (ii) the sum of (x) the interest due
on the Group I Certificates on such Payment Date and (y) the Group I
Premium Amount for such Payment Date.
"Group I Weighted Average Net Loan Rate": As of any Payment Date,
--------------------------------------
the weighted average of the Coupon Rates (minus (i) the Servicing Fee,
(ii) the annual rate at which the Group I Premium Amount applicable to such
Payment Date has been calculated and (iii) the Trustee's Fees applicable to
the Group I Mortgage Loans during the immediately preceding Remittance
Period, expressed as an annual percentage rate) (weighted by the related
Loan Balances) of the Group I Mortgage Loans, calculated as of the first
day of the immediately preceding Remittance Period.
29
<PAGE>
"Group I Weighted Average Pass-Through Rate": As to the Group I
------------------------------------------
Certificates and any Payment Date, the weighted average of the Class A-1
Pass-Through Rate, the Class A-2 Pass-Through Rate, the Class A-3 Pass-
Through Rate, the Class A-4 Pass-Through Rate and the Class A-5 Pass-
Through Rate as of such Payment Date, and prior to taking into account any
distributions to be made on such Payment Date.
"Group II": The pool of Mortgage Loans identified in the related
--------
Schedule of Mortgage Loans as having been assigned to Group II, including
any Qualified Replacement Mortgages delivered in replacement thereof.
"Group II Adjusted Pass-Through Rate": With respect to any
-----------------------------------
Payment Date, the product of (x) the sum of (i) the Class A-6 Pass-Through
Rate immediately prior to such Payment Date, and (ii) the Certificate
Insurer Premium Rate and (y) a fraction, the numerator of which is the
Class A-6 Certificate Principal Balance immediately prior to such Payment
Date and the denominator of which is the aggregate Loan Balance of all
Group II Mortgage Loans as of the beginning of the related Remittance
Period.
"Group II Amortized Subordinated Amount Requirement": shall have
--------------------------------------------------
the meaning specified in the Insurance Agreement.
"Group II Available Funds": As defined in Section 7.3(a)(ii)
------------------------
hereof.
"Group II Certificates": Any of the Class A-6 Certificates and
---------------------
the Class B Group II Certificates.
"Group II Cumulative Crossover Amount": As of any Payment Date,
------------------------------------
the excess of (x) the aggregate, cumulative amounts allocated to the Class
A Group II Distribution Account on all prior Payment Dates pursuant to
sections 7.5(c)(iv)(B)(i) and 7.5(c)(iv)(D)(i) over (y) the aggregate,
cumulative amounts allocated to the Class A Group I Distribution Account on
all prior Payment Dates pursuant to Section 7.5(c)(iv)(E)(ii) hereof.
"Group II Deficiency Amount": As defined in Section 7.5(c)(ii).
--------------------------
"Group II Initial Specified Subordinated Amount": shall have the
----------------------------------------------
meaning specified in the Insurance Agreement.
"Group II Insured Distribution Amount": With respect to any
------------------------------------
Payment Date, the sum of (i) Group II Insured Interest Distribution Amount
for such Payment Date and (ii) the Group II Insured Principal Distribution
Amount for such Payment Date.
30
<PAGE>
"Group II Insured Interest Distribution Amount": With respect to
---------------------------------------------
any Payment Date, the sum of (i) the Class A-6 Interest Distribution Amount
and (ii) the Class A-6 Interest Carry-Forward Amount.
"Group II Insured Payment": As of any Payment Date, the sum of
------------------------
(x) the Group II Shortfall Amount for such Payment Date and (y) any
Preference Amounts with respect to the Class A-6 Group II Certificates with
respect to which the affected Owners have complied with the provisions of
Section 7.3(g) hereof during the related Remittance Period.
"Group II Insured Principal Distribution Amount": With respect
----------------------------------------------
to any Payment Date, the sum of (i) the Group II Subordination Deficit and
(ii) the Class A-6 Group II Principal Carry-Forward Amount, in each case
for such Payment Date.
"Group II Interest Remittance Amount": As of any Remittance
-----------------------------------
Date, the sum, without duplication, of (i) all interest collected by the
Master Servicer during the related Remittance Period with respect to the
Mortgage Loans in Group II, (ii) all Delinquency Advances made by the
Master Servicer on such Remittance Date with respect to Group II and
(iii) all Compensating Interest paid by the Master Servicer on such
Remittance Date with respect to Group II net of amounts allowed to be
retained in Section 8.8(c).
"Group II Monthly Remittance Amount": As of any Remittance Date,
----------------------------------
the sum of (i) the Group II Interest Remittance Amount for such Remittance
Date and (ii) the Group II Principal Remittance Amount for such Remittance
Date.
"Group II Pool Principal Balance": As of any date of
-------------------------------
determination, the aggregate Principal Balances of all of the Group II
Mortgage Loans as of the close of business on such date.
"Group II Preference Amount": As defined in the Certificate
--------------------------
Insurance Policy.
"Group II Premium Amount": As to any Payment Date, the product
-----------------------
of (x) one-twelfth of the Premium Percentage and (y) the Group II
Certificate Principal Balance on such Payment Date (after taking into
account any distributions of the Group II Principal Distribution Amount on
such Payment Date).
"Group II Principal Carry-Forward Amount": With respect to any
---------------------------------------
Payment Date, the amount, if any, by which (x) the Group II Subordination
Deficit, if any, as of the immediately preceding Payment Date exceeded
(y) the amount of the actual distribution made to the Class A-6
Distribution
31
<PAGE>
Account on such immediately preceding Payment Date on account of the Group
II Principal Distribution Amount.
"Group II Principal Distribution Amount": As of any Payment
--------------------------------------
Date, the sum of (i) the Base Group II Principal Distribution Amount, (ii)
the Group II Subordination Deficit, (iii) the Group II Subordination
Increase Amount, and (iv) the Class A-6 Principal Carry-Forward Amount, in
each case for such Payment Date.
"Group II Principal Remittance Amount": As of any Remittance
------------------------------------
Date, the sum, without duplication, of (i) the principal actually collected
by the Master Servicer with respect to Mortgage Loans in Group II during
the related Remittance Period, (ii) the Loan Balance of each such Mortgage
Loan in Group II that either was repurchased by an Originator or by the
Sponsor or purchased by the Master Servicer on such Remittance Date, to the
extent such Loan Balance was actually deposited in the Principal and
Interest Account, (iii) any Substitution Amounts delivered by the Sponsor
in connection with a substitution of a Mortgage Loan in Group II, to the
extent such Substitution Amounts were actually deposited in the Principal
and Interest Account on such Remittance Date, and (iv) all Net Liquidation
Proceeds actually collected by the Master Servicer with respect to such
Mortgage Loans in Group II during the related Remittance Period (to the
extent such Liquidation Proceeds related to principal) net of amounts
allowed to be retained pursuant to Section 8.8(c).
"Group II Projected Net Monthly Excess Cashflow": As of any date
----------------------------------------------
of calculation, five times Net Monthly Excess Cashflow relating to Group
II, as calculated pursuant to Section 7.5(c)(v) hereof on the Payment Date
immediately preceding such date of calculation.
"Group II Specified Subordinated Amount": shall have the meaning
--------------------------------------
specified in the Insurance Agreement.
"Group II Subordinated Amount": As of any Payment Date, the
----------------------------
excess, if any, of (x) the aggregate Loan Balances of the Mortgage Loans in
Group II as of the close of business on the last day of the related
Remittance Period over (y) the Group II Certificate Principal Balance as of
such Payment Date (after taking into account the payment of the Group II
Principal Distribution Amount on such Payment Date except for any portion
thereof related to a Group II Insured Payment).
"Group II Subordination Deficiency Amount": As of any Payment
----------------------------------------
Date, the excess, if any, of (i) the Group II Specified Subordinated Amount
applicable to such Payment Date over (ii) the Group II Subordinated Amount
applicable to such Payment Date prior to taking into account the payment of
any
32
<PAGE>
related Group II Subordination Increase Amounts on such Payment Date.
"Group II Subordination Deficit": With respect to Mortgage Loan
------------------------------
Group II as of any Payment Date, the amount, if any, by which (x) the Group
II Certificate Principal Balance, after taking into account the payment of
the Group II Principal Distribution Amount (calculated for this purpose
only without regard to clause (ii)(f) thereof) on such Payment Date,
exceeds (y) the aggregate Loan Balances of the Mortgage Loans in Mortgage
Loan Group II as of the close of business on the last day of the prior
Remittance Period.
"Group II Subordination Increase Amount": With respect to any
--------------------------------------
Payment Date, the lesser of (x) the Group II Subordination Deficiency
Amount as of such Payment Date and (y) the sum of (i) the Class B Group II
Interest as of such Payment Date and (ii) any portion of the Class B Group
I Interest applied to the funding of a Group II Subordination Increase
Amount on such Payment Date pursuant to Sections 7.5(c)(iv)(D)(i) hereof.
"Group II Supplemental Interest Account": The Group II
--------------------------------------
Supplemental Interest Account established in accordance with Section
7.10(a) hereof and maintained by the Trustee.
"Group II Total Available Funds": As defined in Section
------------------------------
7.3(a)(ii) hereof.
"Indemnification Agreement": The Indemnification Agreement dated
-------------------------
as of _______, 1996 among the Certificate Insurer, the Sponsor, and the
Underwriter.
"Index": With respect to any adjustable rate Mortgage Note, the
-----
applicable index set forth therein.
"Indirect Participant" shall mean any financial institution for
--------------------
whom any Direct Participant holds an interest in a Class A Certificate.
"Initial Premiums": The initial premiums payable by the Sponsor
----------------
on behalf of the Trust to the Certificate Insurer in consideration of the
delivery to the Trustee of the Certificate Insurance Policy.
"Insurance Agreement": The Insurance and Indemnity Agreement
-------------------
dated as of _________, 1996 among the Sponsor, the Master Servicer and the
Certificate Insurer, as it may be amended from time to time.
"Insurance Policy": Any hazard, title or primary mortgage
----------------
insurance policy relating to a Mortgage Loan.
33
<PAGE>
"Insured Payment": With respect to the Group I Certificates, the
---------------
Group I Insured Payment and with respect to the Group II Certificates, the
Group II Insured Payment.
"Interest Accrual Period": With respect to the Class A-1
-----------------------
Certificates, the Class A-2 Certificates, the Class A-3 Certificates, the
Class A-4 Certificates and the Class A-5 Certificates, and any Payment
Date, the calendar month immediately preceding such Payment Date. With
respect to the Class A-6 Certificates, the period commencing on the prior
Payment Date (or on ________, 1996 with respect to the ______, 1996 Payment
Date) and ending on the day immediately preceding such Payment Date.
"Interest Advance": As defined in Section 7.10(b) hereof.
----------------
"Interest Determination Date": With respect to any Interest
---------------------------
Accrual Period for the Class A-6 Certificates (other than the initial
Interest Accrual Period), the second London Business Day preceding the
first day of such Interest Accrual Period.
"Interest Rate Adjustment Date": The date on which an adjustment
-----------------------------
to the Coupon Rate on a Mortgage Note becomes effective.
"Late Payment Rate": For any Payment 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,
N.A.) plus __%. 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 Date exceed the maximum rate permissible under
any applicable law limiting interest rates.
"LIBOR": With respect to any Interest Accrual Period for the
-----
Class A-6 Certificates, the rate determined by the Trustee on the related
Interest Determination Date on the basis of the offered rates of the
Reference Banks for one-month U.S. dollar deposits, as such rates appear on
the Reuters Screen LIBO Page, as of 11:00 a.m. (London time) on such
Interest Determination Date. On each Interest Determination Date, LIBOR
for the related Interest Accrual Period will be established by the Trustee
as follows:
(i) If on such Interest Determination Date two or more Reference
Banks provide such offered quotations, LIBOR for the related
Interest Accrual Period shall be the arithmetic mean of such
offered quotations (rounded upwards if necessary to the nearest
whole multiple of 1/16%).
34
<PAGE>
(ii) If on such Interest Determination Date fewer than two Reference
Banks provide such offered quotations, LIBOR for the related
Interest Accrual Period shall be the higher of (i) LIBOR as
determined on the previous Interest Determination Date and (ii)
the Reserve Interest Rate.
"Liquidated Loan": As defined in Section 8.13(b) hereof. A
---------------
Mortgage Loan which is purchased from the Trust pursuant to Section 3.3,
3.4, 3.6(b) or 8.10 hereof is not a "Liquidated Loan".
"Liquidation Expenses": Expenses which are incurred by the
--------------------
Master Servicer or any Sub-Servicer in connection with the liquidation of
any defaulted Mortgage Loan, such expenses, including, without limitation,
legal fees and expenses, and any unreimbursed Servicing Advances expended
by the Master Servicer or any Sub-Servicer pursuant to Section 8.9 with
respect to the related Mortgage Loan.
"Liquidation Proceeds": With respect to any Liquidated Loan, any
--------------------
amounts (including the proceeds of any Insurance Policy) recovered by the
Master Servicer in connection with such Liquidated Loan, whether through
trustee's sale, foreclosure sale or otherwise.
"Loan Balance": With respect to each Mortgage Loan, the
------------
outstanding principal balance thereof as of the Cut-Off Date, less any
related Principal Remittance Amounts relating to such Mortgage Loan
included in previous related Monthly Remittances that were transferred by
the Master Servicer or any Sub-Servicer to the Trustee for deposit in the
related Certificate Account; provided, however, (x) that the Loan Balance
-------- -------
for any Mortgage Loan which has become a Liquidated Loan shall be zero as
of the first day of the Remittance Period following the Remittance Period
in which such Mortgage Loan becomes a Liquidated Loan, and at all times
thereafter and (y) the Loan Balance "as of the Cut-Off Date" for any
Mortgage Loan originated during the period from the Cut-Off Date to the
Closing Date shall be the Original Loan Balance thereof.
"Loan Purchase Price": With respect to any Mortgage Loan
-------------------
purchased from the Trust on a Remittance Date pursuant to Section 3.3, 3.4,
3.6(b) or 8.10 hereof, an amount equal to the Loan Balance of such Mortgage
Loan as of the date of purchase, plus one month's interest on the
outstanding Loan Balance thereof as of the beginning of the preceding
Remittance Period computed at the Coupon Rate less the Servicing Fee
(expressed as an annual percentage rate), if any, together with, without
duplication, the aggregate amount of (i) all delinquent interest, all
Delinquency Advances and Servicing Advances theretofore made with respect
to such
35
<PAGE>
Mortgage Loan and not subsequently recovered from the related Mortgage
Loan, (ii) all Delinquency Advances which the Master Servicer or any Sub-
Servicer has theretofore failed to remit with respect to such Mortgage Loan
and (iii) any Reimbursement Amount relating to such Mortgage Loan.
"London Business Day": A day on which banks are open for dealing
-------------------
in foreign currency, and exchange in London and New York City.
"Lower Tier Distribution Amount": As of any Payment Date, the
------------------------------
sum of (i) the Group I Available Funds and (ii) the Group II Available
Funds.
"Lower-Tier Interests": As defined in Section 2.8(c) hereof.
--------------------
"Lower-Tier REMIC": The segregated pool of assets held by the
----------------
Trust consisting of the Mortgage Loans.
"Master Servicer": Accredited Home Lenders, Inc., a California
---------------
corporation, and its permitted successors and assigns.
"Master Servicer's Trust Receipt": The Master Servicer's trust
-------------------------------
receipt in the form set forth as Exhibit K hereto.
"Master Servicing Fee": As to any Payment Date the product of
--------------------
(x) one-twelfth of ____% and (y) the aggregate Loan Balances of the
Mortgage Loans as of the opening of business on the first day of the
preceding calendar month.
"Monthly Remittance Amount": With respect to Group I, the Group
-------------------------
I Monthly Remittance Amount, and with respect to Group II, the Group II
Monthly Remittance Amount.
"Moody's": Moody's Investors Service, Inc.
-------
"Mortgage": The mortgage, deed of trust or other instrument
--------
creating a first or second or third lien on an estate in fee simple
interest in real property securing a Note.
"Mortgage Loan Group": Either Group I or Group II. References
-------------------
herein to the related Class of Class A Certificates, when used with respect
to a Mortgage Loan Group, shall mean (A) in the case of Group I, the Group
I Certificates, and (B) in the case of Group II, the Class A-6
Certificates.
"Mortgage Loans": Such of the mortgage loans transferred and
--------------
assigned to the Trust pursuant to Section
36
<PAGE>
3.5(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 Mortgage Loans originally
so held being identified in the Schedule of Mortgage Loans. The term
"Mortgage Loan" includes the terms "First Mortgage Loan" and "Second
Mortgage Loan". The term "Mortgage Loan" includes any Mortgage 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 mortgage loan which, although intended by the parties hereto to
have been, and which purportedly was, transferred and assigned to the Trust
by the Sponsor, in fact was not transferred and assigned to the Trust for
any reason whatsoever shall nevertheless be considered a "Mortgage Loan"
for all purposes of this Agreement.
"Mortgagor": The obligor on a Note.
---------
"Net Liquidation Proceeds": As to any Liquidated Loan,
------------------------
Liquidation Proceeds net of, without duplication, Liquidation Expenses and
unreimbursed Servicing Advances, unreimbursed Delinquency Advances and
accrued and unpaid Servicing Fees through the date of liquidation relating
to such Liquidated Loan. In no event shall Net Liquidation Proceeds with
respect to any Liquidated Loan be less than zero.
"Net Monthly Excess Cashflow": As defined in Section 7.5(c)(v)
---------------------------
hereof.
"Note": The note or other evidence of indebtedness evidencing
----
the indebtedness of a Mortgagor under a Mortgage Loan.
"Officer's Certificate": A certificate signed by any Authorized
---------------------
Officer of any Person delivering such certificate and delivered to the
Trustee.
"Operative Documents": Collectively, this Agreement, the
-------------------
Certificate Insurance Policy, the Certificates, [the Indemnification
Agreement] and the Insurance Agreement.
"Original Aggregate Loan Balance": The aggregate Loan Balances
-------------------------------
of all Mortgage Loans as of the Cut-Off Date, i.e., $_______________.
----
"Original Aggregate Pre-Funding Amount": The amount deposited in
-------------------------------------
the Pre-Funding Account on the Startup Day, from the proceeds of the sale
of the Group I Class A Certificates, which amount is $___________.
37
<PAGE>
"Original Certificate Principal Balance": As of the Startup Day
--------------------------------------
and as to each Class of Class A Certificates, the original Certificate
Principal Balances thereof, as follows:
Class A-1 Certificates $___________
Class A-2 Certificates $___________
Class A-3 Certificates $___________
Class A-4 Certificates $___________
Class A-5 Certificates $___________
Class A-6 Certificates $___________
The Residual Certificates do not have an Original Certificate
Principal Balance.
"Original Principal Amount": With respect to each Note, the
-------------------------
principal amount of such Note or the mortgage note relating to a Senior
Lien, as the case may be, on the date of origination thereof.
"Originator": Any entity from which the Sponsor has purchased
----------
Mortgage Loans.
"Outstanding": With respect to all Certificates of a Class, as
-----------
of any date of determination, all such Certificates theretofore executed
and delivered hereunder except:
(i)
Certificates theretofore cancelled by the Trustee or delivered to the
Trustee for cancellation;
(ii)
Certificates or portions thereof for which full and final payment money in
the necessary amount has been theretofore deposited with the Trustee
in trust for the Owners of such Certificates;
(iii)
Certificates in exchange for or in lieu of which other Certificates have
been executed and delivered pursuant to this Agreement, unless proof
satisfactory to the Trustee is presented that any such Certificates
are held by a bona fide purchaser; and
(iv)
Certificates alleged to have been destroyed, lost or stolen for which
replacement Certificates have been issued as provided for in Section
5.5 hereof.
"Overfunded Interest Amount": With respect to each Subsequent
--------------------------
Transfer Date occurring in __________, 1996, the difference between (i)
three-months' interest on the aggregate Loan Balances of the Subsequent
Mortgage Loans acquired by the Trust on such Subsequent Transfer Date,
calculated at the Group I Weighted Average Pass-Through Rate and (ii)
three-months' interest on the aggregate Loan Balances of the
38
<PAGE>
Subsequent Mortgage Loans acquired by the Trust on such Subsequent Transfer
Date and assigned to Group I, calculated at the rate at which Pre-Funding
Account moneys are invested as of such Subsequent Transfer Date.
With respect to each Subsequent Transfer Date occurring in
___________, 1996, the difference between (i) two-months' interest on the
aggregate Loan Balances of the Subsequent Mortgage Loans acquired by the
Trust on such Subsequent Transfer Date and assigned to Group I, calculated
at the Group I Weighted Average Pass-Through Rate and (ii) two-months'
interest on the aggregate Loan Balances of the Subsequent Mortgage Loans
acquired by the Trust on such Subsequent Transfer Date and assigned to
Group I, calculated at the rate at which Pre-Funding Account moneys are
invested as of such Subsequent Transfer Date.
With respect to each Subsequent Transfer Date occurring in
__________, 1996, the difference between (i) one-month's interest on the
aggregate Loan Balances of the Subsequent Mortgage Loans acquired by the
Trust on such Subsequent Transfer Date and assigned to Group I, calculated
at the Group I Weighted Average Pass-Through Rate and (ii) one-month's
interest on the aggregate Loan Balances of the Subsequent Mortgage Loans
acquired by the Trust on such Subsequent Transfer Date and assigned to
Group I, calculated at the rate at which Pre-Funding Account moneys are
invested as of such Subsequent Transfer Date.
"Owner": The Person in whose name a Certificate is registered in
-----
the Register, to the extent described in Section 5.6.
"Pass-Through Rate". As to the Class A-1 Certificates, the Class
-----------------
A-1 Pass-Through Rate; as to the Class A-2 Certificates, the Class A-2
Pass-Through Rate; as to the Class A-3 Certificates, the Class A-3 Pass-
Through Rate; as to the Class A-4 Certificates, the Class A-4 Pass-Through
Rate; as to the Class A-5 Certificates, the Class A-5 Pass-Through Rate; as
to the Class A-6 Certificates, the Class A-6 Pass-Through Rate.
"Payment Date": Any date on which the Trustee is required to
------------
make distributions to the Owners, which shall be the 25th day of each
month, commencing in the month following the Startup Day.
"Percentage Interest": As to any Class A Certificate or Class B
-------------------
Certificate, that percentage, expressed as a fraction, the numerator of
which is the Certificate Principal Balance of such Certificate as of the
Cut-Off Date and the denominator of which is the Original Certificate
Principal Balance of all Class A Certificates of the same
39
<PAGE>
Class; and as to any Class R Certificate, that Percentage Interest set
forth on such Class R Certificate.
"Person": Any individual, corporation, partnership, joint
------
venture, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Pool Cumulative Realized Losses": With respect to any period,
-------------------------------
the sum of all Realized Losses with respect to the Mortgage Loans
experienced during such period.
"Pool Delinquency Rate": With respect to any Remittance Period,
---------------------
the fraction, expressed as a percentage, equal to (x) the aggregate
principal balances of all Mortgage Loans 90 or more days Delinquent
(including all foreclosures and REO Properties) as of the close of business
on the last day of such Remittance Period over (y) the Pool Principal
Balance as of the close of business on the last day of such Remittance
Period.
"Pool Principal Balance": The aggregate principal balances of
----------------------
all Mortgage Loans.
"Pool Rolling Three Month Delinquency Rate": As of any Payment
-----------------------------------------
Date, the fraction, expressed as a percentage, equal to the average of the
Pool Delinquency Rates for each of the three (or one and two, in the case
of the first and second Payment Dates) immediately preceding Remittance
Periods.
"Pre-Funded Amount": With respect to any Determination Date, the
-----------------
amount on deposit in the Pre-Funding Account.
"Pre-Funding Account": The Pre-Funding Account established in
-------------------
the accordance with Section 7.2 hereof and maintained by the Trustee.
"Pre-Funding Period": The period commencing on the Startup Day
------------------
and ending on the earliest to occur of (i) the date on which the amount on
deposit in the Pre-Funding Account (exclusive of any investment earnings)
is less than $100,000, (ii) the date on which any Event of Default occurs
and (iii) ___________, 1996.
"Premium Amount": As to any Payment Date, the sum of (i) the
--------------
Group I Premium Amount on such Payment Date and (ii) the Group II Premium
Amount on such Payment Date.
"Premium Percentage": As defined in the Insurance Agreement.
------------------
40
<PAGE>
"Prepaid Installment": With respect to any Mortgage Loan, any
-------------------
installment of principal thereof and interest thereon received prior to the
scheduled due date for such installment, intended by the Mortgagor as an
early payment thereof and not as a Prepayment with respect to such Mortgage
Loan.
"Prepayment": Any payment of principal of a Mortgage Loan which
----------
is received by the Master Servicer in advance of the scheduled due date for
the payment of such principal (other than the principal portion of any
Prepaid Installment), and the proceeds of any Insurance Policy which are to
be applied as a payment of principal on the related Mortgage Loan shall be
deemed to be Prepayments for all purposes of this Agreement.
"Preservation Expenses": Expenditures made by the Master
---------------------
Servicer or any Sub-Servicer in connection with a foreclosed Mortgage 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": Collectively, each principal
------------------------------
and interest account created by the Master Servicer or any Sub-Servicer
pursuant to Section 8.8(a) hereof, or pursuant to any Sub-Servicing
Agreement.
"Principal Remittance Amount": As applicable, the Group I
---------------------------
Principal Remittance Amount or the Group II Principal Remittance Amount.
"Prohibited Transaction": "Prohibited transaction" shall have
----------------------
the meaning set forth from time to time in the definition thereof at
Section 860F(a)(2) of the Code (or any successor statute thereto) and
applicable to the Trust.
"Property": The underlying property securing a Mortgage Loan.
--------
"Purchase Option Period": As defined in Section 9.3(b) hereof.
----------------------
"Qualified Liquidation": "Qualified liquidation" shall have the
---------------------
meaning set forth from time to time in the definition thereof at Section
860F(a)(4) of the Code (or any successor statute thereto) and applicable to
the Trust and the Tax Estates.
"Qualified Mortgage": "Qualified mortgage" shall have the
------------------
meaning set forth from time to time in the definition thereof at Section
860G(a)(3) of the Code (or any successor
41
<PAGE>
statute thereto) and applicable to the Trust and the Mortgage Loan Groups.
"Qualified Replacement Mortgage": A Mortgage Loan substituted
------------------------------
for another pursuant to Section 3.3, 3.4 or 3.6(b) hereof, which (i) bears
a variable rate of interest if the Mortgage Loan to be substituted for is
in Group II or bears a fixed rate of interest if the Mortgage Loan to be
substituted for is in Group I, (ii) has a Coupon Rate at least equal to the
Coupon Rate of the Mortgage Loan being replaced, (which, in the case of a
Mortgage Loan in Group II, shall mean a Mortgage Loan having the same
interest rate index, a margin over such index and a maximum interest rate
at least equal to those applicable to the Mortgage Loan being replaced),
(iii) is of the same or better property type and the same or better
occupancy status as the replaced Mortgage Loan, (iv) shall be of the same
or better credit quality classification (determined in accordance with the
Originators' credit underwriting guidelines) as the Mortgage Loan being
replaced, (v) shall mature no later than ___________, (vi) has a Combined
Loan-to-Value Ratio as of the Cut-Off Date no higher than the Combined
Loan-to-Value Ratio of the replaced Mortgage Loan at such time, (vii) has a
Loan Balance as of the related Replacement Cut-Off Date equal to or less
than the Loan Balance of the replaced Mortgage Loan as of such Replacement
Cut-Off Date, (viii) satisfies all of the representations and warranties
set forth in Section 3.3 and the criteria set forth from time to time in
the definition thereof at Section 860G(a)(4) of the Code (or any successor
statute thereto) and applicable to the Trust, all as evidenced by an
Officer's Certificate of the Sponsor delivered to the Trustee and the
Certificate Insurer prior to any such substitution and (ix) is a valid
First Mortgage Loan if the Mortgage Loan to be substituted for is a valid
First Mortgage Loan or Second Mortgage Loan if the Mortgage Loan to be
substituted for is a Second Mortgage Loan. In the event that one or more
mortgage loans are proposed to be substituted for one or more mortgage
loans, the Certificate Insurer may allow the foregoing tests to be met on a
weighted average basis or other aggregate basis acceptable to the
Certificate Insurer, as evidenced by a written approval delivered to the
Trustee by the Certificate Insurer, except that the requirement of clauses
(vi) and (viii) hereof must be satisfied as to each Qualified Replacement
Mortgage.
"Realized Loss": As to any Liquidated Loan, the amount, if any,
-------------
by which the Loan Balance thereof as of the date of liquidation is in
excess of Net Liquidation Proceeds realized thereon.
"Record Date": With respect to each Payment Date, the last day
-----------
of the calendar month immediately preceding the
42
<PAGE>
calendar month in which such Payment Date occurs or, if such day is not a
Business Day, the next preceding Business Day.
"Reference Banks": Bankers Trust Company, Barclay's Bank PLC,
---------------
The Bank or Tokyo 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 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 Sponsor or any affiliate
thereof, (iii) whose quotations appear on the Reuters Screen LIBO Page on
the relevant Interest Determination Date and (iv) which have been
designated as such by the Trustee.
"Register": The register maintained by the Trustee in accordance
--------
with Section 5.4 hereof, in which the names of the Owners are set forth.
"Registrar": The Trustee, acting in its capacity as Trustee
---------
appointed pursuant to Section 5.4 hereof, or any duly appointed and
eligible successor thereto.
"Registration Statement": The Registration Statement filed by
----------------------
the Sponsor with the Securities and Exchange Commission, including all
amendments thereto and including the Prospectus and Prospectus Supplement
relating to the Class A Certificates constituting a part thereof.
"Reimbursement Amount": A Group I Reimbursement Amount or a
--------------------
Class A-6 Reimbursement Amount.
"Reimbursement Rate": With respect to any Group I Insured
------------------
Payment and Payment Date, the Group I Weighted Average Pass-Through Rate as
of such Payment Date; with respect to any Group II Insured Payment and
Payment Date, the Class A-6 Formula Pass-Through Rate.
"REMIC": A "real estate mortgage investment conduit" within the
-----
meaning of Section 860D of the Code.
"REMIC Provisions": Provisions of the federal income tax law
----------------
relating to real estate mortgage investment conduits, which appear at
Sections 860A through 860G of the Code, and related provisions, and
regulations and rulings promulgated thereunder, as the foregoing may be in
effect from time to time.
"REMIC Trust": The segregated pool of assets consisting of the
-----------
Trust Estate except for the Capitalized Interest Account, the Pre-Funding
Account, Supplemental
43
<PAGE>
Interest Payment Account, the Class R Distribution Account and the Class
A-6 Distribution Account.
"Remittance Date": Any date on which the Master Servicer is
---------------
required to remit moneys on deposit in the Principal and Interest Account
to the Trustee, which shall be not later than the 18th day of each month,
or, if such day is not a Business Day, the next preceding Business Day,
commencing in the month following the month in which the Startup Day
occurs.
"Remittance Period": The period (inclusive) beginning on the
-----------------
first day of the calendar month immediately preceding the month in which a
Remittance Date occurs and ending on the last day of such immediately
preceding calendar month.
"REO Property": A Property acquired by the Master Servicer or
------------
any Sub-Servicer on behalf of the Trust through foreclosure or deed-in-lieu
of foreclosure in connection with a defaulted Mortgage Loan.
"Replacement Cut-Off Date": With respect to any Qualified
------------------------
Replacement Mortgage, the first day of the calendar month in which such
Qualified Replacement Mortgage is conveyed to the Trust.
"Representation Letter" shall mean letters to, or agreements
---------------------
with, the Depository to effectuate a book entry system with respect to the
Class A Certificates registered in the Register under the nominee name of
the Depository.
"Reserve Interest Rate": With respect to any Interest
---------------------
Determination Date, the rate per annum that the Trustee determines to be
either (i) the arithmetic mean (rounded upwards if necessary to the nearest
whole multiple of 1/16%) of the one-month U.S. dollar lending rates which
three New York City banks selected by the Trustee are quoting on the
relevant Interest Determination Date to the principal London offices of
leading banks in the London interbank market or (ii) in the event that the
Trustee can determine no such arithmetic mean, the lowest one-month U.S.
dollar lending rate which three New York City banks selected by the Trustee
are quoting on such Interest Determination Date to leading European banks.
"Residual Certificate": Any Class RL Certificate or any Class RU
--------------------
Certificate.
"Residual Net Monthly Excess Cashflow": With respect to any
------------------------------------
Payment Date, the aggregate Net Monthly Excess Cashflow, if any, remaining
with respect to both Mortgage Loan
44
<PAGE>
Groups after the making of all applications described in Section 7.5(c)
hereof.
"Schedules of Mortgage Loans": The Schedules of Mortgage Loans,
---------------------------
attached hereto as Schedule I.
The information contained on each Mortgage Loan Schedule shall be
delivered to the Trustee on a computer readable magnetic tape or disk.
"Second Mortgage Loan": A Mortgage Loan which constitutes a
--------------------
second priority mortgage lien with respect to the related Property.
"Securities Act": The Securities Act of 1933, as amended.
--------------
"Senior Lien": With respect to any Second Mortgage Loan, the
-----------
mortgage loan relating to the corresponding Property having a first
priority lien; and with respect to any Third Mortgage Loan, the mortgage
loans relating to the corresponding Property having first and second
priority liens.
"Servicer Affiliate": A Person (i) controlling, controlled by or
------------------
under common control with the Master Servicer and (ii) which is qualified
to service residential mortgage loans.
"Servicing Advance": As defined in Section 8.9(c) and Section
-----------------
8.13 hereof.
"Servicing Fee": With respect to any Mortgage Loan which is an
-------------
Unaffiliated Originator Loan, the sum of any servicing fee relating to such
Unaffiliated Originator Loan and the Master Servicing Fee. With respect to
any Mortgage Loan other than an Unaffiliated Originator Loan, the Advanta
Servicing Fee. The Sponsor shall inform the Trustee as to the level of any
servicing fee relating to an Unaffiliated Originator Loan, which shall not
be in excess of ___% per month, unless otherwise approved by the
Certificate Insurer in writing.
"Specified Subordinated Amount": As applicable, the Group I
-----------------------------
Specified Subordinated Amount or the Group II Specified Subordinated
Amount.
"Sponsor": Accredited Home Lenders, Inc., a California
-------
corporation.
"Standard & Poor's": Standard & Poor's Ratings Group, a division
-----------------
of The McGraw Hill Companies.
"Startup Day": __________, 1996.
-----------
45
<PAGE>
"Step-up Payment Date": The second Payment Date which follows
--------------------
the Clean-up Call Date.
"Subordinated Amount": As applicable, the Group I Subordinated
-------------------
Amount or the Group II Subordinated Amount.
"Subordination Deficiency Amount": With respect to any Mortgage
-------------------------------
Loan Group and Payment Date, the excess, if any, of (i) the Specified
Subordinated Amount applicable to such Mortgage Loan Group and Payment Date
over (ii) the Subordinated Amount applicable to such Mortgage Loan Group
and Payment Date prior to taking into account the payment of any related
Subordination Increase Amounts on such Payment Date.
"Subordination Increase Amount": With respect to any Mortgage
-----------------------------
Loan Group and Payment Date, the lesser of (i) the Subordination Deficiency
Amount as of such Payment Date (after taking into account the payment of
the related Group Principal Distribution Amount on such Payment Date
(except for any Subordination Increase Amount)) and (ii) the aggregate
amount of Net Monthly Excess Cashflow to be allocated to such Mortgage Loan
Group pursuant to Sections 7.5(c)(v)(A) and 7.5(c)(v)(B) on such Payment
Date.
"Subordination Reduction Amount": With respect to any Mortgage
------------------------------
Loan Group and Payment Date, an amount equal to the lesser of (x) the
Excess Subordinated Amount for such Mortgage Loan Group and Payment Date
and (y) the Principal Remittance Amount with respect to such Mortgage Loan
Group for the related Remittance Period.
"Substitution Amount": In connection with the delivery of any
-------------------
Qualified Replacement Mortgage, 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 the Mortgage Loan being replaced as
of such Replacement Cut-Off Date, an amount equal to such difference
together with accrued and unpaid interest on such amount calculated at the
Coupon Rate net of the Servicing Fee of the Mortgage Loan being replaced.
"Sub-Servicer": Advanta Mortgage Corp. USA or any Person with
------------
whom the Master Servicer has entered into a Sub-Servicing Agreement and who
satisfies any requirements set forth in Section 8.3 hereof in respect of
the qualification of a Sub-Servicer.
"Sub-Servicing Agreement": The written contract between the
-----------------------
Master Servicer and any Sub-Servicer relating to servicing and/or
administration of certain Mortgage Loans as permitted by Section 8.3.
46
<PAGE>
["Supplemental Interest Payment Account": The Supplemental
-------------------------------------
Interest Payment Account established in accordance with Section 7.10(a)
hereof and maintained by the Trustee.]
["Supplemental Interest Payment Amount Available": As defined in
----------------------------------------------
Section 7.10(b) hereof.]
["Supplemental Interest Trust": The _______ Supplemental
---------------------------
Interest Trust 1996-2 created pursuant to Section 7.10(a) hereof.]
"Tax Matters Person": The Tax Matters Person appointed pursuant
------------------
to Section 11.17 hereof.
"Termination Notice": As defined in Section 9.3(b) hereof.
------------------
"Termination Price": As defined in Section 9.2(a) hereof.
-----------------
"Third Mortgage Loan": A Mortgage Loan which constitutes a third
-------------------
priority mortgage lien with respect to the related Property.
"Total Monthly Excess Cashflow": As defined in Section
-----------------------------
7.5(c)(iv) hereof.
"Total Monthly Excess Spread": Either the Group I Total Monthly
---------------------------
Excess Spread or the Group II Total Monthly Excess Spread, as appropriate.
"Transaction Documents": Collectively this Agreement, the
---------------------
Insurance Agreement, the Underwriting Agreement relating to the Class A
Certificates, any Sub-Servicing Agreement, the Indemnification Agreement
relating to the Prospectus offering the Class A Certificates, the
Registration Statement relating to the Class A Certificates and the
Certificates.
"Trust": Accredited Mortgage Loan Trust 1996-1, the trust
-----
created under this Agreement.
"Trust Estate": Collectively, all money, instruments and other
------------
property, to the extent such money, instruments and other property are
subject or intended to be held in trust, and in the subtrusts, for the
benefit of the Owners, including all proceeds thereof, including, without
limitation, (i) the Mortgage Loans, (ii) such amounts, including Eligible
Investments, as from time to time may be held in all Accounts (except as
otherwise provided herein), (iii) any Property, the ownership of which has
been effected on behalf of the Trust as a result of foreclosure or
acceptance by the Master Servicer
47
<PAGE>
of a deed in lieu of foreclosure and that has not been withdrawn from the
Trust, (iv) any Insurance Policies relating to the Mortgage Loans and any
rights of the Sponsor under any Insurance Policies, (v) Net Liquidation
Proceeds with respect to any Liquidated Loan, (vi) the Certificate
Insurance Policy, and (vii) such amounts held in the Capitalized Interest
Account, the Reserve Account and the Pre-Funding Account.
"Trustee": Bankers Trust Company of California, N.A., located on
-------
the date of execution of this Agreement at Bankers Trust Company, 3 Park
Plaza, Irvine, California 92714, a national banking association, not in
its individual capacity but solely as Trustee under this Agreement, and any
successor hereunder.
"Trustee's Fees": With respect to any Payment Date and Mortgage
--------------
Loan Group, the Product of (x) one-twelfth of [.01%] and (y) the aggregate
Loan Balance of the Mortgage Loan in the related Mortgage Loan Group as of
the beginning of the related Remittance Period.
"Uncertificated Interest": As defined in Section 2.8(b) hereof.
-----------------------
"Underwriter": Lehman Brothers Inc.
-----------
"Upper-Tier REMIC": The segregated pool of assets held by the
----------------
Trust consisting of the Lower Tier Interests (except for the RL Lower-Tier
Interest, as set forth in the chart in Section 2.8(c) hereof), the
Distribution Accounts and the Certificate Insurance Policy.
Section 1.2. 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 1.1 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 1.3. 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 1.4. Opinions. Each opinion with respect to the
--------
validity, binding nature and enforceability of documents or Certificates
may be qualified to the extent that the same may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by general
48
<PAGE>
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.
ARTICLE II
ESTABLISHMENT AND ORGANIZATION OF THE TRUST
Section 2.1. Establishment of the Trust. The parties hereto do
--------------------------
hereby create and establish, pursuant to the laws of the State of New York
and this Agreement, the Trust, which, for convenience, shall be known as
"Accredited Mortgage Loan Trust 1996-1". Each Mortgage Loan Group shall
constitute a sub-trust of the Trust.
Section 2.2. Office. The office of the Trust shall be in care
------
of the Trustee, addressed to Bankers Trust Company of California, N.A.,
Three Park Plaza, Irvine, California 92714, or at such other address as
the Trustee may designate by notice to the Sponsor, the Master Servicer,
the Owners and to the Certificate Insurer.
Section 2.3. Purposes and Powers. The purpose of the Trust is
-------------------
to engage in the following activities, and only such activities: (i) the
issuance of the Certificates and the acquiring, owning and holding of
Mortgage Loans and the Trust Estate in connection therewith; (ii)
activities that are necessary, suitable or convenient to accomplish the
foregoing or are incidental thereto or connected therewith, including the
investment of moneys in accordance with this Agreement; and (iii) such
other activities as may be required in connection with conservation of the
Trust Estate and distributions to the Owners; provided, however, that
-------- -------
nothing contained herein shall permit the Trustee to take any action which
would result in the loss of REMIC status for the REMIC Trust.
Section 2.4. Appointment of the Trustee; Declaration of Trust.
------------------------------------------------
The Sponsor hereby appoints the Trustee as trustee of the Trust effective
as of the Startup Day, to have all the rights, powers and duties set forth
herein. The Trustee hereby acknowledges and accepts such appointment,
represents and warrants its eligibility as of the Startup Day to serve as
Trustee pursuant to Section 10.8 hereof and declares that it will hold the
Trust Estate in trust upon and
49
<PAGE>
subject to the conditions set forth herein for the benefit of the Owners.
Section 2.5. Expenses of the Trust. The expenses of the Trust,
---------------------
including the annual fees of the Trustee, and any other expenses of the
Trust that have been reviewed and approved by the Sponsor (which approval
shall not be unreasonably withheld), including the reasonable expenses of
the Trustee shall be paid by the Sponsor to the Trustee or to such other
Person to whom such amounts may be due. Failure by the Sponsor to pay any
such fees or other expenses shall not relieve the Trustee of its
obligations hereunder. The Trustee hereby covenants with the Owners that
every material contract or other material agreement entered into by the
Trustee on behalf of the Trust shall expressly state therein that no Owner
shall be personally liable in connection with such contract or agreement.
Section 2.6. Ownership of the Trust. On the Startup Day the
----------------------
ownership interests in the Trust and the subtrusts shall be transferred as
set forth in Section 4.2 hereof, such transfer to be evidenced by sale of
the Certificates as described therein. Thereafter, transfer of any
ownership interest shall be governed by Sections 5.4 and 5.8 hereof.
Section 2.7. Situs of the Trust. It is the intention of the
------------------
parties hereto that the Trust constitute a trust under the laws of the
State of New York. The Trust will be created in, and all Accounts
maintained by the Trustee on behalf of the Trust will be located in, the
State of New York. The Trust will not have any employees and will not have
any real or personal property (other than property acquired pursuant to
Section 8.13 hereof) located in any state other than in the State of New
York and payments will be received by the Trust only in the State of New
York and payments from the Trust will be made only from the State of New
York. The Trust's only office will be at the office of the Trustee as set
forth in Section 2.2 hereof.
Section 2.8. Miscellaneous REMIC Provisions. (a) The REMIC
------------------------------
Trust shall elect to be treated as a REMIC under Section 860D of the Code,
as described in Section 11.15. Any inconsistencies or ambiguities in this
Agreement or in the administration of the Trust shall be resolved in a
manner that preserves the validity of the election of the REMIC Trust to be
treated as a REMIC.
(b) 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 uncertificated right of the Group I Supplemental Interest
Account to receive the distributions described in Section 7.3(c)(iv) and
the
50
<PAGE>
uncertificated right of the Group II Supplemental Interest Account to
receive the distributions described in Section 7.3(c)(v) (the
"Uncertificated Interest") are hereby designated as "regular interests"
with respect to the Upper-Tier REMIC and the Class RU Certificates are
hereby designated as the single class of "residual interest" with respect
to the Upper-Tier REMIC. The Class LT1, LT2, LT3, LT4, LT5 and LT6
Certificates are hereby designated as "regular interests" with respect to
the Lower-Tier REMIC and the Class RL Certificates are hereby designated as
the single class of "residual interest" with respect to the Lower-Tier
REMIC.
(c) The beneficial ownership interest of the Lower-Tier REMIC
shall be evidenced by the interests (the "Lower-Tier Interests") having the
characteristics and terms as follows:
<TABLE>
<CAPTION>
Original Final
Class Companion Principal Interest Payment
Designation Classes Balance Rate Date
----------- ------- ------- ---- ----
<S> <C> <C> <C> <C>
LT-1 A-1, B Group I $__________ (1) ______________
LT-2 A-2, B Group I $__________ (1) ______________
LT-3 A-3, B Group I $__________ (1) _____________
LT-4 A-4, B Group I $__________ (1) __________________
LT-5 A-5, B Group I $__________ (1) _____________
LT-6 A-6, B Group II $__________ (2) _____________
RL (3) (3) _____________
</TABLE>
(1) The Net Weighted Average Coupon Rate of the Group I Mortgage Loans.
(2) The Net Weighted Average Coupon Rate of the Group II Mortgage
Loans.
(3) The RL Certificate has no principal balance and does not bear
interest.
The Lower-Tier Interests LT-1, LT-2, LT-3, LT-4, LT-5 and LT-6 shall be
issued as non-certificated interests and recorded on the records of the
Lower-Tier REMIC as being issued to and held by the Trustee on behalf of
the Upper-Tier REMIC.
On each Payment Date, the Lower Tier Distribution Amount shall be
applied as principal and interest of particular Lower Tier Interests, other
than the RL Certificate, in amounts corresponding to the aggregate
respective amounts required to be applied as principal and interest of
their related Companion Classes (as set forth above) pursuant to the
priorities set forth in section 7.3 hereof.
No distributions will be made on the Class RL Certificate, except
that any distribution of the proceeds of the final remaining assets of the
Lower Tier REMIC shall be distributed to the holder thereof upon
presentation and surrender of the Class RL Certificate.
51
<PAGE>
The Capitalized Interest Account and Pre-Funding Account are not
part of the segregated pool of assets which constitutes the REMIC.
(d) The Startup Day is hereby designated as the "startup day" of
the REMIC within the meaning of Section 860G(a)(9) of the Code.
(e) The final scheduled Payment Date for any Class of
Certificates is hereby established as follows:
Class 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
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE SPONSOR AND THE MASTER SERVICER;
COVENANT OF SPONSOR TO CONVEY MORTGAGE LOANS
Section 3.1. Representations and Warranties of the Sponsor. The
---------------------------------------------
Sponsor hereby represents, warrants and covenants to the Trustee, the
Certificate Insurer and to the Owners as of the Startup Day that:
(a) The Sponsor is a corporation duly organized, validly
existing and in good standing under the laws of the State of
California 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 Sponsor
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 the Sponsor is a party by the Sponsor and
its performance and compliance
52
<PAGE>
with the terms of this Agreement and of the other Operative Documents
to which it is a party have been duly authorized by all necessary
corporate action on the part of the Sponsor and will not violate the
Sponsor'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 Sponsor is a
party or by which the Sponsor 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 Sponsor or any of its
properties.
(c) This Agreement and the other Operative Documents to which
the Sponsor 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 Sponsor, enforceable
against it in accordance with the terms hereof and thereof, except as
the enforcement hereof and 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 Sponsor 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
other) or operations of the Sponsor or its properties or might have
consequences that would materially and adversely affect its
performance hereunder and under the other Operative Documents to which
it is a party.
(e) No litigation is pending or, to the best of the Sponsor's
knowledge, threatened against the Sponsor which litigation might have
consequences that would prohibit its entering into this Agreement or
any other Operative Document to which it is a party or that would
materially and adversely affect the condition (financial or otherwise)
or operations of the Sponsor or its properties or might have
consequences that would materially and adversely affect its
performance hereunder and under the other Operative Documents to which
it is a party.
(f) No certificate of an officer, statement furnished in writing
or report delivered pursuant to the terms hereof by the Sponsor
contains any untrue statement of a material fact or omits to state any
material fact
53
<PAGE>
necessary to make the certificate, statement or report not misleading.
(g) The statements contained in the Registration Statement which
describe the Sponsor or matters or activities for which the Sponsor is
responsible in accordance with the Operative Documents or which are
attributed to the Sponsor 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 Sponsor or omit to
state a material fact required to be stated therein or necessary in
order to make the statements contained therein with respect to the
Sponsor not misleading. To the best of the Sponsor's knowledge and
belief, 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 required to be stated therein or necessary to
make the statements contained therein not misleading.
(h) 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 Sponsor makes no such representation or warranty), that are
necessary or advisable in connection with the purchase and sale of the
Certificates and the execution and delivery by the Sponsor 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 Sponsor and the performance by the
Sponsor of its obligations under this Agreement and such of the other
Operative Documents to which it is a party.
(i) The transactions contemplated by this Agreement are in the
ordinary course of business of the Sponsor.
(j) The Sponsor received fair consideration and reasonably
equivalent value in exchange for the sale of the interests in the
Mortgage Loans evidenced by the Certificates.
54
<PAGE>
(k) The Sponsor did not sell any interest in any Mortgage Loan
evidenced by the Certificates with any intent to hinder, delay or
defraud any of its respective creditors.
(l) The Sponsor is solvent and the Sponsor will not be rendered
insolvent as a result of the sale of the Mortgage Loans to the Trust
or the sale of the Certificates.
It is understood and agreed that the representations and
warranties set forth in this Section 3.1 shall survive delivery of the
Mortgage Loans to the Trustee.
Section 3.2. Representations and Warranties of the Master
--------------------------------------------
Servicer. The Master Servicer hereby represents, warrants and covenants to
- --------
the Trustee, the Certificate Insurer and to the Owners as of the Startup
Day that:
(a) The Master Servicer is a corporation duly organized, validly
existing and in good standing under the laws of the State of
California, 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 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 Master Servicer and each Sub-
Servicer has all requisite corporate power and authority to own and
operate its properties, to carry out its business as presently
conducted and as proposed to be conducted and to enter into and
discharge its obligations under this Agreement and the other Operative
Documents to which it is a party.
(b) The execution and delivery of this Agreement by the Master
Servicer 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 Master Servicer and will not violate the Master 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 Master Servicer is a party
or by which the Master 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 Master Servicer or any of
its properties.
55
<PAGE>
(c) This Agreement and the other Operative Documents to which
the Master 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 Master Servicer,
enforceable against it in accordance with the terms hereof, 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 Master 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 other) or operations of the Master Servicer 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 Master Servicer is a party.
(e) No litigation is pending or, to the best of the Master
Servicer's knowledge, threatened against the Master Servicer which
litigation might have consequences that would prohibit its entering
into this Agreement or any other Operative Document to which it is a
party or that would materially and adversely affect the condition
(financial or otherwise) or operations of the Master Servicer 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 Master Servicer is a party.
(f) No certificate of an officer, statement furnished in writing
or report delivered pursuant to the terms hereof by the Master
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 Master Servicer or matters or activities for which the
Master Servicer is responsible in accordance with the Operative
Documents or which are attributed to the Master 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 Master 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 Master Servicer not misleading.
To the best of the Master Servicer's knowledge and belief, the
Registration Statement does not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements
56
<PAGE>
contained therein 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 Master 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 Mortgage 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 Master Servicer makes no such representation or warranty),
that are necessary or advisable in connection with the execution and
delivery by the Master 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 Master
Servicer and the performance by the Master 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 Master Servicer with
respect to the Mortgage Loans directly serviced by it have been, in
all material respects, legal, proper, prudent and customary in the
mortgage loan servicing business.
(k) The transactions contemplated by this Agreement are in the
ordinary course of business of the Master Servicer.
(l) The terms of each existing Sub-Servicing Agreement and each
designated Sub-Servicer are acceptable
57
<PAGE>
to the Master Servicer and any new Sub-Servicing Agreements or Sub-
Servicers will comply with the provisions of Section 8.3.
It is understood and agreed that the representations and
warranties set forth in this Section 3.2 shall survive delivery of the
Mortgage Loans to the Trustee.
Upon discovery by any of the Originators, the Master Servicer,
the Sponsor, any Sub-Servicer, the Certificate Insurer or the Trustee of a
breach of any of the representations and warranties set forth in this
Section 3.2 which materially and adversely affects the interests of the
Owners or of the Certificate Insurer, the party discovering such breach
shall give prompt written notice to the other parties. Within 30 days of
its discovery or its receipt of notice of breach, the Master Servicer shall
cure such breach in all material respects and, upon the Master Servicer's
continued failure to cure such breach, may thereafter be removed by the
Trustee pursuant to Section 8.20 hereof; provided, however, that if the
-------- -------
Master Servicer can demonstrate to the reasonable satisfaction of the
Certificate Insurer that it is diligently pursuing remedial action, then
the cure period may be extended with the written approval of the
Certificate Insurer.
Section 3.3. Representations and Warranties of the Sponsor with
--------------------------------------------------
Respect to the Mortgage Loans.
- -----------------------------
(a) The Sponsor makes the following representations and
warranties as to the Mortgage Loans on which the Trustee relies in
accepting the Mortgage Loans in trust and executing and authenticating the
Certificates. Such representations and warranties speak as of the Startup
Day, but shall survive the sale, transfer, and assignment of the Mortgage
Loans to the Trustee:
(i) The information with respect to each Mortgage Loan set forth
in the Schedules of Mortgage Loans is true and correct as of the Cut-
Off Date;
(ii) All of the original or certified documentation set forth in
Section 3.5 (including all material documents related thereto) with
respect to each Mortgage Loan has been or will be delivered to the
Trustee on the Startup Day, or as otherwise provided in Section 3.5;
(iii) Each Mortgage Loan is being serviced by the Master
Servicer or a Person controlling, controlled by or under common
control with the Master Servicer and qualified to service mortgage
loans;
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(iv) The Note related to each Mortgage Loan in Group I bears a
fixed Coupon Rate of at least ____% per annum;
(v) As of the Cut-Off Date, no more than ____% of the Original
Aggregate Loan Balance of the Mortgage Loans are 30-59 days
Delinquent, and no Mortgage Loan is 60 or more days' Delinquent;
(vi) As of the Startup Day no more than ___% of the Original
Aggregate Loan Balance of the Mortgage Loans is secured by Properties
located within any single zip code area, and no more than ___% of the
Original Aggregate Loan Balance of the Mortgage Loans consists of
Date-of-Payment Loans;
(vii) Each Mortgage Loan conforms, and all such Mortgage
Loans in the aggregate conform, in all material respects to the
description thereof set forth in the Registration Statement;
(viii) As of the Startup Day, no more than ___% of the Loan
Balance of the Mortgage Loans relates to Mortgage Loans originated
under the Originators' non-income verification program for self-
employed borrowers; and
(ix) The credit underwriting guidelines applicable to each
Mortgage Loan conform in all material respects to the description
thereof set forth in the Prospectus.
(x) The information with respect to each Mortgage Loan set forth
in the Schedules of Mortgage Loans is true and correct as of the
Cut-Off Date;
(xi) All of the original or certified documentation required to
be delivered to the Trustee pursuant to this Agreement (including all
material documents related thereto) with respect to each Mortgage Loan
has been or will be delivered to the Trustee in accordance with the
terms of this Agreement. Each of the documents and instruments
specified to be included therein has been duly executed and in due and
proper form, and each such document or instrument is in a form
generally acceptable to prudent mortgage lenders that regularly
originate or purchase mortgage loans comparable to the Mortgage Loans
for sale to prudent investors in the secondary market that invest in
mortgage loans such as the Mortgage Loans.
(xii) Each Mortgage Loan being transferred to the Sponsor is
a Qualified Mortgage and is a Mortgage;
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(xiii) Each Property is improved by a single (one-to-four)
family residential dwelling, which may include condominiums and
townhouses but shall not include cooperatives;
(xiv) No Mortgage Loan had a Combined Loan-to-Value Ratio in
excess of 100%;
(xv) Each Mortgage is either a valid and subsisting first, second
or third lien of record on the Property (subject in the case of any
Second Mortgage Loan or Third Mortgage Loan only to a Senior Lien on
such Property) and subject in all cases to the exceptions to title set
forth in the title insurance policy, with respect to the related
Mortgage Loan, which exceptions are generally acceptable to banking
institutions in connection with their regular mortgage lending
activities, and such other exceptions to which similar properties are
commonly subject and which do not individually, or in the aggregate,
materially and adversely affect the benefits of the security intended
to be provided by such Mortgage;
(xvi) Immediately prior to the transfer and assignment herein
contemplated, the Sponsor held good and indefeasible title to, and was
the sole owner of, each Mortgage Loan subject to no liens, charges,
mortgages, encumbrances or rights of others except liens which will be
released simultaneously with such transfer and assignment; and
immediately upon the transfer and assignment herein contemplated, the
Trustee will hold good and indefeasible title to, and be the sole
owner of, each Mortgage Loan subject to no liens, charges, mortgages,
encumbrances or rights of others except liens which will be released
simultaneously with such transfer and assignment;
(xvii) As of the related Cut-Off Date, no Mortgage Loan is 30
or more days Delinquent, except for any portion of the Mortgage Loans
which this Agreement permits to be more than 30 days Delinquent;
(xviii) There is no delinquent tax or assessment lien or
mechanic's lien on any Property, and each Property is free of
substantial damage and is in good repair;
(xix) There is no valid and enforceable right of rescission
offset, defense or counterclaim to any Note or Mortgage, including the
obligation of the related Mortgagor to pay the unpaid principal of or
interest on such Note or the defense of usury, nor will the operation
of any of the terms of the Mortgage Note or the Mortgage, or the
exercise of any right thereunder, render either
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the Mortgage Note or the Mortgage unenforceable in whole or in part,
or subject to any right of rescission, set-off, counterclaim or
defense, including the defense of usury, and no such right of
rescission, set-off, counterclaim or defense has been asserted with
respect thereto;
(xx) 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
(xiii) below;
(xxi) Each Mortgage Loan at the time it was made complied in
all material respects with all applicable state and federal laws and
regulations, including, without limitation, the federal
Truth-in-Lending Act and other consumer protection laws, real estate
settlement procedure, usury, equal credit opportunity, disclosure and
recording laws;
(xxii) With respect to each Mortgage Loan, a lender's title
insurance policy, issued in standard California Land Title Association
form or American Land Title Association form, or other form acceptable
in a particular jurisdiction 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 Principal Amount
of such Mortgage Loan insuring the mortgagee's interest under the
related Mortgage Loan as the holder of a valid first or second
mortgage lien of record on the real property described in the related
Mortgage, as the case may be, subject only to exceptions of the
character referred to in paragraph (vi) above, was effective on the
date of the origination of such Mortgage Loan, and, as of the Cut-Off
Date such policy will be valid and thereafter such policy shall
continue in full force and effect;
(xxiii) The improvements upon each Property are covered by a
valid and existing hazard insurance policy (which may be a blanket
policy of the type described in this Agreement) with a generally
acceptable carrier that provides for fire and extended coverage
representing coverage not less than the least of (A) the outstanding
principal balance of the related Mortgage Loan (together, in the case
of a Second Mortgage Loan, with the outstanding principal balance of
the Senior Lien), (B) the minimum amount required to compensate for
damage or loss on a replacement cost basis or (C) the full insurable
value of the Property;
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(xxiv) 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 (which may be a blanket policy
of the type described in this Agreement) in a form meeting the
requirements of the current guidelines of the Federal Insurance
Administration is in effect with respect to such Property with a
generally acceptable carrier in an amount representing coverage not
less than the least of (A) the outstanding principal balance of the
related Mortgage Loan (together, in the case of a Second Mortgage
Loan, with the outstanding principal balance of the Senior Lien), (B)
the minimum amount required to compensate for damage or loss on a
replacement cost basis or (C) the maximum amount of insurance that is
available under the Flood Disaster Protection Act of 1973;
(xxv) Each Mortgage and Note is the legal, valid and binding
obligation of the maker thereof and is enforceable in accordance with
its terms, except only as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and by
general principles of equity (whether considered in a proceeding or
action in equity or at law), and all parties to each Mortgage Loan had
full legal capacity to execute all documents relating to such Mortgage
Loan and convey the estate therein purported to be conveyed;
(xxvi) The Sponsor has caused and will cause to be performed
any and all acts required to be performed to preserve the rights and
remedies of the servicer in any Insurance Policies applicable to any
Mortgage Loans delivered by such Sponsor including, to the extent such
Mortgage Loan is not covered by a blanket policy described in this
Agreement, 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 servicer;
(xxvii) Each original Mortgage was recorded or is in the
process of being recorded, and all subsequent assignments of the
original Mortgage have been recorded in the appropriate jurisdictions
wherein such recordation is necessary to perfect the lien thereof for
the benefit of the Sponsor, subject to the provisions of Section
3.5(b) of this Agreement, (or are in the process of being recorded);
(xxviii) The terms of each Note and each Mortgage have not been
impaired, altered or modified in any respect, except by a written
instrument which has been recorded,
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if necessary, to protect the interest of the owners and which has been
delivered to the Trustee. The substance of any such alteration or
modification is reflected on the related Schedule of Mortgage Loans
and has been approved by the primary mortgage guaranty insurer, if
any;
(xxix) The proceeds of each Mortgage Loan have been fully
disbursed, and there is no obligation on the part of the mortgagee to
make future advances thereunder. Any and all requirements as to
completion of any on-site or off-site improvements and as to
disbursements of any escrow funds therefor have been complied with.
All costs, fees and expenses incurred in making or closing or
recording such Mortgage Loans were paid;
(xxx) Except as otherwise required by law or pursuant to the
statute under which the related Mortgage Loan was made, the related
Note is not and has not been secured by any collateral, pledged
account or other security except the lien of the corresponding
Mortgage;
(xxxi) No Mortgage Loan was originated under a buydown plan;
(xxxii) No Mortgage Loan provides for negative amortization,
has a shared appreciation feature, or other contingent interest
feature;
(xxxiii) Each Property is located in the state identified in the
Schedule of Mortgage Loans and consists of one or more parcels of real
property with a residential dwelling erected thereon;
(xxxiv) Each Mortgage contains a provision for the acceleration
of the payment of the unpaid principal balance of the related Mortgage
Loan in the event the related Property is sold without the prior
consent of the mortgagee thereunder;
(xxxv) Any advances made after the date of origination of a
Mortgage 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
Mortgage Loans. The consolidated principal amount does not exceed the
original principal amount of the related Mortgage Loan. No Note
permits or obligates the Master Servicer, the Sub-Servicer or the
Sponsor to make future advances to the related Mortgagor at the option
of the Mortgagor;
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(xxxvi) 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, earthquake or earth movement, flood, tornado or other
casualty, so as to affect adversely the value of the Property as
security for the Mortgage Loan or the use for which the premises were
intended;
(xxxvii) 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, if a title insurance policy exists with respect to such
Property, are stated in such title insurance policy and affirmatively
insured;
(xxxviii) 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;
(xxxix) 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 Sponsor or the related Trust to the trustee under the
deed of trust, except in connection with a trustee's sale after
default by the related Mortgagor;
(xl) With respect to each Second Mortgage Loan, either (A) no
consent for such Mortgage Loan was required by the holder of the
related Senior Lien prior to the making of such Mortgage Loan or (B)
such consent has been obtained and is contained in the related File;
(xli) 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
available which materially interferes with the right to sell the
related Property at a
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trustee's sale or the right to foreclose the related Mortgage;
(xlii) Except as provided by clause (viii) of this Section,
there is no default, breach, violation or event of acceleration
existing under any Mortgage or the related Note and no event which,
with the passage of time or with notice and the expiration of any
grace or cure period, would constitute a default, breach, violation or
event of acceleration; and the applicable Affiliated Originator has
not waived any default, breach, violation or event of acceleration;
(xlii) No instrument of release or waiver has been executed in
connection with any Mortgage Loan, and no Mortgagor has been released,
in whole or in part, except in connection with an assumption agreement
which has been approved by the primary mortgage guaranty insurer, if
any, and which has been delivered to the Trustee;
(xliii) The maturity date of each Mortgage Loan which is a
Second Mortgage Loan is at least twelve months prior to the maturity
date of the related first mortgage loan if such first mortgage loan
provides for a balloon payment;
(xliv) The credit underwriting guidelines applicable to each
Mortgage Loan conform in all material respects to the Sponsor's
underwriting guidelines;
(xlv) The credit underwriting guidelines applicable to each
Mortgage Loan conform in all material respects to the Sponsor's
underwriting guidelines;
(xlvi) All parties to the Note and the Mortgage had legal
capacity to execute the Note and the Mortgage and each Note and
Mortgage have been duly and properly executed by such parties; and
(xlvii) The related Affiliated Originator has no actual
knowledge that there exist on any Property 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.
(b) No Originator Payment Obligations. There is no obligation
---------------------------------
on the part of the Servicer or any other party to make payments in addition
to those made by the Mortgagor except for delinquency.
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(c) Upon the discovery by the Sponsor, the Master Servicer,
the Certificate Insurer or the Trustee of a breach of any of the
representations and warranties made herein which materially and adversely
affects the interests of the Owners or of the Certificate Insurer in such
Mortgage Loan, the party discovering such breach shall give prompt written
notice to the other parties. The Master Servicer shall promptly notify the
Sponsor of such breach and request that the Sponsor cure such breach or
take the actions described in Section 3.4(b) hereof within the time periods
required thereby, and if the Sponsor does not cure such breach in all
material respects, the Sponsor shall cure such breach or take such actions.
The obligations of the Sponsor or Master Servicer, as the case may be, set
forth herein with respect to any Mortgage Loan as to which such a breach
has occurred and is continuing shall constitute the sole obligations of the
Master Servicer and of the Sponsor in respect of such breach.
Section 3.4. Covenants of Sponsor to Take Certain Actions with
-------------------------------------------------
Respect to the Mortgage Loans In Certain Situations. (a) With the
- ---------------------------------------------------
provisos and limitations as to remedies set forth in this Section 3.4, upon
the discovery by any Originator, the Sponsor, the Master Servicer, the
Certificate Insurer, any Sub-Servicer or the Trustee that the
representations and warranties set forth in Section 3.3 of this Agreement
were untrue in any material respect as of the Startup Day and such breaches
of the representations and warranties materially and adversely affect the
interests of the Owners or of the Certificate Insurer, the party
discovering such breach shall give prompt written notice to the other
parties.
The Sponsor acknowledges that a breach of any representation or
warranty (x) relating to marketability of title sufficient to transfer
unencumbered title to a Mortgage Loan, (y) relating to enforceability of
the Mortgage Loan against the related Mortgagor or Property or (z) set
forth in clause (viii) of Section 3.3 above constitutes breach of a
representation or warranty which "materially and adversely affects the
interests of the Owners or of the Certificate Insurer" in such Mortgage
Loan.
(b) Upon the earliest to occur of the Sponsor's discovery, its
receipt of notice of breach from any one of the other parties hereto or
from the Certificate Insurer or such time as a breach of any representation
and warranty materially and adversely affects the interests of the Owners
or of the Certificate Insurer as set forth above, the Sponsor hereby
covenants and warrants that it shall promptly cure such breach in all
material respects or it shall (or shall cause an affiliate of the Sponsor
to or an Originator to), subject to the further requirements of this
paragraph, on the second Remittance Date next succeeding such discovery,
receipt of
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notice or such other time (i) substitute in lieu of each Mortgage Loan in
the related Mortgage Loan Group which has given rise to the requirement for
action by the Sponsor a Qualified Replacement Mortgage and deliver the
Substitution Amount applicable thereto, together with the aggregate amount
of all Delinquency Advances and Servicing Advances theretofore made with
respect to such Mortgage Loan, to the Master Servicer for deposit in the
Principal and Interest Account or (ii) purchase such Mortgage Loan from the
REMIC Trust at a purchase price equal to the Loan Purchase Price thereof,
which purchase price shall be delivered to the Master Servicer for deposit
in the Principal and Interest Account. In connection with any such
proposed purchase or substitution, the Sponsor at its expense, shall cause
to be delivered to the Trustee and to the Certificate Insurer an opinion of
counsel experienced in federal income tax matters stating whether or not
such a proposed purchase or substitution would constitute a Prohibited
Transaction for the REMIC Trust or would jeopardize the status of the REMIC
Trust as a REMIC, and the Sponsor shall only be required to take either
such action to the extent such action would not constitute a Prohibited
Transaction for the REMIC Trust or would not jeopardize the status of the
REMIC Trust as a REMIC. Any required purchase or substitution, if delayed
by the absence of such opinion shall nonetheless occur if so directed by
the Certificate Insurer upon the earlier of (i) the occurrence of a default
or imminent default with respect to the Mortgage Loan or (ii) the delivery
of such opinion. It is understood and agreed that the obligation of the
Sponsor to cure the defect, or substitute for, or purchase any Mortgage
Loan as to which a representation or warranty is untrue in any material
respect and has not been remedied shall constitute the sole remedy
available to the Owners, the Trustee or the Certificate Insurer.
(c) In the event that any Qualified Replacement Mortgage is
delivered by an Originator or by the Sponsor (or by an affiliate of the
Sponsor, as the case may be) to the Trust pursuant to Section 3.3, Section
3.4 or Section 3.6 hereof, the related Originator and the Sponsor shall be
obligated to take the actions described in Section 3.4(b) with respect to
such Qualified Replacement Mortgage upon the discovery by any of the
Owners, the Sponsor, the Master Servicer, the Certificate Insurer, any
Sub-Servicer or the Trustee that the representations and warranties set
forth in Section 3.3 above are untrue in any material respect on the date
such Qualified Replacement Mortgage is conveyed to the Trust such that the
interests of the Owners or the Certificate Insurer in the related Qualified
Replacement Mortgage are materially and adversely affected; provided,
--------
however, that for the purposes of this subsection (c) the representations
- -------
and warranties in Section 3.3 above referring to items "as of the Cut-Off
Date" or "as of the Startup Day" shall be deemed to refer to such items as
of the date such Qualified Replacement Mortgage is conveyed to the Trust.
(d) It is understood and agreed that the covenants set forth in
this Section 3.4 shall survive delivery of the respective Mortgage Loans
(including Qualified Replacement Mortgage Loans) to the Trustee.
Section 3.5. Conveyance of the Mortgage Loans. (a) The
--------------------------------
Sponsor, concurrently with the execution and delivery hereof, hereby
transfers, sells, assigns, sets over and otherwise conveys without
recourse, to the Trustee, all right, title and interest in and to each
Mortgage Loan listed on the Schedule of Mortgage Loans delivered by the
Sponsor on the Startup Day, all its right, title and interest in and to
principal collected and interest accruing on each such Mortgage Loan on and
after the Cut-Off Date and all its right, title and interest in and to all
Insurance Policies. The transfer of the Mortgage Loans set forth on the
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Schedule of Mortgage Loans to the Trustee is absolute and is intended by
the Owners and all parties hereto to be treated as a sale.
(b) In connection with the transfer and assignment of the
Mortgage Loans, the Sponsor agrees to:
(i) cause to be delivered, on the Startup Day, without recourse,
to the Trustee the items listed in the definition of "Accredited
Mortgage Files".
(ii) cause, within 75 Business Days following the Startup Day to
be submitted for recording in the appropriate jurisdictions wherein
such recordation is necessary to perfect the lien thereof as against
creditors of or purchasers from the Sponsor to the Trustee; provided,
--------
however, that Assignments of Mortgage shall not be required to be
-------
submitted for recording with respect to any Mortgage Loan which
relates to an Accredited Mortgage File, unless (x) otherwise directed
in writing by the Certificate Insurer, or (y) upon the occurrence of
any Event of Default.
All recording required pursuant to this Section 3.5 shall be
accomplished at the expense of the Sponsor. Notwithstanding anything to
the contrary contained in this Section 3.5, 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 Sponsor shall be deemed to have satisfied its obligations
hereunder upon delivery to the Trustee of a copy of such Mortgage, such
assignment or assignments of Mortgage certified by the public recording
office to be a true copy of the recorded original thereof.
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Copies of all Mortgage assignments received by the Trustee shall
be kept in the related file.
(c) In the case of Mortgage Loans which have been prepaid in
full on or after the Cut-Off Date and prior to the Startup Day, the
Sponsor, in lieu of the foregoing, will deliver within 15 Business Days
after the Startup Day, to the Trustee a certification of an Authorized
Officer in the form set forth in Exhibit D.
(d) The Sponsor shall transfer, sell, assign, set over and
otherwise convey without recourse, to the Trustee all right, title and
interest of the Sponsor in and to any Qualified Replacement Mortgage
delivered to the Trustee pursuant to Section 3.3, Section 3.4 or Section
3.6 hereof and all its right, title and interest to principal collected and
interest accruing on such Qualified Replacement Mortgage on and after the
applicable Replacement Cut-Off Date; provided, however, that the Sponsor
-------- -------
shall reserve and retain all right, title and interest in and to payments
of principal and interest due on such Qualified Replacement Mortgage prior
to the applicable Replacement Cut-Off Date.
(e) As to each Mortgage Loan released from the Trust in
connection with the conveyance of a Qualified Replacement Mortgage
therefor, the Trustee will transfer, sell, assign, set over and otherwise
convey without recourse, on the Sponsor's order, all of its right, title
and interest in and to such released Mortgage Loan and all the Trust's
right, title and interest to principal collected and interest accruing on
such released Mortgage Loan on and 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 collected and interest
accruing on such released Mortgage Loan prior to the applicable Replacement
Cut-Off Date.
(f) In connection with any transfer and assignment of a
Qualified Replacement Mortgage to the Trustee on behalf of the Trust, the
Sponsor agrees to cause to be delivered to the Trustee the items described
in Section 3.5(b) on the date of such transfer and assignment or, if a
later delivery time is permitted by Section 3.5(b), then no later than such
later delivery time.
(g) As to each Mortgage Loan released from the Trust in
connection with the conveyance of a Qualified Replacement Mortgage the
Trustee shall deliver on the date of conveyance of such Qualified
Replacement Mortgage and on the order of the Sponsor (i) the original Note,
or the certified copy, relating thereto, endorsed without recourse, to the
Sponsor and (ii) such other documents as constituted the File with respect
thereto.
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(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 Sponsor shall prepare a substitute assignment or cure
such defect, as the case may be, and thereafter cause each such assignment
to be duly recorded.
(i) The Sponsor shall cause to be reflected on its records that
the Mortgage Loans have been sold to the Trust.
(j) To the extent that the ratings, if any, then assigned to the
unsecured debt of the Sponsor are satisfactory to the Certificate Insurer,
Moody's and Standard & Poor's, then any of the Document Delivery
Requirements described above may be waived by an instrument signed by the
Certificate Insurer, Standard & Poor's and Moody's (or any documents
theretofore delivered to the Trustee returned to the Sponsor) on such terms
and subject to such conditions as the Certificate Insurer, Moody's and
Standard & Poor's may permit.
Section 3.6. Acceptance by Trustee; Certain Substitutions of
-----------------------------------------------
Mortgage Loans; Certification by Trustee. (a) The Trustee agrees to
- ----------------------------------------
execute and deliver on the Startup Day an acknowledgment of receipt of the
Notes delivered by the Sponsor in the form attached as Exhibit E hereto,
and declares 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 Trustee, as Trustee in
trust upon and subject to the conditions set forth herein for the benefit
of the Owners. The Trustee further agrees to review any other documents
delivered by the Sponsor within 90 days after the Startup Day (or within 90
days with respect to any Qualified Replacement Mortgage after the
assignment thereof) and to deliver to the Sponsor, the Master Servicer and
the Certificate Insurer a Certification in the form attached as Exhibit F
hereto; provided, however, that such Certificates shall not be delivered
-------- -------
prior to 90 days after the Startup Day with respect to the Initial Mortgage
Loans and 91 days after the Pre-Funding Period with respect to the
Subsequent Mortgage Loans. The Trustee shall be under no duty or
obligation to inspect, review or examine any such documents, instruments,
certificates or other papers to determine that they are genuine,
enforceable, or appropriate for the represented purpose or that they are
other than what they purport to be on their face, nor shall the Trustee be
under any duty to determine independently whether there are any intervening
assignments or assumption or modification agreements with respect to any
Mortgage Loan.
(b) If the Trustee during such 90-day period finds any document
constituting a part of a File which is not properly executed, has not been
received within the specified
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period, or is unrelated to the Mortgage Loans identified in the Schedules
of Mortgage Loans, or that any Mortgage Loan does not conform in a material
respect to the description thereof as set forth in the Schedules of
Mortgage Loans, the Trustee shall promptly so notify the Sponsor and the
Certificate Insurer. In performing any such review, the Trustee may
conclusively rely on the Sponsor as to the purported genuineness of any
such document and any signature thereon. The Sponsor 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 Trustee. If, however,
within 60 days after the Trustee's notice to it respecting such defect the
Sponsor has not remedied or caused to be remedied the defect and the defect
materially and adversely affects the interest in the related Mortgage Loan
of the Owners or of the Certificate Insurer, the Sponsor will on the next
succeeding Remittance Date (i) substitute in lieu of such Mortgage Loan a
Qualified Replacement Mortgage and, deliver the Substitution Amount
applicable thereto to the Master Servicer for deposit in the Principal and
Interest Account or (ii) purchase such Mortgage Loan at a purchase price
equal to the Loan Purchase Price thereof, which purchase price shall be
delivered to the Master Servicer for deposit in the Principal and Interest
Account. In connection with any such proposed purchase or substitution the
Sponsor shall cause at the Sponsor's expense to be delivered to the Trustee
and to the Certificate Insurer an opinion of counsel experienced in federal
income tax matters stating whether or not such a proposed purchase or
substitution would constitute a Prohibited Transaction for the REMIC Trust
or would jeopardize the status of the REMIC Trust as a REMIC, and the
Sponsor shall only be required to take either such action to the extent
such action would not constitute a Prohibited Transaction for the REMIC
Trust or would not jeopardize the status of the REMIC Trust as a REMIC.
Any required purchase or substitution, if delayed by the absence of such
opinion shall nonetheless occur upon the earlier of (i) the occurrence of a
default or imminent default with respect to the Mortgage Loan or (ii) the
delivery of such opinion or (iii) at the direction of the Certificate
Insurer.
Section 3.7. Cooperation Procedures. (a) The Sponsor shall, in
----------------------
connection with the delivery of each Qualified Replacement Mortgage to the
Trustee, provide the Trustee with the information set forth in the
Schedules of Mortgage Loans with respect to such Qualified Replacement
Mortgage.
(b) The Sponsor, the Master Servicer and the Trustee covenant to
provide each other with all data and information required to be provided by
them hereunder at the times required hereunder, and additionally covenant
reasonably to cooperate with each other in providing any additional
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information required by any of them in connection with their respective
duties hereunder.
Section 3.8. Conveyance of the Subsequent Mortgage Loans.
-------------------------------------------
(a) Subject to the conditions set forth in paragraph (b) below in
consideration of the Trustee's delivery on the related Subsequent Transfer
Dates to or upon the order of the Sponsor of all or a portion of the
balance of funds in the Pre-Funding Account, the Sponsor shall on any
Subsequent Transfer Date sell, transfer, assign, set over and otherwise
convey without recourse, to the Trust with respect to Group I, all right,
title and interest of the Sponsor in and to each Subsequent Mortgage Loan
listed on the Schedule of Mortgage Loans delivered by the Sponsor to the
Trustee and to the Custodian on such Subsequent Transfer Date, all its
right, title and interest in and to principal collected and interest
accruing on each such Subsequent Mortgage Loan on and after the related
Subsequent Cut-Off Date and all its right, title and interest in and to all
Insurance Policies; provided, however, that the Sponsor reserves and
-------- -------
retains all its right, title and interest in and to principal (including
Prepayments) collected and interest accruing on each such Subsequent
Mortgage Loan prior to the related Subsequent Cut-Off Date. The transfer
to the Trust by the Sponsor of the Subsequent Mortgage Loans set forth on
the Schedule of Mortgage Loans shall be absolute and shall be intended by
the Owners and all parties hereto to be treated as a sale by the Sponsor.
The amount released from the Pre-Funding Account shall be one-
hundred percent (100%) of the aggregate principal balances of the
Subsequent Mortgage Loans so transferred.
(b) The Sponsor shall transfer to the Trust the Subsequent
Mortgage Loans and the other property and rights related thereto described
in paragraph (a) above only upon the satisfaction of each of the following
conditions on or prior to the related Subsequent Transfer Date.
(i) the Sponsor shall have provided the Trustee, the Custodian,
the Certificate Insurer, Moody's and Standard & Poor's with a timely
Addition Notice and shall have provided any information in an
electronic data file form as reasonably requested by any of the
foregoing with respect to the Subsequent Mortgage Loans;
(ii) the Sponsor shall have delivered to the Trustee and the
Custodian a duly executed written assignment (including an acceptance
by the Trustee) in substantially the form of Exhibit M (the
"Subsequent Transfer Agreement"), which shall include Schedules of
Mortgage Loans, listing the Subsequent Mortgage Loans and any other
exhibits listed thereon;
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(iii) the Sponsor shall have deposited in the Principal and
Interest Account all collections in respect of the Subsequent Mortgage
Loans received on or after the related Subsequent Cut-Off Date;
(iv) as of each Subsequent Transfer Date, none of the related
Originator, the Master Servicer or the Sponsor was insolvent nor will
any of them have been made insolvent by such transfer nor is any of
them aware of any pending insolvency;
(v) such addition will not result in a material adverse tax
consequent to the Trust or the Owners of the Certificates;
(vi) the Pre-Funding Period shall not have terminated;
(vii) the Sponsor shall have delivered to the Trustee and to
the Custodian an Officer's Certificate confirming the satisfaction of
each condition precedent specified in this paragraph (b) and
paragraphs (c) and (d) below, and in the related Subsequent Transfer
Agreement; and
(viii) the Sponsor shall have delivered to the Certificate
Insurer, the Rating Agencies, the Custodian and the Trustee Opinions
of Counsel with respect to the transfer of the Subsequent Mortgage
Loans substantially in the form of the Opinions of Counsel delivered
to the Certificate Insurer, the Custodian and the Trustee on the
Startup Day (bankruptcy, corporate and tax opinions);
(c) the obligation of the Trust to purchase a Subsequent
Mortgage Loan on any Subsequent Transfer Date for assignment to Group I is
subject to the following requirements: (i) such Subsequent Mortgage Loan
may not be 30 or more days contractually delinquent as of the related
Subsequent Cut-Off Date; (ii) the remaining term to maturity of such
Subsequent Mortgage Loan may not exceed 30 years, (iii) such Subsequent
Mortgage Loan has a Coupon Rate of at least ____%, (iv) following the
purchase of such Subsequent Mortgage Loans by the Trust, the Mortgage Loans
in Mortgage Loan Group I (including the Subsequent Mortgage Loans) (a) will
have a weighted average Coupon Rate of at least _____%; (b) will have a
weighted average remaining term to stated maturity of not more than ____
months, (c) will have a weighted average Combined Loan-to-Value Ratio of
not more than ___%; (d) will have not more than _____% by aggregate
principal balance Balloon Loans; and (e) will have not more than ___% in
aggregate Loan Balance of Mortgage Loans relating to non-owner occupied
Properties.
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(d) The obligation of the Trust to purchase a Subsequent
Mortgage Loan on any Subsequent Transfer Date is subject to the following
additional requirements, any of which may be waived or modified in any
respect by the Certificate Insurer by a written instrument executed by the
Certificate Insurer;
(1) The obligation of the Trust to purchase a Subsequent
Mortgage Loan on any Subsequent Transfer Date is subject to the
following additional requirements: (i) no such Subsequent Mortgage
Loan may have a Combined Loan-to-Value Ratio greater than ___%; (ii)
no such Subsequent Mortgage Loan may have an outstanding Loan Balance
greater than $______ as of the related Subsequent Transfer Date; (iii)
no such Subsequent Mortgage Loan is secured by a Mortgage on property
which, at the time of the origination of such Mortgage Loan, had an
Appraised Value greater than $_________; (iv) the first payment on
each such Subsequent Mortgage Loan may be due no later than
________________; except that, if the Sponsor shall deposit into the
Certificate Account an amount equal to 30 days' interest on any such
Subsequent Mortgage Loan at the related Coupon Rate less the
applicable Servicing Fee, then the first payment on such Subsequent
Mortgage Loan may be due no later than ___________, (v) each such
subsequent Mortgage Loan shall be either a fully-amortizing loan with
level payments over a remaining term of not greater than 30 years or a
loan with a balloon maturity of not less than 15 years and (vi) no
Subsequent Mortgage Loan may have a Coupon Rate lower than ____%.
(2) After giving effect to the Trust's purchase of any such
Subsequent Mortgage Loan (i) the weighted average Coupon Rate of all
Mortgage Loans in Group I shall be no less than _____%; (ii) no more
than ___% of the Mortgage Loans held by the Trust shall be
concentrated in any single zip code; (iii) the Mortgage Loans in Group
I shall have weighted average Combined Loan-to-Value Ratio no greater
than ___%; and (iv) no more than 17.50% of the Mortgage Loans by
aggregate Loan Balance shall be Balloon Loans, (v) no more than ___%
and 0.05% of the Mortgage Loans by aggregate Loan Balance may be
Second Mortgage Loans or third Mortgage Loans, respectively, (vi) no
more than ___% of the Mortgage Loans by aggregate Loan Balance may
relate to non-owner occupied Properties, (vii) no more than _____% and
____% of the Mortgage Loans by aggregate Loan Balance may relate to
credit classification "C" or "D", respectively, and at least ___% of
the Mortgage Loans by aggregate Loan Balance shall relate to credit
classification "A".
(e) In connection with the transfer and assignment of the
Subsequent Mortgage Loans, the Sponsor agrees to
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satisfy the conditions set forth in Sections 3.5(b)-(j), 3.6 and 3.7.
(f) In connection with each Subsequent Transfer Date and on the
Payment Dates occurring in ____________, and ___________ of 1996 the
Sponsor shall determine, and the Trustee shall co-operate with the Sponsor
in determining (i) the amount and correct dispositions of the Group I Group
I Capitalized Interest Requirements, Overfunded Interest Amounts, Excess
Pre-Funding Earnings and the amount then on deposit in the Pre-Funding
Account, and (ii) any other necessary matters in connection with the
administration of the Pre-Funding Account and of the Capitalized Interest
Account. In the event that any amounts are incorrectly released to the
Owners of the Residual Certificates from the Pre-Funding Account or from
the Capitalized Interest Account, such Owners or the Sponsor shall
immediately repay such amounts to the Trustee.
(g) In connection with the transfer of any Subsequent Mortgage
Loans to the Trust the Sponsor, the Master Servicer and the Trustee may,
with the prior written consent of the Certificate Insurer, amend the
definition of "Specified Subordinated Amount" with respect to the related
Mortgage Loan Group for the purpose of changing the related Specified
Subordinated Amount; provided, however, that any such amendment must comply
-------- -------
with the provisions of Sections 11.14(b) and 11.14(d) hereof.
ARTICLE IV
ISSUANCE AND SALE OF CERTIFICATES
Section 4.1. Issuance of Certificates. On the Startup Day, upon
------------------------
the Trustee's receipt from the Sponsor of an executed Delivery Order in the
form set forth as Exhibit G hereto, the Trustee shall execute, authenticate
and deliver the Certificates on behalf of the Trust in accordance with the
directions set forth in such Delivery Order.
Section 4.2. Sale of Certificates. At 11 a.m. New York City
--------------------
time on the Startup Date, at the offices of Dewey Ballantine, 1301 Sixth
Avenue, New York, New York, the Sponsor will sell and convey the Mortgage
Loans and the money, instruments and other property related thereto to the
Trustee, and the Trustee will (i) deliver to the Underwriter, the Class A
Certificates with an aggregate Percentage Interest in each Class equal to
100%, registered in the name of Cede & Co. or in such other names as the
Underwriter shall direct, against payment of the purchase price thereof by
wire transfer of immediately available funds to the Trustee and (ii)
deliver to the Sponsor, the Class B Certificates and the Residual Certifi-
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cates, with an aggregate Percentage Interest in each Class equal to 100%,
registered as the Sponsor shall request. Upon receipt of the proceeds of
the sale of the Certificates, the Trustee shall, from the proceeds of the
sale of the Certificates, pay other fees and expenses identified by the
Sponsor, (b) deposit an amount equal to the Original Pre-Funded Amount in
the Pre-Funding Account and (c) deposit an amount equal to $_____ in the
Capitalized Interest Account and (d) pay to the Sponsor the balance after
deducting such amounts. The Sponsor shall pay directly to the Certificate
Insurer the Initial Premiums.
ARTICLE V
CERTIFICATES AND TRANSFER OF INTERESTS
Section 5.1. Terms. (a) The Certificates are pass-through
-----
securities having the rights described therein and herein. Notwithstanding
references herein or therein with respect to the Certificates as to
"principal" and "interest" no debt of any Person is represented thereby,
nor are the Certificates or the underlying Notes guaranteed by any Person
(except that the Notes may be recourse to the Mortgagors thereof to the
extent permitted by law and except for the rights of the Trustee with
respect to the Certificate Insurance Policy). The Class A Certificates
issued with respect to a Mortgage Loan Group represent beneficial ownership
interests in the related Mortgage Loans (and in the case of the Group I
Class A Certificates, the Pre-Funding Account and the Capitalized Interest
Account); the Residual Certificates represent the beneficial ownership
interest in the Mortgage Loans and in the Accounts. Distributions on the
Certificates are payable solely from payments received on or with respect
to the Mortgage Loans (other than the Servicing Fees), moneys in the
Principal and Interest Account, the Capitalized Interest Account, the Pre-
Funding Account, the Supplemental Interest Payment Account and the Class
A-6 Distribution Account, except as otherwise provided herein, from
earnings on moneys and the proceeds of property held as a part of the Trust
Estate and, upon the occurrence of certain events, from Insured Payments.
Each Certificate entitles the Owner thereof to receive monthly on each
Payment Date, in order of priority of distributions with respect to such
Class of Certificates, a specified portion of such payments with respect to
the Mortgage Loans in the related Mortgage Loan Group, certain related
Insured Payments, pro rata in accordance with such Owner's Percentage
--- ----
Interest and certain amounts payable from the Capitalized Interest Account
and from the Pre-Funding Account and in the case of the Class A-6
Certificates, certain amounts payable from the Supplemental Interest
Payment Account and from the Class A-6 Distribution Account.
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(b) Each Owner is required, and hereby agrees, to return to the
Trustee any Certificate with respect to which the Trustee has made the
final distribution due thereon. Any such Certificate as to which the
Trustee has made the final distribution thereon shall be deemed cancelled
and shall no longer be Outstanding for any purpose of this Agreement,
whether or not such Certificate is ever returned to the Trustee.
Section 5.2. Forms. The 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 Residual
Certificates shall be in substantially the forms set forth in Exhibits A-1,
A-2, A-3, A-4, A-5, A-6, and Exhibit C hereof, respectively, with such
appropriate insertions, omissions, substitutions and other variations as
are required or permitted by this Agreement or as may in the Sponsor's
judgment be necessary, appropriate or convenient to comply, or facilitate
compliance, with applicable laws, and may have such letters, numbers or
other marks of identification and such legends or endorsements placed
thereon as may be required to comply with the rules of any applicable
securities laws or as may, consistently herewith, be determined by the
Authorized Officer of the Sponsor executing such Certificates, as evidenced
by his execution thereof.
Section 5.3. Execution, Authentication and Delivery. Each
--------------------------------------
Certificate shall be executed on behalf of the Trust, by the manual
signature of one of the Trustee's Authorized Officers and shall be
authenticated by the manual signature of one of the Trustee's Authorized
Officers.
Certificates bearing the manual signature of individuals who were
at any time the proper officers of the Trustee shall, upon proper
authentication by the Trustee, bind the Trust, notwithstanding that such
individuals or any of them have ceased to hold such offices prior to the
execution and delivery of such Certificates or did not hold such offices at
the date of authentication of such Certificates.
The initial Certificates shall be dated as of the Startup Day and
delivered at the Closing to the parties specified in Section 4.2 hereof.
No Certificate shall be valid until executed and authenticated as
set forth above.
Section 5.4. Registration and Transfer of Certificates. (a)
-----------------------------------------
The Trustee, as registrar, shall cause to be kept a register (the
"Register") in which, subject to such reasonable regulations as it may
prescribe, the Trustee shall provide for the registration of Certificates
and the
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registration of transfer of Certificates. The Trustee is hereby appointed
registrar for the purpose of registering Certificates and transfers of
Certificates as herein provided. The Owners shall have the right to
inspect the Register at all reasonable times and to obtain copies thereof.
(b) Subject to the provisions of Section 5.8 hereof, upon
surrender for registration of transfer of any Certificate at the office
designated as the location of the Register, the Trustee shall execute,
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Certificates of a like Class and in the
aggregate principal amount of the Certificate so surrendered.
(c) At the option of any Owner, Certificates of any Class owned
by such Owner may be exchanged for other Certificates authorized of like
Class, tenor and a like aggregate original principal amount and bearing
numbers not contemporaneously outstanding, upon surrender of the
Certificates to be exchanged at the office designated as the location of
the Register. Whenever any Certificate is so surrendered for exchange, the
Trustee shall execute, authenticate and deliver the Certificate or
Certificates which the Owner making the exchange is entitled to receive.
(d) All Certificates issued upon any registration of transfer or
exchange of Certificates shall be valid evidence of the same ownership
interests in the Trust and entitled to the same benefits under this
Agreement as the Certificates surrendered upon such registration of
transfer or exchange.
(e) Every Certificate presented or surrendered for registration
of transfer or exchange shall be duly endorsed, or be accompanied by a
written instrument of transfer in form satisfactory to the Trustee duly
executed by the Owner thereof or his attorney duly authorized in writing.
(f) No service charge shall be made to an Owner for any
registration of transfer or exchange of Certificates, but the Trustee 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 Certificates; any other expenses in connection with such
transfer or exchange shall be an expense of the Trust.
(g) It is intended that the Class A Certificates be registered
so as to participate in a global book-entry system with the Depository, as
set forth herein. Each Class of Class A Certificates shall, except as
otherwise provided in the next paragraph, be initially issued in the form
of a single fully registered Class A Certificate with a denomination equal
to the Original Aggregate Loan Balance. Upon initial issuance,
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the ownership of each such Class A Certificate shall be registered in the
Register in the name of Cede & Co., or any successor thereto, as nominee
for the Depository.
The minimum denominations shall be $1,000 for any Class A
Certificate, $100,000 for any Class B Certificate and 10% Percentage
Interest for any Residual Certificate.
The Sponsor and the Trustee are hereby authorized to execute and
deliver the Representation Letter with the Depository.
With respect to Class A Certificates registered in the Register
in the name of Cede & Co., as nominee of the Depository, the Sponsor, the
Master Servicer and the Trustee shall have no responsibility or obligation
to Direct or Indirect Participants or beneficial owners for which the
Depository holds Class A Certificates from time to time as a Depository.
Without limiting the immediately preceding sentence, the Sponsor, the
Master Servicer and the Trustee shall have no responsibility or obligation
with respect to (i) the accuracy of the records of the Depository, Cede &
Co., or any Direct or Indirect Participant with respect to the ownership
interest in the Class A Certificates, (ii) the delivery to any Direct or
Indirect Participant or any other Person, other than a registered Owner of
a Class A Certificate as shown in the Register, of any notice with respect
to the Class A Certificates or (iii) the payment to any Direct or Indirect
Participant or any other Person, other than a registered Owner of a Class A
Certificate as shown in the Register, of any amount with respect to any
distribution of principal or interest on the Class A Certificates. No
Person other than a registered Owner of a Class A Certificate as shown in
the Register shall receive a certificate evidencing such Class A
Certificate.
Upon delivery by the Depository to the Trustee of written notice
to the effect that the Depository has determined to substitute a new
nominee in place of Cede & Co., and subject to the provisions hereof with
respect to the payment of interest by the mailing of checks or drafts to
the registered Owners of Class A Certificates appearing as registered
Owners in the registration books maintained by the Trustee at the close of
business on a Record Date, the name "Cede & Co." in this Agreement shall
refer to such new nominee of the Depository.
(h) In the event that (i) the Depository or the Sponsor advises
the Trustee in writing that the Depository is no longer willing or able to
discharge properly its responsibilities as nominee and depository with
respect to the Class A Certificates and the Sponsor or the Trustee is
unable to locate a qualified successor or (ii) the Sponsor at its
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sole option elects to terminate the book-entry system through the
Depository, the Class A Certificates shall no longer be restricted to being
registered in the Register in the name of Cede & Co. (or a successor
nominee) as nominee of the Depository. At that time, the Sponsor may
determine that the Class A Certificates shall be registered in the name of
and deposited with a successor depository operating a global book-entry
system, as may be acceptable to the Sponsor, or such depository's agent or
designee but, if the Sponsor does not select such alternative global book-
entry system, then the Class A Certificates may be registered in whatever
name or names registered Owners of Class A Certificates transferring Class
A Certificates shall designate, in accordance with the provisions hereof.
(i) Notwithstanding any other provision of this Agreement to the
contrary, so long as any Class A Certificate is registered in the name of
Cede & Co., as nominee of the Depository, all distributions of principal or
interest on such Class A Certificates as the case may be and all notices
with respect to such Class A Certificates as the case may be shall be made
and given, respectively, in the manner provided in the Representation
Letter.
Section 5.5. Mutilated, Destroyed, Lost or Stolen Certificates.
-------------------------------------------------
If (i) any mutilated Certificate is surrendered to the Trustee, or the
Trustee receives evidence to its satisfaction of the destruction, loss or
theft of any Certificate, and (ii) in the case of any mutilated
Certificate, such mutilated Certificate shall first be surrendered to the
Trustee, and in the case of any destroyed, lost or stolen Certificate,
there shall be first delivered to the Trustee such security or indemnity as
may be reasonably required by it to hold the Trustee harmless (provided,
--------
that with respect to an Owner which is an insurance company, a letter of
indemnity furnished by it shall be sufficient for this purpose), then, in
the absence of notice to the Trustee that such Certificate has been
acquired by a bona fide purchaser, the Trustee shall execute, authenticate
and deliver, in exchange for or in lieu of any such mutilated, destroyed,
lost or stolen Certificate, a new Certificate of like Class, tenor and
aggregate principal amount, bearing a number not contemporaneously
outstanding.
Upon the issuance of any new Certificate under this Section, the
Trustee may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in relation thereto; any
other expenses in connection with such issuance shall be an expense of the
Trust.
Every new Certificate issued pursuant to this Section in exchange
for or in lieu of any mutilated,
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destroyed, lost or stolen Certificate shall constitute evidence of a
substitute interest in the Trust, and shall be entitled to all the benefits
of this Agreement equally and proportionately with any and all other
Certificates of the same Class duly issued hereunder and such mutilated,
destroyed, lost or stolen Certificate shall not be valid for any purpose.
The provisions of this Section are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen
Certificates.
Section 5.6. Persons Deemed Owners. The Trustee and any agent
---------------------
of the Trustee may treat the Person in whose name any Certificate is
registered as the Owner of such Certificate for the purpose of receiving
distributions with respect to such Certificate and for all other purposes
whatsoever, and neither the Trustee nor any agent of the Trustee shall be
affected by notice to the contrary.
Section 5.7. Cancellation. All Certificates surrendered for
------------
registration of transfer or exchange shall, if surrendered to any Person
other than the Trustee, be delivered to the Trustee and shall be promptly
cancelled by it. No Certificate shall be authenticated in lieu of or in
exchange for any Certificate cancelled as provided in this Section, except
as expressly permitted by this Agreement. All cancelled Certificates may
be held by the Trustee in accordance with its standard retention policy.
Section 5.8. Limitation on Transfer of Ownership Rights. (a)
------------------------------------------
No sale or other transfer of any Class A Certificate shall be made to the
Sponsor.
(b) No sale or other transfer of record or beneficial ownership
of a Class R Certificate (whether pursuant to a purchase, a transfer
resulting from a default under a secured lending agreement or otherwise)
shall be made to a Disqualified Organization or agent of a Disqualified
Organization. The transfer, sale or other disposition of a Class R
Certificate (whether pursuant to a purchase, a transfer resulting from a
default under a secured lending agreement or otherwise) to a Disqualified
Organization shall be deemed to be of no legal force or effect whatsoever
and such transferee shall not be deemed to be an Owner for any purpose
hereunder, including, but not limited to, the receipt of distributions on
such Residual Certificates. Furthermore, in no event shall the Trustee
accept surrender for transfer, registration of transfer, or register the
transfer, of any Residual Certificates nor authenticate and make available
any Residual Certificates unless the Trustee has received an affidavit from
the proposed transferee in the form attached
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hereto as Exhibit H. Each holder of a Class R Certificate, by his
acceptance thereof, shall be deemed for all purposes to have consented to
the provisions of this Section 5.8(b).
(c) No other sale or other transfer of record or beneficial
ownership of a Class R Certificate shall be made unless such transfer is
exempt from the registration requirements of the Securities Act of 1933, as
amended, and any applicable state securities laws or is made in accordance
with said Act and laws. In the event such a transfer is to be made within
three years from the Startup Day, (i) the Trustee or the Sponsor shall
require a written opinion of counsel acceptable to and in form and
substance satisfactory to the Sponsor that such transfer may be made
pursuant to an exemption, describing the applicable exemption and the basis
therefor, from said Act and laws or is being made pursuant to said Act and
laws, which opinion of counsel shall not be an expense of the Trustee or
the Sponsor, and (ii) the Trustee shall require the Transferee to execute
an investment letter acceptable to and in form and substance satisfactory
to the Sponsor certifying to the Trustee and the Sponsor the facts
surrounding such transfer, which investment letter shall not be an expense
of the Trustee or the Sponsor. The Owner of a Class R Certificate desiring
to effect such transfer shall, and does hereby agree to, indemnify the
Trustee and the Sponsor against any liability that may result if the
transfer is not so exempt or is not made in accordance with such federal
and state laws. No Class B or Class R Certificate shall be acquired by or
transferred to (i) an employee benefit plan (as defined in section 3(3) of
the Employee Retirement Security Act of 1974, as amended ("ERISA")) subject
-----
to the provisions of Title I of ERISA, (ii) a plan described in section
4975(e)(1) of the Internal Revenue Code of 1986, or (iii) an entity whose
underlying assets are deemed to be assets of a plan described in (i) or
(ii) above by reason of such plan's investment in the entity. Any Class B
or Class R Certificate transferred shall (x) certify that it is not any of
the above and (y) deliver an opinion of counsel to that effect.
Section 5.9. Assignment of Rights. An Owner may pledge,
--------------------
encumber, hypothecate or assign all or any part of its right to receive
distributions hereunder, but such pledge, encumbrance, hypothecation or
assignment shall not constitute a transfer of an ownership interest
sufficient to render the transferee an Owner of the Trust without
compliance with the provisions of Section 5.4 and Section 5.8 hereof.
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ARTICLE VI
COVENANTS
Section 6.1. Distributions. The Trustee will duly and
-------------
punctually pay distributions with respect to the Certificates in accordance
with the terms of the Certificates and this Agreement. Such distributions
shall be made (i) by check mailed on each Payment Date or (ii) if requested
by any Owner, to such Owner by wire transfer to an account within the
United States designated no later than five Business Days prior to the
related Record Date, made on each Payment Date, in each case to each Owner
of record on the immediately preceding Record Date; provided, however, that
-------- -------
an Owner of a Class A Certificate shall only be entitled to payment by wire
transfer if such Owner owns Class A Certificates in the aggregate
denomination of at least $5,000,000.
Section 6.2. Money for Distributions to be Held in Trust;
--------------------------------------------
Withholding. (a) All payments of amounts due and payable with respect to
- -----------
any Certificate that are to be made from amounts withdrawn from the
Certificate Account pursuant to Section 7.5 hereof or from Insured Payments
shall be made by and on behalf of the Trustee, and no amounts so withdrawn
from the Certificate Account for payments of the Certificates and no
Insured Payment shall be paid over to the Trustee except as provided in
this Section.
(b) The Trustee on behalf of the Trust shall comply with all
requirements of the Code and applicable state and local law with respect to
the withholding from any distributions made by it to any Owner of any
applicable withholding taxes imposed thereon and with respect to any
applicable reporting requirements in connection therewith.
(c) Any money held by the Trustee in trust for the payment of
any amount due with respect to any Class A Certificate, Class B Certificate
or Class R Certificate and remaining unclaimed by the Owner of such Class A
Certificate for the period then specified in the escheat laws of the State
of New York after such amount has become due and payable shall be
discharged from such trust and be paid to the Sponsor, and the Owner of the
Class A Certificate, Class B Certificate or Class R Certificate shall
thereafter, as an unsecured general creditor, look only to the Sponsor for
payment thereof (but only to the extent of the amounts so paid to the
Sponsor), and all liability of the Trustee with respect to such trust money
shall thereupon cease; provided, however, that the Trustee, before being
-------- -------
required to make any such payment, shall at the expense of the Sponsor
cause to be published once, in the eastern edition of The Wall Street
---------------
Journal, notice that such money remains unclaimed and that, after a date
- -------
specified therein, which shall be not fewer than 30 days from the date
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of such publication, any unclaimed balance of such money then remaining
will be paid to the Sponsor. The Trustee shall, at the direction of the
Sponsor, also adopt and employ, at the expense of the Sponsor, any other
reasonable means of notification of such payment (including but not limited
to mailing notice of such payment to Owners whose right to or interest in
moneys due and payable but not claimed is determinable from the Register at
the last address of record for each such Owner).
Section 6.3. Protection of Trust Estate. (a) The Trustee will
--------------------------
hold the Trust Estate in trust for the benefit of the Owners and, upon
request of the Certificate Insurer, or, with the consent of the Certificate
Insurer, at the request and expense of the Sponsor, will from time to time
execute and deliver all such supplements and amendments hereto pursuant to
Section 11.14 hereof and all instruments of further assurance and other
instruments, and will take such other action upon such request as it deems
reasonably necessary or advisable, to:
(i) more effectively hold in trust all or any portion of the
Trust Estate;
(ii) perfect, publish notice of, or protect the validity of any
grant made or to be made by this Agreement;
(iii) enforce any of the Mortgage Loans; or
(iv) preserve and defend title to the Trust Estate and the
rights of the Trustee, and the ownership interests of the Owners
represented thereby, in such Trust Estate against the claims of all
Persons and parties.
The Trustee shall send copies of any request received from the
Certificate Insurer or the Sponsor to take any action pursuant to this
Section 6.3 to the other party.
(b) The Trustee shall have the power to enforce, and shall
enforce the obligations of the other parties to this Agreement and of the
Certificate Insurer, by action, suit or proceeding at law or equity, and
shall also have the power to enjoin, by action or suit in equity, any acts
or occurrences which may be unlawful or in violation of the rights of the
Owners; provided, however, that nothing in this Section shall require any
-------- -------
action by the Trustee unless the Trustee shall first (i) have been
furnished indemnity satisfactory to it and (ii) when required by this
Agreement, have been requested to take such action by a majority of the
Percentage Interests represented by the affected Class or Classes of Class
A Certificates then Outstanding or, if there are no longer any
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affected Class A Certificates then outstanding, by such majority of the
Percentage Interests represented by any Class of Class B Certificates then
Outstanding.
(c) The Trustee shall execute any instrument required pursuant
to this Section so long as such instrument does not conflict with this
Agreement or with the Trustee's fiduciary duties.
Section 6.4. Performance of Obligations. The Trustee will not
--------------------------
take any action that would release the Sponsor or the Certificate Insurer
from any of their respective covenants or obligations under any instrument
or document relating to the Trust Estate or the Certificates or which would
result in the amendment, hypothecation, subordination, termination or
discharge of, or impair the validity or effectiveness of, any such
instrument or document, except as expressly provided in this Agreement or
such other instrument or document.
The Trustee may contract with other Persons to assist it in
performing its duties hereunder.
Section 6.5. Negative Covenants. The Trustee will not, to the
------------------
extent within the control of the Trustee, take any of the following
actions:
(i) sell, transfer, exchange or otherwise dispose of any of
the Trust Estate except as expressly permitted by this Agreement;
(ii) claim any credit on or make any deduction from the
distributions payable in respect of, the Certificates (other than
amounts properly withheld from such payments under the Code) or assert
any claim against any present or former Owner by reason of the payment
of any taxes levied or assessed upon any of the Trust Estate;
(iii) incur, assume or guaranty on behalf of the Trust any
indebtedness of any Person except pursuant to this Agreement;
(iv) dissolve or liquidate the Trust Estate in whole or in
part, except pursuant to Article IX hereof; or
(v) (A) impair the validity or effectiveness of this
Agreement, or release any Person from any covenants or obligations
with respect to the Trust or to the Certificates under this Agreement,
except as may be expressly permitted hereby or (B) create or extend
any lien, charge, adverse claim, security interest, mortgage
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or other encumbrance to or upon the Trust Estate or any part thereof or any
interest therein or the proceeds thereof.
Section 6.6. No Other Powers. The Trustee will not, to the
---------------
extent within the control of the Trustee, permit the Trust to engage in any
business activity or transaction other than those activities permitted by
Section 2.3 hereof.
Section 6.7. Limitation of Suits. No Owner shall have any right
-------------------
to institute any proceeding, judicial or otherwise, with respect to this
Agreement or the Certificate Insurance Policy or for the appointment of a
receiver or trustee, or for any other remedy hereunder, unless:
(1) such Owner has previously given written notice to the Sponsor and
the Trustee of such Owner's intention to institute such
proceeding;
(2) the Owners of not less than 25% of the Percentage Interests
represented by the affected Class or Classes of Certificates then
Outstanding or, if there are no affected Classes of Class A
Certificates then Outstanding, by such percentage of the
Percentage Interests of any Class of Class B Certificates then
Outstanding shall have made written request to the Trustee to
institute such proceeding in respect of such Event of Default;
(3) such Owner or Owners have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute such proceeding;
(5) as long as any Class A Certificates are Outstanding, the
Certificate Insurer consented in writing thereto; and
(6) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Certificate
Insurer or by the Owners of a majority of the Percentage
Interests represented by the Class A Certificates or, if there
are no Class A Certificates then Outstanding, by such majority of
the Percentage Interests represented by any Class of Class B
Certificates;
it being understood and intended that no one or more Owners shall have any
right in any manner whatever by virtue of, or
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by availing themselves of, any provision of this Agreement to affect,
disturb or prejudice the rights of any other Owner of the same Class or to
obtain or to seek to obtain priority or preference over any other Owner of
the same Class or to enforce any right under this Agreement, except in the
manner herein provided and for the equal and ratable benefit of all the
Owners of the same Class.
In the event the Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Owners, each
representing less than a majority of the applicable Class of Certificates,
the Trustee shall act at the direction of the Certificate Insurer,
notwithstanding any other provision of this Agreement.
Section 6.8. Unconditional Rights of Owners to Receive
--------------------------------- -------
Distributions. Notwithstanding any other provision in this Agreement, the
- -------------
Owner of any Certificate shall have the right, which is absolute and
unconditional, to receive distributions to the extent provided herein and
therein with respect to such Certificate or to institute suit for the
enforcement of any such distribution, and such right shall not be impaired
without the consent of such Owner.
Section 6.9. Rights and Remedies Cumulative. Except as
------------------------------
otherwise provided herein, no right or remedy herein conferred upon or
reserved to the Trustee, the Certificate Insurer or to the Owners is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition
to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. Except as otherwise provided
herein, the assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any
other appropriate right or remedy.
Section 6.10. Delay or Omission Not Waiver. No delay of the
----------------------------
Trustee, the Certificate Insurer or any Owner of any Certificate to
exercise any right or remedy under this Agreement to any Event of Default
shall impair any such right or remedy or constitute a waiver of any such
Event of Default or an acquiescence therein. Every right and remedy given
by this Article VI or by law to the Trustee, the Certificate Insurer or to
the Owners may be exercised from time to time, and as often as may be
deemed expedient, by the Trustee, the Certificate Insurer or by the Owners,
as the case may be.
Section 6.11. Control by Owners. The Certificate Insurer or the
-----------------
Owners of a majority of the Percentage Interests represented by the Class A
Certificates then Outstanding, with the consent of the Certificate Insurer
(which may not be unreasonably withheld) or, if there are no
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longer any Class A Certificates then Outstanding, by such majority of the
Percentage Interests represented by any Class of Class B Certificates then
Outstanding, with the consent of the Certificate Insurer (which may not be
unreasonably withheld) may direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee with respect to the
Certificates or exercising any trust or power conferred on the Trustee with
respect to the Certificates or the Trust Estate, including, but not limited
to, those powers set forth in Section 6.3 and Section 8.20 hereof; provided
--------
that:
- ----
(1) such direction shall not be in conflict with any rule of law or
with this Agreement;
(2) the Trustee shall have been provided with indemnity satisfactory
to it; and
(3) the Trustee may take any other action deemed proper by the
Trustee, which is not inconsistent with such direction; provided,
--------
however, that the Trustee need not take any action which it
-------
determines might involve it in liability or may be unjustly
prejudicial to the Owners not so directing; provided, further,
-------- -------
that in the event that any directions provided by the Trustee and
the Certificate Insurer conflict with each other, the Certificate
Insurer's direction shall prevail.
ARTICLE VII
ACCOUNTS, DISBURSEMENTS AND RELEASES
Section 7.1. Collection of Money. Except as otherwise expressly
-------------------
provided herein, the Trustee may demand payment or delivery of all money
and other property payable to or receivable by the Trustee pursuant to this
Agreement, including (a) all payments due on the Mortgage Loans in
accordance with the respective terms and conditions of such Mortgage Loans
and required to be paid over to the Trustee by the Master Servicer or by
any Sub-Servicer and (b) Insured Payments. The Trustee shall hold all such
money and property received by it, other than pursuant to or as
contemplated by Section 6.2(b) hereof, as part of the Trust Estate and
shall apply it as provided in this Agreement.
Section 7.2. Establishment of Accounts. (a) The Sponsor shall
-------------------------
cause to be established, and the Trustee shall maintain, at the corporate
trust office of the Trustee, a Certificate Account, a Class A Group I
Distribution Account, a Class A Group II Distribution Account, a Class A-6
Distribution Account, a Pre-Funding Account, a Reserve
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Account, a Capitalized Interest Account, a Class B Group I Distribution
Account and a Class B Group II Distribution Account, each to be held by the
Trustee in the name of the Trust for the benefit of the Owners of the
Certificates and the Certificate Insurer, as their interests may appear.
(b) The Sponsor shall cause to be established, and the Trustee
shall maintain, at the corporate trust office of the Trustee, a Class A-6
Distribution Account to be held by the Trustee in trust for the benefit of
the Class A-6 Certificates and the Certificate Insurer, as their interests
may appear.
(c) The Sponsor shall cause to be established, and the Trustee
shall maintain, at the corporate trust office of the Trustee, a Class R
Distribution Account to be held by the Trustee in trust for the benefit of
the Owners of the Residual Certificates and the Certificate Insurer, as
their interests may appear.
Section 7.3. The Certificate Insurance Policy.
--------------------------------
(a) On each Determination Date the Trustee shall determine with
respect to the immediately following Payment Date:
(i) the amounts to be on deposit in the Certificate Account
on such Payment Date with respect to Group I (disregarding the amounts
of any Group I Insured Payments) and equal to the sum of (x) such
amounts excluding the amount of any Total Monthly Excess Cashflow
amounts included in such amounts and excluding an amount equal to the
Group I Premium Amount together with any Master Servicing Fees
described in 7.5(c)(i) and Trustee's Fees described in 7.5(c)(iii) for
the related Payment Date but including, with respect to the ______,
1996 ________, 1996 and ________, 1996 Payment Dates any amounts to be
transferred to the Certificate Account from the Pre-Funding Account or
from the Capitalized Interest Account with respect to such Payment
Dates in accordance with Section 7.4 hereof plus (y) any amounts of
Total Monthly Excess Cashflow to be applied on account of Group I on
such Payment Date; the amounts described in the preceding clause (x)
with respect to each Mortgage Loan Group and Payment Date after taking
into account the portion of the Group I Principal Distribution Amount
to be actually distributed on such Payment Date without regard to any
Group I Insured Payment to be made with respect to such Payment Date,
are the "Group I Available Funds"; the sum of the amounts described in
the preceding clauses (x) and (y) are the "Group I Total Available
Funds";
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(ii) the amounts to be on deposit in the Certificate Account
on such Payment Date with respect to Group II (disregarding the
amounts of any Class A-6 Insured Payments) and equal to the sum of (x)
such amounts excluding the amount of any Total Monthly Excess Cashflow
amounts included in such amounts and excluding an amount equal to the
Group II Premium Amount together with any Master Servicing Fees
described in 7.5(c)(i) and Trustee's Fees described in 7.5(c)(iii) for
the related Payment Date, plus (y) any amounts of Total Monthly Excess
Cashflow to be applied on account of Group II on such Payment Date;
the amounts described in the preceding clause (x) with respect to each
Group II and Payment Date, after taking into account the portion of
the Group II Principal Distribution Amount to be actually distributed
on such Payment Date without regard to any Class A-6 Insured Payment
to be made with respect to such Payment Date, are the "Group II
Available Funds"; the sum of the amounts described in the preceding
clauses (x) and (y) are the "Group II Total Available Funds"; and
(b) (i) If the Group I Insured Distribution Amount for any
Payment Date exceeds the Group I Total Available Funds for such Payment
Date after taking into account the portion of the Group I Principal
Distribution Amount to be actually distributed on such Payment Date without
regard to any Group I Insured Payment to be made with respect to such
Payment Date (such event being a "Group I Deficiency Amount"), the Trustee
shall complete a Notice in the form of Exhibit A to the Certificate
Insurance Policy and submit such notice to the Certificate Insurer no later
than 12:00 noon New York City time on the second Business Day preceding
such Payment Date as a claim for a Insured Payment in an amount equal to
such Group I Deficiency Amount. Upon receipt of Insured Payments from the
Certificate Insurer under the Certificate Insurance Policy, the Trustee
shall deposit such Insured Payments in the Certificate Account.
(ii) If the Class A-6 Insured Distribution Amount for any,
Payment Date exceeds the Group II Total Available Funds for such Payment
Date (after taking into account the portion of the Class A-6 Principal
Distribution Amount to be actually distributed on such Payment Date without
regard to any Class A-6 Insured Payment to be made with respect to such
Payment Date) (such event being a "Group II Deficiency Amount"), the
Trustee shall complete a Notice in the form of Exhibit A to the Certificate
Insurance Policy and submit such notice to the Certificate Insurer no later
than 12:00 noon New York City time on the second Business Day preceding
such Payment Date as a claim for an Insured Payment in an amount equal to
such Group II Deficiency Amount. Upon receipt of Insured Payments from the
Certificate Insurer under
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the Certificate Insurance Policy, the Trustee shall deposit such Insured
Payments in the Certificate Account.
(c) The Trustee shall distribute all Insured Payments received,
or the proceeds thereof, in accordance with Section 7.5(c) to the Owners of
the Class A Certificates of the related Class.
(d) The Trustee shall (i) receive Insured Payments as attorney-
in-fact of each Owner of the Class A Certificates of the related Class
receiving any Insured Payment from the Certificate Insurer and (ii)
disburse such Insured Payment to the Owners of the related Class A
Certificates as set forth in Section 7.5(c). The Certificate Insurer shall
be entitled to receive the related Reimbursement Amount pursuant to
Sections 7.5(c)(iv)(C) and 7.5(c)(iv)(D) hereof with respect to each
Insured Payment made by the Certificate Insurer. The Trustee hereby agrees
on behalf of each Owner of Class A Certificates and the Trust for the
benefit of the Certificate Insurer that it recognizes that to the extent
the Certificate Insurer makes Insured Payments, either directly or
indirectly (as by paying through the Trustee), to the Owners of such Class
A Certificates, the Certificate Insurer will be entitled to receive the
related Reimbursement Amount pursuant to Sections 7.5(c)(iv)(C) and
7.5(c)(iv)(D) hereof.
(e) The Trustee shall receive, as attorney-in-fact of each Owner
of an Insured Certificate, any Insured Payment from the Certificate Insurer
and disburse the same to each Owner of an Insured Certificate in accordance
with the provisions of Section 7.3. Insured Payments disbursed by the
Trustee from proceeds of the Certificate Insurance Policy shall not be
considered payment by the Trust Fund nor shall such payments discharge the
obligation of the Trust Fund with respect to such Insured Certificates, and
the Certificate Insurer shall become the owner of such unpaid amounts due
from the Trust Fund in respect of Insured Certificates. The Trustee hereby
agrees on behalf of each Holder of an Insured Certificate for the benefit
of the Certificate Insurer that it recognizes that to the extent the
Certificate Insurer makes Insured Payments, either directly or indirectly
(as by paying through the Trustee), to the insured Certificateholders, the
Certificate Insurer will be subrogated to the rights of the insured
Certificateholders with respect to such Insured Payment, shall be deemed to
the extent of payments so made to be a registered insured Certificateholder
and shall receive all future distributions until all such Insured Payments
by the Certificate Insurer, together with interest thereon at the interest
rate borne by the Insured Certificates, have been fully reimbursed. To
evidence such subrogation, the Trustee shall, or shall cause the
Certificate Registrar to, note the Certificate Insurer's rights as subrogee
on the registration books maintained by the Trustee or the Certificate
Registrar
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upon receipt from the Certificate Insurer of proof of payment of any
Insured Payment. The effect of the foregoing provisions is that, to the
extent of Insured Payments made by it, the Certificate Insurer shall be
paid before payment of the balance of the distributions are made to the
other Owners of the Insured Certificates.
Section 7.4. Pre-Funding Account and Capitalized Interest
--------------------------------------------
Account. (a) On the Startup Day, the Trustee will deposit, on behalf of
- -------
the Owners of the Group I Class A Certificates, the Original Aggregate Pre-
Funded Amount in the Pre-Funding Account from the proceeds of the sale of
the Group I Class A Certificates.
(b) On any Subsequent Transfer Date, the Sponsor shall instruct
the Trustee in writing to withdraw from the Pre-Funding Account an amount
equal to 100% of the aggregate Loan Balances of the Subsequent Mortgage
Loans sold to the Trust on such Subsequent Transfer Date and pay such
amount to or upon the order of the Sponsor upon satisfaction of the
conditions set forth in Section 3.8 hereof with respect to such transfer.
(c) If (x) the Pre-Funded Amount with respect to the related
Mortgage Loan Group has not been reduced to zero by ____________, 1996 or
(y) the Pre-Funded Amount has been reduced to $100,000 or less on either
the ___________, 1996 or the ____________, 1996 Remittance Dates, in either
case after giving effect to any reductions in the Pre-Funded Amount on or
before such Remittance Date, the Sponsor shall instruct the Trustee to
withdraw from the Pre-Funding Account on such Remittance Date and deposit
in the Certificate Account with respect to Group I, the difference, if any,
between (A) the Original Aggregate Pre-Funded Amount and (B) all amounts
theretofore withdrawn from the Pre-Funding Account with respect to
Subsequent Mortgage Loans.
(d) On the Payment Dates occurring in ____________, 1996,
_________, 1996 and _________, 1996 the Trustee shall transfer the Pre-
Funding Earnings, if any, relating to such Payment Date from the Pre-
Funding Account to the Certificate Account. On the Payment Dates occurring
in __________, 1996, ___________, 1996 and ____________, 1996 the Trustee
shall distribute directly to the Owners of the Residual Certificates the
Excess Pre-Funding Earnings, if any, applicable to each such Payment Date.
(e) On each Subsequent Transfer Date the Sponsor may instruct
the Trustee in writing to withdraw from the Capitalized Interest Account
and pay on such Subsequent Transfer Date to the Owners of the Residual
Certificates the Overfunded Interest Amount for such Subsequent Transfer
Date,
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as calculated by the Sponsor pursuant to Section 3.8(f) hereof.
(f) On the Payment Dates occurring in ___________ 1996,
_________, 1996 and _________, 1996 the Trustee shall transfer from the
Group I Capitalized Interest Account to the Certificate Account with
respect to Group I, the Group I Capitalized Interest Requirement, if any,
for such Payment Dates.
(g) On the December 1995, Payment Date, any amounts remaining in
the Capitalized Interest Account after taking into account the transfers on
such Payment Date described in clause (f) above shall be paid to the Owners
of the Residual Certificates, and the Capitalized Interest Account shall be
closed.
Section 7.5. Flow of Funds. (a) The Trustee shall deposit to
-------------
the Certificate Account with respect to Group I, without duplication, upon
receipt, any Insured Payments relating to Group I, the proceeds of any
liquidation of the assets of the Trust, insofar as such assets relate to
Group I, the Group I Monthly Remittance Amount remitted by the Master
Servicer or any Sub-Servicer, together with any Substitution Amounts and
any Loan Purchase Price amounts received by the Trustee (each with respect
to Group I) and (ii) on the Payment Dates occurring in _______, 1996,
__________, 1996 and _______, 1996 (x) the Pre-Funding Earnings transferred
by the Trustee pursuant to Section 7.4(d) hereof, (y) the Group I
Capitalized Interest Requirement to be transferred on such Payment Dates
from the Capitalized Interest Account, pursuant to Section 7.4(f) hereof
and (z) the portion of the amount, if any, to be transferred on such
Payment Date from the Pre-Funding Account, pursuant to Section 7.4(c)
hereof.
(b) The Trustee shall deposit to the Certificate Account with
respect to Group II, without duplication, upon receipt, any Insured
Payments relating to Group II, the proceeds of any liquidation of the
assets of the Trust, insofar as such assets relate to Group II, the Group
II Monthly Remittance Amount remitted by the Master Servicer or any Sub-
Servicer, together with any Substitution Amounts and any Loan Purchase
Price amounts received by the Trustee (each with respect to Group II).
(c) Subject to any superseding provisions of clause (d) below
during the continuance of a Certificate Insurer Default, on each Payment
Date the Trustee shall make the following allocations, disbursements and
transfers of amounts then on deposit in the Certificate Account for each
Mortgage Loan Group in the following order of priority, and each such
allocation, transfer and disbursement shall be treated as
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having occurred only after all preceding allocations, transfers and
disbursements have occurred:
(i) first, from amounts then on deposit in the Certificate Account to
-----
the Master Servicer, an amount equal to any Master Servicing Fees
then due to it on account of the Mortgage Loans not theretofore
received by the Master Servicer pursuant to Section 8.8(c)(i)
hereof, as reported by the Master Servicer to the Trustee;
(ii) second, (x) from amounts then on deposit therein with respect to
------
Group I, the Group I Premium Amount for such Payment Date and (y)
from amounts then on deposit therein with respect to Group II,
the Group II Premium Amount for such Payment Date;
(iii) third, from amounts then on deposit in the Certificate Account to
-----
the Trustee, an amount equal to the Trustee's Fees then due to
it;
(iv) fourth, the Trustee shall allocate the following amounts in the
------
following order of priority:
(A) (i) From the Group I Available Funds then on deposit in
the Certificate Account, the lesser of (x) the
Group I Available Funds and (y) the Group I Insured
Interest Distribution Amount shall be allocated to
the Class A Group I Distribution Account;
(ii) From the Group II Available Funds then on deposit
in the Certificate Account, the lesser of (x) the
Group II Available Funds and (y) the Group II
Insured Interest Distribution Amount shall be
allocated to the Class A Group II Distribution
Account;
(iii) From the remaining Group I Available Funds then on
deposit in the Certificate Account, the lesser of
(x) such remaining Group I Available Funds and (y)
the Group I Insured Principal Distribution Amount
shall be allocated to the Class A Group I
Distribution Account;
(iv) [reserved];
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(v) From the remaining Group II Available Funds then on
deposit in the Certificate Account, the lesser of
(x) such remaining Group II Available Funds and (y)
the Group II Insured Principal Distribution Amount
shall be allocated to the Class A Group II
Distribution Account;
(B) (i) From the remaining Group I Available Funds then on
deposit in the Certificate Account, the lesser of
(x) such remaining Group I Available Funds, and (y)
the excess of (i) the Group II Insured Distribution
Amount over (ii) the amount then on deposit in the
Class A Group II Distribution Account, shall be
allocated to the Class A Group II Distribution
Account;
(ii) From the remaining Group II Available Funds then on
deposit in the Certificate Account, the lesser of
(x) such remaining Group II Available Funds and (y)
the excess of (i) the Group I Insured Distribution
Amount over (ii) the amount then on deposit in the
Class A Group I Distribution Account, shall be
allocated to the Class A Group I Distribution
Account;
(C) (i) From the remaining Group I Available Funds then on
deposit in the Certificate Account, the lesser of
(x) such remaining Group I Available Funds and (y)
the excess of (i) the Group I Principal
Distribution Amount applicable to such Payment Date
over (ii) all amounts then on deposit in the
Class A Group I Distribution Account and allocable
to principal, shall be allocated to the Class A
Group I Distribution Account;
(ii) From the remaining Group II Available Funds then on
deposit in the Certificate Account, the lesser of
(x) such remaining Group II Available Funds and (y)
the excess of (i) the Group II Principal
Distribution Amount applicable to such Payment Date
over (ii) all amounts then on
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deposit in the Class A Group II Distribution
Account and allocable to principal, shall be
allocated to the Class A Group II Distribution
Account;
(D) (i) From the remaining Group I Available Funds then on
deposit in the Certificate Account, the lesser of
(x) such remaining Group I Available Funds and (y)
the Group II Subordination Deficiency Amount
applicable to such Payment Date, shall be allocated
to the Class A Group II Distribution Account as a
Group II Subordination Increase Amount;
(ii) From the remaining Group II Available Funds then on
deposit in the Certificate Account, the lesser of
(x) such remaining Group II Available Funds and (y)
the Group I Subordination Deficiency Amount
applicable to such Payment Date, shall be allocated
to the Class A Group I Distribution Account as a
Group I Subordination Increase Amount;
(E) (i) From the remaining Group I Available Funds then on
deposit in the Certificate Account, the lesser of
(x) such remaining Group I Available Funds and (y)
the Group I Cumulative Crossover Amount, shall be
allocated to the Class B Group II Distribution
Account and applied as a distribution of principal
on account of the Class B Group II Principal
Balance;
(ii) From the remaining Group II Available Funds then on
deposit in the Certificate Account, the lesser of
(x) such remaining Group II Available Funds and (y)
the Group II Cumulative Crossover Amount, shall be
allocated to the Class B Group I Distribution
Account and applied as a distribution of principal
on account of the Class B Group I Principal
Balance;
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(F) (i) From the remaining Group I Available Funds then on
deposit in the Certificate Account, the lesser of
(x) such remaining Group I Available Funds and (y)
the Class B Group I Interest, shall be allocated to
the Class B Group I Distribution Account and
applied as a distribution of interest on account of
the Class B Group I Certificates;
(ii) From the remaining Group II Available Funds then on
deposit in the Certificate Account, the lesser of
(x) such remaining Group II Available Funds and (y)
the Class B Group II Interest, shall be allocated
to the Class B Group II Distribution Account and
applied as a distribution of interest on the
Class B Group II Certificates;
(G) (i) From the remaining Group I Available Funds then on
deposit in the Certificate Account, the lesser of
(x) such remaining Group I Available Funds and (y)
the Class B Group I Principal Balance as of such
Payment Date, assuming that the amount then on
deposit in the Class B Group I Distribution Account
as a result of the application of clause (E)(ii)
above has been applied as a distribution of
principal on account of the Class B Group I
Principal Balance on such Payment Date, shall be
allocated to the Class B Group I Distribution
Account and applied as a distribution of principal
on the Class B Group I Principal Balance;
(ii) From the remaining Group II Available Funds then on
deposit in the Certificate Account, the lesser of
(x) such remaining Group II Available Funds and (y)
the Class B Group II Principal Balance as of such
Payment Date, assuming that all amounts then on
deposit in the Class B Group II Distribution
Account as a result of the application of (E)(i)
above have been applied as a distribution of
principal on account of the Class B
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Group II Principal Balance on such Payment Date,
shall be allocated to the Class B Group II
Distribution Account and applied as a distribution
of principal on the Class B Group II Principal
Balance;
(H) All remaining amounts then remaining on deposit in
the Certificate Account shall be distributed to the
Owners of the Residual Certificates on such Payment
Date;
(d) On each Payment Date, the Trustee shall make the following
disbursements from amounts deposited in the Distribution Accounts pursuant
to Subsection (b) above, together with the amount of any Group I Insured
Payment deposited to the Class A Group I Distribution Account and the
amount of any Group II Insured Payment deposited to the Class A Group II
Distribution Account:
(i) the Trustee shall pay, pari passu from the amount then on
---- -----
deposit in the Class A Group I Distribution Account:
(A) to the Owners of the Class A-1 Group I Certificates,
the Class A-1 Distribution Amount for such Payment
Date;
(B) to the Owners of the Class A-2 Group I Certificates,
the Class A-2 Distribution Amount for such Payment
Date;
(C) to the Owners of the Class A-3 Group I Certificates,
the Class A-3 Distribution Amount for such Payment
Date;
(D) to the Owners of the Class A-4 Group I Certificates,
the Class A-4 Distribution Amount for such Payment
Date; and
(E) to the Owners of the Class A-5 Group I Certificates,
the Class A-5 Distribution Amount for such Payment
Date;
provided, however, that if, on any Payment Date, (x) the
-------- -------
Certificate Insurer is then in default under the Certificate
Insurance Policy
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and (y) a Group I Subordination Deficit exists, then any
distribution of the Group I Principal Distribution Amount on
such Payment Date shall be made pro rata to the Owners of
--- ----
each of the Class A-1 Group I Certificates, the Class A-2
Group I Certificates, the Class A-3 Group I Certificates,
the Class A-4 Group I Certificates and the Class A-5 Group I
Certificates on such Payment Date.
(ii) the Trustee shall pay from the amount then on deposit in the
Class A Group II Distribution Account, to the Owners of the
Class A-6 Group II Certificates, the Class A-6 Distribution
Amount for such Payment Date;
(iii) [reserved];
(iv) the Trustee shall transfer from the amounts then on deposit
in the Class B Group I Distribution Account, to the Group I
Supplemental Interest Payment Account, the Class B Group I
Distribution Amount for such Payment Date; such transfer
shall be deemed a distribution on the Class B Group I
Certificates; and
(v) the Trustee shall transfer from the amounts then on deposit
in the Class B Group II Distribution Account, to the Group
II Supplemental Interest Payment Account, the Class B Group
II Distribution Amount for such Payment Date; such transfer
shall be deemed a distribution on the Class B Group II
Certificates.
(e) Any amounts properly distributed to the Owners of the Class
B Certificates or to the Owners of the Residual Certificates pursuant to
the terms of this Agreement shall be distributed free of the subordination
described herein, and any such amounts shall in no event be required to be
returned to the Trustee or paid over to the Owners of the Class A
Certificates.
(f) Whenever, during the administration of the Trust, there
comes into the possession of the Trustee any money or property which this
Agreement does not otherwise require to be distributed on account of the
Class A Certificates or the Class B Certificates, the Trustee shall
distribute such money or other property to the Owners of the Class RU
Certificates.
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(g) The Trustee shall (i) receive as attorney-in-fact of the
Owners of the Class A Certificates any Insured Payment from the Certificate
Insurer and (ii) disburse the same to such Owners as set forth in
paragraphs (c)(i) and (c)(ii) above. Insured Payments disbursed by the
Trustee from proceeds of the Certificate Insurance Policy shall not be
considered payment by the Trust with respect to the Class A Certificates,
and the Certificate Insurer shall become the owner of such unpaid amounts
due from the Trust in respect of Insured Payments as the deemed assignee of
such Owners, as hereinafter provided. The Trust and the Trustee hereby
agree on behalf of each Owner of Class A Certificates for the benefit of
the Certificate Insurer that they recognize that to the extent the
Certificate Insurer pays Insured Payments, either directly or indirectly
(as by paying through the Trustee), to the Owners of the Class A
Certificates, the Certificate Insurer will be entitled to receive the
amount of any Class A-1 Interest Carry-Forward Amount, Class A-1 Principal
Carry-Forward Amount, Class A-2 Interest Carry-Forward Amount, Class A-2
Principal Carry-Forward Amount, Class A-3 Interest Carry-Forward Amount,
Class A-3 Principal Carry-Forward Amount, Class A-4 Interest Carry-Forward
Amount, Class A-4 Principal Carry-Forward Amount, Class A-5 Interest Carry-
Forward Amount, Class A-5 Principal Carry-Forward Amount, Class A-6
Interest Carry-Forward Amount and Class A-6 Principal Carry-Forward Amount,
and will be subrogated to the rights of the Owners of the Class A
Certificates with respect to such Insured Payments, shall be deemed to the
extent of the payments so made to be an Owner of such Class A-1 Group I
Certificates, Class A-2 Group I Certificates, Class A-3 Group I
Certificates, Class A-4 Group I Certificates, Class A-5 Group I
Certificates or Class A-6 Group II Certificates and shall receive future
distributions of the Class A-1 Distribution Amount, Class A-2 Distribution
Amount, Class A-3 Distribution Amount, Class A-4 Distribution Amount, Class
A-5 Distribution Amount and of the Class A-6 Distribution Amount until all
such Insured Payments by the Certificate Insurer have been fully
reimbursed, as described in the following paragraph. To evidence such
subrogation, the Trustee shall note the Certificate Insurer's rights as
subrogee on the Register upon receipt from the Certificate Insurer of proof
of the payment of any Insured Payment, after making the distribution on any
such future Payment Date to Owners of the Class A Certificates other than
to the Certificate Insurer. The Certificate Insurer shall not acquire any
voting rights hereunder as a result of such subrogation, except as
otherwise described herein.
It is understood and agreed that the intention of the parties is
that the Certificate Insurer shall not be entitled to reimbursement on any
Payment Date for amounts previously paid by it unless on such Payment Date
the Owners of the Class A Certificates shall also have received the full
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amount of the Group I Insured Distribution Amount and of the Group II
Insured Distribution Amount (exclusive of any Class A-1 Interest Carry-
Forward Amount, Class A-1 Principal Carry-Forward Amount, Class A-2
Interest Carry-Forward Amount, Class A-2 Principal Carry-Forward Amount,
Class A-3 Interest Carry-Forward Amount, Class A-3 Principal Carry-Forward
Amount, Class A-4 Interest Carry-Forward Amount, Class A-4 Principal Carry-
Forward Amount, Class A-5 Interest Carry-Forward Amount, Class A-5
Principal Carry-Forward Amount, Class A-6 Interest Carry-Forward Amount or
any Class A-6 Principal Carry-Forward Amount representing amounts
previously paid to the Owners of the Class A Certificates as Insured
Payments) for such Payment Date.
(h) Each Owner of a Class A Certificate which pays any
Preference Amounts theretofore received by such Owner on account of such
Class A Certificate will be entitled to receive reimbursement for such
amounts from the Certificate Insurer in accordance with the terms of the
Certificate Insurance Policy, but only after (i) delivering a copy to the
Trustee of a final, nonappealable order (a "Preference Order") of a court
having competent jurisdiction under the United States Bankruptcy Code
demanding payment of such amount to the bankruptcy court and (ii)
irrevocably assigning such Owner's claim with respect to such Preference
Order to the Certificate Insurer in such form as is required by the
Certificate Insurer. In no event shall the Certificate Insurer pay more
than one Insured Payment in respect of any Preference Amount.
(i) On any Payment Date during the continuance of any
Certificate Insurer Default:
(i) No Premium Amounts or Reimbursement Amounts shall be
paid to the Certificate Insurer, and any amounts
otherwise payable to the Certificate Insurer as Premium
Amounts or Reimbursement Amounts shall be retained in
the Certificate Account as Group I Total Available
Funds or Group II Total Available Funds, as
appropriate; and
(ii) If there is a Subordination Deficit for Group I, then
the Group I Total Available Funds for such Payment Date
shall be distributed pro rata to the Owners of any
--- ----
Outstanding Group I Certificates on such Payment Date,
with such amount first applied to accrued interest then
due on the Group I Certificates, with any remaining
amount applied to principal.
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(j) Notwithstanding any of the foregoing provisions, the
aggregate amount distributed to the Owners of any Class A Certificates on
account of principal shall not exceed the Original Certificate Principal
Balance for the related Class.
Section 7.6. Investment of Accounts. (a) So long as no event
----------------------
described in Sections 8.20(a) or (b) hereof shall have occurred and be
continuing, and consistent with any requirements of the Code, all or a
portion of the Accounts held by the Trustee shall be invested and
reinvested by the Trustee in the name of the Trustee for the benefit of the
Owners, as directed in writing by the Master Servicer, in one or more
Eligible Investments bearing interest or sold at a discount. During the
continuance of an event described in Sections 8.20(a) or (b) hereof and
following any removal of the Master Servicer, the Certificate Insurer shall
direct such investments. No investment in any Account shall mature later
than the Business Day immediately preceding the next Payment Date.
(b) If any amounts are needed for disbursement from any Account
held by the Trustee and sufficient uninvested funds are not available to
make such disbursement, the Trustee shall cause to be sold or otherwise
converted to cash a sufficient amount of the investments in such Account.
No investments will be liquidated prior to maturity unless the proceeds
thereof are needed for disbursement.
(c) Subject to Section 10.1 hereof, the Trustee shall not in any
way be held liable by reason of any insufficiency in any Account held by
the Trustee resulting from any loss on any Eligible Investment included
therein (except to the extent that the bank serving as Trustee is the
obligor thereon).
(d) The Trustee shall hold funds in the Accounts held by the
Trustee uninvested upon the occurrence of either of the following events:
(i) the Master Servicer or the Certificate Insurer, as the
case may be, shall have failed to give investment directions to the
Trustee within ten days after receipt of a written request for such
directions from the Trustee; or
(ii) the Master Servicer or the Certificate Insurer, as the
case may be, shall have failed to give investment directions to the
Trustee during the ten-day period described in clause (i) preceding,
by 11:15 a.m. New York time (or such other time as may be agreed by
the Master Servicer or the Certificate Insurer, as the case may be,
and the Trustee) on any Business Day (any such
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investment by the Trustee pursuant to this clause (ii) to mature on
the next Business Day after the date of such investment).
(e) For purposes of investment, the Trustee shall aggregate all
amounts on deposit in the Accounts. All income or other gain from
investments in the Accounts shall be deposited, pro rata, in the Accounts
--- ----
immediately on receipt, and any loss resulting from such investments shall
be charged, pro rata, to the Accounts.
--- ----
Section 7.7. Eligible Investments. The following are Eligible
--------------------
Investments:
(a) Direct general obligations of the United States or the
obligations of any agency or instrumentality of the United States fully and
unconditionally guaranteed, the timely payment or the guarantee of which
constitutes a full faith and credit obligation of the United States.
(b) Federal Housing Administration debentures and rated Aa2 or
higher by Moody's.
(c) Freddie Mac senior debt obligations and rated Aa2 or higher
by Moody's.
(d) Federal Home Loan Banks' consolidated senior debt
obligations and rated Aa2 or higher by Moody's.
(e) FNMA senior debt obligations and rated Aa2 or higher by
Moody's.
(f) Federal funds, certificates of deposit, time and demand
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 or better by Standard & Poor's and P-1 by
Moody's.
(g) Investment agreements approved by the Certificate Insurer
provided:
1. The agreement is with a bank or insurance company which has
an unsecured, uninsured and unguaranteed obligation (or claims-paying
ability) rated Aa2 or better by Moody's and AA or better by Standard &
Poor's and
2. Moneys invested thereunder may be withdrawn without any
penalty, premium or charge upon not more than one day's notice
(provided such notice may be amended or canceled at any time prior to
the withdrawal date), and
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3. The agreement is not subordinated to any other obligations of
such insurance company or bank, and
4. The same guaranteed interest rate will be paid on any future
deposits made pursuant to such agreement, and
5. The Trustee and the Certificate Insurer receive an opinion of
counsel that such agreement is an enforceable obligation of such
insurance company or bank.
(h) Commercial paper (having original maturities of not more
than 365 days) rated A-1 or better by Standard & Poor's and P-1 or better
by Moody's.
(i) Investments in money market funds rated AAAm or AAAm-G by
Standard & Poor's and Aaa or P-1 by Moody's.
(j) Investments approved in writing by the Certificate Insurer
and acceptable to Moody's and Standard & Poor's;
provided that no instrument described above is permitted to evidence either
- --------
the right to receive (a) only interest with respect to 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 no instrument described
-------- -------
above may be purchased at a price greater than par if such instrument may
be prepaid or called at a price less than its purchase price prior to
stated maturity.
Section 7.8. Reports by Trustee. (a) On each Payment Date the
------------------
Trustee shall provide to each Owner, to the Master Servicer, to the
Certificate Insurer, to each Underwriter, to the Sponsor, to Standard &
Poor's and to Moody's a written report in substantially the form set forth
as Exhibit J hereto with respect to each Mortgage Loan Group, as such form
may be revised by the Trustee, the Master Servicer, Moody's and Standard &
Poor's from time to time, but in every case setting forth the information
requested on Exhibit J hereto and the following information:
(i) the amount of the distribution with respect to the related
Class of the Class A Certificates and the Residual Certificates;
(ii) the amount of such distributions allocable to principal,
separately identifying the aggregate amount of any Prepayments or
other unscheduled recoveries of
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principal included therein and separately identifying any
Subordination Increase Amounts;
(iii) the amount of such distributions allocable to interest;
(iv) the Certificate Principal Balance for each Class of Class
A Certificates as of such Payment Date, together with the principal
amount of such Class of Class A Certificates (based on a Certificate
in an original principal amount of $1,000) then outstanding, in each
case after giving effect to any payment of principal on such Payment
Date;
(v) the Certificate Principal Balance of each class of Class B
Certificates, together with the principal amount, by Class, of each
Class B Certificate (based on a Certificate in the original principal
amount of $1,000) then Outstanding, in each case 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 any Class of Certificates on such Payment Date;
(vii) information furnished by the Sponsor pursuant to 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 and any Loan
Purchase Price amounts included in such distribution;
(ix) for Payment Dates during the Pre-Funding Period, the
remaining Pre-Funded Amount;
(x) for the final Subsequent Transfer Date, the amount of any
remaining Pre-Funded amount that has not been used to fund the
purchase of Subsequent Mortgage Loans and that will be distributed to
the Owners of the related class of certificates as principal, if any,
on the immediately following Payment Date;
(xi) the amount of any Supplemental Interest Payment, Class BI-
S and Class BII-S Certificate distribution, Class R Certificate
distribution and any Interest Advance on such Distribution Date,
together with the amount of any unreimbursed Interest Advance then
owed to the Trustee;
(xii) the amount of any Subordination Reduction Amount with
respect to each Mortgage Loan Group;
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(xiii) the amounts, if any, of any Realized Losses in each
Mortgage Loan Group for the related Remittance Period;
(xiv) the Pool Rolling Three-Month Delinquency Rate and the Pool
Cumulative Realized Losses (x) as a percentage of the average Pool
Principal Balance as of the close of business on the last day of each
of the twelve preceding Remittance Periods and (y) as a percentage of
the Original Aggregate Loan Balance; and
(xv) a number with respect to each Class (the "Pool Factor" for
such Class) computed by dividing the Certificate Loan Balance for such
Class (after giving effect to any distribution of principal to be made
on such Payment Date) by the Original Certificate Principal Balance
for such Class on the Startup Day.
Items (i) through (iii) above shall, with respect to each Class
of Class A Certificates, be presented on the basis of a Certificate having
a $1,000 denomination. In addition, by January 31 of each calendar year
following any year during which the Certificates are outstanding, the
Trustee shall furnish a report to each Owner of record at any time during
each calendar year as to the aggregate of amounts reported pursuant to (i),
(ii) and (iii) with respect to the Certificates for such calendar year.
(b) In addition, on each Payment Date the Trustee will
distribute to each Owner, to the Certificate Insurer, to each Underwriter,
to the Master Servicer, to the Sponsor, to Standard & Poor's and to
Moody's, together with the information described in Subsection (a)
preceding, the following information with respect to each Mortgage Loan
Group as of the close of business on the last Business Day of the prior
calendar month, which is hereby required to be prepared by the Master
Servicer and furnished to the Trustee for such purpose on or prior to the
related Remittance Date:
(i) the total number of Mortgage Loans in each Mortgage Loan
Group and the aggregate Loan Balances thereof, together with the
number, aggregate principal balances of such Mortgage Loans in such
Mortgage Loan Group and the percentage (based on the aggregate Loan
Balances of the Mortgage Loans in such Mortgage Loan Group) of the
aggregate Loan Balances of such Mortgage Loans to the aggregate Loan
Balance of all Mortgage Loans in the related Mortgage Loan Group (a)
30-59 days Delinquent, (b) 60-89 days Delinquent and (c) 90 or more
days Delinquent;
(ii) the number, aggregate Loan Balances of all Mortgage Loans
in each Mortgage Loan Group and percentage
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(based on the aggregate Loan Balances of the Mortgage Loans in such
Mortgage Loan Group) of the aggregate Loan Balances of such Mortgage
Loans to the aggregate Loan Balance of all Mortgage Loans in the
related Mortgage Loan Group in foreclosure proceedings (and whether
any such Mortgage Loans are also included in any of the statistics
described in the foregoing clause (i));
(iii) the number, aggregate Loan Balances of all Mortgage Loans
in each Mortgage Loan Group and percentage (based on the aggregate
Loan Balances of the Mortgage Loans in such Mortgage Loan Group) of
the aggregate Loan Balances of such Mortgage Loans to the aggregate
Loan Balance of all Mortgage Loans in the related Mortgage Loan Group
relating to Mortgagors in bankruptcy proceedings (and whether any such
Mortgage Loans are also included in any of the statistics described in
the foregoing clause (i));
(iv) the number, aggregate Loan Balances of all Mortgage Loans
in each Mortgage Loan Group and percentage (based on the aggregate
Loan Balances of the Mortgage Loans in such Mortgage Loan Group) of
the aggregate Loan Balances of such Mortgage Loans to the aggregate
Loan Balance of all Mortgage Loans in the related Mortgage Loan Group
relating to REO Properties (and whether any such Mortgage Loans are
also included in any of the statistics described in the foregoing
clause (i)); and
(v) the book value of any REO Property in each Mortgage Loan
Group.
(c) The foregoing reports shall be sent be to an Owner only
insofar as such Owner owns a Certificate with respect to the related
Mortgage Loan Group.
The Sponsor, the Master Servicer and the Trustee on behalf of
Certificateholders and the Trust (the "Trust Parties") hereby authorize the
Certificate Insurer and the Trustee to include the information contained in
reports provided to the Certificate Insurer or the Trustee hereunder (the
"Information") on The Bloomberg, an on-line computer based information
network maintained by Bloomberg L.P. ("Bloomberg"), or in other electronic
or print information services. The Trust Parties agree not to commence any
actions or proceedings, or otherwise assert any claims, against the
Certificate Insurer or the Trustee or their affiliates or any of the
Certificate Insurer's or the Trustee's or their affiliates' respective
agents, representatives, directors, officers or employees (collectively,
the "Designated Parties"), arising out of, or related to or in connection
with the dissemination and/or use of any Information by the Certificate
Insurer or the Trustee, including, but not limited
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to, claims based on allegations of inaccurate, incomplete or erroneous
transfer of information by the Certificate Insurer or the Trustee to
Bloomberg or otherwise (other than in connection with the Certificate
Insurer's or the Trustee's gross negligence or willful misconduct). The
Trust Parties waive their rights to assert any such claims against the
Designated Parties and fully and finally release the Designated Parties
from any and all such claims, demands, obligations, actions and liabilities
(other than in connection with such Designated's gross negligence or
willful misconduct). The Certificate Insurer and the Trustee make no
representations or warranties, expressed or implied, of any kind whatsoever
with respect to the accuracy, adequacy, timeliness, completeness,
merchantability or fitness for any particular purpose of any Information in
any form or manner. The Certificate Insurer reserve the right at any time
to withdraw or suspend the dissemination of the Information by the
Certificate Insurer or the Trustee, as appropriate. The authorizations,
covenants and obligations of the Trust Parties under this section shall be
irrevocable and shall survive the termination of this Agreement.
Section 7.9. Additional Reports by Trustee. (a) The Trustee
-----------------------------
shall report to the Sponsor, the Master Servicer and the Certificate
Insurer with respect to the amount then held in each Account (including
investment earnings accrued or scheduled to accrue) held by the Trustee and
the identity of the investments included therein, as the Sponsor, the
Master Servicer or the Certificate Insurer may from time to time request.
Without limiting the generality of the foregoing, the Trustee shall, at the
request of the Sponsor, the Master Servicer or the Certificate Insurer,
transmit promptly to the Sponsor, the Master Servicer and the Certificate
Insurer copies of all accounting of receipts in respect of the Mortgage
Loans furnished to it by the Master Servicer and shall notify the Sponsor,
the Master Servicer and the Certificate Insurer if any such receipts have
not been received by the Trustee.
(b) The Trustee shall immediately report to the Certificate
Insurer with respect to its actual knowledge, without independent
investigation, of any breach of any of the representations or warranties
relating to individual Mortgage Loans set forth in any Master Transfer
Agreement or in Section 3.3(a) hereof. On the date that is eighteen months
after the Startup Day, the Trustee shall provide the Certificate Insurer
with a written report of all of such inaccuracies to such date of which it
has actual knowledge, without independent investigation, and of the action
taken by the Originators and/or the Sponsor under the related Master
Transfer Agreement or under Section 3.4(b) hereof with respect thereto.
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[Section 7.10. Supplemental Interest Payment Account, Supplement
-------------------------------------------------
Interest Payments.
- -----------------
(a) The parties hereto do hereby create and establish a trust,
the "Accredited Supplemental Interest Trust 1996-1" (the "Supplemental
Interest Trust"). The Supplemental Interest Trust shall hold the
"Supplemental Interest Payment Account" to be held by the Trustee in its
name on behalf of the Supplemental Interest Trust.
(b) The amount, if any, on deposit in the Supplemental Interest
Payment Account on any Payment Date is the "Supplemental Interest Payment
Amount Available" on such Payment Date.
If, on any Determination Date, the Trustee determines that the
Supplemental Interest Payment Amount Available to be available on the next
Payment Date is less than the excess of (x) the excess of (i) the Class A-6
Full Interest Distribution Amount over (ii) the Class A-6 Interest
Distribution Amount over (y) the Supplemental Interest Payment Amount
Available as of such Payment Date (the "Class A-6 Formula Interest
Shortfall"), the Trustee shall demand that the Designated Residual Owner
fund the Class A-6 Formula Interest Shortfall on the related Payment Date.
The amount so funded by the Designated Residual Owner on any such Payment
Date is the "Interest Advance" for such Payment Date.
On each Payment Date the Trustee shall withdraw from the
Supplemental Interest Payment Account and deposit in the Class A-6
Distribution Account the lesser of (x) the amount by which the Class A-6
Full Interest Distribution Amount exceeds the Class A-6 Interest
Distribution Amount and (y) the Supplemental Interest Payment Amount
Available.
(c) Any portion of the Supplemental Interest Payment Amount
Available after application of clause (b) above shall be applied in the
following order of priority:
(i) first, to the Designated Residual Owner, as
reimbursement for unpaid Interest Advances, together with interest
thereon, with the earliest Interest Advances being deemed to be paid
first;
(ii) second, to the Class RS Distribution Account, the
remainder.
(iii) third, to the Owners of the Class BI-S Certificates
and the Class BII-S Certificates, all remaining amounts then on
deposit in the Supplemental Interest Payment Account, in each case to
such Owners pro rata in accordance with the Percentage Interests.
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Section 7.11. Allocation of Realized Losses. (a) If, on any
-----------------------------
Payment Date, and following the making of all allocations, transfers and
distributions (other than as provided in this Section) on such Payment Date
(x) the sum of the Class A-1 Certificate Principal Balance, the Class A-2
Certificate Principal Balance, the Class A-3 Certificate Principal Balance,
the Class A-4 Certificate Principal Balance, the Class A-5 Certificate
Principal Balance and the Class B Group I Principal Balance exceeds (y) the
Group I Pool Principal Balance as of the close of business on the last day
of the related Remittance Period (any such excess, "Group I Allocable
Losses"), such Group I Allocable Losses shall be applied as a reduction of
the Class B Group I Principal Balance until the Class B Group I Principal
Balance has been reduced to zero.
(b) If, on any Payment Date, and following the making of all
allocations, transfers and distributions (other than as provided in this
Section) on such Payment Date (x) the sum of the Class A-6 Principal
Balance and the Class B Group II Principal Balance exceeds the Group II
Pool Principal Balance as of the close of business on the last day of the
related Remittance Period (any such excess, "Group II Allocable Losses"),
such Group II Allocable Losses shall be applied as a reduction of the
Class B Group II Principal Balance until the Class B Group II Principal
Balance has been reduced to zero.
ARTICLE VIII
SERVICING AND ADMINISTRATION
OF MORTGAGE LOANS
Section 8.1. Master Servicer and Sub-Servicers. (a) Acting
---------------------------------
directly or through one or more Sub-Servicers as provided in Section 8.3,
the Master Servicer, as master servicer, shall service and administer the
Mortgage Loans in accordance with this Agreement and with reasonable care,
and using that degree of skill and attention that the Master Servicer
exercises with respect to comparable mortgage loans that it services for
itself or others, 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.
(b) The duties of the Master Servicer shall include collecting
and posting of all payments, responding to inquiries of Mortgagors or by
federal, state or local government authorities with respect to the Mortgage
Loans, investigating delinquencies, reporting tax information to Mortgagors
in accordance with its customary practices and
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accounting for collections and furnishing monthly and annual statements to
the Trustee with respect to distributions, paying Compensating Interest and
making Delinquency Advances and Servicing Advances pursuant hereto. The
Master Servicer shall follow its customary standards, policies and
procedures in performing its duties as Master Servicer. The Master
Servicer shall cooperate with the Trustee and furnish to the Trustee with
reasonable promptness information in its possession as may be necessary or
appropriate to enable the Trustee to perform its tax reporting duties
hereunder. The Trustee shall furnish the Master Servicer with any powers
of attorney and other documents necessary or appropriate to enable the
Master Servicer to carry out its servicing and administrative duties
hereunder.
(c) Without limiting the generality of the foregoing, the Master
Servicer (i) shall continue, and is hereby authorized and empowered by the
Trustee, to execute and deliver, on behalf of itself, the Owners and the
Trustee or any of them, any and all instruments of satisfaction or
cancellation, or of full release or discharge and all other comparable
instruments, with respect to the Mortgage Loans and with respect to the
related 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 Custodian, acting under the Facility Agreement; (iii) to
hold title in the name of the Custodian acting under the Facility
Agreement, to any Property upon such foreclosure or deed in lieu of
foreclosure; (iv) may consent to any modification of the terms of any Note
not expressly prohibited hereby if the effect of any such modification
(x) will not be to affect materially and adversely the security afforded by
the related Property, the timing of receipt of any payments required hereby
or the interests of the Certificate Insurer and (y) will not cause the
REMIC Trust to fail to qualify as a REMIC.
(d) The Master Servicer shall have the right using that degree
of skill and attention that the Master Servicer exercises with respect to
comparable mortgage loans that it services for itself or others, to approve
requests of Mortgagors for consent to (i) partial releases of Mortgage
Loans, (ii) alterations, removal, demolition or division of Properties
subject to Mortgage Loans. No such request shall be approved by the Master
Servicer unless: (x) the provisions of the related Note have been complied
with; (y) the Loan-to-Value Ratio (which may, for this purpose, be
determined at the time of any such action in a manner reasonably acceptable
to the Certificate Insurer) after any release does not exceed the Loan-to-
Value Ratio set forth for such Mortgage Loan in the Mortgage Loan Schedule;
and (z) the lien priority, monthly payment, Coupon Rate or maturity date of
the related Mortgage is not affected except in accordance with Section 8.3;
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provided, however, that the foregoing requirements (x), (y) and (z) shall
- -------- -------
not apply to any such situation described in this paragraph if such
situation results from any condemnation or easement activity by a
governmental entity.
(e) The parties intend that the REMIC Trust shall constitute,
and that the affairs of REMIC Trust shall be conducted so as to qualify it
as a REMIC. In furtherance of such intention, the Master Servicer
covenants and agrees that it shall act as agent (and the Master Servicer is
hereby appointed to act as agent) on behalf of the REMIC Trust and that in
such capacity it shall: (i) use its best efforts to conduct the affairs of
the REMIC Trust at all times that any Class of Certificates are outstanding
so as to maintain the status of the REMIC Trust as a REMIC under the REMIC
Provisions; (ii) not knowingly or intentionally take any action or omit to
take any action that would cause the termination of the REMIC status of
REMIC Trust or that would subject the Trust to tax and (iii) exercise
reasonable care not to allow the REMIC Trust to receive income from the
performance of services or from assets not permitted under the REMIC
Provisions to be held by a REMIC.
(f) The Master Servicer may, and is hereby authorized to,
perform any of its servicing responsibilities with respect to all or
certain of the Mortgage 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 Master Servicer from any of its obligations under this
Agreement. Such Sub-Servicer shall have all the rights and powers of the
Master Servicer with respect to such Mortgage Loans under this Agreement.
(g) Without limiting the generality of the foregoing, but
subject to Sections 8.13 and 8.14, the Master Servicer in its own name or
in the name of a Sub-Servicer may be authorized and empowered pursuant to a
power of attorney executed and delivered by the Trustee to execute and
deliver, and may be authorized and empowered by the Trustee, to execute and
deliver, on behalf of itself, the Owners and the Trustee or any of them,
(i) any and all instruments of satisfaction or cancellation or of partial
or full release or discharge and all other comparable instruments with
respect to the Mortgage Loans and with respect to the Properties, (ii) and
to institute foreclosure proceedings or obtain a deed in lieu of
foreclosure so as to effect ownership of any Property on behalf of the
Trustee, and (iii) to hold title to any Property upon such foreclosure or
deed in lieu of foreclosure on behalf of the Trustee; provided, however,
-------- -------
that Section 8.14(a) shall constitute a power of attorney from the Trustee
to the Master Servicer to execute an instrument of satisfaction (or
assignment of mortgage without recourse) with respect to any Mortgage Loan
paid in full (or with respect to which payment
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in full has been escrowed). Subject to Sections 8.13 and 8.14, the Trustee
shall furnish the Master Servicer and any Sub-Servicer with any powers of
attorney and other documents as the Master Servicer or such Sub-Servicer
shall reasonably request to enable the Master Servicer and such
Sub-Servicer to carry out their respective servicing and administrative
duties hereunder.
(h) The Master Servicer shall give prompt notice to the Trustee
of any action, of which the Master Servicer has actual knowledge, to (i)
assert a claim against the Trust or (ii) assert jurisdiction over the
Trust.
(i) Servicing Advances incurred by the Master Servicer or any
Sub-Servicer in connection with the servicing of the Mortgage 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
Master Servicer or such Sub-Servicer to the extent described in Section
8.9(c) and in Section 7.5(c)(v)(C) hereof.
(j) The Master Servicer shall be entitled to rely, and shall be
fully protected in relying, upon any promissory note, writing, resolution,
notice, consent, certificate, affidavit, letter, cablegram, telegram,
telecopy, telex or teletype message, statement, order or other document
reasonably believed by it to be genuine and correct and to have been
signed, sent or made by the proper person or persons and upon advice and
statements of legal counsel (including, without limitation, counsel to the
Mortgagor(s)), independent accountants and other experts selected by the
Master Servicer.
(i) The Master Servicer shall have no liability to the
Custodian, the SPV, the Master Servicer, CFSC or any other Person for any
action taken, or for refraining from the taking of any action, in good
faith pursuant to this Agreement, or for errors in judgment; provided,
--------
however, that the foregoing shall not apply to any breach of
- -------
representations or warranties made by the Master Servicer herein, or to any
specific liability imposed upon the Master Servicer pursuant to this
Agreement or any liability that would otherwise be imposed upon the Master
Servicer by reason of its willful misconduct, bad faith or negligence in
the performance of its duties hereunder or by reason of its reckless
disregard of its obligations or duties hereunder.
Section 8.2. The Servicing Account.
---------------------
(a) Establishing the Servicing Account; Amounts on Deposit. The
------------------------------------------------------
Master Servicer shall establish and maintain a servicing account (the
"Servicing Account") in the name of the Custodian for the benefit of CFSC
-----------------
and the SPV, as their interests may appear. The Servicing Account shall be
a
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segregated account established at the Custodian, PNC Bank National
Association or another financial institution reasonably acceptable to the
Master Servicer and CFSC. All amounts on deposit in the Servicing Account
shall, to the extent permitted by applicable law, rules and regulations, be
invested, as directed in writing by the Master Servicer in Eligible
Investments that mature not later than one Business Day prior to the
Distribution Date (the Determination Date if the Servicing Account is not
maintained at the Custodian) for the related Monthly Period. Any such
written direction shall certify that such investment is authorized by this
Section 8.2(a). Investments in Eligible Investments shall be made in the
name of the Custodian, and such investments shall not be sold or disposed
of prior to their maturity. The Master Servicer shall be responsible for
any loss resulting from an investment of monies in the Servicing Account
without any right of reimbursement.
(b) Administration of Collections. The Master Servicer shall
-----------------------------
deposit all Collections (other than amounts representing the Servicing Fee
and amounts escrowed for taxes and insurance) related to the Mortgage Loans
to the Servicing Account on a daily basis (but no later than the second
Business Day after receipt). If the Servicing Account is not maintained at
the Custodian, the Master Servicer shall, on each Determination Date, cause
to be transferred to a separate account established and maintained by the
Master Servicer at the Custodian (the "Distribution Account") the amount of
--------------------
all Collections for the related Monthly Period, including without
limitation any required Delinquency Advance. The Master Servicer may
require that the Master Servicer and/or the Sub-Servicer establish a
central lockbox account for the receipt of all Collections under the
Mortgage Loans.
(c) Withdrawals. The Master Servicer shall make withdrawals from
-----------
the Servicing Account only for the following purposes:
(i) to effect the timely remittance of the amounts to be
transferred to the Distribution Account pursuant to Section
8.2(b) on each Determination Date;
(ii) to withdraw amounts that have been deposited to the
Servicing Account in error;
(iii) to reimburse the Master Servicer for the cost of tax
service contracts placed by the Master Servicer pursuant to
Section _____ and amounts which represent Reimbursable Advances
made by the Sub-Servicer from its own funds and which are subject
to reimbursement pursuant to Section ____; and
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(iv) to clear and terminate the Servicing Account in connection
with the termination of this Agreement.
Section 8.3. Collection of Certain Mortgage Loan Payments. The
--------------------------------------------
Master Servicer shall generally service the Mortgage Loans in a prudent
manner consistent with (x) its general servicing standards for similar
mortgage loans it services for itself or others and (y) the customary and
usual standards of practice of prudent residential mortgage loan servicers
((x) and (y) together constituting the "Servicing Standards"), and agrees
-------------------
to make reasonable efforts to timely collect all payments called for under
the terms and provisions of the Mortgage Loans, and shall, to the extent
such procedures shall be consistent with this Agreement, follow collection
procedures for all Mortgage Loans at least as rigorous as those the Master
Servicer would ordinarily take in servicing similar mortgage loans and in
collecting payments thereunder for its own account. Consistent with the
foregoing, the Master Servicer may (i) in its discretion waive or permit to
be waived any late payment charge or assumption fee or any other fee or
charge which the Master Servicer would be entitled to receive as servicing
compensation, (ii) extend the due date for payments due on a Note for a
period (with respect to each payment as to which the due date is extended)
not greater than 90 days after the initially scheduled due date for such
payment and (iii) amend any Note to extend the maturity thereof, provided
that no maturity shall be extended beyond the maturity date of the Mortgage
Loan with the latest maturity date.
The Master Servicer may waive prepayment charges or penalty
interest in connection with Prepayments. Any such prepayment charges so
received shall be remitted to the account described in Section 2 and any
such penalty interest so received shall be retained by the Master Servicer
as a Supplemental Servicing Fee.
Section 8.4. Delinquency Advances and Master Servicer Advances.
-------------------------------------------------
(a) On or before each Determination Date, the Master Servicer shall
deposit from its own funds into the Servicing Account, or the Distribution
Account if the Servicing Account is not maintained at the Custodian, an
amount equal to all Monthly Payments due in the related Monthly Period (net
of any amount equal to the Servicing Fee) but not yet received, except with
respect to any such Monthly Payment which the Master Servicer reasonably
believes will not be recoverable from subsequent Collections with respect
to the related Mortgage Loan. Such amounts of the Master Servicer's own
funds so deposited are "Delinquency Advances". Any Delinquency Advances
--------------------
funded by the Master Servicer from its own funds are reimbursable from
subsequent collections on or with respect to any Mortgage Loan, including
Liquidation
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Proceeds, Insurance Proceeds, Released Mortgaged Property Proceeds, and
payments from the related Mortgagor.
(b) The Master Servicer shall be permitted to fund its payment
of Delinquency Advances from collections on any Mortgage Loan deposited to
the Servicing Account subsequent to the related Monthly Period. To the
extent the Master Servicer uses such funds, the Master Servicer must
reimburse the Servicing Account by the next Determination Date to the
extent any Monthly Payment covered by the related Delinquency Advance has
not been recovered through Collections on the related Mortgage Loan.
(c) The Master Servicer will pay all reasonable and customary
"out-of-pocket" costs and expenses (including reasonable legal fees)
incurred in the performance of its servicing obligations including, but not
limited to, the cost of (i) Preservation Expenses, (ii) any enforcement or
judicial proceedings, including foreclosures, (iii) the management and
liquidation of REO Property (including, without limitation, realtors'
commissions) and (iv) advances made for taxes, insurance and other charges
against the Property. Each such expenditure will constitute a "Master
------
Servicer Advance"; provided, that the Master Servicer shall only be
- ----------------
required to pay such amounts to the extent it reasonably believes that such
amount will be recovered from subsequent Collections on or with respect to
the related Mortgage Loan. The Master Servicer may recover Master Servicer
Advances from the Mortgagors to the extent permitted by the Mortgage Loans
or, if not theretofore recovered from the Mortgagor on whose behalf such
Master Servicer Advance was made, from Liquidation Proceeds, Insurance
Proceeds and/or Released Mortgage Property Proceeds realized with respect
to the related Mortgage Loan or, if the Master Servicer, following receipt
of all amounts on a Mortgage Loan which the Master Servicer expects to
recover with respect to such Mortgage Loan, has any unreimbursed Master
Servicer Advances with respect to such Mortgage Loan ("Nonrecoverable
--------------
Advances"), the Master Servicer may recover the amount thereof from
- --------
Collections on the Mortgage Loans generally.
Section 8.5. Sub-Servicing Agreements Between Master Servicer
-------------------------------- ---------------
and Sub-Servicers. The Master Servicer may enter into Sub-Servicing
- -----------------
Agreements for any servicing and administration of Mortgage Loans with any
institution which is in compliance with the laws of each state necessary to
enable it to perform its obligations under such Sub-Servicing Agreement.
The Master Servicer shall give notice to the Certificate Insurer of the
appointment of any Sub-Servicer and shall furnish to the Certificate
Insurer a copy of the Subservicing Agreement. For purposes of this
Agreement, the Master Servicer shall be deemed to have received payments on
Mortgage Loans when any Sub-Servicer has received such
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payments. Any such Sub-Servicing Agreement shall be consistent with and
not violate the provisions of this Agreement.
Section 8.6. Successor Sub-Servicers. The Master Servicer may
-----------------------
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 Mortgage Loans itself or enter into a Sub-Servicing
Agreement with a successor Sub-Servicer that qualifies under Section 8.3.
Section 8.7. Liability of Master Servicer. The Master 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 Master
Servicer and a Sub-Servicer or otherwise, and the Master Servicer shall be
obligated to the same extent and under the same terms and conditions as if
it alone were servicing and administering the Mortgage Loans. The Master
Servicer shall be entitled to enter into any agreement with a Sub-Servicer
for indemnification of the Master Servicer by such Sub-Servicer and nothing
contained in such Sub-Servicing Agreement shall be deemed to limit or
modify this Agreement. The Trust shall not indemnify the Master Servicer
for any losses due to the Master Servicer's negligence.
Section 8.8. No Contractual Relationship Between Sub-Servicer
------------------------------------------------
and Trustee or the Owners. Any Sub-Servicing Agreement and any other
- -------------------------
transactions or services relating to the Mortgage Loans involving a
Sub-Servicer shall be deemed to be between the Sub-Servicer and the Master
Servicer alone and the Certificate Insurer, the Trustee and the Owners
shall not be deemed parties thereto and shall have no claims, rights,
obligations, duties or liabilities with respect to any Sub-Servicer except
as set forth in Section 8.7.
Section 8.9. Assumption or Termination of Sub-Servicing
---------------------------- -------------
Agreement by Trustee. In connection with the assumption of the
- --------------------
responsibilities, duties and liabilities and of the authority, power and
rights of the Master Servicer hereunder by the Trustee pursuant to Section
8.20, it is understood and agreed that the Master Servicer's rights and
obligations under any Sub-Servicing Agreement then in force between the
Master Servicer and a Sub-Servicer may be assumed or terminated by the
Trustee at its option.
The Master Servicer shall, upon request of the Trustee, but at
the expense of the Master 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
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to effect the orderly and efficient transfer of the Sub-Servicing
Agreements to the assuming party, without the payment of any fee by the
Trustee, notwithstanding any contrary provision in any Sub-Servicing
Agreement.
Section 8.10. Principal and Interest Account.
------------------------------
(a) The Master Servicer and/or each Sub-Servicer, as applicable,
shall establish in the name of the Trust for the benefit of the Owners of
the Certificates and maintain at one or more Designated Depository
Institutions the Principal and Interest Account.
Subject to Subsections (c) and (e) below, the Master Servicer and
any Sub-Servicer shall deposit all receipts related to the Mortgage Loans
to the Principal and Interest Account on a daily basis (but no later than
the first Business Day after receipt).
On the Startup Day the Sponsor and/or the Master Servicer shall
deposit to the Principal and Interest Account all receipts related to the
Mortgage Loans which relate to or are received on or after the Cut-Off
Date.
(b) All funds in the Principal and Interest Account may only be
held (i) uninvested, up to the limits insured by the FDIC or (ii) invested
in Eligible Investments. The Principal and Interest Account shall be held
in trust in the name of the Trust and for the benefit of the Owners of the
Certificates. Any investment earnings on funds held in the Principal and
Interest Account shall be for the account of the Master Servicer and may
only be withdrawn from the Principal and Interest Account by the Master
Servicer immediately following the remittance of the Monthly Remittance
Amounts by the Master Servicer. Any references herein to amounts on
deposit in the Principal and Interest Account shall refer to amounts net of
such investment earnings. Any investment losses are at the expense of the
Master Servicer and shall be replaced on or prior to the Remittance Date.
(c) Subject to Subsection (e) below, the Master Servicer shall
deposit to the Principal and Interest Account all principal and interest
collections on the Mortgage Loans received on or after the Cut-Off Date
including any Prepaid Installments, Prepayments and Net Liquidation
Proceeds, all Loan Purchase Prices and Substitution Amounts received or
paid by the Master Servicer with respect to the Mortgage Loans, other
recoveries or amounts related to the Mortgage Loans received by the Master
Servicer, Compensating Interest and Delinquency Advances together with any
amounts which are reimbursable from the Principal and Interest Account, but
net of (i) the Servicing Fee with respect to each Mortgage Loan and other
servicing compensation to the Master Servicer
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as permitted by Section 8.15 hereof, (ii) principal (including Prepayments)
collected on the related Mortgage Loans prior to the Cut-Off Date, (iii)
interest accruing on the related Mortgage Loans prior to the Cut-Off Date
and (iv) Net Liquidation Proceeds to the extent such Net Liquidation
Proceeds exceed the Loan Balance of the related Mortgage Loan.
(d) (i) The Master Servicer may make withdrawals from the
Principal and Interest Account only for the following purposes:
(A) to effect the timely remittance to the Trustee of the
Monthly Remittance Amounts due on the Remittance Date;
(B) to reimburse itself pursuant to Section 8.9(a) hereof for
unrecovered Delinquency Advances and Servicing Advances;
(C) to withdraw investment earnings on amounts on deposit in the
Principal and Interest Account;
(D) to withdraw amounts that have been deposited to the
Principal and Interest Account in error; and
(E) to clear and terminate the Principal and Interest Account
following the termination of the Trust Estate pursuant to
Article X.
(ii) On the tenth day of each month, the Master Servicer shall
send to the Trustee a report, in the form of a computer tape, detailing the
payments on the Mortgage Loans during the prior Remittance Period. Such
tape shall be in the form and have the specifications as may be agreed to
between the Master Servicer and the Trustee from time to time.
(iii) On each Remittance Date the Master Servicer shall remit to
the Trustee by wire transfer, or otherwise make funds available in
immediately available funds, (x) for Group I, the Group I Interest
Remittance Amount and the Group I Principal Remittance Amount and (y) for
Group II, the Group II Interest Remittance Amount and the Group II
Principal Remittance Amount.
(e) To the extent that the ratings, if any, then assigned to the
unsecured debt of the Master Servicer or of the Master Servicer's ultimate
corporate parent are satisfactory to the Certificate Insurer, Moody's and
Standard & Poor's, then the requirement to maintain the Principal and
Interest Account may be waived by an instrument signed by the Certificate
Insurer, Standard & Poor's and Moody's, and the Master Servicer may be
allowed to co-mingle with its general
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<PAGE>
funds the amounts otherwise required to be deposited to the Principal and
Interest Account, on such terms and subject to such conditions as the
Certificate Insurer, Moody's and Standard & Poor's may permit.
Section 8.11. Purchase of Mortgage Loans. The Master Servicer
--------------------------
may, but is not obligated to, purchase for its own account any Mortgage
Loan which becomes Delinquent, in whole or in part, as to four consecutive
monthly installments or any Mortgage Loan as to which enforcement
proceedings have been brought by the Master Servicer or by any Sub-Servicer
pursuant to Section 8.14. Any such Loan so purchased shall be purchased by
the Master Servicer on a 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.
Section 8.12. Maintenance of Insurance. (a) The Master
------------------------
Servicer shall cause to be maintained with respect to each Mortgage Loan a
hazard insurance policy with a carrier licensed in the state in which the
Property is located that provides for fire and extended coverage, and which
provides for a recovery by the named insured of insurance proceeds relating
to such Mortgage Loan in an amount not less than the least of (i) the
outstanding principal balance of the Mortgage Loan (together in the case of
a Junior Mortgage Loan, with the outstanding principal balance of the
Senior Lien), (ii) the minimum amount required to compensate for loss or
damage on a replacement cost basis and (iii) the full insurable value of
the premises.
(b) If the Mortgage Loan at the time of origination relates to a
Property in an area identified in the Federal Register by the Federal
Emergency Management Agency as having special flood hazards, the Master
Servicer will cause to be maintained with respect thereto a flood insurance
policy in a form meeting the requirements of the current guidelines of the
Federal Insurance Administration with a generally acceptable carrier in an
amount representing coverage, and which provides for a recovery by the
Master Servicer on behalf of the Trust of insurance proceeds relating to
such Mortgage Loan of not less than the least of (i) the outstanding
principal balance of the Mortgage Loan, (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 Master Servicer shall indemnify the Trust and
the Certificate Insurer out of the Master Servicer's own funds for any loss
to the Trust and the Certificate Insurer resulting from the Master
Servicer's failure to maintain the insurance required by this Section.
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(c) In the event that the Master Servicer shall obtain and
maintain a blanket policy insuring against fire, flood and hazards of
extended coverage on all of the Mortgage Loans, then, to the extent such
policy names the Master Servicer as loss payee and provides coverage in an
amount equal to the aggregate unpaid principal balance on the Mortgage
Loans without co-insurance, and otherwise complies with the requirements of
this Section 8.12, the Master Servicer shall be deemed conclusively to have
satisfied its obligations with respect to fire and hazard insurance
coverage under this Section 8.12, it being understood and agreed that such
blanket policy may contain a deductible clause, in which case the Master
Servicer shall, in the event that there shall not have been maintained on
the related Property a policy complying with the preceding paragraphs of
this Section 8.12, and there shall have been a loss which would have been
covered by such policy, deposit in the Servicing Account from the Master
Servicer's own funds the difference, if any, between the amount that would
have been payable under a policy complying with the preceding paragraphs of
this Section 8.12 and the amount paid under such blanket policy. Upon the
request of the Trustee or the Certificate Insurer, the Master Servicer
shall cause to be delivered to the Trustee or the Certificate Insurer, a
certified true copy of such policy.
Section 8.13. Due-on-Sale Clauses; Assumption and Substitution
------------------------------------------------
Agreements. When a Property has been or is about to be conveyed by the
- ----------
Mortgagor, the Master Servicer shall, to the extent it has knowledge of
such conveyance or prospective conveyance, exercise its rights to
accelerate the maturity of the related Mortgage Loan under any "due-on-
sale" clause contained in the related Mortgage or Note; provided, however,
-------- -------
that the Master Servicer shall not exercise any such right if (i) the "due-
on-sale" clause, in the reasonable belief of the Master Servicer, is not
enforceable under applicable law or (ii) the Master Servicer reasonably
believes that to permit an assumption of the Mortgage Loan would not
materially and adversely affect the interest of the Owners or of the
Certificate Insurer. In such event, the Master Servicer shall enter into
an assumption and modification agreement with the person to whom such
property has been or is about to be conveyed, pursuant to which such person
becomes liable under the Note and, unless prohibited by applicable law or
the Mortgage Documents, the Mortgagor remains liable thereon. If the
foregoing is not permitted under applicable law, the Master Servicer is
authorized to enter into a substitution of liability agreement with such
person, pursuant to which the original Mortgagor is released from liability
and such person is substituted as Mortgagor and becomes liable under the
Note; provided, however, that to the extent any such substitution of
-------- -------
liability agreement would be delivered by the Master Servicer outside of
its usual procedures for mortgage loans held in its own portfolio the
Master Servicer shall, prior to executing
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and delivering such agreement, obtain the prior written consent of the
Certificate Insurer. The Mortgage Loan, if assumed, shall conform in all
respects to the requirements and representations and warranties of this
Agreement. The Master Servicer shall notify the Trustee that any
applicable assumption or substitution agreement has been completed by
forwarding to the Trustee the original copy of such assumption or
substitution agreement, which copy shall be added by the Trustee to the
related File and which shall, for all purposes, be considered a part of
such File to the same extent as all other documents and instruments
constituting a part thereof. The Master Servicer shall be responsible for
recording any such assumption or substitution agreements. In connection
with any such assumption or substitution agreement, the required monthly
payment on the related Mortgage Loan shall not be changed but shall remain
as in effect immediately prior to the assumption or substitution, the
stated maturity or outstanding principal amount of such Mortgage Loan shall
not be changed, the Coupon Rate shall not be changed nor shall any required
monthly payments of principal or interest be deferred or forgiven. Any fee
collected by the Master 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 Master Servicer as additional servicing
compensation.
Notwithstanding the foregoing paragraph or any other provision of
this Agreement, the Master Servicer shall not be deemed to be in default,
breach or any other violation of its obligations hereunder by reason of any
assumption of a Mortgage Loan by operation of law or any assumption which
the Master Servicer may be restricted by law from preventing, for any
reason whatsoever.
Section 8.14. Realization Upon Defaulted Mortgage Loans. (a)
-----------------------------------------
The Master Servicer shall foreclose upon or otherwise comparably effect the
ownership on behalf of the Trust of Properties relating to defaulted
Mortgage Loans as to which no satisfactory arrangements can be made for
collection of Delinquent payments and which the Master Servicer has not
purchased pursuant to Section 8.10. Unless the Master Servicer reasonably
believes that Net Liquidation Proceeds with respect to such Mortgage Loan
would not be increased as a result of such foreclosure or other action,
such Mortgage Loan will be charged-off and will become a Liquidated Loan.
The Master Servicer shall have no obligation to purchase any Property at
any foreclosure sale. In connection with such foreclosure or other
conversion, the Master Servicer shall exercise foreclosure procedures with
the same degree of care and skill in their exercise or use, as it would
ordinarily exercise or use under the circumstances in the conduct of their
own affairs.
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Any amounts including Liquidation Expenses, advanced by the Master Servicer
in connection with such foreclosure or other action shall constitute
"Servicing Advances" within the meaning of Section ______ hereof. [The
Master Servicer shall sell any REO Property within 23 months of its
acquisition by the Trust, unless the Master Servicer obtains for the
Trustee an opinion of counsel experienced in federal income tax matters,
addressed to the Trustee, the Certificate Insurer and the Master Servicer,
to the effect that the holding by the Trust of such REO Property for any
greater period will not result in the imposition of taxes on "Prohibited
Transactions" of the REMIC Trust as defined in Section 860F of the Code or
cause the Trust to fail to qualify as a REMIC under the REMIC Provisions at
any time that any Certificates are outstanding, in which case the Master
Servicer shall sell any REO Property by the end of any extended period
specified in any such opinion.]
Pursuant to its efforts to sell any RED Property, the Master
Servicer shall either itself or through an agent selected by the Master
Servicer shall manage, conserve, protect and operate 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 Master Servicer, rent the same, or any
part thereof, as the Master Servicer deems to be in the best interest of
the Master Servicer for the period prior to the sale of such REO Property.
The net income generated from the REO Property and the proceeds from a sale
of any REO Property shall be deposited in the Servicing Account.
(b) If the Master Servicer has reason to believe that a Property
which the Master Servicer is contemplating acquiring in foreclosure or by
deed in lieu of foreclosure contains environmental or hazardous waste risks
known to the Master Servicer, the Master Servicer shall notify the Trustee
prior to acquiring the Property. The Master Servicer shall not institute
foreclosure actions with respect to such a property if it reasonably
believes that such action would not be consistent with the Servicing
Standards, and in no event shall the Master Servicer be required to manage,
operate or take any other action with respect thereto which the Master
Servicer in good faith believes will result in "clean-up" or other
liability under applicable law, unless the Master Servicer receives an
indemnity acceptable to it in its sole discretion.
(c) The Master Servicer shall determine, with respect to each
defaulted Mortgage Loan, when it has recovered, whether through trustee's
sale, foreclosure sale or otherwise, all amounts if any it expects to
recover from or on account of such defaulted Mortgage Loan, whereupon such
Mortgage Loan shall become a "Liquidated Loan".
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(d) To the extent Net Proceeds exceed the sum of (i) the
Principal Balance of the related Mortgage Loan, (ii) accrued and unpaid
interest on such Mortgage Loan and (iii) any Supplemental Servicing Fees,
such amount shall either (x) be deposited as Collections in the Servicing
Account or (y) be paid over to the related Mortgagor if required by law.
(e) With respect to its obligations under this Section ___, the
Master Servicer shall take all such actions as it reasonably believes are
consistent with its Servicing Standards.
Section 8.15. Trustee to Cooperate; Release of Files. (a) Upon
--------------------------------------
the payment in full of any Mortgage Loan or the receipt by the Master
Servicer of a notification that payment in full will be escrowed in a
manner customary for such purposes, the Master Servicer shall deliver to
the Trustee a Master Servicer's Trust Receipt. Upon receipt of such Master
Servicer's Trust Receipt, the Trustee shall promptly release the related
File, in trust to (i) the Master Servicer, (ii) an escrow agent or (iii)
any employee, agent or attorney of the Trustee, in each case pending its
release by the Master Servicer, such escrow agent or such employee, agent
or attorney of the Trustee, as the case may be. Upon any such payment in
full, or the receipt of such notification that such funds have been placed
in escrow, the Master Servicer is authorized to give, as attorney-in-fact
for the Trustee and the mortgagee under the Mortgage which secured the
Note, an instrument of satisfaction (or assignment of Mortgage without
recourse) regarding the Property relating to such Mortgage, which
instrument of satisfaction or assignment, as the case may be, shall be
delivered to the Person or Persons entitled thereto against receipt
therefor of payment in full, it being understood and agreed that no expense
incurred in connection with such instrument of satisfaction or assignment,
as the case may be, shall be chargeable to the Servicing Account. In lieu
of executing any such satisfaction or assignment, as the case may be, the
Master Servicer may prepare and submit to the Trustee, a satisfaction (or
assignment without recourse, if requested by the Person or Persons entitled
thereto) in form for execution by the Trustee with all requisite
information completed by the Master Servicer; in such event, the Trustee
shall execute and acknowledge such satisfaction or assignment, as the case
may be, and deliver the same with the related File, as aforesaid.
(b) From time to time and as appropriate in the servicing of any
Mortgage Loan, including, without limitation, foreclosure or other
comparable conversion of a Mortgage Loan or collection under any applicable
Insurance Policy, the Trustee shall (except in the case of the payment or
liquidation pursuant to which the related File is released to
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an escrow agent or an employee, agent or attorney of the Trustee), upon
request of the Master Servicer and delivery to the Trustee of a Master
Servicer's Trust Receipt, release the related File to the Master Servicer
and shall execute such documents as shall be necessary to the prosecution
of any such proceedings, including, without limitation, an assignment
without recourse of the related Mortgage to the Master Servicer; provided
that there shall not be released and unreturned at any one time more than
10% of the entire number of Files. The Trustee shall complete in the name
of the Trustee any endorsement in blank on any Note prior to releasing such
Note to the Master Servicer. Such receipt shall obligate the Master
Servicer to return the File to the Trustee when the need therefor by the
Master Servicer no longer exists unless the Mortgage Loan shall be
liquidated, in which case, upon receipt of the liquidation information, in
physical or electronic form, the Master Servicer's Trust Receipt shall be
released by the Trustee to the Master Servicer.
(c) No costs associated with the procedures described in this
Section 8.15 shall be an expense of the Trust.
(d) The provisions set forth in Subsections (a) and (b) may be
superseded by any waiver of the Document Delivery Requirement as may be
given by the Certificate Insurer, Moody's and Standard & Poor's pursuant to
Section 3.5(j) hereof.
Section 8.16. Servicing Compensation. As compensation for its
----------------------
activities hereunder, the Master Servicer shall be entitled to retain the
amount of the Servicing Fee with respect to each Mortgage Loan. Additional
servicing compensation in the form of prepayment charges, release fees, bad
check charges, assumption fees, late payment charges, or any other
servicing-related fees, Net Liquidation Proceeds not required to be
deposited in the Principal and Interest Account pursuant to Section
8.10(c)(v) and similar items may, to the extent collected from Mortgagors,
be retained by the Master Servicer.
Section 8.17. Annual Statement as to Compliance. The Master
---------------------------------
Servicer, at its own expense, will deliver to the Trustee, Certificate
Insurer, Standard & Poor's and Moody's, on or before the last day of March
of each year, commencing in 1997, an Officer's Certificate stating, as to
each signer thereof, that (i) a review of the activities of the Master
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 Master Servicer
has fulfilled all its obligations under this Agreement for such
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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 Master
Servicer to remedy such defaults.
Section 8.18. Annual Independent Certified Public Accountants'
------------------------------------------------
Reports. On or before the last day of March of each year, commencing in
- -------
1997, the Master Servicer, at its own expense, shall cause to be delivered
to the Trustee, the Certificate Insurer, Standard & Poor's and Moody's a
letter or letters of Arthur Andersen & Co., or other firm of independent,
nationally recognized certified public accountants reasonably acceptable to
the Certificate Insurer stating that such firm has, with respect to the
Master Servicer's overall servicing operations (i) performed applicable
tests in accordance with the compliance testing procedures as set forth in
Appendix 3 of the Audit Guide for Audits of HUD Approved Nonsupervised
----------------------------------------------------
Mortgages or (ii) examined such operations in accordance with the
- ---------
requirements of the Uniform Single Audit Program for Mortgage Bankers, and
in either case stating such firm's conclusions relating thereto.
Section 8.19. Access to Certain Documentation and Information
-----------------------------------------------
Regarding the Mortgage Loans; Confidentiality. The Master Servicer shall
- ---------------------------------------------
provide to the Trustee, the Certificate Insurer, the FDIC and the
supervisory agents and examiners (as required in the latter case by
applicable State and federal regulations) of each of the foregoing access
to the documentation regarding the Mortgage Loans, such access being
afforded without charge but only upon reasonable request and during normal
business hours at the offices of the Master Servicer designated by it.
Upon any change in the format of the computer tape maintained by
the Master Servicer in respect of the Mortgage Loans, the Master Servicer
shall deliver a copy of such computer tape to the Trustee and in addition
shall provide a copy of such computer tape to the Trustee and the
Certificate Insurer at such other times as the Trustee or the Certificate
Insurer may reasonably request.
The Master Servicer shall keep confidential (including from
affiliates thereof) information concerning the Mortgage Loans, except as
required by law.
Section 8.20. Payment of Taxes, Insurance and Other Charges.
---------------------------------------------
(a) If any Mortgage Loan requires the Mortgagor to make any of the
payments specified below, the Master Servicer shall cause to be established
and maintained one or more Escrow Accounts, which shall be Eligible
Accounts, which may be interest-bearing, and shall deposit and retain
therein all
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collections received from Mortgagors for the payment of taxes, assessments,
fire, hazard, and flood insurance premiums (pursuant to Section 6 hereof),
and comparable items for the account of the Mortgagors pursuant to the
terms of the Mortgage and applicable federal and state laws. Withdrawal of
amounts so collected from a Mortgagor may be made only to (i) effect
payment of taxes, assessments, fire, hazard and flood insurance premiums,
and comparable items; (ii) reimburse the Master Servicer out of related
collections for any payments made for payment of taxes, assessments, fire,
hazard and flood insurance premiums, and comparable items; (iii) refund to
Mortgagors any sums as may be determined to be overpayments; (iv) pay
interest, if required, to Mortgagors, or otherwise to the Master Servicer,
on balances in the Escrow Accounts; (v) remove from the Escrow Accounts any
deposit made therein in error; or (vi) clear and terminate the Escrow
Accounts upon satisfaction of the related Mortgage as set forth in
Section 9 hereof or the termination of this Agreement. The Master Servicer
shall pay interest to the Mortgagors on funds collected and deposited in
the Escrow Accounts to the extent required by law; and to the extent that
interest earned on funds in the Escrow Accounts is insufficient to pay such
interest, the Master Servicer shall pay such interest from its own funds,
without any reimbursement therefor.
Section 8.21. Assignment of Agreement. The Master Servicer may
-----------------------
not assign its obligations under this Agreement, in whole or in part,
unless it shall have first obtained the written consent of the Trustee and
Certificate Insurer, which such consent shall not be unreasonably withheld;
provided, however, that any assignee must meet the eligibility requirements
- -------- -------
set forth in Section 8.22(g) hereof for a successor servicer. Notice of
any such assignment shall be given by the Master Servicer to the Trustee,
the Certificate Insurer and Moody's.
Section 8.22. Removal of Master Servicer; Resignation of Master
-------------------------------------------------
Servicer. (a) The Trustee with the consent of the Certificate Insurer, or
- --------
the Certificate Insurer (or the Owners pursuant to Section 6.11 hereof) may
remove the Master Servicer upon the occurrence of any of the following
events:
(i) The Master Servicer shall fail to deliver to the Trustee
any proceeds or required payment, which failure continues unremedied
for five Business Days following written notice to an Authorized
Officer of the Master Servicer from the Trustee or from any Owner.
(ii) The Master Servicer shall (I) apply for or consent to the
appointment of a receiver, trustee, liquidator or custodian or similar
entity with respect to
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itself or its property, (II) admit in writing its inability to pay its
debts generally as they become due, (III) make a general assignment
for the benefit of creditors, (IV) be adjudicated a bankrupt or
insolvent, (V) commence a voluntary case under the federal bankruptcy
laws of the United States of America or file a voluntary petition or
answer seeking reorganization, an arrangement with creditors or an
order for relief or seeking to take advantage of any insolvency law or
file an answer admitting the material allegations of a petition filed
against it in any bankruptcy, reorganization or insolvency proceeding
or (VI) take corporate action for the purpose of effecting any of the
foregoing;
(iii) If without the application, approval or consent of the
Master 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 Master 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 Master 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 Master 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
(iv) The Master Servicer shall fail to perform any one or more
of its obligations hereunder other than the obligations contemplated
by Subsection 8.22(i) above, and shall continue in default thereof for
a period of sixty (60) days after notice by the Trustee or the
Certificate Insurer of said failure; provided, however, that if the
-------- -------
Master Servicer can demonstrate to the reasonable satisfaction of the
Certificate Insurer that it is diligently pursuing remedial action,
then the cure period may be extended with the written approval of the
Certificate Insurer; or
(v) The Master Servicer shall fail to cure any breach of any
of its representations and warranties set forth in Section 3.2 which
materially and adversely affects the interests of the Owners or
Certificate Insurer for a period of thirty (30) days after the Master
Servicer's discovery or receipt of notice thereof;
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provided, however, that if the Master Servicer can demonstrate to the
-------- -------
reasonable satisfaction of the Certificate Insurer that it is
diligently pursuing remedial action, then the cure period may be
extended with the written approval of the Certificate Insurer.
(b) The Certificate Insurer also may remove the Master Servicer
upon the occurrence of any of the following events:
(i) a Group I Total Available Funds Shortfall or a Group II
Total Available Funds Shortfall; provided, however, that the
-------- -------
Certificate Insurer shall have no right to remove the Master Servicer
under this clause (i) if the Master Servicer can demonstrate to the
reasonable satisfaction of the Certificate Insurer that such event was
due to circumstances beyond the control of the Master Servicer; or
(ii) the failure by the Master Servicer to make any required
Servicing Advance; or
(iii) the failure by the Master Servicer to perform any one or
more of its obligations hereunder, which failure materially and
adversely affects the interests of the Certificate Insurer; or
(iv) the failure by the Master Servicer to make any required
Delinquency Advance or to pay any Compensating Interest; or
(v) if on any Payment Date the Pool Rolling Three-Month
Delinquency Rate exceeds ___%;
(vi) if on any Payment Date occurring in June of any year,
commencing in [June 1997], the aggregate Pool Cumulative Realized
Losses over the prior twelve month period exceed ____% of the average
Pool Principal Balance as of the close of business on the last day of
each of the twelve preceding Remittance Periods; or
(vii) (a) if on any Payment Date of the first sixty Payment
Dates after the Startup Day the aggregate Pool Cumulative Realized
Losses for all prior Remittance Periods since the Startup Day exceed
___% of the Original Aggregate Loan Balance and (b) if on any Payment
Date thereafter the aggregate Pool Cumulative Realized Losses for all
prior Remittance Periods since the Startup Day exceed _____% of the
Original Aggregate Loan Balance; provided, however, with respect to
-------- -------
clauses (v), (vi) and (vii), if the Servicer can demonstrate to the
reasonable satisfaction of the Certificate Insurer that any such event
was due to circumstances beyond the control of the
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Servicer, such event shall not be considered an event of termination of
the Servicer;
provided, however, that (x) prior to any removal of the Master Servicer by
- -------- -------
the Certificate Insurer pursuant to clauses (i), (ii) or (iii) of this
Section 8.22(b), the Master Servicer shall first have been given by the
Certificate Insurer and by registered or certified mail, notice of the
occurrence of one or more of the events set forth in clauses (i), (ii) or
(iii) above and the Master Servicer shall not have remedied, or shall not
have taken actions satisfactory to the Certificate Insurer to remedy, such
event or events within 30 days (60 days with respect to clause (iii)) after
the Master Servicer's receipt of such notice (provided, however, that if
-------- -------
the Master Servicer can demonstrate to the reasonable satisfaction of the
Certificate Insurer that it is diligently pursuing remedial action, then
the cure period in each case may be extended with the written approval of
the Certificate Insurer) and (y) in the event of the refusal or inability
of the Master Servicer to make any required Delinquency Advance or to pay
any Compensating Interest or Monthly Remittance, such removal shall be
effective (without the requirement of any action on the part of the
Certificate Insurer or of the Trustee) at 4 p.m. on the second Business Day
following the day on which the Trustee or the Certificate Insurer notifies
an Authorized Officer of the Master Servicer that a required Delinquency
Advance has not been received by the Trustee. Upon the Trustee's determi-
nation that a required Delinquency Advance or payment of Compensating
Interest has not been made by the Master Servicer, the Trustee shall so
notify in writing an Authorized Officer of the Master Servicer and the
Certificate Insurer as soon as is reasonably practical.
(c) The Master 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 Master Servicer so causing such a
conflict being of a type and nature carried on by the Master Servicer at
the date of this Agreement. Any such determination permitting the
resignation of the Master Servicer shall be evidenced by an opinion of
counsel to such effect which shall be delivered to the Trustee and the
Certificate Insurer.
(d) No removal or resignation of the Master Servicer shall
become effective until the Trustee or a successor servicer shall have
assumed the Master Servicer's responsibilities and obligations in
accordance with this Section. If no successor servicer is available, the
Trustee shall act as successor servicer and perform all of the obligations
of this Section, including, without limitation,
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making Delinquency Advances and paying Compensating Interest; provided,
--------
however, that the Trustee will not be obligated to act as successor
- -------
servicer if it is legally unable to perform its duties hereunder.
(e) Upon removal or resignation of the Master Servicer, the
Master Servicer also shall promptly deliver or cause to be delivered to a
successor servicer or the Trustee all the books and records (including,
without limitation, records kept in electronic form) that the Master
Servicer has maintained for the Mortgage Loans, including all tax bills,
assessment notices, insurance premium notices and all other documents as
well as all original documents then in the Master Servicer's possession.
(f) Any collections received by the Master Servicer after
removal or resignation shall be endorsed by it to the Trustee and remitted
directly and immediately to the Trustee or the successor Master Servicer.
(g) Upon removal or resignation of the Master Servicer, the
Trustee (x) may solicit bids for a successor servicer as described below,
and (y) pending the appointment of a successor Master Servicer as a result
of soliciting such bids, shall serve as Master Servicer. The Trustee
shall, if it is unable to obtain a qualifying bid and is prevented by law
from acting as Master Servicer, appoint, or petition a court of competent
jurisdiction to appoint, any housing and home finance institution, bank or
mortgage servicing institution which has shareholders' equity of not less
than $10,000,000, as determined in accordance with generally accepted
accounting principles, and acceptable to the Certificate Insurer as the
successor to the Master Servicer hereunder in the assumption of all or any
part of the responsibilities, duties or liabilities of the Master Servicer
hereunder. The compensation of any successor servicer (including, without
limitation, the Trustee) so appointed shall be the aggregate Servicing
Fees, together with the other servicing compensation in the form of
assumption fees, late payment charges or otherwise as provided in Sections
8.10 and 8.16; provided, however, that if the Trustee acts as successor
-------- -------
Master Servicer then the Sponsor agrees to pay to the Trustee at such time
that the Trustee becomes such successor Master Servicer a fee of twenty-
five dollars ($25.00) for each Mortgage Loan then included in the Trust
Estate. The Trustee shall be obligated to serve as successor Master
Servicer whether or not the $25.00 fee described in the preceding sentence
is paid by the Sponsor, but shall in any event be entitled to receive, and
to enforce payment of, such fee from the Sponsor.
(h) In the event the Trustee solicits bids as provided above,
the Trustee shall solicit, by public
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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 Master Servicer
shall be entitled to the full amount of the aggregate Servicing Fees as
servicing compensation, together with the other servicing compensation in
the form of assumption fees, late payment charges or otherwise as provided
in Sections 8.8 and 8.16. Within thirty days after any such public
announcement, the Trustee shall negotiate and effect the sale, transfer and
assignment of the servicing rights and responsibilities hereunder to the
qualified party submitting the highest satisfactory bid. The Trustee shall
deduct from any sum received by the Trustee from the successor to the
Master 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 shall be paid by the Trustee to
the Master Servicer at the time of such sale, transfer and assignment to
the Master Servicer's successor.
(i) The Trustee and such successor shall take such action,
consistent with this Agreement, as shall be necessary to effectuate any
such succession. The Master Servicer agrees to cooperate with the Trustee
and any successor Master Servicer in effecting the termination of the
Master Servicer's servicing responsibilities and rights hereunder and shall
promptly provide the Trustee or such successor Master Servicer, as
applicable, all documents and records reasonably requested by it to enable
it to assume the Master Servicer's functions hereunder and shall promptly
also transfer to the Trustee or such successor Master Servicer, as
applicable, all amounts which then have been or should have been deposited
in the Principal and Interest Account by the Master Servicer or which are
thereafter received with respect to the Mortgage Loans. Neither the
Trustee nor any other successor Master Servicer shall be held liable by
reason of any failure to make, or any delay in making, any distribution
hereunder or any portion thereof caused by (i) the failure of the Master
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 Master Servicer or (iii) any breaches of a
predecessor Servicer.
(j) The Trustee or any other successor Master Servicer, upon
assuming the duties of Master Servicer hereunder, shall immediately make
all Delinquency Advances and pay all Compensating Interest which the Master
Servicer has theretofore failed to remit with respect to the Mortgage
Loans; provided, however, that if the Trustee is acting as successor Master
-------- -------
Servicer, the Trustee shall only be required to make Delinquency Advances
(including the Delinquency
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Advances described in this clause (j)) if, in the Trustee's reasonable good
faith judgment, such Delinquency Advances will ultimately be recoverable
from the related Mortgage Loans.
(k) The Master Servicer which is being removed or is resigning
shall give notice to the Mortgagors and to Moody's and Standard & Poor's of
the transfer of the servicing to the successor.
(l) The Trustee shall give notice to the Certificate Insurer,
Moody's and Standard & Poor's and to the Owners of the occurrence of any
event specified in Section 8.22(a) of which the Trustee has knowledge.
Section 8.23. Inspections by Certificate Insurer; Errors and
----------------------------------------------
Omissions Insurance. (a) At any reasonable time and from time to time
- -------------------
upon reasonable notice, the Certificate Insurer, the Trustee, or any agents
or representatives thereof may inspect the Master Servicer's servicing
operations and discuss the servicing operations of the Master Servicer with
any of its officers or directors. The costs and expenses incurred by the
Master Servicer or its agents or representatives in connection with any
such examinations or discussions shall be paid by the Master Servicer.
(b) The Master Servicer agrees to maintain errors and omissions
coverage and a fidelity bond, each at least to the extent generally
maintained by prudent mortgage loan servicers having servicing portfolios
of a similar size.
Section 8.24. Merger, Conversion, Consolidation or Succession to
--------------------------------------------------
Business of Master Servicer. Any corporation into which the Master
- ---------------------------
Servicer 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 Master Servicer shall be a party, or any corporation
succeeding to all or substantially all of the business of the Master
Servicer, shall be the successor of the Master Servicer hereunder, without
the execution or filing of any paper or any further act on the part of any
of the parties hereto provided that such corporation meets the
qualifications set forth in Section 8.22(g).
Section 8.25. Notices of Material Events. The Master Servicer
--------------------------
shall give prompt notice to the Certificate Insurer, the Trustee, Moody's
and Standard & Poor's of the occurrence of any of the following events:
(a) Any default or any fact or event which results, or which
with notice or the passage of time, or both, would result in the occurrence
of a default by the Sponsor, any Originator or the Master Servicer under
any Transaction Document or would constitute a material breach of a
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representation, warranty or covenant under any Transaction Document;
(b) The submission of any claim or the initiation of any legal
process, litigation or administrative or judicial investigation against the
Sponsor or the Master Servicer in any federal, state or local court or
before any governmental body or agency, or before any arbitration board, or
any such proceedings threatened by any governmental agency, which, if
adversely determined, would have a material adverse effect upon any the
Sponsor's or the Master Servicer's ability to perform its obligations under
any Transaction Document;
(c) The commencement of any proceedings by or against the
Sponsor or the Master Servicer under any applicable bankruptcy,
reorganization, liquidation, insolvency or other similar law now or
hereafter in effect or of any proceeding in which a receiver, liquidator,
trustee or other similar official shall have been, or may be, appointed or
requested for the Sponsor or the Master Servicer; and
(d) The receipt of notice from any agency or governmental body
having authority over the conduct of any of the Sponsor's or the Master
Servicer's business that the Sponsor or the Master Servicer is to cease and
desist, or to undertake any practice, program, procedure or policy employed
by the Sponsor or the Master Servicer in the conduct of the business of any
of them, and such cessation or undertaking will materially adversely affect
the conduct of the Sponsor's or the Master Servicer's business or its
ability to perform under the Transaction Documents or materially adversely
affect the financial affairs of the Sponsor or the Master Servicer.
ARTICLE IX
TERMINATION OF TRUST
Section 9.1. Termination of Trust. The Trust created hereunder
--------------------
and all obligations created by this Agreement will terminate upon the
earlier of (i) the payment to the Owners of all Certificates from amounts
other than those available under the Certificate Insurance Policy of all
amounts held by the Trustee and required to be paid to such Owners pursuant
to this Agreement upon the later to occur of (a) the final payment or other
liquidation (or any advance made with respect thereto) of the last Mortgage
Loan in the Trust Estate or (b) the disposition of all property acquired in
respect of any Mortgage Loan remaining in the Trust Estate, (ii) at any
time when a Qualified Liquidation of the REMIC Trust is effected as
described below or (iii) as described in Section 9.2 or 9.3 hereof. To
effect a termination of this Agreement pursuant to clause (ii) above, the
Owners of all
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Certificates then Outstanding shall (x) unanimously direct the Trustee on
behalf of the Trust to adopt a plan of complete liquidation with respect to
the REMIC Trust, as contemplated by Section 860F(a)(4) of the Code and (y)
provide to the Trustee an opinion of counsel experienced in federal income
tax matters to the effect that such liquidation constitutes a Qualified
Liquidation, and the Trustee either shall sell the Mortgage Loans and
distribute the proceeds of the liquidation of the Trust Estate, or shall
distribute equitably in kind all of the assets of the Trust Estate to the
remaining Owners of the Certificates based on their interests in the Trust,
each in accordance with such plan, so that the liquidation or distribution
of the Trust Estate, the distribution of any proceeds of the liquidation
and the termination of this Agreement occur no later than the close of the
90th day after the date of adoption of the plan of liquidation and such
liquidation qualifies as a Qualified Liquidation. In no event, however,
will the Trust created by this Agreement continue beyond the expiration of
twenty-one (21) years from the death of the last survivor of the
descendants of Joseph P. Kennedy, the late Ambassador of the United States
to the United Kingdom, living on the date hereof. The Trustee shall give
written notice of termination of the Agreement to each Owner in the manner
set forth in Section 11.5.
Section 9.2. Termination Upon Option of Master Servicer.
------------------------------------------
(a) On any Remittance Date on or after the Clean-Up Call Date, the Master
Servicer acting directly or through one or more affiliates may determine to
purchase and may cause the purchase from the Trust of all (but not fewer
than all) Mortgage Loans in the Trust Estate and all property theretofore
acquired in respect of any such Mortgage Loan by foreclosure, deed in lieu
of foreclosure, or otherwise then remaining in the Trust Estate at a price
equal to the sum of (v) the greater of (i) 100% of the aggregate Loan
Balances of the related Mortgage Loans as of the day of purchase minus the
amount actually remitted by the Master Servicer representing the related
Monthly Principal Remittance Amount on such Remittance Date for the related
Remittance Period and (ii) the fair market value of such Mortgage Loans
(disregarding accrued interest), (w) the amount of any difference between
the related Monthly Interest Remittance Amount actually remitted by the
Master Servicer on such Remittance Date and the related Monthly Interest
Remittance Amount due on such Remittance Date, (x) the related
Reimbursement Amount, if any, as of such Remittance Date and (y) the
aggregate amount of any Delinquency Advances and Servicing Advances
remaining unreimbursed, together with any accrued and unpaid Servicing
Fees, as of such Remittance Date (such amount, the "Termination Price").
In connection with such purchase, the Master Servicer shall remit to the
Trustee all amounts then on deposit in the Principal and Interest Account
for deposit to
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the Certificate Account, which deposit shall be deemed to have occurred
immediately preceding such purchase.
(b) In connection with any such purchase, the Master Servicer
shall provide to the Trustee an opinion of counsel experienced in federal
income tax matters to the effect that such purchase constitutes a Qualified
Liquidation of the REMIC Trust.
(c) Promptly following any such purchase, the Trustee will
release the Files to the Master Servicer, or otherwise upon their order, in
a manner similar to that described in Section 8.14 hereof.
(d) If the Master Servicer does not exercise its option pursuant
to this Section 9.2 with respect to the Trust Estate, then the Certificate
Insurer may do so on the same terms.
Section 9.3. Termination Upon Loss of REMIC Status.
-------------------------------------
(a) Following a (x) 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 (y) if any
appeal is taken, following a final determination of such appeal from which
no further appeal can be taken, to the effect that the REMIC Trust does not
and will no longer qualify as a "REMIC" pursuant to Section 860D of the
Code (the "Final Determination") or (z) following the delivery of an
opinion of counsel ("REMIC Opinion") to the effect that the effect of the
Final Determination is to increase substantially the probability that the
REMIC Trust will no longer qualify as a "REMIC" pursuant to Section 860D of
the Code, on any Remittance Date on or after the date which is 30 calendar
days following such Final Determination, (i) the Owners of a majority in
Percentage Interest represented by the Class A Certificates then
Outstanding may direct the Trustee to adopt a plan of complete liquidation
with respect to the Trust Estate and (ii) the Certificate Insurer may
notify the Trustee of the Certificate Insurer's determination to purchase
from the Trust all (but not fewer than all) Mortgage Loans in the Trust
Estate and all property theretofore acquired by foreclosure, deed in lieu
of foreclosure, or otherwise in respect of any Mortgage Loan then remaining
in the Trust Estate at a price equal to the Termination Price. In
connection with such purchase, the Master Servicer shall remit to the
Trustee all amounts then on deposit in the Principal and Interest Account
for deposit in the Certificate Account, which deposit shall be deemed to
have occurred immediately preceding such purchase.
(b) Upon receipt of such direction from the Owners of such Class
A Certificates or such notice from the Certificate Insurer, the Trustee
shall notify the holders of
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the Residual Certificates of such election to liquidate or such
determination to purchase, as the case may be, (the "Termination Notice").
The Owner of a majority of the Percentage Interest of the Residual
Certificates then Outstanding may, on any Remittance Date, within 60 days
from the date of receipt of the Termination Notice (the "Purchase Option
Period"), at their option, purchase from the Trust all (but not fewer than
all) Mortgage Loans in the Trust Estate, and all property theretofore
acquired by foreclosure, deed in lieu of foreclosure, or otherwise in
respect of any Mortgage Loan then remaining in the Trust Estate at a
purchase price equal to the Termination Price.
(c) If, during the Purchase Option Period, the Owners of the
Residual Certificates have not exercised the option described in the
immediately preceding paragraph, then upon the expiration of the Purchase
Option Period (i) in the event that the Owners of the Class A Certificates
have given the Trustee the direction described in clause (a)(i) above, the
Trustee shall sell the Mortgage Loans and distribute the proceeds of the
liquidation of the Trust Estate, such that, if so directed, the liquidation
of the Trust Estate, the distribution of the proceeds of such liquidation
occur no later than the close of the 60th day, or such later day as the
Owners of the Class A Certificates shall permit or direct in writing, after
the expiration of the Purchase Option Period and (ii) in the event that the
Certificate Insurer has given the Trustee notice of the Certificate
Insurer's determination to purchase the Mortgage Loans in the Trust Estate
described in clause (a)(ii) preceding, the Certificate Insurer shall, on
any Remittance Date within 60 days, purchase all (but not fewer than all)
Mortgage Loans in the Trust Estate, and all property theretofore acquired
by foreclosure, deed in lieu of foreclosure or otherwise in respect of any
Mortgage Loan then remaining in the Trust Estate. In connection with such
purchase, the Master Servicer shall remit to the Trustee all amounts then
on deposit in the Principal and Interest Account for deposit to the
Certificate Account, which deposit shall be deemed to have occurred
immediately preceding such purchase.
(d) Following a Final Determination, the Owners of a majority of
the Percentage Interest of the Residual Certificates then Outstanding may,
at their option on any Remittance Date and upon delivery to the Owners of
the Class A Certificates and the Certificate Insurer of an opinion of
counsel experienced in federal income tax matters selected by the Owners of
such Residual Certificates which opinion shall be reasonably satisfactory
in form and substance to a majority of the Percentage Interests represented
by the Class A Certificates then Outstanding and the Certificate Insurer,
to the effect that the effect of the Final Determination is to increase
substantially the probability that the gross income of the REMIC Trust will
be subject to federal taxation,
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purchase from the Trust all (but not fewer than all) Mortgage Loans in the
Trust Estate, and all property theretofore acquired by foreclosure, deed in
lieu of foreclosure, or otherwise in respect of any Mortgage Loan then
remaining in the Trust Estate at a purchase price equal to the Termination
Price. In connection with such purchase, the Master Servicer shall remit
to the Trustee all amounts then on deposit in the Principal and Interest
Account for deposit to the Certificate Account, which deposit shall be
deemed to have occurred immediately preceding such purchase. The foregoing
opinion shall be deemed satisfactory unless the Owners of a majority of the
Percentage Interest represented by the Class A Certificates then
Outstanding or the Certificate Insurer give the Owners of a majority of the
Percentage Interest of the Residual Certificates notice that such opinion
is not satisfactory within thirty days after receipt of such opinion.
Section 9.4. Disposition of Proceeds. The Trustee shall, upon
-----------------------
receipt thereof, deposit the proceeds of any liquidation of the Trust
Estate pursuant to this Article IX to the Certificate Account; provided,
--------
however, that any amounts representing Servicing Fees, unreimbursed
- -------
Delinquency Advances or unreimbursed Servicing Advances theretofore funded
by the Master Servicer from the Master Servicer's own funds shall be paid
by the Trustee to the Master Servicer.
Section 9.5. Netting of Amounts. If any Person paying the
------------------
Termination Price would receive a portion of the amount so paid, such
Person may net any such amount against the Termination Price otherwise
payable.
ARTICLE X
THE TRUSTEE
Section 10.1. Certain Duties and Responsibilities.
-----------------------------------
(a) The Trustee (i) undertakes to perform such duties and only
such duties as are specifically set forth in this Agreement, and no implied
covenants or obligations shall be read into this Agreement against the
Trustee and (ii) in the absence of bad faith on its part, may conclusively
rely, as to the truth of the statements and the correctness of the opinions
expressed therein, upon certificates or opinions furnished pursuant to and
conforming to the requirements of this Agreement; but in the case of any
such certificates or opinions which by any provision hereof are
specifically required to be furnished to the Trustee, shall be under a duty
to examine the same to determine whether or not they conform to the
requirements of this Agreement.
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(b) Notwithstanding the appointment of the Master Servicer
hereunder, the Trustee is hereby empowered to perform the duties of the
Master Servicer hereunder whether following the failure of the Master
Servicer to perform, pursuant to Section 8.20 hereof or otherwise.
Specifically, and not in limitation of the foregoing, the Trustee shall
have the power:
(i) to collect Mortgagor payments;
(ii) to foreclose on defaulted Mortgage Loans;
(iii) to enforce due-on-sale clauses and to enter into assumption
and substitution agreements as permitted by Section 8.12
hereof;
(iv) to deliver instruments of satisfaction pursuant to Section
8.14;
(v) to make Delinquency Advances and Servicing Advances and to
pay Compensating Interest, and
(vi) to enforce the Mortgage Loans.
(c) No provision of this Agreement shall be construed to relieve
the Trustee from liability for its own negligent action, its own negligent
failure to act or its own willful misconduct, except that:
(i) this subsection shall not be construed to limit the effect
of subsection (a) of this Section;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by an Authorized Officer, unless it shall
be proved that the Trustee was negligent in ascertaining the
pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in
accordance with the direction of the Certificate Insurer or
of the Owners of a majority in Percentage Interest of the
Certificates of the affected Class or Classes and the
Certificate Insurer relating to the time, method and place
of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the
Trustee, under this Agreement relating to such Certificates.
(d) Whether or not therein expressly so provided, every
provision of this Agreement relating to the conduct or
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affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section.
(e) No provision of this Agreement shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder, or in the exercise of any
of its rights or powers, if it shall have reasonable grounds for believing
that repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured to it.
(f) The permissive right of the Trustee to take actions
enumerated in this Agreement shall not be construed as a duty and the
Trustee shall not be answerable for other than its own negligence or
willful misconduct.
(g) The Trustee shall be under no obligation to institute any
suit, or to take any remedial proceeding under this Agreement, or to take
any steps in the execution of the trusts hereby created or in the
enforcement of any rights and powers hereunder until it shall be
indemnified to its satisfaction against any and all costs and expenses,
outlays and counsel fees and other reasonable disbursements and against all
liability, except liability which is adjudicated to have resulted from its
negligence or willful misconduct, in connection with any action so taken.
The Trustee shall receive from the Sponsor promptly upon demand therefor,
reimbursement of expenses as are described in the fee quote letter, dated
___________, 1996 and executed by the Sponsor.
Section 10.2. Removal of Trustee for Cause. (a) The Trustee may
----------------------------
be removed pursuant to paragraph (b) hereof upon the occurrence of any of
the following events (whatever the reason for such event and whether it
shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule
or regulation of any administrative or governmental body):
(1) the Trustee shall fail to distribute to the Owners entitled
thereto on any Payment Date amounts available for distribution in
accordance with the terms hereof; or
(2) the Trustee shall fail in the performance of, or breach, any
covenant or agreement of the Trustee in this Agreement, or if any
representation or warranty of the Trustee made in this Agreement
or in any certificate or other writing delivered pursuant hereto
or in connection herewith shall prove to be incorrect in any
material respect as of the time when the same shall have been
made, and such failure or breach shall continue or not be
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cured for a period of 30 days after there shall have been given,
by registered or certified mail, to the Trustee by the Sponsor,
the Certificate Insurer or by the Owners of at least 25% of the
aggregate Percentage Interests represented by the Class A
Certificates then Outstanding, or, if there are no Class A
Certificates then Outstanding, by such Percentage Interests
represented by any Class of Class B Certificates, a written
notice specifying such failure or breach and requiring it to be
remedied; or
(3) a decree or order of a court or agency or supervisory authority
having jurisdiction for the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings, or
for the winding-up or liquidation of its affairs, shall have been
entered against the Trustee, and such decree or order shall have
remained in force undischarged or unstayed for a period of 75
days; or
(4) a conservator or receiver or liquidator or sequestrator or
custodian of the property of the Trustee is appointed in any
insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings of or relating to the Trustee
or relating to all or substantially all of its property; or
(5) the Trustee shall become insolvent (however insolvency is
evidenced), generally fail to pay its debts as they come due,
file or consent to the filing of a petition to take advantage of
any applicable insolvency or reorganization statute, make an
assignment for the benefit of its creditors, voluntarily suspend
payment of its obligations, or take corporate action for the
purpose of any of the foregoing.
The Sponsor shall give to Moody's and Standard & Poor's notice of
the occurrence of any such event of which the Sponsor is aware.
(b) If any event described in Paragraph (a) occurs and is
continuing, then and in every such case (i) the Certificate Insurer or (ii)
with the prior written consent (which shall not be unreasonably withheld)
of the Certificate Insurer (x) the Sponsor or (y) the Owners of a majority
of the Percentage Interests represented by the Class A Certificates, or, if
there are no Class A Certificates then Outstanding, by such Percentage
Interest represented by any Class of Class B
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Certificates then Outstanding may, whether or not the Trustee resigns
pursuant to Section 10.9 hereof, immediately, concurrently with the giving
of notice to the Trustee, and without delaying the 30 days required for
notice therein, appoint a successor Trustee pursuant to the terms of
Section 10.9 hereof.
Section 10.3. Certain Rights of the Trustee. Except as
-----------------------------
otherwise provided in Section 10.1 hereof:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent,
order, bond, note or other paper or document believed by it to be
genuine and to have been signed or presented by the proper party or
parties;
(b) any request or direction of the Sponsor, the Certificate
Insurer or the Owners of any Class of Certificates mentioned herein
shall be sufficiently evidenced in writing;
(c) whenever in the administration of this Agreement the Trustee
shall deem it desirable that a matter be proved or established prior
to taking, suffering or omitting any action hereunder, the Trustee
(unless other evidence be herein specifically prescribed) may, in the
absence of bad faith on its part, rely upon an Officer's Certificate;
(d) the Trustee may consult with counsel, and the written advice
of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reasonable reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Agreement at the request or
direction of any of the Owners pursuant to this Agreement, unless such
Owners shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, note or other paper or document, but the Trustee
in its discretion may make such further inquiry or investigation into
such facts or matters as it may see fit;
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(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed and supervised with due care by it hereunder; and
(h) the Trustee shall not be liable for any action it takes or
omits to take in good faith which it reasonably believes to be
authorized by the Authorized Officer of any Person or within its
rights or powers under this Agreement other than as to validity and
sufficiency of its authentication of the Certificates.
Section 10.4. Not Responsible for Recitals or Issuance of
-------------------------------------------
Certificates. The recitals contained herein and in the Certificates,
- ------------
except any such recitals relating to the Trustee, shall be taken as the
statements of the Sponsor and the Trustee assumes no responsibility for
their correctness. The Trustee makes no representation as to the validity
or sufficiency of this Agreement or of the Certificates other than as to
validity and sufficiency of its authentication of the Certificates.
Section 10.5. May Hold Certificates. The Trustee or any agent
---------------------
of the Trust, in its individual or any other capacity, may become an Owner
or pledgee of Certificates and may otherwise deal with the Trust with the
same rights it would have if it were not Trustee or such agent.
Section 10.6. Money Held in Trust. Money held by the Trustee in
-------------------
trust hereunder need not be segregated from other trust funds except to the
extent required herein or required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as
otherwise agreed with the Sponsor and except to the extent of income or
other gain on investments which are deposits in or certificates of deposit
of the Trustee in its commercial capacity and income or other gain actually
received by the Trustee on Eligible Investments.
Section 10.7. No Lien for Fees. The Trustee shall have no lien
----------------
on the Trust Estate for the payment of any fees and expenses.
Section 10.8. Corporate Trustee Required; Eligibility. There
---------------------------------------
shall at all times be a Trustee hereunder which shall be a corporation or
association organized and doing business under the laws of the United
States of America or of any State authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of at least
$100,000,000, subject to supervision or examination by the United States of
America or any such State
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having a rating or ratings acceptable to the Certificate Insurer and having
(x) long-term, unsecured debt rated at least A2 by Moody's (or such lower
rating as may be acceptable to Moody's) and (y) a long-term deposit rating
of at least A from Standard & Poor's (or such lower rating as may be
acceptable to Standard & Poor's). If such Trustee publishes reports of
condition at least annually, pursuant to law or to the requirements of the
aforesaid supervising or examining authority, then for the purposes of this
Section, the combined capital and surplus of such corporation or
association shall be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published. If at any time
the Trustee shall cease to be eligible in accordance with the provisions of
this Section, it shall, upon the request of the Sponsor with the consent of
the Certificate Insurer (which consent shall not be unreasonably withheld)
or of the Certificate Insurer, resign immediately in the manner and with
the effect hereinafter specified in this Article X.
Section 10.9. Resignation and Removal; Appointment of Successor.
-------------------------------------------------
(a) No resignation or removal of the Trustee and no appointment of a
successor trustee pursuant to this Article X shall become effective until
the acceptance of appointment by the successor trustee under Section 10.10
hereof.
(b) The Trustee, or any trustee or trustees hereafter appointed,
may resign at any time by giving written notice of resignation to the
Sponsor and by mailing notice of resignation by first-class mail, postage
prepaid, to the Certificate Insurer and the Owners at their addresses
appearing on the Register. A copy of such notice shall be sent by the
resigning Trustee to Moody's and Standard & Poor's. Upon receiving notice
of resignation, the Sponsor shall promptly appoint a successor trustee or
trustees by written instrument, in duplicate, executed on behalf of the
Trust by an Authorized Officer of the Sponsor, one copy of which instrument
shall be delivered to the Trustee so resigning and one copy to the
successor trustee or trustees. If no successor trustee shall have been
appointed and have accepted appointment within 30 days after the giving of
such notice of resignation, the resigning trustee may petition any court of
competent jurisdiction for the appointment of a successor trustee, or any
Owner may, on behalf of himself and all others similarly situated, petition
any such court for the appointment of a successor trustee. Such court may
thereupon, after such notice, if any, as it may deem proper and prescribe,
appoint a successor trustee.
(c) If at any time the Trustee shall cease to be eligible under
Section 10.8 hereof and shall fail to resign after written request therefor
by the Sponsor or by the Certificate Insurer, the Certificate Insurer or
the Sponsor
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with the written consent of the Certificate Insurer may remove
the Trustee and appoint a successor trustee by written instrument, in
duplicate, executed on behalf of the Trust by an Authorized Officer of the
Sponsor, one copy of which instrument shall be delivered to the Trustee so
removed and one copy to the successor trustee.
(d) The Owners of a majority of the Percentage Interests
represented by the Class A Certificates, or, if there are no Class A
Certificates then Outstanding, by such majority of the Percentage Interests
represented by any Class of Class B Certificates then Outstanding may at
any time remove the Trustee and appoint a successor trustee by delivering
to the Trustee to be removed, to the successor trustee so appointed, to the
Sponsor and to the Certificate Insurer, copies of the record of the act
taken by the Owners, as provided for in Section 11.3 hereof.
(e) If the Trustee fails to perform its duties in accordance
with the terms of this Agreement or becomes ineligible to serve as Trustee,
the Certificate Insurer may remove the Trustee and appoint a successor
trustee by written instrument, in triplicate, signed by the Certificate
Insurer duly authorized, one complete set of which instruments shall be
delivered to the Sponsor, one complete set to the Trustee so removed and
one complete set to the successor Trustee so appointed.
(f) If the Trustee shall resign, be removed or become incapable
of acting, or if a vacancy shall occur in the office of the Trustee for any
cause, the Sponsor shall promptly appoint a successor Trustee acceptable to
the Certificate Insurer. If within one year after such resignation,
removal or incapability or the occurrence of such vacancy, a successor
Trustee shall be appointed by act of the Owners of a majority of the
Percentage Interests represented by the Class A Certificates then
Outstanding or, if there are no Class A Certificates then Outstanding, by
such majority of the Percentage Interest of the Residual Certificates
delivered to the Sponsor and the retiring Trustee, the successor Trustee so
appointed shall forthwith upon its acceptance of such appointment become
the successor Trustee and supersede the successor Trustee appointed by the
Sponsor. If no successor Trustee shall have been so appointed by the
Sponsor or the Owners and shall have accepted appointment in the manner
hereinafter provided, any Owner may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee. Such court may thereupon, after such
notice, if any, as it may deem proper and prescribe, appoint a successor
Trustee.
(g) The Sponsor shall give notice of any removal of the Trustee
by mailing notice of such event by first-class
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mail, postage prepaid, to the Certificate Insurer and to the Owners as
their names and addresses appear in the Register. Each notice shall
include the name of the successor Trustee and the address of its corporate
trust office.
Section 10.10. Acceptance of Appointment by Successor Trustee.
----------------------------------------------
Every successor Trustee appointed hereunder shall execute, acknowledge and
deliver to the Sponsor on behalf of the Trust and to its predecessor
Trustee an instrument accepting such appointment hereunder and stating its
eligibility to serve as Trustee hereunder, and thereupon the resignation or
removal of the predecessor Trustee shall become effective and such
successor Trustee, without any further act, deed or conveyance, shall
become vested with all the rights, powers, trusts, duties and obligations
of its predecessor hereunder; but, on request of the Sponsor or the
successor Trustee, such predecessor Trustee shall, upon payment of its
charges then unpaid, execute and deliver an instrument transferring to such
successor Trustee all of the rights, powers and trusts of the Trustee so
ceasing to act, and shall duly assign, transfer and deliver to such
successor Trustee all property and money held by such Trustee so ceasing to
act hereunder. Upon request of any such successor Trustee, the Sponsor on
behalf of the Trust shall execute any and all instruments for more fully
and certainly vesting in and confirming to such successor Trustee all such
rights, powers and trusts.
Upon acceptance of appointment by a successor Trustee as provided
in this Section, the Sponsor shall mail notice thereof by first-class mail,
postage prepaid, to the Owners at their last addresses appearing upon the
Register. The Sponsor shall send a copy of such notice to Moody's and
Standard & Poor's. If the Sponsor fails to mail such notice within ten
days after acceptance of appointment by the successor Trustee, the
successor Trustee shall cause such notice to be mailed at the expense of
the Trust.
No successor Trustee shall accept its appointment unless at the
time of such acceptance such successor shall be qualified and eligible
under this Article X.
Section 10.11. Merger, Conversion, Consolidation or Succession
-----------------------------------------------
to Business of the Trustee. Any corporation or association into which the
- --------------------------
Trustee may be merged or converted or with which it may be consolidated, or
any corporation or association resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any corporation or
association succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
without the execution or filing of any paper or any further act on the part
of any of the parties hereto; provided, however, that such
-------- -------
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corporation or association shall be otherwise qualified and eligible under
this Article X. In case any Certificates have been executed, but not
delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such Trustee may adopt such execution and
deliver the Certificates so executed with the same effect as if such
successor Trustee had itself executed such Certificates.
Section 10.12. Reporting; Withholding. The Trustee shall timely
----------------------
provide to the Owners the Internal Revenue Service's Form 1099 and any
other statement required by applicable Treasury regulations as determined
by the Sponsor, and shall withhold, as required by applicable law, federal,
state or local taxes, if any, applicable to distributions to the Owners,
including but not limited to backup withholding under Section 3406 of the
Code and the withholding tax on distributions to foreign investors under
Sections 1441 and 1442 of the Code.
Section 10.13. Liability of the Trustee. The Trustee shall be
------------------------
liable in accordance herewith only to the extent of the obligations
specifically imposed upon and undertaken by the Trustee herein. Neither
the Trustee nor any of the directors, officers, employees or agents of the
Trustee shall be under any liability on any Certificate or otherwise to any
Account, the Sponsor, the Master Servicer or any Owner for any action taken
or for refraining from the taking of any action in good faith pursuant to
this Agreement, or for errors in judgment; provided, however, that this
-------- -------
provision shall not protect the Trustee or any such Person against any
liability which would otherwise be imposed by reason of negligent action,
negligent failure to act or bad faith in the performance of duties or by
reason of reckless disregard of obligations and duties hereunder. Subject
to the foregoing sentence, the Trustee shall not be liable for losses on
investments of amounts in any Account (except for any losses on obligations
on which the bank serving as Trustee is the obligor). In addition, the
Sponsor and Master Servicer covenant and agree to indemnify the Trustee,
and its officers, directors, employees and agents and when the Trustee is
acting as Master Servicer, the Master Servicer, and its officers,
directors, employees and agents from, and hold it harmless against, any and
all losses, liabilities, damages, claims or expenses (including legal fees
and expenses) other than those resulting from the negligence or bad faith
of the Trustee or the Master Servicer, respectively. The Trustee and any
director, officer, employee or agent of the Trustee may rely and shall be
protected in acting or refraining from acting in good faith on any
certificate, notice or other document of any kind prima facie properly
----- -----
executed and submitted by the Authorized Officer of any Person respecting
any matters arising hereunder.
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Section 10.14. Appointment of Co-Trustee or Separate Trustee.
---------------------------------------------
Notwithstanding any other provisions of this Agreement, at any time, for
the purpose of meeting any legal requirements of any jurisdiction in which
any part of the Trust Estate or Property may at the time be located, the
Master Servicer and the Trustee acting jointly shall have the power and
shall execute and deliver all instruments to appoint one or more Persons
approved by the Trustee and the Certificate Insurer to act as co-Trustee or
co-Trustees, jointly with the Trustee, of all or any part of the Trust
Estate or separate Trustee or separate Trustees of any part of the Trust
Estate, and to vest in such Person or Persons, in such capacity and for the
benefit of the Owners, such title to the Trust Estate, or any part thereof,
and, subject to the other provisions of this Section 10.14, such powers,
duties, obligations, rights and trusts as the Master Servicer and the
Trustee may consider necessary or desirable. If the Master Servicer shall
not have joined in such appointment within 15 days after the receipt by it
of a request so to do, or in the case any event indicated in Sections
8.22(a) or 8.22(b) shall have occurred and be continuing, the Trustee alone
shall have the power to make such appointment with the consent of the
Certificate Insurer. No co-Trustee or separate Trustee hereunder shall be
required to meet the terms of eligibility as a successor Trustee under
Section 10.8 and no notice to Owner of the appointment of any co-Trustee or
separate Trustee shall be required under Section 10.8.
Every separate Trustee and co-Trustee shall, to the extent
permitted, be appointed and act subject to the following provisions and
conditions:
(i) All rights, powers, duties and obligations conferred or
imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate Trustee or co-
Trustee jointly (it being understood that such separate Trustee or co-
Trustee is not authorized to act separately without the Trustee
joining in such act), except to the extent that under any law of any
jurisdiction in which any particular act or acts are to be performed
(whether as Trustee hereunder or as successor to the Master Servicer
hereunder), the Trustee shall be incompetent or unqualified to perform
such act or acts, in which event such rights, powers, duties and
obligations (including the holding of title to the Trust Estate or any
portion thereof in any such jurisdiction) shall be exercised and
performed singly by such separate Trustee or co-Trustee, but solely at
the direction of the Trustee;
(ii) No co-Trustee hereunder shall be held personally liable
by reason of any act or omission of any other co-Trustee hereunder;
and
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(iii) The Master Servicer and the Trustee acting jointly may at
any time accept the resignation of or remove any separate Trustee or
co-Trustee.
Any notice, request or other writing given to the Trustee shall
be deemed to have been given to each of the then separate Trustees and co-
Trustees, as effectively as if given to each of them. Every instrument
appointing any separate Trustee or co-Trustee shall refer to this Agreement
and the conditions of this Section 10.14. Each separate Trustee and co-
Trustee, upon its acceptance of the trusts conferred, shall be vested with
the estates or property specified in its instrument of appointment, either
jointly with the Trustee or separately, as may be provided therein, subject
to all the provisions of this Agreement, specifically including every
provision of this Agreement relating to the conduct of, affecting the
liability of, or affording protection to, the Trustee. Every such
instrument shall be filed with the Trustee and a copy thereof given to the
Master Servicer.
Any separate Trustee or co-Trustee may, at any time, constitute
the Trustee, its agent or attorney-in-fact, with full power and authority,
to the extent not prohibited by law, to do any lawful act under or in
respect of this Agreement on its behalf and in its name. If any separate
Trustee or co-Trustee shall die, become incapable of acting, resign or be
removed, all of its estates, properties, rights, remedies and trusts shall
vest in and be exercised by the Trustee, to the extent permitted by law,
without the appointment of a new or successor Trustee.
The Trustee shall give to Moody's, the Sponsor and the
Certificate Insurer notice of the appointment of any Co-Trustee or separate
Trustee.
ARTICLE XI
MISCELLANEOUS
Section 11.1. Compliance Certificates and Opinions. Upon any
------------------------------------
application or request by the Sponsor, the Certificate Insurer or the
Owners to the Trustee to take any action under any provision of this
Agreement, the Sponsor, the Certificate Insurer or the Owners, as the case
may be, shall furnish to the Trustee a certificate stating that all
conditions precedent, if any, provided for in this Agreement relating to
the proposed action have been complied with, except that in the case of any
such application or request as to which the furnishing of any documents is
specifically required by any provision of this Agreement relating to such
particular application or request, no additional certificate need be
furnished.
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Except as otherwise specifically provided herein, each
certificate or opinion with respect to compliance with a condition or
covenant provided for in this Agreement shall include:
(a) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based; and
(c) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
Section 11.2. Form of Documents Delivered to the Trustee. In
------------------------------------------
any case where several matters are required to be certified by, or covered
by an opinion of, any specified Person, it is not necessary that all such
matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but
one such Person may certify or give an opinion with respect to some matters
and one or more other such Persons as to other matters, and any such Person
may certify or give an opinion as to such matters in one or several
documents.
Any certificate of an Authorized Officer of the Trustee may be
based, insofar as it relates to legal matters, upon an opinion of counsel,
unless such Authorized Officer knows, or in the exercise of reasonable care
should know, that the opinion is erroneous. Any such certificate of an
Authorized Officer of the Trustee or any opinion of counsel may be based,
insofar as it relates to factual matter upon a certificate or opinion of,
or representations by, one or more Authorized Officers of the Sponsor or of
the Master Servicer, stating that the information with respect to such
factual matters is in the possession of the Sponsor or of the Master
Servicer, unless such Authorized Officer or counsel knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to such matters are erroneous. Any opinion of
counsel may also be based, insofar as it relates to factual matters, upon a
certificate or opinion of, or representations by, an Authorized Officer of
the Trustee, stating that the information with respect to such matters is
in the possession of the Trustee, unless such counsel knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to such matters are erroneous. Any opinion of
counsel may be based on the written opinion of other counsel, in which
event such opinion of
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counsel shall be accompanied by a copy of such other counsel's opinion and
shall include a statement to the effect that such counsel believes that
such counsel and the Trustee may reasonably rely upon the opinion of such
other counsel.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or
other instruments under this Agreement, they may, but need not, be
consolidated and form one instrument.
Section 11.3. Acts of Owners. (a) Any request, demand,
--------------
authorization, direction, notice, consent, waiver or other action provided
by this Agreement to be given or taken by the Owners may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed
by such Owners in person or by an agent duly appointed in writing; and,
except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Trustee,
and, where it is hereby expressly required, to the Sponsor and/or the
Certificate Insurer. Such instrument or instruments (and the action
embodied therein and evidenced thereby) are herein sometimes referred to as
the "act" of the Owners signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any such agent
shall be sufficient for any purpose of this Agreement and conclusive in
favor of the Trustee and the Trust, if made in the manner provided in this
Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by the certificate of any notary public or other officer
authorized by law to take acknowledgments of deeds, certifying that the
individual signing such instrument or writing acknowledged to him the
execution thereof. Whenever such execution is by an officer of a
corporation or a member of a partnership on behalf of such corporation or
partnership, such certificate or affidavit shall also constitute sufficient
proof of his authority.
(c) The ownership of Certificates shall be proved by the
Register.
(d) Any request, demand, authorization, direction, notice,
consent, waiver or other action by the Owner of any Certificate shall bind
the Owner of every Certificate issued upon the registration of transfer
thereof or in exchange therefor or in lieu thereof, in respect of anything
done, omitted or suffered to be done by the Trustee or the Trust in
reliance thereon, whether or not notation of such action is made upon such
Certificates.
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Section 11.4. Notices, etc. to Trustee. Any request, demand,
------------------------
authorization, direction, notice, consent, waiver or act of the Owners or
other documents provided or permitted by this Agreement to be made upon,
given or furnished to, or filed with the Trustee by any Owner, the
Certificate Insurer or by the Sponsor shall be sufficient for every purpose
hereunder if made, given, furnished or filed in writing to or with and
received by the Trustee at its corporate trust office as set forth in
Section 2.2 hereof.
Section 11.5. Notices and Reports to Owners; Waiver of Notices.
------------------------------------------------
Where this Agreement provides for notice to Owners of any event or the
mailing of any report to Owners, such notice or report shall be
sufficiently given (unless otherwise herein expressly provided) if mailed,
first-class postage prepaid, to each Owner affected by such event or to
whom such report is required to be mailed, at the address of such Owner as
it appears on the Register, not later than the latest date, and not earlier
than the earliest date, prescribed for the giving of such notice or the
mailing of such report. In any case where a notice or report to Owners is
mailed in the manner provided above, neither the failure to mail such
notice or report nor any defect in any notice or report so mailed to any
particular Owner shall affect the sufficiency of such notice or report with
respect to other Owners, and any notice or report which is mailed in the
manner herein provided shall be conclusively presumed to have been duly
given or provided.
Where this Agreement provides for notice in any manner, such
notice may be waived in writing by any Person entitled to receive such
notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Owners shall be filed with
the Trustee, but such filing shall not be a condition precedent to the
validity of any action taken in reliance upon such waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be
impractical to mail notice of any event to Owners when such notice is
required to be given pursuant to any provision of this Agreement, then any
manner of giving such notice as shall be satisfactory to the Trustee shall
be deemed to be a sufficient giving of such notice.
Where this Agreement provides for notice to any rating agency
that rated any Certificates, failure to give such notice shall not affect
any other rights or obligations created hereunder.
Section 11.6. Rules by Trustee and Sponsor. The Trustee may
----------------------------
make reasonable rules for any meeting of Owners.
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The Sponsor may make reasonable rules and set reasonable requirements for
its functions.
Section 11.7. Successors and Assigns. All covenants and
----------------------
agreements in this Agreement by any party hereto shall bind its successors
and assigns, whether so expressed or not.
Section 11.8. Severability. In case any provision in this
------------
Agreement or in the Certificates shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
Section 11.9. Benefits of Agreement. Nothing in this Agreement
---------------------
or in the Certificates, expressed or implied, shall give to any Person,
other than the Owners, the Certificate Insurer and the parties hereto and
their successors hereunder, any benefit or any legal or equitable right,
remedy or claim under this Agreement.
Section 11.10. Legal Holidays. In any case where the date of
--------------
any Remittance Date, any Payment Date, any other date on which any
distribution to any Owner is proposed to be paid, or any date on which a
notice is required to be sent to any Person pursuant to the terms of this
Agreement shall not be a Business Day, then (notwithstanding any other
provision of the Certificates or this Agreement) payment or mailing need
not be made on such date, but may be made on the next succeeding Business
Day with the same force and effect as if made or mailed on the nominal date
of any such Remittance Date, such Payment Date, or such other date for the
payment of any distribution to any Owner or the mailing of such notice, as
the case may be, and no interest shall accrue for the period from and after
any such nominal date, provided such payment is made in full on such next
succeeding Business Day.
Section 11.11. Governing Law. In view of the fact that Owners
-------------
are expected to reside in many states and outside the United States and the
desire to establish with certainty that this Agreement will be governed by
and construed and interpreted in accordance with the law of a state having
a well-developed body of commercial and financial law relevant to
transactions of the type contemplated herein, this Agreement and each
Certificate shall be construed in accordance with and governed by the laws
of the State of New York applicable to agreements made and to be performed
therein.
Section 11.12. Counterparts. This instrument may be executed in
------------
any number of counterparts, each of which so executed shall be deemed to be
an original, but all such
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<PAGE>
counterparts shall together constitute but one and the same instrument.
Section 11.13. Usury. The amount of interest payable or paid on
-----
any Certificate under the terms of this Agreement shall be limited to an
amount which shall not exceed the maximum nonusurious rate of interest
allowed by the applicable laws of the State of New York or any applicable
law of the United States permitting a higher maximum nonusurious rate that
preempts such applicable New York laws, which could lawfully be contracted
for, charged or received (the "Highest Lawful Rate"). In the event any
payment of interest on any Certificate exceeds the Highest Lawful Rate, the
Trust stipulates that such excess amount will be deemed to have been paid
to the Owner of such Certificate as a result of an error on the part of the
Trustee acting on behalf of the Trust and the Owner receiving such excess
payment shall promptly, upon discovery of such error or upon notice thereof
from the Trustee on behalf of the Trust, refund the amount of such excess
or, at the option of such Owner, apply the excess to the payment of
principal of such Certificate, if any, remaining unpaid. In addition, all
sums paid or agreed to be paid to the Trustee for the benefit of Owners of
Certificates for the use, forbearance or detention of money shall, to the
extent permitted by applicable law, be amortized, prorated, allocated and
spread throughout the full term of such Certificates.
Section 11.14. Amendment. (a) The Trustee, the Sponsor and the
---------
Master Servicer, may at any time and from time to time, with the prior
written approval of the Certificate Insurer but without the giving of
notice to or the receipt of the consent of the Owners, amend this
Agreement, and the Trustee shall consent to such amendment, for the purpose
of (i) curing any ambiguity, or correcting or supplementing any provision
hereof which may be inconsistent with any other provision hereof, or to add
provisions hereto which are not inconsistent with the provisions hereof,
(ii) upon receipt of an opinion of counsel experienced in federal income
tax matters to the effect that no entity-level tax will be imposed on the
REMIC Trust or upon the transferor of a Class R Certificate as a result of
the ownership of any Class R Certificate by a Disqualified Organization,
removing the restriction on transfer set forth in Section 5.8(b) hereof or
(iii) complying with the requirements of the Code and the regulations
proposed or promulgated thereunder; provided, however, that any such action
-------- -------
shall not, as evidenced by an opinion of counsel delivered to the Trustee,
materially and adversely affect the interests of any Owner (without its
written consent).
(b) The Trustee, the Sponsor and the Master Servicer may, at any
time and from time to time, with the
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prior written approval of the Certificate Insurer but without the giving of
notice to or the receipt of the consent of the Owners, amend this
Agreement, and the Trustee shall consent to such amendment, for the purpose
of changing the definition of "Specified Subordinated Amount" with respect
to any Mortgage Loan Group; provided, however, that no such change shall
-------- -------
affect the weighted average life of the related Class of Class A
Certificates (assuming an appropriate prepayment speed as determined by the
Underwriter) by more than five percent, as determined by the Underwriter.
(c) This Agreement may also be amended by the Trustee, the
Sponsor, and the Master Servicer at any time and from time to time, with
the prior written approval of the Certificate Insurer and not less than a
majority of the Percentage Interest represented by each affected Class of
Certificates then Outstanding, for the purpose of adding any provisions 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 hereunder;
provided, however, that no such amendment shall (a) change in any manner
- -------- -------
the amount of, or change the timing of, payments which are required to be
distributed to any Owner without the consent of the Owner of such
Certificate, (b) reduce the aforesaid percentages of Percentage Interests
which are required to consent to any such amendments or (c) result in a
down-rating or withdrawal of any ratings then assigned to the Class A
Certificates, without the consent of the Owners of all Certificates of the
Class or Classes affected then Outstanding.
(d) Each proposed amendment to this Agreement shall be
accompanied by an opinion of counsel nationally recognized in federal
income tax matters addressed to the Trustee and to the Certificate Insurer
to the effect that such amendment would not adversely affect the status of
the REMIC Trust as a REMIC.
(e) The Certificate Insurer, the Owners, Moody's and Standard &
Poor's shall be provided with copies of any amendments to this Agreement,
together with copies of any opinions or other documents or instruments
executed in connection therewith.
Section 11.15. REMIC Status; Taxes. (a) The Tax Matters Person
-------------------
shall prepare and file or cause to be filed with the Internal Revenue
Service Federal tax or information returns with respect to the REMIC Trust
and the Certificates containing such information and at the times and in
such manner as may be required by the Code or applicable Treasury
regulations, and shall furnish to Owners such statements or information at
the times and in such manner as may be required thereby. For this purpose,
the Tax Matters Person may, but need not, rely on any proposed regulations
of the United
155
<PAGE>
States Department of the Treasury. The Tax Matters Person shall indicate
the election to treat the REMIC Trust as a REMIC (which election shall
apply to the taxable period ending December 31, 1996 and each calendar year
thereafter) in such manner as the Code or applicable Treasury regulations
may prescribe. The Trustee, as Tax Matters Person appointed pursuant to
Section 11.17 hereof shall sign all tax information returns filed pursuant
to this Section 11.15. The Tax Matters Person shall provide information
necessary for the computation of tax imposed on the transfer of a Class R
Certificate to a Disqualified Organization, or an agent of a Disqualified
Organization, or a pass-through entity in which a Disqualified Organization
is the record holder of an interest. The Tax Matters Person shall provide
the Trustee with copies of any Federal tax or information returns filed, or
caused to be filed, by the Tax Matters Person with respect to the REMIC
Trust or the Certificates.
(b) The Tax Matters Person shall timely file all reports
required to be filed by the Trust with any federal, state or local
governmental authority having jurisdiction over the Trust, including other
reports that must be filed with the Owners, such as the Internal Revenue
Service's Form 1066 and Schedule Q and the form required under Section
6050K of the Code, if applicable to REMICs. Furthermore, the Tax Matters
Person shall report to Owners, if required, with respect to the allocation
of expenses pursuant to Section 212 of the Code in accordance with the
specific instructions to the Tax Matters Person by the Sponsor with respect
to such allocation of expenses. The Tax Matters Person shall collect any
forms or reports from the Owners determined by the Sponsor to be required
under applicable federal, state and local tax laws.
(c) The Tax Matters Person shall provide to the Internal Revenue
Service and to persons described in Section 860E(e)(3) and (6) of the Code
the information described in Proposed Treasury Regulation Section 1.860D-
1(b)(5)(ii), or any successor regulation thereto. Such information will be
provided in the manner described in Proposed Treasury Regulation Section
1.860E(2)(a)(5), or any successor regulation thereto.
(d) The Sponsor covenants and agrees that within ten Business
Days after the Startup Day it shall provide to the Trustee any information
necessary to enable the Trustee to meet its obligations under subsections
(b) and (c) above.
(e) The Trustee, the Sponsor and the Master Servicer each
covenants and agrees for the benefit of the Owners (i) to take no action
which would result in the termination of "REMIC" status for the REMIC
Trust, (ii) not to engage in any "prohibited transaction", as such term is
defined in Section 860F(a)(2) of the Code and (iii) not to
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<PAGE>
engage in any other action which may result in the imposition on the REMIC
Trust of any other taxes under the Code.
(f) The REMIC Trust shall, for federal income tax purposes,
maintain books on a calendar year basis and report income on an accrual
basis.
(g) Except as otherwise permitted by Section 7.6(b), no Eligible
Investment shall be sold prior to its stated maturity (unless sold pursuant
to a plan of liquidation in accordance with Article IX hereof).
(h) Neither the Sponsor nor the Trustee shall enter into any
arrangement by which the Trustee will receive a fee or other compensation
for services rendered pursuant to this Agreement, which fee or other
compensation is paid from the Trust Estate, other than as expressly
contemplated by this Agreement.
(i) Notwithstanding the foregoing clauses (g) and (h), the
Trustee or the Sponsor may engage in any of the transactions prohibited by
such clauses, provided that the Trustee shall have received the prior
written consent of the Certificate Insurer and an opinion of counsel
experienced in federal income tax matters to the effect that such
transaction does not result in a tax imposed on the Trustee or cause a
termination of REMIC status for the REMIC Trust; provided, however, that
-------- -------
such transaction is otherwise permitted under this Agreement.
Section 11.16. Additional Limitation on Action and Imposition of
-------------------------------------------------
Tax. (a) Any provision of this Agreement to the contrary notwithstanding,
- ---
the Trustee shall not, without having obtained an opinion of counsel
experienced in federal income tax matters to the effect that such
transaction does not result in a tax imposed on the Trust or cause a
termination of REMIC status for the REMIC Trust, (i) sell any assets in the
Trust Estate, (ii) accept any contribution of assets after the Startup Day
or (iii) agree to any modification of this Agreement.
(b) In the event that any tax is imposed on "prohibited
transactions" of the REMIC Trust as defined in Section 860F(a)(2) of the
Code, on the "net income from foreclosure property" as defined in Section
860G(c) of the Code, on any contribution to the REMIC Trust after the
Startup Day pursuant to Section 860G(d) of the Code, or any other tax
(other than any minimum tax imposed by Sections 23151(a) or 23153(a) of the
California Revenue and Taxation Code) is imposed, such tax shall be paid by
(i) the Trustee, if such tax arises out of or results from a breach by the
Trustee of any of its obligations under this Agreement, (ii) the Master
Servicer, if such tax arises out of or results from a breach
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<PAGE>
by the Master Servicer of any of its obligations under this Agreement, or
otherwise (iii) the Owners of the Residual Certificates in proportion to
their Percentage Interests. To the extent such tax is chargeable against
the Owners of the Residual Certificates, notwithstanding anything to the
contrary contained herein, the Trustee is hereby authorized to retain from
amounts otherwise distributable to the Owners of the Residual Certificates
on any Payment Date sufficient funds to reimburse the Trustee for the
payment of such tax (to the extent that the Trustee has not been previously
reimbursed or indemnified therefor).
Section 11.17. Appointment of Tax Matters Person. The Owners of
---------------------------------
the Residual Certificates hereby appoint the Trustee as their agent to act
as the Tax Matters Person for REMIC Trust for all purposes of the Code and
such Tax Matters Person will perform, or cause to be performed, such duties
and take, or cause to be taken, such actions as are required to be
performed or taken by the Tax Matters Person under the Code.
Section 11.18. The Certificate Insurer. The Certificate Insurer
-----------------------
is a third-party beneficiary of this Agreement. Any right conferred to the
Certificate Insurer shall be suspended during the continuance of a
Certificate Insurer Default. During the continuance of a Certificate
Insurer Default the Certificate Insurer's rights hereunder shall vest in
the Owners of the Class A Certificates and shall be exercisable by the
Owners of at least a majority in Percentage Interest of the Class A
Certificates then Outstanding or, if there are no Class A Certificates then
Outstanding, by at least a majority of the Class B Certificates then
Outstanding. At such time as the Class A Certificates are no longer
Outstanding hereunder and the Certificate Insurer has been reimbursed for
all Insured Payments to which it is entitled hereunder, the Certificate
Insurer's rights hereunder shall terminate.
Section 11.19. Maintenance of Records. Each Originator and
----------------------
Owner of a Class R Certificate shall each continuously keep an original
executed counterpart of this Agreement in its official records.
Section 11.20. 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 Trustee: Bankers Trust Company
-----------
of California, N.A.
3 Park Plaza
Irvine, CA 92714
Attention: Advanta 1996-1
Tel: (714) 253-7575
Fax: (714) 253-7577
The Sponsor: Accredited Home Lenders, Inc.
-----------
15030 Avenue of Science
Suite 100
San Diego, CA 92128
Attention:
Tel: (619) 451-7044
The Master
-----------
Servicer: Accredited Home Lenders, Inc.
--------
15030 Avenue of Science
Suite 100
San Diego, CA 92128
Attention:
Tel: (619) 451-7044
The Certificate
Insurer : Financial Guaranty Insurance
---------------
Company
115 Broadway
New York, New York 10006
Attention: Risk Management
Tel: (212) 312-3000
Fax: (212) 312-3090
with a copy to the General Counsel
Moody's: Moody's Investors Service
-------
99 Church Street
New York, New York 10007
Attention: The Home Equity
Monitoring
Department
Standard & Poor's: Standard & Poor's Corporation
-----------------
26 Broadway
15th Floor
New York, New York 10004
Attention: Surveillance Dept.
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<PAGE>
Underwriters: Lehman Brothers Inc., as
------------
Representative of the
Underwriters
Three World Financial Center
New York, New York 10285
160
<PAGE>
IN WITNESS WHEREOF, the Sponsor, the Master Servicer and the
Trustee have caused this Agreement to be duly executed by their respective
officers thereunto duly authorized, all as of the day and year first above
written.
ACCREDITED HOME LENDERS, INC.
as Sponsor
By:
-----------------------------
ACCREDITED HOME LENDERS, INC.
as Master Servicer
By:
-----------------------------
BANKERS TRUST COMPANY OF
CALIFORNIA, N.A., as Trustee
By:
-----------------------------
[Pooling and Servicing Agreement]
161
<PAGE>
STATE OF CALIFORNIA )
: ss.:
COUNTY OF __________ )
On the __th day of ___, 1996, before me personally came
_______________, to me known, who, being by me duly sworn, did depose and
say that his address is c/o Accredited Home Lenders, Inc. 15030 Avenue of
Science, Suite 100, San Diego, California 92128; that he is the
______________ of each of ______________________________ which are
described in and which executed the above instrument; and that he signed
his name thereto by order of the respective Board of Directors of said
corporations.
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
162
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the __th day of May, 1996, before me personally came
___________ to me known, who, being by me duly sworn did depose and say
that her office is located at Three Park Plaza, Irvine, California 92714;
that she is an ______________ _________ of Bankers Trust Company of
California, N.A., the national banking corporation described in and that
executed the above instrument as Trustee; and that she signed her name
thereto under authority granted by the Board of Directors of said national
banking association.
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
163
EXHIBIT 4.2
- --------------------------------------------------------------------------------
ACCREDITED MORTGAGE LOAN TRUST 199_-_
Class A-1 [Floating Rate] Mortgage Backed Notes
Class A-2 [Floating Rate] Mortgage Backed Notes
------------------------------
INDENTURE
Dated as of _____________, 199__
-------------------------------
_______________________
Indenture Trustee
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I Definitions and Incorporation by Reference . . . . . . . . . 2
------------------------------------------
SECTION 1.1 (a) Definitions . . . . . . . . . . . . . . . . . . . 2
SECTION 1.2 Incorporation by Reference of Trust
Indenture Act . . . . . . . . . . . . . . . . . . . . . 11
SECTION 1.3 Rules of Construction . . . . . . . . . . . . . . . . . 11
SECTION 1.4 Calculations of Interest . . . . . . . . . . . . . . . 12
ARTICLE II The Notes . . . . . . . . . . . . . . . . . . . . . . . . . 12
---------
SECTION 2.1 Form . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 2.2 Execution, Authentication and Delivery . . . . . . . . 12
SECTION 2.3 Temporary Notes . . . . . . . . . . . . . . . . . . . . 13
SECTION 2.4 Registration; Registration of Transfer
Exchange . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 2.5 Mutilated, Destroyed, Lost or Stolen Notes . . . . . . 15
SECTION 2.6 Persons Deemed Owner . . . . . . . . . . . . . . . . . 16
SECTION 2.7 Payment of Principal and Interest; Defaulted Interest . 16
SECTION 2.8 Cancellation . . . . . . . . . . . . . . . . . . . . . 17
SECTION 2.9 Release of Collateral . . . . . . . . . . . . . . . . . 17
SECTION 2.10 Book-Entry Notes . . . . . . . . . . . . . . . . . . . 18
SECTION 2.11 Notices to Clearing Agency . . . . . . . . . . . . . . 19
SECTION 2.12 Definitive Notes . . . . . . . . . . . . . . . . . . . 19
ARTICLE III Covenants . . . . . . . . . . . . . . . . . . . . . . . . . 19
---------
SECTION 3.1 Payment of Principal and Interest . . . . . . . . . . . 19
SECTION 3.2 Maintenance of Office or Agency . . . . . . . . . . . . 20
SECTION 3.3 Money for Payments To Be Held in Trust . . . . . . . . 20
SECTION 3.4 Existence . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 3.5 Protection of Trust Estate . . . . . . . . . . . . . . 22
SECTION 3.6 Opinions as to Trust Estate . . . . . . . . . . . . . . 23
SECTION 3.7 Performance of Obligations; Servicing of Mortgage
Loans . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 3.8 Negative Covenants . . . . . . . . . . . . . . . . . . 26
SECTION 3.9 Annual Statement as to Compliance . . . . . . . . . . . 26
SECTION 3.10 Issuer May Consolidate, etc., Only on Certain Term . . 27
SECTION 3.11 Successor or Transferee . . . . . . . . . . . . . . . . 29
SECTION 3.12 No Other Business . . . . . . . . . . . . . . . . . . . 29
SECTION 3.13 No Borrowing . . . . . . . . . . . . . . . . . . . . . 29
SECTION 3.14 Servicer's Obligations . . . . . . . . . . . . . . . . 29
SECTION 3.15 Guarantees, Loans, Advances and Other Liabilities . . . 29
SECTION 3.16 Capital Expenditures . . . . . . . . . . . . . . . . . 29
SECTION 3.17 Removal of Administrator . . . . . . . . . . . . . . . 30
SECTION 3.18 Restricted Payments . . . . . . . . . . . . . . . . . . 30
i
<PAGE>
SECTION 3.19 Notice of Events of Default . . . . . . . . . . . . . . 30
SECTION 3.20 Further Instruments and Acts . . . . . . . . . . . . . 30
ARTICLE IV Satisfaction and Discharge . . . . . . . . . . . . . . . . . 30
--------------------------
SECTION 4.1 Satisfaction and Discharge of Indenture . . . . . . . . 30
SECTION 4.2 Application of Trust Money . . . . . . . . . . . . . . 32
SECTION 4.3 Repayment of Moneys Held by Paying Agent . . . . . . . 32
ARTICLE V Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . 32
--------
SECTION 5.1 Events of Default . . . . . . . . . . . . . . . . . . . 32
SECTION 5.2 Acceleration of Maturity; Rescission and Annulment . . 33
SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by
Indenture Trustee . . . . . . . . . . . . . . . . . . . 34
SECTION 5.4 Remedies; Priorities . . . . . . . . . . . . . . . . . 37
SECTION 5.5 Optional Preservation of the Mortgage Loans . . . . . . 38
SECTION 5.6 Limitation of Suits . . . . . . . . . . . . . . . . . . 38
SECTION 5.7 Unconditional Rights of Noteholders To Receive
Principal and Interest . . . . . . . . . . . . . . . . 39
SECTION 5.8 Restoration of Rights and Remedies . . . . . . . . . . 39
SECTION 5.9 Rights and Remedies Cumulative . . . . . . . . . . . . 40
SECTION 5.10 Delay or Omission Not a Waiver . . . . . . . . . . . . 40
SECTION 5.11 Control by Noteholders . . . . . . . . . . . . . . . . 40
SECTION 5.12 Waiver of Past Defaults . . . . . . . . . . . . . . . . 41
SECTION 5.13 Undertaking for Costs . . . . . . . . . . . . . . . . . 41
SECTION 5.14 Waiver of Stay or Extension Laws . . . . . . . . . . . 41
SECTION 5.15 Action on Notes . . . . . . . . . . . . . . . . . . . . 42
SECTION 5.16 Performance and Enforcement of Certain Obligations . . 42
ARTICLE VI Indenture Trustee . . . . . . . . . . . . . . . . . . . . . 43
-----------------
SECTION 6.1 Duties of Indenture Trustee . . . . . . . . . . . . . . 43
SECTION 6.2 Rights of Indenture Trustee . . . . . . . . . . . . . . 45
SECTION 6.3 Individual Rights of Indenture Trustee . . . . . . . . 45
SECTION 6.4 Indenture Trustee's Disclaimer . . . . . . . . . . . . 45
SECTION 6.5 Notice of Defaults . . . . . . . . . . . . . . . . . . 46
SECTION 6.6 Reports by Indenture Trustee to Holders . . . . . . . . 46
SECTION 6.7 Compensation and Indemnity . . . . . . . . . . . . . . 46
SECTION 6.8 Replacement of Indenture Trustee . . . . . . . . . . . 47
SECTION 6.9 Successor Indenture Trustee by Merger . . . . . . . . . 48
SECTION 6.10 Appointment of Co-Trustee or Separate Trustee . . . . . 48
SECTION 6.11 Eligibility; Disqualification . . . . . . . . . . . . . 50
SECTION 6.12 Preferential Collection of Claims Against Issuer . . . 50
ARTICLE VII Noteholders' Lists and Reports . . . . . . . . . . . . . . . 50
------------------------------
SECTION 7.1 Issuer to Furnish Indenture Trustee Names and Addresses
to Noteholders . . . . . . . . . . . . . . . . . . . . 50
ii
<PAGE>
SECTION 7.2 Preservation of Information; Communications to
Noteholders . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 7.3 Reports by Issuer . . . . . . . . . . . . . . . . . . . 51
SECTION 7.4 Reports by Indenture Trustee . . . . . . . . . . . . . 51
ARTICLE VIII Accounts, Disbursements and Releases . . . . . . . . . . . . 52
------------------------------------
SECTION 8.1 Collection of Money . . . . . . . . . . . . . . . . . . 52
SECTION 8.2 Trust Accounts . . . . . . . . . . . . . . . . . . . . 52
SECTION 8.3 General Provisions Regarding Accounts . . . . . . . . . 53
SECTION 8.4 Release of Trust Estate . . . . . . . . . . . . . . . . 54
SECTION 8.5 Opinion of Counsel . . . . . . . . . . . . . . . . . . 54
ARTICLE IX Supplemental Indentures . . . . . . . . . . . . . . . . . . 55
-----------------------
SECTION 9.1 Supplemental Indentures Without Consent of Noteholders 55
SECTION 9.2 Supplemental Indentures with Consent of Noteholders . . 56
SECTION 9.3 Execution of Supplemental Indentures . . . . . . . . . 58
SECTION 9.4 Effect of Supplemental Indenture . . . . . . . . . . . 58
SECTION 9.5 Conformity with Trust Indenture Act . . . . . . . . . . 58
SECTION 9.6 Reference in Notes to Supplemental Indentures . . . . . 59
ARTICLE X Redemption of Notes . . . . . . . . . . . . . . . . . . . . 59
-------------------
SECTION 10.1 Redemption . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 10.2 Form of Redemption Notice . . . . . . . . . . . . . . . 59
SECTION 10.3 Notes Payable on Redemption Date . . . . . . . . . . . 60
ARTICLE XI Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . 60
-------------
SECTION 11.1 Compliance Certificates and Opinions, etc. . . . . . . 60
SECTION 11.2 Form of Documents Delivered to Indenture Trustee . . . 62
SECTION 11.3 Acts of Noteholders . . . . . . . . . . . . . . . . . . 63
SECTION 11.4 Notices, etc., to Indenture Trustee, Issuer and Rating
Agencies . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 11.5 Notices to Noteholders; Waiver . . . . . . . . . . . . 64
SECTION 11.6 Alternate Payment and Notice Provisions . . . . . . . . 65
SECTION 11.7 Conflict with Trust Indenture Act . . . . . . . . . . . 65
SECTION 11.8 Effect of Headings and Table of Contents . . . . . . . 65
SECTION 11.9 Successors and Assigns . . . . . . . . . . . . . . . . 66
SECTION 11.10 Separability . . . . . . . . . . . . . . . . . . . . . 66
SECTION 11.11 Benefits of Indenture . . . . . . . . . . . . . . . . . 66
SECTION 11.12 Legal Holidays . . . . . . . . . . . . . . . . . . . . 66
SECTION 11.13 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . 66
SECTION 11.14 Counterparts . . . . . . . . . . . . . . . . . . . . . 66
SECTION 11.15 Recording of Indenture . . . . . . . . . . . . . . . . 66
SECTION 11.16 Trust Obligation . . . . . . . . . . . . . . . . . . . 67
SECTION 11.17 No Petition . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 11.18 Inspection . . . . . . . . . . . . . . . . . . . . . . 67
iii
<PAGE>
EXHIBITS
Testimonium, Signatures and Seals
Acknowledgments
Exhibit A Schedule of Mortgage Loans
Exhibit B Form of Pooling and Servicing Agreement
Exhibit C Form of Depository Agreement
Exhibit D Form of [Class A-1] Note
Exhibit E Form of [Class A-2] Note
Exhibit F Form of Transferee Certificate
iv
<PAGE>
This INDENTURE dated as of _____________, 199_, between ACCREDITED
MORTGAGE LOAN TRUST 199_-_, a Delaware business trust (the "Issuer"), and
_________________________, a [New York] banking corporation, solely 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 Holders of the Issuer's Class A-1
[Floating Rate] Mortgage Backed Notes (the "Class A-1 Notes", Class A-2
[Floating Rate] Mortgage Backed Notes (the "Class A-2 Notes") and Class B
Mortgage Backed Notes (the "Class B Notes") (collectively, the "Notes"):
GRANTING CLAUSE
The Issuer hereby Grants to the Indenture Trustee at the Closing Date,
as trustee for the benefit of the Holders of the Notes, all of the Issuer's
right, title and interest in and to (a) the Mortgage Loans and all moneys due
thereon on or after the Cut-off Date; (b) the security interests in the Mortgage
Property granted by Obligors pursuant to the Mortgage Loans and any other
interest of the Issuer in the Mortgage Loans; (c) any proceeds with respect to
the Mortgage Loans from claims on any physical damage, credit life or disability
insurance policies covering Mortgage Loans or Obligors; (d) the Contribution
Agreement, including the right assigned to the Issuer to cause Accredited to
repurchase Mortgage Loans from the Sponsor under certain circumstances; (e) all
funds on deposit from time to time in the Trust Accounts, including the Reserve
Account Initial Deposit, and in all investments and proceeds thereof (including
all income thereon); (f) the Pooling and Servicing Agreement (including all
rights of the Sponsor under the Contribution Agreement assigned to the Issuer
pursuant to the Pooling and Servicing Agreement); and (g) all present and future
claims, demands, causes and chooses 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, 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
(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.
1
<PAGE>
The Indenture Trustee, as Indenture Trustee on behalf of the Holders of the
Notes, acknowledges such Grant, and accepts the trusts under this Indenture in
accordance with the provisions of this Indenture for the use and benefit of such
Holders.
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 see forth below for all purposes of this Indenture.
"Accredited" means Accredited Home Lenders, Inc., a California
----------
corporation, and its successor.
"Act" has the meaning specified in Section 11.3(a).
---
"Affiliate" means, 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.
"Authorized Officer" means, 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,
containing the specimen signature of each such Person, 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).
"Basic Documents" means the Certificate of Trust, the Trust Agreement,
---------------
the Contribution Agreement, the Pooling and Servicing Agreement, the Depository
Agreement and other documents and certificates delivered in connection
therewith.
"Book Entry Notes" means a beneficial interest in the Notes, ownership
----------------
and transfers of which shall be made through book entries by a Clearing Agency
as described in Section 2.10.
"Business Day" means any day other than a Saturday, Sunday or a day on
------------
which banking institutions or trust companies in the City of New York are
authorized or obligated by law, regulation or executive order to remain closed.
"Certificate" has the meaning assigned to it in the Trust Agreement.
-----------
2
<PAGE>
"Certificate of Trust" means the certificate of trust of the Issuer
--------------------
substantially in the form of Exhibit A to the Trust Agreement.
"[Class A-1] Note" means a [Class A-1] [Floating Rate] Mortgage Backed
----------------
Note, substantially in the form of Exhibit D.
"[Class A-l] Note Interest Rate" means, for a Payment Date, [the
------------------------------
lesser of (i) LIBO for such Payment Date minus __% and (ii)] __%; provided that
if the weighted average Net APR for the Mortgage Loans during the Collection
Period immediately preceding such Payment Date is less than the interest rate
computed without giving effect to this proviso, then the [Class A-1] Note
Interest Rate for such Payment Date shall not exceed such weighted average Net
APR.
"[Class A-2] Note" means a [Class A-2] [Floating Rate] Mortgage Backed
----------------
Note, substantially in the form of Exhibit E.
"[Class A-2] Note Interest Rate" means, for a Payment Date, [the
------------------------------
lesser of (i) LIBO for such Payment Date plus and (ii)] __%; provided that if
the weighted average Net APR or the Mortgage Loans during the Collection Period
immediately receding such Payment Date is less than the interest rate computed
without giving effect to this proviso plus [0.25]%, then the [Class A-2] Note
Interest Rate for such Payment Date shall not exceed such weighted average Net
APR less [0.25]%.
"Clearing Agency" means an organization registered as a "clearing
---------------
agency" pursuant to Section 17A of the Exchange Act.
"Clearing Agency Participant" means 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" means ___________________, 199_.
------------
"Code" means the Internal Revenue Code of 1986, as amended from time
----
to time, and Treasury Regulations Promulgated thereunder.
"Collateral" has the meaning specified in the granting Clause of this
----------
Indenture.
"Corporate Trust Office" means the principal office of the Indenture
----------------------
Trustee at which at any particular time its corporate trust business shall be
administered which office to date of the execution of this Agreement is located
at
-----------------------------------------------------------------------------
, Attention: Corporate Trustee Administration; or at
- -------------------------
such other address as the Indenture Trustee may designate from time to time by
notice to the Noteholders and the Issuer, or the principal corporate trust
office of any
3
<PAGE>
successor Indenture Trustee (the addresses of which the successor Indenture
Trustee will notify the Noteholders and the Issuer).
"Default" means any occurrence that is, or with notice or the lapse of
-------
time or both would become, an Event of Default.
"Definitive Notes" has the meaning specified in Section 2.10.
----------------
"Depository Agreement" means the agreement among the Issuer, the
--------------------
Indenture Trustee, and The Depository Trust Company, as the initial Clearing
Agency, dated as of the Closing Date, substantially in the form of Exhibit C.
"Event of Default" has the meaning specified in Section 5.1.
----------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Executive Officer" means, with respect to any corporation, and Chief
-----------------
Executive Officer, Chief Operating Officer, Chief Financial Officer, President,
Executive Vice President, any Vice President, the Secretary or the Treasurer of
such corporation; and with respect to any partnership, any general partner
thereof.
"Grant" means 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 hereunder or with respect thereto.
"Holder" or "Noteholder" means the Person in whose name a [Class A-1]
------ ----------
Note or a [Class A-2] Note is registered on the Note Register.
"Indenture" means this Indenture as amended or supplemented from time
---------
to time.
"Indenture Trustee" means __________________, a [New York] banking
-----------------
corporation, as Indenture Trustee under this Indenture, or any successor
Indenture Trustee under this Indenture.
4
<PAGE>
"Independent" means, when used with respect to any specified Person,
-----------
that the Person (a) is in fact independent of the Issuer, any other obligor upon
the Notes, the Sponsor 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 Sponsor or any Affiliate of
any of the foregoing Persons and (c) is not connected with the Issuer, any such
other obligor, the Sponsor 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" means 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, 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" means Accredited Mortgage Loan 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" means 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.
["LIBO" with respect to any Payment Date shall be established by the
----
Indenture Trustee and shall equal the arithmetic mean (rounded upwards, if
necessary, to the nearest one-sixteenth of a percent) of the offered rates for
United States dollar deposits for three months which appear on the Reuters
Screen LIBO Page (as defined below) as of 11:00 A.M., London time, on the second
LIBO Business Day prior to the immediately preceding Payment Date (or the
Closing Date in the case of the first Payment Date); provided that at least two
such offered rates appear on the Reuters Screen LIBO Page on such date. If
fewer than two offered rates appear, LIBO will be determined on such date as
described in the paragraph below. "Reuters Screen LIBO Page" means the display
designated as page "LIBO" on the Reuters Monitor Money Rates Service (or such
other page as may replace the LIBO page on that service for the purpose of
displaying London inter-bank offered rates of major banks). "LIBO Business Day"
is a day that is both a Business Day and a day on which banking institutions in
the City of London, England are not required or authorized by law to be closed.
If on such date fewer than two offered rates appear on the Reuters
Screen LIBO Page, the Indenture Trustee will request of each of the Reference
Banks (which shall be major banks that are engaged in transactions in the London
inter-bank market,
5
<PAGE>
selected by the Indenture Trustee after consultation with the Sponsor) to
provide the Indenture Trustee with its offered quotation for United States
dollar deposits for three months to prime banks in the London inter-bank market
as of 11:00 A.M., London time, on such date. If at least two Reference Banks
provide the Indenture Trustee with such offered quotations, LIBO on such date
will be the arithmetic mean (rounded upwards, if necessary, to the nearest
one-sixteenth of a percent) of all such quotations. If on such date fewer than
two of the Reference Banks provide the Indenture Trustee with such an offered
quotation, LIBO on such date will be the arithmetic mean (rounded upwards, if
necessary, to the nearest one-sixteenth of a percent) of the offered per annum
rates which one or more leading banks in the City of New York selected by the
Indenture Trustee (after consultation with the Sponsor) are quoting as of 11:00
A.M., New York City time, on such date to leading European banks for United
States dollar deposits for one month, provided, however, that if such banks are
not quoting as described above, LIBO will be the LIBO applicable to the
immediately preceding Payment Date.]
"Net APR" means, with respect to a Mortgage Loan, its APR less the
-------
Servicing Fee Rate.
"Note Interest Rate" means the per annum interest rate borne by a
------------------
Note.
"Note Owner" means, with respect to a Book-Entry Note, the Person who
----------
is the owner of such Book-Entry Note, as reflected all 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).
"Note Register" and "Note Registrar" have the respective meanings
------------- --------------
specified in Section 2.4.
"Notes" means the [Class A-l] Notes and the [Class A-2] Notes.
-----
"Officers' Certificate" means 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. Unless otherwise specified, any reference in this
Indenture to an Officers' Certificate shall be to an Officers' Certificate of
any Authorized Officer of the Issuer.
"Opinion of Counsel" means 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 acceptable to the Indenture Trustee,
and which opinion or opinions shall be addressed to the Indenture Trustee as
Indenture Trustee, and shall comply with ny applicable requirements of Section
11.1.
6
<PAGE>
"Outstanding" means, as of the date of determination, all Notes
-----------
theretofore authenticated and delivered under this Indenture except:
(i) Notes theretofore cancelled 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 wi.h the Indenture Trustee or
any Paying Agent in trust for the Holders 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 therefor, satisfactory to the Indenture
Trustee): and
(iii) Notes in exchange for or in lieu of other Notes which 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 Holders of the requisite Outstanding
- --------
Amount of the Notes have given any request, demand, authorization, direction,
notice, consent or waiver hereunder or under any Basic Document, Notes owned by
the Issuer, any Sponsor obligor upon the Notes, the Sponsor 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 Sponsor or any Affiliate of any of the foregoing Persons.
"Outstanding Amount" means the aggregate principal amount of all
------------------
Notes, or a Class of Notes, as applicable, Outstanding at the date of
determination.
"Owner Trustee" means not in its individual
------------- ------------------------
capacity but solely as Owner Trustee under the Agreement, or any successor Owner
Trustee under the Agreement.
"Paying Agent" means the Indenture Trustee, [Indenture Trustee] or any
------------
Person that meets the eligibility standards for the Indenture Trustee specified
in Section 6.11 a authorized by the Issuer to make the payments to and
distributions from the Collection Account and the Note Distribution Account,
including payment of principal of or interest on the Notes on behalf of the
Issuer.
"Payment Date" means the _th day of each and [___________________,
------------
______________, and ______________], or, if
7
<PAGE>
any such date is not a Business Day, the next succeeding Business Day,
commencing ______________, 199__.
"Person" means any individual, corporation, estate, partnership, joint
------
venture, association, joint stock company, (including any beneficiary thereof),
unincorporated organization or government or any agency or political subdivision
thereof.
"Pooling and Servicing Agreement" means the Pooling and Servicing
-------------------------------
Agreement dated as of __________, 199_ among the Issuer, the Sponsor and the
Servicer, in the form of Exhibit B.
"Predecessor Note" means, 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 2.5 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" means any suit in equity, action at law other judicial or
----------
administrative proceeding.
"Rating Agency" means [Moody's], [Standard & Poor's] and [Duff &
-------------
Phelps]. 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 Issuer, notice of which designation
shall be given to the Indenture Trustee, Owner Trustee and the Servicer.
"Rating Agency Condition" means, with respect to any action, that each
-----------------------
Rating Agency shall have been given [10] days or notice thereof and that each of
the Rating Agencies will have notified the Sponsor, the Servicer 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" means, with respect to a Payment Date Redemption Date,
-----------
the close of business on the [fourteenth] day or of the calendar month in which
such Payment Date or Redemption Date occurs.
"Redemption Date" means the Payment Date specified by the Servicer or
---------------
the Issuer pursuant to Section 10.1(a) or , as applicable.
"Redemption Price" means (a) in the case of a redemption of the Notes
----------------
pursuant to Section 10.1(a), an amount equal to the principal amount of the
Notes redeemed plus accrued and unpaid interest thereon at the related Note
Interest Rate to but excluding the Redemption Date, or (b) in the case of a
payment made to Noteholders pursuant to Section 10.1(b), the amount on deposit
in the Note Distribution Account, but not in excess of the amount specified in
clause (a) above.
8
<PAGE>
"Registered Holder" means the Person in whose name a Note is
-----------------
registered on the Note Register on the applicable Record Date.
"Responsible Officer" means, with respect to the Indenture Trustee,
-------------------
any officer within the Corporate Trust Office of the Indenture Trustee,
including any Vice President, Assistant Vice President, Secretary, 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.
"Schedule of Mortgage Loans" means the listing of the Mortgage Loans
--------------------------
set forth in Exhibit A (which Exhibit may be in form of microfiche).
"State" means any one of the 50 states of the United States of America
-----
or the District of Columbia.
"Successor Servicer" has the meaning specified in Section 3.7(e).
------------------
"Trust Estate" means all money, instruments, rights and other property
------------
that are subject or intended to be subject the lien and security interest of
this Indenture for the benefit of the Noteholders (including, without
limitation, all property and interests Granted to the Indenture Trustee),
including all proceeds thereof.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939
------------------- ---
as in force on the date hereof, unless otherwise specifically provided.
"UCC" means, 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, the following terms have the respective meanings set forth in
the Pooling and Servicing Agreement as in effect on the Closing Date for all
purposes of this Indenture, and the definitions of such terms are equally
applicable both to the singular and plural forms of such terms:
9
<PAGE>
Term Section of Pooling and
----
Servicing Agreement
-------------------
APR Section 1.1
Certificate Section 1.1
Certificateholders Section 1.1
[Class A-2] Final Section 1.1
Scheduled Payment Date
Collection Account Section 1.1
Collection Period Section 1.1
Contract Section 1.1
Cut-off Date Section 1.1
Dealers Section 1.1
Depositor Section 1.1
[Duff & Phelps Section 1.1]
Eligible Deposit Account Section 1.1
Eligible Investments Section 1.1
Fitch Section 1.1
Moody's Section 1.1
Mortgage Loans Section 1.1
Note Distribution Account Section 1.1
Noteholders Distributable Amount Section 1.1
Obligor Section 1.1
Pool Balance Section 1.1
Contribution Agreement Section 1.1
Purchased Receivable Section 1.1
Recoveries Section 1.1
Reserve Account Section 1.1
Reserve Account Initial Deposit Section 1.1
Sponsor Section 1.1
Servicer Section 1.1
Servicer Default Section 1.1
Servicing Fee Rate Section 1.1
10
<PAGE>
Term Section of Pooling and
----
Servicing Agreement
-------------------
Specified Reserve Account Balance Section 1.1
Standard & Poor's Section 1.1
Total Distribution Amount Section 1.1
Transfer Date Section 1.1
Trust Accounts Section 1.1
Trust Agreement Section 1.1
SECTION 1.2 Incorporation by Reference of Trust Indenture Act.
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Whenever this Indenture refers to a provision the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used this Indenture have the following meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means 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 by 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
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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;
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(iv) "including" means "including without limitation"; and
(v) words in the singular include the plural and words in the plural
include the singular.
SECTION 1.4 Calculations of Interest. All calculations of interest
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made hereunder shall be made on the is of a year of 360 days, in each case for
the actual number of days in the period for which such interest is payable.
ARTICLE II
The Notes
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SECTION 2.1 Form. The [Class A-1] and [Class A-2] Notes, in each
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case together with the Indenture Trustee's certificate of authentication, shall
be in substantially the forms set forth in Exhibits D and E, respectively, 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 of the Notes. 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 methods (with or without steel
engraved borders), all determined by the officers executing such Notes, as
evidenced by their execution of such Notes.
Each Note shall be dated the date of its authentication. The terms of
the Notes set forth in Exhibits are part of the terms of this Indenture.
SECTION 2.2 Execution, Authentication and Delivery. The Notes shall
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be executed on behalf of the Issuer by any of its Authorized Officers. The
signature of any such Authorized Officer on the Notes may be manual or
facsimile.
Notes bearing the manual or facsimile signature of individual's who
were at any time Authorized Officers of the Issuer shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior
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to the authentication and delivery of such Notes or did not hold such offices at
the date of such Notes.
The Indenture Trustee shall upon Issuer Order authenticate and deliver
[Class A-1] Notes for original issue in an aggregate principal amount of
$____________________ and [Class A-2] Notes for an original issue in an
aggregate principal amount of $______________. The aggregate principal amount
of [Class A-1] and [Class A-2] Notes outstanding at any time may not exceed such
amounts, respectively, except as provided Section 2.5.
Each Note shall be dated the date of its authentication. The Notes
shall be issuable as registered the minimum denomination of $ and in
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integral multiples 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 Temporary Notes. Pending the preparation of definitive
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Notes, the Issuer may execute, and upon receipt of an Issuer Order the Indenture
Trustee shall authenticate and deliver, temporary Notes which are printed,
lithographed, typewritten, mimeographed or otherwise produced, of the tenor of
the definitive Notes in lieu of which they are issued and with such variations
not inconsistent with the terms of this Indenture as the officers executing such
notes may determine, as evidenced by their execution of such Notes.
If temporary Notes are issued, the Issuer will cause definitive Notes
to be prepared without unreasonable delay. After preparation of definitive
Notes, the temporary Notes shall be exchangeable for definitive Notes upon
surrender of the temporary Notes at the office or agency of the Issuer to be
maintained as provided in Section 3.2, without charge to the Holder. Upon
surrender for cancellation of any one or more temporary Notes, the Issuer
execute and the Indenture Trustee shall authenticate and deliver in exchange
therefor a like principal amount of definitive Notes of authorized
denominations. Until so exchanged, the temporary Notes shall in all respects be
entitled to the same benefits under this Indenture as definitive Notes.
SECTION 2.4 Registration; Registration of Transfer Exchange. The
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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.
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The Indenture Trustee shall be "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, 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 shall have the right to rely
upon a certificate executed on behalf of the Note Registrar by an Executive
Officer thereof as to the names and addresses of the Holders 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, if the
requirements of Section 8-401(1) of the UCC are met the Issuer shall execute,
and the Indenture Trustees shall authenticate and the Noteholders shall obtain
from the Indenture Trustee, in the name of the designated transferee or
transferees, one or more new Notes of the same Class in any authorized
denominations, of a like aggregate principal amount.
At the option of the Holder, Notes may be exchanged for other Notes of
the same Class 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, if the requirements of
Section 8-401(1) of the UCC are met the Issuer shall execute, and the Indenture
Trustee authenticate and the Noteholder shall obtain from the Indenture Trustee,
the Notes which the Noteholder 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 the form of Exhibit F hereto, duly executed by, the Holder thereof
or such Holder's attorney duly authorized in writing, with such signature
guaranteed by a commercial bank or trust company located, or having a
correspondent located, in the City of New York or the city in which the
Corporate Trust Office is located, or by a member firm of a national securities
exchange, and such other documents as the Indenture Trustee may require.
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No service charge shall be made to a Holder 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 2.3 or 9.6 not involving any transfer.
The preceding provisions of this Section 2.4 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 the
Note.
SECTION 2.5 Mutilated, Destroyed, Lost or Stolen Notes. If (i) any
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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 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,
and provided that the requirements of Section 8-405 of the UCC are met, 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 of the same Class; provided,
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however, that if any such destroyed, lost or stolen Note, but not a mutilated
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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 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 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 Holder of such Note 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.
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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.
SECTION 2.6 Persons Deemed Owner. Prior to due presentment for
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registration of transfer of any Note, the Issuer, the Indenture Trustee and any
agent of the Issuer 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 neither the Issuer, the Indenture Trustee nor any agent of the
Issuer or the Indenture Trustee shall be affected by notice to the contrary.
SECTION 2.7 Payment of Principal and Interest; Defaulted Interest.
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(a) The Notes shall accrue interest as provided in the forms of the
[Class A-1] Note and [Class A-2] Note set forth in Exhibits D and E,
respectively, and such interest shall be payable on each Payment Date as
specified therein. Any installment of interest or principal, if any, payable on
any Note which 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 (and except for the Redemption Price for any Note called for redemption
pursuant to Section 10.1(a)) 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 forms of the [Class A-1] Note and
[Class A-2] Note set forth in Exhibits D and E, respectively. Notwithstanding
the foregoing, the entire
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unpaid principal amount of the Notes shall be due and payable, if not previously
paid, on the date on which an Event of Default shall have occurred and be
continuing, if the Indenture Trustee or the Holders of the 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 each Class of Notes shall be made pro rata to
the Noteholders of such Class entitled thereto. Upon notice to the Indenture
Trustee by the Issuer, 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 no later than [five] Business Days 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. Notices in
connection with redemptions of Notes shall be mailed to Noteholders as provided
in Section 10.2.
(c) If the Issuer defaults in a payment of interest on the Notes, the
Issuer shall pay defaulted interest (plus interest on such defaulted interest to
the extent lawful) in any lawful manner. The Issuer may pay such defaulted
interest to the persons who are Noteholders on a subsequent special record date,
which date shall be at least [five] Business Days prior to the payment date.
The Issuer shall fix or cause to be fixed any such special record date and
payment date, and, at least [10] days before any such special record date, the
Issuer shall mail to each Noteholder a notice that states the special record
date, the payment date and the amount of defaulted interest to be paid.
SECTION 2.8 Cancellation. All notes surrendered for payment,
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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 cancelled 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 cancelled by the
Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange
for any Notes cancelled as provided in this Section, except as expressly
permitted by this Indenture. All cancelled 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 returned to it; provided that such Issuer Order
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is timely and the Notes have not been previously disposed of by the Indenture
Trustee.
SECTION 2.9 Release of Collateral. Subject to Section 11.1, the
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Indenture Trustee shall release property from the lien of this Indenture only
upon receipt of an Issuer Request
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accompanied by an Officers' Certificate, an Opinion of Counsel and Independent
Certificates in accordance with TIA Sec.Sec. 314(c) and 314(d)(1) or an Opinion
of Counsel in lieu of such Independent Certificates to the effect that the TIA
does not require any such Independent Certificates.
SECTION 2.10 Book-Entry Notes. The Notes, upon original issuance,
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will be issued in the form of a typewritten Note or 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. Such Note shall initially be
registered on the Note Register in the name of Cede & Co., the nominee of the
initial Clearing Agency, and no Note Owner will receive a Definitive Note (as
hereinafter defined) representing such Note 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 Note Owners
pursuant to Section 2.12:
(i) the provisions of this Section shall be in full force and
effect;
(ii) the Note Registrar 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 holder of the Notes, and shall have no obligation to the Note
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 Note Owners shall be exercised only through
the Clearing Agency and shall be limited to those established by law
and agreements between such Note Owners and the Clearing Agency and/or
the Clearing Agency Participants. Pursuant to the Depository
Agreement, 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 Holders 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 Note Owners and/or Clearing Agency Participants
owning or representing,
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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
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communication to the Noteholders is required or other communication to the
Noteholders is required under this Indenture, unless and until Definitive Notes
shall have been issued to Note Owners pursuant to Section 2.12, the Indenture
Trustee shall give all such notices and communications specified herein to be
given to Holders of the Notes to the Clearing Agency, and shall have no
obligation to the Note Owners or other Holders of the Notes.
SECTION 2.12 Definitive Notes. If (i) the Indenture Trustee is
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notified in writing that the Clearing Agency is no longer willing or able to
properly discharge its responsibilities with respect to the Notes, and the
Indenture Trustee is unable to locate a qualified successor, (ii) the Indenture
Trustee elects to terminate the book-entry system through the Clearing Agency or
(iii) after the occurrence of an Event of Default or a Servicer Default, Note
Owners representing beneficial interests aggregating at least a majority of the
Outstanding Amount of the 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 the Note Owners, then the Clearing Agency shall notify all
Note Owners and the Indenture Trustee of the occurrence of any such event and of
the availability of Definitive Notes to Note Owners requesting the same. Upon
surrender to the Indenture Trustee of the typewritten Note or 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 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
Holders of the Definitive Notes as Noteholders.
ARTICLE III
Covenants
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SECTION 3.1 Payment of Principal and Interest. The Issuer will
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duly and punctually pay 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, the Issuer will cause to be distributed all amounts on deposit in the
Note Distribution Account on a Payment Date. Amounts properly withheld under
the Code by any Person from a payment to any Noteholder of interest and/or
principal shall be considered
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as having been paid by the Issuer to such Noteholder for all purposes of this
Indenture.
SECTION 3.2 Maintenance of Office or Agency. The Issuer will
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maintain in the [County of _____________, State of ______________], 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 hereby initially appoints
______________________ to serve as its agent for the foregoing purposes. The
Issuer will give prompt written notice to the Indenture Trustee 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
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Section 8.02(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 Collection Account
and the Note Distribution Account pursuant to Section 8.02(c) shall be made on
behalf of the Issuer by the Indenture Trustee or by another Paying Agent, and no
amounts so withdrawn from the Collection Account and the Note Distribution
Account for payments of Notes shall be paid over to the Issuer except as
provided in this Section.
On or before [noon (New York time)] on each Payment Date and
Redemption Date, the Issuer shall deposit or cause to be deposited in the Note
Distribution Account an aggregate sum sufficient to pay the amounts then
becoming due under the Notes, such sum to be held in trust for the benefit of
the Persons entitled thereto and (unless the Paying Agent is the Indenture
Trustee) shall promptly notify the Indenture Trustee of its action or failure so
to act.
The Issuer will cause each Paying Agent other than the Indenture
Trustee 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 sums held by it for the payment of amounts due with
respect to the Notes in trust for the benefit of the Persons entitled
thereto until such sums shall be paid to such Persons or otherwise
disposed of
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as herein provided and pay such sums to such Persons as herein
provided;
(ii) give the Indenture Trustee notice of any default by the
Issuer of which it has actual knowledge (or any other obligor upon the
Notes) 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.
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 terms 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, 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 discharged from such
trust, and the Indenture Trustee or such Paying Agent, as the case may be, shall
give prompt notice of such occurrence to the Issuer and shall release such money
to the Issuer on Issuer Request; and the Holder 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
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Paying Agent, before being required to make any such repayment, may at the
expense 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 _____________, notice that such money remains
unclaimed
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and that, after the 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 may also adopt
and employ, at the expense of the Issuer, any other reasonable means of
notification of such repayment (including, but not limited to, mailing notice of
such repayment to Holders 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
Holder).
SECTION 3.4 Existence. The Issuer will keep in full effect its
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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, the Collateral and each other
instrument or agreement included in the Trust Estate.
SECTION 3.5 Protection of Trust Estate. The Issuer will from time
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to time prepare, execute, deliver and file 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) maintain or preserve the lien and security interest (and the
priority thereof) of this Indenture or carry out more effectively the
purposes hereof;
(ii) perfect, publish notice of or protect the validity of any
Grant made or to be made by this Indenture;
(iii) enforce any of the Collateral; or
(iv) preserve and defend title to the Trust Estate and the rights
of the Indenture Trustee and the Noteholders in such Trust Estate
against the claims of all persons and parties. The Issuer hereby
designates the Indenture Trustee, and hereby authorizes the Indenture
Trustee as its agent and attorney-in-fact, to execute any financing
statement, continuation statement or other instrument required by the
Indenture Trustee pursuant to this Section.
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SECTION 3.6 Opinions as to Trust Estate.
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(a) On the Closing Date, the Issuer shall furnish to the Indenture
Trustee an Opinion of Counsel either stating that, in the opinion of such
counsel, such action has been taken with respect to the recording and filing of
this Indenture, any indentures supplemental hereto, and other requisite
documents, and with respect to the execution and filing of any financing
statements and continuation statements, as are necessary to perfect and make
effective the lien and security interest of this Indenture and reciting the
details of such action, or stating that, in the opinion of such counsel, no such
action is necessary to make such lien and security interest effective.
(b) On or before [February 28] in each calendar year, beginning in
199_, the Issuer shall furnish to the Indenture Trustee 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 [February 28] in the following
calendar year.
SECTION 3.7 Performance of Obligations; Servicing of Mortgage
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Loans.
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(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 Trust Estate 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 Pooling and Servicing Agreement or
such other instrument or agreement.
(b) The Issuer may contract with 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 in an Officers' Certificate of
the Issuer shall
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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 Basic Documents and
in the instruments and agreements included in the Trust Estate, including but
not limited to 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 Pooling and Servicing Agreement in accordance with and within the time
periods provided for herein and therein. Except as otherwise expressly provided
therein, the Issuer shall not waive, amend, modify, supplement or terminate any
Basic Document or any provision thereof without the consent of the Indenture
Trustee or the Holders of at least a majority of the Outstanding Amount of the
Notes.
(d) If the Issuer shall have knowledge of the occurrence of a
Servicer Default under the Pooling and Servicing Agreement, the Issuer shall
promptly notify the Indenture Trustee and the Rating Agencies thereof, and shall
specify in such notice the action, if any, the Issuer is taking with respect to
such default. If a Servicer Default shall arise from the failure of the
Servicer to perform any of its duties or obligations under the Pooling and
Servicing Agreement with respect to the Mortgage 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 ____ of
the Pooling and Servicing Agreement, the Issuer shall appoint a successor
servicer (the "Successor Servicer"), and such Successor Servicer shall accept
its appointment by a written assumption in a form acceptable to the Indenture
Trustee. In the event that a Successor Servicer has not been appointed and
accepted its appointment at the time when the Servicer ceases to act as
Servicer, the Indenture Trustee without further action shall automatically be
appointed the Successor Servicer, subject to Section ____ of the Pooling and
Servicing Agreement. The Indenture Trustee may resign as the Servicer by giving
written notice of such resignation to the Issuer and in such event will be
released from such duties and obligations, such release not to be effective
until the date a new servicer enters into a servicing agreement with the Issuer
as provided below. Upon delivery of any such notice to the Issuer, the Issuer
shall obtain a new servicer as the Successor Servicer under the Pooling and
Servicing Agreement. Any Successor Servicer other than the Indenture Trustee
shall (i) be an established financial institution having a net worth of not less
than $_______________ and whose regular business includes the servicing of
equipment receivables and (ii) enter into a servicing agreement with the Issuer
having substantially the same provisions as the provisions of the Pooling and
Servicing Agreement applicable to the Servicer. If within [30] days after
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the delivery of the notice referred to above, the Issuer shall not have obtained
such a new servicer, the Indenture Trustee may appoint, or may petition a court
of competent jurisdiction to appoint, a Successor Servicer. In connection with
any such appointment, the Indenture Trustee may make such arrangements for the
compensation of such successor as it and such successor shall agree, subject to
the limitations set forth below and in the Pooling and Servicing Agreement, and
in accordance with Section ____ of the Pooling and Servicing Agreement, the
Issuer shall enter into an agreement with such successor for the servicing of
the Mortgage Loans (such agreement to be in form and substance satisfactory to
the Indenture Trustee). If the Indenture Trustee shall succeed to the
Servicer's duties as servicer of the Mortgage Loans as provided herein, it shall
do so in its capacity as servicer and not in its capacity as Indenture Trustee
and, accordingly, the provisions of Article VI hereof shall be inapplicable to
the Indenture Trustee in its duties as the successor to the Servicer and the
servicing of the Mortgage Loans. In case the Indenture Trustee shall become
successor to the Servicer under the Pooling and Servicing Agreement, the
Indenture Trustee shall be entitled to appoint as Servicer any one of its
affiliates, provided that it shall be fully liable for the actions and omissions
of such affiliate in such capacity as Successor Servicer.
(f) Upon any termination of the Servicer's rights and powers pursuant
to the Pooling and Servicing Agreement, the Issuer shall promptly notify the
Indenture Trustee. As soon as a Successor Servicer is appointed, 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 that it will not, without the
prior written consent of the Indenture Trustee or the Holders of a 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 Pooling and Servicing Agreement) or the Basic
Documents, or waive timely performance or observance by the Servicer or the
Sponsor under the Pooling and Servicing Agreement or Accredited under the
Contribution Agreement; provided, however, that no such amendment shall (i)
increase or reduce in any manner the amount of, or accelerate or delay the
timing of, collections of payments on Mortgage Loans or distributions that are
required to be made for the benefit of the Noteholders or (ii) reduce the
aforesaid percentage of the Notes which are required to consent to any such
amendment, without the consent of the holders of all the outstanding Notes. If
any such amendment, modification, supplement or waiver shall be so consented to
by the Indenture Trustee or such Holders, the Issuer agrees, promptly following
a request by the Indenture Trustee to do so,
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to execute and deliver, in its own name and at its own expense, such agreements,
instruments, consents and other documents as the Indenture Trustee may
reasonably 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
Contribution Agreement or the Pooling and Servicing Agreement, sell,
transfer, exchange or otherwise dispose of any of the properties or
assets of the Issuer, including those included in the Trust Estate,
unless directed to do so by the Indenture Trustee;
(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 Noteholder by reason of the
payment of the taxes levied or assessed upon any part of the Trust
Estate;
(iii) dissolve or liquidate in whole or in part; or
(iv) (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
Trust Estate 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 a Mortgage Loans
and arising solely as a result of an action or omission of the related
Obligor) 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 Trust Estate.
SECTION 3.9 Annual Statement as to Compliance. The Issuer will
---------------------------------
deliver to the Indenture Trustee, within 120 days after the end of each fiscal
year of the Issuer (commencing with the fiscal year 199_), an Officers'
Certificate stating, as to the Authorized Officer signing such Officer's
Certificate, that
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(i) a review of the activities of the Issuer during the 12-month
period ending at the end of such fiscal year (or in the case of the
fiscal year ending [October 31, 199_,] the period from the Closing
Date to [October 31, 199_)] and of 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 this Indenture throughout such year, or, if there has been a
default in the compliance of any such condition or covenant,
specifying each such default known to such Authorized Officer and the
nature and status thereof.
SECTION 3.10 Issuer May Consolidate, etc., Only on Certain Term.
--------------------------------------------------
(a) The Issuer shall not consolidate or merge with or into any other Person,
unless
(i) the Person (if other than the Issuer) formed by or surviving
such consolidation or merger shall be a Person organized and existing
under the laws of the United States of America or any State and shall
expressly assume, by an indenture supplemental hereto, executed and
delivered to the Indenture Trustee, in form satisfactory to the
Indenture Trustee, the due and punctual payment of the principal of
and interest on all Notes and the performance or observance of every
agreement and covenant of this Indenture on the part of the Issuer to
be performed or observed, all as provided herein;
(ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing;
(iii) the Rating Agency Condition shall have been satisfied with
respect to such transaction;
(iv) the Issuer shall have received an Opinion of Counsel (and
shall have delivered copies thereof to the Indenture Trustee) to the
effect that such transaction will not have any material adverse tax
consequence to the Trust, any Noteholder or any Certificateholder;
(v) any action as is necessary to maintain the lien and security
interest created by this Indenture shall have been taken; and
(vi) the Issuer shall have delivered to the Indenture Trustee an
Officers' Certificate and an Opinion of Counsel each stating that such
consolidation or merger and such supplemental indenture comply with
this Article III and that all conditions precedent
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herein provided for relating to such transaction have been complied
with (including any filing required by the Exchange Act).
(b) The Issuer shall not convey or transfer any of its properties or
assets, including those included in the Trust Estate, to any Person, unless
(i) the Person that acquires by conveyance or transfer the
properties and assets of the Issuer the conveyance or transfer of
which is hereby restricted shall (A) be a United States citizen or a
Person organized and existing under the laws of the United States of
America or any State, (B) expressly assumes, by an indenture
supplemental hereto, executed and delivered to the Indenture Trustee,
in form satisfactory to the Indenture Trustee, the due and punctual
payment of the principal of and interest on all Notes and the
performance or observance of every agreement and covenant of this
Indenture on the part of the Issuer to be performed or observed, all
as provided herein, (C) expressly agrees by means of such supplemental
indenture that all right, title and interest so conveyed or
transferred shall be subject and subordinate to the rights of Holders
of the Notes, (D) unless otherwise provided in such supplemental
indenture, expressly agrees to indemnify, defend and hold harmless the
Issuer against and from any loss, liability or expense arising under
or related to this Indenture and the Notes and (E) expressly agrees by
means of such supplemental indenture that such Person (or if a group
of Persons, then one specified Person) shall make all filings with the
Commission (and any other appropriate Person) required by the Exchange
Act in connection with the Notes;
(ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing;
(iii) the Rating Agency Condition shall have been satisfied with
respect to such transaction;
(iv) the Issuer shall have received an Opinion of Counsel (and
shall have delivered copies thereof to the Indenture Trustee) to the
effect that such transaction will not have any material adverse tax
consequence to the Trust, any Noteholder or any Certificateholder;
(v) any action as is necessary to maintain the lien and security
interest created by this Indenture shall have been taken; and
(vi) the Issuer shall have delivered to the Indenture Trustee an
Officer's Certificate and an
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Opinion of Counsel each stating that such conveyance or transfer and
such supplemental indenture comply with this Article III and that all
conditions precedent herein provided for relating to such transaction
have been complied with (including any filing required by the Exchange
Act).
SECTION 3.11 Successor or Transferee.
-----------------------
(a) Upon any consolidation or merger of the Issuer in accordance with
Section 3.10(a), the Person formed by or surviving such consolidation or merger
(if other than the Issuer) shall succeed to, and be substituted for, and may
exercise every right and power of, the Issuer under this Indenture with the same
effect as if such Person had been named as the Issuer herein.
(b) Upon a conveyance or transfer of all the assets and properties of
the Issuer pursuant to Section 3.10(b), the Issuer will be released from every
covenant and agreement of this Indenture to be observed or performed on the part
of the Issuer with respect to the Notes immediately upon the delivery to and
acceptance by the Indenture Trustee of the Officer's Certificate and Opinion of
Counsel specified in Section 3.10(b)(vi) stating that the Issuer is to be so
released.
SECTION 3.12 No Other Business. The Issuer shall not engage in any
-----------------
business other than financing, purchasing, owning, selling and managing the
Mortgage Loans in the manner contemplated by this Indenture and the Basic
Documents, issuing the Notes and Certificates and activities incidental thereto.
SECTION 3.13 No Borrowing. The Issuer shall not issue, incur,
------------
assume, guarantee or otherwise become liable, directly or indirectly, for any
indebtedness except for the Notes.
SECTION 3.14 Servicer's Obligations. The Issuer shall cause the
----------------------
Servicer to comply with Sections 4.9, 4.10, 4.11 and 5.06 of the Pooling and
Servicing Agreement.
SECTION 3.15 Guarantees, Loans, Advances and Other Liabilities.
-------------------------------------------------
Except as contemplated by the Pooling and Servicing Agreement or this Indenture,
the Issuer shall not make any loan or advance or credit to, or guarantee
(directly or indirectly another's payment or performance on any obligation or
capability of so doing or otherwise), endorse or otherwise become contingently
liable, directly or indirectly, in connection with the obligations, stocks or
dividends of, or own, purchase, repurchase or acquire (or agree contingently to
do so) any stock, obligations, assets or securities of, or any other interest
in, or make any capital contribution to, any other Person.
SECTION 3.16 Capital Expenditures. The Issuer shall not make any
--------------------
expenditure (by long-term or operating lease or otherwise) for capital assets
(either realty or personalty).
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SECTION 3.17 Removal of Administrator. So long as any Notes are
------------------------
Outstanding, the Issuer shall not remove the Administrator without cause unless
the Rating Agency Condition shall have been satisfied in connection with such
removal.
SECTION 3.18 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 Owner Trustee and the Certificateholders as permitted by,
and to the extent funds are available for such purpose under, the Pooling and
Servicing Agreement. The Issuer will not, directly or indirectly, make payments
to or distributions from the Collection Account except in accordance with this
Indenture and the Basic Documents.
SECTION 3.19 Notice of Events of Default. The Issuer agrees to give
---------------------------
the Indenture Trustee and the Rating Agencies prompt written notice of each
Event of Default hereunder and, within [five] days after obtaining knowledge of
any of the following occurrences, written notice of each default on the part of
the Servicer or the Sponsor of its obligations under the Pooling and Servicing
Agreement and each default on the part of Accredited of its obligations under
the Contribution Agreement.
SECTION 3.20 Further Instruments and Acts. Upon request of the
----------------------------
Indenture Trustee, 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 Noteholders to
receive payments of principal thereof and interest thereon, (iv) Sections 3.3,
3.4, 3.5, 3.8, 3.10, 3.12 and 3.13, (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 Noteholders as beneficiaries hereof with
respect to the property so deposited with the Indenture Trustee payable to
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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, when
(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 2.5 and (ii) Notes for
whose payment money has theretofore been deposited in trust or
segregated and held in trust or discharged form 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
(i) have become due and payable.
(ii) will become due and payable at the [Class A-2] Final
Schedule Payment Date within one year, or
(iii) 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 (i), (ii) or (iii) and the Issuer, in
the case of (i), (ii) or (iii) 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 on the
[Class A-2] Final Scheduled Payment Date or Redemption Date (if Notes
shall have been called for redemption pursuant to Section 10.1(a)), as
the case may be;
(B) 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 Officers'
Certificate, an Opinion of Counsel and (if required by the TIA) an
Independent Certificate from a firm of certified public accountants, each
meeting the applicable requirements of Section 11.1(a) and each stating
that all conditions precedent herein provided for relating to the
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satisfaction and discharge of this Indenture have been complied with.
SECTION 4.2 Application of Trust Money. All moneys deposited with
--------------------------
the Indenture Trustee pursuant to Section 4.1 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 Holders of the particular 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 Pooling 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 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):
(i) default in the payment of any interest on any Note when the
same becomes due and payable, and such default shall continue for a
period of [five] days; or
(ii) 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
(iii) 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 or in
any certificate or other writing delivered pursuant hereto or in
connection herewith
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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 representation 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 Holders of at least [____%] 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
(iv) 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 Trust Estate 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 for the
Issuer or for any substantial part of the Trust Estate, or ordering
the winding-up or liquidation of the Issuer's affairs, and such decree
or order shall remain unstayed and in effect for a period of [90]
consecutive days; or
(v) 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 Trust Estate, 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
action by the Issuer in furtherance of any of the foregoing.
The Issuer shall deliver to the Indenture Trustee, within [five] days
after the occurrence thereof, written notice in the form of an Officers'
Certificate of any event which with the giving of notice and the lapse of time
would become an Event of Default under clause (iii), 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 or the Holders of Notes representing a majority of the
Outstanding Amount of the Notes may declare all the Notes to be immediately
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due and payable, by a notice in writing to the Issuer (and to the Indenture
Trustee if given by Noteholders), and upon any such declaration the unpaid
principal amount of the 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
Holders of Notes representing a majority of the Outstanding Amount of the Notes,
by written notice to the Issuer and the Indenture Trustee, may rescind and annul
such declaration and its consequences if:
(i) the Issuer has paid or deposited with the Indenture Trustee
a sum sufficient to pay
(A) all payment 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
(B) 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
(ii) 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.
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, pay to it, for the benefit of the Holders of the Notes, 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 respective Note Interest Rate borne by the Notes and in addition thereto
such further amount as shall be sufficient to cover the costs and expenses of
collection,
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including the reasonable compensation, expenses, disbursements and advances of
the Indenture Trustee and its 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, may 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
may, as more particularly provided in Section 5.4, in its discretion, proceed to
protect and enforce its rights and the rights of the Noteholders, 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 Trust Estate, 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, 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 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 and each
predecessor Indenture Trustee, 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
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of negligence or bad faith) and of the Noteholders allowed in such
Proceedings;
(ii) unless prohibited by applicable law and regulations, to vote
on behalf of the Holders 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 Noteholders and of 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 or the Holders 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 Noteholders 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 Noteholders, 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 Noteholder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof or to
authorize the Indenture Trustee to vote in respect of the claim of any
Noteholder 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 of 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 Holders of the Notes.
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(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 Indenture Trustee shall be
held to represent all the Holders of the Notes, and it shall not be necessary to
make any Noteholder 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 may 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 Trust
Estate;
(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 and the Holders of the Notes;
and
(iv) sell the Trust Estate or any portion thereof or rights or
interest therein, 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 Trust Estate following an Event of Default,
other than an Event of Default described in Section 5.01(i) or (ii),
unless (A) the Holders of 100% of the Outstanding Amount of the Notes
consent thereto, (B) the proceeds of such sale or liquidation
distributable to the Noteholders 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 Trust Estate
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%] of the Outstanding
Amount of the Notes. In determining such sufficiency or insufficiency
with respect to clause (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
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action and as to the sufficiency of the Trust Estate 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 amounts due under Section 6.7;
SECOND: to Noteholders for amounts due and unpaid on the Notes for
principal and interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Notes for principal
and interest, respectably; and
THIRD: to the Issuer for distribution to the Certificateholders.
The Indenture Trustee may fix a record date and payment date for any
payment to Noteholders pursuant to this Section. At least [15] days before such
record date, the Issuer shall mail to each Noteholder and the Indenture Trustee
a notice that states the record date, the payment date and the amount to be
paid.
SECTION 5.5 Optional Preservation of the Mortgage Loans. 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 Trust Estate. It is the desire of the parties hereto
and the Noteholders 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 Trust Estate, 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 for such purpose.
SECTION 5.6 Limitation of Suits. No Holder 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, unless:
(i) such Holder has previously given written notice to the
Indenture Trustee of a continuing Event of Default;
(ii) the Holders of not less than [____%] 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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(iii) such Holder or Holders have offered to the Indenture
Trustee indemnity against the costs, expenses and liabilities to be
incurred in complying with such request;
(iv) the Indenture Trustee for [60] days after its receipt of
such notice, request and offer of indemnity has failed to institute
such Proceedings; and
(v) no direction inconsistent with such written request has been
given to the Indenture Trustee during such [60-day] period by the
Holders of a majority of the Outstanding Amount of the Notes;
it being understood and intended that no one or more Holders of Notes shall have
any right in any manner whatsoever by virtue of, or by availing of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Holders of Notes or to obtain or seek to obtain priority or preference
over any other Holders 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 Holders 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, and
shall have no liability to any person for such action or inaction.
SECTION 5.7 Unconditional Rights of Noteholders To Receive
----------------------------------------------
Principal and Interest. Notwithstanding any other provisions in this Indenture,
- ----------------------
the Holder of any Note shall have the right, which is absolute and
unconditional, to receive payment of the principal of the interest, if any, on
such Note on or after the respective due dates 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 Holder.
SECTION 5.8 Restoration of Rights and Remedies. If the Indenture
----------------------------------
Trustee or any Noteholder 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 or to such Noteholder, then and in every such case the Issuer, the
Indenture Trustee and the Noteholders 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 Noteholders shall continue as though no such Proceeding had been
instituted.
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SECTION 5.9 Rights and Remedies Cumulative. No right or remedy
------------------------------
herein conferred upon or reserved to the Indenture Trustee or to the Noteholders
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 or any Holder 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 Indenture Trustee or to the Noteholders may be exercised from time to
time, and as often as may be deemed expedient, by the Indenture Trustee or by
the Noteholders, as the case may be.
SECTION 5.11 Control by Noteholders. The Holders 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
--------
(i) such direction shall not be in conflict with any rule of law
or with this Indenture;
(ii) subject to the express terms of Section 5.4, any direction
to the Indenture Trustee to sell or liquidate the Trust Estate shall
be by the Holders of Notes representing not less than [____%] of the
Outstanding Amount of the Notes;
(iii) if the conditions set forth in Section 5.5 have been
satisfied and the Indenture Trustee elects to retain the Trust Estate
pursuant to such Section, then any direction to the Indenture Trustee
by Holders of Notes representing less than [____%] of the Outstanding
Amount of the Notes to sell or liquidate the Trust Estate shall be of
no force and effect; and
(iv) the Indenture Trustee may take any other action deemed
proper by the Indenture Trustee that is not inconsistent with such
direction;
provided, however, that, 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 Noteholders not consenting to such
action.
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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
Holders of Notes of 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 payment of principal of or interest on any of the Notes or (b)
in respect of a covenant or provision hereof which cannot be modified or amended
without the consent of the Holder of each Note. In the case of any such waiver,
the Issuer, the Indenture Trustee and the Holders 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 Holder of any Note by such Holder'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 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, (b) any suit instituted by any Noteholder, or group of
Noteholders, in each case holding in the aggregate more than [____%] of the
Outstanding Amount of the Notes or (c) any suit instituted by any Noteholder 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 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
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Trustee, but will suffer and permit the execution of every such power as though
no such law has 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 Noteholders 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 Trust Estate
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 agrees to take all such lawful action as the Indenture Trustee may
request to compel or secure the performance and observance by the Sponsor and
the Servicer, as applicable, of each of their obligations to the Issuer under or
in connection with the Pooling and Servicing Agreement or to Accredited under or
in connection with the Contribution Agreement in accordance with the terms
thereof, and to exercise any and all rights, remedies, powers and privileges
lawfully available to the Issuer under or in connection with the Pooling 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
Sponsor or the Servicer thereunder and the institution of legal or
administrative actions or proceedings to compel or secure performance by the
Sponsor or the Servicer of each of their obligations under the Pooling and
Servicing Agreement.
(b) If an Event of Default has occurred and is continuing, the
Indenture Trustee at the direction (which direction shall be in writing or by
telephone (confirmed in writing promptly thereafter)) of the Holders of [___%]
of the Outstanding Amount of the Notes shall exercise all rights, remedies,
powers, privileges and claims of the Issuer against the Sponsor or the Servicer
under or in connection with the Pooling and Servicing Agreement, including the
right or power to take any action to compel or secure performance or observance
by the Sponsor or the Servicer of each of their obligations to the Issuer
thereunder and to give any consent, request, notice, direction, approval,
extension or waiver under the Pooling and Servicing Agreement, and any right of
the Issuer to take such action shall be suspended.
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(c) Promptly following a request from the Indenture Trustee to do so,
the Issuer agrees to take all such lawful action as the Indenture Trustee may
request to compel or secure the performance and observance by Accredited of each
of its obligations to the Sponsor under or in connection with the Contribution
Agreement in accordance with the terms thereof, and to exercise any and all
rights, remedies, powers and privileges lawfully available to the Issuer under
or in connection with the Contribution 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 Sponsor thereunder and the institution of legal or
administrative actions or proceedings to compel or secure performance by
Accredited of each of its obligations under the Contribution Agreement.
(d) If an Event of Default has occurred and is continuing, the
Indenture Trustee at the direction (which direction shall be in writing or by
telephone (confirmed in writing promptly thereafter)) of the Holders of [___%]
of the Outstanding Amount of the Notes shall exercise all rights, remedies,
powers, privileges and claims of the Sponsor against Accredited under or in
connection with the Contribution Agreement, including the right or power to take
any action to compel or secure performance or observance by Accredited of each
of its obligations to the Sponsor thereunder and to give any consent, request,
notice, direction, approval, extension or waiver under the Contribution
Agreement, and any right of the Sponsor to take such action shall be suspended.
ARTICLE VI
Indenture Trustee
-----------------
SECTION 6.1 Duties of Indenture Trustee.
---------------------------
(a) If an Event of Default 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 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
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opinions furnished to the Indenture Trustee and conforming to the
requirements of this Indenture; however, the Indenture Trustee shall
examine the certificates and opinions to determine whether or not they
conform on their face to the requirements of this Indenture.
Except for its calculation of LIBO, the Indenture Trustee shall not be required
to determine, confirm or recalculate the information contained in the Servicer's
Certificate delivered to it pursuant to the Pooling and Servicing Agreement.
(c) the Indenture Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act or its own wilful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of
this Section;
(ii) the Indenture Trustee shall not be 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 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 otherwise from
Holders under the Indenture.
(d) Every provision of this Indenture that in any way relates to the
Indenture Trustee is subject to paragraphs (a), (b) and (c) 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.
(f) Money held in trust by the Indenture Trustee need not be
segregated from other funds except to the extent required by law or the terms of
this Indenture or the Pooling 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
repayments of such funds or adequate indemnity satisfactory to it against such
loss, liability or expense is not reasonably assured to it.
(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to
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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 Officers' Certificate or an Opinion of Counsel. The Indenture
Trustee shall not be liable for any action it takes or omits to take in good
faith in reliance on the Officers' 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, or for the
supervision of, any such agent, attorney, custodian or nominee appointed with
due care by it hereunder.
(d) The Indenture Trustee shall not be liable for 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 the Indenture Trustee's conduct does
-------- -------
not constitute wilful misconduct, negligence or bad faith.
(e) The Indenture Trustee may consult with counsel, and the advice or
opinion of counsel with respect to legal matters relating to this Indenture and
the Notes shall be full and complete authorization and protection from liability
in respect to any action taken, omitted or suffered by it hereunder in good
faith and in accordance with the advice or opinion of such counsel.
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 6.10 and 6.11.
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 the Trust Estate, this Indenture or the Notes, it shall not be
accountable for the Issuer's use of the proceeds from the Notes, and it shall
not be responsible for any statement of the Issuer in the Indenture or in any
document issued in connection with the sale
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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 actually known to a Responsible Officer of the Indenture
Trustee, the Indenture Trustee shall mail to each Noteholder 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 provision 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
Noteholders; and provided that in the case of any default of the character
specified in Section 5.1(iii), no such notice to Holders shall be given until at
least [30] days after the occurrence thereof.
SECTION 6.6 Reports by Indenture Trustee to Holders. The Indenture
---------------------------------------
Trustee shall deliver to each Noteholder such information as may be required to
enable such holder to prepare its Federal and state income tax returns. The
Indenture Trustee shall only be required to provide to the Noteholders the
information given to it by the Servicer. The Indenture Trustee shall not be
required to determine, confirm or recompute any such information.
SECTION 6.7 Compensation and Indemnity. The Issuer shall or shall
--------------------------
cause the Servicer to pay to the Indenture Trustee from time to time reasonable
compensation for its services. The Indenture Trustee's compensation shall not
be limited by any law on compensation of a trustee of an express trust. The
Issuer shall or shall cause the Servicer to reimburse the Indenture Trustee for
all reasonable out-of-pocket expenses incurred or made by it, including costs of
collection, in addition to the compensation for its services. Such expenses
shall include the reasonable compensation and expenses, disbursements and
advances of the Indenture Trustee's agents, counsel, accountants and experts.
The Issuer shall or shall cause the Servicer to indemnify the Indenture Trustee
against any and all loss, liability or expense (including the fees of either in-
house counsel or outside counsel, but not both) incurred by it in connection
with the administration of this trust and the performance of its duties
hereunder. The Indenture Trustee shall notify the Issuer and the Servicer
promptly of any claim for which it may seek indemnity. Failure by the Indenture
Trustee to so notify the Issuer and the Servicer shall not relieve the Issuer or
the Servicer of its obligations hereunder. The Issuer shall or shall cause the
Servicer to defend the claim and the Indenture Trustee may have separate counsel
and the Issuer shall or shall cause the Servicer to pay the fees and expenses of
such counsel. Neither the Issuer nor the Servicer need reimburse any expense or
indemnify against any loss, liability or expense incurred by the Indenture
Trustee through the Indenture Trustee's own wilful misconduct, negligence or bad
faith.
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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(iv) or (v) 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 6.8. The Indenture Trustee
may resign at any time by so notifying the Issuer. The Holders of a majority in
Outstanding Amount of the Notes may remove the Indenture Trustee by so notifying
the Indenture Trustee and may appoint a successor Indenture Trustee. The Issuer
shall remove the Indenture Trustee if:
(i) the Indenture Trustee fails to comply with Section 6.11;
(ii) the Indenture Trustee is adjudged a bankrupt or insolvent;
(iii) a receiver or other public officer takes charge of the
Indenture Trustee or its property; or
(iv) 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, which successor shall be,
if Accredited is the Servicer, reasonably acceptable to the Sponsor.
A successor Indenture Trustee shall deliver a written acceptance of
its appointment to the retiring Indenture Trustee 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 Noteholders. 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 Holders of a majority in Outstanding Amount
of the Notes may
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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
Noteholder 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 or banking association without any further act shall be the
successor Indenture Trustee. The Indenture Trustee shall provide the Rating
Agencies prior written notice of any such transaction, provided that such
corporation or banking association shall be otherwise qualified and eligible
under Section 6.11.
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.
SECTION 6.10 Appointment of Co-Trustee or Separate 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 Trust may at the time be located, the Indenture Trustee
shall have the power and may execute and deliver all instruments to appoint one
or more Persons reasonably acceptable to the Sponsor 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 Noteholders, such title to the Trust, 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
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trustee hereunder shall be required to meet the terms of eligibility as a
successor trustee under Section 6.11 and no notice to Noteholders of the
appointment of any co-trustee or separate trustee shall be required under
Section 6.8 hereof.
(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
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 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 Agreement 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, either jointly with the
Indenture Trustee or separately, as may be provided therein, 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 Agreement
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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.
SECTION 6.11 Eligibility; Disqualification. The Indenture Trustee
-----------------------------
shall at all times satisfy the requirements of TIA Sec. 310(a). The Indenture
Trustee shall have a combined capital and surplus of at least $__________ as set
forth in its most recent published annual report of condition and its long-term
unsecured debt shall be rated at least [Baa3] by [Moody's.] The Indenture
Trustee shall comply with TIA Sec. 310(b), including the optional provision
permitted by the second sentence of TIA Sec. 310(b)(9); provided, however, that
-------- -------
there shall be excluded from the operation of TIA Sec. 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 Sec. 310(b)(1) are met.
SECTION 6.12 Preferential Collection of Claims Against Issuer. The
------------------------------------------------
Indenture Trustee shall comply with TIA Sec. 311(a), excluding any creditor
relationship listed in TIA Sec. 311(b). An indenture trustee who has resigned
or been removed shall be subject to TIA Sec. 311(a) to the extent indicated.
ARTICLE VII
Noteholders' Lists and Reports
------------------------------
SECTION 7.1 Issuer to Furnish Indenture Trustee Names and Addresses
-------------------------------------------------------
to Noteholders. The Issuer will furnish or cause to be furnished to the
- --------------
Indenture trustee (a) not more than [five] days after the earlier of (i) each
Record Date and (ii) [three] months after the last Record Date, a list, in such
form as the Indenture Trustee may reasonably require, of the names and addresses
of the Holders of Notes 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
----------------------------------------------
Noteholders.
- -----------
(a) The Indenture Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of the Holders of Notes
contained in the most recent list furnished to the Indenture Trustee as provided
in Section 7.1 and the names and addresses of Holders of Notes
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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) Noteholders may communicate pursuant to TIA Sec. 312(b) with
other Noteholders 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 Sec. 312(c).
SECTION 7.3 Reports by Issuer.
-----------------
(a) The Issuer shall:
(i) file with the Indenture Trustee, 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) which the Issuer
may be required to file with the Commission pursuant to Section 13 or
15(d) of the Exchange Act;
(ii) file with the Indenture Trustee and the Commission in
accordance with 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
(iii) supply to the Indenture Trustee (and the Indenture Trustee
shall transmit by mail to all Noteholders described in TIA Sec.
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) as may be required by rules and regulations
prescribed from time to time by the Commission.
(b) Unless the Issuer otherwise determines, the fiscal year of the
Issuer shall end on __________ of each year.
SECTION 7.4 Reports by Indenture Trustee. If required by TIA
----------------------------
Sec. 313(a), within [60] days after each [February 1] beginning with [February
1, 199__,] the Indenture Trustee shall mail to each Noteholder as required by
TIA Sec. 313(c) a brief report dated as of such date that complies with TIA
Sec. 313(a). The Indenture Trustee also shall comply with TIA Sec. 313(b).
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A copy of each report at the time of its mailing to Noteholders shall
be filed by the Indenture Trustee with the Commission and each stock 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 stock exchange.
ARTICLE VIII
Accounts, Disbursements and Releases
------------------------------------
SECTION 8.1 Collection of Money. 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 Trust Estate, the Indenture Trustee may 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.
SECTION 8.2 Trust Accounts.
--------------
(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 Noteholders and the Certificateholders, the Trust Accounts as
provided in Section [5.01] of the Pooling and Servicing Agreement.
(b) Not less than [two] Business Days prior to each Payment Date, the
Total Distribution Amount with respect to the preceding Collection Period will
be deposited in the Collection Account as provided in Section [5.02] of the
Pooling and Servicing Agreement. On or before each Payment Date, the
Noteholders' Distributable Amount with respect to the preceding Collection
Period will be transferred from the Collection Account and/or the Reserve
Account to the Note Distribution Account as provided in Sections [5.04] and
[5.05] of the Pooling and Servicing Agreement.
(c) On each Payment Date and Redemption Date, the Indenture Trustee
shall distribute all amounts on deposit in the Note Distribution Account to
Noteholders in respect of the Notes to the extent of amounts due and unpaid on
the Notes for
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principal and interest in the following amounts and in the following order of
priority (except as otherwise provided in Section 5.4(b)):
(i) accrued and unpaid interest on the Notes; provided that if
there are not sufficient funds in the Note Distribution Account to pay
the entire amount of accrued and unpaid interest then due on the
Notes, the amount in Note Distribution 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;
(ii) to the [Class A-1] Noteholders until the Outstanding Amount
of the [Class A-1] Notes is reduced to zero; and
(iii) to the [Class A-2] Noteholders until the Outstanding Amount
of the [Class A-2] Notes is reduced to zero.
(d) The Indenture Trustee shall calculate LIBO for each Payment Date
(other than the first Payment Date) as soon as such calculation can be made.
Upon telephone request, the Indenture Trustee shall inform, by telephone
(confirmed in writing), a representative of each of the Issuer, [and Prudential
Securities, Incorporated] of LIBO for a Payment Date.
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 Trust Accounts shall be
invested in Eligible Investments and reinvested by the Indenture Trustee upon
Issuer Order, subject to the provisions of Section [5.01(b)] of the Pooling and
Servicing Agreement. All income or other gain from investments of monies
deposited in the Trust Accounts net of any investment expenses and any losses
resulting from such investments shall be deposited by the Indenture Trustee in
the Collection Account. 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
Trust 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, if requested by the Indenture Trustee, the Issuer shall
deliver to the Indenture Trustee an Opinion of Counsel, acceptable to the
Indenture Trustee, to such effect.
(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 Trust 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
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Trustee, in its commercial capacity as principal obligor and not as Indenture
Trustee, in accordance with their terms.
(c) If (i) the issuer shall have failed to give investment directions
for any funds on deposit in the Trust Accounts to the Indenture Trustee by
[12:00 noon New York 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,
if such Notes shall have been declared due and payable following an Event of
Default, amounts collected or receivable from the Trust Estate are being applied
in accordance with Section 5.3 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 Trust Accounts in one or more Eligible Investments.
SECTION 8.4 Release of Trust Estate.
-----------------------
(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 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 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 monies.
(b) The Indenture Trustee shall, at such time as there are no Notes
Outstanding and all sums due the Indenture Trustee pursuant to Section 6.7 have
been paid, release any remaining portion of the Trust Estate 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 Trust Accounts. The
Indenture Trustee shall release property from the lien of this Indenture
pursuant to this Section 8.4(b) only upon receipt of an Issuer Request
accompanied by an Officers' Certificate, an Opinion of Counsel and (if required
by the TIA) Independent Certificates in accordance with TIA Sec.Sec. 314(c) and
314(d)(1) meeting the applicable requirements of Section 11.1.
SECTION 8.5 Opinion of Counsel. The Indenture Trustee shall
------------------
receive at least [seven] days' notice when requested by the Issuer to take any
action pursuant to Section 8.4(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
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action will not materially and adversely impair the security for the Notes or
the rights of the Noteholders 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 Trust Estate. 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 Noteholders.
------------------------------------------------------
(a) Without the consent of the Holders of any Notes but with prior
notice to the Rating Agencies, 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, 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 Holders of the Notes, or to surrender any right or power herein
conferred upon the Issuer;
(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 which 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, as evidenced by an
--------
Opinion of Counsel, adversely
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affect in any material respect the interests of the Holders 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; or
(vii) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to effect the
qualification of this Indenture under the TIA or under any similar
Federal statute hereafter enacted and to add to this Indenture such
other provisions as may be expressly required by the TIA.
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, when authorized by an
Issuer Order, may, also without the consent of any of the Holders of the Notes
but with prior notice to the Rating Agencies, 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 Holders of the Notes under this
Indenture; provided, however, that such action shall not, as evidenced by an
-------- -------
Opinion of Counsel, adversely affect in any material respect the interests of
any Noteholder.
SECTION 9.2 Supplemental Indentures with Consent of Noteholders.
---------------------------------------------------
The Issuer and the Indenture Trustee, when authorized by an Issuer Order, also
may, with prior notice to the Rating Agencies and with the consent of the
Holders of not less than a majority of the Outstanding Amount of the Notes, by
Act of such Holders 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 right of the
Holders of the Notes under this Indenture; provided, however, that no such
-------- -------
supplemental indenture shall, without the consent of the Holder of each
Outstanding Note affected thereby:
(i) change the date of payment of any installment of principal
amount thereof, the interest rate thereon or the Redemption Price with
respect thereto, change the provision of this Indenture relating to
the application of collections on, or the
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proceeds of the sale of, the Trust Estate 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 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);
(ii) reduce the percentage of the Outstanding Amount of the
Notes, the consent of the Holders of which is required for any such
supplemental indenture, or the consent of the Holders 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;
(iii) modify or alter the provisions of the proviso to the
definition of the term "Outstanding";
(iv) 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 Trust Estate pursuant to Section 5.04;
(v) 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 Basic Documents cannot be modified
or waived without the consent of the Holder of each Outstanding Note
affected thereby;
(vi) 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 Holders of Notes to the
benefit of any provisions for the mandatory redemption of the Notes
contained herein; or
(vii) 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
Trust Estate 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 Holder 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
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indenture and any such determination shall be conclusive upon the Holders 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.
It shall not be necessary for any Act of Noteholders 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.
Promptly after the execution by the Issuer and the Indenture Trustee
of any supplemental indenture pursuant to this Section, the Indenture Trustee
shall mail to the Holders of the Notes to which such amendment or supplemental
indenture relates a notice setting forth in general terms the substance of such
supplemental indenture. Any failure of the Indenture Trustee to mail such
notice, or any defect therein, shall not, however, in any way impair or affect
the validity of any such supplemental indenture.
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 modifications thereby of the trusts created
by this Indenture, the Indenture Trustee shall be entitled to receive, and
subject to Sections 6.01 and 6.02, 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.
SECTION 9.4 Effect of Supplemental Indenture. Upon the execution of
--------------------------------
any supplemental indenture pursuant to the provisions hereof, this Indenture
shall be and 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 Holders 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.
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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 Outstanding Notes.
ARTICLE X
Redemption of Notes
-------------------
SECTION 10.1 Redemption. (a) The Notes are subject to redemption
----------
in whole, but not in part, at the written direction of the Servicer pursuant to
Section [9.01(a)] of the Pooling and Servicing Agreement, on any Payment Date,
if the then outstanding Pool Balance is [___%] or less of the Original Pool
Balance, for a purchase price equal to the Redemption Price; provided, however,
-------- -------
that the Issuer has available funds sufficient to pay the Redemption Price. The
Servicer or the Issuer shall furnish the Rating Agencies notice of such
redemption. If the Notes are to be redeemed pursuant to this Section 10.01(a),
the Servicer or the Issuer shall furnish notice of such election to the
Indenture Trustee not later than [25] days prior to the Redemption Date and the
Issuer shall deposit with the Indenture Trustee in the Note Distribution Account
the Redemption Price of the Notes to be redeemed whereupon all such Notes shall
be due and payable on the Redemption Date upon the furnishing of a notice
complying with Section 10.2 to each Holder of the Notes.
(b) In the event that the assets of the Trust are sold pursuant to
Section 9.2 of the Trust Agreement, all amounts on deposit in the Note
Distribution Account shall be paid to the Noteholders up to the Outstanding
Amount of the Notes and all accrued and unpaid interest thereon. If amounts are
to be paid to Noteholders pursuant to this Section 10.1(b), the Servicer or the
Issuer shall, to the extent practicable, furnish notice of such event to the
Indenture Trustee not later than [25] days prior to the Redemption Date
whereupon all such amounts shall be payable on the Redemption Date.
SECTION 10.2 Form of Redemption Notice.
-------------------------
(a) Notice of redemption under Section 10.1(a) shall be given by the
Indenture Trustee by first-class mail, postage prepaid, mailed not less than
[five] days prior to the applicable Redemption Date to each Holder of Notes, as
of the close of business on the Record Date preceding the applicable Redemption
Date, at such Holder's address appearing in the Note Register.
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All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(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); and
(iv) CUSIP number.
Notice of redemption of the Notes shall be given by the Indenture
Trustee in the name and at the expense of the Issuer. Failure to give notice of
redemption, or any defect therein, to any Holder of any Note shall not impair or
affect the validity of the redemption of any other Note.
(b) Prior notice of redemption under Section 10.1(b) is not required
to be given to Noteholders.
SECTION 10.3 Notes Payable on Redemption Date: The Notes or portions
--------------------------------
thereof to be redeemed shall, following notice of redemption as required by
Section 10.02 (in the case of redemption pursuant to Section 10.1(a)), 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.
ARTICLE XI
Miscellaneous
-------------
SECTION 11.1 Compliance Certificates and Opinions, etc.
------------------------------------------
(a) 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 Officers' Certificate stating that
all conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with, (ii) an Opinion of Counsel stating that
in the opinion of such counsel all such conditions precedent, if any, have been
complied with and (iii) (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.
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Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(i) a statement that each signatory of such certificate or
opinion has read or has caused to be read such covenant or condition
and the definitions herein relating thereto;
(ii) 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;
(iii) a statement that, in the opinion of each such signatory,
such signatory has made such examination or investigation as is
necessary to enable such signatory to express an informed opinion as
to whether or not such covenant or condition has been complied with;
and
(iv) a statement as to whether, in the opinion of each such
signatory, such condition or covenant has been complied with.
(b) (i) Prior to the deposit of any Collateral or other property or
securities with the Indenture Trustee that is to be made the basis for the
release of any property or securities subject to the lien of this Indenture, the
Issuer shall, in addition to any obligation imposed in Section 11.1(a) or
elsewhere in this Indenture, furnish to the Indenture Trustee an Officers'
Certificate certifying or stating the opinion of each person signing such
certificate as to the fair value (within [90] days of such deposit) to the
Issuer of the Collateral or other property or securities to be so deposited.
(ii) Whenever the Issuer is required to furnish to the Indenture
Trustee an Officers' Certificate certifying or stating the opinion of any signer
thereof as to the matters described in clause (i) above, the Issuer shall also
deliver to the Indenture Trustee an Independent Certificate as to the same
matters, if the fair value to the Issuer of the securities to be so deposited
and of all other such securities made the basis of any such withdrawal or
release since the commencement of the then-current fiscal year of the Issuer, as
set forth in the certificates delivered pursuant to clause (i) above and this
clause (ii), is [___%] or more of the Outstanding Amount of the Notes, but such
a certificate need not be furnished with respect to any securities so deposited,
if the fair value thereof to the Issuer as set forth in the related Officers'
Certificate is less than $________ or less than [one] percent of the Outstanding
Amount of the Notes.
(iii) Other than with respect to the release of any Purchased
Mortgage Loans or Defaulted Mortgage Loans,
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whenever any property or securities are to be released from the lien of this
Indenture, the Issuer shall also furnish to the Indenture Trustee an Officers'
Certificate certifying or stating the opinion of each person signing such
certificate as to the fair value (within [90] days of such release) of the
property or securities proposed to be released and stating that in the opinion
of such person the proposed release will not impair the security under this
Indenture in contravention of the provisions hereof.
(iv) Whenever the Issuer is required to furnish to the Indenture
Trustee an Officers' Certificate certifying or stating the opinion of any signer
thereof as to the matters described in clause (iii) above, the Issuer shall also
furnish to the Indenture Trustee an Independent Certificate as to the same
matters if the fair value of the property or securities and of all other
property other than Purchased Mortgage Loans and Defaulted Mortgage Loans, or
securities released from the lien of this Indenture since the commencement of
the then current calendar year, as set forth in the certificates required by
clause (iii) above and this clause (iv), equals [___%] or more of the
Outstanding Amount of the Notes, but such certificate need not be furnished in
the case of any release of property or securities if the fair value thereof as
set forth in the related Officers' Certificate is less than $________ or less
than [one] percent of the then Outstanding Amount of the Notes.
(v) Notwithstanding Section 2.9 or any other provision of this
Section, the Issuer may (A) collect, liquidate, sell or otherwise dispose of
Mortgage Loans as and to the extent permitted or required by the Basic Documents
and (B) make cash payments out of the Trust Accounts as and to the extent
permitted or required by the Basic Documents.
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 his 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
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<PAGE>
Sponsor or the Issuer, stating that the information with respect to such factual
matters is in the possession of the Servicer, the Sponsor or the Issuer, 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 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 grating 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 grating 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 Noteholders.
-------------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Noteholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Noteholders 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
deliver 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
Noteholders signing of 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 provided by the Note Register.
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(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Notes shall bind the Holder 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 and Rating
------------------------------------------------------
Agencies. Any request, demand, authorization, direction, notice, consent,
- --------
waiver or Act of Noteholders or other documents provided or permitted by this
Indenture to be made upon, given or furnished to or filed with:
(a) The Indenture Trustee by any Noteholder 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 and received at its Corporate
Trust Office, or
(b) the Issuer by the Indenture Trustee or by any Noteholder shall be
sufficient for every purpose hereunder if in writing and mailed, first-
class, postage prepaid, to the Issuer addressed to: Accredited Mortgage
Loan Trust, 199_-_, ______________________, Attention: Corporate Trustee
Administration Department, or at any other address previously furnished in
writing to the Indenture Trustee by Issuer. The Issuer shall promptly
transmit any notice received by it from the Noteholders to the Indenture
Trustee.
Notices required to be given to the Rating Agencies by the Issuer, the
Indenture Trustee or the Owner Trustee shall be in writing, personally delivered
or mailed by certified mail, return receipt requested to (i) in the case of
[Moody's,] at the following address: [Moody's Investors Service, Inc., ABS
Monitoring Department, 99 Church Street, New York, new York 10007], (ii) in the
case of [Standard & Poor's,] at the following address: [Standard & Poor's
Corporation, 26 Broadway (20th Floor), New York, New York 10004, Attention of
Mortgage Backed Surveillance Department,] (iii) in the case of [Fitch,] at the
following address: [Fitch Investors Service, Inc., One State Street Plaza, New
York, New York 10004, Attention: Structured Finance Surveillance] [and (iv) in
the case of Duff & Phelps, at the following address: Duff & Phelps Credit
Rating Co., 55 east Monroe Street (35th Floor), Chicago, Illinois 60603,
Attention: ________]; or as to each of the foregoing, at such other address as
shall be designated by written notice to the other parties.
SECTION 11.5 Notices to Noteholders; Waiver. Where this Indenture
------------------------------
provides for notice to Noteholders 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 Noteholder affected by such
event, at his address as it appears on the Note Register, not later than the
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<PAGE>
latest date, and not earlier than the earliest date, prescribed for the giving
of such notice. In any case where notice to Noteholders is given by mail,
neither the failure to mail such notice nor any defect in any notice so mailed
to any particular Noteholder shall affect the sufficiency of such notice with
respect to other Noteholders, 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 Noteholders 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 Noteholders 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 Alternate Payment and Notice Provisions.
---------------------------------------
Notwithstanding any provision of this Indenture or any of the Notes to the
contrary, to the extent satisfactory to the Indenture Trustee, the Issuer may
enter into any agreement with any Holder of a Note providing for a method of
payment, or notice by the Indenture Trustee or any Paying Agent to such Holder,
that is different from the methods provided for in this Indenture for such
payments or notices. The Issuer will furnish to the Indenture Trustee a copy of
each such agreement and the Indenture Trustee will cause payments to be made and
notices to be given in accordance with such agreements.
SECTION 11.7 Conflict with Trust Indenture Act. If any provision
---------------------------------
hereof limits, qualifies or conflict 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 Sec.Sec. 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.
65
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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 of the Indenture Trustee.
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 Noteholders, and any other party
secured hereunder, and any other Person with an ownership interest in any part
of the Trust Estate, any benefit or any legal or equitable right, remedy or
claim under this Indenture.
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.
SECTION 11.13 GOVERNING LAW. THIS INDENTURE SHALL BE CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF [NEW YORK.]
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 Noteholders or any other
Person secured hereunder or for the enforcement of any right or remedy granted
to the Indenture Trustee under this Indenture.
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<PAGE>
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 holder 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 Articles VI, VII and VIII of the Trust
Agreement.
SECTION 11.17 No Petition. The Indenture Trustee, by entering into
-----------
this Indenture, and each Noteholder, by accepting a Note, hereby covenant and
agree that they will not at any time institute against the Sponsor or the Trust,
or join in any institution against the Sponsor or the Trust 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 Basic Documents.
SECTION 11.18 Inspection. The Issuer agrees that, on reasonable
----------
prior notice, it will permit any representative of the Indenture Trustee, 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, and
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.
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<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, all as of the day and year first above written.
ACCREDITED MORTGAGE LOAN TRUST 199_ -__,
By:___________________, not in its individual
capacity but solely as Owner Trustee,
By: ____________________
Name:
Title
_____________________, not in its individual
capacity but solely as Indenture Trustee,
By: _________________________
Name:
Title:
68
<PAGE>
STATE OF NEW YORK )
) ss.:
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 the said
Accredited Mortgage Loan Trust 19_-_, a Delaware business trust, and that he
executed the same as the act of the 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 the day of ________,
199_.
_________________________
Notary Public
My commission expires:
__________________________
<PAGE>
STATE OF NEW YORK )
) ss.:
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 the said bank and
that he executed the same as the corporation for the purposes and consideration
therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the day of ________,
199_.
_________________________
Notary Public
My commission expires:
__________________________
<PAGE>
EXHIBIT A
Schedule of Mortgage Loans
--------------------------
[To be delivered to the Trust at Closing]
<PAGE>
EXHIBIT B
[Form of Pooling and Servicing Agreement]
-----------------------------------------
<PAGE>
EXHIBIT C
[Form of Depository Agreement]
------------------------------
<PAGE>
EXHIBIT D
REGISTERED $_______________
No. R
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP NO.
[Unless this Note is presented by an authorized representative of The
Depository Trust company, a New York corporation ("DTC"), to the issuer or its
agent for registration of transfer, exchange or payment, and any note issued is
registered in the name of Cede & Co. or in such other name as is requested by an
authorized representative of DTC (and any payment is made to Cede & Co. or to
such other entity as is requested by an authorized representative of DTC) - ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IN WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.]
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH
HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME
MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
ACCREDITED MORTGAGE LOAN TRUST 199_-_
[FLOATING RATE] Mortgage Backed NOTES,
[CLASS A-1]
Accredited Mortgage Loan Trust 199_, - a business trust organized and
existing under the laws of the State of Delaware (herein referred to as the
"Issuer"), for value received, hereby promises to pay to [_________________], or
registered assigns, the principal sum of [_______________] DOLLARS payable on
each Payment Date in an amount equal to the result obtained by multiplying (i) a
fraction the numerator of which is $[INSERT INITIAL PRINCIPAL AMOUNT OF NOTE]
and the denominator of which is [$________________________] by (ii) the
aggregate amount, if any, payable from the Note Distribution Account in respect
of principal on the [Class A-1] Notes pursuant to Section 8.2(c) of the
Indenture; provided, however, that the entire unpaid principal amount of this
-------- -------
Note shall be due and payable on the earlier of ____________, 199_ and the
Redemption Date, if any, pursuant to Section 10.1(a) of the Indenture. No
payments of principal of the [Class A-2] Notes shall be made until the principal
of the [Class A-1] Notes has been paid in its entirety. The Issuer will pay
interest on this Note at the [Class A-1] Note Interest Rate on each Payment Date
until principal of this Note is paid or made available for payment, on the
principal amount of this Note outstanding on the preceding Payment Date after
giving
<PAGE>
effect to all payments of principal made on such preceding Payment Date (or in
the case of the first Payment Date, on the initial principal amount of this
Note). Interest on this Note will accrue for each Payment Date from and
including the most recent Payment Date on which interest has been paid to but
excluding such Payment Date or, if no interest has yet been paid, from ________,
199_. Interest will be computed on the basis of a 360-day year for the actual
number of days in the period for which such interest is payable. Such principal
of and interest on this Note shall be paid in the manner specified on the
reverse hereof.
The principal of and interest on this Note are payable in such coin or
currency of the United States of America as at the time of Payment is legal
tender for payment of public and private debts. All payments made by the Issuer
with respect to this Note shall be applied first to interest due and payable on
this Note as provided above and then to the unpaid principal of this Note.
Reference is made to the further provisions of this Note set forth o
the reverse hereof, which shall have the same effect as though fully set forth
on the face of this Note.
Unless the certificate of authentication hereon has been executed by
the Indenture Trustee whose name appears below by manual signature, this Note
shall not be entitled to any benefit under the indenture referred to on the
reverse hereof, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be
signed, manually or in facsimile, by its Authorized Officer.
Date: _______________ ACCREDITED MORTGAGE LOAN TRUST 199_-_,
By: [Owner Trustee] not in its individual
capacity but solely as Owner Trustee,
By: ____________________
Name:
Title
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the
within-mentioned Indenture.
____________________, not in its
individual capacity but solely as
Indenture Trustee,
By: ____________________
Authorized Signatory
<PAGE>
[REVERSE OF NOTE]
This Note is one of the [Class A-1] Notes of a duly authorized issue
of Notes of the Issuer, designated as its [Floating Rate] Mortgage Backed Notes
(herein called the "Notes"), all issued under an Indenture dated as of
_______________, 199_ (such indenture, as supplemented or amended, is herein
called the "Indenture"), between the Issuer and ____________________, as
indenture trustee (the "Indenture Trustee", which term includes any successor
indenture trustee under the Indenture), to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the respective
rights and obligations thereunder of the Issuer, the Indenture Trustee and the
Holders of the Notes. The Notes are subject to all terms of the Indentures.
All terms used in this Note that are defined in the Indenture, as supplemented
or amended, shall have the meanings assigned to them in or pursuant to the
Indenture, as so supplemented or amended.
The Notes are and will be equally and ratably secured by the
collateral pledged as security therefor as provided in the Indenture.
Principal of the Notes will be payable on each Payment Date in an
amount described on the face hereof. "Payment Date" means the __th day of each
------------
________, ________, ________ and ________ or, if any such date is not a Business
Day, the next succeeding Business Day, commencing ________, 199_.
As described above, the entire unpaid principal amount of this Note
shall be due and payable on the earlier of ________, 199_ and the Redemption
Date, if any, pursuant to Section 10.1(a) of the Indenture. Notwithstanding the
foregoing, the entire unpaid principal amount of the Notes shall be due and
payable on the date on which an Event of Default shall have occurred and be
continuing and the Indenture Trustee or the Holders of the 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 of the Indenture. All principal payments on the Notes of a Class
shall be made pro rata to the Noteholders of such Class entitled thereto.
Payments of interest on this Note due and payable on each Payment
Date, together with the installment of principal, if any, to the extent not in
full payment of this Note, shall be made by check mailed to the Person whose
name appears as the Registered Holder of this Note (or one or more Predecessor
Notes) on the Note Register as of the close of business on each Record Date,
except that 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.),
payments will be made by wire transferring immediately available funds to the
account designated by such nominee. Such checks shall be mailed to the Person
entitled thereof at the address of such Person as it
<PAGE>
appears on the Note Register as of the applicable Record Date without requiring
that this Note be submitted for notation of payment. Any reduction in the
principal amount of this Note (or any one or more Predecessor Notes) effected by
any payments made on any Payment Date shall be binding upon all future Holders
of this Note and of any Note issued upon the registration of transfer hereof or
in exchanged hereof or in lieu hereof, whether or not noted hereon. If funds
are expected to be available, as provided in the Indenture, for payment in full
of the then remaining unpaid principal amount of this Note on a Payment Date,
then the Indenture Trustee, in the name of and on behalf of the Issuer, will
notify the Person who was the Registered Holder hereof as of the Record Date
preceding such Payment Date by notice mailed within [five] days of such Payment
Date and the amount then due and payable shall be payable only upon presentation
and surrender of this Note at the Indenture Trustee's principal Corporate Trust
Office or at the office of the Indenture Trustee's agent appointed for such
purposes located in ______________________.
The Issuer shall pay interest on overdue installments of interest at
the [Class A-1] Note Interest Rate to the extent lawful.
As provided in the Indenture, the Notes may be redeemed in whole, but
not in part, at the option of the Servicer, on any Payment Date on or after the
date on which the Pool Balance is less than or equal to ten percent of the
Initial Pool Balance.
As provided in the Indenture and subject to certain limitations set
forth therein, the transfer of this Note may be registered on the Note Register
upon surrender of this Note for registration of transfer at the office or agency
designated by the issuer pursuant to the Indenture, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Indenture Trustee duly authorized in writing, with such signature guaranteed by
a commercial bank or trust company located, or having a correspondent located,
in The City of New York or the city in which the Corporate Trust Office is
located, or a member firm of a national securities exchange, and such other
documents as the Indenture Trustee may require, and thereupon one or more new
Notes of authorized denominations and in the same aggregate principal amount
will be issued to the designated transferee or transferees. No service charge
will be charged for any registration of transfer or exchange of this Note, but
the transferor may be required to pay a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any such registration
of transfer or exchange.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case
of a Note Owner, a beneficial interest in a Note covenants and agrees that 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
the
<PAGE>
Indenture or any certificate or other writing delivered in connection 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 or employee of the
Indenture Trustee or the Owner Trustee in its individual capacity, any holder 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 my have expressly agreed 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.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case
of a Note Owner, a beneficial interest in a Note covenants and agrees that by
accepting the benefits of the indenture that such Noteholder will not at any
time institute against the Depositor of, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings under any United States
Federal or state bankruptcy or similar law in connection with any obligations
relating to the Notes, the indenture or the Basic Documents.
Prior to the due presentment for registration of transfer of this
Note, the Issuer, the Indenture Trustee and any agent of the Issuer or the
Indenture Trustee may treat the Person in whose name this Note (as of the day of
determination or as of such other date as may be specified in the Indenture) is
registered as the owner hereof for all purposes, whether or not this Note be
overdue, and neither the Issuer, the Indenture Trustee nor any such agent shall
be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer with the consent of the Holders of Notes representing a
majority of the Outstanding Amount of all Notes at the time Outstanding. The
Indenture also contains provisions permitting the Holders of Notes representing
specified percentages of the Outstanding Amount of the Notes, on behalf of this
Note (or any one or more Predecessor Notes) shall be conclusive and binding upon
such Holder and upon all future Holders of this Note and of any Note issued upon
the registration of transfer hereof or in exchange hereof or in lieu hereof
whether or not notation of such consent or waiver is made upon this Note. the
Indenture also permits the Indenture Trustee to amend or waive certain terms and
conditions set forth in the Indenture without the consent of Holders of the Note
issued thereunder.
<PAGE>
The term "Issuer" as used in this Note includes any successor to the
Issuer under the Indenture.
The Issuer is permitted by the Indenture, under certain circumstances,
to merge or consolidate, subject to the rights of the Indenture Trustee and the
Holders of Notes under the Indenture.
The Notes are issuable only in registered form in denominations as
provided in the Indenture, subject to certain limitations therein set forth.
The Note and the 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
and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the time, place, and rate, and in the coin or currency herein prescribed.
Anything herein to the contrary notwithstanding, except as expressly
provided in the Basic Documents, neither [Owner Trustee] in its individual
capacity, [Indenture Trustee], in its individual capacity, any owner of a
beneficial in the Issuer, nor any of their respective partners, beneficiaries,
agents, officers, directors, employees or successors or assigns shall be
personally liable for, nor shall recourse be had to any of them for, the payment
of principal of or interest on, or performance of, or omission to perform, any
of the covenants, obligations or indemnifications contained in this Note or the
Indenture, it being expressly understood that said covenants, obligations and
indemnifications have been made by the Owner Trustee for the sole purposes of
binding the interests of the Owner Trustee in the assets of the Issuer. The
Holder of this Note by the acceptance hereof agrees that except as expressly
provided in the Basic Documents, in the case of an Event of Default under the
Indenture, the Holder shall have no claim against any of the foregoing for any
deficiency loss or claim therefrom; provided, however, that nothing contained
-------- -------
herein shall be taken to prevent recourse to, and enforcement against, the
assets of the Issuer for any and all liabilities, obligations and undertakings
contained in the Indenture or in this Note.
<PAGE>
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee
_________________________
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto ______________________________
_________________________________________________________
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints attorney, to transfer said Note on the books kept for registration
thereof, with full power of substitution in the premises.
Dated: ______________ ________________________NOTE: The signature to
this assignment must correspond with the name of
the registered owner as it appears on the face of
the within Note in every particular, without
alteration, enlargement or any change whatsoever.
Signature Guaranteed:
_______________________
Signatures must be guaranteed by an "eligible
guarantor institution" meeting the requirements of
the Indenture Trustee which requirements will
include membership or participation in STAMP or
such other "signature guarantee program" as may be
determined by the Indenture Trustee in addition
to, or in substitution for, STAMP, all in
accordance with the Securities Act of 1934, as
amended.
___________________
<PAGE>
EXHIBIT E
REGISTERED $_________
No. R
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP NO.
[Unless this note is presented by an authorized representative of The
Depository Trust Company, a New York corporation ("DTC"), to the issuer or its
agent for registration of transfer, exchange or payment, and any Note issued is
registered in the name of Cede & Co. or in such other name as is requested by an
authorized representative of DTC (and any payment is made to Cede & Co. or to
such other entity as is requested by an authorized representative of DTC) - ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.]
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH
HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME
MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
ACCREDITED MORTGAGE LOAN TRUST 199_-_
[FLOATING RATE] Mortgage BACKED NOTES,
[Class A-2]
Accredited Mortgage Loan Trust 199_, - a business trust organized and
existing under the laws of the State of Delaware (herein referred to as the
"Issuer"), for value received, hereby promises to pay to
[_____________________], or registered assigns, the principal sum of
[____________] DOLLARS payable on each Payment Day in an amount equal to the
result obtained by multiplying (i) a fraction the numerator of which is $[INSERT
INITIAL PRINCIPAL AMOUNT OF NOTE] and the denominator of which is
[$_____________] by (ii) the aggregate amount, if any, payable from the Note
Distribution Account in respect of principal on the [Class A-2] Notes pursuant
to Section 8.02(c) of the Indenture; provided, however, that the entire unpaid
-------- -------
principal amount of this Note shall be due and payable on the earlier of
___________, 199_ and the Redemption Date, if any, pursuant to Section 10.1(a)
of the Indenture. No payments of principal of the [Class A-2] Notes shall be
made until the principal of the [Class A-1] Notes has been paid in its entirety.
The Issuer will pay interest on this Note at the [Class A-2] Note Interest Rate
on each Payment Date until the principal of this Note is paid or made
<PAGE>
available for payment, on the principal amount of this Note outstanding on the
preceding Payment Date after giving effect to all payments of principal made on
such preceding Payment Date (or in the case of the first Payment Date, on the
initial principal amount of this Note). Interest on this Note will accrue for
each Payment Date from and including the most recent Payment Date on which
interest has been paid to but excluding such Payment Date or, if no interest has
yet been paid, from ________, 199_. Interest will be computed on the basis of a
360-day year for the actual number of days in the period for which such interest
is payable. Such principal of and interest on this Note shall be paid in the
manner specified on the reverse hereof.
The principal of and interest on this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the Issuer
with respect to this Note shall be applied first to interest due and payable on
this Note as provided above and then to the unpaid principal of this Note.
Reference is made to the further provisions of this Note set forth on
the reverse hereof, which shall have the same effect as though fully set forth
on the face of this Note.
Unless the certificate of authentication hereof has been executed by
the Indenture Trustee whose name appears below by manual signature, this Note
shall not be entitled to any benefit under the indenture referred to on the
reverse hereof, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be
signed, manually or in facsimile, by its Authorized Officer.
Date: ACCREDITED MORTGAGE LOAN TRUST 199_-_,
By: [OWNER TRUSTEE],
not in its individual capacity but
solely as Owner Trustee under the Trust
Agreement,
By:______________________
Name:
Title:
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the
within-mentioned Indenture.
By: _____________________,
not in its individual capacity but
solely as Trustee,
By:______________________
Authorized Signatory
<PAGE>
[REVERSE OF NOTE]
This Note is one of the [Class A-2] Notes of a duly authorized issue
of Notes of the Issuer, designated as its [Floating Rate] Mortgage Backed Notes
(herein called the "Notes"), all issued under an Indenture dated as of
_____________, 199_ (such indenture, as supplemented or amended, is herein
called the "Indenture"), between the Issuer and The Bank of New York, as
indenture trustee (the "Indenture Trustee", which term includes any successor
indenture trustee under the Indenture), to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the respective
rights and obligations thereunder of the Issuer, the Indenture Trustee and the
Holders of the Notes. The Notes are subject to all terms of the Indenture. All
terms used in this Note that are defined in the Indenture, as supplemented or
amended, shall have the meanings assigned to them in or pursuant to the
Indenture, as so supplemented or amended.
The Notes are and will be equally and ratably secured by the
collateral pledged as security therefor as provided in the Indenture.
Principal of the Notes will be payable on each Payment Date in an
amount described on the face hereof. "Payment Date" means the __th day of each
------------
______, ______, ______ and ______ or, if any such date is not a Business Day,
the next succeeding Business Day, commencing _____________, 1993.
As described above, the entire unpaid principal amount of this Note
shall be due and payable on the earlier of _______, 199_ and the Redemption
Date, if any, pursuant to Section 10.01(a) of the Indenture. Notwithstanding
the foregoing, the entire unpaid principal amount of the Notes shall be due and
payable on the date on which an Event of Default shall have occurred and be
continuing and the Indenture Trustee or the Holders of the 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
5.02 of the Indenture. All principal payments on the Notes of a Class shall be
made pro rata to the Noteholders of such Class entitled thereto.
Payments of interest on this Note due and payable on each Payment
Date, together with the installment of principal, if any, to the extent not in
full payment of this Note, shall be made by check mailed to the Person whose
name appears as the Registered Holder of this Note (or one or more Predecessor
Notes) on the Note Register as of the close of business on each Record Date,
except that with respect to Note registered on the Record
<PAGE>
Date in the name of the nominee of the Clearing Agency (initially, such nominee
to be Cede & Co.), payments will be made by wire transfer in immediately
available funds to the account designated by such nominee. Such checks shall be
mailed to the Person entitled thereto at the address of such Person as it
appears on the Note Register as of the applicable Record Date without requiring
that this Note be submitted for notation of payment. Any reduction in the
principal amount of this Note (or any one or more Predecessor Notes) effected by
any payments made on any Payment Date shall be binding upon all future Holders
of this Note and of any Note issued upon the registration of transfer hereof or
in exchange hereof or in lieu hereof, whether or not noted hereon. If funds are
expected to be available, as provided in the Indenture, for payment in full of
the then remaining unpaid principal amount of this Note on a Payment Date, then
the Indenture Trustee, in the name of and on behalf of the Issuer, will notify
the Person who was the Registered Holder hereof as of the Record Date preceding
such Payment Date and the amount then due and payable shall be payable only upon
presentation and surrender of this Note at the Indenture Trustee's principal
Corporate Trust Office or at the office of the Indenture Trustee's agent
appointed for such purposes located in ____________________.
The Issuer shall pay interest on overdue installments of interest at
the [Class A-2] Note Interest Rate to the extent lawful.
As provided in the Indenture, the Notes may be redeemed in while, but
not in part, at the option of the Servicer, or any Payment Date on or after the
date on which the Pool Balance is less than or equal to ten percent of the
Initial Pool Balance.
As provided in the Indenture and subject to certain limitations set
forth therein, the transfer of this Note may be registered on the Note Register
upon surrender of this Note for registration of transfer at the office or agency
designated by the issuer pursuant to the Indenture, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Indenture Trustee duly executed by, the Holder hereof or his attorney duly
authorized in writing, with such signature guaranteed by a commercial bank or
trust company located, or having a correspondent located, in The City of New
York or the city in which the Corporate Trust Office is located, or a member
firm of a national securities exchange, and such other documents as the
Indenture Trustee may require, and thereupon one or more new Notes of authorized
denominations and in the same aggregate principal amount will be issued to the
<PAGE>
designated transferee or transferees. No service charge will be charged for any
registration of transfer or exchange of this Note, but the transferor may be
required to pay a sum sufficient to cover any tax or other governmental charge
that may be imposed in connection with any such registration of transfer or
exchange.
Each Noteholder or Note owner, by acceptance of a Note or, in the case
of a Note Owner, a beneficial interest in a Note covenants and agrees that 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
the Indenture or any certificate or other writing delivered in connection
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 or employee of
the Indenture Trustee or the Owner Trustee in its individual capacity, any
holder of a beneficial interest in the Issuer, the Owner Trustee or the
Indenture Trustee or the Owner Trustee or its individual capacity, except as any
such Person may have expressly agreed 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.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case
of a Note Owner, a beneficial interest in a Note covenants and agrees that by
accepting the benefits of the indenture that such Noteholder will not at any
time institute against the Depositor, or join in any institution against the
Depositor of, any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings under any United States Federal or state bankruptcy or
similar law in connection with any obligations relating to the Notes, the
indenture or the Basic Documents.
Prior to the due presentment for registration of transfer of this
Note, the Issuer, the Indenture Trustee and any agent of the Issuer or the
Indenture Trustee may treat the Person in whose name this Note (as of the day of
determination or as of such other date as may be specified in the Indenture) is
registered as the owner hereof for all purposes, whether or not this Note be
overdue, and neither the Issuer, the Indenture Trustee nor any such agent shall
be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the
<PAGE>
Holders of the Notes under the Indenture at any time by the Issuer with the
consent of the Holders of Notes representing a majority of the Outstanding
amount of all Notes at the time Outstanding. The Indenture also contains
provisions permitting the Holders of Notes representing specified percentages of
the Outstanding Amount of the Notes, on behalf of the Holders of Notes
representing specified percentages of the Outstanding Amount of the Notes, on
behalf of the Holders of all the Notes, to waive compliance by the Issuer with
certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Note (or any one or more Predecessor Notes) shall be conclusive and binding
upon such Holder and upon all future Holders of this Note and of any Note issued
upon the registration of transfer hereof or in exchange hereof or in lieu hereof
whether or not notation of such consent or waiver is made upon this Note. The
Indenture also permits the Indenture Trustee to amend or waive certain terms and
conditions set forth in the Indenture without the consent of Holders of the
Notes issued thereunder.
The term "Issuer" as used in this Note includes any successor to the Issuer
under the Indenture.
The Issuer is permitted by the Indenture, under certain circumstances, to
merge or consolidate, subject to the rights of the Indenture Trustee and the
Holders of Notes under the Indenture.
The Notes are issuable only in registered form in denominations as provided
in the Indenture, subject to certain limitations therein set forth.
This Note and the 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 and thereunder
shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place, and rate, and i the coin or currency herein prescribed.
Anything herein to the contrary notwithstanding, except as expressly
provided in the Basic Documents, neither [Owner Trustee] in its individual
capacity, [Indenture Trustee], in its individual capacity, any owner of a
beneficial interest in the Issuer, nor any of their respective partners,
beneficiaries, agents, officers, directors, employees or successors or assigns
<PAGE>
shall be personally liable for, nor shall recourse be had to any of them for,
the payment of principal of or interest on, or performance of, or omission to
perform, any of the covenants, obligations or indemnifications contained in this
Note or the Indenture, it being expressly understood that said covenants,
obligations and indemnifications have been made by the Owner Trustee for the
sole purposes of binding the interests of the Owner Trustee in the assets of the
Issuer. The Holder of this Note by the acceptance hereof agrees that except as
expressly provided in the Basic Documents, in the case of an Event of Default
under the Indenture, the Holder shall have no claim against any of the foregoing
for any deficiency, loss or claim therefrom; provided, however, that nothing
-------- -------
contained herein shall be taken to prevent recourse to, and enforcement against,
the assets of the Issuer for any and all liabilities, obligations and
undertakings contained in the Indenture or in this Note.
<PAGE>
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee
____________________________
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _____________________________________________
________________________________________________________________
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints attorney, to transfer said Note on the books kept for registration
thereof, with full power of substitution in the premises.
Dated: _______________ ________________________NOTE:
The signature to this assignment must correspond
with the name of the registered owner as it
appears on the face of the within Note in every
particular, without alteration, enlargement or any
change whatsoever.
Signature Guaranteed:
_________________________
Signatures must be guaranteed by an "eligible
guarantor institution" meeting the requirements of
the Indenture Trustee which requirements will
include membership or participation in STAMP or
such other "signature guarantee program" as may be
determined by the Indenture Trustee in addition
to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of
1934, as amended.
_________________________
<PAGE>
EXHIBIT F
[Form of Transferee Certificate]
------------------------------
EXHIBIT 4.3
============================================================
TRUST AGREEMENT
among
ACCREDITED HOME LENDERS, INC.
_________________________,
not in its individual capacity but solely as Owner Trustee,
and
_________________________,
as Servicer
Dated as of , 199
---------- --
============================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . 2
SECTION 1.1 Capitalized Terms . . . . . . . . . 2
SECTION 1.2 Other Definitional Provisions . . . 4
ARTICLE II ORGANIZATION . . . . . . . . . . . . . . 5
SECTION 2.1 Name . . . . . . . . . . . . . . . 5
SECTION 2.2 Office . . . . . . . . . . . . . . 5
SECTION 2.3 Purposes and Powers . . . . . . . . 5
SECTION 2.4 Appointment of Owner Trustee . . . 6
SECTION 2.5 Organizational Expenses . . . . . . 6
SECTION 2.6 Declaration of Trust . . . . . . . 6
SECTION 2.7 Liability of the
Certificateholders . . . . . . . . 7
SECTION 2.8 Title to Trust Property . . . . . . 7
SECTION 2.9 Situs of Trust . . . . . . . . . . 7
SECTION 2.10 Representations and Warranties of
the Depositor . . . . . . . . . . . 7
SECTION 2.11 Books and Records; Tax Returns . . 8
SECTION 2.12 Authorized Representative . . . . . 9
ARTICLE III THE CERTIFICATES . . . . . . . . . . . . 9
SECTION 3.1 The Certificates . . . . . . . . . 9
SECTION 3.2 Registration of Transfer and
Exchange of Certificates . . . . . 10
SECTION 3.3 No Charge; Destruction of Void
Certificates . . . . . . . . . . . 10
SECTION 3.4 Mutilated, Destroyed, Lost or
Stolen Certificates . . . . . . . . 10
SECTION 3.5 Persons Deemed Certificateholders . 11
SECTION 3.6 Access to List of
Certificateholders' Names and
Addresses . . . . . . . . . . . . . 11
SECTION 3.7 Acts of Certificateholders . . . . 12
SECTION 3.8 Limitation on Transfer and
Exchange . . . . . . . . . . . . . 12
SECTION 3.9 Payments to Certificateholders . . 13
ARTICLE IV ACTIONS BY THE OWNER TRUSTEE . . . . . . 13
SECTION 4.1 Prior Notice to Certificateholders
with Respect to Certain Matters . . 13
SECTION 4.2 Bankruptcy . . . . . . . . . . . . 14
SECTION 4.3 Rights of Certificateholders to
Direct Owner Trustee . . . . . . . 14
SECTION 4.4 Suits for Enforcement . . . . . . . 14
i
<PAGE>
Page
----
SECTION 4.5 Owner Trustee May Enforce Claims
without Possession of Certificates 15
SECTION 4.6 Limitation on Rights of
Certificateholders . . . . . . . . 15
ARTICLE V AUTHORITY AND DUTIES OF THE OWNER
TRUSTEE . . . . . . . . . . . . . . . . . 16
SECTION 5.1 General Authority . . . . . . . . . 16
SECTION 5.2 General Duties . . . . . . . . . . 16
SECTION 5.3 Action upon Instruction . . . . . . 16
SECTION 5.4 No Duties Except as Specified in
this Agreement or in Instructions . 17
SECTION 5.5 No Action Except Under Specified
Documents or Instructions . . . . . 17
SECTION 5.6 Restrictions . . . . . . . . . . . 17
ARTICLE VI CONCERNING THE OWNER TRUSTEE . . . . . . 18
SECTION 6.1 Acceptance of Trusts and Duties . . 18
SECTION 6.2 Furnishing of Documents . . . . . . 19
SECTION 6.3 Representations and Warranties . . 19
SECTION 6.4 Reliance; Advice of Counsel . . . . 20
SECTION 6.5 Owner Trustee Not Liable for
Certificates or Mortgage Loans . . 21
SECTION 6.6 Not Acting in Individual Capacity . 21
SECTION 6.7 Interpretation of Trust Agreement . 22
ARTICLE VII COMPENSATION AND INDEMNIFICATION OF OWNER
TRUSTEE . . . . . . . . . . . . . . . . . 22
SECTION 7.1 Owner Trustee's Fees and Expenses . 22
SECTION 7.2 Indemnification . . . . . . . . . . 23
ARTICLE VIII SUCCESSOR OWNER TRUSTEES AND ADDITIONAL
OWNER TRUSTEES . . . . . . . . . . . . . 23
SECTION 8.1 Eligibility Requirements for Owner
Trustee . . . . . . . . . . . . . . 23
SECTION 8.2 Resignation or Removal of Owner
Trustee . . . . . . . . . . . . . . 23
SECTION 8.3 Successor Owner Trustee . . . . . . 24
SECTION 8.4 Merger or Consolidation of Owner
Trustee . . . . . . . . . . . . . . 25
SECTION 8.5 Appointment of Co-Owner Trustee or
Separate Owner Trustee . . . . . . 25
ARTICLE IX TERMINATION OF TRUST AGREEMENT . . . . . 27
SECTION 9.1 Termination of Trust Agreement . . 27
ii
<PAGE>
Page
----
SECTION 9.2 Dissolution upon Bankruptcy of the
Depositor . . . . . . . . . . . . . 28
ARTICLE X MISCELLANEOUS . . . . . . . . . . . . . . 29
SECTION 10.1 Supplements and Amendments . . . . 29
SECTION 10.2 Notices . . . . . . . . . . . . . . 30
SECTION 10.3 Merger and Integration . . . . . . 31
SECTION 10.4 Headings . . . . . . . . . . . . . 31
SECTION 10.5 Governing Law . . . . . . . . . . . 31
SECTION 10.6 Counterparts . . . . . . . . . . . 31
SECTION 10.7 No Legal Title to Trust Estate in
Certificateholder . . . . . . . . . 31
SECTION 10.8 Limitation on Rights of Others . . 32
SECTION 10.9 Severability . . . . . . . . . . . 32
SECTION 10.10 Successors and Assigns . . . . . . 32
SECTION 10.11 No Implied Waiver . . . . . . . . . 32
SECTION 10.12 No Petition . . . . . . . . . . . . 32
SECTION 10.13 No Recourse . . . . . . . . . . . . 33
Exhibit A Form of Certificate . . . . . . . . . . . A-1
Exhibit B Investment Letter . . . . . . . . . . . . B-1
iii
<PAGE>
THIS TRUST AGREEMENT, dated as of , 199_ (the "Trust
-----------
Agreement"), among ACCREDITED HOME LENDERS, INC., a California corporation (the
"Depositor"), , a banking corporation, not in
--------- ------------------ -------------
its individual capacity but solely as trustee (together with its permitted
successors in the trusts hereunder, the "Owner Trustee") of the Accredited
-------------
Mortgage Loan Trust 199__-_ (the "Trust"), ____________________, as Servicer
-----
(the "Servicer") and the holders (the "Certificateholders") of undivided
-------- ------------------
percentage interests in the Trust.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual agreements, covenants and undertakings herein contained, the parties
intending to be legally bound, hereby agree as follows:
PRELIMINARY STATEMENTS
----------------------
In the regular course of its business, ____________________, a
__________ corporation (the "Originator"), has originated or acquired the
Receivables. All capitalized terms used in these Preliminary Statements which
are not defined shall have the meanings ascribed to such terms in Article I.
Pursuant to the Mortgage Loan Purchase Agreement, dated ,
------
199 , between the Originator and the Depositor, the Originator assigned the
--
Mortgage Loans to the Depositor.
The Depositor will immediately thereafter transfer and assign the
Mortgage Loans and grant a security interest in the related property to the
Trust. The Mortgage Loans will be serviced by the Servicer, pursuant to a
Servicing Agreement, dated as of the date hereof (the "Servicing Agreement"),
-------------------
among the Servicer, the Depositor, , not in its individual
--------------------
capacity but solely as Collateral Trustee (the "Collateral Trustee"),
------------------ ----------
, and the Trust.
- ---
Each Certificateholder by accepting its Certificate shall be
deemed to have agreed to the terms of this Agreement and to have authorized the
Trust to acquire the Mortgage Loans from the Depositor and hold such Mortgage
Loans and other assets described in the Mortgage Loan Purchase Agreement in
trust for the use and benefit of the Certificateholders. Subject to the terms
and conditions set forth in this Agreement, the Owner Trustee will issue lease
backed certificates (the "Certificates") to the Certificateholders.
------------
1
<PAGE>
ARTICLE I
DEFINITIONS
-----------
SECTION 1.1 Capitalized Terms. For all purposes of this
-----------------
Agreement, the following terms shall have the meanings set forth below:
"Agreement" means this Trust Agreement as originally executed and,
---------
if from time to time supplemented or amended by one or more amendments entered
into pursuant to the applicable provisions hereof, as so supplemented or
amended.
"Applicants" has the meaning ascribed to such term in Section 3.6.
----------
"Basic Documents" means this Agreement, the Servicing Agreement,
---------------
the Indenture, the Mortgage Loan Purchase Agreement, and the other documents and
certificates delivered in connection therewith.
"Certificate" means a Certificate evidencing a Percentage Interest
-----------
in the Trust, executed and delivered by the Owner Trustee to an investor
substantially in the form of Exhibit A.
"Certificateholder" means the Person in whose name a Certificate
-----------------
is registered in the Certificate Register, other than the Depositor.
"Certificate Register" means the register maintained pursuant to
--------------------
Section 3.2.
"Certificate Registrar" or "Registrar" means the registrar
--------------------- ---------
appointed pursuant to Section 3.2.
"Closing Date" means , 199 .
------------ ---------- ---
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Collateral Trustee" has the meaning ascribed to such term in the
------------------
Preliminary Statements.
"Corporate Trust Office" means the office of the Owner Trustee
----------------------
located at ; or at such other address as the
---------------------------------
Owner Trustee may designate by notice to the Certificateholders and the
Depositor, or the principal trust office of any successor Owner Trustee.
2
<PAGE>
"Customer" means a mortgagee, its successors and assigns and any
--------
other person who owes or has guaranteed payment under a Mortgage Loan.
"Depositor" means Accredited Home Lenders, Inc., a California
---------
corporation.
"Eligible Bank" means [Trustee], so long as such bank continues to
-------------
act as Owner Trustee hereunder; thereafter, Eligible Bank means any depository
institution with trust powers organized under the laws of the United States or
any state having capital and surplus in excess of $50,000,000, the deposits of
which are insured to the full extent permitted by law by the Federal Deposit
Insurance Corporation and which is subject to supervision and examination by
federal or state authorities. If such depository institution publishes reports
of condition at least annually, pursuant to law or to the requirements of the
aforesaid supervising or examining authority, then 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.
"Expenses" has the meaning ascribed to such term in Section 7.2.
--------
"Indenture" means the Indenture, dated as of the date hereof,
---------
between , not in its individual capacity but solely as Indenture
-------------
Trustee, and the Trust, as such agreement may be further amended, modified or
supplemented from time to time.
"Mortgage" means the mortgage, deed of trust or other instrument
--------
creating a lien in accordance with applicable law on a Mortgage Property.
"Mortgage Loan Purchase Agreement" has the meaning ascribed to
--------------------------------
such term in the Preliminary Statements.
"Mortgage Loans" means an individual Mortgage Loan which is
--------------
asigned and transferred to the Trustee pursuant to this Agreement, together with
the rights and obligations of a holder thereof and payments thereon and proceeds
therfrom, identified on the Mortgage Loan Schedule annexed hereto as Exhibit __.
"Mortgage Property" means the underlying property securing a
-----------------
Mortgage Loan.
"Note" means a debt instrument issued by the Trust pursuant to the
----
Indenture and secured by the assets of the Trust, executed and delivered by the
Owner Trustee to an investor.
3
<PAGE>
"Noteholders" means any Person in whose name a Note is registered,
-----------
other than the Depositor.
"Owner Trustee" means , not in its individual
------------- -------------
capacity but solely as trustee under this Agreement, until a successor Owner
Trustee shall have been appointed pursuant to the applicable provisions of this
Agreement, and thereafter such successor Owner Trustee.
"Percentage" or "Percentage Interest", means the undivided
---------- -------------------
interest in the Trust expressed as a percentage owned by the holder of a
particular Certificate.
"Person" means any legal person, including any individual,
------
corporation, limited liability company, partnership, joint venture, association,
joint stock company, trust, unincorporated organization or government or any
agency or political subdivision thereof.
"Servicer" has the meaning ascribed to such term in the first
--------
paragraph hereof.
"Servicing Agreement" has the meaning ascribed to such term in the
-------------------
Preliminary Statements.
"Trust Estate" means all right, title and interest of the Trust in
------------
and to the property and rights assigned to the Trust pursuant to the Mortgage
Loan Purchase Agreement, and all other property of the Trust from time to time,
including any rights of the Owner Trustee and the Trust pursuant to the
Servicing Agreement.
SECTION 1.2 Other Definitional Provisions. (a) Capitalized
-----------------------------
terms used herein and not otherwise defined have the meanings assigned to them
in the 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 in effect on the
date hereof. To the extent that the definitions of accounting terms in this
Agreement or in any such certificate or other document are inconsistent with the
4
<PAGE>
meanings of such terms under generally accepted accounting principles, the
definitions contained in this Agreement or in any such certificate or other
documents 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 to the feminine and neuter genders of such terms.
ARTICLE II
ORGANIZATION
------------
SECTION 2.1 Name. The Trust created hereby shall be known as
----
"Accredited Mortgage Loan 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.
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 as the
Owner Trustee may designate by written notice to the Certificateholders and the
Depositor.
SECTION 2.3 Purposes and Powers. (a) 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 and to sell the Notes and/or
Certificates in one or more transactions;
(ii) with the proceeds of the sale of the Notes and the
Certificates, to pay such proceeds to, or as directed in writing by, the
Depositor;
(iii) to assign, grant, transfer, pledge, mortgage and convey the
Trust Estate pursuant to the Indenture and to hold, manage and distribute
to the Certificateholders pursuant to the terms of the Servicing Agreement
any portion of the Trust Estate
5
<PAGE>
released from the lien of, and remitted to the Trust pursuant to, the
Indenture;
(iv) to enter into and perform its obligations under the Basic
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 Basic Documents, to engage
in such other activities as may be required in connection with conservation
of the Trust Estate and the making of distributions to the
Certificateholders and the Noteholders.
The Trust 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 Basic Documents.
SECTION 2.4 Appointment of Owner Trustee. The Seller 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.
SECTION 2.5 Organizational Expenses. The Depositor shall pay
-----------------------
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 will hold the Trust Estate in trust upon and subject to the
condition set forth herein for the use and benefit of the Certificateholders,
subject to the obligations of the Trust under the Basic Documents. It is the
intention of the parties hereto that the Trust constitute a trust and that this
Agreement constitute the governing instrument of such trust. It is the
intention of the parties hereto that, solely for income and franchise tax
purposes, the Trust shall be treated as a partnership, with the assets of the
partnership being the Mortgage Loans and other assets held by the Trust, the
partners of the partnership being the Certificateholders and the Notes being the
debt of the partnership. The parties agree that, unless otherwise required by
appropriate tax authorities, the Trust will file or cause to be filed annual or
other necessary returns, reports and other forms consistent with the
characterization of the Trust as a partnership for such tax purposes. Effective
as of the date hereof, the Servicer and
6
<PAGE>
the Owner Trustee (subject to the provisions hereof) shall have all rights,
powers and duties set forth herein with respect to accomplishing the purposes of
the Trust.
SECTION 2.7 Liability of the Certificateholders. (a) The
-----------------------------------
Depositor shall be liable directly to and will indemnify the Certificateholders,
Noteholders or any other injured party for all losses, claims, damages,
liabilities and expenses of the Trust (including expenses, to the extent not
paid out of the Trust Estate) to the extent that the Depositor would be liable
if the Trust were a limited partnership in which the Depositor were
-----------
a general partner; provided, however, that the Depositor shall not be liable
-------- -------
(i) to any Certificateholder or Noteholder for any losses incurred by such
Certificateholder in the capacity of an investor in the Certificates or such
Noteholder in the capacity of an investor in the Notes or (ii) to any Person for
any losses incurred by such Person as a result of the fraudulent actions,
misrepresentations or willful misconduct of such Person.
(b) No Certificateholder (other than to the extent set forth in
paragraph (a) above) shall have any personal liability for any liability or
obligation of the Trust.
SECTION 2.8 Title to Trust Property. Legal title to all the
-----------------------
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 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.
SECTION 2.9 Situs of Trust. The Trust will be located and
--------------
administered in the State of . All bank accounts maintained by the
---------
Owner Trustee on behalf of the Trust shall be located in the State of
_____________. The Trust shall not have any employees in any state other than
-
; provided, however, that nothing herein shall restrict or prohibit the
- ---- -------- -------
Owner Trustee from having employees within or without the State of .
--------
The only office of the Trust will be at the Corporate Trust Office in .
--------
SECTION 2.10 Representations and Warranties of the Depositor.
-----------------------------------------------
The Depositor hereby represents and warrants to the Owner Trustee that:
(a) The Depositor is duly organized and validly existing as a
corporation in good standing
7
<PAGE>
under the laws of the State of California, with corporate power and
authority to own its properties and to conduct its business as such
properties are currently 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 shall require such qualifications.
(c) The Depositor has the corporate 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
shall have duly authorized such sale and assignment and deposit to the
Trust by all necessary corporate action; and the execution, delivery and
performance of this Agreement has 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 hereof 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 Articles of
Incorporation 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 Basic 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 its properties.
SECTION 2.11 Books and Records; Tax Returns. Except as otherwise
------------------------------
expressly provided in this Agreement, the Owner Trustee shall be responsible for
the keeping of all appropriate books and records relating to the receipt and
disbursement by the Owner Trustee of all monies under this Agreement or any
agreement contemplated hereby. The Owner Trustee agrees to file an application
prepared by the Servicer with the Internal Revenue Service for a taxpayer
identification number with respect to the trust created hereby. The Depositor
shall cause to be timely prepared and
8
<PAGE>
the Depositor shall cause to be timely filed at the expense of the Depositor the
federal fiduciary tax return for the Trust created hereby and, upon the request
of the Depositor, such other tax returns as are required to be executed by the
Owner Trustee. The Owner Trustee and the Depositor, upon request, will furnish
each other with all such information as may reasonably be requested and shall
otherwise cooperate with each other in connection with the preparation of such
income tax returns. The Owner Trustee shall keep copies of all returns
delivered to or filed by it. The Owner Trustee will give to the Depositor, upon
request, periodic information concerning receipts and disbursements by it with
respect to the Trust created by this Agreement.
SECTION 2.12 Authorized Representative. Any officer of the
-------------------------
Servicer will be authorized to act as an authorized representative ("Authorized
----------
Representative") for the Trust in matters relating to the Trust and must be
- --------------
identified on a list of Authorized Representatives delivered by the Servicer to
the Indenture Trustee on the Closing Date and such list may be modified or
supplemented from time to time thereafter. The Servicer agrees to cause its
Authorized Representatives to execute and deliver all documents and to perform
all acts required by the Basic Documents to be executed, delivered and performed
by such Authorized Representatives.
ARTICLE III
THE CERTIFICATES
----------------
SECTION 3.1 The Certificates. The Certificates shall be
----------------
substantially in the form of Exhibit A. The Certificates shall be issuable only
as registered Certificates representing undivided interests in the Trust. The
rights to receive payments with respect to the Certificates are subordinated to
the prior payment in full of all amounts of principal and interest on the Notes.
The Certificates shall be executed by the Owner Trustee on behalf of the Trust
by the manual signature of a duly authorized officer of the Owner Trustee under
the seal of and attested by the manual signature of the Secretary or an
Assistant Secretary or other authorized officer of the Owner Trustee.
Certificates bearing the signatures of individuals who were at the time the
proper officers or authorized signatories of the Owner Trustee shall bind the
Owner Trustee, notwithstanding that such individuals or any of them have ceased
to hold such offices or positions prior to the delivery of such Certificates or
did not hold such offices or positions at the date of such Certificates. All
Certificates shall be dated the date of their execution.
9
<PAGE>
SECTION 3.2 Registration of Transfer and Exchange of
----------------------------------------
Certificates. (a) The Owner Trustee shall maintain, or cause to be maintained,
- ------------
at the Corporate Trust Office a Certificate Register in which the Owner Trustee
shall provide or cause to be provided the registration of Certificates and
transfers and exchanges of Certificates as herein provided. The Owner Trustee
is hereby initially appointed the "Certificate Registrar" and transfer agent for
---------------------
the purpose of registering Certificates and transfers and exchanges of
Certificates as provided herein.
(b) Subject to Section 3.3 and subject to the conditions set
forth in Section 3.8 hereof, upon surrender for registration or transfer of any
Certificate at such office, the Owner Trustee shall execute and deliver, in the
name of the designated transferee or transferees, one or more new Certificates
of a like aggregate Percentage Interest and dated the date of execution by the
Owner Trustee.
(c) At the option of a Certificateholder, Certificates may be
exchanged for other Certificates representing undivided interests in the Trust
and 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 shall execute and deliver the Certificates which
the Certificateholder making the exchange is entitled to receive. Every
Certificate presented or surrendered for transfer or exchange shall be duly
endorsed by, or be accompanied by a written instrument of transfer in form
satisfactory to the Owner Trustee and the Certificate Registrar, duly executed
by the holder thereof or his or her attorney duly authorized in writing.
SECTION 3.3 No Charge; Destruction of Void Certificates. No
-------------------------------------------
service charge shall be made to the Certificateholder for any transfer or
exchange of Certificates, but the Owner Trustee or Certificate Registrar may
require payment or a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any transfer or exchange of
Certificates. All Certificates surrendered for transfer and exchange shall be
disposed of in a manner approved by the Owner Trustee. All Certificates
surrendered to the Paying Agent for payment, shall be delivered by the Paying
Agent to the Owner Trustee for disposition as aforesaid.
SECTION 3.4 Mutilated, Destroyed, Lost or Stolen Certificates.
-------------------------------------------------
If (a) 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 (b) there
10
<PAGE>
is delivered to the Certificate Registrar and the Owner Trustee such security or
indemnity as may be required by each to save it 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 and
deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or
stolen Certificate, a new Certificate of like tenor and Percentage. Upon the
issuance of any new Certificate under this Section 3.4, the Owner Trustee may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses connected
therewith. Any duplicate Certificate issued pursuant to this Section 3.4 shall
constitute complete and indefeasible evidence of ownership of the Percentage
Interest evidenced thereby, as if originally issued, whether or not the
mutilated, destroyed, lost or stolen Certificate shall be found at any time.
SECTION 3.5 Persons Deemed Certificateholders. Prior to due
---------------------------------
presentation of a Certificate for registration of transfer, the Owner Trustee
and the Certificate Registrar may treat the person in whose name any Certificate
is registered as the owner of such Certificate for the purpose of receiving
remittances pursuant to Section 3.3(e) of the Servicing Agreement and for all
other purposes whatsoever, and neither the Owner Trustee, the Certificate
Registrar nor any agent of the Owner Trustee or the Certificate Registrar shall
be affected by notice to the contrary.
SECTION 3.6 Access to List of Certificateholders' Names and
-----------------------------------------------
Addresses. The Certificate Registrar will furnish to the Depositor and the
- ---------
Servicer, within five days after receipt by the Certificate Registrar of a
request therefor from the Depositor or the Servicer in writing, a list, in such
form as the Owner Trustee may reasonably require, of the names and addresses of
the Certificateholders as of the most recent Record Date. If Certificateholders
with an aggregate Percentage of 25% or more (hereinafter referred to as
"Applicants") 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 is
accompanied by a copy of the communication which 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 most recent list of Certificateholders held by the Owner
Trustee. If such list is as of a date more than 90 days prior to the date of
receipt of such Applicants' request, the Owner Trustee shall promptly request
from the Certificate
11
<PAGE>
Registrar a current list as provided above, and shall afford such Applicants
access to such list promptly upon receipt. Every Certificateholder, by
receiving and holding a Certificate, agrees with the Certificate Registrar and
the Owner Trustee that neither the Depositor, the Servicer, the Certificate
Registrar nor the Owner Trustee shall be held accountable by reason of the
disclosure of any such information as to the names and addresses of the
Certificateholders hereunder, regardless of the source from which such
information was derived.
SECTION 3.7 Acts of Certificateholders. (a) Any request,
--------------------------
demand, authorization, direction, notice, consent, waiver or other action
provided by this Agreement to be given or taken by Certificateholders or
Noteholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Certificateholders or Noteholders in
person or by agent duly appointed in writing; and except as herein otherwise
expressly provided, such action shall become effective when such instrument or
instruments are delivered to the Owner Trustee. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Agreement and conclusive in favor of the Owner Trustee, the
Depositor and the Servicer, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Certificateholder
or Noteholder of any such instrument or writing may be proved in any reasonable
manner which the Owner Trustee deems sufficient.
(c) The ownership of Certificates and Notes shall be proved by
the Certificate Register and the Note Register, respectively.
(d) Any request, demand, authorization, direction, notice,
consent, waiver or other act by a Certificateholder or a Noteholder shall bind
every holder of every Certificate or Note issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof, in respect of
anything done, or omitted to be done by the Owner Trustee or the Servicer in
reliance thereon, whether or not notation of such action is made upon such
Certificate or Note.
(e) The Owner Trustee may require such additional proof of any
matter referred to in this Section as it shall deem necessary.
SECTION 3.8 Limitation on Transfer and Exchange. (a) No
-----------------------------------
Certificateholder may sell or transfer any Certificate (whether voluntarily,
involuntarily or by
12
<PAGE>
operation of law) except with the prior written consent of the other
Certificateholders, which consent shall not be unreasonably withheld or delayed.
Any sale or transfer without the prior written consent of the Certificateholders
shall be null and void and confer no rights on the purchaser or transferee with
respect to the Trust, this Agreement or the Owner Trustee.
(b) No Certificate may be transferred to the Owner Trustee, the
Collateral Trustee or the Indenture Trustee.
(c) The Owner Trustee shall have no liability to the Trust
Estate or any Certificateholder arising from a transfer of any such Certificate
in reliance upon a certification described in this Section 3.8. No transfer or
exchange of a Certificate shall be made unless the transferee delivers to the
Owner Trustee the Investment Letter required by this Section 3.8.
SECTION 3.9 Payments to Certificateholders. The Owner Trustee,
------------------------------
by executing this Agreement, is deemed to have instructed the Collateral Trustee
to distribute to the Certificateholders on each applicable Payment Date, in
accordance with their respective Percentage Interests, amounts due and payable
to the Certificateholders on deposit in the Certificate Account pursuant to
Section 3.3(e) of the Servicing Agreement.
ARTICLE IV
ACTIONS BY THE OWNER TRUSTEE
----------------------------
SECTION 4.1 Prior Notice to Certificateholders with Respect to
--------------------------------------------------
Certain Matters. With respect to the following matters, the Owner Trustee shall
- ---------------
not take action unless, at least 30 days before the taking of such action, the
Owner Trustee shall have notified the Certificateholders in writing of the
proposed action and the Certificateholders shall not have notified the Owner
Trustee in writing prior to the 30th day after such notice is given that such
Certificateholders have withheld consent or provided alternative direction:
(a) the initiation of any claim or lawsuit by the Trust (except
claims or lawsuits brought in connection with the collection of the
Mortgage Loans) and the compromise of any action, claim or lawsuit brought
by or against the Trust (except with respect to the aforementioned claims
or lawsuits for collection of Mortgage Loans);
13
<PAGE>
(b) the amendment of the Indenture by a supplemental indenture
in circumstances where the consent of any Noteholder is required; and
(c) the amendment of the Indenture by a supplemental indenture
in circumstances where the consent of any Noteholder is not required and
such amendment materially adversely affects the interest of the
Certificateholders.
SECTION 4.2 Bankruptcy. The Owner Trustee shall not have the
----------
power to commence a voluntary proceeding in bankruptcy relating to the Trust
without 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 4.3 Rights of Certificateholders to Direct Owner Trustee.
----------------------------------------------------
Certificateholders with aggregate Percentage Interests representing [51%] or
more shall have the right to direct the time, method, and place of conducting
any proceeding for any remedy available to the Owner Trustee, or exercising any
trust or power conferred on the Owner Trustee; provided, however, that, the
-------- -------
Owner Trustee shall have the right to decline to follow any such direction if
the Owner Trustee, being advised by counsel, determines that the action so
directed may not lawfully be taken, or if the Owner Trustee in good faith
determines that the action so directed would be illegal or involve it in
personal liability or be unduly prejudicial to the rights of Certificateholders
not parties to such direction; and provided, further that nothing in this
-------- -------
Agreement shall impair the right of the Owner Trustee to take any action deemed
proper by the Owner Trustee and which is not inconsistent with such direction by
the Certificateholders.
SECTION 4.4 Suits for Enforcement. The Owner Trustee, in its
---------------------
discretion may, subject to the provisions of this Article IV, proceed to protect
and enforce its rights and the rights of the Certificateholders under this
Agreement by a suit, action or proceeding in equity or at law or otherwise,
whether for the specific performance of any covenant or agreement contained in
this Agreement or in aid of the execution of any power granted in this Agreement
or for the enforcement of any other legal, equitable or other remedy, as the
Owner Trustee, being advised by counsel, shall deem most effectual to protect
and enforce any of the rights of the Owner Trustee or the Certificateholders.
14
<PAGE>
SECTION 4.5 Owner Trustee May Enforce Claims without Possession
---------------------------------------------------
of Certificates. All rights of action and claims under this Agreement or the
- ---------------
Certificates may be prosecuted and enforced by the Owner Trustee without the
possession of any of the Certificates or the production thereof in any
proceeding relating thereto, and any such proceedings instituted by the Owner
Trustee shall be brought in its own name or in its capacity as Owner Trustee.
Any recovery of judgment shall, after provision of or the payment of the
reasonable compensation, expenses, disbursements and advances of the Owner
Trustee, its agents and counsel, be for the ratable benefit of the
Certificateholders in respect of which such judgment has been recovered.
SECTION 4.6 Limitation on Rights of Certificateholders. (a) 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 Basic
Documents or would be contrary to Section 2.3, nor shall the Owner Trustee be
obligated to follow any such direction, if given.
(b) Except as provided herein, no Certificateholder shall have
any right to vote or in any manner otherwise control the operation and
management of the Certificateholders' interest or the obligations of the parties
hereto.
(c) No Certificateholder shall have any right by virtue or by
availing itself of any provisions of this Agreement to institute any suit,
action, or proceeding in equity or at law upon or under or with respect to this
Agreement, unless such Certificateholder previously shall have given to the
Owner Trustee a written notice of default and of the continuance thereof as
hereinbefore provided, and unless also the holders of Certificates evidencing a
Percentage of 51% or more shall have made written request upon the Owner Trustee
to institute such action, suit or proceeding in its own name as Owner Trustee
hereunder and shall have offered to the Owner Trustee such reasonable indemnity
as it may require against the costs, expenses, and liabilities to be incurred
therein or thereby, and the Owner Trustee, for 30 days after its receipt of such
notice, request, and offer of indemnity, shall have neglected or refused to
institute any such actions, suit, or proceeding; it being understood and
intended, and being expressly covenanted by each Certificateholder with every
other Certificateholder and the Owner Trustee, that no one or more
Certificateholders shall have any right in any manner whatever by virtue or by
availing itself or themselves of any provisions of this Agreement to affect,
disturb, or
15
<PAGE>
prejudice the rights of any other Certificateholders, or to obtain or seek to
obtain priority over or preference to any other such Certificateholder, or to
enforce any right under this Agreement, except in the manner herein provided and
for the equal, ratable, and common benefit of all Certificateholders. For the
protection and enforcement of the provisions of this Section, each and every
Certificateholder and the Owner Trustee shall be entitled to such relief as can
be given either at law or in equity.
ARTICLE V
AUTHORITY AND DUTIES OF THE OWNER TRUSTEE
-----------------------------------------
SECTION 5.1 General Authority. The Owner Trustee is authorized
-----------------
and directed to execute and deliver the Basic 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 Basic Documents to which the Trust is to be a party, in each
case, in such form as the Depositor shall have approved as evidenced
conclusively by the Owner Trustee's execution thereof. 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 Basic Documents.
SECTION 5.2 General Duties. It shall be the duty of the Owner
--------------
Trustee to discharge (or cause to be discharged) all of its responsibilities
pursuant to the terms of this Agreement and the Basic Documents to which the
Trust is a party and to administer the Trust in the interest of the
Certificateholders, subject to the Basic Documents and in accordance with the
provisions of this Agreement.
SECTION 5.3 Action upon Instruction. (a) Subject to Article IV,
-----------------------
the Certificateholders may by written instruction direct the Owner Trustee in
the management of the Trust (except with respect to any actions to be taken by
the Servicer pursuant to the terms of the Servicing Agreement or under any other
Basic Document). Such direction may be exercised at any time by written
instruction of the Certificateholders pursuant to Article IV.
(b) Whenever the Owner Trustee is unable to decide between
alternative courses of action permitted or required by the terms of this
Agreement or under any Basic Document, the Owner Trustee shall promptly give
notice (in such form as shall be appropriate under the circumstances) to 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 written
16
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instruction of the Certificateholders with aggregate Percentage Interests of 51%
or more 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
instruction from the Certificateholders with aggregate Percentage Interests of
51% or more 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 Basic Documents,
as it shall deem to be in the best interests of the Certificateholders, and
shall have no liability to any Person for such action or inaction.
SECTION 5.4 No Duties Except as Specified in this Agreement or in
-----------------------------------------------------
Instructions. The Owner Trustee shall not have any duty or obligations to
- ------------
manage, make any payment with respect to, register, record, sell, dispose of, or
otherwise deal with the 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 or in any document or written instruction received by the
Owner Trustee pursuant to Section 5.3; and no implied duties or obligations
shall be read into this Agreement or any Basic 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 record this Agreement or any Basic 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 Trustee Estate that result from actions by, or claims against, the
Owner Trustee that are not related to the ownership or the administration of the
Trust Estate.
SECTION 5.5 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 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 Basic Documents and
(iii) in accordance with any document or instruction delivered to the Owner
Trustee pursuant to Section 5.3.
SECTION 5.6 Restrictions. The Owner Trustee shall not take any
------------
action that is inconsistent with the purposes of the Trust set forth in Section
2.3.
17
<PAGE>
ARTICLE VI
CONCERNING THE OWNER TRUSTEE
----------------------------
SECTION 6.1 Acceptance of Trusts and Duties. The Owner Trustee
-------------------------------
accepts the trusts hereby created and agrees to perform its duties hereunder
with respect to such trusts but only upon the express terms of this Agreement.
The Owner Trustee also agrees to disburse all moneys actually received by it
constituting part of the Trust Estate upon the terms of the Basic Documents and
this Agreement. The Owner Trustee shall not be answerable or accountable
hereunder or under any Basic Document under any circumstances, except (i) for
its own willful misconduct or gross negligence or (ii) in the case of the
inaccuracy of any representation or warranty contained in Section 6.3 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 not be liable for any error of
judgment made by an officer of the Owner Trustee absent willful misconduct
or gross negligence by such officer;
(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 Servicer or any Certificateholder;
(c) no provision of this Agreement or any Basic 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 Basic Document, if the Owner Trustee 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 Basic Documents,
including the principal of and interest on the Notes, or for any amounts
due with respect to the Certificates;
(e) the Owner Trustee shall not be responsible for or in respect
of the validity or sufficiently 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 Trust Estate or for or in
respect of the validity
18
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or sufficiency of the Basic Documents, other than the certificate of
authentication on the Certificates, and the Owner Trustee shall in no event
assume or incur any liability, duty, or obligation to any Noteholder or to
any Certificateholder, other than is expressly provided for herein and in
the Basic Documents;
(f) the Owner Trustee shall not be liable for the default or
misconduct of the Depositor, the Indenture Trustee, the Collateral Trustee
or the Servicer under any of the Basic Documents or otherwise; and
(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 or any Basic Document, at the
request, order or direction of the Certificateholders with aggregate
Percentage Interests of [51%] or more, unless 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 Basic
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.
SECTION 6.2 Furnishing of Documents. The Owner Trustee shall
-----------------------
furnish to the Certificateholders promptly upon receipt of a written request
therefor, duplicates or copies of all reports, notices, requests, demands,
certificates, financial statements and any other instruments furnished to the
Owner Trustee under the Basic Documents.
SECTION 6.3 Representations and Warranties. The Owner Trustee
------------------------------
hereby represents and warrants to the Depositor, for the benefit of the
Certificateholders, that:
(a) It is a banking corporation duly organized and validly
existing in good standing under the laws of the State of . It
-------------
has all requisite corporate power and authority to execute, deliver and
perform its obligations under this Agreement and the other Basic Documents
to which it is a party.
19
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(b) It has taken all corporate action necessary to authorize the
execution and delivery by it of this Agreement and such other Basic
Documents to which it is a party, and this Agreement and such other
documents will be executed and delivered by one of its officers who is
duly authorized to execute and deliver this Agreement and such other
documents on its behalf.
(c) Neither the execution nor the delivery by it of this
Agreement and the other Basic Documents to which it is a party, nor the
consummation by it of the transactions contemplated hereby or thereby nor
compliance by it with any of the terms or provisions hereof or thereof will
contravene any federal or law, governmental rule or regulation
-------
governing the banking or trust powers of the Owner Trustee or any judgment
or order binding on it, or constitute any default under its charter
documents or by-laws.
SECTION 6.4 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, bond,
or other document or paper believed by it to be genuine and believed by it to be
signed by the proper party or parties. The Owner Trustee may accept a certified
copy of a resolution of the board of directors or other governing body 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 officer of the relevant party, as to such fact of 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
Basic Documents, the Owner Trustee (i) may act directly or through its agents or
attorneys pursuant to agreements entered into with any of them, and the Owner
Trustee shall not be liable for the conduct or misconduct of such agents or
attorneys if such agents or attorneys shall have been selected by the Owner
Trustee with reasonable care, and (ii) may consult with counsel, accountants and
other skilled persons 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 written opinion or advice of any such
counsel, accountants or other
20
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such persons and not contrary to this Agreement or any Basic Document.
SECTION 6.5 Owner Trustee Not Liable for Certificates or Mortgage
-----------------------------------------------------
Loans. (a) Without limiting the representations and warranties of the Owner
- -----
Trustee set forth in Section 6.3, the Owner Trustee makes no representations as
to the validity or sufficiency of this Agreement, any other Basic Document or of
the Certificates (other than its execution thereof) or of any Mortgage Loan or
related document.
(b) The Owner Trustee shall have no responsibility for or with
respect to the validity of any security interest in any Mortgage Loan, the
perfection of any such security interest (whether as of the date hereof or at
any future time), the maintenance of or the taking of any action to maintain
such perfection, the existence or validity of any Mortgage Loan, the validity of
the assignment of any Mortgage Loan to the Trust or of any intervening
assignment, the review of any Mortgage Loan, the completeness of any Mortgage
Loan, the receipt by it or the Collateral Trustee of any Mortgage Loan, the
performance or enforcement of any Mortgage Loan, the existence and
enforceability of any insurance thereon, the compliance by the Servicer, the
Depositor, the Indenture Trustee or the Collateral Trustee with any covenant,
warranty or representation made under any Basic Document or in any related
document or the accuracy of any such warranty or representation, the acts or
omissions of the Servicer, the Depositor, the Collateral Trustee, the Indenture
Trustee or any Customer, any action of the Servicer or the Collateral Trustee
taken in the name of the Owner Trustee or the Trust, any action by the Owner
Trustee taken at the instruction of the Servicer or the preparation and filing
of tax returns for the Trust. No recourse shall be had for any claim based on
any provision of this Agreement, the Basic Documents, the Certificates or any
Mortgage Loan or assignment thereof against [Trustee] in its individual
capacity, and [Trustee] shall not have any personal obligation, liability or
duty whatsoever to any Certificateholder or any other Person with respect to any
such claim, and any such claim shall be asserted solely against the Trust or any
indemnitor who shall furnish indemnity as provided herein, except for such
liability as is finally determined to have resulted from its own gross
negligence or willful misconduct.
SECTION 6.6 Not Acting in Individual Capacity. In accepting the
---------------------------------
trusts hereby created, the Owner Trustee acts in its individual capacity, but in
the performance of its duties as Owner Trustee hereunder and under any document
authorized hereby, the Owner Trustee acts solely as trustee hereunder and not in
its individual
21
<PAGE>
capacity, except to the extent expressly agreed otherwise, and all Persons,
other than the Certificateholders as provided herein, having any claim against
the Owner Trustee by reason of the transactions contemplated hereby shall look
only to the Trust Estate for payment or satisfaction thereof, except to the
extent the Owner Trustee shall expressly agree otherwise in any Basic Document
to which it is a party.
SECTION 6.7 Interpretation of Trust Agreement. In the event that
---------------------------------
the Owner Trustee is uncertain as to the application of any provision of this
Agreement or any other agreement relating to the transactions contemplated
hereby, or such provision is ambiguous as to its application or is, or appears
to be, in conflict with any other applicable provision hereof or any other
agreement relating to the transactions contemplated hereby, or in the event that
this Agreement or any other agreement relating to the transactions contemplated
hereby permits any determination by the Owner Trustee or is silent or incomplete
as to the course of action which the Owner Trustee is required to take with
respect to a particular set of facts, the Owner Trustee may seek instructions
from the Certificateholders and shall not be liable to any person to the extent
that it acts in good faith in accordance with the instructions of the
Certificateholders.
ARTICLE VII
COMPENSATION AND INDEMNIFICATION OF OWNER TRUSTEE
-------------------------------------------------
SECTION 7.1 Owner Trustee's Fees and Expenses. Until the Trust
---------------------------------
has been terminated in accordance with Section 9.1, as compensation for its
services hereunder, the Owner Trustee shall be entitled to receive the Owner
Trustee's Fee pursuant to Section of the Servicing Agreement, payable in
----
advance on the Closing Date and on each [January] Payment Date. The following
fees and expenses of the Owner Trustee (in addition to the Owner Trustee's Fee)
shall be payable from the Trust Estate:
(a) except as otherwise expressly provided herein, all
reasonable expenses, disbursements and advances incurred or made by the
Owner Trustee in accordance with any provision of this Agreement (including
the reasonable compensation and the expenses and disbursements of its
agents and counsel) except any such expense, disbursement or advance as may
be attributable to its negligence or bad faith; and
(b) any loss, liability or expense incurred by the Owner Trustee
without negligence or bad faith on
22
<PAGE>
its part, arising out of or in connection with the acceptance or
administration of this Trust and its duties hereunder and under any Basic
Documents, including the costs and expenses of defending itself against any
claim or liability in connection with the exercise or performance of any of
its powers or duties hereunder.
SECTION 7.2 Indemnification. The Servicer shall be liable as
---------------
primary obligor 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 Basic Documents, the Trust Estate, the
administration of the Trust Estate or the action or inaction of the Owner
Trustee hereunder, except only that the Servicer shall not be liable for or
required to indemnify an Indemnified Party from and against Expenses arising or
resulting from (i) its own willful misconduct or gross negligence or (ii) with
respect to the Owner Trustee, the inaccuracy of any representation or warranty
contained in Section 6.3 expressly made by the Owner Trustee. The indemnities
contained in this Section shall survive the resignation or termination of the
Owner Trustee or the termination of this Agreement. In the event of any claim,
action or proceeding for which indemnity will be sought pursuant to this
Section, the Owner Trustee's choice of legal counsel shall be subject to the
approval of the Servicer, which approval shall not be unreasonably withheld.
ARTICLE VIII
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
------------------------------------------------------
SECTION 8.1 Eligibility Requirements for Owner Trustee. The
------------------------------------------
Owner Trustee hereunder shall at all times be an Eligible Bank. In case at any
time the Owner Trustee shall cease to be eligible in accordance with the
provisions of this Section 8.1, the Owner Trustee shall resign immediately in
the manner and with the effect specified in Section 8.2.
SECTION 8.2 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. Upon receiving such notice
23
<PAGE>
of resignation, the Depositor shall promptly appoint a successor Owner Trustee
by written instrument, in duplicate, one copy of which instrument shall be
delivered to the Depositor 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 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 8.1 and shall fail to resign after
written request therefor by the Depositor, or if at any time the Owner Trustee
shall be legally unable to act, or shall be adjudged a 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 Depositor or any Certificateholder on behalf of itself and
all others similarly situated may petition any court of competent jurisdiction
for the removal of the Owner Trustee and the appointment of a successor Owner
Trustee.
Any resignation or removal of the Owner Trustee and appointment of
a successor trustee pursuant to any of the provisions of this Section 8.2 shall
not become effective until acceptance of appointment by the successor trustee as
provided in Section 8.3.
SECTION 8.3 Successor Owner Trustee. Any successor Owner Trustee
-----------------------
appointed as provided in Section 8.2 shall execute, acknowledge and deliver to
the Depositor, and to its predecessor Owner Trustee an instrument accepting such
appointment hereunder, and thereupon the resignation or removal of the
predecessor Owner Trustee shall become effective and such successor Owner
Trustee, without any further act, deed or conveyance, shall become fully vested
with all the rights, powers, duties and obligations of its predecessor
hereunder, with like effect as if originally named as Owner Trustee. The
predecessor Owner Trustee shall, upon payment of its charges, deliver or cause
to be delivered to the successor Owner Trustee the Mortgage Loans and any
related documents and statements held by it hereunder; and the Depositor and the
predecessor Owner Trustee shall execute and deliver such instruments and do such
other things as may reasonably be requested by the successor Owner Trustee for
fully and certain vesting and confirming in the successor Owner Trustee all such
rights, powers, duties and obligations.
24
<PAGE>
No successor Owner Trustee shall accept appointment as provided in
this Section 8.3 unless, at the time of such acceptance, such successor Owner
Trustee shall be eligible under the provisions of Section 8.1.
Upon acceptance of appointment by a successor Owner Trustee as
provided in this Section 8.3, the successor Owner Trustee shall mail notice of
such succession to each Certificateholder at their addresses as shown in the
Certificate Register.
SECTION 8.4 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 the corporate trust business of the Owner Trustee,
shall be the successor for the Owner Trustee hereunder, provided such
corporation shall be eligible under the provisions of Section 8.1 without the
execution or filing of any paper or any further act on the party of any of the
parties hereto, anything herein to the contrary notwithstanding.
SECTION 8.5 Appointment of Co-Owner Trustee or Separate Owner
-------------------------------------------------
Trustee. Notwithstanding any other provisions of this Agreement, at any time,
- -------
for the purpose of meeting any legal requirements of any jurisdiction in which
any part of the Trust may at the time be located, the Depositor and the Owner
Trustee acting jointly shall have the power and shall execute and deliver all
instruments to appoint one or more Persons approved by the Owner Trustee to act
as co-trustee, jointly with the Owner Trustee, or separate trustee or separate
trustees, of all or any part of the Trust Estate, and to vest in such Person, in
such capacity, such title to the Trust Estate, or any part thereof, and, subject
to the other provisions of this Section, such powers, duties, obligations,
rights and trusts as the Depositor and the Owner Trustee may consider necessary
or desirable. If the Depositor shall not have joined in such appointment within
[15] days after receipt by it of a request so to do, the Owner Trustee alone
shall have the power to make such appointment. 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 8.1 and no notice of the appointment
of any co-trustee or separate trustee shall be required pursuant to Section 8.3.
Each separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
25
<PAGE>
(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,
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 Depositor and the Owner Trustee acting jointly may at
any time accept the resignation of or remove any separate trustee or co-
trustee.
Any notice, request or other writing given to the 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
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 Depositor.
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.
26
<PAGE>
ARTICLE IX
TERMINATION OF TRUST AGREEMENT
------------------------------
SECTION 9.1 Termination of Trust Agreement. (a) This Agreement
------------------------------
(other than Article VII) and the Trust shall terminate and be of no further
force or effect, (i) upon the final distribution by the Paying Agent or the
Servicer, as the case may be, of all moneys or other property or proceeds of the
Trust Estate in accordance with Section of the Servicing Agreement or (ii)
----
at the time provided in Section . The bankruptcy, liquidation, dissolution,
----
death or incapacity of any Certificateholder, other than the Depositor as
described in Section , shall not (i) operate to terminate this Agreement
------
or the Trust, nor (ii) 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 Trust Estate
nor (iii) otherwise affect the rights, obligations and liabilities of the
parties hereto.
(b) Except as provided in Section 9.1(a), neither the Depositor
nor any Certificateholder shall be entitled to revoke or terminate the Trust.
(c) Notice of any termination of the Trust, specifying the
Payment Date upon which the Certificateholders shall surrender their
Certificates to the Paying Agent for payment of the final distribution and
cancellation, shall be given promptly by the Owner Trustee by letter to
Certificateholders mailed within five Business Days of receipt of notice of
termination of the Servicing Agreement from the Servicer given pursuant to
Section of the Servicing Agreement stating (i) the Payment Date upon which
-----
final payment of the Certificates shall be made upon presentation and surrender
of the Certificates at the office of the Paying Agent 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 Paying Agent
therein specified. The Owner Trustee shall give such notice to the Certificate
Registrar (if other than the Owner Trustee) and the Paying Agent at the time
such notice is given to Certificateholders.
In the event that all of the Certificateholders shall not
surrender their Certificates for cancellation within six months after the date
specified in the above mentioned written notice, the Owner Trustee shall give a
second written notice to the remaining Certificateholders to surrender their
Certificates for
27
<PAGE>
cancellation and receive the final distribution with respect thereto. If within
one year after the second notice all the Certificates shall not have been
surrendered for cancellation, the Owner Trustee may take appropriate steps, or
may appoint an agent to take appropriate steps, to contact the remaining
Certificateholders concerning surrender of their Certificates, and the cost
thereof shall be paid out of the funds and other assets that shall remain
subject to this Agreement. Any funds remaining in the Trust after exhaustion of
such remedies shall be distributed by the Owner Trustee to the Depositor.
(d) In no event shall the Trust established pursuant to this
Agreement remain in existence for more than 10 years from , 199 .
------------ --
SECTION 9.2 Dissolution upon Bankruptcy of the Depositor. In the
--------------------------------------------
event that any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceeding or other proceeding, voluntary or involuntary, under any
federal or state bankruptcy or similar law (each, an "Insolvency Event") shall
----------------
occur with respect to the Depositor, this Agreement shall be terminated in
accordance with Section 9.1 60 days after the date of such Insolvency Event,
unless, before the end of such 60-day period the Owner Trustee shall have
received written instructions from each of the Certificateholders (other than
the Depositor) and each of the Noteholders, to the effect that each such party
disapproves of the liquidation of the Mortgage Loans and termination of the
Trust. Promptly after the occurrence of any Insolvency Event with respect to
the Depositor, (i) the Depositor shall give the Indenture Trustee and the Owner
Trustee written notice of such Insolvency Event, (ii) the Owner Trustee shall,
upon the receipt of such written notice from the Depositor, give prompt written
notice to the Certificateholders of the occurrence of such event and (iii) the
Indenture Trustee shall, upon receipt of written notice of such Insolvency Event
from the Owner Trustee or the Depositor, give prompt written notice to the
Noteholders of the occurrence of such event; provided, however, that any failure
-------- -------
to give a notice required by this sentence shall not prevent or delay, in any
manner, a termination of the Trust pursuant to the first sentence of this
Section 9.2. Upon a termination pursuant to this Section, the Owner Trustee
shall direct the Collateral Trustee promptly to sell the assets of the Trust in
a commercially reasonable manner and on commercially reasonable terms. The
proceeds of such a sale of the assets of the Trust shall be treated as
collections under the Servicing Agreement.
28
<PAGE>
ARTICLE X
MISCELLANEOUS
-------------
SECTION 10.1 Supplements and Amendments. (a) This Agreement may
--------------------------
be amended from time to time by the Owner Trustee and the Depositor, without the
consent of any of the Certificateholders or Noteholders, to cure any ambiguity,
to correct or supplement any provisions herein or therein which may be
inconsistent with any other provisions herein or therein, as the case may be, or
to add any other provisions with respect to matters or questions arising under
this Agreement which shall not be inconsistent with the provisions of this
Agreement; provided, however, that such action shall not, as evidenced by an
-------- -------
opinion of counsel for the Depositor or the Servicer, adversely affect in any
material respect the interests of any Certificateholder or any Noteholder.
(b) This Agreement may also be amended from time to time by the
Depositor and the Owner Trustee, with the consent of (x) Noteholders owning a
majority in principal amount of the Notes outstanding and (y) Certificateholders
with an aggregate Percentage Interest of [51%] or more, 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) reduce
-------- -------
in any manner the amount of, or delay the timing of, collections of Mortgage
Loans or distributions which are required to be made on any Note or any
Certificate or (b) reduce the aforesaid percentage of Note principal balance or
Certificate Percentage Interest required to consent to any such amendment,
without the unanimous consent of the Noteholders and the Certificateholders.
(c) Promptly after the execution of any amendment or consent
pursuant to this Section 10.1, the Owner Trustee shall furnish written
notification of the substance of such amendment to each Certificateholder.
(d) It shall not be necessary for the consent of
Certificateholders or Noteholders under this Section 10.1 to approve the
particular form of any proposed amendment, but it shall be sufficient if such
consent shall approve the substance thereof. The manner of obtaining such
consents and of evidencing the authorization of the execution thereof by
Certificateholders or Noteholders shall be subject to such reasonable
requirements as the Owner Trustee may prescribe.
29
<PAGE>
(e) 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.
(f) Upon the execution of any amendment to this Agreement, this
Agreement shall be modified in accordance therewith, and such amendment shall
form a part of this Agreement for all purposes; and every holder of a
Certificate theretofore or thereafter executed and delivered hereunder shall be
bound thereby.
(g) In connection with any amendment pursuant to this Section
10.1 the Owner Trustee shall be entitled to receive an opinion of counsel to the
Depositor or the Servicer acceptable to the Owner Trustee to the effect that
such amendment is authorized or permitted by the Agreement.
SECTION 10.2 Notices. All communications and notices pursuant
-------
hereto to the Depositor, the Servicer, the Owner Trustee or the Certificate
Registrar or the Indenture Trustee shall be in writing and delivered or mailed
to it at the following address:
If to the Depositor:
If to the Servicer:
-------------------------
-------------------------
-------------------------
Attention:
Telecopy Number:
If to the Owner Trustee:
-------------------------
-------------------------
-------------------------
Attention:
Telecopy Number:
If to the Certificate Registrar:
-------------------------
-------------------------
-------------------------
30
<PAGE>
Attention:
Telecopy Number:
If to the Indenture Trustee or to the Noteholders:
-------------------------
-------------------------
-------------------------
Attention:
Telecopy Number:
or at such other address as the party may designate by notice to the other
parties hereto, which shall be effective when received.
All communications and notices pursuant hereto to a
Certificateholder shall be in writing and delivered or mailed at the address
shown in the Certificate Register.
SECTION 10.3 Merger and Integration. Except as specifically
-----------------------
stated otherwise herein, this Agreement sets forth the entire understanding of
the parties relating to the subject matter hereof, and all prior understandings,
written or oral, are superseded by this Agreement. This Agreement may not be
modified, amended, waived, or supplemented except as provided herein.
SECTION 10.4 Headings. The headings of the various Articles and
--------
Sections herein and the Table of Contents are for convenience of reference only
and shall not define or limit any of the terms or provisions hereof.
SECTION 10.5 Governing Law. This Agreement shall be governed by,
-------------
and construed and enforced in accordance with, the laws of the State of
--------
.
- --
SECTION 10.6 Counterparts. This Agreement may be executed in two
------------
or more counterparts (and by different parties on separate counterparts), each
of which shall be an original, but all of which together shall constitute one
and the same instrument.
SECTION 10.7 No Legal Title to Trust Estate in Certificateholder.
---------------------------------------------------
The Certificateholders shall not have legal title to any part of the Trust
Estate. The Certificateholders shall be entitled to receive distributions with
respect to their undivided ownership interest only in accordance with Section
3.9 and Article IX. No transfer, by operation of law or otherwise, of any
right, title or interest of the Certificateholders to and in their ownership
interest in the Trust Estate shall operate to terminate this Agreement or the
trusts hereunder or entitle any transferee to an
31
<PAGE>
accounting or to the transfer to it of legal title to any part of the Trust
Estate.
SECTION 10.8 Limitation on Rights of Others. Except for the
--------------------------------
terms of Section 2.7, nothing in this Agreement, whether express or implied,
shall be construed to give to any Person other than the Owner Trustee and the
Depositor any legal or equitable right, remedy or claim under or in respect of
this Trust Agreement or any covenants, conditions or provisions contained
herein. Such covenants, conditions and provisions are, and shall be held to be,
for the sole and exclusive benefit of the Owner Trustee and the Depositor.
SECTION 10.9 Severability. Any provision of this Agreement that
------------
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or of any
provision in any other Basic Document, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. The provisions of this
Agreement shall remain valid and enforceable notwithstanding the invalidity,
unenforceability, impossibility or illegality of performance of any Basic
Document.
SECTION 10.10 Successors and Assigns. All covenants and
------------------------
agreements contained herein shall be binding upon, and inure to the benefit of,
the Owner Trustee, the Depositor and each Certificateholder and their respective
successors and assigns. Any request, notice, direction, consent, waiver or
other instrument or action by a Certificateholder shall bind its successors and
assigns.
SECTION 10.11 No Implied Waiver. No term or provision of this
-----------------
Agreement may be changed, waived, discharged or terminated orally, but only by
an instrument in writing entered into as provided in Section 10.1 hereof; and
any such waiver of the terms hereof shall be effective only in the specific
instance and for the specific purpose given.
SECTION 10.12 No Petition. The Owner Trustee (not in its
------------
individual capacity but solely as Owner Trustee), by entering into this
Agreement, each Certificateholder, by accepting a Certificate, and the Indenture
Trustee and each Noteholder by accepting the benefits of this Agreement, hereby
covenant and agree that they will not at any time institute against the
Depositor or the Trust, or join in any institution against the Depositor or the
Trust of, any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings, or other proceedings under any federal or state bankruptcy or
similar law in connection with any obligations
32
<PAGE>
relating to the Certificates, the Notes, this Agreement or any of the Basic
Documents.
SECTION 10.13 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, the Collateral 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 Basic Documents.
33
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their respective officers thereunto duly authorized this ____
day of ____________, 199_.
ACCREDITED HOME LENDERS, INC.
By:
-----------------------------------------------
Name:
Title:
,
---------------------
not in its individual capacity
but solely as Owner Trustee of
ACCREDITED MORTGAGE LOAN TRUST
199 -
-- ---
By:
--------------------------------------------------
Name:
Title:
,
----------------------------------------------------
as Servicer
By:
--------------------------------------------------
Name:
Title:
34
<PAGE>
EXHIBIT A
---------
[Form of Face Certificate]
FORM OF CERTIFICATE
-------------------
ACCREDITED MORTGAGE LOAN TRUST 199 -
-- --
THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR AN
INTEREST IN ACCREDITED HOME LENDERS, INC., [TRUSTEE] OR ANY AFFILIATES THEREOF,
AND NEITHER THIS CERTIFICATE NOR THE MORTGAGE LOANS ARE INSURED OR GUARANTEED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
No. R _________ ____% Percentage Interest
This certifies that ___________________________ is the registered
owner of an undivided _____ Percentage Interest in the Accredited Mortgage Loan
Trust 199 - (the "Trust"). The Trust Estate held by the Trust includes among
-- -- -----
its assets a pool of mortgage loans (the "Mortgage Loans"), including, without
---------------
limitation, and any and all rights to receive payments thereunder after the
close of business on , 199 . The Trust has been created pursuant to
------------ -
a Trust Agreement dated as of , 199_ among Accredited Home Lenders,
-------------
Inc., , a corporation (the
--------------------------------------- -------------
"Depositor"), , a banking corporation, not in its
------------------ -----------
individual capacity but solely as Owner Trustee (herein, together with its
permitted successors in the trusts hereunder, called the "Owner Trustee") of the
-------------
Trust, ____________________, a __________ corporation, as servicer (the
"Servicer") and the holders (the "Certificateholders") of undivided percentage
------------------
interests in the Trust, as amended and restated as of , 199_ (the
---------
"Agreement").
This Certificate is one of the Certificates described in the
Agreement and is issued pursuant and subject to the Agreement. By acceptance of
this Certificate, the holder assents to and becomes bound by the Agreement. To
the extent not defined herein, all capitalized terms have the meanings assigned
to them in the Agreement.
THE RIGHTS TO RECEIVE PAYMENTS WITH RESPECT TO THIS CERTIFICATE
ARE SUBORDINATED TO THE PRIOR PAYMENT IN FULL OF ALL AMOUNTS OF PRINCIPAL AND
INTEREST ON THE NOTES.
A-1
<PAGE>
Distributions on this Certificate will be made in accordance with
the terms of the Servicing Agreement by wire transfer to a bank account
previously identified by each Certificateholder of record and appearing on the
Certificate Register, without the presentation or surrender of this Certificate
or the making of any notation hereon. Except as otherwise provided in the
Agreement and notwithstanding the above, the final distribution on this
Certificate will be made after due notice by the Owner Trustee of the pendency
of such distribution and only upon presentation and surrender of this
Certificate at the office of the Collateral Trustee maintained for that purpose
at .
----------------------------------------------------------------------------
Reference is hereby made to the further provisions of this
Certificate set forth on the reverse hereof, which further provisions shall have
the same effect as if set forth at this place.
The holder hereof, by its acceptance of this Certificate, agrees
that it will look solely to the funds in the Trust Estate to the extent
available for distribution to the holder hereof as provided in the Servicing
Agreement for payment hereunder and that the Owner Trustee in its individual
capacity is not personally liable to the holder hereof for any amounts payable
under this Certificate, the Agreement or the Servicing Agreement or, except as
expressly provided in the Agreement, subject to any liability under the
Agreement or any Basic Document.
This Certificate does not purport to summarize the Agreement and
reference is made to the Agreement for information with respect to the
interests, rights, benefits, obligations, proceeds and duties evidenced hereby
and the rights, duties and immunities of the Owner Trustee. Copies of the
Agreement and all amendments thereto will be provided to any Certificateholder
free of charge upon a written request to the Owner Trustee.
A-2
<PAGE>
IN WITNESS WHEREOF, Accredited Mortgage Loan Trust 199_-_ has
caused this Certificate to be duly executed by an authorized officer of the
Owner Trustee and attested by one of the Owner Trustee's authorized officers and
has caused the Owner Trustee's corporate seal to be impressed thereon.
Date: _____________ ACCREDITED MORTGAGE LOAN TRUST 199_-_
By: [Trustee], not in its individual capacity but
solely as Owner Trustee
[Seal] By:___________________________
Authorized Officer
Attest:
________________________
Authorized Officer
A-3
<PAGE>
[Form of Reverse of Certificate]
This Certificate represents a fractional undivided interest in the
Trust. This Certificate is limited in right of payment to certain collections
respecting the Mortgage Loans, all as more specifically set forth herein and in
the Agreement. This Certificate is not insured or guaranteed by any person or
governmental agency.
The Agreement permits, with certain exceptions therein provided,
the amendment thereof and the modification of the rights and obligations of the
Certificateholders under the Agreement at any time by the Depositor and the
Owner Trustee with the consent of the holders of Certificates evidencing [51%]
of the aggregate Percentage Interests and Noteholders owning a majority in
principal amount of the Notes outstanding. Any such consent by the holder of
this Certificate shall be conclusive and binding on such holder and upon all
future holders of this Certificate and of any Certificate issued upon the
transfer hereof or in exchange herefor or in lieu hereof whether or not notation
of such consent is made upon this Certificate. The Agreement also permits the
amendment thereof, in certain limited circumstances, without the consent of any
of the Certificateholders or Noteholders.
As provided in the Agreement and subject to the limitations set
forth in the following paragraph, the transfer of this Certificate is
registerable in the Certificate Register of the Certificate Registrar upon
surrender of this Certificate for registration of transfer at the offices or
agencies maintained by the Owner Trustee at ,
-----------------------------------
accompanied by a written instrument of transfer in form satisfactory to the
Owner Trustee and the Certificate Registrar duly executed by the holder thereof
or his or her attorney duly authorized in writing, and thereupon one or more new
Certificates evidencing the same aggregate Percentage Interest will be issued to
the designated transferee or transferees.
As provided in the Agreement and subject to certain limitations
therein set forth, Certificates are exchangeable for new Certificates of
authorized denominations evidencing the same Percentage Interest as requested by
the holder surrendering the same.
No service charge will be made for any such registration of
transfer or exchange, but the Certificate Registrar may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
A-4
<PAGE>
The Owner Trustee and the Certificate Registrar and any agent of
the Owner Trustee or the Certificate Registrar may treat the person in whose
name this Certificate is registered as the owner hereof for all purposes, and
neither the Owner Trustee, the Certificate Registrar nor any such agent shall be
affected by any notice to the contrary.
The obligations and responsibilities created by the Agreement
(other than Article VII) and the Trust created thereby shall terminate on the
Payment Date next succeeding the Due Period during which the last Mortgage Loan
shall have been liquidated (but not later than six months after completion of
all collection efforts).
ASSIGNMENT
For value received, the undersigned, subject to the provisions of
Sections 3.2 and 3.8 of the Agreement, sells, assigns and transfers unto (name
and address, including zip code and taxpayer I.D. or social security number of
assignee) _____________________________________ the within Certificate and does
hereby irrevocably constitute and appoint _______________________ attorney to
transfer the said Certificate on the books kept for registration thereof with
full power of subscription on the premises.
Dated: ______________________
Signature Guaranteed:
NOTE: The signature to this assignment must correspond with the name of the
registered owner as it appears on the face of the within Certificate in every
particular, without alteration, enlargement or any change whatsoever. Such
signature must be guaranteed by a member of the New York Stock Exchange or a
commercial bank or trust company.
A-5
EXHIBIT 4.4
[CERTIFICATE INSURER]
_____________________
_____________________
Certificate Guaranty Surety Bond
Issuer: Accredited Policy Number:
Mortgage Loan
Trust 199_-_
Control Number:
Deposit Premium:
Certificates: $_________________
in aggregate principal amount of
Mortgage Loan Asset-Backed
Certificates, Senior Interests and
Junior Interests
Trustee:
____________________________________ ("[CERTIFICATE INSURER]"), a New York stock
insurance company, in consideration of payment of the Deposit Premium and
subject to the terms of this Surety Bond, hereby unconditionally and irrevocably
agrees to pay each Insured Payment to the Trustee named above or its successor,
as trustee (the "Trustee"), for the benefit of the Owners of Senior Interests
and Junior Interests (the "Certificates").
[CERTIFICATE INSURER] will make such payment in immediately available funds to
the Trustee by 2:00 P.M. (New York City Time) on the Payment Date on which the
Insured Payment becomes due for payment or on the Business Day next following
the day on which [CERTIFICATE INSURER] shall have received Notice that an
Insured Payment is due for payment, whichever is later. The Trustee will
disburse to the Owners each Insured Payment in the same manner as the payment of
distributions with respect to Certificates. Upon such disbursement,
[CERTIFICATE INSURER] shall be fully subrogated to the Owners' right to receive
the amount so disbursed as set forth in Section 2.10 of the Pooling and
Servicing Agreement. [CERTIFICATE INSURER]'s obligations hereunder shall be
discharged to the extent funds are received by the Trustee, on behalf of the
Owners, for distribution such Owners as provided in the Pooling and Servicing
Agreement or herein, whether or not such funds are properly applied by the
Trustee.
<PAGE>
[CERTIFICATE INSURER]
_____________________
_____________________
Certificate Guaranty Surety Bond
This Surety Bond is non-cancelable for any reason. The premium on this Surety
Bond is not refundable for any reason, including the payment of the Certificates
prior to their maturity.
This Surety Bond is subject to and shall be governed by the laws of the State of
New York. The proper venue for any action or proceeding on this Surety Bond
shall be the County of New York, State of New York. The insurance provided by
this Surety Bond is not covered by the New York Property/Casualty Insurance
Security Fund (New York Insurance Code, Article 76.)
As used herein, the following terms shall have the following meanings:
"Available Funds", "Business Day", "Certificate Account", "Insured Payment",
"Junior Interest Distribution Amount," "Junior Interest Shortfall Amount"
"Junior Principal Shortfall Amount", "Senior Interest Distribution Amount",
"Senior Interest Shortfall Amount", and "Senior Principal Shortfall Amount",
shall have the respective meanings set forth in the Pooling and Servicing
Agreement. "Notice" means telephonic or telegraphic notice, in the form of
Exhibit A, subsequently confirmed in writing, or written notice by registered or
certified mail, from the Trustee to [CERTIFICATE INSURER] specifying the Insured
Payment which shall be due and owing on the Payment Date and Available Funds and
the other information set forth in Exhibit A. "Owner" means, as to a particular
Certificate, the Trustee who on the applicable Payment Date, is required under
the terms of such Certificate to deposit all distributions received with respect
to such Certificate into the Certificate Account. "Payment Date" shall have the
meaning set forth in the Pooling and Servicing Agreement. "Pooling and
Servicing Agreement" means in the Pooling and Servicing Agreement by and among
_________________________________, as Sponsor, ___________________________, as
Servicer and _________________________________, as Trustee, dated as of
___________, 199_, authorizing the issuance of the Certificates.
In addition to the Deposit Premium set forth on the face of this Surety Bond, a
monthly premium shall be due and payable on this Surety Bond on each Payment
Date following the date hereof in an amount equal to the product of (i)
one-twelfth of ___% and (ii) the sum of the Senior Principal Balance and
2
<PAGE>
[CERTIFICATE INSURER]
_____________________
_____________________
Certificate Guaranty Surety Bond
the Junior Principal Balance on the Payment Date on which said premium shall be
due and payable.
In the event that payments under any Certificate are accelerated, nothing herein
contained shall obligate [CERTIFICATE INSURER] to make any payment of principal
or interest on such Certificates on an accelerated basis, unless such
acceleration of payment by [CERTIFICATE INSURER] is at the sole option of
[CERTIFICATE INSURER].
In Witness Whereof, [CERTIFICATE INSURER] has caused this Surety Bond to be
affixed with its corporate seal and to be signed by its duly authorized officers
in facsimile to become effective and binding upon [CERTIFICATE INSURER] by
virtue of the countersignature of its duly authorized representative.
President Assistant Secretary
Effective Date:
3
<PAGE>
EXHIBIT A
---------
FORM OF NOTICE
--------------
TO: [CERTIFICATE INSURER]
____________________
____________________
Attention: Managing Counsel
(Telefacsimile ____________)
RE: Accredited Mortgage Loan Trust 199_-_
Mortgage Loan Asset-Backed Certificates, Series 199_-_
Policy No.
Date: _______________
Payment Date: ____________________________
We refer to that certain Pooling and Servicing Agreement relating to Accredited
Mortgage Loan Trust 199_-_ and dated as of ___________, 199_; all capitalized
terms not otherwise defined herein shall have the same respective meanings as
set forth in such Pooling and Servicing Agreement.
As of the date set forth above, the Trustee has determined under the Pooling and
Servicing Agreement that in respect of the Payment Date:
(i) the Senior Interest Distribution Amount due and owing is
$________;
(ii) the Junior Interest Distribution Amount due and owing is
$________;
(iii) Available Funds is $____________;
(iv) the Senior Interest Shortfall Amount is $________;
(v) the Junior Interest Shortfall Amount is $________;
(vi) the Senior Principal Shortfall Amount is $________;
(vii) the Junior Principal Shortfall Amount is $________.
Please be advised that, as of the date set forth above, Available Funds are not
sufficient to pay all of the Senior
4
<PAGE>
Interest Distribution Amount and Junior Interest Distribution Amount in respect
of the Payment Date set forth above.
Accordingly, an insufficiency in Available Funds exists with respect to the
Payment Date set forth above and, pursuant to Section 2.14 of the Pooling and
Servicing Agreement, this statement constitutes a claim for an Insured Payment
in the amount of $_________ under the Certificate Insurance Policy.
_______________________________,
as Trustee
By:
-------------------------------------
Name:
-----------------------------------
Telephone Number:
-----------------------
5
Exhibit 4.5
PROSPECTUS SUPPLEMENT
(To Prospectus Dated__________, 1996)
$______________
Accredited Mortgage Loan Trust 1996-1
$__________ Class A-1 Certificates, _____% Pass-Through Rate
$__________ Class A-2 Certificates, Variable Pass-Through Rate
Mortgage Loan Asset-Backed Certificates, Series 1996-1
Accredited Home Lenders, Inc.
Sponsor and Master Servicer
The Mortgage Loan Asset-Backed Certificates, Series 1996-1 (the
"Certificates"), offered hereby will consist of one Class of fixed-rate
Certificates (the "Class A-1 Certificates"), and one Class of variable-rate
Certificates (the "Class A-2 Certificates," together with the Class A-1
Certificates, the "Class A Certificates" or the "Offered Certificates")
issued by the Accredited Mortgage Loan Trust 1996-1 (the "Trust"). In
addition to the Offered Certificates, the Trust will issue a subordinate
Class of fixed-rate Certificates (the "Class B-1 Certificates"), a
subordinate Class of variable-rate Certificates (the "Class B-2
Certificates", together with the Class B-1 Certificates, the "Class B
Certificates") and one or more Classes of Residual Interest Certificates
(the "Class R Certificates"). Only the Offered Certificates are offered
hereby. Distributions of interest on the Class A Certificates are of an
equal priority to the extent described herein, and distributions on the
Class B Certificates and on the Class R Certificates are subordinate to
distributions on the Class A Certificates to the extent described herein.
The Trust will be created pursuant to a Pooling and Servicing
Agreement (the "Pooling and Servicing Agreement") between Accredited Home
Lenders, Inc., in its capacity as the sponsor (the "Sponsor") of the Trust
and in its capacity as master servicer (the "Master Servicer") of the
Mortgage Loans, and Bankers Trust Company, as trustee (the "Trustee"). The
obligations of the Sponsor and of the Master Servicer with respect to the
Certificates will be limited to their respective contractual obligations
under the Pooling and Servicing Agreement. The assets of the Trust will
include two groups (each, a "Mortgage Loan Group" or "Group", and together,
the "Mortgage Loan Pool") of closed-end mortgage loans (the "Mortgage
Loans") secured by mortgages or deeds of trust (the "Mortgages") on one to
four-family residential properties (the "Mortgaged Properties") to be
conveyed to the Trust on the Closing Date. The Class A-1 Certificates and
the Class B-1 Certificates (the "Group I Certificates") will represent
undivided ownership interests in a Group of Mortgage Loans with fixed rates
of interest ("Group I") and the Class A-2 Certificates and Class B-2
Certificates (the "Group II Certificates") will represent undivided
ownership interests in a Group of Mortgage Loans with adjustable rates of
interest ("Group II"). All of the Mortgage Loans have remaining terms to
maturity of 30 years or less and are secured by Mortgages which may be in
first or junior lien positions.
For a discussion of certain risk factors regarding an investment in
the Offered Certificates, see "Risk Factors" herein and in the accompanying
Prospectus. (cover continued on next page)
CERTIFICATE INSURER LOGO
THE OFFERED CERTIFICATES REPRESENT BENEFICIAL INTERESTS ONLY IN THE TRUST
CREATED BY THE POOLING AND SERVICING AGREEMENT AND DO NOT REPRESENT
INTERESTS IN OR OBLIGATIONS OF ACCREDITED HOME LENDERS, INC. NEITHER THE
OFFERED CERTIFICATES NOR THE MORTGAGE LOANS ARE INSURED OR GUARANTEED BY
ANY GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Offered Certificates will be offered by the Underwriter from time
to time to the public in negotiated transactions or otherwise at varying
prices to be determined at the time of the related sale. Proceeds to the
Sponsor are anticipated to be approximately $___________ from the sale of
the Offered Certificates, plus, in the case of the Class A-1 Certificates,
accrued interest thereon at the applicable Pass-Through Rate from _______,
1996, but before deducting expenses payable by the Sponsor, estimated to be
$_________. The Underwriter has agreed to reimburse the Sponsor with
respect to certain of such expenses.
The Offered Certificates are offered subject to prior sale when, as,
and if accepted by the Underwriter and subject to the approval of certain
legal matters. It is expected that delivery of the Offered Certificates in
book-entry form will be made on or about ___________, 1996 only through
DTC, Euroclear and CEDEL.
LEHMAN BROTHERS
_________, 1996
<PAGE>
On or before the issuance of the Certificates, the Sponsor will obtain
from Financial Security Assurance, Inc. (the "Certificate Insurer") a
certificate guaranty insurance policy relating to the Offered Certificates
(the "Certificate Insurance Policy"), in favor of the Trustee.
The Offered Certificates will initially be issued in book-entry form.
Persons acquiring beneficial ownership interests in such Offered
Certificates (each, a "Beneficial Owner") may elect to hold their interests
through The Depository Trust Company ("DTC"), in the United States, or
Centrale de Livraison de Valeurs Mobiliers, S.A. ("CEDEL") or the Euroclear
System ("Euroclear"), in Europe. The Offered Certificates will be offered
in Europe and the United States of America.
Distributions of principal and interest payable on each Class of
Offered Certificates will be made on the 25th day of each month or if the
25th day is not a Business Day, the first Business Day thereafter (each, a
"Distribution Date"), beginning September 25, 1996.
An election will be made to treat certain assets of the Trust as one
or more REMICs for federal income tax purposes. See "Federal Income Tax
Considerations" herein and in the Prospectus.
Prior to their issuance there has been no market for the Offered
Certificates nor can there be any assurance that one will develop, or if it
does develop, that it will provide the Beneficial Owners of the Offered
Certificates with liquidity or will continue for the life of the Offered
Certificates. Lehman Brothers Inc. (the "Underwriter") intends, but is not
obligated, to make a market in the Offered Certificates.
Until 90 days from 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
and a prospectus supplement. This is in addition to the obligation of
dealers to deliver a prospectus and a prospectus supplement when acting as
underwriters and with respect to their unsold allotments or subscriptions.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
OFFERED CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME.
AVAILABLE INFORMATION
The Sponsor has filed a Registration Statement under the Securities
Act of 1933, as amended (the "1933 Act"), with the Securities and Exchange
Commission (the "Commission") on behalf of the Trust with respect to the
Offered Certificates offered pursuant to the Prospectus dated ___________,
1996 and this Prospectus Supplement. For further information, reference is
made to the Registration Statement and amendments thereof and to the
exhibits thereto, which are available for inspection without charge at the
public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549; 7 World Trade Center, 13th Floor,
New York, New York 10048; and at The Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. 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.
S-2
<PAGE>
REPORTS TO THE CERTIFICATEHOLDERS
So long as the Offered Certificates are in book-entry form, monthly
and annual reports concerning the Certificates and the Trust will be sent
by the Trustee to Cede & Co., as the nominee of DTC and as registered
holder of the Offered Certificates pursuant to the Pooling and Servicing
Agreement. DTC will supply such reports to Beneficial Owners in accordance
with its procedures. See "Description of the Securities -- Book-Entry
Registration" in the Prospectus. To the extent required by the Securities
Exchange Act of 1934, as amended, the Trust will provide financial
information to the Owners which has been examined and reported upon, with
an opinion expressed by an independent public accountant; to the extent not
so required, such financial information will be unaudited. The Sponsor has
determined that the financial statements of no entity other than the
Certificate Insurer are material to the offering made hereby. The Trust
will be formed to own the Mortgage Loans, and to issue the Certificates.
The Trust will have no assets or obligations prior to issuance of the
Certificates and will engage in no activities other than those described
herein. Accordingly, no financial statements with respect to the Trust are
included in this Prospectus Supplement. The audited financial statements
of the Certificate Insurer are set forth in Appendix A hereto, and the
unaudited interim financial statements of the Certificate Insurer are set
forth in Appendix B hereto.
S-3
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus. Reference is made to the Index of Principal Defined
Terms for the location in the Prospectus Supplement or the accompanying
Prospectus of the definitions of certain capitalized terms.
Issuer Accredited Mortgage Loan Trust 1996-1
Securities Offered Class A-1 Certificates and Class A-2 Certificates.
Sponsor and Master Servicer Accredited Home Lenders, Inc., a California
corporation. The Sponsor's principal executive
offices are located at 15030 Avenue of Science,
Suite 100, San Diego, California 92128, and its
phone number is (619) 676-2100.
Subservicer Advanta Mortgage Corp. USA, a Delaware corporation
(the "Subservicer"). The Subservicer's principal
executive offices are located at 16875 West
Bernardo Drive, San Diego, California 92127 and
its phone number is (619) 674-3317.
Cut-Off Date August 1, 1996.
Closing Date __________, 1996.
The Certificates Mortgage Loan Asset-Backed Certificates, Series
1996-1 consisting of the Offered Certificates, the
Class B Certificates and the Class R Certificates
issued pursuant to a Pooling and Servicing
Agreement dated as of August 1, 1996 among the
Master Servicer, the Sponsor and the Trustee.
Only the Offered Certificates are offered hereby.
The Group I Certificates will represent undivided
ownership interests in the fixed-rate Mortgage
Loans which comprise Group I and the Group II
Certificates will represent undivided ownership
interests in the adjustable-rate Mortgage Loans
which comprise Group II.
The Offered Certificates are issuable in original
principal amounts of $1,000 and integral multiples
thereof, except that one Certificate for each
Class of Offered Certificates may be issued in a
lesser amount.
Final Scheduled The Final Scheduled Distribution Date will be_____
Distribution Dates for the Class A-1 Certificates and __________ for
the Class A-2 Certificates. It is expected that
the actual final Distribution Date for each Class
of Offered Certificates will occur significantly
earlier than such Final Scheduled Distribution
Dates. See "Yield and Maturity Considerations"
herein and in the Prospectus.
The Mortgage Loans The statistical information presented in this
Prospectus Supplement concerning the pool of
Mortgage Loans is based on the pool as of August
__, 1996 (such date, the "Statistic
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<PAGE>
Calculation Date"). The aggregate principal
balances of Mortgage Loans as of the Statistic
Calculation Date was
$__________ with respect to Group I and $
_____________ with respect to Group II. The
Sponsor expects that the aggregate principal
balances of Mortgage Loans in the Mortgage Loan
Pool as of the Closing Date will be approximately
$_______________ with respect to Group I and
approximately $_______________ with respect to
Group II, in each case, plus or minus 5%. See
"The Mortgage Loan Pool -- General." As a result
of the foregoing, the statistical distribution of
characteristics as of the Closing Date for the
final Mortgage Loan Pool may vary somewhat from
the statistical distribution of such
characteristics as of the Statistic Calculation
Date as presented in this Prospectus Supplement,
although such variance will not be material.
Unless otherwise noted, all statistical
percentages in this Prospectus Supplement are
measured by the aggregate principal balance of the
related Mortgage Loans as of the Statistic
Calculation Date.
The Mortgage Loans will consist of loans used to
purchase a new home, to refinance an existing
mortgage loan on more favorable terms, to
consolidate debt, or to obtain cash proceeds by
borrowing against the Mortgagor's equity in the
related Mortgaged Property. As of the Statistic
Calculation Date, the Mortgage Loans consisted of
_____ Mortgages (and the related Mortgage Notes)
on one to four-family residential properties
(which may be condominiums, townhouses or homes in
one to four-family residences), including
investment properties located in ___ states,
_______% of which were first priority Mortgages
and _____% of which were second priority
Mortgages. All of the Mortgage Loans will be
closed-end mortgage loans in that the mortgagee is
not required to make future advances thereunder;
will have remaining terms to maturity of less than
30 years; and will be actuarial loans as defined
herein under "The Mortgage Loan Pool -- General."
The Mortgage Loans will not be guaranteed by the
Sponsor, and no Mortgage Loan will be insured by
primary mortgage insurance policies or pool
insurance; however, certain distributions due to
the Owners of the Offered Certificates will be
insured by the Certificate Insurer pursuant to the
Certificate Insurance Policy. See "The
Certificate Insurance Policy" and "The Certificate
Insurer" herein.
Servicing of Mortgage Loans The Mortgage Loans are required to be serviced by
the Master Servicer pursuant to the Pooling and
Servicing Agreement. Pursuant to a Subservicing
Agreement dated as of __________ 1, 1996 between
the Master Servicer and the Subscriber (the
"Subservicing Agreement"), the Master Servicer
will delegate substantially all of its servicing
obligations to the Subservicer. See "Servicing of
Loans" in the Prospectus. The Subservicer
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<PAGE>
may not be removed or replaced without the consent
of the Certificate Insurer.
Original Certificate
Principal Balances Class A-1 Certificates:
Class A-2 Certificates: $____________.
In the event that the Sponsor does not, as of the
Closing Date, have the full amount of Mortgage
Loans which the Sponsor expects to sell to the
Trust on such date (i.e., $_______________ with
----
respect to Group I and $_______________ with
respect to Group II) the Sponsor will reduce the
amounts of the Offered Certificates (which, if
such reduction relates to Group I will be a pro
---
rata reduction in each Class of Offered
----
Certificates); the Sponsor does not expect that
the original principal amount of any Class of
Offered Certificates will increase or decrease by
more than 5% as a result of such non-delivery.
Even if the full expected amount of Mortgage Loans
is delivered, certain adjustments (plus or minus
5%) may occur in the Class sizes.
Class A-1 Pass-Through Rate ____% per annum.
Class A-2 Pass-Through Rate The Class A-2 Pass-Through Rate will be equal to
the lesser of (i)(a) with respect to any
Distribution Date which occurs on or prior to the
Step-Up Distribution Date, the London interbank
offering rate ("LIBOR") for one-month United
States dollar deposits ("One-Month LIBOR")
(calculated as described under "Description of the
Certificates -- Calculation of LIBOR" herein) plus
____% per annum or (b) with respect to any
Distribution Date thereafter, One-Month LIBOR plus
____% per annum and (ii) the Class A-2 Available
Funds Pass-Through Rate for such Distribution
Date. The excess, if any, of (x) the interest due
on the Class A-2 Certificates on any Distribution
Date calculated at the rate described in clause
(i) above (the "Class A-2 Formula Pass-Through
Rate") over (y) the interest due on the Class A-2
Certificates calculated at the Class A-2 Available
Funds Pass-Through Rate is the "Supplemental
Interest Amount" for such Distribution Date.
If, on any Distribution Date, there is a
Supplemental Interest Amount calculated for any
Distribution Date, the Owners of certain of the
Class R Certificates have agreed to pay such
amount. If the full amount of the Supplemental
Interest Amount is not paid on a Distribution
Date, then the amount not paid will accrue
interest at the Class A-2 Formula Pass-Through
Rate until such amount is paid on subsequent
Distribution Dates.
The Certificate Insurer does not guarantee the
payment of, nor do the ratings assigned to the
Class A-2 Certificates address the likelihood of
the payment of, any Supplemental Interest Amount.
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<PAGE>
The "Class A-2 Available Funds Pass-Through Rate,"
as of any Distribution Date, equals an amount,
expressed as a per annum rate, equal to (a)(i) the
aggregate amount of interest due and collected or
advanced on all of the Mortgage Loans in Group II
for the related Remittance Period [plus the
Subordination Reduction Amount for Group II, if
any, for such Distribution Date minus] (ii) the
aggregate of the Servicing Fee and the Trustee's
Fee and the premium due to the Certificate
Insurer, in each case relating to Group II, on
such Distribution Date and minus (iii) commencing
on the ___th Distribution Date following the
Closing Date, an amount equal to ____% per annum
times the aggregate principal balance of the
Mortgage Loans in Group II as of the beginning of
such related Remittance Period, divided by (b) the
Class A-2 Certificate Principal Balance
immediately prior to such Distribution Date
calculated on the basis of a 360 day year and the
actual number of days elapsed.
The "Step-Up Distribution Date" is the second
Distribution Date which follows the Clean-Up Call
Date.
Distributions, Generally Distributions on the Certificates are required to
be made on the twenty-fifth day of each calendar
month, or if such day is not a Business Day, the
next succeeding Business Day (each, a
"Distribution Date") commencing on September 25,
1996, to the Owners as of the related Record Date.
See "Description of the Certificates --
Distributions, Generally."
Distributions of Interest On each Distribution Date, the interest due with
respect to each Class of Offered Certificates (the
"Class A Interest Distribution Amount") will
equal, in the case of the Class A-1 Certificates,
the interest due with respect to the Class A-1
Certificates, and will be the interest which has
accrued thereon at the Class A-1 Pass-Through Rate
during the calendar month immediately preceding
the calendar month in which such Distribution Date
occurs, and, in the case of the Class A-2
Certificates, the interest which has accrued
thereon at the Class A-2 Pass-Through Rate from
the preceding Distribution Date (or from the
Closing Date, in the case of the first
Distribution Date) to and including the day prior
to the current Distribution Date, in each case,
together with any unpaid interest shortfalls
relating to such Class from prior periods; the
Class A Interest Distribution Amount for the Class
A-2 Certificates will not include any Supplemental
Interest Amount. Each period referred to in the
prior sentence relating to the accrual of interest
is the "Accrual Period" for the related Class of
Offered Certificates.
Calculations of interest on the Class A-1
Certificates will be made on the basis of a
360-day year assumed to consist of twelve 30-day
months; all calculations of interest on the Class
A-2 Certificates will be made on the basis of the
actual number of days elapsed in the related
Accrual Period, divided by 360.
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<PAGE>
Distributions of Principal The Owners of each Class of Offered Certificates
will be entitled to receive certain monthly
distributions of principal on each Distribution
Date which generally reflect collections of
principal during the prior calendar month. On
each Distribution Date until the Certificate
Principal Balance for a Class of Offered
Certificates has been reduced to zero, the Owners
of each Class of Offered Certificates will be
entitled to receive 100% of the Principal
Distribution Amount with respect to the related
Mortgage Loan Group.
The "Principal Distribution Amount" for each
Mortgage Loan Group will generally equal the
amount of principal due or collected with respect
to the related Mortgage Loans on account of
scheduled payments due during the related
Remittance Period, principal prepayments made
during the related Remittance Period, the purchase
or repurchase of Mortgage Loans required to be
purchased or repurchased during the related
Remittance Period, Substitution Amounts due with
respect to Mortgage Loans substituted during the
related Remittance Period and Mortgage Loans which
became Liquidated Mortgage Loans during the
related Remittance Period, plus any Class B
Interest to be applied to the Certificate
Principal Balance of the related Class of Offered
Certificates pursuant to the subordination
provisions discussed below minus the amount of any
excess subordination previously created pursuant
to such subordination provisions.
In no event will the Class A Principal
Distribution Amount for any class of Offered
Certificates and Distribution Date be less than
zero or be greater than the then-outstanding
Certificate Principal Balance of the related Class
of Offered Certificates.
The subordination provisions of the Pooling and
Servicing Agreement will result in a limited
acceleration of principal payments to the Owners
of each Class of Offered Certificates. Such
subordination provisions are more fully described
under "Description of the Certificates --
Subordination of Class B Certificates" and
"Description of the Certificates -- Cross
Collateralization Provisions." Such subordination
provisions also have an effect on the weighted
average lives and the yields to maturity of the
Offered Certificates. See "Yield and Maturity
Considerations herein and in the Prospectus."
The amount of any loss on a "Liquidated Mortgage
Loan", i.e., a defaulted Mortgage Loan as to which
the Master Servicer has determined that all
amounts that it expects to recover on such
Mortgage Loan have been recovered (exclusive of
any possibility of a deficiency judgment), may or
may not be recovered by the Owners of the related
Class of Offered Certificates on the Distribution
Date which immediately follows the event of loss.
However, the Owners of the Offered Certificates
are ultimately entitled to recovery of any such
loss (each, a "Realized Loss"), which occur in the
related Mortgage Loan Group. Such ultimate
recovery will be in the form of an
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<PAGE>
Insured Payment if not covered by the application
of Class B Interest from the related Mortgage Loan
Group or the other Mortgage Loan Group.
Certificate Insurance Policy The Sponsor will obtain a noncancelable insurance
policy (the "Certificate Insurance Policy") with
respect to the Offered Certificates, in favor of
the Trustee on behalf of the Owners of the Offered
Certificates. On or before each Distribution
Date, the Certificate Insurer will be required to
make available to the Trustee the amount, if any,
by which the Insured Distribution Amount for
either Class of Offered Certificates exceeds the
funds available in the Distribution Account for
distribution with respect to each Class of Offered
Certificates (after deducting the amount necessary
to pay the related premium due to the Certificate
Insurer, the Trustee's Fees and the Servicing Fee)
as of such Distribution Date.
With respect to each Class of Offered Certificates
and any Distribution Date, the "Insured
Distribution Amount" will equal the sum of the
related Class A Interest Distribution Amount and
the amount of the related Subordination Deficit,
if any.
A "Subordination Deficit" with respect to a
Mortgage Loan Group and Distribution Date is the
amount, if any, by which (x) the aggregate
Certificate Principal Balance of the related Class
of Offered Certificates, after taking into account
all distributions to be made on such Distribution
Date (except for any payment to be made as to
principal from the proceeds of the Certificate
Insurance Policy), exceeds (y) the aggregate
principal balances of the Mortgage Loans in the
related Mortgage Loan Group as of the close of
business on the last day of the preceding
Remittance Period.
The Certificate Insurance Policy does not
guarantee to owners of the Offered Certificates
any specified rate of Prepayments. See
"Description of the Certificates -- Distributions
and Insured Payments with Respect to the Offered
Certificates," "The Certificate Insurance Policy"
and "The Certificate Insurer" herein.
A payment by the Certificate Insurer under the
Certificate Insurance Policy is referred to herein
as an "Insured Payment." Insured Payments do not
include Realized Losses until such time as
aggregate, cumulative Realized Losses have created
a Subordination Deficit, nor do Insured Payments
cover the Master Servicer's failure to make
Delinquency Advances until such time as the
aggregate, cumulative amount of such unpaid
Delinquency Advances, when added to Realized
Losses, have created a Subordination Deficit.
Certificate Insurer Financial Security Assurance, Inc.
S-9
<PAGE>
Delinquency Advances
and Compensating
Interest The Master Servicer will be obligated to make
Delinquency Advances to the extent that such
Delinquency Advances, in the Master Servicer's
reasonable judgment, are reasonably recoverable
from the related Mortgage Loan. Delinquency
Advances are recoverable from (i) future
collections on the Mortgage Loan which gave rise
to the Delinquency Advance, (ii) proceeds from the
liquidation of such Mortgage Loan and (iii) from
certain excess cash flows not applied to any other
purpose. "Delinquency Advances" are amounts
deposited in the Collection Account by the Master
Servicer equal to the sum of the interest and
principal portions (net of the Servicing Fee and
certain other administrative amounts, if any) due,
but not collected with respect to delinquent
Mortgage Loans during the related Remittance
Period. See "Servicing of Loans - Advances and
Limitations Thereon" in the Prospectus.
In addition, the Master Servicer will also be
required to deposit Compensating Interest in the
Collection Account with respect to any full
Prepayment received on a Mortgage Loan during the
related Remittance Period out of its own funds
without any right of reimbursement therefor.
"Compensating Interest" is an amount equal to the
difference between (x) 30 days' interest at the
Mortgage Loan's coupon rate on the Loan Balance as
of the first day of the related Remittance Period
and (y) the interest paid by the Mortgagor with
respect to such Remittance Period. The Master
Servicer will not be required to pay Compensating
Interest with respect to any Remittance Period in
an amount in excess of the aggregate Servicing Fee
received by the Master Servicer for such
Remittance Period. See "Servicing of Loans -
Servicing Compensation and Payment of Expenses" in
the Prospectus.
Book-Entry Registration of
the Offered Certificates The Offered Certificates will initially be issued
in book-entry form ("Book-Entry Certificates").
Beneficial Owners may elect to hold their
interests through DTC in the United States or
CEDEL or Euroclear in Europe. The interests of
the Beneficial Owners of the Offered Certificates
will be represented by book-entries on the records
of DTC, CEDEL or Euroclear. No Beneficial Owner
will be entitled to receive a definitive
certificate representing such person's interest (a
"Definitive Certificate"), except in the event
that Definitive Certificates are issued under the
limited circumstances described under "Description
of the Securities -- Definitive Certificates" in
the Prospectus. All references in this Prospectus
Supplement to any Offered 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 Offered
Certificates are held by DTC. See "Description of
the Certificates -- Book-Entry Registration of the
Offered Certificates" herein, and Annex I to this
Prospectus
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<PAGE>
Supplement, and "Description of the Securities --
Book-Entry Registration" in the Prospectus.
Servicing Fee Accredited Home Lenders, Inc. will retain a
Servicing Fee equal to _____% per annum.
Subordination of
Class B Certificates The Class B Certificates are Subordinated to the
Class A Certificates. Such subordination is
intended to enhance the likelihood that the Owners
of the Class A Certificates will receive full and
timely receipt of all amounts due to them. See
"Description of the Certificates -- Subordination
of Class B Certificates" herein.
Optional Termination The Master Servicer, acting directly or through a
permitted designee, will have the right to
purchase from the Trust all the Mortgage Loans and
other property then held by the Trust, at a price
at least equal to the aggregate Certificate
Principal Balances of all Offered Certificates
plus the aggregate Class A Interest Distribution
Amounts with respect thereto, on any Remittance
Date after the Remittance Period during which the
outstanding aggregate principal balances of the
Mortgage Loans in the Trust have declined to 10%
or less of the aggregate principal balances of the
Mortgage Loans as of the Closing Date. The first
such Remittance Date on which such option may be
exercised is the "Clean-Up Call Date." See "The
Pooling and Servicing Agreement - Optional
Termination" herein.
Ratings It is a condition of the original issuance of the
Offered Certificates that the Offered Certificates
receive ratings of AAA by Standard & Poor's
Ratings Group, a division of The McGraw Hill
Companies ("Standard & Poor's"), and Aaa by
Moody's Investors Service, Inc. ("Moody's"). A
security rating is not a recommendation to buy,
sell or hold securities, and may be subject to
revision or withdrawal at any time by the
assigning entity. The ratings issued by Standard
& Poor's and Moody's on the payment of principal
and interest do not cover the payment of the
Supplemental Interest Amounts. See "Ratings"
herein and "Yield and Maturity Considerations"
herein and in the Prospectus.
Federal Tax Aspects For federal income tax purposes, an election will
be made to treat certain assets of the Trust as
one or more REMICs. Each Class of the Group I and
Group II Certificates will be designated as a
"regular interest" in a REMIC and each will be
treated as a debt instrument of the Trust for
federal income tax purposes. A Class of Class R
Certificates will be designated as the "residual
interest" ("Residual Interest") with respect to
each REMIC election made by the Trust. See
"Federal Income Tax Considerations" in the
Prospectus. The Class A-2 Certificates and the
rights to receive the Supplemental Interest
Amounts will have the federal income tax
characteristics described herein under "Federal
Income Tax Considerations."
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<PAGE>
ERISA Considerations The Offered Certificates may be purchased by
employee benefit plans that are subject to ERISA,
as amended, provided that certain conditions are
satisfied. See "ERISA Considerations" herein and
in the Prospectus.
Legal Investment
Considerations Although upon their initial issuance all classes
of the Offered Certificates are expected to be
rated AAA by Standard & Poor's and Aaa by Moody's,
no class of Offered Certificates will constitute
"mortgage related securities" for purposes of
SMMEA.
Risk Factors For a discussion of certain factors that should be
considered by prospective investors in the Offered
Certificates, see "Risk Factors" herein and in the
Prospectus.
Certain Legal Matters Certain legal matters relating to the validity of
the issuance of the Certificates will be passed
upon by Dewey Ballantine, New York, New York.
S-12
<PAGE>
RISK FACTORS
Prospective investors in the Offered Certificates should consider the
following factors (as well as the factors set forth under "Risk Factors" in
the Prospectus) in connection with the purchase of the Offered
Certificates.
Nonconforming credit mortgage loans may experience higher rates of
delinquencies and losses. As of the Statistic Calculation Date, all of the
Mortgage Loans included in the Mortgage Loan Pool, measured by aggregate
principal balances, were mortgage loans which do not meet the credit
criteria required by FNMA or FHLMC. See "Risk Factors -- Nonconforming
credit mortgage loans may experience higher rates of delinquencies and
losses" in the Prospectus.
Junior liens may experience higher rates of delinquencies and losses.
As of the Statistic Calculation Date, ___% of the Mortgage Loans included
in the Mortgage Loan Pool, measured by aggregate principal balances, were
secured by second priority Mortgages. See "Risk Factors -- Junior liens
may experience higher rates of delinquencies and losses" in the Prospectus.
"Balloon" loans may experience higher rates of delinquencies and
losses. As of the Statistic Calculation Date, ___% of the Mortgage Loans
included in the Mortgage Loan Pool, measured by aggregate principal
balances, were "balloon" loans. See "Risk Factors -- 'Balloon' loans may
experience higher rates of delinquencies and losses" in the Prospectus.
Adjustable-rate loans may experience higher rates of delinquencies and
losses. As of the Statistic Calculation Date, ___% of the Mortgage Loans
included in the Mortgage Loan Pool, measured by aggregate principal
balances, were adjustable-rate loans. See "Risk Factors -- Adjustable-rate
loans may experience higher rates of delinquencies and losses" in the
Prospectus.
Nonowner-occupied loans may experience higher rates of delinquencies
and losses. As of the Statistic Calculation Date, __% of the Mortgage
Loans included in the Mortgage Loan Pool, measured by aggregate principal
balances, were nonowner-occupied loans. See "Risk Factors -- Nonowner-
occupied loans may experience higher rates of delinquencies and losses" in
the Prospectus.
Effect of Mortgage Loan Yield on Class A-2 Pass-Through Rate. The
Mortgage Loans in Group II primarily adjust semiannually, in some cases
after an initial fixed period, based upon a six-month LIBOR index (the
"Index") whereas the Class A-2 Pass-Through Rate on the Class A-2
Certificates adjusts monthly based on One-Month LIBOR and is limited,
through the Class A-2 Available Funds Pass-Through Rate, by the interest
rates on the related Mortgage Loans (unless Supplemental Interest Amounts
(the payment of which is not insured by the Certificate Insurer and the
payment of which is not rated) are funded in full). Because the interest
rates on the Mortgage Loans in Group II adjust less frequently than the
Class A-2 Formula Pass-Through Rate (the maximum possible Class A-2 Pass-
Through Rate), the actual Class A-2 Pass-Through Rate may be lower than the
maximum possible amount for extended periods in a rising interest rate
environment. In addition, One-Month LIBOR and the Index may respond to
different economic and market factors, and there is not necessarily any
correlation between them. Thus, it is possible, for example, that One-
Month LIBOR may rise during periods in which the Index is falling or that,
even if both One-Month LIBOR and the Index rise during the same period,
One-Month LIBOR may rise much more rapidly than the Index. See
"Description of the Certificates -- Pass-Through Rates" herein.
S-13
<PAGE>
THE MORTGAGE LOAN POOL
General
The statistical information presented in this Prospectus Supplement
concerning the Mortgage Loan Pool is based on the pool as of the Statistic
Calculation Date. As of the Statistic Calculation Date, the aggregate
principal balances of Mortgage Loans in the Mortgage Loan Pool was
$_______________ with respect to Group I and $_______________ with respect
to Group II. The Sponsor expects that the aggregate principal balances of
Mortgage Loans in the Mortgage Loan Pool as of the Closing Date will be
approximately $_______________ with respect to Group I and approximately
$_______________ with respect to Group II. The additional Mortgage Loans
will represent Mortgage Loans originated or acquired by the Sponsor on or
prior to the Closing Date. In addition, with respect to the pool as of the
Cut-Off Date as to which statistical information is presented herein, some
amortization of the pool will occur prior to the Closing Date, certain
loans included in the pool may prepay in full, and other loans 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 as of the Closing Date for the
final Mortgage Loan Pool will vary somewhat from the statistical
distribution of such characteristics as of the Cut-Off Date as presented in
this Prospectus Supplement, although such variance will not be material.
Unless otherwise noted, all statistical percentages in this Prospectus
Supplement are measured by the aggregate principal balance of the related
Mortgage Loans as of the Statistic Calculation Date.
The Mortgage Loan Pool will consist of Mortgage Loans originated or
acquired by the Sponsor. See "The Sponsor and the Master Servicer" herein.
The Mortgage Loan Pool will consist of Mortgage Loans used to purchase
a new home, to refinance an existing mortgage loan on more favorable terms,
to consolidate debt, or to obtain cash proceeds by borrowing against the
Mortgagor's equity in the related Mortgaged Property.
As of the Statistic Calculation Date, the Mortgage Loan Pool contained
_____ Mortgage Loans to be sold by the Sponsor to the Trust evidenced by
Mortgage Notes secured by Mortgages on Mortgaged Properties located in ___
states. The Mortgaged Properties securing the Mortgage Loans will consist
of single-family residences (which may be detached, part of a one-to
four-family dwelling, a condominium unit or a unit in a planned unit
development). The Mortgaged Properties may be owner-occupied [(which
includes second and vacation homes)] or nonowner-occupied investment
properties.
Each of the Mortgage Loans will, as of the Closing Date, have a
remaining term to maturity of less than 30 years; not be 30 or more days
delinquent (except that certain Mortgage Loans, representing in the
aggregate not in excess of 1.00% of the aggregate principal balance of all
Mortgage Loans as of the Cut-Off Date, may be 30-59 days delinquent); and,
with respect to fixed-rate Mortgage Loans, have a Mortgage Rate of at least
____%.
Each of the Mortgage Loans will be an "actuarial" loan, i.e., a loan
under which scheduled payments of principal and interest are applied to the
loan as of a scheduled date each month, regardless of when the payment is
received. None of the Mortgage Loans will be a "rule of 78's" loan. As of
the Cut-Off Date, _____% of the Mortgage Loans were secured by first
priority Mortgages on the related Mortgaged Properties and _____% of the
Mortgage Loans were secured by second priority Mortgages on the related
Mortgaged Properties.
None of the Mortgage Loans will be insured by primary mortgage
insurance policies.
Each Mortgage Loan in the Trust will be assigned to Group I or
Group II based upon whether the Mortgage Loan has a fixed or an adjustable
Mortgage Rate, respectively.
S-14
<PAGE>
Bulk Acquisitions. Loans representing ____% of the aggregate
principal balance of the Mortgage Loans as of the Statistic Calculation
Date were purchased by the Sponsor "servicing released" and were
reunderwritten by the Sponsor using the Sponsor's underwriting guidelines
and credit grading guidelines. All of the Mortgage Loans so purchased or
to be so purchased are hereinafter referred to as the "Bulk Loans."
As of the Statistic Calculation Date, the weighted average Combined
Loan-to-Value Ratio ("CLTV") of the Bulk Loans was ____%, the weighted
average Mortgage Rate of the Bulk Loans was ____% per annum, the weighted
average remaining term to maturity was ____ months with approximately ____
months of seasoning, and ___% of the Bulk Loans were secured by first
priority Mortgages.
Group I
As of the Statistic Calculation Date, the Mortgage Loans in Group I
consisted of _____ loans for which the related Mortgaged Properties are
located in __ states, as set forth herein. As of the Statistic Calculation
Date, the Group I Mortgage Loans had an aggregate principal balance of
$___________, the minimum principal balance of any of such Mortgage Loans
was $__________, the maximum principal balance of any of such Mortgage
Loans was $__________ and the average principal balance of such Mortgage
Loans was approximately $___________. As of the Statistic Calculation
Date, the Mortgage Rates on the Mortgage Loans in Group I ranged from
_____% to _____% per annum, and the weighted average Mortgage Rate of such
Mortgage Loans was _____% per annum. As of the Statistic Calculation Date,
the Mortgage Loans in Group I had original terms to stated maturity ranging
from ____ months to ____ months, remaining terms to stated maturity ranging
from ____ months to ____ months, a weighted average original term to stated
maturity of ____ months, a weighted average remaining term to stated
maturity of ____ months and a weighted average seasoning of ____ months,
and no such Mortgage Loan had a stated maturity later than _____________.
As of the Statistic Calculation Date, _____% of the Mortgage Loans in
Group I by aggregate principal balance were loans that require monthly
payments of principal that will fully amortize the Mortgage Loans by their
respective maturity dates, and _____% of the Mortgage Loans in Group II by
aggregate principal balance were "balloon" loans having a 30-year
amortization schedule and a 15-year maturity.
As of the Statistic Calculation Date, the Mortgage Loans included in
Group I had a weighted average CLTV of _____%., a weighted average Junior
Lien Ratio of _____%, and a weighted average Loan-to-Value Ratio ("LTV") of
_____%. As of the Statistic Calculation Date, approximately _____% of the
Mortgage Loans in Group I by aggregate principal balance were secured by
first priority Mortgages and the remainder by second priority Mortgages.
The "Junior Lien Ratio" of a Mortgage Loan which is in a junior lien
position is equal to the ratio (expressed as a percentage) of the original
principal balance of such Mortgage Loan to the sum of (i) the original
principal balance of such Mortgage Loan and (ii) the principal balance at
the time of origination of the Mortgage Loan of any Senior Liens (computed
at the time of origination of such Mortgage Loan).
The following tables describe the Group I Mortgage Loans and the
related Mortgaged Properties based upon the Group I Mortgage Loans as
constituted at the opening of business on the Statistic Calculation Date.
S-15
<PAGE>
<TABLE>
<CAPTION>
GROUP I
GEOGRAPHIC DISTRIBUTION
Number of Aggregate % of Aggregate
State Mortgage Loans Principal Balance Principal Balance
----- -------------- ----------------- -----------------
<S> <C> <C> <C>
Alabama . . . . . . $ %
Arizona . . . . . .
Arkansas . . . . .
California . . . .
Colorado . . . . .
Connecticut . . . .
Delaware . . . . .
Florida . . . . . .
Georgia . . . . . .
Hawaii . . . . . .
Iowa . . . . . . .
Idaho . . . . . . .
Illinois . . . . .
Indiana . . . . . .
Kansas . . . . . .
Kentucky . . . . .
Louisiana . . . . .
Maine . . . . . . .
Massachusetts . . .
Maryland . . . . .
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 . . . . . . $ %
====== ============= =======
</TABLE>
S-16
<PAGE>
<TABLE>
<CAPTION>
GROUP I
DISTRIBUTION OF CLTVs
Range of Number of Aggregate % of Aggregate
CLTV Ratios Mortgage Loans Principal Balance Principal Balance
----------- -------------- ----------------- -----------------
<S> <C> <C> <C>
$ %
------ -------------- ------
TOTAL . . . . . . $ %
====== ============== ======
<CAPTION>
GROUP I
DISTRIBUTION OF LTVs
Range of Number of Aggregate % of Aggregate
LTV Ratios Mortgage Loans Principal Balance Principal Balance
---------- -------------- ----------------- -----------------
<S> <C> <C> <C>
$ %
------ -------------- ------
TOTAL . . . . . . $ %
====== ============== ======
S-17
</TABLE>
<PAGE>
GROUP I
DISTRIBUTION OF JUNIOR LIEN RATIOS
(Junior Liens Only)
<TABLE>
<CAPTION>
Range of Number of Aggregate % of Aggregate
Junior Lien Ratios Mortgage Loans Principal Balance Principal Balance
------------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
$ %
------ -------------- ------
TOTAL $ %
====== ============== ======
<CAPTION>
GROUP I
DISTRIBUTION OF MORTGAGE RATES
Range of Number of Aggregate % of Aggregate
Mortgage Rates Mortgage Loans Principal Balance Principal Balance
-------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
$ %
------ -------------- ------
TOTAL . . . . . . . . . . . . $ %
====== ============== ======
</TABLE>
S-18
<PAGE>
GROUP I
REMAINING TERM TO MATURITY DISTRIBUTION
<TABLE>
<CAPTION>
Number of Aggregate % of Aggregate
Months Mortgage Loans Principal Balance Principal Balance
------ -------------- ----------------- -----------------
<S> <C> <C> <C>
$ %
------ -------------- ------
TOTAL . . . . $ %
====== ============== ======
</TABLE>
S-19
<PAGE>
GROUP I
DISTRIBUTION OF PRINCIPAL BALANCES
<TABLE>
<CAPTION>
Range of Number of Aggregate % of Aggregate
Principal Balances Mortgage Loans Principal Balance Principal Balance
------------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
$ $ %
------ -------------- ------
TOTAL . . . . . . . . . . . . $ %
====== ============== ======
<CAPTION>
GROUP I
DISTRIBUTION OF PROPERTY TYPES
Number of Aggregate % of Aggregate
Property Type Mortgage Loans Principal Balance Principal Balance
------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Single-family detached . . . . . $ %
Rowhouse/Townhouse/Condo . . . .
Two- to Four-Family Homes . . . .
Other . . . . . . . . . . . . . .
------ -------------- ------
TOTAL . . . . . . . . . . . . $ %
====== ============== ======
</TABLE>
S-20
<PAGE>
GROUP I
DISTRIBUTION OF OCCUPANCY STATUS
<TABLE>
<CAPTION>
Number of Aggregate % of Aggregate
Occupancy Status Mortgage Loans Principal Balance Principal Balance
---------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Owner-occupied* . . . . . . $ %
Nonowner-occupied . . . . .
------ -------------- ------
TOTAL . . . . . . . . . $ %
====== ============== ======
_______________
* Includes vacation and second homes.
<CAPTION>
GROUP I
DISTRIBUTION OF SEASONING
Months
Elapsed Since Number of Aggregate % of Aggregate
Origination Mortgage Loans Principal Balance Principal Balance
----------- -------------- ----------------- -----------------
<S> <C> <C> <C>
$ %
------ -------------- ------
TOTAL . . . . . . . . . $ %
====== ============== ======
</TABLE>
Group II
As of the Statistic Calculation Date, the Mortgage Loans in Group II
consisted of ______ loans for which the related Mortgaged Properties are located
in ___ states, as set forth herein. As of the Statistic Calculation Date, the
Mortgage Loans in Group II had an aggregate principal balance of $___________,
the minimum principal balance of any of such Mortgage Loans was $____________,
the maximum principal balance of any of such Mortgage Loans was $____________
and the average principal balance of such Mortgage Loans was approximately
$__________. As of the Statistic Calculation Date, t he weighted average current
Mortgage Rate of the Mortgage Loans in Group
S-21
<PAGE>
II was ____%, the weighted average margin was ____% and the margins for
such Mortgage Loans ranged from ____% to ____%.
As of the Statistic Calculation Date, the Mortgage Loans in Group II
had original terms to stated maturity ranging from ____ months to ____
months, remaining terms to stated maturity ranging from ____ months to ____
months, a weighted average remaining term to stated maturity of ____
months, a weighted average original term to stated maturity of ____ and a
weighted average seasoning of ____ months, and no such Mortgage Loan had a
stated maturity later than ______________. As of the Statistic Calculation
Date, _____% of the Mortgage Loans in Group II by aggregate principal
balance were loans that require monthly payments of principal that will
fully amortize such Mortgage Loans by their respective maturity dates, and
____% of the Mortgage Loans in Group II by aggregate principal balance were
"balloon" loans having a 30-year amortization schedule and a 15-year
maturity.
As of the Statistic Calculation Date, the Mortgage Loans included in
Group II had a weighted average CLTV of _____%, a weighted average Junior
Lien Ratio of _____%, and a weighted average LTV of _____%. As of the
Statistic Calculation Date, approximately _____% of the Mortgage Loans in
Group II by aggregate principal balance were secured by first priority
Mortgages and the remainder by second priority Mo44
rtgages.
All of the Mortgage Loans in Group II will bear interest at a six-
month LIBOR rate plus a margin. [_____% are indexed on the average of the
six-month LIBOR rates based on quotations at five major banks as set forth
in the "Money Rates" section of The Wall Street Journal, Western Edition,
on the last business day of the month; _____% are indexed on the average
of the six-month LIBOR rates based on quotations at five major banks as set
forth in the "Money Rates" section of The Wall Street Journal, Western
Edition, on the first business day of the month; _____% are indexed on the
average of the six-month LIBOR rates based on quotations of major banks, as
published by the Federal National Mortgage Association ("FNMA"), on the
first business day of the month; _____% are indexed on the average of the
six-month LIBOR rates based on quotations at five major banks as set forth
in the "Money Rates" section of the Wall Street Journal, Western Edition,
on the most recent daily quote available.]
As of the Statistic Calculation Date, each of the Mortgage Loans in
Group II had semiannual interest rate and semiannual payment adjustment
frequencies (a) commencing with the seventh monthly payment, subject to a
1% periodic rate adjustment cap and a 6% lifetime rate adjustment cap, with
respect to ___% of such Mortgage Loans; (b) commencing with the seventh
monthly payment, subject to a 1% periodic rate adjustment cap and a 6.5%
lifetime rate adjustment cap, with respect to ___% of such Mortgage Loans;
(c) commencing with the seventh monthly payment, subject to a 1.5% periodic
rate adjustment cap and a 7% lifetime rate adjustment cap, with respect to
___% of such Mortgage Loans; (d) commencing with the 25th monthly payment,
subject to a 3% rate cap on the first adjustment, a 1% periodic rate
adjustment cap thereafter and a 6.5% lifetime rate adjustment cap with
respect to ___% of such Mortgage Loans; (e) commencing with the 37th
monthly payment, subject to a 3% rate cap on the first adjustment, a 1%
periodic rate adjustment cap thereafter and a 6% lifetime rate adjustment
cap, with respect to ___% of such Mortgage Loans; and (f) commencing with
the 61st monthly payment, subject to a 6.5% rate cap on the first
adjustment, a 1% periodic rate adjustment cap thereafter and a 6.5%
lifetime rate adjustment cap, with respect to ___% of such Mortgage Loans.
As of the Statistic Calculation Date, the weighted average number of months
until the next reset date was approximately _____ months for the Mortgage
Loans in Group II, the weighted average maximum Mortgage Rate was _____%,
with maximum Note Rates ranging from _____% to _____%, and the weighted
average minimum Mortgage Rate was _____% with minimum Mortgage Rates
ranging from _____% to _____%.
The following tables describe the Group II Mortgage Loans and the
related Mortgaged Properties based upon the Group II Mortgage Loans as of
the opening of business on the Statistic Calculation Date.
S-22
<PAGE>
GROUP II
GEOGRAPHIC DISTRIBUTION
<TABLE>
<CAPTION>
Number of Aggregate % of Aggregate
State Mortgage Loans Principal Balance Principal Balance
----- -------------- ----------------- -----------------
<S> <C> <C> <C>
Alabama . . . . . . $ %
Arizona . . . . . .
Arkansas . . . . .
California . . . .
Colorado . . . . .
Connecticut . . . .
Delaware . . . . .
District of Columbia
Florida . . . . . .
Georgia . . . . . .
Hawaii . . . . . .
Idaho . . . . . . .
Indiana . . . . . .
Illinois . . . . .
Iowa . . . . . . .
Kansas . . . . . .
Kentucky . . . . .
Louisiana . . . . .
Massachusetts . . .
Maine . . . . . . .
Maryland . . . . .
Michigan . . . . .
Minnesota . . . . .
Missouri . . . . .
Montana . . . . . .
Nevada . . . . . .
New Jersey . . . .
New Mexico . . . .
New York . . . . .
North Carolina . .
Ohio . . . . . . .
Oregon . . . . . .
Pennsylvania . . .
Tennessee . . . . .
Texas . . . . . . .
Utah . . . . . . .
Virginia . . . . .
Washington . . . .
Wisconsin . . . . .
Wyoming . . . . . .
------ ------------- -------
TOTAL . . . . . $ %
====== ============= =======
</TABLE>
S-23
<PAGE>
GROUP II
DISTRIBUTION OF LTVs
<TABLE>
<CAPTION>
Number of Aggregate % of Aggregate
Range of LTV Ratios Mortgage Loans Principal Balance Principal Balance
------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
. . . . . . . . . . $ %
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . .
---- ------------- ------
TOTAL . . . . . $ %
==== ============ =====
GROUP II
DISTRIBUTION OF CURRENT MORTGAGE RATES
<CAPTION>
Range of Current Number of Aggregate % of Aggregate
Mortgage Rates Mortgage Loans Principal Balance Principal Balance
-------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
. . . . . . . . . . $ %
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
---- ------------- ------
TOTAL . . . . . $ %
=== ============ =====
</TABLE>
S-24
<PAGE>
GROUP II
REMAINING TERM TO MATURITY DISTRIBUTION
<TABLE>
<CAPTION>
Number of Aggregate % of Aggregate
Months Mortgage Loans Principal Balance Principal Balance
------ -------------- ----------------- -----------------
<S> <C> <C> <C>
$ %
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
--- ------------ -----
TOTAL . . . . . $ %
=== ============ =====
</TABLE>
S-25
<PAGE>
GROUP II
DISTRIBUTION OF PRINCIPAL BALANCES
<TABLE>
<CAPTION>
Range of Number of Aggregate % of Aggregate
Principal Balances Mortgage Loans Principal Balance Principal Balance
------------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
$ . . . . . . . . . . . . . $ %
. . . . . . . . . . . . . .
. . . . . . . . . . . . . .
. . . . . . . . . . . . . .
. . . . . . . . . . . . . .
. . . . . . . . . . . . . .
. . . . . . . . . . . . . .
. . . . . . . . . . . . . .
. . . . . . . . . . . . . .
. . . . . . . . . . . . . .
. . . . . . . . . . . . . .
. . . . . . . . . . . . . .
. . . . . . . . . . . . . .
. . . . . . . . . . . . . .
. . . . . . . . . . . . . .
. . . . . . . . . . . . . .
. . . . . . . . . . . . . .
. . . . . . . . . . . . . .
. . . . . . . . . . . . . .
. . . . . . . . . . . . . .
. . . . . . . . . . . . . .
. . . . . . . . . . . . . .
. . . . . . . . . . . . . .
. . . . . . . . . . . . . .
. . . . . . . . . . . . . .
. . . . . . . . . . . . . .
. . . . . . . . . . . . . .
. . . . . . . . . . . . . .
. . . . . . . . . . . . . .
---- ------------ ------
TOTAL . . . . . . . . . $ %
=== ============ ======
GROUP II
DISTRIBUTION OF PROPERTY TYPES
<CAPTION>
Number of Aggregate % of Aggregate
Property Description Mortgage Loans Principal Balance Principal Balance
-------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Single-family detached . . . $ %
Rowhouse/Townhouse/Condo . .
Two -to Four-Family Units . .
Other . . . . . . . . . . . .
---- ------------- ------
TOTAL . . . . . . . . . . $ %
=== ============= ======
</TABLE>
S-26
<PAGE>
GROUP II
DISTRIBUTION OF OCCUPANCY STATUS
<TABLE>
<CAPTION>
Number of Aggregate % of Aggregate
Occupancy Status Mortgage Loans Principal Balance Principal Balance
---------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Owner-occupied* . . . . . . $ %
Investor owned . . . . . .
---- ------------- ------
TOTAL . . . . . . . . . $ %
=== ============ =====
_______________
* Includes vacation and second homes.
<CAPTION>
GROUP II
DISTRIBUTION OF SEASONING
Months Elapsed Number of Aggregate % of Aggregate
Since Origination Mortgage Loans Principal Balance Principal Balance
----------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
. . . . . . . . . . . . . . $ %
. . . . . . . .
. . . . . . . .
. . . . . . . .
. . . . . . . .
. . . . . . . . . . . . . .
. . . . . . . . . . . . . .
. . . . . . . . . . . . . .
. . . . . . . . . . . . . .
. . . . . . . . . . . . . .
---- ------------- ------
TOTAL . . . . . . . . . $ %
=== ============ =====
</TABLE>
S-27
<PAGE>
GROUP II
DISTRIBUTION OF MAXIMUM MORTGAGE RATES
<TABLE>
<CAPTION>
Maximum Number of Aggregate % of Aggregate
Mortgage Rates Mortgage Loans Principal Balance Principal Balance
-------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
. . . . . . . . . . $ %
to % . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
--- ------------ -----
TOTAL . . . . . $ %
=== ============ =====
</TABLE>
S-28
<PAGE>
GROUP II
DISTRIBUTION OF MINIMUM MORTGAGE RATES
<TABLE>
<CAPTION>
Minimum Number of Aggregate % of Aggregate
Mortgage Rates Mortgage Loans Principal Balance Principal Balance
-------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
. . . . . . . . . . $ %
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
---- ------------- ------
TOTAL . . . . . . $ %
=== ============ =====
<CAPTION>
GROUP II
DISTRIBUTION OF MARGINS
Number of Aggregate % of Aggregate
Margins Mortgage Loans Principal Balance Principal Balance
------- -------------- ----------------- -----------------
<S> <C> <C> <C>
. . . . . . . . . . $ %
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
---- ------------- ------
TOTAL $ %
=== ============ =====
</TABLE>
S-29
<PAGE>
GROUP II
NEXT MORTGAGE RATE ADJUSTMENT DATE DISTRIBUTION
<TABLE>
<CAPTION>
Next Mortgage Rate Number of Aggregate % of Aggregate
Adjustment Date Mortgage Loans Principal Balance Principal Balance
--------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
May, 1996 . . . . . . . $ %
June, 1996 . . . . . .
July, 1996 . . . . . .
August, 1996 . . . . .
September, 1996 . . . .
October, 1996 . . . . .
November, 1996 . . . .
December, 1996 . . . .
January, 1997 . . . . .
February, 1997 . . . .
March, 1997 . . . . . .
April, 1997 . . . . . .
May, 1997 . . . . . . .
June, 1997 . . . . . .
October, 1997 . . . . .
November, 1997 . . . .
December, 1997 . . . .
January, 1998 . . . . .
April, 1998 . . . . . .
June, 1998 . . . . . .
September, 1998 . . . .
December, 1998 . . . .
January, 1999 . . . . .
February, 1999 . . . .
March, 1999 . . . . . .
April, 1999 . . . . . .
May, 1999 . . . . . . .
December, 2000 . . . .
January, 2001 . . . . .
February, 2001 . . . .
March, 2001 . . . . . .
April, 2001 . . . . . .
May, 2001 . . . . . . .
---- ------------- ------
TOTAL . . . . . . $ %
=== ============ =====
</TABLE>
YIELD AND MATURITY CONSIDERATIONS
General
The weighted average life of, and, if purchased at other than par
(disregarding, for purposes of this discussion, the effects on the yield of
a Class A-1 Certificate resulting from the timing of the Closing Date and
those considerations discussed below under "-- Payment Delay Feature of
Certain Offered Certificates"), the yield to maturity on an Offered
Certificate will be directly related to the rate of payment of principal of
the Mortgage Loans in the related Mortgage Loan Group, including for this
purpose voluntary payment in whole or in part of Mortgage Loans in the
Mortgage Loan Group prior to stated maturity (a "Prepayment"), liquidations
due to defaults, casualties
S-30
<PAGE>
and condemnations, and repurchases of Mortgage Loans in the related
Mortgage Loan Group by the Sponsor, the Master Servicer or the Certificate
Insurer. The actual rate of principal prepayments on pools of mortgage
loans is influenced by a variety of economic, tax, geographic, demographic,
social, legal and other factors and has fluctuated considerably in recent
years. In addition, the rate of principal prepayments may differ among
pools of mortgage loans at any time because of specific factors relating to
the mortgage loans in the particular pool, including, among other things,
the age of the mortgage loans, the geographic locations of the properties
securing the loans and the extent of the mortgagors' equity in such
properties, and changes in the mortgagors' housing needs, job transfers and
unemployment. See "Yield and Maturity Considerations" in the Prospectus.
The Final Scheduled Distribution Date is __________________ for the
Class A-1 Certificates and _______________ for the Class A-2 Certificates.
Such Final Scheduled Distribution Dates are based on a 0% Prepayment
Assumption with no Class B Interest used to make accelerated payments of
principal to the Owners of the Offered Certificates and on the assumptions
specified below in this section. The original principal amounts of the
Class A-1 Certificates and the Class A-2 Certificates as of the Closing
Date less all amounts previously distributed to the Owners of such Offered
Certificates (other than the Certificate Insurer) on account of principal
are referred to herein as the "Class A-1 Certificate Principal Balance" and
the "Class A-2 Certificate Principal Balance", respectively, or the related
"Certificate Principal Balance."
The actual final Distribution Date with respect to each Class of
Offered Certificates could occur significantly earlier than the Final
Scheduled Distribution Date because (i) Class B Interest will be used to
make accelerated payments of principal to the Owners of each Class of
Offered Certificates, which payments will have the effect of shortening the
weighted average lives of the Offered Certificates of each Class,
(ii) Prepayments are likely to occur which shall be applied to the payment
of the Certificate Principal Balances and (iii) the Master Servicer or, in
limited circumstances, the Certificate Insurer, may cause a termination of
the Trust when the aggregate outstanding principal amount of the Mortgage
Loans in the Trust has declined to 10% or less of the aggregate principal
balance of the Mortgage Loans in the Trust as of the Closing Date.
The tables set forth below are based on a prepayment assumption (the
"Prepayment Assumption") which assumes that each month during the remaining
terms of a pool of mortgage loans, a specified percentage of the
then-outstanding principal balance of such mortgage loans is prepaid. The
"100% Prepayment Assumption" assumes a conditional prepayment rate of
_____% per annum of the then-outstanding principal balance of the mortgage
loans in the first month of the life of the mortgage loans and an
additional _____% (precisely, 17/11%) per annum in each month thereafter
until the twelfth month. Beginning in the twelfth month and in each month
thereafter during the life of the mortgage loans, the 100% Prepayment
Assumption assumes a conditional prepayment rate of _____% per annum each
month. The 0% Prepayment Assumption assumes prepayment rates equal to 0%
of the 100% Prepayment Assumption, i.e., no prepayments on the mortgage
loans, and each percentage Prepayment Assumption between 0% and 100%
assumes the prepayment rates equal to the specified percentage of the rates
for the 100% Prepayment Assumption. The Prepayment Assumption does not
purport to be a historical description of prepayment experience or a
prediction of the anticipated rate of prepayment of any pool of mortgage
loans, including the Mortgage Loans relating to the Offered Certificates.
The Sponsor believes that no existing statistics of which it is aware
provide a reliable basis for holders of Offered Certificates to predict the
amount or the timing of receipt of prepayments on the Mortgage Loans.
Investors must make their own decisions as to the appropriate prepayment
assumptions to be used in deciding whether to purchase any of the Offered
Certificates. The Sponsor makes no representations or warranties as to the
rate of prepayment or the factors to be considered in connection with such
determination.
The tables below were prepared based on the Prepayment Assumption, the
assumptions in the following paragraph and the characteristics of a
hypothetical pool of mortgage loans with the same percentage composition as
the Mortgage Loan Pool as of the Statistic Calculation Date. To the extent
the Mortgage Loans in each Mortgage Loan Group as of the Closing Date have
characteristics which differ from those assumed in preparing the tables set
forth below, such discrepancy may have an effect upon the percentages of
the Certificate Principal Balances outstanding and weighted average lives
of the Offered Certificates set forth in the tables.
S-31
<PAGE>
For the purpose of the tables below, it is assumed that:
(i) the Mortgage Loan Pool consists of two pools of
mortgage loans with aggregate principal balances equal
to the expected original Certificate Principal Balances
for the Offered Certificates set forth herein and
having the same percentage composition of
characteristics as the Mortgage Loan Groups as of the
Statistic Calculation Date as set forth below,
(ii) the Closing Date is _______, 1996,
(iii) distributions on the Certificates are made on the 25th
day of each month regardless of the day on which the
Distribution Date actually occurs, commencing in
_______, 1996, in accordance with the priorities
described herein,
(iv) all prepayments are prepayments in full and include
30 days' interest thereon,
(v) no early termination of the Trust occurs,
(vi) the "Specified Subordinated Amounts" (as defined under
"Description of the Certificates -- Subordination of
the Class B Certificates") are set initially as
specified in the Pooling and Servicing Agreement and
thereafter decrease in accordance with the provisions
of the Pooling and Servicing Agreement,
(vii) no Mortgage Loan is ever delinquent,
(viii) the assumed levels of One-Month LIBOR and six-month
LIBOR are _____% and _____%, respectively,
(ix) the Offered Certificates have the respective pass-
through rates and original principal balances as set
forth herein, and
(x) all of the additional Mortgage Loans are delivered to
the Trust by the Closing Date.
Group I
<TABLE>
<CAPTION>
Original Remaining Original
Gross Term to Term to Amortization
Principal Mortgage Maturity Maturity Term Amortization
Balance Rate (months) (months) (months) Method
------- -------- ---------- --------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Mortgage Loans as of the Statistic Calculation Date
$ %
$ %
$ %
$ %
$ %
</TABLE>
S-32
<PAGE>
<TABLE>
<CAPTION>
Group II
Original Remaining Next Mortgage
Gross Term to Term to Rate Periodic Cap
Principal Mortgage Maturity Maturity Adjustment (First Reset
Balance Rate (months) (months) Date Index Margin Date)
------- -------- -------- -------- -------------- ----- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Loans as of the Cut-Off Date
$ . % . % . %
$ . % . % . %
$ . % . % . %
$ . % . % . %
$ . % . % . %
$ . % . % . %
$ . % . % . %
$ . % . % . %
$ . % . % . %
$ . % . % . %
$ . % . % . %
$ . % . % . %
$ . % . % . %
$ . % . % . %
$ . % . % . %
$ . % . % . %
$ . % . % . %
$ . % . % . %
Additional Mortgage Loans as of the Closing Date
$ . % . % . %
$ . % . % . %
$ . % . % . %
<CAPTION>
Gross Periodic Cap
Principal Mortgage (Subsequent Life Life Reset
Balance Rate Reset Dates) Cap Floor Frequency
------- -------- ------------ ----- ----- ---------
<S> <C> <C> <C> <C> <C>
Loans as of the Cut-Off Date
$ . % . % . % . %
$ . % . % . % . %
$ . % . % . % . %
$ . % . % . % . %
$ . % . % . % . %
$ . % . % . % . %
$ . % . % . % . %
$ . % . % . % . %
$ . % . % . % . %
$ . % . % . % . %
$ . % . % . % . %
$ . % . % . % . %
$ . % . % . % . %
$ . % . % . % . %
$ . % . % . % . %
$ . % . % . % . %
$ . % . % . % . %
$ . % . % . % . %
Additional Mortgage Loans as of the Closing Date
$ . % . % . % . %
$ . % . % . % . %
$ . % . % . % . %
</TABLE>
S-33
<PAGE>
The following tables set forth the percentages of the initial
principal amount of the Class A-1 and Class A-2 Certificates that would be
outstanding after each of the dates shown, based on the percentage
Prepayment Assumptions set forth below. The percentages have been rounded
to the nearest 1%.
PERCENTAGE OF INITIAL CLASS A-1 AND CLASS A-2 CERTIFICATE PRINCIPAL
BALANCE OUTSTANDING
<TABLE>
<CAPTION>
PERCENTAGE OF INITIAL CLASS A-1 AND CLASS A-2 CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
Class A-1 Class A-2
--------- ---------
Dates 0% 50% 75% 100% 125% 150% 0% 50% 75% 100% 125% 150%
----- -- --- --- ---- ---- ---- -- --- --- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Weighted
Average Life
(years):(1)
(1) To maturity
The weighted average life of each indicated class of Offered Certificates has been determined by (i) multiplying the amount of
each principal payment by the number of years from the date of issuance to the related Distribution Date, (ii) adding the
results and (iii) dividing the sum of the initial respective Certificate Principal Balance for the related Offered
Certificates as of the Cut-Off Date.
</TABLE>
S-34
<PAGE>
Payment Delay Feature of Certain Offered Certificates
The effective yield to the Beneficial Owners of the Class A-1
Certificates will be lower than the yield otherwise produced by the
respective Class A-1 Pass-Through Rate and purchase price of such
Certificates because principal and interest distributions will not be
payable to such holders until at least the twenty-fifth day of the month
following the month of accrual (without any additional distribution of
interest or earnings thereon in respect of such delay).
USE OF PROCEEDS
The Sponsor will sell the Mortgage Loans to the Trust concurrently
with the sale of the Offered Certificates and the net proceeds from the
sale of the Offered Certificates will be applied to the purchase of the
Mortgage Loans. Such net proceeds will (together with the Class B
Certificates and the Class R Certificates retained by the Sponsor or its
affiliates) represent the purchase price paid by the Trust to the Sponsor
for the sale of the Mortgage Loans to the Trust. Such amount will be
determined as a result of the pricing of the Offered Certificates through
the offering described in this Prospectus Supplement. The net proceeds to
be received from the sale of the Mortgage Loans will be added to the
Sponsor's general funds and will be available for general corporate
purposes, including the repayment of debt and the purchase of new mortgage
loans.
THE SPONSOR AND THE MASTER SERVICER
General
Accredited Home Lenders, Inc. ("Accredited"), is a privately held
California corporation engaged in the business of originating, acquiring,
servicing and selling first and subordinate lien mortgage loans secured by
one-to four-family residential properties.
Accredited's principal business strategy is to originate mortgage
loans, or acquire mortgage loans made to individuals whose credit histories
do not conform to credit criteria established by the Federal National
Mortgage Association ("FNMA") or the Federal Home Loan Mortgage Corporation
("FHLMC"). such loans are commonly referred to as "nonconforming credit"
or "B and C" mortgage loans and typically have higher rates of interest
and/or are subject to higher origination fees or "points" than "conforming"
mortgage loans which are eligible for FNMA and FHLMC programs.
Accredited originates mortgage loans primarily through the "wholesale"
method of mortgage loan origination. Under the "wholesale" method,
Accredited funds mortgage loans to borrowers who are the clients of other
mortgage bankers, mortgage brokers, commercial banks, savings and loan
associations, credit unions, finance companies and other financial
institutions which hold themselves out to the public as mortgage loan
providers. Such mortgage loan providers assemble and submit to Accredited
loan application packages, each of which is underwritten by Accredited
prior to closing. Representatives of Accredited located in various states
establish and maintain relationships with mortgage loan providers across
the country, and Accredited currently originates mortgage loans in over
twenty states.
In the second quarter of 1996, Accredited initiated a correspondent
purchasing program pursuant to which Accredited purchases closed mortgage
loans from mortgage loans providers which meet financial and other criteria
established by Accredited. Each such loan is simultaneously underwritten
by Accredited and the originator prior to loan closing (flow purchases), or
is reunderwritten by Accredited after loan closing but prior to purchase by
Accredited (bulk purchases). Accredited's correspondent purchasing
department establishes and maintains flow and/or bulk purchase
relationships with mortgage loan providers which meet the criteria
established by Accredited.
Accredited finances its mortgage loan originations and acquisitions
through a warehouse line of credit secured by the mortgage loans financed.
The warehouse line has a current limit of $100 million, can be increased to
$300 million, and is subject to renewal in the fourth quarter of 1998.
S-35
<PAGE>
Accredited generally sells all of its mortgage loan production in the
secondary mortgage market. In 1996, Accredited initiated a strategy of
accumulating substantially all of its mortgage loan production for
securitization, replacing its prior strategy of whole loan sales.
Accredited also began, in 1996, retaining the servicing rights to its
mortgage loan production. Accredited currently acts as a master servicer,
subcontracting substantially all of its servicing obligations with respect
to its retained servicing rights.
Accredited was incorporated on May 14, 1990, and commenced operations
in September of that year. As of June 30, 1996. Accredited has 108
employees, 68 of which were located at the company's headquarters with the
remainder located across the country. Accredited's headquarters presently
occupy approximately 10,000 square feet of leased space in a 116,000 square
foot building, with plans under way to lease an additional 5,000 square
feet of adjacent space during the third quarter of 1996. Accredited's
headquarters are located at 15030 Avenue of Science, Suite 100, San Diego,
California 92128, and its telephone number is (619) 676-2100.
The Certificates will not represent an interest in or obligation of,
nor are the Mortgage Loans guaranteed by, the Sponsor or the Master
Servicer, nor will they be insured or guaranteed by the Federal Deposit
Insurance Corporation (the "FDIC") or any other governmental agency or
instrumentality.
Underwriting
Each mortgage loan originated or acquired by Accredited is
underwritten prior to loan closing, or reunderwritten after loan closing
but prior to purchase by Accredited, in accordance with Accredited's
underwriting guidelines. accredited's underwriting process is intended to
assess a loan applicant's credit standing and repayment ability and the
value adequacy of the real property security as collateral for the proposed
loan. All underwriting and reunderwriting is performed by Accredited's
Underwriting Department usually at the company's headquarters, with third-
party contract underwriters engaged as necessary to handle peak production
periods. Accredited does not delegate underwriter authority to any
broker, correspondent or other mortgage loan provider. Accredited's
underwriting personnel function independently of the company's mortgage
loan origination and marketing departments and do not report functionally
to any individual directly involved in the origination process.
Accredited's wholesale originations are initiated through loan
application packages submitted by approved mortgage loan providers acting
as mortgage brokers. Such packages, which generally contain credit,
property and other underwriting information relevant to the loan
application, are compiled by the mortgage broker and submitted to
Accredited for approval and funding. As part of its quality control
procedures, Accredited accepts loan packages submitted by mortgage brokers
that have been preapproved by Accredited. In connection with the approval
process, Accredited requires that the mortgage broker be licensed by the
appropriate state agencies, as required, and reviews other information
regarding the mortgage broker. Accredited periodically reviews each of its
mortgage broker's performance relative to fraud and other issues disclosed
by Accredited's quality control review, and discontinues relationships with
unacceptable performers.
Each prospective mortgagor completes a mortgage loan application that
includes information with respect to the applicant's liabilities, income,
credit history, employment history and personal information. At least one
credit report on each applicant from an independent, nationally recognized
credit reporting company is required. The credit report typically contains
information relating to such matters as credit history with local and
national merchants and lenders, installment debt payments and any record of
defaults, bankruptcies, repossessions, or judgments. All derogatory credit
items occurring with the preceding two years and all credit inquiries
within the preceding 90 days must be addressed by the applicant to the
satisfaction of Accredited.
A full appraisal of the property proposed to be pledged as collateral
is required in connection with the origination of each loan. Appraisals
are performed by licensed, third-party, fee-base appraisers; include, among
other things, an inspection of the exterior and interior of the subject
property; and are required to address neighborhood conditions, site and
zoning status and the condition and value of improvements. Following each
appraisal, the appraiser prepares a report which includes a reproduction
costs analysis (when appropriate) based on the current cost of constructing
a similar home and market value analysis based on recent sales of
comparable homes in the area. Appraisals generally conform to the Uniform
Standards of Professional Appraisal Practice and must be on forms
acceptable to FNMA and FHLMC. Every appraisal is reviewed by a non-
affiliated appraisal review firm or by Accredited's Appraisal Department
before the mortgage loan is closed.
S-36
<PAGE>
Accredited's mortgage loans are underwritten pursuant to "Full
Documentation," "Lite Documentation," or "1003 Stated" programs. Under
each of the programs, Accredited reviews the loan applicant's source of
income, calculates the amount of income from sources indicated on the loan
application or similar documentation, reviews the credit history of the
applicant, calculates debt service-to-income ratios to determined the
applicant's ability to repay the loan, reviews the type and use of the
property being financed and reviews the property for compliance with
Accredited's standards. Accredited's underwriting standards are applied in
a standardized manner which complies with applicable federal and state laws
and regulations.
Accredited's guidelines require verification of the income of each
applicant and the source of funds (if any) required to be deposited by the
applicant into escrow under Accredited's various programs as follows.
Under the Full Documentation programs, applicants are generally required to
submit the last two pay stubs and written verification of income signed by
the employer, Forms W-2 or 1040 and, in the case of self-employed
applicants, Forms 1120 and profit and loss statements, in each case
covering the preceding two years. Under the Lite Documentation programs,
applicants are generally required to submit a year-to-date pay stub or
personal bank statements and, in the case of self-employed applicants,
profit and loss statements, in each case covering at least the preceding
six months. Under the 1003 Stated program, applicants are evaluated based
upon income as stated in the mortgage loan application. Under all
programs, Accredited may telephone verify employment, business or income,
and self-employed applicants may be required to submit a business license.
Verification of the source of funds (if any) required to be paid by the
applicant at closing is generally required under all documentation programs
in the form of a standard verification of deposit, two months' consecutive
bank statements or other acceptable documentation. Twelve months' mortgage
payment or rental history must be verified by the related lender or
landlord. If appropriate compensating factors exist, Accredited may waive
certain documentation requirements or standards for individual applicants.
The loan-to-value and debt service-to-income ratios which Accredited
will allow are based upon applicants' respective credit histories in
accordance with the categories and general criteria set forth in the
following table ("1003" refers to Accredited's 1003 Stated program; "N/O/O"
means nonowner-occupied; "O/O" means owner-occupied; "SFR" means single-
family residence; "PUD" means planned unit development; "2-4" refers to
two- to-four-unit residential dwellings; "Lite" refers to Accredited's Lite
Documentation program):
<TABLE>
<CAPTION>
Maximum Debt
Maximum Mortgage Service-to-
Credit Delinquencies During Consumer Maximum Loan-to-Volume Income
Level Last Year Credit/Bankruptcies Ratios Ratios
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
A One 30-day Excellent credit for last O/O N/O/O 45%** - 60%
--- -----
(none allowed for two yrs. w/only minor SFR 85%* 75%
1003 or N/O/O with a derogatory items. PUD/
loan-to-value ratio Three yrs. reestablished Condo 80% 70%
over 70%) excellent credit since 2-4 80% 70%
bankruptcy w/satisfactory Lite 80% 70%
explanation. 1003 75% 65%
- -----------------------------------------------------------------------------------------------------------
A- Two 30-day Good credit for last yr. O/O N/O/O 45%** - 60%
--- -----
(rolling 30-day Two yrs. reestablished SFR 85% 70%
delinquencies excellent credit since PUD/
counted as one) bankruptcy. Condo 80% 70%
2-4 75% 70%
Lite 75% 70%
1003 70% 65%
S-37
<PAGE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
B Four 30-day or one Satisfactory credit for O/O N/O/O 50%** - 60%
--- -----
60-day and two 30- last yr. Two yrs. SFR 75% 70%
day reestablished good credit PUD/
(rolling 30-day since bankruptcy. Condo 70% 70%
delinquencies 2-4 70% 70%
counted as one) Lite 70% 65%
1003 70% 65%
- -----------------------------------------------------------------------------------------------------------
C Twelve 30-day or Fair credit for last yr. O/O N/O/O 55%** - 60%
--- -----
three 30-day and one One yr. reestablished SFR 75% 65%
60-day or two 60-day satisfactory credit since PUD/
and one 90-day bankruptcy. Condo 70% 65%
2-4 70% 65%
Lite 70% 60%
1003 70% 60%
- -----------------------------------------------------------------------------------------------------------
C- Current foreclosures Poor credit. Any O/O N/O/O 60%** - 65%
--- -----
and bankruptcies bankruptcy must be SFR 70%+ 65%
considered discharged with loan. PUD/
Condo 65% 60%
2-4 65% 60%
Lite 70%+ 60%
1003 70%+ 60%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
* 90% for purchase money loans.
** The ratio may be increased 5% (up to the indicated maximum) for each
10% the LTV is below its indicated maximum.
+ Subtract 5% for applicants in bankruptcy, subject to current notice of
foreclosure sale or with mortgage delinquency greater than 120 days in last
year.
Mortgage loans purchased by Accredited pursuant to its correspondent
purchase program are underwritten by Accredited prior to funding of the
loan by the correspondent or reunderwritten in the case of a loan which has
previously been funded, in each instance to ensure compliance with
Accredited's underwriting guidelines as described above.
Subsequent to funding (or prior to funding in the case of bulk
acquisitions), each loan file is checked to confirm that lending and
documentation standards have been met. Accredited also conducts, on an
ongoing basis, quality compliance reviews with respect to a sample of the
mortgage loans, which reviews can include a full underwriting and
regulatory compliance review as well as reverification of credit,
employment and income.
THE SUBSERVICER
Advanta Mortgage Corp. USA (the "Subservicer") will act as Subservicer
for the Mortgage Loans. The Subservicer is an indirect subsidiary of
Advanta Corp., a Delaware corporation ("Advanta Parent"), a publicly-traded
company based in Horsham, Pennsylvania with assets as of March June 30,
1996 in excess of $5.7 billion.
Advanta Parent, through its subsidiaries (including the Subservicer)
managed assets (including mortgage loans) in excess of $18.2 billion as of
June 30, 1996.
As of June 30, 1996, the Subservicer and its subsidiaries were
servicing approximately 36,400 mortgage loans that were originated by the
Subservicer representing an aggregate outstanding principal balance of
approximately $2.1 billion. The Subservicer also services approximately
34,600 mortgage loans representing an aggregate outstanding principal
balance of approximately $1.46 million which loans were not originated by
the Subservicer and are being serviced for third parties on a contract
servicing basis.
S-38
<PAGE>
The Certificates will not represent an interest in or obligation of,
nor are the Mortgage Loans guaranteed by the Subservicer or Advanta Parent,
nor will they be insured or guaranteed by the FDIC or any other
governmental agency or instrumentality.
DESCRIPTION OF THE CERTIFICATES
General
Mortgage Loan Asset-Backed Certificates, Series 1996-1 consisting of
the Offered Certificates, the Class B Certificates and the Class R
Certificates issued pursuant to a Pooling and Servicing Agreement dated as
of August 1, 1996 among the Master Servicer, the Sponsor and the Trustee.
Only the Offered Certificates are offered hereby.
The Group I Certificates will represent undivided ownership interests
in fixed-rate Mortgage Loans which comprise Group I and the Group II
Certificates will represent undivided ownership interests in the
adjustable-rate Mortgage Loans which comprise Group II.
The Offered Certificates are issuable in original principal amounts of
$1,000 and integral multiples thereof, except that one Certificate for each
Class of Offered Certificates may be issued in a lesser amount.
Book-Entry Registration of the Offered Certificates
The Offered Certificates will be Book-Entry Certificates. The
Beneficial Owners may elect to hold their Offered Certificates through DTC
in the United States, or CEDEL or Euroclear (in Europe) if they are
participants of such systems ("Participants"), or indirectly through
organizations which are Participants in such systems. 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 N.A. will act as depositary for CEDEL and Morgan Guaranty Trust
Company of New York will act as depositary for Euroclear.
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. 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 the relevant depositary of CEDEL or Euroclear,
respectively. Except as described under "Description of the Securities --
Definitive Certificates" in the Prospectus, no Beneficial Owner will be
entitled to receive a Definitive Certificate. Unless and until Definitive
Certificates are issued, it is anticipated that the only "Owner" of such
Offered 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.
Original Certificate Principal Balances
The original Class A-1 Certificate Principal Balance is expected to be
$__________ and the original Class A-2 Certificate Principal Balance is
expected to be $__________. In the event that the Sponsor does not, as of
the Closing Date, have the full amount of Mortgage Loans which the Sponsor
expects to sell to the Trust on such date (i.e., $_______________ with
----
respect to Group I and $_______________ with respect to Group II) the
Sponsor will reduce the amounts of the Offered Certificates (which, if such
reduction relates to Group I will be a pro rata reduction in each Class of
--- ----
Offered Certificates); the Sponsor does not expect that the original
principal amount of any Class of Offered Certificates will increase or
decrease by more than 5% as a result of such non-delivery. Even if the
full expected amount of Mortgage Loans is delivered, certain adjustments
(plus or minus 5%) may occur in the Class sizes.
S-39
<PAGE>
Pass-Through Rates
The Class A-1 Pass-Through Rate will be _____%. The Class A-2 Pass-
Through Rate will be equal to the lesser of (i)(a) with respect to any
Distribution Date which occurs on or prior to the Step-Up Distribution
Date, the One-Month LIBOR (calculated as described under "Description of
the Certificates -- Calculation of LIBOR" below) plus ____% per annum or
(b) with respect to any Distribution Date thereafter, One-Month LIBOR plus
____% per annum and (ii) the Class A-2 Available Funds Pass-Through Rate
for such Distribution Date.
If, on any Distribution Date, there is a Supplemental Interest Amount
calculated for any Distribution Date, the Owners of certain of the Class R
Certificates have agreed to pay such amount. If the full amount of the
Supplemental Interest Amount is not paid on a Distribution Date, then the
amount not paid will accrue interest at the Class A-2 Formula Pass-Through
Rate until such amount is paid on subsequent Distribution Dates.
The Certificate Insurer does not guarantee the payment of, nor do the
ratings assigned to the Class A-2 Certificates address the likelihood of
the payment of, any Supplemental Interest Amount.
The "Class A-2 Available Funds Pass-Through Rate," as of any
Distribution Date, equals an amount, expressed as a per annum rate, equal
to (a)(i) the aggregate amount of interest due and collected or advanced on
all of the Mortgage Loans in Group II for the related Remittance Period
plus the Subordination Reduction Amount for Group II, if any, for such
Distribution Date minus (ii) the aggregate of the Servicing Fee and the
Trustee's Fee and the premium due to the Certificate Insurer, in each case
relating to Group II, on such Distribution Date and minus (iii) commencing
on the ___th Distribution Date following the Closing Date, an amount equal
to ____% per annum times the aggregate principal balance of the Mortgage
Loans in Group II as of the beginning of such related Remittance Period,
divided by (b) the Class A-2 Certificate Principal Balance immediately
prior to such Distribution Date calculated on the basis of a 360 day year
and the actual number of days elapsed.
The "Step-Up Distribution Date" is the second Distribution Date which
follows the Clean-Up Call Date.
Distributions, Generally
Distributions on the Certificates are required to be made on the
twenty-fifth day of each calendar month, or if such day is not a Business
Day, the next succeeding Business Day (each, a "Distribution Date")
commencing on September 25, 1996, to the Owners of record. The Owners of
record shall be such Owners of the Certificates as of the last day of the
calendar month immediately preceding the calendar month in which such
Distribution Date occurs, whether or not such day is a Business Day (each a
"Record Date") in an amount equal to the product of such Owner's Percentage
Interest and the amount distributed in respect of such Owner's Class of
such Certificates on such Distribution Date.
Distributions of Interest
On each Distribution Date, the interest due with respect to each Class
of Offered Certificates (the "Class A Interest Distribution Amount") will
equal, in the case of the Class A-1 Certificates, the interest due with
respect to the Class A-1 Certificates, and will be the interest which has
accrued thereon at the Class A-1 Pass-Through Rate during the calendar
month immediately preceding the calendar month in which such Distribution
Date occurs, and, in the case of the Class A-2 Certificates, the interest
which has accrued thereon at the Class A-2 Pass-Through Rate from the
preceding Distribution Date (or from the Closing Date? in the case of the
first Distribution Date) to and including the day prior to the current
Distribution Date, in each case, together with any unpaid interest
shortfalls relating to such Class from prior periods; the Class A Interest
Distribution Amount for the Class A-2 Certificates will not include any
Supplemental Interest Amount. Each period referred to in the prior
sentence relating to the accrual of interest is the "Accrual Period" for
the related Class of Offered Certificates.
Calculations of interest on the Class A-1 Certificates will be made on
the basis of a 360-day year assumed to consist of twelve 30-day months; all
calculations of interest on the Class A-2 Certificates will be made on the
basis of the actual number of days elapsed in the related Accrual Period,
divided by 360.
S-40
<PAGE>
Distribution of Principal
The Owners of each Class of Offered Certificates will be entitled to
receive certain monthly distributions of principal on each Distribution
Date which generally reflect collections of principal during the prior
calendar month. On each Distribution Date until the Certificate Principal
Balance for a Class of Offered Certificates has been reduced to zero, the
Owners of each Class of Offered Certificates will be entitled to receive
100% of the Principal Distribution Amount with respect to the related
Mortgage Loan Group.
The "Principal Distribution Amount" for each Mortgage Loan Group will
generally equal the amount of principal due or collected with respect to
the related Mortgage Loans on account of scheduled payments due during the
related Remittance Period, principal prepayments made during the related
Remittance Period, the purchase or repurchase of Mortgage Loans required to
be purchased or repurchased during the related Remittance Period,
Substitution Amounts due with respect to Mortgage Loans substituted during
the related Remittance Period and Mortgage Loans which became Liquidated
Mortgage Loans during the related Remittance Period, plus any Class B
Interest to be applied to the Certificate Principal Balance of the related
Class of Offered Certificates pursuant to the subordination provisions
discussed below minus the amount of any excess subordination previously
created pursuant to such subordination provisions.
In no event will the Class A Principal Distribution Amount for any
class of Offered Certificates and Distribution Date be less than zero or be
greater than the then-outstanding Certificate Principal Balance of the
related Class of Offered Certificates.
The subordination provisions of the Pooling and Servicing Agreement
will result in a limited acceleration of principal payments to the Owners
of each Class of Offered Certificates. Such subordination provisions are
more fully described under "Description of the Certificates --
Subordination of Class B Certificates" and "Description of the
Certificates -- Cross Collateralization Provisions." Such subordination
provisions also have an effect on the weighted average lives and the yields
to maturity of the Offered Certificates. See "Yield and Maturity
Considerations herein and in the Prospectus."
The amount of any loss on a "Liquidated Mortgage Loan", i.e., a
defaulted Mortgage Loan as to which the Master Servicer has determined that
all amounts that it expects to recover on such Mortgage Loan have been
recovered (exclusive of any possibility of a deficiency judgment), may or
may not be recovered by the Owners of the related Class of Offered
Certificates on the Distribution Date which immediately follows the event
of loss. However, the Owners of the Offered Certificates are ultimately
entitled to recovery of any such loss (each, a "Realized Loss") which occur
in the related Mortgage Loan Group. Such ultimate recovery will be in the
form of an Insured Payment if not covered by the application of Class B
Interest from the related Mortgage Loan Group or the other Mortgage Loan
Group.
Distributions and Insured Payments With Respect to of the Offered
Certificates
No later than the third Business Day prior to each Distribution Dates
the Trustee will be required to determine the amount for each Mortgage Loan
Group, with respect to each Group Available Funds which will be on deposit
in the Distribution Account on such Distribution Date (after taking into
account any amounts transferred as a result of the cross-
collateralization mechanics described below under "-- Cross
Collateralization Provisions"). If the Insured Distribution Amount for any
Class of Offered Certificates on any Distribution Date exceeds the related
Available Funds for such Distribution Date, the Trustee will be required to
draw the amount of such insufficiency from the Certificate Insurer under
the Certificate Insurance Policy. Amounts which cannot be distributed to
the Owners of the Certificates as a result of proceedings under the United
States Bankruptcy Code or similar insolvency laws will not be considered in
determining the amount of Available Funds with respect to any Group or any
Distribution Date.
On each Distribution Date, and following the making by the Trustee of
all allocations, transfers and deposits heretofore described, from amounts
(including any related Insured Payment) then on deposit in the Distribution
Account, the Trustee will be required to distribute to the Owners of each
Class of Offered Certificates the Class A Distribution Amount with respect
to such Class for such Distribution Date.
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Calculation of LIBOR
On the second Business Day preceding each Distribution Date or, in the
case of the first Accrual Period, on the second Business Day preceding the
Closing Date (each such date, an "Interest Determination Date"), the
Trustee will determine One-Month LIBOR for the next Accrual Period for the
Class A-2 Certificates on the basis of the offered rates of the Reference
Banks for one-month U.S. dollar deposits, as such rates appear on the
Reuters Screen LIBO Page, as of 11:00 a.m. (London time) on such Interest
Determination Date. As used in this section, "Business Day" means a day on
which banks are open for dealing in foreign currency and exchange in London
and New York City; "Reuters Screen LIBO page" means the display designated
as page "LIBO" on the Reuter Monitor Money Rates Service (or such other
page as may replace the LIBO page on that service for the purpose of
displaying London interbank offered rates of major banks); and "Reference
Banks" means leading banks selected by the Trustee and engaged in
transactions in Eurodollar deposits in the international Eurocurrency
market (i) with an established place of business in London, (ii) whose
quotations appear on the Reuters Screen LIBO Page on the Interest
Determination Date in question, (iii) which have been designated as such by
the Trustee and (iv) not controlling, controlled by, or under common
control with, the Sponsor.
On each Interest Determination Date, One-Month LIBOR for the related
Accrual Period for the Class A-2 Certificates will be established by the
Trustee as follows:
(a) If on such Interest Determination Date, two or more Reference
Banks provide such offered quotations, One-Month LIBOR for the related
Accrual Period for the Class A-2 Certificates shall be the arithmetic mean
of such offered quotations (rounded upwards if necessary to the nearest
whole multiple of 1/16%).
(b) If on such Interest Determination Date, fewer than two Reference
Banks provide such offered quotations, One-Month LIBOR for the related
Accrual Period for the Class A-2 Certificates shall be the higher of
(x) One-Month LIBOR as determined on the previous Interest Determination
Date and (y) the Reserve Interest Rate. The "Reserve Interest Rate" shall
be the rate per annum that the Trustee determines to be either (i) the
arithmetic mean (rounded upwards if necessary to the nearest whole multiple
of 1/16%) of the one-month U.S. dollar lending rates which New York City
banks selected by the Trustee are quoting on the relevant Interest
Determination Date to the principal London offices of leading banks in the
London interbank market or, in the event that the Trustee can determine no
such arithmetic mean, (ii) the lowest one-month U.S. dollar lending rate
which New York City banks selected by the Trustee are quoting on such
Interest Determination Date to leading European banks.
The establishment of One-Month LIBOR on each Interest Determination
Date by the Trustee and the Trustee's calculation of the rate of interest
applicable to the Class A-2 Certificates for the related Accrual Period
shall (in the absence of manifest error) be final and binding. Each such
rate of interest may be obtained by telephoning the Trustee at (212) 250-
6000.
Subordination of Class B Certificates
The Class B Certificates are subordinated to the Class A Certificates.
Such subordination is intended to enhance the likelihood that the Owners of
the Class A Certificates will receive full and timely receipt of all
amounts due to them.
Under the terms of the Pooling and Servicing Agreement, the excess of
the aggregate principal balance of the Mortgage Loans in each Group over
the Certificate Principal Balance for the related Class A Certificates will
be required to be maintained at certain levels (which levels may vary over
time) over the life of the transaction, which levels are specified by the
Certificate Insurer. For each Group, the actual amount of this excess is
the "Subordinated Amount", and the specified target amount of the excess at
a point in time is the "Specified Subordinated Amount".
The Certificate Insurer may permit the reduction of the Specified
Subordinated Amount without the consent of, or the giving of notice to, the
Owners of the related Class A Certificates; provided, that the Certificate
--------
Insurer is not then in default; and provided, further, that such reduction
-------- -------
would not change materially the weighted average life of the related Class
A Certificates or the current rating thereof.
The Class B Certificates are generally entitled to receive all excess
interest available on any Distribution Date for the related Mortgage Loan
Group, i.e., the interest remitted by the Master Servicer to the Trustee
relating
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to the prior Remittance Period (which interest remittance is itself net of
the aggregate monthly Servicing Fee) less the interest due and payable to
the Owners of the related Class A Certificates, together with the fees and
premium due and payable to the Trustee and the Certificate Insurer (such
interest to which the related Class B Certificates are entitled, the "Class
B Interest" for the related Mortgage Loan Group).
On each Distribution Date, the Class B Interest will be used, to the
extent available, to fund any shortfalls in amounts due to the Owners of
the related Class A Certificates on such Distribution Date. In addition,
to build each Group's Subordinated Amount to the initial Specified
Subordinated Amount for the Group, and, to the extent that the related
Specified Subordinated Amount increases or "steps up" due to the effect of
the triggers set forth in the definition thereof or if, due to Realized
Losses, the related Subordinated Amount has been reduced below the related
Specified Subordinated Amount, the Pooling and Servicing Agreement requires
that Class B Interest be used to make payments of principal to the Owners
of the related Class A Certificates for the purposes of accelerating the
amortization thereof relative to the amortization of the Mortgage Loans in
the related Mortgage Loan Group. Such accelerated payments of principal
will be made to the extent necessary to increase the related Subordinated
Amount to its then-applicable Specified Subordinated Amount. The extent to
which, on any Distribution Date, the actual related Subordinated Amount is
less than the related Specified Subordinated Amount, a "Subordination
Deficiency". To the extent, on any Distribution Date, the actual
Subordinated Amount for a Mortgage Loan Group exceeds the then-applicable
Specified Subordinated Amount for such Group, the excess will reduce the
Principal Distribution Amount otherwise payable with respect to the related
Class A Certificates and will be distributable with respect to the related
Class B Certificates to the extent of funds otherwise available for the
payment of principal with respect to the related Class A Certificates.
Cross Collateralization Provisions
Under the terms of the Pooling and Servicing Agreement, the Class B
Interest generated by Group I may be used to fund certain shortfalls with
respect to the Group II and vice versa, provided that such Class B Interest
---- ----- --------
must first be applied to fund certain required payments with respect to the
related Mortgage Loan Group. Specifically, the Class B Interest generated
by one Mortgage Loan Group is to be applied in the following order of
priority: (i) first, to fund a Subordination Deficit in the related
-----
Mortgage Loan Group; (ii) second, to fund a Subordination Deficit or
------
interest shortfall in the other Mortgage Loan Group; (iii) third, to fund a
-----
Subordination Deficiency in the related Mortgage Loan Group and
(iv) fourth, to fund a Subordination Deficiency with respect to the other
------
Mortgage Loan Group.
THE CERTIFICATE INSURANCE POLICY
The following information has been supplied by the Certificate
Insurer for inclusion in this Prospectus Supplement.
The Sponsor will obtain a Certificate Insurance Policy, issued by the
Certificate Insurer, in favor of the Owners of the Offered Certificates.
The Certificate Insurance Policy provides for 100% coverage of the Insured
Distribution Amount with respect to each Class of Offered Certificates.
The Certificate Insurance Policy unconditionally guarantees the
payment of Insured Payments on the Offered Certificates. The Certificate
Insurer is required to make Insured Payments to the Trustee as paying agent
on the later of the Distribution Date or on the business day next following
the day on which the Certificate Insurer shall have received telephonic or
telegraphic notice, subsequently confirmed in writing, or written notice by
registered or certified mail, from the Trustee that an Insured Payment is
due.
Each Owner of a Class A Certificate which pays to the bankruptcy court
as a "voidable preference" under the United States Bankruptcy Code any
amounts ("Preference Amounts") theretofore received by such Owner on
account of such Class A Certificate will be entitled to receive
reimbursement for such amounts from the Certificate Insurer, but only after
(i) delivering a copy to the Trustee of a final, nonappealable order (a
"Preference Order") of a court having competent jurisdiction demanding
payment of such amount to the bankruptcy court and (ii) assigning such
Owner's claim with respect to such Preference Order to the Certificate
Insurer. In no event shall the Certificate Insurer pay more than one
Insured Payment in respect of any Preference Amount.
The Certificate Insurance Policy is non-cancelable.
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THE CERTIFICATE INSURANCE POLICY IS NOT COVERED BY THE PROPERTY/
CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK
INSURANCE LAW.
The Certificate Insurer's obligation under the Certificate Insurance
Policy will be discharged to the extent that funds are received by the
Trustee for distribution to the Class A Certificateholders, whether or not
such funds are properly distributed by the Trustee.
The Certificate Insurance Policy does not guarantee to the Owners of
the Offered Certificates any specific rate of prepayments of principal of
the Mortgage Loans. Also, the Certificate Insurance Policy does not
guarantee the payment of any Supplemental Interest Amount.
Pursuant to the Pooling and Servicing Agreement, the Certificate
Insurer is subrogated to the rights of the Owners of the Offered
Certificates to the extent of any such payment under the Certificate
Insurance Policy.
THE CERTIFICATE INSURER
General
[INSERT INFORMATION DESCRIBING CERTIFICATE INSURER]
THE POOLING AND SERVICING AGREEMENT
In addition to the provisions of the Pooling and Servicing Agreement
summarized elsewhere in this Prospectus Supplement and the Prospectus,
there is set forth below a summary of certain other provisions of the
Pooling and Servicing Agreement.
Formation of the Trust
The Trust will be created and established pursuant to the Pooling and
Servicing Agreement on the Closing Date. On such date, the Sponsor will
sell without recourse the Mortgage Loans to the Trust and the Trust will
issue the Offered Certificates to the Owners thereof.
The property of the Trust shall include all money, instruments and
other property to the extent such money, instruments and other property are
subject or intended to be held in trust for the benefit of the Owners, and
all proceeds thereof, including, without limitation, (i) the Mortgage
Loans, (ii) such amounts, including Eligible Investments, as from time to
time may be held by the Trustee in the Distribution Account and by the
Master Servicer in the Collection Account (except as otherwise provided in
the Pooling and Servicing Agreement), each to be created pursuant to the
Pooling and Servicing Agreement, (iii) any Mortgaged Property, the
ownership of which has been effected on behalf of the Trust as a result of
foreclosure or acceptance by the Master Servicer of a deed in lieu of
foreclosure and that has not been withdrawn from the Trust, (iv) any
insurance policies relating to the Mortgage Loans and any rights of the
Sponsor under any insurance policies, and (v) the Certificate Insurance
Policy with respect to the Offered Certificates.
[The Pooling and Servicing Agreement also establishes an account, the
"Supplemental Interest Account," which is held in trust by the Trustee, but
does not constitute a part of the Trust. The Supplemental Interest Account
will hold certain amounts and other property relating to the funding of
Supplemental Interest Amounts, if any.]
Sale of Mortgage Loans
Pursuant to the Pooling and Servicing Agreement, the Sponsor on the
Closing Date and on each Subsequent Transfer Date will sell without
recourse to the Trustee in trust all right, title and interest of the
Sponsor in each Mortgage Loan listed on the schedule delivered to the
Trustee on the Closing Date and all its right, title and interest in all
principal collected and all interest due on each such Mortgage Loan on or
after the Cut-Off Date.
In connection with the sale of the Mortgage Loans on the Closing Date,
the Sponsor will be required to deliver to the Trustee a file (a "Mortgage
Loan File") consisting of, among other things, (i) the original Mortgage
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Notes, duly endorsed to the Trustee, (ii) originals or certified copies of
all intervening assignments, showing a complete chain of title from
origination to the assignor under the assignment of the Mortgage described
in the following paragraph, with evidence of recording thereon,
(iii) originals or certified copies of all assumption and modification
agreements if any, and (iv) either: (a) the original Mortgage, with
evidence of recording thereon, (b) a true and accurate copy of the Mortgage
where the original has been transmitted for recording, until such time as
the original is returned by the public recording office or (c) a copy of
the Mortgage certified by the public recording office in those instances
where the original recorded Mortgage has been lost or is permanently
retained by the public recording office. The Trustee will agree, for the
benefit of the Owners, to review each such file within 90 days after the
Closing Date to ascertain that all required documents (or certified copies
of documents) have been executed and received.
The Sponsor is additionally required to cause to be prepared and
recorded, within 75 business days of the Closing Date (or, if original
recording information is unavailable, within such later period as is
permitted by the Pooling and Servicing Agreement) assignments of the
Mortgages to the Trustee, in the appropriate jurisdictions in which such
recordation is necessary to perfect the lien thereof as against creditors
of or purchasers from the Sponsor; provided, however, that if the Sponsor
furnishes to the Trustee and to the Certificate Insurer an opinion of
counsel to the effect that no such recording is necessary to perfect the
Trustee's interests in the Mortgages with respect to any of the
jurisdictions in which time related Mortgaged Properties are located, then
such recording will not be required with respect to such jurisdictions, or,
at the election of the Certificate Insurer, any jurisdictions.
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.
Termination of the Trust
The Pooling and Servicing Agreement will provide that the Trust will
terminate upon the earlier of (i) the payment to the Owners of all
Certificates from amounts other than those available under the Certificate
Insurance Policy of all amounts required to be paid 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 Mortgage Loan or (b) the
disposition of all property acquired in respect of any Mortgage Loan
remaining in the Trust, or (ii) any time when a Qualified Liquidation of
the Trust is effected.
Optional Termination
By the Master Servicer. At its option, the Master Servicer acting
directly or through one or more affiliates may determine to purchase from
the Trust all of the Mortgage Loans and other property then held by the
Trust at a price at least equal to the aggregate Certificate Principal
Balances of all Offered Certificates plus the aggregate Class A Interest
Distribution Amounts with respect thereto, and thereby effect early
retirement of the Certificates, on any Remittance Date on and after the
Clean-Up Call Date.
Upon Loss of REMIC Status. Following a final determination by the
Internal Revenue Service, or by a court of competent jurisdiction, in each
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 the
Trust does not and will no longer qualify as a "REMIC" pursuant to
Section 860D of the Code (the "Final Determination"), at any time on or
after the date which is 30 calendar days following such Final
Determination, (i) the Owners of a majority in Percentage Interest
represented by the Offered Certificates then outstanding may direct the
Trustee to adopt a plan of complete liquidation with respect to the Trust
and (ii) the Certificate Insurer may notify the Trustee of the Certificate
Insurer's determination to purchase from the Trust all Mortgage Loans and
other property acquired by foreclosure, deed in lieu of foreclosure, or
otherwise in respect of any Mortgage Loan then remaining in the Trust, and
thereby effect the early retirement of the Certificates. Upon receipt of
such notice or direction, the Trustee will be required to notify the Owners
of the Class R Certificates of the determination of the Certificate Insurer
or the Owners of the Offered Certificates to liquidate (the "Termination
Notice"). The Owners of a majority of the Percentage Interest represented
by the Class R Certificates then outstanding may, within 60 days from the
date of receipt of the Termination Notice (the "Purchase Option Period"),
at their option, purchase from the Trust all Mortgage Loans and all
property theretofore acquired by foreclosure, deed
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in lieu of foreclosure, or otherwise in respect of any Mortgage Loan then
remaining in the Trust as of the date of such purchase plus one month's
interest on such amount at the weighted average Pass-Through Rate.
If, during the Purchase Option Period, the Owners of the Class R
Certificates have not exercised the option described above, then upon the
expiration of the Purchase Option Period the Certificate Insurer may
purchase the Trust Estate within 60 days after the expiration of the
Purchase Option Period or the Trustee will sell the Mortgage Loans and
distribute the proceeds of the liquidation thereof.
[Following a Final Determination, the Owners of a majority of the
Percentage Interest represented by the Class R Certificates then
outstanding may, at their option (and upon delivery to the Trustee and the
Certificate Insurer of an opinion of counsel experienced in Federal income
tax matters to the effect that the effect of the Final Determination is to
substantially increase the probability that the gross income of the Trust
will be subject to federal taxation), purchase from the Trust all Mortgage
Loans and all property theretofore acquired by foreclosure, deed in lieu of
foreclosure, or otherwise in respect of any Mortgage Loan then remaining in
the Trust Estate at a purchase price equal to the aggregate Class A
Certificate Principal Balance as of the date of such purchase plus interest
accrued on the Offered Certificates since the prior Distribution Date at
the weighted average Pass-Through Rate. The Pooling and Servicing
Agreement provides that the foregoing opinion shall be deemed satisfactory
unless a majority of the Percentage Interest of the Offered Certificates
give the Owners of the Class R Certificates notice that such opinion is not
satisfactory within thirty days after receipt of such opinion.]
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion of certain material anticipated federal
income tax consequences of the purchase, ownership and disposition of the
Offered Certificates is to be considered only in connection with "Federal
Income Tax Considerations" 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 Trustee will cause one or more REMIC elections to be made with
respect to certain specified assets of the Trust for federal income tax
purposes. Qualification as a REMIC requires ongoing compliance with
certain conditions. Dewey Ballantine, special tax counsel, will advise
that, in its opinion, for federal income tax purposes, assuming the REMIC
elections are made and compliance with the Pooling and Servicing Agreement,
each Class of the Group I Certificates and the Group II Certificates will
be treated as a "regular interest" in a REMIC.
For federal income tax purposes, regular interests in a REMIC are
treated as debt instruments issued by the REMIC on the date on which those
interests are created, and not as ownership interests in the REMIC or its
assets. Owners of 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 Offered
Certificates may be issued with original issue discount for federal income
tax purposes. The prepayment assumption that will be used in determining
the rate of accrual of original issue discount on the Offered Certificates
is 100% of the Prepayment Assumption. No representation is made that any
of the Mortgage Loans will prepay at such rates or any other rate. See
"Yield and Maturity Considerations" herein and "Federal Income Tax
Considerations -- Discount and Premium" in the Prospectus.
The Class A-2 Certificates
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The Beneficial Owners of the Class A-2 Certificates and the related
rights to receive Supplemental Interest Amounts will be treated for tax
purposes as owning two separate investments: (i) the Class A-2
Certificates without the right to receive Supplemental Interest Amounts and
(ii) the right to receive the Supplemental Interest Amounts. The Owners of
the Class A-2 Certificates must allocate the purchase price of their
Certificates between these two investments based on their relative fair
market values. The purchase price allocated to the first investment will
be the issue price of the Class A-2 Certificates for calculating accruals
of OID (if any). See "Federal Income Tax Considerations -- Discount and
Premium" in the Prospectus.
A Beneficial Owner of a Class A-2 Certificate and the related rights
to receive Supplemental Interest Amounts will be treated for federal income
tax purposes as having entered into a notional principal contract on the
date that it purchases its Certificate. Treasury Regulations under Section
446 of the Internal Revenue Code (the "Code") relating to notional
principal contracts (the "Notional Principal Contract Regulations") provide
that taxpayers must recognize periodic payments with respect to a notional
principal contract under the accrual method of accounting. Any
Supplemental Interest Amounts will be periodic payments. Income with
respect to periodic payments under a notional principal contract for a
taxable year should constitute ordinary income. The purchase price
allocated to the right to receive the related Supplemental Interest Amounts
will be treated as a nonperiodic payment under the Notional Principal
Contract Regulations. Such a nonperiodic payment may be amortized using
several methods, including the level payment method described in the
Notional Principal Contract Regulations.
The right to receive the Supplemental Interest Amounts will not
constitute: (i) a "real estate asset" within the meaning of Section
858(c)(5)(A) of the Code if held by a real estate investment trust; (ii) a
"qualified mortgage" within the meaning of Section 860G(a)(3) of the Code
or a "permitted investment" within the meaning of Section 860G(a)(5) of the
Code if held by a REMIC; or (iii) assets described in Section
7701(a)(19)(C)(xi) of the Code if held by a thrift. Moreover, other
special rules may apply to certain investors, including dealers in
securities and dealers in notional principal contracts.
Taxation of Foreign Investors
Distributions made on an Offered Certificate to, or on behalf of, a
Beneficial Owner that is not a U.S. Person generally will be exempt from
United States federal income and withholding taxes. See "Federal Income
Tax Considerations -- Foreign Investors -- Grantor Trust Securities and
REMIC Regular Securities" in the Prospectus. In addition, a Beneficial
Owner that is not a U.S. Person generally will be exempt from United States
federal income and withholding taxes on any Supplemental Interest Amounts.
ERISA CONSIDERATIONS
ERISA and the Code impose certain prohibitions, duties and
requirements on pension, profit sharing and other employee benefit plans
contemplating investment in the Offered Certificates, and the United States
Department of Labor (the "DOL") has issued to the Underwriter individual
prohibited transaction exemptions, (the "Exemptions"), which generally
exempt from the applicable provisions of ERISA and the Code, certain
transactions 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 Exemptions. The loans covered by the
Exemptions include mortgage loans such as the Mortgage Loans. See "ERISA
Considerations" in the Prospectus.
Any person purchasing a Class A-2 Certificate and the related right to
receive Supplemental Interest Amounts will have acquired, for purposes of
ERISA and for federal income tax purposes, such Class A-2 Certificate
without the right to receive the Supplemental Interest Amounts, together
with the right to receive the Supplemental Interest Amounts. The
Exemptions do not apply to the acquisition, holding or resale of the right
to receive the Supplemental Interest Amounts. Accordingly, the acquisition
of the right to receive the Supplemental Interest Amounts by a Plan could
result in a prohibited transaction unless another administrative exemption
to ERISA's prohibited transaction rules is applicable. One or more
alternative exemptions may be available with respect to certain prohibited
transaction rules of ERISA that might apply in connection with the initial
purchase, holding and resale of the right to receive the Supplemental
Interest Amounts, including, but not limited to: (i) Prohibited
Transaction Class Exemption ("PTCE") 91-38, regarding investments by bank
collective investment funds; (ii) PTCE 90-1, regarding investments by
insurance company pooled separate accounts; (iii) PTCE 84-14, regarding
transactions negotiated by qualified professional asset managers; or
(iv) PTCE 75-1, Part II, regarding principal transactions by
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broker-dealers (the "Principal Transactions Exemption"). It is believed
that the conditions of the Principal Transactions Exemption will be met
with respect to the acquisition of a right to receive the Supplemental
Interest Amounts by a Plan, so long as the Underwriter is not a fiduciary
with respect to the Plan (and is not a party in interest with respect to
the Plan by reason of being a participating employer or affiliate thereof).
Before purchasing Class A-2 Certificates based on an administrative
exemption (or exemptions), a fiduciary of a Plan should determine whether
the conditions of such exemption (or exemptions) would be met and whether
the scope of the relief provided by such exemption (or exemptions) would
cover all acts that might be construed as prohibited transactions.
Prospective Plan investors in the Offered Certificates should consult
with their legal advisors concerning the impact of ERISA and the Code, the
applicability of the Exemptions, 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. See "ERISA Considerations"
in the Prospectus.
RATINGS
It is a condition of the original issuance of the Offered Certificates
that they receive ratings of AAA by Standard & Poor's and Aaa by Moody's.
The ratings assigned to the Offered Certificates will be based on the
claims-paying ability of the Certificate Insurer. The ratings issued by
Standard & Poor's and Moody's on payments of principal and interest do not
cover the payment of the Supplemental Interest Amounts. Explanations of
the significance of such ratings may be obtained from Moody's Investors
Service, Inc., 99 Church Street, New York, New York 10007 and Standard &
Poor's Corporation, 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 Offered
Certificates.
LEGAL INVESTMENT CONSIDERATIONS
Although upon their initial issuance all classes of Offered
Certificates are expected to be rated AAA by Standard & Poor's and Aaa by
Moody's, no class of the Offered Certificates will constitute "mortgage
related securities" for purposes of SMMEA.
UNDERWRITING
Under the terms and subject to the conditions set forth in the
Underwriting Agreement for the sale of the Offered Certificates, dated
August 1, 1996 between the Sponsor and the Underwriter (the "Underwriting
Agreement"), the Sponsor has agreed to cause the Trust to sell and the
Underwriter has agreed, subject to the terms and conditions set forth in
the Underwriting Agreement, to purchase the entire principal amount of each
Class of Offered Certificates in the amounts as set forth below:
Principal Principal
Amount of Amount of
Class A-1 Class A-2
Underwriter Certificates Certificates
----------- ------------ ------------
Lehman Brothers Inc. $ $
The Underwriter has agreed to reimburse the Sponsor for certain
expenses of the issuance and distribution of the Offered Certificates.
The Underwriter has informed the Sponsor that they propose to offer
the Offered Certificates for sale from time to time in one or more
negotiated transactions, or otherwise, at varying prices to be determined,
in each case, at the time of the related sale. The Underwriter may effect
such transactions by selling the Offered Certificates to or through
dealers, and such dealers may receive compensation in the form of
underwriting discounts, concessions
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or commissions from the Underwriter. In connection with the sale of the
Offered Certificates, the Underwriter may be deemed to have received
compensation from the Sponsor in the form of underwriting compensation.
The Underwriter and any dealers that participate with the Underwriter in
the distribution of the Offered Certificates may be deemed to be
underwriters and any commissions received by them and any profit on the
resale of the Offered Certificates by them may be deemed to be underwriting
discounts and commissions under the Securities Act of 1933, as amended.
The Sponsor has agreed to indemnify the Underwriter against certain
liabilities including liabilities under the Securities Act of 1933, as
amended.
The Sponsor has been advised by the Underwriter that the Underwriter
presently intends to make a market in the Offered Certificates, as
permitted by applicable laws and regulations. The Underwriter is not
obligated, however, to make a market in the Offered Certificates and such
market-making may be discontinued at any time at the sole discretion of the
Underwriter. Accordingly, no assurance can be given as to the liquidity
of, or trading markets for, the Offered Certificates.
EXPERTS
The financial statements of [insert name of Certificate Insurer]
included in this Prospectus Supplement in Appendix A, as of December 31,
1995 and 1994 and for each of the years in the three year period then
ended, have been included in reliance upon the report of [name of
accounting firm], independent certified public accountants, appearing in
Appendix A, upon the authority of such firm as experts in accounting and
auditing.
CERTAIN LEGAL MATTERS
Certain legal matters relating to the validity of the issuance of the
Certificates will be passed upon by Dewey Ballantine, New York, New York.
S-49
<PAGE>
INDEX OF PRINCIPAL DEFINED TERMS
Page
----
1933 Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Accrual Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Average Amount Outstanding . . . . . . . . . . . . . . . . . . S-14, S-16
Beneficial Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Beneficial Owners . . . . . . . . . . . . . . . . . . . . . . . . . . S-10
Book-Entry Certificates . . . . . . . . . . . . . . . . . . . . . . . S-44
Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-47
CEDEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-10
Certificate Insurance Policy . . . . . . . . . . . . . . . . . . S-2, S-9
Certificate Insurer . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Certificates . . . . . . . . . . . . . . . . . . . . . . . S-1, S-4, S-44
Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Class A Certificates . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Class A Interest Distribution Amount . . . . . . . . . . . . . . . . . S-7
Class A-1 Certificate Principal Balance . . . . . . . . . . . . . . . S-34
Class A-1 Certificates . . . . . . . . . . . . . . . . . . . . . S-1, S-4
Class A-1 Pass-Through Rate . . . . . . . . . . . . . . . . . . . . . . S-6
Class A-2 Available Funds Pass-Through Rate . . . . . . . . . . . . . . S-7
Class A-2 Certificate Principal Balance . . . . . . . . . . . . . . . S-34
Class A-2 Formula Pass-Through Rate . . . . . . . . . . . . . . . . . S-45
Class A-2 Pass-Through Rate . . . . . . . . . . . . . . . . . . . . . . S-6
Class B Certificates . . . . . . . . . . . . . . . . . . . S-1, S-4, S-44
Class B-1 Certificates . . . . . . . . . . . . . . . . . . . . . . . . S-1
Class B-2 Certificates . . . . . . . . . . . . . . . . . . . . . . . . S-1
Class R Certificates . . . . . . . . . . . . . . . . . . . S-1, S-4, S-44
Clean-Up Call Date . . . . . . . . . . . . . . . . . . . . . . . . . S-11
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
CLTV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-18
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-53
Combined Loan-to-Value Ratio . . . . . . . . . . . . . . . . . . . . S-18
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Compensating Interest . . . . . . . . . . . . . . . . . . . . . . . . S-10
Cut-Off Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
Definitive Certificate . . . . . . . . . . . . . . . . . . . . . . . S-44
Delinquency Advances . . . . . . . . . . . . . . . . . . . . . . . . S-10
Distribution Date . . . . . . . . . . . . . . . . . . . . . . . . S-7, S-45
DOL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-53
DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-10
Euroclear . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-10
Exemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-53
FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-39
FHLMC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-38
Final Determination . . . . . . . . . . . . . . . . . . . . . . . . . S-51
Final Scheduled Distribution Date . . . . . . . . . . . . . . . . . . . S-4
FNMA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-25
Foreclosure Rate . . . . . . . . . . . . . . . . . . . . . . . S-15, S-42
Gross Losses . . . . . . . . . . . . . . . . . . . . . . . . . S-14, S-16
Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Group I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Group I Certificates . . . . . . . . . . . . . . . . . . . . . . . . . S-4
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-13
Insured Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
Interest Determination Date . . . . . . . . . . . . . . . . . . . . . S-47
Junior Lien Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . S-18
S-50
<PAGE>
Page
----
LIBO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-47
LIBOR . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6, S-45, S-47
Liquidated Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . S-8
Loan-to-Value Ratio . . . . . . . . . . . . . . . . . . . . . . . . . S-18
LTV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-18
Master Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Moody's . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11
Mortgage Loan File . . . . . . . . . . . . . . . . . . . . . . . . . S-50
Mortgage Loan Group . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Mortgage Loan Pool . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Mortgage Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-17
Mortgaged Properties . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Net Losses . . . . . . . . . . . . . . . . . . . . . . . . . . S-14, S-16
Notional Principal Contract Regulations . . . . . . . . . . . . . . . S-52
Offered Certificates . . . . . . . . . . . . . . . . . . . . . . . . . S-1
One-Month LIBOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-44
Pooling and Servicing Agreement . . . . . . . . . . . . . . S-1, S-4, S-44
Preference Amounts . . . . . . . . . . . . . . . . . . . . . . . . . S-49
Preference Order . . . . . . . . . . . . . . . . . . . . . . . . . . S-49
Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-33
Prepayment Assumption . . . . . . . . . . . . . . . . . . . . . S-34, S-52
Principal Transactions Exemption . . . . . . . . . . . . . . . . . . S-53
PTCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-53
Purchase Option Period . . . . . . . . . . . . . . . . . . . . . . . S-51
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-45
Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . S-14, S-16
Reference Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . S-47
Residual Interest . . . . . . . . . . . . . . . . . . . . . . . . . . S-11
Reuters Screen LIBO page . . . . . . . . . . . . . . . . . . . . . . S-47
Specified Subordinated Amounts . . . . . . . . . . . . . . . . . . . S-35
Sponsor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Standard & Poor's . . . . . . . . . . . . . . . . . . . . . . . . . . S-11
Step-Up Payment Date . . . . . . . . . . . . . . . . . . . . . . S-7, S-45
Sub-Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-43
Subordination Deficit . . . . . . . . . . . . . . . . . . . . . . . . . S-9
Supplemental Interest Account . . . . . . . . . . . . . . . . . . . . S-50
Supplemental Interest Amount . . . . . . . . . . . . . . . . . . S-6, S-45
Termination Notice . . . . . . . . . . . . . . . . . . . . . . . . . S-51
Third-Party Servicing Portfolio . . . . . . . . . . . . . . . . . . . S-43
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Trustee's Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Underwriter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
S-51
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Accredited
Mortgage Loan Trust 1996-1 Class A-1 and Class A-2 Certificates (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 Certificates 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 Depository 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 certificates issues in same-day funds.
Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between CEDEL Participants or Euroclear Participants will be
settled using the procedures applicable to conventional eurobonds in
same-day funds.
Trading between 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
AI-1
<PAGE>
at least one business day prior to settlement. CEDEL or Euroclear will
instruct the Relevant Depository, 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 Depository 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 Depository 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 Depository, 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
Depository, 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). In the event that 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:
AI-2
<PAGE>
(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), 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 Certificate 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 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.
On April 22, 1996, the IRS proposed regulations relating to
withholding, backup withholding and information reporting that, if adopted
in their current form would, among other things, unify current
certification procedures and forms and clarify certain reliance standards.
The regulations are proposed to be effective for payments made after
December 31, 1997 but provide that certificates issued on or before the
date that is 60 days after the proposed regulations are made final will
continue to be valid until they expire. Proposed regulations, however, are
subject to change prior to their adoption in final form.
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 or trust that is subject to U.S. federal income tax
regardless of the source of its income. 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
AI-3
<PAGE>
advised to consult their own tax advisors for specific tax advice
concerning their holding and disposing of the Global Securities.
AI-4
EXHIBIT 5.1
Dewey Ballantine
1301 Avenue of the Americas
New York, New York 10019
August 22, 1996
Accredited Home Lenders, Inc.
15030 Avenue of Science, Suite 100
San Diego, California 92128
Re: Accredited Home Lenders, Inc.
Mortgage Loan Asset-Backed Securities
-------------------------------------
Gentlemen:
We have acted as counsel to Accredited Home Lenders, Inc. (the
"Registrant") 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
$500,000,000 of Mortgage Loan Asset-Backed Securities ("Securities") which the
Registrant plans to offer in series, each series to be issued under a separate
pooling and servicing agreement, trust agreement or indenture (each, a "Trust
Agreement"), in substantially one of the forms incorporated by reference as
Exhibits to the Registration Statement, among Accredited Home Lenders, Inc.,
(the "Company") or a trust (a "Trust") as issuer or depositor and a trustee to
be identified in the prospectus supplement for such series of Securities (the
"Trustee" for such series).
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 Company and such other instruments and other certificates of public
officials, officers and representatives of the Company and such other persons,
and we have made such investigations of law, as we have 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.
We are admitted to the Bar of the State of New York and we express no
opinion as to the laws of any other
<PAGE>
jurisdiction except as to matters that are governed by Federal law or the laws
of the State of New York. All opinions expressed herein are based on laws,
regulations and policy guidelines currently in force and may be affected by
future regulations.
Based upon the foregoing, we are of the opinion that:
1. When, in respect of a series of Securities, a Trust Agreement has
been duly authorized by all necessary action and duly executed and
delivered by the Company or a Trust, the Trustee and any other party
thereto for such series, such will be a valid and legally binding
obligation of the Company or such Trust, as the case may be; and
2. When a Trust Agreement for a series of Securities has been duly
authorized by all necessary action and duly executed and delivered by the
Company or a Trust, the Trustee for such series and the other parties
thereto, and when the Securities of such series have been duly executed and
authenticated in accordance with the provisions of such Trust Agreement,
and issued and sold as contemplated in the Registration Statement, the
prospectus and the related Prospectus Supplement, as amended or
supplemented and delivered pursuant to Section 5 of the Act in connection
therewith, such Securities will be legally and validly issued, fully paid
and nonassessable, and the holders of such Securities will be entitled to
the benefits of such Trust Agreement.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to Dewey Ballantine in the
Registration Statement and the related prospectus under the heading "Legal
Matters." In giving this opinion we do not concede we are experts within the
meaning of the Act or the rules and regulations therewith, or that this consent
is required by Section 7 of the Act.
This opinion is furnished by us as counsel to the Registrant for
inclusion as an Exhibit to the Registration Statement. It may not be relied
upon by any other person for any other purpose without our prior written
consent.
Very truly yours,
DEWEY BALLANTINE
2
EXHIBIT 8.1
Dewey Ballantine
1301 Avenue of the Americas
New York, New York 10019
August 22, 1996
Accredited Home Lenders, Inc.
15030 Avenue of Science, Suite 100
San Diego, California 92128
Re: Accredited Home Lenders, Inc.
Mortgage Loan Asset-Backed Securities
-------------------------------------
Gentlemen:
We have acted as counsel to Accredited Home Lenders, Inc. (the
"Registrant") in connection with the preparation and filing of a registration
statement on Form S-3 (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 $500,000,000 Mortgage Loan Asset-Backed
Securities ("Securities") which the Registrant plans to offer in series.
We hereby confirm our opinion with respect to the Federal income tax
characterization of the Investor Certificates and the Federal income tax
treatment of the issuance of such Investor Certificates set forth under the
caption "Certain Tax Consequences" subject to the limitations expressed therein.
Moreover, it is our opinion that, subject to the limitations expressed therein,
the discussion of certain Federal tax matters within the Prospectus is an
accurate description of the material tax aspects of owning (including the
purchase and sale of) Certificates or Notes.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to this opinion within the
Prospectus. In giving this consent, we do not concede that we are experts
within the meaning of the Act or the rules and regulations therewith, or that
this consent is required by Section 7 of the Act.
Very truly yours,
DEWEY BALLANTINE
