Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------------
IMH ASSETS CORP.
(Exact name of Registrant as specified in its Charter)
California
(State of Incorporation)
33-0705301
(I.R.S. Employer Identification Number)
20371 Irvine Avenue
Santa Ana Heights, California 92707
(714) 556-0122
(Address and telephone number of Registrant's principal executive offices)
Richard Johnson
IMH Assets Corp.
20371 Irvine Avenue
Santa Ana Heights, California 92707
(714) 556-0122
(Name, address and telephone number of agent for service)
----------------
Copies to:
Paul D. Tvetenstrand, Esq.
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
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Approximate date of commencement of proposed sale to the public: From
time to time on or after the effective date of this Registration Statement, as
determined by market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, please check the following box.
/X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering./ /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering./ /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
<TABLE>
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CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE AMOUNT OF
AMOUNT TO BE PRICE OFFERING REGISTRATION
TITLE OF SECURITIES BEING REGISTERED REGISTERED (1) PER UNIT (2) PRICE (2) FEE (1)
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<S> <C> <C> <C> <C>
Collateralized Mortgage Bonds, issued in $1,000,000 100% $1,000,000 $295.00
series
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</TABLE>
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(1) $1,440,196,823.00 aggregate principal amount of Collateralized Mortgage
Bonds registered by the Registrant under Registration Statement No. 333-50473
referred to below and not previously sold are proposed to be consolidated in
this Registration Statement concurrently with the effectiveness hereof pursuant
to Rule 429. All registration fees in connection with such unsold amount of
Collateralized Mortgage Bonds have been previously paid by the Registrant under
the foregoing Registration Statement. Accordingly, the total amount proposed to
be registered under the Registration Statement as so consolidated as of the date
of this filing is $1,441,196,823.00.
(2) Estimated solely for the purpose of calculating the registration fee.
--------------------------
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.
Pursuant to Rule 429 of the Securities Act of 1933, the Prospectus and
Prospectus Supplement contained in this Registration Statement also relate to
the Registrant's Registration Statements on Form S-3 (Registration No.
333-50473). This Registration Statement, which is a new registration statement,
also constitutes a post-effective amendment to Registration Statement No. 333-
50473. Such post-effective amendment shall hereafter become effective
concurrently with the effectiveness of this Registration Statement in accordance
with Section 8(a) of the Securities Act of 1933.
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EXPLANATORY NOTE
This Registration Statement includes (i) a base prospectus for residential
and multifamily mortgage loans, (ii) a base prospectus for commercial and
multifamily mortgage loans, (iii) an illustrative form of prospectus supplement
for use in an offering of Collateralized Mortgage Bonds backed by residential
mortgage loans (Version 1), (iv) an illustrative form of prospectus supplement
for use in an offering of Collateralized Mortgage Bonds backed by commercial and
multifamily mortgage loans (Version 2) and (v) an illustrative form of
prospectus supplement for use in an offering of Collateralized Mortgage Bonds
backed by revolving credit loans (Version 3).
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This preliminary prospectus supplement shall not constitute an offer
to sell or the solicitation of an offer to buy nor shall there be any sale of
these securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such State.
VERSION 1
Subject to Completion Dated August 5, 1998
Prospectus Supplement
(To Prospectus Dated ____________, 19__)
$----------------
IMH Assets Corp.
Company
Impac CMB Trust 19__-___
[Name of Master Servicer]
Master Servicer
Collateralized Mortgage Bonds, Series 19__-___
The Impac CMB Trust 19__ (the "Issuer") will be formed pursuant to a
Trust Agreement to be dated as of _________________, 19__ between IMH Assets
Corp. (the "Company") and __________________________, the Owner Trustee. The
Issuer will issue $__________ aggregate principal amount of Collateralized
Mortgage Bonds, Series 19__-____ (the "Bonds"). The Bonds will be issued
pursuant to an Indenture to be dated as of _________________, 19__, between the
Issuer and ___________________, the Indenture Trustee. The Issuer will also
issue $___________ aggregate principal amount of the Issuer's Trust
Certificates, Series 19__-____ (the "Certificates"). The Bonds and the
Certificates are collectively referred to herein as the "Securities". Only the
Bonds are offered hereby.
The Bonds will represent indebtedness of the related trust fund (the
"Trust Fund") created by the Trust Agreement. The Trust Fund consists of
adjustable-rate, conventional, residential, one- to four-family first lien
mortgage loans (the "Mortgage Loans"). In addition, the Bonds will have the
benefit of an irrevocable and unconditional financial guaranty insurance policy
(the "Policy") issued by _______________ (the "Insurer") as described under "The
Policy" herein.
The interest rates on the Mortgage Loans (each, a "Mortgage Rate") will
change semi-annually based on the Index (as defined herein) and the respective
Note Margins described herein, subject to certain periodic and lifetime
limitations as described more fully herein.
Payments of principal and interest on the Bonds will be made on the
_______ day of each month or, if such day is not a business day, then on the
next business day, commencing on ____________, 19__ (each, a "Payment Date"). As
described herein, interest will accrue on the Bonds at a floating rate (the
"Bond Rate") equal to [LIBOR (as defined herein)] plus _____% per annum subject
to certain limitations as described herein. See "Description of the
Securities--Interest on the Bonds" herein.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH UNDER
"RISK FACTORS" BEGINNING ON PAGE S-__ HEREIN AND ON PAGE 11 IN THE ACCOMPANYING
PROSPECTUS.
<PAGE>
It is a condition of the issuance of the Bonds that they be rated "___"
by ___________________ and "____" by ___________________.
THE YIELD TO MATURITY ON THE BONDS WILL DEPEND ON THE RATE AND TIMING
OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS, LIQUIDATIONS AND REPURCHASES) ON
THE MORTGAGE LOANS. SEE "CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS" HEREIN AND
"YIELD AND PREPAYMENT CONSIDERATIONS" IN THE PROSPECTUS.
There is currently no secondary market for the Bonds. ________________
(the "Underwriter") intends to make a secondary market in the Bonds, but is not
obligated to do so. There can be no assurance that a secondary market for the
Bonds will develop or, if it does develop, that it will continue. The Bonds will
not be listed on any securities exchange.
THE BONDS REPRESENT OBLIGATIONS OF THE ISSUER ONLY AND DO NOT REPRESENT
AN INTEREST IN OR OBLIGATION OF THE COMPANY, THE MASTER SERVICER, OR ANY OF
THEIR AFFILIATES. NONE OF THE BONDS OR THE UNDERLYING MORTGAGE LOANS ARE INSURED
OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE COMPANY,
THE MASTER SERVICER OR ANY OF THEIR AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Bonds will be purchased from the Company by the Underwriter and
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
sale. The proceeds to the Company from the sale of the Bonds are expected to be
approximately $___________, before the deduction of expenses payable by the
Company estimated to be approximately $_______.
The Bonds are offered by the Underwriter subject to prior sale, when,
as and if delivered to and accepted by the Underwriter and subject to certain
other conditions. The Underwriter reserves the right to withdraw, cancel or
modify such offer and to reject any order in whole or in part. It is expected
that delivery of the Bonds will be made on or about ____________, 19__ [in
book-entry form through the Same Day Funds Settlement System of The Depository
Trust Company as discussed herein,] [at the office of __________________,
_______________, _________________] against payment therefor in immediately
available funds.
[Name of Underwriter]
[Date of Prospectus Supplement]
S-2
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THE SECURITIES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE PART OF
A SEPARATE SERIES OF SECURITIES BEING OFFERED PURSUANT TO THE COMPANY'S
PROSPECTUS DATED ____________, 19__, OF WHICH THIS PROSPECTUS SUPPLEMENT IS A
PART AND WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE PROSPECTUS CONTAINS
IMPORTANT INFORMATION REGARDING THIS OFFERING WHICH IS NOT CONTAINED HEREIN, AND
PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS AND THIS PROSPECTUS
SUPPLEMENT IN FULL. SALES OF THE SECURITIES MAY NOT BE CONSUMMATED UNLESS THE
PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
UNTIL NINETY DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL
DEALERS EFFECTING TRANSACTIONS IN THE SECURITIES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS TO WHICH IT RELATES. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER- ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE OFFERED
SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET, SUCH STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
S-3
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SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus.
Capitalized terms used herein and not otherwise defined herein have the meanings
assigned in the Prospectus.
Issuer ...................... The Bonds will be issued by Impac CMB Trust
19__-___, a Delaware business trust established
pursuant to the Trust Agreement, dated as of
________ , 19__ between the Company and the
Owner Trustee.
The Bonds ................... $____________ Collateralized Mortgage Bonds,
Series 19__-__. Only the Bonds are offered
hereby. The Bonds will be issued pursuant to an
Indenture, dated as of ________ 1, 19__ between
the Issuer and ___________________, as Indenture
Trustee.
Company ..................... IMH Assets Corp., (the "Company"). See "The
Company" in the Prospectus.
Master Servicer ............. [Name of Master Servicer] (the "Master
Servicer"). See "[Name of Master Servicer]" in
the Prospectus.
Owner Trustee ............... ------------------, ------------.
Indenture Trustee ........... ------------------, ------------.
Delivery Date ............... On or about ____________, 19__.
Payment Date ................ The [______] day of each month (or, if such day
is not a business day, the next business day),
beginning on ___________________, 199___, (each,
a "Payment Date").
[Denominations and
Registration ................ The Bonds (the "Book-Entry Bonds") will be
issued, maintained and transferred on the
book-entry records of DTC and its Participants
(as defined in the Prospectus). The Bonds will
be offered in registered form, in minimum
denominations of $______ and integral multiples
of $_____ in excess thereof. The Book-Entry
Bonds will be represented by one or more Bond
certificates registered in the name of Cede &
Co., as nominee of DTC. No Beneficial Owner will
be entitled to receive a Bond in fully
registered, certificated form (a "Definitive
Bond"), except under the limited circumstances
S-4
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described herein. See "Description of the
Bonds--Book Entry Bonds" herein.]
The Mortgage Pool ........... The Mortgage Loans are secured by first liens on
one- to four- family residential real properties
(each, a "Mortgaged Property"). The Mortgage
Loans have individual principal balances at
origination of at least $______ but not more
than $_________ with an average principal
balance at origination of approximately
$_________. The Mortgage Loans have terms to
maturity of __ years from the date of
origination and a weighted average remaining
term to stated maturity of approximately ____
years and __ months as of the Cut-off Date. The
Mortgage Rate on each Mortgage Loan will adjust
semi-annually on its Adjustment Date (as defined
herein), with corresponding adjustments in the
amount of monthly payments, to equal the sum
(rounded as described herein) of the Index
described below and a fixed percentage set forth
in the related Mortgage Note (the "Note
Margin"). However, (i) on any Adjustment Date
such Mortgage Rate may not increase or decrease
by more than 1% (the "Periodic Rate Cap"), (ii)
over the life of such Mortgage Loan, such
Mortgage Rate may not exceed the related maximum
Mortgage Rate (such maximum Mortgage Rate is
equal to the Mortgage Rate at origination plus a
lifetime rate cap (the "Lifetime Rate Cap")),
which maximum Mortgage Rates will range from
______% to ______% and (iii) with respect to
approximately ____% of the Mortgage Loans, by
aggregate principal balance as of the Cut- off
Date, over the life of such Mortgage Loan, such
Mortgage Rate may not be lower than the minimum
Mortgage Rate. The difference between the
Mortgage Rate on each Mortgage Loan at
origination and the minimum Mortgage Rate on
such Mortgage Loan will equal the lifetime rate
floor (the "Lifetime Rate Floor"). The minimum
Mortgage Rates will range from _____% to ______%
per annum. The Mortgage Loans will bear interest
at Mortgage Rates of at least _____% per annum
but not more than ______% per annum, as of the
Cut-off Date. For a further description of the
Mortgage Loans, see "Description of the Mortgage
Pool" herein.
The Index ................... As of any Adjustment Date with respect to any
Mortgage Loan, the Index applicable to the
determination of the related Mortgage Rate will
be a rate equal to the monthly weighted average
cost of funds for members of the Federal Home
Loan Bank of San Francisco as most recently
available 45 days prior
S-5
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to the Adjustment Date (the "Cost of Funds
Index" or "Index").
Interest Payments ........... Interest on the Bonds will be paid monthly on
each Payment Date, commencing in 19__, at the
Bond Interest Rate for ------ the related
Interest Period (as defined below). The Bond
Interest Rate for an Interest Period will be
equal to LIBOR plus ___% as described herein
under "Description of the Bonds--Interest on the
Bonds." Interest on the Bonds in respect of any
Payment Date will accrue from the preceding
Payment Date (or in the case of the first
Payment Date, from the date of initial issuance
of the Bonds (the "Closing Date") through the
day preceding such Payment Date (each such
period, an "Interest Period")) on the basis of
the actual number of days in the Interest Period
and a 360-day year.
Principal Payments .......... On any Payment Date, to the extent of funds
available therefor, Bondholders will be entitled
to receive principal payments generally equal to
the amount, if any, necessary to bring the
Outstanding Reserve Amount up to the Reserve
Amount Target. In no event will principal
payments on the Bonds on any Payment Date exceed
the Bond Principal Balance thereof on such date.
On the Payment Date in __________, principal
will be due and payable on the Bonds in an
amount equal to the Bond Principal Balance for
such Payment Date.
The "Bond Principal Balance" of the Bonds on any
day is the initial balance thereof as of the
Closing Date reduced by all payments of
principal thereon as of such day.
P&I Collections ............. All collections on the Mortgage Loans will be
allocated by the Master Servicer in accordance
with the terms of the Mortgage Loans between
amounts collected in respect of interest and
amounts collected in respect of principal. See
"Description of the Servicing Agreement--P&I
Collections" herein, which describes the
calculation of the Interest Collections and the
Principal Collections on the Mortgage Loans for
the Collection Period related to each Payment
Date.
With respect to any Payment Date, the portion of
Principal Collections and Interest Collections
that are distributable pursuant to the Servicing
Agreement (together, the "P&I Collections") will
equal (a) Interest Collections for such
S-6
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Payment Date and (b) Principal Collections for
such Payment Date.
Outstanding Reserve
Amount ...................... The distribution of the Additional Principal
Distribution Amount, if any, on the Mortgage
Loans will create the Outstanding Reserve
Amount. The Outstanding Reserve Amount, if any,
will be available to absorb any Liquidation Loss
Amounts that are allocated to the Mortgage Loans
and not covered by Principal Collections and
Interest Collections. Any Liquidation Loss
Amounts allocable to the Bondholders and not
covered by such overcollateralization will be
covered by draws on the Policy to the extent
provided herein. The "Outstanding Reserve
Amount" on any Payment Date is the amount, if
any, by which the Pool Balance as of the end of
the related Collection Period exceeds the Bond
Principal Balance on such day (after giving
effect to all distributions on such Payment
Date).
As of the Closing Date, the Reserve Amount
Target is equal to ___% of the Cut-Off Date Pool
Balance. The Reserve Amount Target may be
increased or reduced from time to time pursuant
to the terms of the Pooling and Servicing
Agreement, with the consent of the Rating
Agencies and the Indenture Trustee. To the
extent the Reserve Amount Target is reduced on
any Payment Date, the amount of the Principal
Collections distributed on such Payment Date
will be reduced and on each subsequent Payment
Date to the extent the remaining Outstanding
Reserve Amount is in excess of the reduced
Reserve Amount Target until the Outstanding
Reserve Amount equals the Reserve Amount Target.
Insurer ..................... __________________. See "The Insurer" herein.
Policy ...................... On the Closing Date, the Insurer will issue a
Policy in favor of the [Indenture Trustee on
behalf of the Issuer]. The Policy will
unconditionally and irrevocably guarantee
principal payments on the Bonds plus accrued and
unpaid interest due on the Bonds. The Policy
will not guarantee payments on the Certificates.
On each Payment Date, a draw will be made on the
Policy to cover (a) any shortfall in amounts
available to make payments of interest on the
outstanding Bond Principal Balance of the Bonds
and (b) the amount, if any, [by which
S-7
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the Bond Principal Balance of the Bonds exceeds
the Pool Balance at the end of the related
Collection Period]. In addition, the Policy will
guarantee the payment of the outstanding Bond
Principal Balance of each Bond on the Payment
Date in _______ (after giving effect to all
other amounts distributable and allocable to
principal on such Payment Date). See "The
Policy" herein and "Description of Credit
Enhancement" in the Prospectus.
The Certificates ............ $________ Trust Certificates, Series 19__-__.
The Certificates will be issued pursuant to the
Trust Agreement and will represent the
beneficial ownership interest in the Issuer. The
Certificates are not offered hereby.
Final Payment of Principal on
the Bonds .................. The Bonds will be payable in full on . In
addition, the Issuer will pay the Bonds in full
upon the exercise by the [Master Servicer] of
its option to purchase all Mortgage Loans and
all property acquired in respect of such
Mortgage Loans. See "The Agreements--
Termination; Redemption of Bonds" in the
Prospectus.
Federal Income Tax
Consequences ............... In the opinion of Tax Counsel (as defined in the
Prospectus), for federal income tax purposes,
the Bonds will be characterized as indebtedness
of the Issuer and the Issuer, as created
pursuant to the terms and conditions of the
Trust Agreement, will not be characterized as an
association (or publicly traded partnership)
taxable as a corporation or as a taxable
mortgage pool within the meaning of section
7701(i) of the Code.
For further information regarding certain
federal income tax consequences of an investment
in the Bonds see "Federal Income Tax
Consequences" herein and "Federal Income Tax
Consequences" and "State and Other Tax
Consequences" in the Prospectus.
Legal Investment ............ So long as the Bonds are rated in the top two
rating agencies, the Bonds will constitute
"mortgage related securities" for purposes of
SMMEA. See "Legal Investment Considerations"
herein.
S-8
<PAGE>
Rating ...................... It is a condition to the issuance of the Bonds
that they be rated "____" by and "____" by (each
a "Rating --------- ------------- Agency"). A
security rating is not a recommendation to buy,
sell or hold securities and may be subject to
revision or withdrawal at any time by the
assigning rating organization. A security rating
does not address the frequency of prepayments of
Mortgage Loans, or the corresponding effect on
yield to investors. See "Certain Yield and
Prepayment Considerations" and "Ratings" herein.
S-9
<PAGE>
[RISK FACTORS]
[Prospective Bondholders should consider, among other things, the items
discussed under "Risk Factors" in the Prospectus and the following factors in
connection with the purchase of the Bonds:]
[Appropriate Risk Factors as necessary. Possible Risk Factors based on present
disclosure include the following:
Delinquencies and Potential Delinquencies
Approximately _____% of the Mortgage Loans (by aggregate principal
balance as of the Cut-off Date) were thirty days or more but less than sixty
days delinquent in their Monthly Payments (such Mortgage Loans, "Delinquent
Mortgage Loans") as of the Cut-off Date. Prospective investors in the Bonds
should be aware, however, that only approximately _____% of the Mortgage Loans
(by aggregate principal balance as of the Cut-off Date), had a first Monthly
Payment due on or before ______ _, 1996, and therefore, the remaining Mortgage
Loans could not have been Delinquent Mortgage Loans as of the Cut-off Date.
Approximately _____% of the Mortgage Loans (by aggregate outstanding
principal balance as of the Cut-off Date), are secured by Mortgaged Properties
located in the State of California. Property values of residential real estate
in California have declined in recent years. If the California residential real
estate market should continue to experience an overall decline in property
values after the dates of origination of the Mortgage Loans, the rates of
delinquency, foreclosure, bankruptcy and loss on the Mortgage Loans may be
expected to increase, and may increase substantially, as compared to such rates
in a stable or improving real estate market.
In addition, ___% of the Mortgage Loans are secured by Mortgaged
Properties located in Orange County, California. On December 6, 1994, Orange
County filed for protection under Chapter 9 of the United States Bankruptcy
Code. If public services are curtailed as a result of Orange County's financial
difficulties, property values in the related market area may be adversely
affected.]
DESCRIPTION OF THE MORTGAGE POOL
General
The Mortgage Pool will consist of Mortgage Loans with an aggregate
principal balance outstanding as of the Cut-off Date of $____________. The
Mortgage Loans will consist of conventional, adjustable-rate, fully-amortizing,
first lien Mortgage Loans with terms to maturity of not more than ___ years from
the due date of the first monthly payment. On or before the Delivery Date, the
Company will acquire the Mortgage Loans to be included in the Mortgage Pool from
_______________ and ________________ (the "Sellers"). The Sellers will make
certain
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representations and warranties with respect to the Mortgage Loans and, as more
particularly described in the Prospectus, will have certain repurchase or
substitution obligations in connection with a breach of any such representation
and warranty, as well as in connection with an omission or defect in respect of
certain constituent documents required to be delivered with respect to the
Mortgage Loans, in any event if such breach, omission or defect cannot be cured
and it materially and adversely affects the interests of Bondholders. Neither
the Company nor any other entity or person will have any responsibility to
purchase or replace any Mortgage Loan if a Seller is obligated but fails to do
so. See "Description of the Mortgage Pool--Representations by Sellers" and
"Description of the Bonds--Assignment of Trust Fund Assets" in the Prospectus
and "--The Seller" below. The Mortgage Loans will have been originated or
acquired by the [Sellers] in accordance with the underwriting criteria described
herein. See "--Underwriting" below. All percentages of the Mortgage Loans
described herein are approximate percentages (except as otherwise indicated) by
aggregate principal balance as of the Cut-off Date.
The Mortgage Rate on each Mortgage Loan will adjust semi-annually on a
date specified in the related Mortgage Note (the "Adjustment Date"). For
approximately ____% of the Mortgage Loans, by aggregate principal balance as of
the Cut-off Date, the first Adjustment Date occurred prior to the Cut-off Date.
On each Adjustment Date, the Mortgage Rate on a Mortgage Loan will be
adjusted to equal the sum (rounded to either the nearest or next highest
multiple of _____%) of (a) a rate per annum equal to the monthly weighted
average cost of funds for members of the Federal Home Loan Bank of San Francisco
(the "FHLB of San Francisco") as published by the FHLB of San Francisco (the
"Cost of Funds Index" or "Index") and as most recently available as of the day
45 days prior to such Adjustment Date or, in the event that such Index is no
longer available, an index selected by the Master Servicer and reasonably
acceptable to the Trustee that is based on comparable information, and (b) the
related Note Margin, subject to the following limitations. The Mortgage Rate on
the Mortgage Loan on any Adjustment Date may not increase or decrease by more
than the Periodic Rate Cap applicable to such Mortgage Loan and, over the life
of such Mortgage Loan, generally may not exceed the Mortgage Rate at origination
plus the Lifetime Rate Cap, or be less than the Mortgage Rate at origination
minus any Lifetime Rate Floor, applicable to such Mortgage Loan. No Mortgage
Loan provides for payment caps on any Adjustment Date which would result in
deferred interest or negative amortization. Effective with the first payment due
date on a Mortgage Loan after an Adjustment Date therefor, the monthly principal
and interest payment will be adjusted to an amount that will fully amortize the
then outstanding principal balance of such Mortgage Loan at its stated maturity
and pay interest at the adjusted Mortgage Rate. Because the amortization
schedule of each Mortgage Loan will be recalculated semi-annually, any partial
prepayments thereof will not reduce the term to maturity of such Mortgage Loan.
An increase in the Mortgage Rate on a Mortgage Loan will result in a larger
monthly payment and in a larger percentage of such monthly payment being
allocated to interest and a smaller percentage being allocated to principal, and
conversely, a decrease in the Mortgage Rate on the Mortgage Loan will result in
a lower monthly payment and in a larger percentage of each monthly payment being
allocated to principal and a smaller percentage being allocated to interest.
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<PAGE>
The Cost of Funds Index reflects the monthly weighted average cost of
funds of savings and loan associations and savings banks, the home offices of
which are located in Arizona, California and Nevada, that are member
institutions of the FHLB of San Francisco, as computed from statistics tabulated
and published by the FHLB of San Francisco. The FHLB of San Francisco normally
announces the Cost of Funds Index on or near the last working day of the month
following the month in which the cost of funds was incurred. The Index is
available through a variety of sources, including, without limitation, Telerate,
The Wall Street Journal and USA Today.
Listed below are the historical values of the Cost of Funds Index since
1988. Such values may fluctuate significantly over time and may not increase or
decrease in a constant pattern from period to period. The following does not
purport to be representative of future values of the Index. No assurance can be
given as to the Index value to be applied on any future Adjustment Date.
COST OF FUNDS INDEX
Month 1990 1991 1992 1993 1994 1995
===== ==== ==== ==== ==== ==== ====
January......
February.....
March........
April........
May..........
June.........
July.........
August.......
September....
October......
November.....
December.....
The initial Mortgage Rate in effect on a Mortgage Loan generally will
be lower than the sum of the Index that would have been applicable at
origination and the Note Margin. Absent a decline in the Index subsequent to
origination of a Mortgage Loan, the related Mortgage Rate will generally
increase on the first Adjustment Date following origination of such Mortgage
Loan. The repayment of such Mortgage Loans will be dependent on the ability of
the Mortgagor to make larger Monthly Payments following adjustments of the
Mortgage Rate. Moreover, because the maximum Mortgage Rate on any Mortgage Loan
is determined by adding the Lifetime Rate Cap to the Mortgage Rate at
origination, irrespective of the Index that would have been applicable at
origination, the maximum Mortgage Rate on a Mortgage Loan will generally be less
than the sum of the Index and the Note Margin that would have been applicable at
origination plus the Lifetime Rate Cap. Mortgage Loans that have the same
initial Mortgage Rate may not always bear interest at the same Mortgage Rate
because the Mortgage Loans may have different Adjustment Dates (and
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<PAGE>
the Mortgage Rate therefore may reflect different Index values), different Note
Margins, different Lifetime Rate Caps and different Lifetime Rate Floors, if
any.
The Mortgage Loans will have approximately the following
characteristics as of the Cut-off Date:
Number of Mortgage Loans...........................
Mortgage Rates:
Weighted Average..........................
Range.....................................
Range of Net Mortgage Rates........................
Note Margins:
Weighted Average..........................
Range.....................................
Maximum Mortgage Rates:
Weighted Average..........................
Range.....................................
Maximum Net Mortgage Rates (1):
Weighted Average..........................
Range.....................................
Weighted Average Months to Next
Adjustment Date after ____________, 19__(2)....
======
(1) The difference between the maximum Net Mortgage Rate and the Net
Mortgage Rate as of the Cut-off Date may be less than the Lifetime Rate
Cap.
(2) The Weighted Average Months to the next Adjustment Date is equal to the
weighted average of the number of months until the Adjustment Date next
following _____________, 19__.
The Mortgage Loans in the Mortgage Pool will have the following
characteristics as of the Cut-off Date (expressed as a percentage of the
aggregate principal balance of the Mortgage Loans having such characteristics
relative to the aggregate principal balance of all Mortgage Loans in the
Mortgage Pool):
The Mortgage Loans will have had individual principal balances
at origination of at least $__________ but not more than $__________.
None of the Mortgage Loans in the Mortgage Pool will have been
originated prior to _____________, 19__ or will have a scheduled
maturity later than ____________, ____. No Mortgage Loan in the
Mortgage Pool will have an unexpired term to stated maturity as of the
Cut-off Date of less than __ years and __ months. The weighted average
remaining term to stated maturity of the Mortgage Loans in the Mortgage
Pool as of the Cut-off Date will be approximately ____ years and __
months. The weighted average
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<PAGE>
Adjustment Date of the Mortgage Loans in the Mortgage Pool next
following the Cut-off Date is ____________, 19__.
Approximately _____% of the Mortgage Loans will have
Loan-to-Value Ratios at origination exceeding 80% but less than or
equal to 90%, and approximately ____% of the Mortgage Loans will have
Loan-to-Value Ratios exceeding 90%. The weighted average Loan-to-Value
Ratio at origination, as of the Cut-off Date, is approximately _____%.
At least _____% of such Mortgage Loans will be secured by fee
simple interests in detached one- to four-family dwelling units with
the remaining units being secured by fee simple interests in attached
planned unit developments, condominiums or townhouses.
Approximately _____% of the Mortgage Loans in the Mortgage
Pool will be secured by Mortgaged Properties located in California.
No more than _____% of the Mortgage Loans in the Mortgage Pool
will be secured by Mortgaged Properties located in any one zip code
area in California, and no more than ____% will be secured by Mortgaged
Properties located in any one zip code area outside California.
No more than _____% of the Mortgage Loans were equity
refinance mortgage loans made to mortgagors who used less than the
entire amount of the proceeds to refinance an existing mortgage loan.
The weighted average Loan-to-Value Ratio at origination of such
Mortgage Loans, as of the Cut-off Date, is approximately ______%.
Approximately ____% of the Mortgage Loans were made to Mortgagors who
used the entire proceeds to refinance an existing Mortgage Loan.
No Mortgage Loan provides for deferred interest or negative
amortization.
Approximately ____% of the Mortgage Loans in the Mortgage Pool
will have been underwritten under a reduced loan documentation program.
The weighted average Loan- to-Value Ratio at origination of the
Mortgage Loans in the Mortgage Pool which were underwritten under such
reduced loan documentation program will be approximately ____% and no
more than approximately ____% of such Mortgage Loans will be secured by
Mortgaged Properties located in California. See "Servicing
Agreement--The Master Servicer" herein.
No more than ____% of the Mortgage Loans will be secured by
vacation or second homes. No more than ____% of the Mortgage Loans will
be secured by one- to four-story condominium units. No Mortgage Loans
will be secured by condominium units in buildings of five or more
stories.
None of the Mortgage Loans in the Mortgage Pool will be
Buydown Mortgage Loans.
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<PAGE>
The following table sets forth the number and aggregate principal
balance as of the Cut-off Date of Mortgage Loans having their next Adjustment
Dates in the month described therein. The table also indicates the approximate
percentage of Mortgage Loans in the Mortgage Pool with an Adjustment Date in
each such month.
Month of Number of Aggregate Percentage of
Adjustment Date Mortgage Loans Principal Balance Mortgage Pool
=============== ============== ================= =============
Total............
The following table sets forth the number and aggregate principal
balance of Mortgage Loans having unpaid principal balances in the ranges
described therein as of the Cut-off Date. The table also indicates the
approximate weighted average Mortgage Rate and the approximate weighted average
Loan-to-Value Ratio at origination of the Mortgage Loans in each given range, as
of the Cut-off Date.
Weighted
Average
Number Weighted Original
of Aggregate Average Loan-to-
Mortgage Principal Mortgage Value
Principal Balance Loans Balance Rate Ratio
- ----------------- ----- ------- ---- -----
Total, Average or Weighted Average...._______ $______ _____% _____%
[Specific information with respect to the Mortgage Loans will be
available to purchasers of the Bonds on or before the time of issuance of such
Bonds. If not included in the Prospectus Supplement, such information will be
included in the Form 8-K.]
Underwriting
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<PAGE>
[Underwriting standards as appropriate.]
Delinquency and Foreclosure Experience
Based solely upon information provided by the Master Servicer, the
following tables summarize, for the respective dates indicated, the delinquency,
forbearance, foreclosure, bankruptcy and REO property status with respect to all
mortgage loans originated or acquired by the Sellers that were originated as of
the date three months prior to the date indicated. The indicated periods of
delinquency are based on the number of days past due on a contractual basis. The
monthly payments under all of such mortgage loans are due on the first day of
each calendar month.
S-16
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1995 At December 31, 1994
-------------------- --------------------
Number Principal Number Principal
of Loans Amount of Loans Amount
-------- ------ -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Total Loans Outstanding.............. $ $
DELINQUENCY(1)
Period of Delinquency:
31-60 Days.................. $ $
61-90 Days..................
91-120 Days or More......... - ---- - -
Total Delinquencies............... $ $
=== = ===== == = ==
Delinquencies as a Percentage of
Total Loans Outstanding.............. % % % %
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1995 At December 31, 1994
-------------------- --------------------
Number Principal Number Principal
of Loans Amount of Loans Amount
-------- ------ -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C>
FORBEARANCE LOANS(2)................. $ $
Forbearance Loans as a
Percentage of Total Loans
Outstanding.......................... % %
FORECLOSURES PENDING(3).............. $ $
Foreclosures Pending as a
Percentage of Total Loans
Outstanding.......................... % % % %
BANKRUPTCIES PENDING(4).............. $ $
Bankruptcies Pending as a
Percentage of Total Loans
Outstanding.......................... % % % %
Total Delinquencies plus
Forbearance Loans, Foreclosures
Pending and Bankruptcies
Pending.............................. $ $
Total Delinquencies plus
Forbearance Loans, Foreclosures
Pending and Bankruptcies Pending as
a Percentage of Total Loans
Outstanding.......................... % % % %
REO PROPERTIES(5).................... $ $
REO Properties as a
Percentage of Total Loans
Outstanding.......................... % % % %
_____________
</TABLE>
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<PAGE>
(1) The delinquency balances, percentages and numbers set forth under this
heading exclude (a) delinquent mortgage loans that were subject to
forbearance agreements with the related mortgagors at the respective
dates indicated ("Forbearance Loans"), (b) delinquent mortgage loans
that were in foreclosure at the respective dates indicated
("Foreclosure Loans"), (c) delinquent mortgage loans as to which the
related mortgagor was in bankruptcy proceedings at the respective dates
indicated ("Bankruptcy Loans") and (d) REO properties that have been
purchased upon foreclosure of the related mortgage loans. All
Forbearance Loans, Foreclosure Loans, Bankruptcy Loans and REO
properties have been segregated into the sections of the table entitled
"Forbearance Loans," "Foreclosures Pending," "Bankruptcies Pending" and
"REO Properties," respectively, and are not included in the "31-60
Days," "61-90 Days," "91-120 Days or More" and "Total Delinquencies"
sections of the table. See the section of the table entitled "Total
Delinquencies plus Forbearance Loans, Foreclosures Pending and
Bankruptcies Pending" for total delinquency balances, percentages and
numbers which include Forbearance Loans, Foreclosure Loans and
Bankruptcy Loans, and see the section of the table entitled "REO
Properties" for delinquency balances, percentages and numbers related
to REO properties that have been purchased upon foreclosure of the
related mortgage loans.
(2) For each of the Forbearance Loans, the Master Servicer has entered into
a written forbearance agreement with the related mortgagor, based on
the Master Servicer's determination that the mortgagor is temporarily
unable to make the scheduled monthly payment on such mortgage loan.
Prior to entering into each forbearance agreement, the Master Servicer
confirmed the continued employment status of the mortgagor and found
the payment history of such mortgagor to be satisfactory. There can be
no assurance that the mortgagor will be able to make the payments as
required by the forbearance agreement, and any failure to make such
payments will constitute a delinquency. None of the Mortgage Loans
included in the Mortgage Pool are Forbearance Loans.
(3) Mortgage loans that are in foreclosure but as to which the mortgaged
property has not been liquidated at the respective dates indicated. It
is generally the Master Servicer's policy, with respect to mortgage
loans originated by the Seller, to commence foreclosure proceedings
when a mortgage loan is between 31 and 60 days delinquent.
(4) Mortgage loans as to which the related mortgagor is in bankruptcy
proceedings at the respective dates indicated.
(5) REO properties that have been purchased upon foreclosure of the related
mortgage loans, including mortgaged properties that were purchased by
the Seller after the respective dates indicated.
The above data on delinquency, forbearance, foreclosure, bankruptcy and
REO property status are calculated on the basis of the total mortgage loans
originated or acquired by the Seller's that were originated as of the date three
months prior to the date indicated. However, the total amount of mortgage loans
on which the above data are based includes many mortgage loans which were not,
as of the respective dates indicated, outstanding long enough to give rise to
some of the indicated periods of delinquency or to foreclosure or bankruptcy
proceedings or REO property status. In the absence of such mortgage loans, the
delinquency, forbearance, foreclosure, bankruptcy and REO property percentages
indicated above would be higher and could be substantially higher. Because the
Mortgage Pool will consist of a fixed group of Mortgage Loans, the actual
delinquency, forbearance, foreclosure, bankruptcy and REO property percentages
with
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<PAGE>
respect to the Mortgage Pool may therefore be expected to be higher, and may be
substantially higher, than the percentages indicated above.
The information set forth in the preceding paragraphs concerning ____
and _____ has been provided by [Names of Sellers].
Additional Information
The description in this Prospectus Supplement of the Mortgage Pool and
the Mortgaged Properties is based upon the Mortgage Pool as constituted at the
close of business on the Cut-off Date, as adjusted for the scheduled principal
payments due on or before such date. Prior to the issuance of the Bonds,
Mortgage Loans may be removed from the Mortgage Pool as a result of incomplete
documentation or otherwise, if the Company deems such removal necessary or
appropriate. The Company believes that the information set forth herein will be
substantially representative of the characteristics of the Mortgage Pool as it
will be constituted at the time the Bonds are issued although the range of
Mortgage Rates and maturities and certain other characteristics of the Mortgage
Loans in the Mortgage Pool may vary.
A Current Report on Form 8-K will be available to purchasers of the
Bonds and will be filed, together with the Servicing Agreement, the Trust
Agreement and the Indenture, with the Securities and Exchange Commission within
fifteen days after the initial issuance of the Bonds. In the event Mortgage
Loans are removed from or added to the Mortgage Pool as set forth in the
preceding paragraph, such removal or addition will be noted in the Current
Report on Form 8-K.
See "The Mortgage Pools" and "Certain Legal Aspects of Mortgage Loans"
in the Prospectus.
THE ISSUER
General
The Impac CMB Trust 19_-_, is a business trust formed under the laws of
the State of [Delaware] pursuant to the Trust Agreement dated as of _____ 1,
19__ between the Company and ________________, as the Owner Trustee for the
transactions described in this Prospectus Supplement. The Trust Agreement
constitutes the "governing instrument" under the laws of the State of [Delaware]
relating to business trusts. After its formation, the Issuer will not engage in
any activity other than (i) acquiring the Mortgage Loans and the other assets of
the Issuer and proceeds therefrom and pledging them to the Indenture Trustee,
(ii) issuing the Bonds and the Certificates, (iii) making payments on the Bonds
and the Certificates and (iv) engaging in other activities that are necessary,
suitable or convenient to accomplish the foregoing or are incidental thereto or
connected therewith.
The assets of the Issuer will consist of the Mortgage Loans and certain
related assets.
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<PAGE>
The Issuer's principal offices are in ___________, Delaware, in care of
________________, as Owner Trustee, at the address listed below.
THE OWNER TRUSTEE
_______________ is the Owner Trustee under the Trust Agreement.
__________________ is a [Delaware] banking corporation and its principal offices
are located at _______________________.
Neither the Owner Trustee nor any director, officer or employee of the
Owner Trustee will be under any liability to the Issuer or the Bondholders for
any action taken or for refraining from the taking of any action in good faith
pursuant to the Trust Agreement or for errors in judgment; provided, however,
that none of the Owner Trustee and any director, officer or employee thereof
will be protected against any liability which would otherwise be imposed by
reason of willful malfeasance, bad faith or negligence in the performance of
duties or by reason of reckless disregard of obligations and duties under the
Trust Agreement. All persons into which the Owner Trustee may be merged or with
which it may be consolidated or any person resulting from such merger or
consolidation shall be the successor of the Owner Trustee under the Trust
Agreement.
THE INSURER
[Insert Description of Insurer as Appropriate.]
DESCRIPTION OF THE SECURITIES
General
The Bonds will be issued pursuant to the Indenture dated as of
________, between the Issuer and _________, as Indenture Trustee. The
Certificates will be issued pursuant to the Trust Agreement dated as of
____________, between the Company and _____________, as Owner Trustee. The
following summaries describe certain provisions of the Securities, the Indenture
and the Trust 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 applicable agreement. Only the Bonds are offered hereby.
The Bonds will be secured by the Trust Fund pledged by the Issuer to
the Indenture Trustee pursuant to the Indenture which will consist of: (i) the
Mortgage Loans; (ii) collections in respect of principal of the Mortgage Loans
received after the applicable Cut-Off Date and collections in respect of
interest on the Mortgage Loans from the Cut-Off Date relating to the Mortgage
Loan; (iii) the amounts on deposit in the Custodial Account allocated to the
Mortgage Loans and the Payment Account (excluding net earnings thereon); (iv)
the Policy; (v) certain hazard insurance policies maintained by the Mortgagors
or by or on behalf of the Master Servicer or related subservicer in respect of
the Mortgage Loans and (vi) an assignment of the Company's rights under the
Purchase Agreement and the Servicing Agreement.
S-20
<PAGE>
The Bonds will be issued in denominations of $1,000 and integral
multiples in excess thereof. See "--Book-Entry Securities" below.
Book-Entry Securities
General. Beneficial Owners (as defined in the Prospectus) that are not
Participants or Intermediaries (as defined in the Prospectus) but desire to
purchase, sell or otherwise transfer ownership of, or other interests in, the
related Book-Entry Securities may do so only through Participants and
Intermediaries. In addition, Beneficial Owners will receive all payments of
principal of and interest on the related Book-Entry Securities from the Paying
Agent (as defined in the Prospectus) through DTC and Participants. Accordingly,
Beneficial Owners may experience delays in their receipt of payments. Unless and
until Definitive Securities are issued for the related Book-Entry Securities, it
is anticipated that the only registered Bondholder of such Book-Entry Securities
will be Cede, as nominee of DTC. Beneficial Owners will not be recognized by the
Indenture Trustee or the Master Servicer as Bondholders, as such term is used in
the Indenture, and Beneficial Owners will be permitted to receive information
furnished to Bondholders and to exercise the rights of Bondholders only
indirectly through DTC, its Participants and Intermediaries.
Under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
of Book-Entry Securities among Participants and to receive and transmit payments
of principal of, and interest on, such Book-Entry Securities. Participants and
Intermediaries with which Beneficial Owners have accounts with respect to such
Book-Entry Securities similarly are required to make book-entry transfers and
receive and transmit such payments on behalf of their respective Beneficial
Owners. Accordingly, although Beneficial Owners will not possess physical
certificates evidencing their interests in the Book-Entry Securities, the Rules
provide a mechanism by which Beneficial Owners, through their Participants and
Intermediaries, will receive payments and will be able to transfer their
interests in the Book-Entry Securities.
None of the Company, the Master Servicer, the Insurer or the Indenture
Trustee will have any liability for any actions taken by DTC or its nominee,
including, without limitation, actions for any aspect of the records relating to
or payments made on account of beneficial ownership interests in the Book-Entry
Securities held by Cede, as nominee for DTC, or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
Definitive Securities. Definitive Securities will be issued to
Beneficial Owners or their nominees, respectively, rather than to DTC or its
nominee, only under the limited conditions set forth in the Prospectus under
"Description of the Securities--Form of Securities."
Upon the occurrence of an event described in the Prospectus in the
third paragraph under "Description of the Securities--Form of Securities," the
Indenture Trustee is required to notify, through DTC, Participants who have
ownership of Book-Entry Securities as indicated on the records of DTC of the
availability of Definitive Securities for their Book-Entry Securities. Upon
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<PAGE>
surrender by DTC of the definitive certificates representing the Book-Entry
Securities and upon receipt of instructions from DTC for re-registration, the
Indenture Trustee will reissue the Book- Entry Securities as Definitive
Securities issued in the respective principal amounts owned by individual
Beneficial Owners, and thereafter the Indenture Trustee will recognize the
holders of such Definitive Securities as Bondholders under the Indenture.
For additional information regarding DTC and the Book-Entry Securities,
see "Description of the Bonds--Form of Bonds" in the Prospectus.]
Payments
Payments on the Bonds will be made by the Indenture Trustee or the
Paying Agent on the _____ day of each month or, if such day is not a Business
Day, then the next succeeding Business Day, commencing in __________. Payments
on the Bonds will be made to the persons in whose names such Bonds are
registered at the close of business on the day prior to each Payment Date or, if
the Bonds are no longer Book-Entry Securities, on the Record Date. See
"Description of the Bonds--Payments" in the Prospectus. Payments will be made by
check or money order mailed (or upon the request of a Holder owning Bonds having
denominations aggregating at least $_________, by wire transfer or otherwise) to
the address of the person entitled thereto (which, in the case of Book-Entry
Securities, will be DTC or its nominee) as it appears on the Security Register
in amounts calculated as described herein on the Determination Date. However,
the final payment in respect of the Bonds will be made only upon presentation
and surrender thereof at the office or the agency of the Indenture Trustee
specified in the notice to Holders of such final payment. A "Business Day" is
any day other than (i) a Saturday or Sunday or (ii) a day on which banking
institutions in the State of ___________ are required or authorized by law to be
closed.
Interest on the Bonds
Interest payments will be made on the Bonds on each Payment Date at the
Bond Rate for the related Interest Period. The "Bond Rate" for an Interest
Period will generally equal the sum of [(a) LIBOR determined as specified
herein, as of the second LIBOR Business Day prior to the first day of such
Interest Period (or as of two LIBOR Business Days prior to the Closing Date, in
the case of the first Interest Period)] plus (b) ___% per annum. Notwithstanding
the foregoing, in no event will the Bond Rate on any Payment Date exceed a rate
equal to the weighted average of the Loan Rates (net of the applicable Servicing
Fee Rate) (adjusted to an effective rate reflecting accrued interest calculated
on the basis of the actual number of days in the Collection Period commencing in
the month in which such Interest Period commences and a year assumed to consist
of 360 days).
Interest on the Bonds in respect of any Payment Date will accrue on the
applicable Bond Principal Balance from the preceding Payment Date (or in the
case of the first Payment Date, from the Closing Date) through the day preceding
such Payment Date (each such period, an "Interest Period") on the basis of the
actual number of days in the Interest Period and a 360-day year.
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<PAGE>
Interest payments on the Bonds will be funded from P&I Collections [and with
respect to the Bonds, if necessary, from draws on the Policy.
[On each Payment Date, LIBOR shall be established by the Indenture
Trustee and as to any Interest Period, LIBOR will equal the rate for United
States dollar deposits for one month which appears on the Telerate Screen Page
3750 as of 11:00 A.M., London time, on the second LIBOR Business Day prior to
the first day of such Interest Period. "Telerate Screen Page 3750" means the
display designated as page 3750 on the Telerate Service (or such other page as
may replace page 3750 on that service for the purpose of displaying London
interbank offered rates of major banks). If such rate does not appear on such
page (or such other page as may replace that page on that service, or if such
service is no longer offered, such other service for displaying LIBOR or
comparable rates as may be selected by the Indenture Trustee after consultation
with the Master Servicer), the rate will be the Reference Bank Rate. The
"Reference Bank Rate" will be determined on the basis of the rates at which
deposits in U.S. Dollars are offered by the reference banks (which shall be
three major banks that are engaged in transactions in the London interbank
market, selected by _________) as of 11:00 A.M., London time, on the day that is
two LIBOR Business Days prior to the immediately preceding Payment Date to prime
banks in the London interbank market for a period of one month in amounts
approximately equal to the Bond Principal Balance then outstanding. The
Indenture Trustee will request the principal London office of each of the
reference banks to provide a quotation of its rate. If at least two such
quotations are provided, the rate will be the arithmetic mean of the quotations.
If on such date fewer than two quotations are provided as requested, the rate
will be the arithmetic mean of the rates quoted by one or more major banks in
New York City, selected by the Indenture Trustee after consultation with the
Master Servicer, as of 11:00 A.M., New York City time, on such date for loans in
U.S. Dollars to leading European banks for a period of one month in amounts
approximately equal to the Bond Principal Balance then outstanding. If no such
quotations can be obtained, the rate will be LIBOR for the prior Payment Date.
"LIBOR Business Day" means any day other than (i) a Saturday or a Sunday or (ii)
a day on which banking institutions in the State of [New York] or in the city of
London, England are required or authorized by law to be closed.]
Principal Payments on the Bonds
On each Payment Date, other than the Payment Date in _________,
principal payments except as provided below will be due and payable on the Bonds
in an amount equal to the Principal Collection Distribution Amount (as defined
below) for such Payment Date, together with any Liquidation Loss Amounts. On the
Payment Date in ______, principal will be due and payable on the Bonds in
amounts equal to the Bond Principal Balance on such Payment Date. In no event
will principal payments on the Bonds on any Payment Date exceed the Bond
Principal Balance thereof on such date.
Allocation of P&I Collections
The Master Servicer on behalf of the Issuer will establish an account
(the "Distribution Account") into which the Master Servicer will deposit P&I
Collections for each Payment Date on
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<PAGE>
the Business Day prior thereto. The Distribution Account will be an Eligible
Account. Amounts on deposit in the Distribution Account will be invested in
Eligible Investments maturing on or before the Business Day prior to the related
Payment Date.
On each Payment Date, P&I Collections will be allocated from the
Distribution Account in the following order of priority:
(i) to the Bonds, the sum of the following:
(a) as payment for the accrued interest due and any overdue
accrued interest at the Bond Rate (as defined herein) on the Bond
Principal Balance (as defined herein) of the Bonds;
(b) an amount equal to the Principal Collection Distribution
Amount, applied to reduce the Bond Principal Balance of the Bonds; and
(c) an additional amount to be applied to reduce the Bond
Principal Balance (each such amount, a "Additional Principal
Distribution Amount"), to the extent necessary to bring the Outstanding
Reserve Amount up to the Reserve Amount Target; and
(ii) to the Insurer, the aggregate of all payments, if any, made
by the Insurer under the Policy [and any other amounts].
(iii) as payment for the premium for the Policy;
(iv) to reimburse prior draws made on the Policy (with interest
thereon);
(v) any other amounts owed to the Insurer pursuant to the
Insurance Agreement; and
(vi) the remaining amount, if any, of the P&I Collections shall be
allocated to the Certificates.
For any Payment Date, the "Principal Collection Distribution Amount"
will equal Principal Collections for such Payment Date.
"Liquidation Loss Amount" means with respect to any Liquidated Mortgage
Loan, the unrecovered Principal Balance thereof at the end of the related
Collection Period in which such Mortgage Loan became a Liquidated Mortgage Loan,
after giving effect to the Net Liquidation Proceeds allocable to such Principal
Balance in connection therewith.
A "Liquidated Mortgage Loan" means, as to any Payment Date, any
Mortgage Loan in respect of which the Master Servicer has determined, based on
the servicing procedures specified in the Servicing Agreement, as of the end of
the preceding Collection Period that all liquidation
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<PAGE>
proceeds which it expects to recover with respect to the disposition of the
related Mortgaged Property have been recovered.
As of the Closing Date, the Reserve Amount Target is equal to at least
___% of the CutOff Date Pool Balance. The Reserve Amount Target may be increased
or reduced from time to time pursuant to the terms of the Pooling and Servicing
Agreement, with the consent of the Rating Agencies and the Indenture Trustee. To
the extent the Reserve Amount Target is reduced on any Payment Date, the amount
of the Principal Collections distributed pursuant to clause (ii)(b) will be
reduced on such Payment Date and on each subsequent Payment Date to the extent
the remaining Outstanding Reserve Amount is in excess of the reduced Reserve
Amount Target until the Outstanding Reserve Amount equals the Reserve Amount
Target.
The Indenture Trustee will establish the Payment Account into which the
Master Servicer will deposit the portion of the P&I Collections allocable to the
Mortgage Loan for each Payment Date on the Business Day prior thereto. The
Payment Account will be an Eligible Account. Amounts on deposit in the Payment
Account will be invested in Eligible Investments maturing on or before the
Business Day prior to the related Payment Date.
The "Bond Principal Balance" of the Bonds on any day is the initial
principal balance thereof as of the Closing Date, reduced by all payments of
principal thereon as of such day.
Except as provided below, payments pursuant to clause (i) will be
allocated to the Bonds based on the amount of interest such Bond is entitled to
receive pursuant to such clause. Except as provided below, payments pursuant to
clauses (ii), (iii) and (vi) will constitute payments of principal.
An "Amortization Event" will be deemed to occur upon (i) the occurrence
of certain events relating to a violation of the Seller's obligations under the
Mortgage Loan Purchase Agreement, (ii) the occurrence of certain events of
bankruptcy, insolvency or receivership relating to the Seller or the Master
Servicer, (iii) the Issuer becomes subject to regulation as an investment
company within the meaning of the Investment Company Act of 1940, as amended, or
(iv) the aggregate of all draws under the Policy exceeds __________;
Notwithstanding the foregoing, if a conservator, receiver or
trustee-in-bankruptcy is appointed for the Seller, the conservator, receiver or
trustee-in-bankruptcy may have the power to prevent the commencement of the
Amortization Period.
Outstanding Reserve Amount
The distribution of the Additional Principal Distribution Amount, if
any, to the Bondholders, will create the Outstanding Reserve Amount. The
Outstanding Reserve Amount, if any, will be available to absorb any Liquidation
Loss Amounts that are allocated to the Mortgage Loans and not covered by
Principal Collections and Interest Collections. Any Liquidation Loss Amounts
allocable to the Bondholders and not covered by such overcollateralization will
be
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covered by draws on the Policy to the extent provided herein. The "Outstanding
Reserve Amount" on any Payment Date is the amount, if any, by which the Pool
Balance as of the end of the related Collection Period exceed the Bond Principal
Balance on such day (after giving effect to all amounts payable and allocable to
principal on the Bonds that are applied to reduce the Bond Principal Balance on
such Payment Date).
To the extent that such overcollateralization is insufficient or not
available to absorb Liquidation Loss Amounts, and payments are not made under
the Policy, a Bondholder may incur a loss.
The Paying Agent
The Paying Agent shall initially be the [Indenture Trustee], together
with any successor thereto. The Paying Agent shall have the revocable power to
withdraw funds from the Payment Account for the purpose of making payments to
the Securityholders.
Maturity
The Bonds will be payable in full on ___________. In addition, the
Issuer will pay the Bonds in full upon the exercise by the Master Servicer of
its option to purchase the assets of the Issuer after the Pool Balance is
reduced to an amount less than or equal to $________ (___% of the initial Pool
Balance). The purchase price will be equal to the sum of the outstanding Pool
Balance and accrued and unpaid interest thereon at the weighted average of the
Loan Rates through the day preceding the Payment Date on which the Bonds are
paid in full together with all amounts due and owing to the Insurer.
DESCRIPTION OF THE POLICY
On the Closing Date, the Insurer will issue the Policy in favor of the
[Owner Trustee on behalf of the Issuer] pursuant to an insurance agreement (the
"Insurance Agreement") between the Insurer, the Master Servicer and the Trustee.
The Policy will unconditionally and irrevocably guarantee principal payments on
the Bonds plus accrued and unpaid interest due on the Bonds. On each Payment
Date, a draw will be made on the Policy equal to the sum of (a) the amount by
which the sum of interest accrued at (i) the Bond Rate on the outstanding Bond
Principal Balance of the Bonds and (b) the amount (the "Guaranteed Principal
Payment Amount"), if any, [by which the Bond Principal Balance of the Bonds
exceeds the sum of the Pool Balance at the end of the related Collection Period
(after giving effect to all amounts paid and allocable to principal on the Bonds
that are applied to reduce the Bond Principal Balances on such Payment Date)].
Pursuant to the terms of [the Indenture], draws under the Policy in respect of
the Guaranteed Principal Payment Amount will be paid on the Bonds by the
Indenture Trustee, as principal pro rata, based on the outstanding Bond
Principal Balances thereof. In addition, the Policy will guarantee the payment
of the outstanding Bond Principal Balance of each Bond on the Payment Date in
_____________ (after giving effect to all other amounts paid and allocable to
principal on such
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Payment Date). In the absence of payments under the Policy, Bondholders will
directly bear the credit and other risks associated with their investment to the
extent such risks are not covered by overcollateralization. The Policy does not
guarantee any payments to the Certificates.
CERTAIN PREPAYMENT AND YIELD CONSIDERATIONS
The yield to maturity of the Bonds will depend on the price paid by the
holder for such Bond, the Bond Interest Rate and the rate and timing of
principal payments (including payments in excess of required installments,
prepayments or terminations, liquidations and repurchases) on the Mortgage Loans
and the allocation thereof.
In general, if a Bond is purchased at a premium over its face amount
and payments of principal on such Bond 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. Conversely, if a Bond is purchased at
a discount from its face amount and payments of principal on such Bond 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 rate and timing of defaults on the Mortgage Loans will also affect
the rate and timing of principal payments on the Mortgage Loans and thus the
yield on the Bonds. There can be no assurance as to the rate of losses or
delinquencies on any of the Mortgage Loans, however, such losses and
delinquencies may be expected to be higher than those of traditional first lien
mortgage loans. To the extent that any losses are incurred on any of the
Mortgage Loans that are not covered by overcollateralization or the Policy,
losses resulting from default by Mortgagors may be allocated to the Bonds. See
"Risk Factors--Limitations, Reduction and Substitution of Credit Enhancement" in
the Prospectus. Even where the Policy covers all losses incurred on the Mortgage
Loans, the effect of losses may be to increase prepayment experience on the
Mortgage Loans, thus reducing average weighted life and affecting yield to
maturity.
[With respect to ___ Mortgage Loans representing ___% of the Cut-off
Date Pool Balance, the Mortgage Rate at origination is below the rate that would
result from the sum of the then-applicable Index and Gross Margin. Under the
applicable underwriting standards, Mortgagors under such Mortgage Loans are
generally qualified based on an assumed payment which reflects a rate
significantly lower than the maximum rate. The repayment of any such Mortgage
Loan may thus be dependent on the ability of the mortgagor to make larger
interest payments following the adjustment of the Mortgage Rate.]
With respect to the Mortgage Loans required minimum monthly payments
are equal to [the amount of interest currently accruing thereon,] and therefore
are not expected to significantly amortize the outstanding principal amounts of
the Mortgage Loans prior to maturity. As a result, a borrower will generally be
required to pay a substantial principal amount at the maturity of a Mortgage
Loan. Such Mortgage Loans pose a greater risk of default than fully-amortizing
mortgage loans, because the Mortgagor's ability to make such a substantial
payment at maturity will generally depend on the Mortgagor's ability to obtain
refinancing of the Mortgage Loans or
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to sell the Mortgaged Property prior to the maturity of the Mortgage Loan. See
"Yield and Prepayment Considerations" in the Prospectus and "Risk Factors"
herein.
There can be no assurance as to the rate of principal payments on the
Mortgage Loans. The rate of principal payments may fluctuate substantially from
time to time.
DESCRIPTION OF THE PURCHASE AGREEMENT
The Mortgage Loans to be transferred to the Issuer by the Company were
or will be purchased by the Company from [Name of Master Servicer] (the
"Seller") pursuant to the Purchase Agreement. Under the Purchase Agreement, the
Seller has agreed to transfer to the Company the Initial Mortgage Loans.
Pursuant to an assignment by the Company executed on the Closing Date, upon such
transfer to the Company, the Initial Mortgage Loans will be transferred by the
Company to the Issuer, as well as the Company's rights in, to and under the
Purchase Agreement, which will include the right to purchase the Subsequent
Mortgage Loans. The following summary describes certain terms of the form of the
Purchase Agreement and is qualified in its entirety by reference to the form of
Purchase Agreement.
Transfer of Mortgage Loans
Pursuant to the Purchase Agreement, the Seller will transfer and assign
to the Company all of its right, title and interest in and to the Mortgage
Loans, the related mortgage note, mortgages and other related documents
(collectively, the "Related Documents"). The purchase price of the Mortgage
Loans is a specified percentage of the face amount thereof as of the time of
transfer and is payable by the Company, as provided in the Purchase Agreement.
The Purchase Agreement will require that, within the time period
specified therein, the Seller, acting at the Company's request, deliver to
____________________ (the "Custodian") (as the Issuer's agent for such purpose)
the Mortgage Loans and the Related Documents. In lieu of delivery of original
mortgages, the Seller may deliver true and correct copies thereof which have
been certified as to authenticity by the appropriate county recording office
where such mortgage is recorded. In addition, under the terms of the Purchase
Agreement, the Seller will be required to record assignments of mortgages
relating to such Mortgage Loans.
Representations and Warranties
The Seller will represent and warrant to the Company that, among other
things, as of _________________, it is duly organized and in good standing and
that it has the authority to consummate the transactions contemplated by the
Purchase Agreement.
The Seller will also represent and warrant to the Company, that, among
other things, (a) the information with respect to the Initial Mortgage Loans set
forth in the schedule attached to the Purchase Agreement is true and correct in
all material respects and (b) immediately prior to the sale of the Initial
Mortgage Loans to the Company, the Seller was the sole owner and holder of
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the Initial Mortgage Loans free and clear of any and all liens and security
interests. The Seller will also represent and warrant to the Company, that,
among other things, as of ______________, (a) the Purchase Agreement constitutes
a legal, valid and binding obligation of the Seller and (b) the Purchase
Agreement constitutes a valid transfer and assignment to the Company of all
right, title and interest of the Seller in and to the Initial Mortgage Loans and
the proceeds thereof. Such representations and warranties will also be made by
the Seller with respect to the Subsequent Mortgage Loans as of the date of
transfer to the Issuer. The benefit of the representations and warranties made
to the Company by the Seller in the Purchase Agreement will be assigned by the
Company to the Issuer and by the Issuer to the Indenture Trustee in the
Indenture.
Within ____ days of the Closing Date, the Custodian will review or
cause to be reviewed the Mortgage Loans and the Related Documents and if any
Mortgage Loan or Related Document is found to be defective in any material
respect and such defect is not cured within ____ days following notification
thereof to the Seller and the Issuer by the Custodian, the Seller will be
obligated under the Purchase Agreement to deposit the Transfer Price into the
Custodial Account. In lieu of any such deposit, the Seller may substitute an
Eligible Substitute Loan. Any such purchase or substitution will result in the
removal of such Defective Loan from the Trust Fund and the lien of the
Indenture. The obligation of the Seller to remove a Defective Loan from the
Trust Fund is the sole remedy regarding any defects in the Mortgage Loans and
Related Documents available to the Indenture Trustee or the Bondholders against
the Seller.
With respect to any Mortgage Loan, the "Transfer Price" is equal to the
Principal Balance of such Mortgage Loan at the time of any removal described
above plus accrued and unpaid interest thereon to the date of removal. In
connection with the substitution of an Eligible Substitute Loan, the Seller will
be required to deposit in the Custodial Account an amount (the "Substitution
Adjustment Amount") equal to the excess of the Principal Balance of the related
Defective Loan over the Principal Balance of such Eligible Substitute Loan.
An "Eligible Substitute Loan" is a mortgage loan substituted by the
Seller for a Defective Loan which must, on the date of such substitution, (i)
have an outstanding Principal Balance (or in the case of a substitution of more
than one Mortgage Loan for a Defective Loan, an aggregate Principal Balance),
not in excess of the Principal Balance relating to such Defective Loan; (ii)
have a Loan Rate, Net Loan Rate and Gross Margin no lower than and not more than
1% in excess of the Loan Rate, Net Loan Rate and Gross Margin, respectively, of
such Defective Loan; (iii) have a Combined Loan-to-Value Ratio at the time of
substitution no higher than that of the Defective Loan at the time of
substitution; (iv) have a remaining term to maturity not more than one year
earlier and not later than the remaining term to maturity of the Defective Loan;
(v) comply with each representation and warranty as to the Mortgage Loans set
forth in the Purchase Agreement (deemed to be made as of the date of
substitution); and (vi) satisfy certain other conditions specified in the
Indenture.
In addition the Seller will be obligated to deposit the Transfer Price
or substitute an Eligible Substitute Loan with respect to a Mortgage Loan as to
which there is a breach of a representation or warranty in the Purchase
Agreement.
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Mortgage Loans required to be removed from the Trust Fund as described
in the preceding paragraphs are referred to as "Defective Loans."
ASSIGNMENT TO THE ISSUER
The Master Servicer expressly acknowledges and consents to the
Company's transfer of its rights relating to the Mortgage Loans and its
obligation to pay for the Subsequent Mortgage Loans under the Purchase Agreement
to the Issuer, the Issuer's pledge of its interest in the Purchase Agreement to
the Indenture Trustee and the enforcement by the Indenture Trustee of any such
right or remedy against the Master Servicer.
DESCRIPTION OF THE SERVICING AGREEMENT
The following summary describes certain terms of the Servicing
Agreement, dated as of ________ 1, 19__ between the Company and the Master
Servicer. The summary does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the provisions of the Servicing
Agreement. Whenever particular sections or defined terms of the Servicing
Agreement are referred to, such sections or defined terms are thereby
incorporated herein by reference.
P&I Collections
The Master Servicer shall establish and maintain an account (the
"Custodial Account") in which the Master Servicer shall deposit or cause to be
deposited any amounts representing payments on and any collections received in
respect of the Mortgage Loans received by it subsequent to the Cut-Off Date. The
Custodial Account shall be an Eligible Account. On the _____ day of each month
or if such day is not a Business Day, the next succeeding Business Day (the
"Determination Date"), the Master Servicer will notify the Indenture Trustee of
the amount of P&I Collections to be included in funds available distribution to
the Mortgage Loan for the related Payment Date.
"Eligible Investments" are specified in the Servicing Agreement and are
limited to investments which meet the criteria of the Rating Agencies from time
to time as being consistent with their then current ratings of the Bonds.
On the Business Day prior to each Payment Date, the Master Servicer
will make the following withdrawals from the Custodial Account and deposit such
amounts as follows:
(i) to the Distribution Account, an amount equal to the P&I
Collections for such Payment Date; and
(ii) to pay to itself various reimbursement amounts and other
amounts as provided in the Servicing Agreement.
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As to any Payment Date, "P&I Collections" will equal the sum of (a)
Interest Collections for such Payment Date and (b) Principal Collections for
such date.
All collections on the Mortgage Loans will generally be allocated
between amounts collected in respect of interest and amounts collected in
respect of principal. As to any Payment Date, "Interest Collections" will be
equal to the sum of (i) the amounts collected during the related Collection
Period, including Net Liquidation Proceeds (as defined below), allocated to
interest, reduced by the Servicing Fees for such Collection Period and (ii) the
interest portion of the Transfer Price for any Defective Loans. As to any
Payment Date, "Principal Collections" will be equal to the sum of (i) the amount
collected during the related Collection Period, including Net Liquidation
Proceeds (as defined herein) allocated to principal and (ii) the principal
portion of the Transfer Price for any Defective Loans and any Substitution
Adjustment Amounts.
As to any Payment Date other than the first Payment Date, the
"Collection Period" is the calendar month preceding the month of such Payment
Date and in the case of the first Payment Date the period from the Cut-Off Date
to ___________.
"Net Liquidation Proceeds" with respect to a Mortgage Loan are the
proceeds (excluding amounts drawn on the Policy) received in connection with the
liquidation of any Mortgage Loan, whether through trustee's sale, foreclosure
sale or otherwise, reduced by related expenses, but not including the portion,
if any, of such amount that exceeds the Principal Balance of the Mortgage Loan
at the end of the Collection Period immediately preceding the Collection Period
in which such Mortgage Loan became a Liquidated Mortgage Loan.
With respect to any date, the "Pool Balance" will be equal to the
aggregate of the Principal Balances of all Mortgage Loans as of such date. The
Principal Balance of a Mortgage Loan (other than a Liquidated Mortgage Loan) on
any day is equal to the Cut-Off Date Principal Balance thereof, minus all
collections credited against the Principal Balance of such Mortgage Loan prior
to such day. The Principal Balance of a Liquidated Mortgage Loan after final
recovery of related Liquidation Proceeds shall be zero.
Collection and Other Servicing Procedures on Mortgage Loans
The Master Servicer will make reasonable efforts to collect all
payments called for under the Mortgage Loans and will, consistent with the
Servicing Agreement, follow such collection procedures as it follows from time
to time with respect to the mortgage loans in its servicing portfolio comparable
to the Mortgage Loans. Consistent with the above, the Master Servicer may in its
discretion waive any late payment charge or any assumption or other fee or
charge that may be collected in the ordinary course of servicing the Mortgage
Loans.
With respect to the Mortgage Loans, the Master Servicer may arrange
with a borrower a schedule for the payment of interest due and unpaid for a
period, provided that any such arrangement is consistent with the Master
Servicer's policies with respect to mortgage loans.
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Realization Upon Defaulted Mortgage Loans
The Master Servicer will foreclose upon or otherwise comparably convert
to ownership Mortgaged Properties securing such of the Mortgage Loans as come
into default when in accordance with applicable servicing procedures under the
Servicing Agreement, no satisfactory arrangements can be made for the collection
of delinquent payments. In connection with such foreclosure or other conversion,
the Master Servicer will follow such practices as it deems necessary or
advisable and as are in keeping with its general subordinate mortgage servicing
activities, provided the Master Servicer will not be required to expend its own
funds in connection with foreclosure or other conversion, correction of default
on a related senior mortgage loan or restoration of any property unless, in its
sole judgment, such foreclosure, correction or restoration will increase Net
Liquidation Proceeds. The Master Servicer will be reimbursed out of Liquidation
Proceeds for advances of its own funds as liquidation expenses before any Net
Liquidation Proceeds are distributed to Bondholders.
Evidence as to Compliance
The Servicing Agreement provides for delivery on or before March 31 in
each year, beginning in March 31, 19__, to the Indenture Trustee of an annual
statement signed by an officer of the Master Servicer to the effect that the
Master Servicer has fulfilled its material obligations under the Servicing
Agreement throughout the preceding calendar year, except as specified in such
statement.
On or before March 31 of each year, beginning March 31, 19__, the
Master Servicer will furnish a report prepared by a firm of nationally
recognized independent public accountants (who may also render other services to
the Master Servicer) to the Indenture Trustee to the effect that such firm has
examined certain documents and the records relating to servicing of the Mortgage
Loans under the Servicing Agreement for the preceding calendar year and that, on
the basis of such examination, such firm believes that such servicing was
conducted in compliance with the Servicing Agreement except for (a) such
exceptions as such firm believes to be immaterial and (b) such other exceptions
as shall be set forth in such report.
Certain Matters Regarding the Master Servicer
The Servicing Agreement provides that the Master Servicer may not
resign from its obligations and duties thereunder, except in connection with a
permitted transfer of servicing, unless (i) such duties and obligations are no
longer permissible under applicable law or are in material conflict by reason of
applicable law with any other activities of a type and nature presently carried
on by it or its affiliate or (ii) upon the satisfaction of the following
conditions: (a) the Master Servicer has proposed a successor servicer to the
Issuer and the Indenture Trustee in writing and such proposed successor servicer
is reasonably acceptable to the Issuer and the Indenture Trustee; (b) the Rating
Agencies have confirmed to the Issuer and the Indenture Trustee that the
appointment of such proposed successor servicer as the Master Servicer will not
result in the reduction or withdrawal of the then current rating of the Bonds
and (c) such proposed
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successor servicer is reasonably acceptable to the Insurer. No such resignation
will become effective until the Indenture Trustee or a successor servicer has
assumed the Master Servicer's obligations and duties under the Servicing
Agreement.
The Master Servicer may perform any of its duties and obligations under
the Servicing Agreement through one or more subservicers or delegates, which may
be affiliates of the Master Servicer. Notwithstanding any such arrangement, the
Master Servicer will remain liable and obligated to the Issuer for the Master
Servicer's duties and obligations under the Servicing Agreement, without any
diminution of such duties and obligations and as if the Master Servicer itself
were performing such duties and obligations.
The Servicing Agreement provides that the Master Servicer will
indemnify the Owner Trustee and the Indenture Trustee, as the case may be, from
and against any loss, liability or expense, imposed by reason of its willful
misfeasance, bad faith or gross negligence in the performance of its duties
under the Servicing Agreement or by reason of its reckless disregard of its
obligations and duties under the Servicing Agreement. The Servicing Agreement
provides that neither the Master Servicer nor its directors, officers, employees
or agents will be under any other liability to the Owner Trustee, the Indenture
Trustee, or any other person for any action taken or for refraining from taking
any action pursuant to the Servicing Agreement. The Master Servicer and any
director or officer or employee or agent of the Master Servicer shall be
indemnified by the Issuer and held harmless against any loss, liability or
expense incurred in connection with any legal action relating to the Servicing
Agreement or the Securities, other than any loss, liability or expense related
to any specific Mortgage Loan or Mortgage Loans (except as any such loss,
liability or expense shall be otherwise reimbursable pursuant to the Servicing
Agreement) and any loss, liability or expense incurred by reason of its willful
misfeasance, bad faith or gross negligence in the performance of its duties
thereunder or by reason of its reckless disregard of its obligations and duties
thereunder. In addition, the Servicing Agreement provides that the Master
Servicer will not be under any obligation to appear in, prosecute or defend any
legal action which is not incidental to its servicing responsibilities under the
Servicing Agreement and which in its opinion may expose it to any expense or
liability. The Master Servicer may, in its sole discretion, undertake any such
legal action which it may deem necessary or desirable with respect to the
Servicing Agreement and the rights and duties of the parties thereto.
Any corporation into which the Master Servicer may be merged or
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 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, anything in the Servicing
Agreement to the contrary notwithstanding.
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Events of Servicing Termination
"Events of Servicing Termination" will consist of: (i) any failure by
the Master Servicer to (a) deposit in the Custodial Account or Payment Account
any deposit required to be made under the Servicing Agreement or (b) to pay when
due any amount payable by it under the terms of the Insurance Agreement, which
failure continues unremedied for three Business Days after the giving of written
notice of such failure to the Master Servicer by the Issuer or Indenture
Trustee, or to the Master Servicer, the Issuer and the Indenture Trustee by the
Insurer; (ii) any failure by the Master Servicer duly to observe or perform in
any material respect any other of its covenants or agreements in the Servicing
Agreement or Insurance Agreement which, in each case, materially and adversely
affects the interests of the Bondholders or the Insurer and continues unremedied
for ____ days or ____ days, respectively, after the giving of written notice of
such failure to the Master Servicer by the Issuer or the Indenture Trustee, or
to the Master Servicer, the Issuer and the Indenture Trustee by the Insurer;
(iii) certain events of insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceedings relating to the Master Servicer and
certain actions by the Master Servicer indicating insolvency, reorganization or
inability to pay its obligations; or (iv) any merger, consolidation, or
combination with another entity and the surviving entity thereof or corporate
successor is not rated at least investment grade by the Rating Agencies. Under
the above circumstances, the Indenture Trustee with the consent of the Insurer
or the Insurer may deliver written notice to the Master Servicer terminating all
the rights and obligations of the Master Servicer under the Servicing Agreement.
Under certain other circumstances, the Insurer with the consent of 51% of the
outstanding principal amount of the Bonds and the Certificates may terminate all
the rights and obligations of the Master Servicer under the Servicing Agreement.
Notwithstanding the foregoing, a delay in or failure of performance
referred to under clause (i) above for the applicable periods referred to
therein or referred to under clause (ii) above for the applicable periods
referred to therein, shall not constitute an Event of Servicing Termination if
such delay or failure could not be prevented by the exercise of reasonable
diligence by the Master Servicer and such delay or failure was caused by an act
of God or other similar occurrence. Upon the occurrence of any such event the
Master Servicer shall not be relieved from using reasonable efforts to perform
its obligations in a timely manner in accordance with the terms of the Servicing
Agreement and the Master Servicer shall provide the Issuer, the Insurer and the
Indenture Trustee prompt notice of such failure or delay by it, together with a
description of its efforts to so perform its obligations.
Rights Upon an Event of Servicing Termination
So long as an Event of Servicing Termination remains unremedied, the
Indenture Trustee with the consent of the Insurer or the Insurer may terminate
all of the rights and obligations of the Master Servicer under the Servicing
Agreement with respect to the Mortgage Loans, whereupon the Indenture Trustee
will succeed to all the responsibilities, duties and liabilities of the Master
Servicer under the Servicing Agreement and will be entitled to similar
compensation arrangements.
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In the event that the Indenture Trustee would be obligated to succeed the Master
Servicer but is unwilling or unable so to act, it may appoint, or petition a
court of competent jurisdiction for the appointment of, an established housing
and home finance institution or other mortgage loan or mortgage loan servicer
with all licenses and permits required to perform its obligations under the
Servicing Agreement and having a net worth of at least $25,000,000 and
acceptable to the Insurer to act as successor to the Master Servicer under the
Servicing Agreement. Pending such appointment, the Indenture Trustee will be
obligated to act in such capacity unless prohibited by law. Such successor will
be entitled to receive the same compensation that the Master Servicer would
otherwise have received (or such lesser compensation as the Issuer and such
successor may agree). A receiver or conservator for the Master Servicer may be
empowered to prevent the termination and replacement of the Master Servicer
where the only Event of Servicing Termination that has occurred is an Insolvency
Event.
Amendment
The Servicing Agreement may be amended from time to time by the Master
Servicer, the Issuer and the Indenture Trustee, [with the consent of the
Insurer,] provided that the Rating Agencies confirm in writing that such
amendment will not result in a downgrading or a withdrawal of the rating then
assigned to the Bonds.
DESCRIPTION OF THE INDENTURE
The following summary describes certain terms of the Indenture. The
summary does not purport to be complete and is subject to, and qualified in its
entirety by reference to, the provisions of the Indenture. Whenever particular
sections or defined terms of the Indenture are referred to, such sections or
defined terms are thereby incorporated herein by reference.
The Trust Fund
Simultaneously with the issuance of the Bonds, the Issuer will pledge
the Trust Fund to the Indenture Trustee as collateral for the Bonds.
Reports To Holders
The Indenture Trustee will mail to each Holder of Bonds, at its address
listed on the Security Register maintained with the Indenture Trustee a report
setting forth certain amounts relating to the Bonds for each Payment Date, among
other things:
(i) the amount of principal, if any, payable on such Payment Date
to Bondholders separately stating the portion thereof in respect of Liquidation
Loss Amounts and Additional Principal Distribution Amount and stating the amount
of any remaining Liquidation Loss Amounts;
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(ii) the amount of interest payable on such Payment Date to
Bondholders separately stating the portion thereof in respect of overdue accrued
interest and stating the amount of remaining overdue accrued interest;
(iii) the Bond Principal Balance of the Bonds after giving effect
to the payment of principal on such Payment Date;
(iv) P&I Collections for the related Collection Period;
(v) the aggregate Principal Balance of the Mortgage Loans as of
last day of the related Collection Period;
[(vi) the amount paid, if any, under the Policy separately stating
the portion thereof included in (i) and (ii) above; and]
(vii) the Outstanding Reserve Amount after giving effect to the
payment of principal on the Bonds on such Payment Date.
In the case of information furnished pursuant to clauses (i) and (ii)
above, the amounts shall be expressed as a dollar amount per $1,000 in face
amount of Bonds.
Certain Covenants
The Indenture will provide that the Issuer may not consolidate with or
merge into any other entity, unless (i) the entity formed by or surviving such
consolidation or merger is organized under the laws of the United States, any
state or the District of Columbia, (ii) such entity expressly assumes the
Issuer's obligation to make due and punctual payments upon the Bonds and the
performance or observance of any agreement and covenant of the Issuer under the
Indenture, (iii) no Event of Default shall have occurred and be continuing
immediately after such merger or consolidation, (iv) the Issuer has been advised
that the ratings of the Bonds then in effect would not be reduced or withdrawn
by any Rating Agency as a result of such merger or consolidation, (v) any action
that is necessary to maintain the lien and security interest created by the
Indenture is taken and (vi) the Issuer has received an Opinion of Counsel to the
effect that such consolidation or merger would have no material adverse tax
consequence to the Issuer or to any Bondholder or Certificateholder. The Issuer
will not, among other things, (i) except as expressly permitted by the
Indenture, sell, transfer, exchange or otherwise dispose of any of the assets of
the Issuer, (ii) claim any credit on or make any deduction from the principal
and interest payable in respect of the Bonds (other than amounts withheld under
the Code or applicable state law) or assert any claim against any present or
former holder of Bonds because of the payment of taxes levied or assessed upon
the Issuer, (iii) permit the validity or effectiveness of the Indenture to be
impaired or permit any person to be released from any covenants or obligations
with respect to the Bonds under the Indenture except as may be expressly
permitted thereby or (iv) permit any lien, charge excise, claim, security
interest, mortgage or other encumbrance to be created on or extend to or
otherwise arise upon or burden the assets of the Issuer or any part thereof, or
any interest therein or the
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proceeds thereof. The Issuer may not engage in any activity other than as
specified under "The Issuer" herein.
Modification of Indenture
With the consent of both the holders of a majority of the outstanding
Bonds and the Insurer, the Issuer and the Indenture Trustee may execute a
supplemental indenture to add provisions to, change in any manner or eliminate
any provisions of, the Indenture, or modify (except as provided below) in any
manner the rights of the Bondholders. Without the consent of the holder of each
outstanding Bond affected thereby, however, no supplemental indenture will: (i)
change the due date of any installment of principal of or interest on any Bond
or reduce the principal amount thereof, the interest rate specified thereon or
the redemption price with respect thereto or change any place of payment where
or the coin or currency in which any Bond or any interest thereon is payable;
(ii) impair the right to institute suit for the enforcement of certain
provisions of the Indenture regarding payment; (iii) reduce the percentage of
the aggregate amount of the outstanding Bonds, the consent of the holders of
which is required for any supplemental indenture or the consent of the holders
of which is required for any waiver of compliance with certain provisions of the
Indenture or of certain defaults thereunder and their consequences as provided
for in the Indenture; (iv) modify or alter the provisions of the Indenture
regarding the voting of Bonds held by the Issuer, the Company or an affiliate of
any of them; (v) decrease the percentage of the aggregate principal amount of
Bonds required to amend the sections of the Indenture which specify the
applicable percentage of aggregate principal amount of the Bonds necessary to
amend the Indenture or certain other related agreements; (vi) modify any of the
provisions of the Indenture in such manner as to affect the calculation of the
amount of any payment of interest of principal due on any Bond (including the
calculation of any of the individual components of such calculation); or (vii)
permit the creation of any lien ranking prior to or, except as otherwise
contemplated by the Indenture, on a parity with the lien of the Indenture with
respect to any of the collateral for the Bonds or, except as otherwise permitted
or contemplated in the Indenture, terminate the lien of the Indenture on any
such collateral or deprive the holder of any Bond of the security afforded by
the lien of the Indenture.
The Issuer and the Indenture Trustee may also enter into supplemental
indentures, with the consent of the Insurer and without obtaining the consent of
the Bondholders, for the purpose of, among other things, to cure any ambiguity
or to correct or supplement any provision in the Indenture that may be
inconsistent with any other provision therein.
Certain Matters Regarding the Indenture Trustee and the Issuer
Neither the Issuer, the Indenture Trustee nor any director, officer or
employee of the Issuer or the Indenture Trustee will be under any liability to
the Issuer or the related Bondholders for any action taken or for refraining
from the taking of any action in good faith pursuant to the Indenture or for
errors in judgment; provided, however, that none of the Indenture Trustee, the
Issuer and any director, officer or employee thereof will be protected against
any liability which would otherwise be imposed by reason of willful malfeasance,
bad faith or negligence in the performance
S-37
<PAGE>
of duties or by reason of reckless disregard of obligations and duties under the
Indenture. Subject to certain limitations set forth in the Indenture, the
Indenture Trustee and any director, officer, employee or agent of the Indenture
Trustee shall be indemnified by the Issuer and held harmless against any loss,
liability or expense incurred in connection with investigating, preparing to
defend or defending any legal action, commenced or threatened, relating to the
Indenture other than any loss, liability or expense incurred by reason of
willful malfeasance, bad faith or negligence in the performance of its duties
under such Indenture or by reason of reckless disregard of its obligations and
duties under the Indenture. All persons into which the Indenture Trustee may be
merged or with which it may be consolidated or any person resulting from such
merger or consolidation shall be the successor of the Indenture Trustee under
each Indenture.
FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, the Bonds [will][will not] be treated
as having been issued with "original issue discount" (as defined in the
Prospectus). See "Federal Income Tax Consequences" in the Prospectus. The
prepayment assumption that will be used in determining the rate of accrual of
original issue discount, market discount and premium, if any, for federal income
tax purposes will be [ ]% [ ]. No representation is made that the Mortgage Loans
will prepay at that rate or any other rate.
The Bonds will not be treated as "qualifying real property loans" under
Section 593 (d) of the Code, assets described in Section 7701(a)(19)(C) of the
Code and "real estate assets" under Section 856(c)(5)(A) of the Code. In
addition, interest on the Bonds will not be treated as "interest on obligations
secured by mortgages on real property" under Section 856(c)(3)(B) of the Code.
The Bonds will also not be treated as "qualified mortgages" under Section
860G(a)(3)(C) of the Code.
Prospective investors in the Bonds should see "Federal Income Tax
Consequences" and "State and Other Tax Consequences" in the Prospectus for a
discussion of the application of certain federal income and state and local tax
laws to the Issuer and purchasers of the Bonds.
ERISA CONSIDERATIONS
Any fiduciary or other investor of Plan assets that proposes to acquire
or hold the Bonds on behalf of or with Plan assets of any Plan should consult
with its counsel with respect to the potential applicability of the fiduciary
responsibility provisions of ERISA and the prohibited transaction provisions of
ERISA and the Code to the proposed investment. See "ERISA Considerations" in the
Prospectus.
LEGAL INVESTMENT
The Bonds will constitute "mortgage related securities" for purposes of
SMMEA so long as they are rated in the highest two rating categories by a Rating
Agency. See "Legal Investment" in the Prospectus.
S-38
<PAGE>
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company has agreed to sell to the Underwriter, and the
Underwriter has agreed to purchase from the Company, the Bonds.
The Bonds will be purchased from the Company by the Underwriter and
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
sale. The proceeds to the Company from the sale of the Bonds are expected to be
approximately $___________, before the deduction of expenses payable by the
Company estimated to be approximately $_______. The Underwriter may effect such
transactions by selling the Bonds to or through dealers, and such dealers may
receive compensation in the form of underwriting discounts, concessions or
commissions from the Underwriter. In connection with the sale of the Bonds, the
Underwriter may be deemed to have received compensation from the Company in the
form of underwriting compensation. The Underwriter and any dealers that
participate with the Underwriter in the distribution of the Bonds may be deemed
to be underwriters and any profit on the resale of the Bonds positioned by them
may be deemed to be underwriting discounts and commissions under the Securities
Act of 1933.
The Company has been advised by the Underwriter that it presently
intends to make a market in the Bonds offered hereby; however, it is not
obligated to do so, any market-making may be discontinued at any time, and there
can be no assurance that an active public market for the Bonds will develop.
The Underwriting Agreement provides that the Company will indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, or contribute payments the Underwriter may be required
to make in respect thereof.
LEGAL MATTERS
Certain legal matters with respect to the Bonds will be passed upon for
the Company by [Thacher Proffitt & Wood], New York, New York and for the
Underwriter by ________________, New York, New York.
RATINGS
It is a condition to issuance that the Bonds be rated "___" by
_______________ and "___" by ___________________. The Company has not requested
a rating on the Bonds by any rating agency other than _______________ and
_______________. However, there can be no assurance as to whether any other
rating agency will rate the Bonds, or, if it does, what rating would be assigned
by any such other rating agency. A rating on the Bonds by another rating agency,
if assigned at all, may be lower than the ratings assigned to the Bonds by
___________ and ___________________________. A securities rating addresses the
likelihood of the receipt by holders of Bonds of distributions on the Mortgage
Loans. The rating takes into consideration the
S-39
<PAGE>
structural, legal and tax aspects associated with the Bonds. The ratings on the
Bonds do not, however, constitute statements regarding the possibility that
Holders might realize a lower than anticipated yield. A securities rating is not
a recommendation to buy, sell or hold securities and may be subject to revision
or withdrawal at any time by the assigning rating organization. Each securities
rating should be evaluated independently of similar ratings on different
securities.
S-40
<PAGE>
================================================================================
No dealer, salesman or other person has been authorized to give any
information or to make any representations not contained in this Prospectus
Supplement and the Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or by the Underwriter. This Prospectus Supplement and the Prospectus do not
constitute an offer to sell, or a solicitation of an offer to buy, the
securities offered hereby to anyone in any jurisdiction in which the person
making such offer or solicitation is not qualified to do so or to anyone to whom
it is unlawful to make any such offer or solicitation. Neither the delivery of
this Prospectus Supplement and the Prospectus nor any sale made hereunder shall,
under any circumstances, create an implication that information herein or
therein is correct as of any time since the date of this Prospectus Supplement
or the Prospectus.
___________
TABLE OF CONTENTS
[To be updated] Page
Prospectus Supplement
Summary................................................................ S-
Risk Factors........................................................... S-
Description of the Mortgage Pool....................................... S-
Servicing of the Mortgage Loans........................................ S-
The Issuer............................................................. S-
The Owner Trustee...................................................... S-
Description of the Securities.......................................... S-
Description of the Purchase
Agreement......................................................... S-
Assignment to the Issuer............................................... S-
Description of the Servicing
Agreement......................................................... S-
Description of the Indenture........................................... S-
Federal Income Tax Consequences........................................ S-
ERISA Considerations................................................... S-
Legal Investment....................................................... S-
Method of Distribution................................................. S-
Legal Matters.......................................................... S-
Ratings................................................................ S-
Prospectus
Summary of Prospectus .................................................
Risk Factors...........................................................
The Mortgage Pools.....................................................
Servicing of Mortgage Loans............................................
Description of Credit Enhancement......................................
Purchase Obligations...................................................
Primary Mortgage Insurance, Hazard
Insurance; Claims Thereunder.........................................
The Company............................................................
ICI Funding Corporation................................................
The Agreements.........................................................
Yield Considerations...................................................
Maturity and Prepayment Considerations.................................
Certain Legal Aspects of Mortgage Loans................................
Federal Income Tax Consequences........................................
State and Other Tax Consequences.......................................
ERISA Considerations...................................................
Legal Investment Matters ..............................................
Use of Proceeds........................................................
Methods of Distribution................................................
Legal Matters..........................................................
Financial Information..................................................
Rating.................................................................
Index of Principal Definitions.........................................
================================================================================
<PAGE>
================================================================================
IMH Assets Corp.
Impace CMB Trust
19__-__
$_________________
Collateralized Mortgage Bonds
Series 199__-__
______________
PROSPECTUS SUPPLEMENT
______________
____________________________
______________, 19__
[UNDERWRITER]
================================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This preliminary prospectus supplement shall not constitute an offer
to sell or the solicitation of an offer to buy nor shall there be any sale of
these securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such State.
VERSION 2
---------
Subject to Completion Dated August 5, 1998
Prospectus Supplement
(To Prospectus Dated ____________, 19__)
$----------------
IMH Assets Corp.
Company
Impac CMB Trust 19__-___
[Name of Master Servicer]
Master Servicer
Collateralized Mortgage Bonds, Series 19__-___
The Impac CMB Trust 19__ (the "Issuer") will be formed pursuant to a
Trust Agreement to be dated as of _________________, 19__ between IMH Assets
Corp. (the "Company") and __________________________, the Owner Trustee. The
Issuer will issue $__________ aggregate principal amount of Collateralized
Mortgage Bonds, Series 19__-____ (the "Bonds"). The Bonds will be issued
pursuant to an Indenture to be dated as of _________________, 19__, between the
Issuer and ___________________, the Indenture Trustee. The Issuer will also
issue $___________ aggregate principal amount of the Issuer's Trust
Certificates, Series 19__-____ (the "Certificates"). The Bonds and the
Certificates are collectively referred to herein as the "Securities". Only the
Bonds are offered hereby.
The Bonds will represent indebtedness of the related trust fund (the
"Trust Fund") created by the Trust Agreement. The Trust Fund consists primarily
of a segregated pool (the "Mortgage Pool") of conventional, fixed- and
adjustable-rate, multifamily or commercial, mortgage loans (the "Mortgage
Loans"). As of ___________, 199___ (the "Cut-off Date"), the Mortgage Loans had
an aggregate principal balance (the "Initial Pool Balance") of $_____________,
after application of all payments of principal due on or before such date,
whether or not received. Certain characteristics of the Mortgage Loans are
described herein under "Description of the Mortgage Pool".
Payments of principal and interest on the Bonds will be made on the
_______ day of each month or, if such day is not a business day, then on the
next business day, commencing on ____________, 19__ (each, a "Payment Date"). As
described herein, interest will accrue on the Bonds at a floating rate (the
"Bond Rate") equal to [LIBOR (as defined herein)] plus _____% per annum subject
to certain limitations as described herein. See "Description of the
Securities--Interest on the Bonds" herein.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH UNDER
"RISK FACTORS" BEGINNING ON PAGE S-__ HEREIN AND ON PAGE 11 IN THE ACCOMPANYING
PROSPECTUS.
It is a condition of the issuance of the Bonds that they be rated "___"
by ___________________ and "____" by ___________________.
<PAGE>
THE YIELD TO MATURITY ON THE BONDS WILL DEPEND ON THE RATE AND TIMING
OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS, LIQUIDATIONS AND REPURCHASES) ON
THE MORTGAGE LOANS. SEE "CERTAIN YIELD AND MATURITY CONSIDERATIONS" HEREIN AND
"YIELD AND MATURITY CONSIDERATIONS" IN THE PROSPECTUS.
There is currently no secondary market for the Bonds. ________________
(the "Underwriter") intends to make a secondary market in the Bonds, but is not
obligated to do so. There can be no assurance that a secondary market for the
Bonds will develop or, if it does develop, that it will continue. The Bonds will
not be listed on any securities exchange.
THE BONDS REPRESENT OBLIGATIONS OF THE ISSUER ONLY AND DO NOT REPRESENT
AN INTEREST IN OR OBLIGATION OF THE COMPANY, THE MASTER SERVICER, OR ANY OF
THEIR AFFILIATES. NONE OF THE BONDS OR THE UNDERLYING MORTGAGE LOANS ARE INSURED
OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE COMPANY,
THE MASTER SERVICER OR ANY OF THEIR AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Bonds will be purchased from the Company by the Underwriter and
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
sale. The proceeds to the Company from the sale of the Bonds are expected to be
approximately $___________, before the deduction of expenses payable by the
Company estimated to be approximately $_______.
The Bonds are offered by the Underwriter subject to prior sale, when,
as and if delivered to and accepted by the Underwriter and subject to certain
other conditions. The Underwriter reserves the right to withdraw, cancel or
modify such offer and to reject any order in whole or in part. It is expected
that delivery of the Bonds will be made on or about ____________, 19__ [in
book-entry form through the Same Day Funds Settlement System of The Depository
Trust Company as discussed herein,] [at the office of __________________,
_______________, _________________] against payment therefor in immediately
available funds.
[Name of Underwriter]
[Date of Prospectus Supplement]
S-2
<PAGE>
THE SECURITIES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE PART OF
A SEPARATE SERIES OF SECURITIES BEING OFFERED PURSUANT TO THE COMPANY'S
PROSPECTUS DATED ____________, 19__, OF WHICH THIS PROSPECTUS SUPPLEMENT IS A
PART AND WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE PROSPECTUS CONTAINS
IMPORTANT INFORMATION REGARDING THIS OFFERING WHICH IS NOT CONTAINED HEREIN, AND
PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS AND THIS PROSPECTUS
SUPPLEMENT IN FULL. SALES OF THE SECURITIES MAY NOT BE CONSUMMATED UNLESS THE
PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
UNTIL NINETY DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL
DEALERS EFFECTING TRANSACTIONS IN THE SECURITIES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS TO WHICH IT RELATES. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER- ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE OFFERED
SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET, SUCH STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
S-3
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus.
Capitalized terms used herein and not otherwise defined herein have the meanings
assigned in the Prospectus.
Issuer ........................ The Bonds will be issued by Impac CMB Trust
19__-___, a Delaware business trust
established pursuant to the Trust Agreement,
dated as of ________, 19__ between the Company
and the Owner Trustee.
The Bonds ..................... $____________ Collateralized Mortgage Bonds,
Series 19__-__. Only the Bonds are offered
hereby. The Bonds will be issued pursuant to
an Indenture, dated as of ________ 1, 19__
between the Issuer and ___________________, as
Indenture Trustee.
Company ....................... IMH Assets Corp., (the "Company"). See "The
Company" in the Prospectus.
Master Servicer ............... [Name of Master Servicer] (the "Master
Servicer"). See "[Name of Master Servicer]" in
the Prospectus.
Owner Trustee ................. , .
------------------ ------------
Indenture Trustee.............. , .
------------------ ------------
Mortgage Loan Seller........... , .
------------------ ------------
Delivery Date.................. On or about ____________, 19__.
Payment Date................... The [______] day of each month (or, if such
day is not a business day, the next business
day), beginning on ___________________,
199___, (each, a "Payment Date").
[Denominations and
Registration. ................. The Bonds (the "Book-Entry Bonds") will be
issued, maintained and transferred on the
book-entry records of DTC and its Participants
(as defined in the Prospectus). The Bonds will
be offered in registered form, in minimum
denominations of $______ and integral
multiples of $_____ in excess thereof. The
Book-Entry Bonds will be represented by one or
more Bond certificates registered in the name
of Cede & Co., as nominee of DTC. No
Beneficial Owner will be entitled to
S-4
<PAGE>
receive a Bond in fully registered,
certificated form (a "Definitive Bond"),
except under the limited circumstances
described herein. See "Description of the
Bonds--Book Entry Bonds" herein.]
The Mortgage Pool.............. The Mortgage Pool will consist of _____
conventional, fixed- and adjustable-rate,
multifamily or commercial Mortgage Loans with
an Initial Pool Balance of $_________________.
On or prior to the Delivery Date, the Company
will acquire the Mortgage Loans from the
Mortgage Loan Seller pursuant to a Purchase
Agreement, dated [the date hereof], between
the Company and the Mortgage Loan Seller (the
"Purchase Agreement"). In the Purchase
Agreement, the Mortgage Loan Seller has made
certain representations and warranties to the
Company regarding the characteristics and
quality of the Mortgage Loans and, as more
particularly described herein, has agreed to
cure any material breach thereof or repurchase
the affected Mortgage Loan. In connection with
the assignment of its interests in the
Mortgage Loans to the Issuer, the Company will
also assign its rights under the Purchase
Agreement insofar as they relate to or arise
out of the Mortgage Loan Seller's
representations and warranties regarding the
Mortgage Loans. The Issuer will in turn pledge
the Mortgage Loans and its rights under the
Purchase Agreement to the Indenture Trustee.
See "Description of the Mortgage
Pool-Representations and Warranties;
Repurchases" herein.
Each Mortgage Loan is secured by a first
mortgage lien on a fee simple estate in a
commercial property being operated as a
restaurant (__ Mortgage Loans which represent
____% of the Initial Pool Balance), health
care-related facility (as defined in the
Prospectus) (__ Mortgage Loans which represent
____% of the Initial Pool Balance), or a
retail property or an office building (__
Mortgage Loans which represent ____% of the
Initial Pool Balance) or a multifamily rental
property (__ Mortgage Loans which represent
__% of the Initial Pool Balance) (each, a
"Mortgaged Property"). ________ of the
Mortgage Loans, which represent _____% of the
Initial Pool Balance [list other types of
commercial properties], are secured by liens
on Mortgaged Properties located in
_______________. The remaining Mortgaged
Properties are located throughout ___________
other states. See "Description of the Mortgage
Pool-Additional Mortgage
S-5
<PAGE>
Loan Information" and ["Risk Factors-Risks
Associated With ___________ Properties" and
"-Risks Associated With ___________
Properties"] and "Description of the Mortgage
Pool-Additional Mortgage Loan Information"
herein. ___________ of the Mortgage Loans,
which represent ______% of the Initial Pool
Balance, provide for scheduled payments of
principal and/or interest ("Monthly Payments")
to be due on the first day of each month; the
remainder of the Mortgage Loans provide for
Monthly Payments to be due on the ____, _____,
_____ or _____ day of each month (the date in
any month on which a Monthly Payment on a
Mortgage Loan is first due, the "Due Date").
The annualized rate at which interest accrues
(the "Mortgage Rate") on ____ of the Mortgage
Loans (the "ARM Loans"), which represent
_____% of the Initial Pool Balance, is subject
to adjustment on specified Due Dates (each
such date of adjustment, an "Interest Rate
Adjustment Date") by adding a fixed number of
basis points (a "Gross Margin") to the value
of a base index (an "Index"), subject, in
______ cases, to lifetime maximum and/or
minimum Mortgage Rates, and in _____ cases, to
periodic maximum and/or minimum Mortgage
Rates, in each case as described herein; and
the remaining Mortgage Loans (the "Fixed Rate
Loans") bear interest at fixed Mortgage Rates.
____ of the ARM Loans, which represent ___% of
the Initial Pool Balance, provide for Interest
Rate Adjustment Dates that occur monthly,
while the remainder of the ARM Loans provide
for adjustments of the Mortgage Rate to occur
semi-annually or annually. [Identify Mortgage
Loan Index] See "Description of the Mortgage
Pool-Certain Payment Characteristics" herein.
The amount of the Monthly Payment on all of
the ARM Loans is subject to adjustment on
specified Due Dates (each such date, a
"Payment Adjustment Date") to an amount that
would amortize the outstanding principal
balance of the Mortgage Loan over its then
remaining amortization schedule and pay
interest at the then applicable Mortgage Rate.
The ARM Loans provide for Payment Adjustment
Dates that occur on the Due Date following
each related Interest Rate Adjustment Date.
All of the Mortgage Loans provide for monthly
payments of principal based on amortization
schedules significantly longer than the
remaining terms of such Mortgage Loans,
thereby
S-6
<PAGE>
leaving substantial principal amounts due and
payable (each such payment, together with the
corresponding interest payment, a "Balloon
Payment") on their respective maturity dates,
unless prepaid prior thereto.
Interest Payments ............. Interest on the Bonds will be paid monthly on
each Payment Date, commencing in 19__, at the
Bond Interest Rate for ------ the related
Interest Period (as defined below). The Bond
Interest Rate for an Interest Period will be
equal to [LIBOR] plus ___% as described herein
under "Description of the Bonds--Interest on
the Bonds." Interest on the Bonds in respect
of any Payment Date will accrue from the
preceding Payment Date (or in the case of the
first Payment Date, from the date of initial
issuance of the Bonds (the "Closing Date")
through the day preceding such Payment Date
(each such period, an "Interest Period")) on
the basis of the actual number of days in the
Interest Period and a 360-day year.
Principal Payments ............ On any Payment Date, to the extent of funds
available therefor, Bondholders will be
entitled to receive principal payments
generally equal to the amount, if any,
necessary to bring the Outstanding Reserve
Amount up to the Reserve Amount Target. In no
event will principal payments on the Bonds on
any Payment Date exceed the Bond Principal
Balance thereof on such date. On the Payment
Date in __________, principal will be due and
payable on the Bonds in an amount equal to the
Bond Principal Balance for such Payment Date.
The "Bond Principal Balance" of the Bonds on
any day is the initial balance thereof as of
the Closing Date reduced by all payments of
principal thereon as of such day.
P&I Collections................ All collections on the Mortgage Loans will be
allocated by the Master Servicer in accordance
with the terms of the Mortgage Loans between
amounts collected in respect of interest and
amounts collected in respect of principal. See
"Description of the Servicing Agreement--P&I
Collections" herein, which describes the
calculation of the Interest Collections and
the Principal Collections on the Mortgage
Loans for the Collection Period related to
each Payment Date.
With respect to any Payment Date, the portion
of Principal Collections and Interest
Collections that are distributable
S-7
<PAGE>
pursuant to the Servicing Agreement (together,
the "P&I Collections") will equal (a) Interest
Collections for such Payment Date and (b)
Principal Collections for such Payment Date.
Outstanding Reserve
Amount......................... The distribution of the Additional Principal
Distribution Amount, if any, on the Mortgage
Loans will create the Outstanding Reserve
Amount. The Outstanding Reserve Amount, if
any, will be available to absorb any
Liquidation Loss Amounts that are allocated to
the Mortgage Loans and not covered by
Principal Collections and Interest
Collections. Any Liquidation Loss Amounts
allocable to the Bondholders and not covered
by such overcollateralization will be covered
by draws on the Policy to the extent provided
herein. The "Outstanding Reserve Amount" on
any Payment Date is the amount, if any, by
which the Pool Balance as of the end of the
related Collection Period exceeds the Bond
Principal Balance on such day (after giving
effect to all distributions on such Payment
Date).
As of the Closing Date, the Reserve Amount
Target is equal to ___% of the Cut-Off Date
Pool Balance. The Reserve Amount Target may be
increased or reduced from time to time
pursuant to the terms of the Indenture, with
the consent of the Rating Agencies and the
Indenture Trustee. To the extent the Reserve
Amount Target is reduced on any Payment Date,
the amount of the Principal Collections
distributed on such Payment Date will be
reduced and on each subsequent Payment Date to
the extent the remaining Outstanding Reserve
Amount is in excess of the reduced Reserve
Amount Target until the Outstanding Reserve
Amount equals the Reserve Amount Target.
The Certificates............... $________ Trust Certificates, Series 19__-__.
The Certificates will be issued pursuant to
the Trust Agreement and will represent the
beneficial ownership interest in the Issuer.
The Certificates are not offered hereby.
Final Payment of Principal on
the Bonds .................... The Bonds will be payable in full on . In
addition, the Issuer will pay the Bonds in
full upon the exercise by the
S-8
<PAGE>
[Master Servicer] of its option to purchase
all Mortgage Loans and all property acquired
in respect of such Mortgage Loans. See "The
Agreements--Termination; Redemption of Bonds"
in the Prospectus.
Federal Income Tax
Consequences.................. In the opinion of Tax Counsel (as defined in
the Prospectus), for federal income tax
purposes, the Bonds will be characterized as
indebtedness of the Issuer and the Issuer, as
created pursuant to the terms and conditions
of the Trust Agreement, will not be
characterized as an association (or publicly
traded partnership) taxable as a corporation
or as a taxable mortgage pool within the
meaning of section 7701(i) of the Code.
For further information regarding certain
federal income tax consequences of an
investment in the Bonds see "Federal Income
Tax Consequences" herein and "Federal Income
Tax Consequences" and "State and Other Tax
Consequences" in the Prospectus.
Legal Investment............... So long as the Bonds are rated in the top two
rating agencies, the Bonds will constitute
"mortgage related securities" for purposes of
SMMEA. See "Legal Investment Considerations"
herein.
Rating......................... It is a condition to the issuance of the Bonds
that they be rated "____" by ____________ and
"____" by _______________ (each a "Rating
Agency"). A security rating is not a
recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal
at any time by the assigning rating
organization. A security rating does not
address the frequency of prepayments of
Mortgage Loans, or the corresponding effect on
yield to investors. See "Certain Yield and
Prepayment Considerations" and "Ratings"
herein.
S-9
<PAGE>
[RISK FACTORS]
[Prospective Bondholders should consider, among other things, the items
discussed under "Risk Factors" in the Prospectus and the following factors in
connection with the purchase of the Bonds:]
[Appropriate Risk Factors as necessary. Possible Risk Factors based on present
disclosure include the following:
Limited Liquidity. There is currently no secondary market for the
Bonds. The Underwriter has indicated its intention to make a secondary market in
the Bonds, but it is not obligated to do so. There can be no assurance that a
secondary market for the Bonds will develop or, if it does develop, that it will
provide holders of Bonds with liquidity of investment or that it will continue
for the life of the Bonds. The Bonds will not be listed on any securities
exchange. See "Risk Factors-Limited Liquidity" in the Prospectus.
Potential Liability to the Trust Fund Relating to a Materially Adverse
Environmental Condition. [An environmental site assessment was performed at
[each][all but ___] of the Mortgaged Properties during the _____ month period
prior to the Cut-off Date. [Note any special environmental problems.]
[Otherwise,] no such environmental assessment revealed any material adverse
environmental condition or circumstance at any Mortgaged Property[, except for
(i) those cases in which the condition or circumstance was remediated or an
escrow for such remediation has been established and (ii) those cases in which
an operations and maintenance plan or periodic monitoring of nearby properties
was recommended, which recommendations are consistent with industrywide
practices].
Exposure of the Mortgage Pool to Adverse Economic or other Developments
Based on Geographic Concentration. ______ Mortgage Loans, which represent ____%
of the Initial Pool Balance, are secured by liens on Mortgaged Properties
located in _____________. In general, that concentration increases the exposure
of the Mortgage Pool to any adverse economic or other developments that may
occur in _________. In recent periods, _____________ (along with other regions
of the United States) has experienced a significant downturn in the market value
of real estate.
Increased Risk of Loss Associated With Concentration of Mortgage Loans
and Borrowers. Several of the Mortgage Loans have Cut-off Date Balances that are
substantially higher than the average Cut-off Date Balance. In general,
concentrations in a mortgage pool of loans with larger-than-average balances can
result in losses that are more severe, relative to the size of the pool, than
would be the case if the aggregate balance of the pool were more evenly
distributed. Concentration of borrowers also poses increased risks. For
instance, if a borrower that owns several Mortgaged Properties experiences
financial difficulty at one Mortgaged Property, or at another income-producing
property that it owns, it could attempt to avert foreclosure by filing a
bankruptcy petition that might have the effect of interrupting Monthly Payments
for an indefinite period on all of the related Mortgage Loans.
S-10
<PAGE>
Increased Risk of Default Associated with Adjustable Rate Mortgage
Loans. ________ of the Mortgage Loans, which represent ____% of the Initial Pool
Balance, are ARM Loans. Increases in the required Monthly Payments on ARM Loans
in excess of those assumed in the original underwriting of such loans may result
in a default rate higher than that on mortgage loans with fixed mortgage rates.
Increased Risk of Default Associated with Balloon Payments. None of the
Mortgage Loans is fully amortizing over its term to maturity. Thus, each
Mortgage Loan will have a substantial payment (that is, a Balloon Payment) due
at its stated maturity unless prepaid prior thereto. Loans with Balloon Payments
involve a greater likelihood of default than self-amortizing loans because the
ability of a borrower to make a Balloon Payment typically will depend upon its
ability either to refinance the loan or to sell the related mortgaged property.
See "Risk Factors-Certain Factors Affecting Delinquency, Foreclosure and Loss of
the Mortgage Loans-Increased Risk of Default Associated With Balloon Payments"
in the Prospectus.
Extension Risk Associated With Modification of Mortgage Loans with
Balloon Payments. In order to maximize recoveries on defaulted Mortgage Loans,
the Servicing Agreement enables the Special Servicer to extend and modify
Mortgage Loans that are in material default or as to which a payment default
(including the failure to make a Balloon Payment) is reasonably foreseeable;
subject, however, to the limitations described under "Servicing of the Mortgage
Loans-Modifications, Waivers and Amendments" herein. There can be no assurance,
however, that any such extension or modification will increase the present value
of recoveries in a given case. Any delay in collection of a Balloon Payment that
would otherwise be distributable in respect of a Class of Bonds, whether such
delay is due to borrower default or to modification of the related Mortgage Loan
by the Special Servicer, will likely extend the weighted average life of such
Class of Bonds. See "Yield and Maturity Considerations" herein and in the
Prospectus.
[Risks Particular to Restaurant Properties. Various factors may affect
the economic viability of restaurants, including but not limited to competition
from facilities having businesses similar to the particular restaurant;
perceptions by prospective customers of the safety, convenience, services and
attractiveness of the restaurant; the cost, quality and availability of food
products; changes in demographics, consumer habits and traffic patterns; the
ability to provide or contract for capable management and adequate maintenance;
and retroactive changes to building codes, similar ordinances and other legal
requirements. Additional factors that can affect the success of a regionally or
nationally-known chain restaurant include actions and omissions of any
franchisor (including management practices that adversely affect the nature of
the business or that require renovation, refurbishment, expansion or other
expenditures); the degree of support provided or arranged by any such
franchisor, its franchisee organizations and third party providers of products
or services; bankruptcy or business discontinuation of any such franchisor,
franchisee organization or third party; and increases in operating expenses.]
[Risks Particular to Health Care-Related Facilities. Certain types of
health care-related facilities typically receive a substantial portion of their
revenues from government reimbursement programs, primarily Medicaid and
Medicare. Medicaid and Medicare are subject to statutory and
S-11
<PAGE>
regulatory changes, retroactive rate adjustments, administrative rulings, policy
interpretations, delays by fiscal intermediaries and government funding
restrictions. Accordingly, there can be no assurance that payments under
government reimbursement programs will, in the future, be sufficient to fully
reimburse the cost of caring for program beneficiaries. If such payments are
insufficient, net operating income of those health care-related facilities that
receive revenues from those sources, and consequently the ability of the related
borrowers to meet their obligations under any Mortgage Loans secured thereby,
could be adversely affected.
health care-related facilities are generally subject to federal and
state laws and licensing requirements that relate to the adequacy of medical
care, distribution of pharmaceuticals, rate setting, equipment, personnel,
operating policies and additions to facilities and services. The failure of an
operator to maintain or renew any required license or regulatory approval could
prevent it from continuing operations at a health care-related facility or, if
applicable, bar it from participation in government reimbursement programs.
Furthermore, under applicable federal and state laws and regulations, Medicare
and Medicaid reimbursements are generally not permitted to be made to any person
other than the provider who actually furnished the related medical goods and
services. Accordingly, in the event of foreclosure, none of the Indenture
Trustee, the Master Servicer, the Special Servicer or a subsequent lessee or
operator of a health care-related facility securing a defaulted Mortgage Loan
would generally be entitled to obtain from federal or state governments any
outstanding reimbursement payments relating to services furnished at such
property prior to such foreclosure. In those cases where health care-related
facilities constitute Mortgaged Properties, any of the aforementioned events may
adversely affect the ability of the related borrowers to meet their obligations
under the Mortgage Loans secured thereby. ]
[Risks Particular to Retail and Office Properties. With respect to
Mortgage Loans secured by retail properties or office buildings, in addition to
risks generally associated with income producing real estate, such Mortgage
Loans are also affected significantly by adverse changes in consumer spending
patterns, local competitive conditions (such as the supply of retail or office
space or the existence or construction of new competitive shopping centers,
shopping malls or office buildings), alternative forms of retailing (such as
direct mail and video shopping networks which reduce the need for retail space
by retail companies), the quality and philosophy of management, the
attractiveness of the properties to tenants and their customers or clients, the
public perception of the safety of customers at shopping malls and shopping
centers, and the need to make major repairs or improvements to satisfy the needs
of major tenants. In addition, significant tenants at a retail property play an
important part in generating customer traffic and making a retail property a
desirable location for other tenants at such property.
Retail properties may be adversely affected if a significant tenant
ceases operations at such locations (which may occur on account of a voluntary
decision not to renew a lease, bankruptcy or insolvency of such tenant, such
tenant's general cessation of business activities or for other reasons). Certain
tenants at retail properties may be entitled to terminate their leases if an
anchor tenant ceases operations at such property. In such cases, there can be no
assurance that any such anchor tenants will continue to occupy space in the
related shopping centers.]
S-12
<PAGE>
[Risks Particular to Multifamily Properties. In the case of multifamily
lending in particular, adverse economic conditions, either local, regional or
national, may limit the amount of rent that can be charged and may result in a
reduction in timely rent payments or a reduction in occupancy levels. Occupancy
and rent levels may also be affected by construction of additional housing
units, local military base closings and national and local politics, including
current or future rent stabilization and rent control laws and agreements.
Certain of the Mortgaged Properties may be subject to rent stabilization or rent
control laws. In addition, the level of mortgage interest rates may encourage
tenants to purchase single-family housing. Further, the cost of operating a
multifamily property may increase, including the costs of utilities and the
costs of required capital expenditures. All of these conditions and events may
increase the possibility that a borrower may be unable to meet its obligation
under its Mortgage Loan.]
Risks Relating to Lack of Bondholder Control Over Trust Fund.
Bondholders generally do not have a right to vote, except with respect to
required consents to certain amendments to the Indenture or the Servicing
Agreement. Furthermore, Bondholders will generally not have the right to make
decisions with respect to the administration of the Trust Fund. Such decisions
are generally made, subject to the express terms of the Indenture and the
Servicing Agreement, by the Master Servicer, the Indenture Trustee or the
Special Servicer, as applicable. Any decision made by one of those parties in
respect of the Trust Fund, even if made in the best interests of the Bondholders
(as determined by such party in its good faith and reasonable judgment), may be
contrary to the decision that would have been made by the holders of any
particular Class of Bonds and may negatively affect the interests of such
holders.
Yield Risk Associated With Changes in Concentrations. If and as
payments in respect of principal (including any principal prepayments,
liquidations and the principal portion of the repurchase prices of any Mortgage
Loans repurchased due to breaches of representations) are received with respect
to the Mortgage Loans, the remaining Mortgage Loans as a group may exhibit
increased concentration with respect to the type of properties, property
characteristics, number of Mortgagors and affiliated Mortgagors and geographic
location. Because unscheduled collections of principal on the Mortgage Loans is
payable on the Class __, __, __ Bonds in sequential order, such Classes that
have a lower sequential priority are relatively more likely to be exposed to any
risks associated with changes in concentrations of loan or property
characteristics.
Subordination of Class __ Bonds. As and to the extent described herein,
the rights of the holders of the Class __ Bonds to receive distributions of
amounts collected or advanced on or in respect of the Mortgage Loans will be
subordinated to those of the holders of the Senior Bonds and also, in the case
of the holders of the Class __ Bonds, also to those of the holders of the Class
__ Bonds. See "Description of the Bonds-Distributions-Priority" and
"-Subordination; Allocation of Collateral Support Deficit" herein.
Book-Entry Registration. The Bonds will be initially represented by one
or more Bonds registered in the name of Cede & Co., as the nominee for DTC, and
will not be registered in the names of the related holders of Bonds or their
nominees. As a result, holders of Bonds will not
S-13
<PAGE>
be recognized as "Bondholders." Hence, those beneficial owners will be able to
exercise the rights of holders of Bonds only indirectly through DTC and DTC
Participants. See "Description of the Bonds-General" and "-Book-Entry
Registration" herein and "Description of the Bonds-Book-Entry Registration and
Definitive Bonds" in the Prospectus.
DESCRIPTION OF THE MORTGAGE POOL
General
The Trust Fund will consist primarily of ___ conventional, fixed- and
adjustable-rate multifamily or commercial Mortgage Loans with an Initial Pool
Balance of $_______________. Each Mortgage Loan is evidenced by a promissory
note (a "Mortgage Note") and secured by a mortgage, deed of trust or other
similar security instrument (a "Mortgage") that creates a first mortgage lien on
a fee simple estate in a restaurant, health care-related facility, retail
property, office building or a multifamily rental property (a "Mortgaged
Property"). All percentages of the Mortgage Loans, or of any specified group of
Mortgage Loans, referred to herein without further description are approximate
percentages by aggregate Cut-off Date Balance. The "Cut-off Date Balance" of any
Mortgage Loan is the unpaid principal balance thereof as of the Cut-off Date,
after application of all payments due on or before such date, whether or not
received.
The Mortgage Loans are not insured or guaranteed by any governmental
entity or private mortgage insurer. The Company has not undertaken any
evaluation of the significance of the recourse provisions of any of a number of
the Mortgage Loans that provide for recourse against the related borrower or
another person in the event of a default. Accordingly, investors should consider
all of the Mortgage Loans to be nonrecourse loans as to which recourse in the
case of default will be limited to the specific property and such other assets,
if any, as were pledged to secure a Mortgage Loan.
On or prior to the Delivery Date, the Company will acquire the Mortgage
Loans from the Mortgage Loan Seller pursuant to the Purchase Agreement and will
thereupon assign its interests in the Mortgage Loans, without recourse, to the
Indenture Trustee for the benefit of the Bondholders. See "-The Mortgage Loan
Seller" herein and "The Mortgage Pool-Representations and Warranties;
Repurchases" in the Prospectus.
The Mortgage Loans were originated between 19__ and 19__. The Mortgage
Loan Seller originated ____ of the Mortgage Loans, which represent ___% of the
Initial Pool Balance, and acquired the remaining Mortgage Loans from the
respective originators thereof, generally in accordance with the underwriting
criteria described below under "-Underwriting Standards".
Certain Payment Characteristics
S-14
<PAGE>
___ of the Mortgage Loans, which represent ___% of the Initial Pool
Balance, have Due Dates that occur on the first day of each month. The remaining
Mortgage Loans have Due Dates that occur on the ______ (____% of the Mortgage
Loans), _____ (____% of the Mortgage Loans), _____ (____% of the Mortgage
Loans), and _______ (____% of the Mortgage Loans) day of each month.
____________ of the Mortgage Loans, which represent ____% of the
Initial Pool Balance, are ARM Loans. The ARM Loans bear interest at Mortgage
Rates that are subject to adjustment on periodically occurring Interest Rate
Adjustment Dates by adding the related Gross Margin to the applicable value of
the related Index, subject in ______ cases to rounding conventions and lifetime
minimum and/or maximum Mortgage Rates and, in the case of ________ Mortgage
Loans, which represent ____% of the Initial Pool Balance, to periodic minimum
and/or maximum Mortgage Rates. The remaining Mortgage Loans are Fixed Rate
Loans. None of the ARM Loans is convertible into a Fixed Rate Loan.
[Identify Mortgage Loan Index] The adjustments to the Mortgage Rates on
the ARM Loans may in each case be based on the value of the related Index as
available a specified number of days prior to an Interest Rate Adjustment Date,
or may be based on the value of the related Index as most recently published as
of an Interest Rate Adjustment Date or as of a designated date preceding an
Interest Rate Adjustment Date. ____ of the ARM Loans, which represent ___% of
the Initial Pool Balance, provide for Interest Rate Adjustment Dates that occur
monthly; ____ of the ARM Loans, which represent ___% of the Initial Pool
Balance, provide for Interest Rate Adjustment Dates that occur semi-annually;
and the remaining ARM Loans provide for Interest Rate Adjustment Dates that
occur annually.
The Monthly Payments on each ARM Loan are subject to adjustment on each
Payment Adjustment Date to an amount that would amortize fully the principal
balance of the Mortgage Loan over its then remaining amortization schedule and
pay interest at the Mortgage Rate in effect during the one month period
preceding such Payment Adjustment Date. The ARM Loans provide for Payment
Adjustment Dates that occur on the Due Date following each related Interest Rate
Adjustment Date. None of the ARM Loans provide for negative amortization.
All of the Mortgage Loans provide for monthly payments of principal
based on amortization schedules significantly longer than the remaining terms of
such Mortgage Loans. Thus, each Mortgage Loan will have a Balloon Payment due at
its stated maturity date, unless prepaid prior thereto.
No Mortgage Loan currently prohibits principal prepayments; however,
[certain] of the Mortgage Loans impose fees or penalties ("Prepayment Premiums")
in connection with full or partial prepayments. Prepayment Premiums are payable
to the Master Servicer as additional servicing compensation, to the extent not
otherwise applied to offset Prepayment Interest Shortfalls, and may be waived by
the Master Servicer in accordance with the servicing standard described under
"Servicing of the Mortgage Loans-General" herein.
S-15
<PAGE>
[The Index]
Describe Index and include 5 year history.
[Delinquent and Nonperforming Mortgage Loans]
[Describe those delinquent and nonperforming Mortgage Loans, if any,
included in the Trust Fund.]
Additional Mortgage Loan Information
The following tables set forth the specified characteristics of, in
each case as indicated, the ARM Loans, the Fixed Rate Loans or all the Mortgage
Loans. The sum in any column may not equal the indicated total due to rounding.
S-16
<PAGE>
Mortgage Rates as of the Cut-off Date
<TABLE>
<CAPTION>
Number of Percent by
Mortgage Aggregate Cut-off Aggregate Cut-off
Range of Mortgage Rates(%) Loans Date Balance Date Balance
-------------------------- ----- ------------ ------------
<S> <C> <C> <C>
----------- -------------- -------------
Total.........................
=========== ============== =============
</TABLE>
Weighted Average
Mortgage Rate (All Mortgage Loans):
______% per annum
Weighted Average
Mortgage Rate (ARM Loans): ____% per annum
Weighted Average
Mortgage Rate (Fixed Rate Loans): _____% per
annum
Gross Margins for the ARM Loans
<TABLE>
<CAPTION>
Percent by
Number of Aggregate Cut-off Aggregate Cut-off
Range of Gross Margins(%) ARM Loans Date Balance Date Balance
-------------------------- --------- ------------ ------------
<S> <C> <C> <C>
----------- -------------- -------------
Total.........................
=========== ============== =============
</TABLE>
Weighted Average
Gross Margin: ____%
S-17
<PAGE>
Frequency of Adjustments to Mortgage Rates and
Monthly Payments for the ARM Loans
<TABLE>
<CAPTION>
Mortgage Monthly
Rate Payment Number of Aggregate Percent by
Adjustment Adjustment Mortgage Cut-off Aggregate Cut-off
Frequency Frequency Loans Date Balance Date Balance
--------- --------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Total......... --------- ------------- -------------
========= ============= =============
</TABLE>
Maximum Lifetime Mortgage Rates for the ARM Loans
Aggregate Percent by
Range of Maximum Number of Cut-off Aggregate Cut-off
Lifetime Mortgage Rates(%) ARM Loans Date Balance Date Balance
- -------------------------- --------- ------------ ------------
Total....................
========== =========== ==============
Weighted Average Maximum Lifetime
Mortgage Rate (ARM Loans): _____% per annum
(A)
______________
(A) This calculation does not include the __________ ARM Loans without maximum
lifetime Mortgage Rates.
Minimum Lifetime Mortgage Rates for the ARM Loans
Aggregate Percent by
Range of Minimum Number of Cut-off Aggregate Cut-off
Lifetime Mortgage Rates(%) ARM Loans Date Balance Date Balance
- -------------------------- --------- ------------ ------------
Total....................
S-18
<PAGE>
========== =========== ==============
Weighted Average Minimum Lifetime
Mortgage Rate (ARM Loans): _____% per annum
(A)
_________________
(A) This calculation does not include the __________ ARM Loans without minimum
lifetime Mortgage Rates.
S-19
<PAGE>
Maximum Annual Mortgage Rates for the ARM Loans
Aggregate Percent by
Range of Maximum Number of Cut-off Aggregate Cut-off
Annual Mortgage Rates(%) ARM Loans Date Balance Date Balance
------------------------ --------- ------------ ------------
Total....................
========== =========== ==============
Weighted Average Maximum Annual
Mortgage Rate (ARM Loans): _____% per annum
(A)
__________________
(A) This calculation does not include the __________ ARM Loans without maximum
annual Mortgage Rates.
Minimum Annual Mortgage Rates for the ARM Loans
Aggregate Percent by
Range of Minimum Number of Cut-off Aggregate Cut-off
Annual Mortgage Rates(%) ARM Loans Date Balance Date Balance
------------------------ --------- ------------ ------------
Total....................
========== =========== ==============
Weighted Average Minimum Annual
Mortgage Rate (ARM Loans): _____% per annum
(A)
__________________
(A) This calculation does not include the __________ ARM Loans without minimum
annual Mortgage Rates.
S-20
<PAGE>
Cut-off Date Balances
Number of Aggregate Percent by
Cut-off Date Mortgage Cut-off Aggregate Cut-off
Balance Range ($) Loans Date Balance Date Balance
----------------- -------- ------------ ------------
---------- ----------- --------------
Total....................
========== =========== ==============
Average Cut-off Date
Balance (All Mortgage
Loans): $____________
Average Cut-off Date
Balance (ARM Loans): $____________
Average Cut-off Date
Balance (Fixed Rate
Loans): $____________
Types of Mortgaged Properties
<TABLE>
<CAPTION>
Percent by
Number of Aggregate Cut-off Average Cut-off Aggregate Cut-off Weighted Average
Property Type Mortgage Loans Date Balance Date Balance Date Balance Occupancy Rate
------------- -------------- ------------ ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Multifamily..........
Retail/Office........
Health Care-
Related Facility.....
Restaurant...........
[other property
types]...............
Total..........
</TABLE>
S-21
<PAGE>
Geographic Distribution of the Mortgaged Properties
<TABLE>
<CAPTION>
Number of Aggregate Cut-off Percent by Aggregate Weighted Average
State Mortgage Loans Date Balance Cut-off Date Balance DSC Ratio
----- -------------- -------------- -------------------- ---------
<S> <C> <C> <C> <C>
Total........
</TABLE>
Original Term to Stated Maturity (in Months)
Number of Percent by
Range of Original Mortgage Aggregate Cut-off Aggregate Cut-off
Terms (in Months) Loans Date Balance Date Balance
----------------- ----- ------------ ------------
------------ --------------- --------------
Total..................
============ =============== ==============
Weighted Average Original
Term to Stated Maturity
(All Mortgage Loans): ____ months
Weighted Average Original
Term to Stated Maturity
(ARM Loans): ____ months
Weighted Average Original
Term to Stated Maturity
(Fixed Rate Loans): ____ months
S-22
<PAGE>
Remaining Term to Stated Maturity (in Months)
as of the Cut-off Date
Number of Percent by
Range of Remaining Mortgage Aggregate Cut-off Aggregate Cut-off
Terms (in Months) Loans Date Balance Date Balance
----------------- ----- ------------ ------------
------------ --------------- --------------
Total..................
============ =============== ==============
Weighted Average Remaining
Term to Stated Maturity
(All Mortgage Loans): ___ months
Weighted Average Remaining
Term to Stated Maturity
(ARM Loans): ___ months
Weighted Average Remaining
Term to Stated Maturity
(Fixed Rate Loans): ___ months
S-23
<PAGE>
Year of Origination
Number of Percent by
Mortgage Aggregate Cut-off Aggregate Cut-off
Year Loans Date Balance Date Balance
----- ----- ------------ ------------
------------ --------------- --------------
Total..................
============ =============== ==============
Year of Scheduled Maturity
Number of Percent by
Mortgage Aggregate Cut-off Aggregate Cut-off
Year Loans Date Balance Date Balance
----- ----- ------------ ------------
------------ --------------- --------------
Total.............
============ =============== ==============
S-24
<PAGE>
The following table sets forth a range of Debt Service Coverage Ratios
for the Mortgage Loans. The "Debt Service Coverage Ratio" set forth in the
following table for any Mortgage Loan is the ratio of (i) Net Operating Income
produced by the related Mortgaged Property for the period (annualized if the
period was less than one year) covered by the most recent operating statement
available to the Company to (ii) the amount of the Monthly Payment in effect as
of the Cut-off Date multiplied by 12. "Net Operating Income" is the revenue
derived from the use and operation of a Mortgaged Property (consisting primarily
of rental income and deposit forfeitures), less operating expenses (such as
utilities, general administrative expenses, management fees, advertising,
repairs and maintenance), and further less fixed expenses (such as insurance and
real estate taxes). Net Operating Income generally does not reflect capital
expenditures. The following table was prepared using operating statements
obtained from the respective mortgagors or the related property managers. In
each case, the information contained in such operating statements was unaudited,
and the Company has made no attempt to verify its accuracy. In the case of _____
Mortgage Loans (____ ARM Loans and ____ Fixed Rate Loans), representing __% of
the Initial Pool Balance, operating statements could not be obtained, and
accordingly, Debt Service Coverage Ratios for those Mortgage Loans were not
calculated. The last day of the period (which may not correspond to the end of
the calendar year most recent to the Cut-off Date) covered by each operating
statement from which a Debt Service Coverage Ratio was calculated is set forth
in Annex A with respect to the related Mortgage Loan.
Debt Service Coverage Ratios(A)
Range of Number of Percent by
Debt Service Mortgage Aggregate Cut-off Aggregate Cut-off
Coverage Ratios Loans Date Balance Date Balance
--------------- ----- ------------ ------------
Not Calculated(B)..........
----------- -------------- ---------------
Total......................
=========== ============== ===============
Weighted Average
Debt Service Coverage
Ratio (All Mortgage
Loans): _____x(C)
Weighted Average
Debt Service Coverage
Ratio (ARM Loans): _____x(D)
Weighted Average
Debt Service Coverage
Ratio (Fixed Rate Loans): _____x(E)
___________________
(A) The Debt Service Coverage Ratios are based on the most recently available
operating statements obtained from the respective mortgagors or the related
property managers.
S-25
<PAGE>
(B) The Debt Service Coverage Ratios for these Mortgage Loans were not
calculated due to a lack of available operating statements.
(C) This calculation does not include the ________ Mortgage Loans as to which
Debt Service Coverage Ratios were not calculated.
(D) This calculation does not include the ________ ARM Loans as to which Debt
Service Coverage Ratios were not calculated.
(E) This calculation does not include the ________ Fixed Rate Loans as to which
Debt Service Coverage Ratios were not calculated.
The following tables set forth the range of LTV Ratios of the Mortgage
Loans at origination and the Cut-off Date. An "LTV Ratio" for any Mortgage Loan,
as of any date of determination, is a fraction, expressed as a percentage, the
numerator of which is the original principal balance of such Mortgage Loan or
the Cut-off Date Balance of such Mortgage Loan, as applicable, and the
denominator of which is the appraised value of the related Mortgaged Property as
determined by an appraisal thereof obtained in connection with the origination
of such Mortgage Loan. Because it is based on the value of a Mortgaged Property
determined as of loan origination, the information set forth in the table below
is not necessarily a reliable measure of the related borrower's current equity
in each Mortgaged Property. In a declining real estate market, the fair market
value of a Mortgaged Property could have decreased from the value determined at
origination, and the current actual loan-to-value ratio of a Mortgage Loan may
be higher than even its LTV Ratio at origination, notwithstanding taking into
account amortization since origination.
LTV Ratios at Origination
Number of Percent by
Range of Original Mortgage Aggregate Cut-off Aggregate Cut-off
LTV Ratios(%) Loans Date Balance Date Balance
------------- ----- ------------ ------------
----------- ------------- --------------
Total...........
=========== ============= ==============
Weighted Average Original
LTV Ratio (All Mortgage
Loans): _____%
Weighted Average Original
LTV Ratio (ARM Loans):
-----%
Weighted Average Original
LTV Ratio (Fixed Rate
Loans): _____%
S-26
<PAGE>
S-27
<PAGE>
LTV Ratios at Cut-off Date
Number of Percent by
Range of LTV Ratios(%) Mortgage Aggregate Cut-off Aggregate Cut-off
as of Cut-off Date Loans Date Balance Date Balance
------------------ ----- ------------ ------------
----------- ------------- --------------
Total...........
=========== ============= ==============
Weighted Average LTV
Ratio as of Cut-off Date
(All Mortgage Loans):
_______%
Weighted Average LTV
Ratio as of Cut-off Date
(ARM Loans): _____%
Weighted Average LTV
Ratio as of Cut-off Date
(Fixed Rate Loans):
_______%
S-28
<PAGE>
Occupancy Rates
Number of Percent by
Range of Mortgage Aggregate Cut-off Aggregate Cut-off
Occupancy Rates(A) Loans Date Balance Date Balance
------------------ ----- ------------ ------------
----------- ------------- --------------
Total...........
=========== ============= ==============
Weighted Average Occupancy Rate (All
Mortgage Loans)(A): _____%
Weighted Average Occupancy Rate
(ARM Loans)(A): _____%
Weighted Average Occupancy Rate
(Fixed Rate Loans)(A): _____%
_________________
(A) Physical occupancy rates calculated based on rent rolls provided by the
respective Mortgagors or related property managers as of a date no more
than ___ months prior to the Cut-off Date.
Prepayment Restrictions in Effect as of the Cut-off Date
<TABLE>
<CAPTION>
Weighted Averages
% by Cum. -----------------------------------------------------------
Aggregate Aggregate % of Indicative
Cut-off Cut-off Initial Stated Remaining Cut-off
Prepayment Number Date Date Pool Mortgage Remaining Amort. Implied Date
Restrictions of Loans Balance Balance Balance Rate Term (Mo.) Term (Mo.) DSCR DSCR LTV
------------ -------- ---------- --------- ------- -------- ---------- ---------- ---- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Yield Maintenance (B)
Declining Percentage Premium
____% Premium
____% Premium
No Prepayment Restrictions
TOTALS
___________________
</TABLE>
(A) The weighted average term to the expiration of the lock-out periods is ___
years. _____ of the Mortgage Loans within their lock-out periods are
subject to declining percentage Prepayment Premiums after the expiration of
their lock-out periods; the remaining Mortgage Loans are subject to a yield
maintenance-type Prepayment Premium following such expiration.
(B) All Mortgage Loans subject to yield maintenance-type Prepayment Premiums
remain subject to payment of the Prepayment Premium until at least ___
months prior to maturity.
S-29
<PAGE>
Specified in Annex A to this Prospectus Supplement are the foregoing
and certain additional characteristics of the Mortgage Loans set forth on a
loan-by-loan basis. Certain additional information regarding the Mortgage Loans
is contained herein under "-Underwriting Standards" and "-Representations and
Warranties; Repurchases" and in the Prospectus under "Description of the Trust
Funds-Mortgage Loans" and "Certain Legal Aspects of Mortgage Loans".
[Delinquencies. As of the Cut-off Date, [no] Mortgage Loan was more
than 30 days delinquent in respect of any Monthly Payment.]
The Mortgage Loan Seller
General. [The Mortgage Loans Seller [, a wholly-owned subsidiary of
__________,] is a _________________ organized in 19___ under the laws of
__________________. As of December 31, 199_, the Mortgage Loan Seller had a net
worth of approximately $_________________, and currently holds and services for
its own account a total residential and commercial mortgage loan portfolio of
approximately $__________________, of which approximately $__________________
constitutes multifamily mortgage loans.]
The information set forth herein concerning the Mortgage Loan Seller
and its underwriting standards has been provided by the Mortgage Loan Seller,
and neither the Company nor the Underwriter makes any representation or warranty
as to the accuracy or completeness of such information.
Underwriting Standards
[All of the Mortgage Loans were originated or acquired by the Mortgage
Loan Seller, generally in accordance with the underwriting criteria described
herein.
[Description of underwriting standards.]
The Company believes that the Mortgage Loans selected for inclusion in
the Mortgage Pool from the Mortgage Loan Seller's portfolio were not so selected
on any basis which would have a material adverse effect on the Bondholders.]
Representations and Warranties; Repurchases
In the Purchase Agreement, the Mortgage Loan Seller has represented and
warranted with respect to each Mortgage Loan, as of [the Delivery Date], or as
of such other date specifically provided in the representation and warranty,
among other things, that:
[Specify significant representations and warranties.]
S-29
<PAGE>
If the Mortgage Loan Seller has been notified of a material breach of
any of the foregoing representations and warranties as described in the
Prospectus and if the Mortgage Loan Seller cannot cure such breach within a
period of 90 days following its receipt of such notice, then the Mortgage Loan
Seller will be obligated pursuant to the Purchase Agreement (the relevant rights
under which will be assigned, together with its interests in the Mortgage Loans,
by the Company to the Trustee) to repurchase the affected Mortgage Loan within
such 90-day period at a price (the "Purchase Price") equal to the sum of (i) the
unpaid principal balance of such Mortgage Loan, (ii) unpaid accrued interest on
such Mortgage Loan at the Mortgage Rate from the date to which interest was last
paid to the Due Date in the Due Period in which the purchase is to occur, and
(iii) certain servicing expenses that are reimbursable to the Master Servicer
and the Special Servicer.
The foregoing repurchase obligation will constitute the sole remedy
available to the Bondholders and the Trustee for any breach of the Mortgage Loan
Seller's representations and warranties regarding the Mortgage Loans. The
Mortgage Loan Seller will be the sole Warranting Party in respect of the
Mortgage Loans, and none of the Company, the Master Servicer or any of their
affiliates [(other than the Mortgage Loan Seller)] will be obligated to
repurchase any affected Mortgage Loan in connection with a breach of the
Mortgage Loan Seller's representations and warranties if the Mortgage Loan
Seller defaults on its obligation to do so. However, the Company will not
include any Mortgage Loan in the Mortgage Pool if anything has come to the
Company's attention prior to the Closing Date that would cause it to believe
that the representations and warranties made by the Mortgage Loan Seller
regarding such Mortgage Loan will not be correct in all material respects. See
"The Mortgage Pool-Representations and Warranties; Repurchases" in the
Prospectus.
Changes in Mortgage Pool Characteristics
The description in this Prospectus Supplement of the Mortgage Pool and
the Mortgaged Properties is based upon the Mortgage Pool as expected to be
constituted at the time the Bonds are issued, as adjusted for the scheduled
principal payments due on or before the Cut-off Date. Prior to the issuance of
the Bonds, a Mortgage Loan may be removed from the Mortgage Pool if the Company
deems such removal necessary or appropriate or if it is prepaid. A limited
number of other mortgage loans may be included in the Mortgage Pool prior to the
issuance of the Bonds, unless including such Mortgage Loans would materially
alter the characteristics of the Mortgage Pool as described herein. The Company
believes that the information set forth herein will be representative of the
characteristics of the Mortgage Pool as it will be constituted at the time the
Bonds are issued, although the range of Mortgage Rates and maturities and
certain other characteristics of the Mortgage Loans in the Mortgage Pool may
vary.
A Current Report on Form 8-K (the "Form 8-K") will be available to
purchasers of the Bonds on or shortly after the Delivery Date and will be filed,
together with the Indenture and Servicing Agreement, with the Securities and
Exchange Commission within fifteen days after the initial issuance of the Bonds.
In the event Mortgage Loans are removed from or added to the Mortgage Pool as
set forth in the preceding paragraph, such removal or addition will be noted in
the Form 8-K.
S-31
<PAGE>
THE ISSUER
General
The Impac CMB Trust 19_-_, is a business trust formed under the laws of
the State of [Delaware] pursuant to the Trust Agreement dated as of _____ , 19__
between the Company and ________________, as the Owner Trustee for the
transactions described in this Prospectus Supplement. The Trust Agreement
constitutes the "governing instrument" under the laws of the State of [Delaware]
relating to business trusts. After its formation, the Issuer will not engage in
any activity other than (i) acquiring the Mortgage Loans and the other assets of
the Issuer and proceeds therefrom and pledging them to the Indenture Trustee,
(ii) issuing the Bonds and the Certificates, (iii) making payments on the Bonds
and the Certificates and (iv) engaging in other activities that are necessary,
suitable or convenient to accomplish the foregoing or are incidental thereto or
connected therewith.
The assets of the Issuer will consist of the Mortgage Loans and certain
related assets.
The Issuer's principal offices are in ___________, Delaware, in care of
________________, as Owner Trustee, at the address listed below.
THE OWNER TRUSTEE
_______________ is the Owner Trustee under the Trust Agreement.
__________________ is a [Delaware] banking corporation and its principal offices
are located at --------------------.
Neither the Owner Trustee nor any director, officer or employee of the
Owner Trustee will be under any liability to the Issuer or the Bondholders for
any action taken or for refraining from the taking of any action in good faith
pursuant to the Trust Agreement or for errors in judgment; provided, however,
that none of the Owner Trustee and any director, officer or employee thereof
will be protected against any liability which would otherwise be imposed by
reason of willful malfeasance, bad faith or negligence in the performance of
duties or by reason of reckless disregard of obligations and duties under the
Trust Agreement. All persons into which the Owner Trustee may be merged or with
which it may be consolidated or any person resulting from such merger or
consolidation shall be the successor of the Owner Trustee under the Trust
Agreement.
THE INSURER
[Insert Description of Insurer as Appropriate.]
DESCRIPTION OF THE SECURITIES
General
S-32
<PAGE>
The Bonds will be issued pursuant to the Indenture dated as of
________, between the Issuer and _________, as Indenture Trustee. The
Certificates will be issued pursuant to the Trust Agreement dated as of
____________, between the Company and _____________, as Owner Trustee. The
following summaries describe certain provisions of the Securities, the Indenture
and the Trust 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 applicable agreement. Only the Bonds are offered hereby.
The Bonds will be secured by the Trust Fund pledged by the Issuer to
the Indenture Trustee pursuant to the Indenture which will consist of: (i) the
Mortgage Loans; (ii) collections in respect of principal of the Mortgage Loans
received after the applicable Cut-Off Date and collections in respect of
interest on the Mortgage Loans from the Cut-Off Date relating to the Mortgage
Loan; (iii) the amounts on deposit in the Custodial Account allocated to the
Mortgage Loans and the Payment Account (excluding net earnings thereon); (iv)
the Policy; (v) certain hazard insurance policies maintained by the Mortgagors
or by or on behalf of the Master Servicer or related subservicer in respect of
the Mortgage Loans and (vi) an assignment of the Company's rights under the
Purchase Agreement and the Servicing Agreement.
The Bonds will be issued in denominations of $1,000 and integral
multiples in excess thereof. See "--Book-Entry Securities" below.
Book-Entry Bonds
General. Beneficial Owners (as defined in the Prospectus) that are not
Participants or Intermediaries (as defined in the Prospectus) but desire to
purchase, sell or otherwise transfer ownership of, or other interests in, the
related Book-Entry Bonds may do so only through Participants and Intermediaries.
In addition, Beneficial Owners will receive all payments of principal of and
interest on the related Book-Entry Bonds from the Paying Agent (as defined in
the Prospectus) through DTC and Participants. Accordingly, Beneficial Owners may
experience delays in their receipt of payments. Unless and until Definitive
Bonds are issued for the related Book-Entry Bonds, it is anticipated that the
only registered Bondholder of such Book-Entry Bonds will be Cede, as nominee of
DTC. Beneficial Owners will not be recognized by the Indenture Trustee or the
Master Servicer as Bondholders, as such term is used in the Indenture, and
Beneficial Owners will be permitted to receive information furnished to
Bondholders and to exercise the rights of Bondholders only indirectly through
DTC, its Participants and Intermediaries.
Under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
of Book-Entry Bonds among Participants and to receive and transmit payments of
principal of, and interest on, such Book-Entry Bonds. Participants and
Intermediaries with which Beneficial Owners have accounts with respect to such
Book-
S-33
<PAGE>
Entry Bonds similarly are required to make book-entry transfers and receive
and transmit such payments on behalf of their respective Beneficial Owners.
Accordingly, although Beneficial Owners will not possess physical certificates
evidencing their interests in the Book- Entry Bonds, the Rules provide a
mechanism by which Beneficial Owners, through their Participants and
Intermediaries, will receive payments and will be able to transfer their
interests in the Book-Entry Bonds.
None of the Company, the Master Servicer, the Insurer or the Indenture
Trustee will have any liability for any actions taken by DTC or its nominee,
including, without limitation, actions for any aspect of the records relating to
or payments made on account of beneficial ownership interests in the Book-Entry
Bonds held by Cede, as nominee for DTC, or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
Definitive Bonds. Definitive Bonds will be issued to Beneficial Owners
or their nominees, respectively, rather than to DTC or its nominee, only under
the limited conditions set forth in the Prospectus under "Description of the
Bonds--Form of Bonds."
Upon the occurrence of an event described in the Prospectus in the
third paragraph under "Description of the Bonds--Form of Bonds," the Indenture
Trustee is required to notify, through DTC, Participants who have ownership of
Book-Entry Bonds as indicated on the records of DTC of the availability of
Definitive Bonds for their Book-Entry Bonds. Upon surrender by DTC of the
definitive certificates representing the Book-Entry Bonds and upon receipt of
instructions from DTC for re-registration, the Indenture Trustee will reissue
the Book-Entry Bonds as Definitive Bonds issued in the respective principal
amounts owned by individual Beneficial Owners, and thereafter the Indenture
Trustee will recognize the holders of such Definitive Bonds as Bondholders under
the Indenture.
For additional information regarding DTC and the Book-Entry Bonds, see
"Description of the Bonds--Form of Bonds" in the Prospectus.]
Payments
Payments on the Bonds will be made by the Indenture Trustee or the
Paying Agent on the _____ day of each month or, if such day is not a Business
Day, then the next succeeding Business Day, commencing in __________. Payments
on the Bonds will be made to the persons in whose names such Bonds are
registered at the close of business on the day prior to each Payment Date or, if
the Bonds are no longer Book-Entry Securities, on the Record Date. See
"Description of the Bonds--Payments" in the Prospectus. Payments will be made by
check or money order mailed (or upon the request of a Holder owning Bonds having
denominations aggregating at least $_________, by wire transfer or otherwise) to
the address of the person entitled thereto (which, in the case of Book-Entry
Securities, will be DTC or its nominee) as it appears on the Security Register
in amounts calculated as described herein on the Determination Date. However,
the final payment in respect of the Bonds will be made only upon presentation
and surrender thereof at the office or the agency of the Indenture Trustee
specified in the notice to Holders of such final payment. A "Business Day" is
any day other than (i) a Saturday or Sunday or (ii) a day on which banking
institutions in the State of ___________ are required or authorized by law to be
closed.
S-34
<PAGE>
Interest on the Bonds
Interest payments will be made on the Bonds on each Payment Date at the
Bond Rate for the related Interest Period. The "Bond Rate" for an Interest
Period will generally equal the sum of [(a) LIBOR determined as specified
herein, as of the second LIBOR Business Day prior to the first day of such
Interest Period (or as of two LIBOR Business Days prior to the Closing Date, in
the case of the first Interest Period)] plus (b) ___% per annum. Notwithstanding
the foregoing, in no event will the Bond Rate on any Payment Date exceed a rate
equal to the weighted average of the Loan Rates (net of the applicable Servicing
Fee Rate) (adjusted to an effective rate reflecting accrued interest calculated
on the basis of the actual number of days in the Collection Period commencing in
the month in which such Interest Period commences and a year assumed to consist
of 360 days).
Interest on the Bonds in respect of any Payment Date will accrue on the
applicable Bond Principal Balance from the preceding Payment Date (or in the
case of the first Payment Date, from the Closing Date) through the day preceding
such Payment Date (each such period, an "Interest Period") on the basis of the
actual number of days in the Interest Period and a 360-day year. Interest
payments on the Bonds will be funded from P&I Collections [and with respect to
the Bonds, if necessary, from draws on the Policy.
[On each Payment Date, LIBOR shall be established by the Indenture
Trustee and as to any Interest Period, LIBOR will equal the rate for United
States dollar deposits for one month which appears on the Telerate Screen Page
3750 as of 11:00 A.M., London time, on the second LIBOR Business Day prior to
the first day of such Interest Period. "Telerate Screen Page 3750" means the
display designated as page 3750 on the Telerate Service (or such other page as
may replace page 3750 on that service for the purpose of displaying London
interbank offered rates of major banks). If such rate does not appear on such
page (or such other page as may replace that page on that service, or if such
service is no longer offered, such other service for displaying LIBOR or
comparable rates as may be selected by the Indenture Trustee after consultation
with the Master Servicer), the rate will be the Reference Bank Rate. The
"Reference Bank Rate" will be determined on the basis of the rates at which
deposits in U.S. Dollars are offered by the reference banks (which shall be
three major banks that are engaged in transactions in the London interbank
market, selected by _________) as of 11:00 A.M., London time, on the day that is
two LIBOR Business Days prior to the immediately preceding Payment Date to prime
banks in the London interbank market for a period of one month in amounts
approximately equal to the Bond Principal Balance then outstanding. The
Indenture Trustee will request the principal London office of each of the
reference banks to provide a quotation of its rate. If at least two such
quotations are provided, the rate will be the arithmetic mean of the quotations.
If on such date fewer than two quotations are provided as requested, the rate
will be the arithmetic mean of the rates quoted by one or more major banks in
New York City, selected by the Indenture Trustee after consultation with the
Master Servicer, as of 11:00 A.M., New York City time, on such date for loans in
U.S. Dollars to leading European banks for a period of one month in amounts
approximately equal to the Bond Principal Balance then outstanding. If no such
quotations can be obtained, the rate will be LIBOR for the prior Payment Date.
"LIBOR Business Day" means any day other than (i) a
S-35
<PAGE>
Saturday or a Sunday or (ii) a day on which banking institutions in the State of
[New York] or in the city of London, England are required or authorized by law
to be closed.]
Principal Payments on the Bonds
On each Payment Date, other than the Payment Date in _________,
principal payments except as provided below will be due and payable on the Bonds
in an amount equal to the Principal Collection Distribution Amount (as defined
below) for such Payment Date, together with any Liquidation Loss Amounts. On the
Payment Date in ______, principal will be due and payable on the Bonds in
amounts equal to the Bond Principal Balance on such Payment Date. In no event
will principal payments on the Bonds on any Payment Date exceed the Bond
Principal Balance thereof on such date.
Allocation of P&I Collections
The Master Servicer on behalf of the Issuer will establish an account
(the "Distribution Account") into which the Master Servicer will deposit P&I
Collections for each Payment Date on the Business Day prior thereto. The
Distribution Account will be an Eligible Account. Amounts on deposit in the
Distribution Account will be invested in Eligible Investments maturing on or
before the Business Day prior to the related Payment Date.
On each Payment Date, P&I Collections will be allocated from the
Distribution Account in the following order of priority:
(i) to the Bonds, the sum of the following:
(a) as payment for the accrued interest due and any overdue
accrued interest at the Bond Rate (as defined herein) on the Bond
Principal Balance (as defined herein) of the Bonds;
(b) an amount equal to the Principal Collection Distribution
Amount, applied to reduce the Bond Principal Balance of the Bonds; and
(c) an additional amount to be applied to reduce the Bond
Principal Balance (each such amount, a "Additional Principal
Distribution Amount"), to the extent necessary to bring the Outstanding
Reserve Amount up to the Reserve Amount Target; and
(ii) the remaining amount, if any, of the P&I Collections shall
be allocated to the Certificates.
For any Payment Date, the "Principal Collection Distribution Amount"
will equal Principal Collections for such Payment Date.
S-36
<PAGE>
"Liquidation Loss Amount" means with respect to any Liquidated Mortgage
Loan, the unrecovered Principal Balance thereof at the end of the related
Collection Period in which such Mortgage Loan became a Liquidated Mortgage Loan,
after giving effect to the Net Liquidation Proceeds allocable to such Principal
Balance in connection therewith.
A "Liquidated Mortgage Loan" means, as to any Payment Date, any
Mortgage Loan in respect of which the Master Servicer has determined, based on
the servicing procedures specified in the Servicing Agreement, as of the end of
the preceding Collection Period that all liquidation proceeds which it expects
to recover with respect to the disposition of the related Mortgaged Property
have been recovered.
As of the Closing Date, the Reserve Amount Target is equal to at least
___% of the CutOff Date Pool Balance. The Reserve Amount Target may be increased
or reduced from time to time pursuant to the terms of the Indenture, with the
consent of the Rating Agencies and the Indenture Trustee. To the extent the
Reserve Amount Target is reduced on any Payment Date, the amount of the
Principal Collections distributed pursuant to clause (ii)(b) will be reduced on
such Payment Date and on each subsequent Payment Date to the extent the
remaining Outstanding Reserve Amount is in excess of the reduced Reserve Amount
Target until the Outstanding Reserve Amount equals the Reserve Amount Target.
The Indenture Trustee will establish the Payment Account into which the
Master Servicer will deposit the portion of the P&I Collections allocable to the
Mortgage Loan for each Payment Date on the Business Day prior thereto. The
Payment Account will be an Eligible Account. Amounts on deposit in the Payment
Account will be invested in Eligible Investments maturing on or before the
Business Day prior to the related Payment Date.
The "Bond Principal Balance" of the Bonds on any day is the initial
principal balance thereof as of the Closing Date, reduced by all payments of
principal thereon as of such day.
Except as provided below, payments pursuant to clause (i) will be
allocated to the Bonds based on the amount of interest such Bond is entitled to
receive pursuant to such clause. Except as provided below, payments pursuant to
clauses (ii), (iii) and (vi) will constitute payments of principal.
An "Amortization Event" will be deemed to occur upon (i) the occurrence
of certain events relating to a violation of the Seller's obligations under the
Mortgage Loan Purchase Agreement, (ii) the occurrence of certain events of
bankruptcy, insolvency or receivership relating to the Seller or the Master
Servicer, or (iii) the Issuer becomes subject to regulation as an investment
company within the meaning of the Investment Company Act of 1940, as amended;
Notwithstanding the foregoing, if a conservator, receiver or
trustee-in-bankruptcy is appointed for the Seller, the conservator, receiver or
trustee-in-bankruptcy may have the power to prevent the commencement of the
Amortization Period.
S-37
<PAGE>
Outstanding Reserve Amount
The distribution of the Additional Principal Distribution Amount, if
any, to the Bondholders, will create the Outstanding Reserve Amount. The
Outstanding Reserve Amount, if any, will be available to absorb any Liquidation
Loss Amounts that are allocated to the Mortgage Loans and not covered by
Principal Collections and Interest Collections. Any Liquidation Loss Amounts
allocable to the Bondholders and not covered by such overcollateralization will
be covered by draws on the Policy to the extent provided herein. The
"Outstanding Reserve Amount" on any Payment Date is the amount, if any, by which
the Pool Balance as of the end of the related Collection Period exceed the Bond
Principal Balance on such day (after giving effect to all amounts payable and
allocable to principal on the Bonds that are applied to reduce the Bond
Principal Balance on such Payment Date).
To the extent that such overcollateralization is insufficient or not
available to absorb Liquidation Loss Amounts, and payments are not made under
the Policy, a Bondholder may incur a loss.
The Paying Agent
The Paying Agent shall initially be the [Indenture Trustee], together
with any successor thereto. The Paying Agent shall have the revocable power to
withdraw funds from the Payment Account for the purpose of making payments to
the Securityholders.
Maturity
The Bonds will be payable in full on ___________. In addition, the
Issuer will pay the Bonds in full upon the exercise by the Master Servicer of
its option to purchase the assets of the Issuer after the Pool Balance is
reduced to an amount less than or equal to $________ (___% of the initial Pool
Balance). The purchase price will be equal to the sum of the outstanding Pool
Balance and accrued and unpaid interest thereon at the weighted average of the
Loan Rates through the day preceding the Payment Date on which the Bonds are
paid in full together with all amounts due and owing to the Insurer.
CERTAIN YIELD AND MATURITY CONSIDERATIONS
Yield Considerations
General. The yield on any Bond will depend on: (i) the Bond Interest
Rate in effect from time to time for such Bond; (ii) the price paid for such
Bond and, if the price was other than par, the rate and timing of payments of
principal on such Bond; and (iii) the aggregate amount of distributions on such
Bond.
S-38
<PAGE>
Rate and Timing of Principal Payments. The yield to holders of Bonds
that are purchased at a discount or premium will be affected by the rate and
timing of principal payments on the Mortgage Loans (including principal
prepayments on the Mortgage Loans resulting from both voluntary prepayments by
the mortgagors and involuntary liquidations). The rate and timing of principal
payments on the Mortgage Loans will in turn be affected by the amortization
schedules thereof, the dates on which Balloon Payments are due and the rate and
timing of principal prepayments and other unscheduled collections thereon
(including for this purpose, collections made in connection with liquidations of
Mortgage Loans due to defaults, casualties or condemnations affecting the
Mortgaged Properties, or purchases of Mortgage Loans out of the Trust Fund).
Prepayments and, assuming the respective stated maturity dates therefor have not
occurred, liquidations and purchases of the Mortgage Loans, will result in
distributions on the Bonds of amounts that would otherwise be distributed over
the remaining terms of the Mortgage Loans. Defaults on the Mortgage Loans,
particularly at or near their stated maturity dates, may result in significant
delays in payments of principal on the Mortgage Loans (and, accordingly, on the
Bonds) while work-outs are negotiated or foreclosures are completed. See
"Servicing of the Mortgage Loans-Modifications, Waivers and Amendments" herein
and "Servicing of the Mortgage Loans-Realization Upon Defaulted Mortgage Loans"
and "Certain Legal Aspects of Mortgage Loans-Foreclosure" in the Prospectus.
Because the rate of principal payments on the Mortgage Loans will depend on
future events and a variety of factors (as described below), no assurance can be
given as to such rate or the rate of principal prepayments in particular. The
Company is not aware of any relevant publicly available or authoritative
statistics with respect to the historical prepayment experience of a large group
of mortgage loans comparable to the Mortgage Loans.
The extent to which the yield to maturity of any Class of Bonds may
vary from the anticipated yield will depend upon the degree to which such Bonds
are purchased at a discount or premium and when, and to what degree, payments of
principal on the Mortgage Loans are in turn distributed on such Bonds. An
investor should consider, in the case of any Bond purchased at a discount, the
risk that a slower than anticipated rate of principal payments on such Bond
could result in an actual yield to such investor that is lower than the
anticipated yield and, in the case of any Bond purchased at a premium, the risk
that a faster than anticipated rate of principal payments on such Bond could
result in an actual yield to such investor that is lower than the anticipated
yield. In general, the earlier a payment of principal is made on a Bond
purchased at a discount or premium, 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 on such investor's Bonds occurring at a rate higher (or
lower) than the rate anticipated by the investor during any particular period
would not be fully offset by a subsequent like reduction (or increase) in the
rate of principal payments.
Losses and Shortfalls. The yield to holders of the Bonds will also
depend on the extent to which such holders are required to bear the effects of
any losses or shortfalls on the Mortgage Loans. Losses and other shortfalls on
the Mortgage Loans will, with the exception of any Net Aggregate Prepayment
Interest Shortfalls, generally be borne: first, by the holders of the Class __
Bonds, to the extent of amounts otherwise distributable in respect of their
Bonds; second, by the holders of the Class __ Bonds, to the extent of amounts
otherwise distributable in respect of
S-39
<PAGE>
their Bonds; and last, by the holders of the Senior Bonds. As more fully
described herein under "Description of the Bonds-Distributions-Distributable
Bond Interest", Net Aggregate Prepayment Interest Shortfalls will generally be
borne by the respective Classes of Bondholders on a pro rata basis.
Certain Relevant Factors. The rate and timing of principal payments and
defaults and the severity of losses on the Mortgage Loans may be affected by a
number of factors, including, without limitation, prevailing interest rates, the
terms of the Mortgage Loans (for example, Prepayment Premiums, adjustable
Mortgage Rates and amortization terms that require Balloon Payments), the
demographics and relative economic vitality of the areas in which the Mortgaged
Properties are located and the general supply and demand for rental properties,
food services, retail shopping space, office space or beds in a health
care-related facility, as the case may be, in such areas, the quality of
management of the Mortgaged Properties, the servicing of the Mortgage Loans,
possible changes in tax laws and other opportunities for investment. See "Risk
Factors" and "Description of the Mortgage Pool" herein and "Risk Factors" and
"Yield and Maturity Considerations" in the Prospectus.
The rate of prepayment on the Mortgage Pool is likely to be affected by
prevailing market interest rates for mortgage loans of a comparable type, term
and risk level. When the prevailing market interest rate is below a mortgage
coupon, a borrower may have an increased incentive to refinance its mortgage
loan. Although most of the Mortgage Loans are ARM Loans, adjustments to the
Mortgage Rates thereon will generally be limited by lifetime and/or periodic
caps and floors and, in each case, will be based on the related Index (which may
not rise and fall consistently with mortgage interest rates then available) plus
the related Gross Margin (which may be different from margins then offered on
adjustable rate mortgage loans). As a result, the Mortgage Rates on the ARM
Loans at any time may not be comparable to prevailing market interest rates. In
addition, as prevailing market interest rates decline, and without regard to
whether the Mortgage Rates on the ARM Loans decline in a manner consistent
therewith, related borrowers may have an increased incentive to refinance for
purposes of either (i) converting to a fixed rate loan and thereby "locking in"
such rate, or (ii) taking advantage of a different index, margin or rate cap or
floor on another adjustable rate mortgage loan. The Mortgage Loans may be
prepaid at any time and, in ____ cases (approximately _____% of the Initial Pool
Balance), may be prepaid in whole or in part without payment of a Prepayment
Premium.
Depending on prevailing market interest rates, the outlook for market
interest rates and economic conditions generally, some borrowers may sell
Mortgaged Properties in order to realize their equity therein, to meet cash flow
needs or to make other investments. In addition, some borrowers may be motivated
by Federal and state tax laws (which are subject to change) to sell Mortgaged
Properties prior to the exhaustion of tax depreciation benefits.
The Company makes no representation as to the particular factors that
will affect the rate and timing of prepayments and defaults on the Mortgage
Loans, as to the relative importance of such factors, as to the percentage of
the principal balance of the Mortgage Loans that will be
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prepaid or as to which a default will have occurred as of any date or as to the
overall rate of prepayment or default on the Mortgage Loans.
Delay in Payment of Distributions. Because monthly distributions will
not be made to Bondholders until a date that is scheduled to be at least _____
days and as many as ______ days following the Due Dates for the Mortgage Loans
during the related Due Period, the effective yield to the holders of the Bonds
will be lower than the yield that would otherwise be produced by the applicable
Bond Interest Rates and purchase prices (assuming such prices did not account
for such delay).
Unpaid Distributable Bond Interest. As described under "Description of
the Bonds-Distributions-Priority" herein, if the portion of the Available
Distribution Amount distributable in respect of interest on any Class of Bonds
on any Distribution Date is less than the Distributable Bond Interest then
payable for such Class, the shortfall will be distributable to holders of such
Class of Bonds on subsequent Distribution Dates, to the extent of available
funds. Any such shortfall will not bear interest, however, and will therefore
negatively affect the yield to maturity of such Class of Bonds for so long as it
is outstanding.
Weighted Average Life
The weighted average life of a Bond refers to the average amount of
time that will elapse from the date of its issuance until each dollar allocable
to principal of such Bond is distributed to the investor. The weighted average
life of a Bond will be influenced by, among other things, the rate at which
principal on the Mortgage Loans is paid or otherwise collected, which may be in
the form of scheduled amortization, voluntary prepayments, Insurance Proceeds,
Condemnation Proceeds and Liquidation Proceeds.
Prepayments on mortgage loans may be measured by a prepayment standard
or model. The model used in this Prospectus Supplement is the ["Constant
Prepayment Rate" or "CPR" model. The CPR model represents an assumed constant
annual rate of prepayment each month, expressed as a per annum percentage of the
then scheduled principal balance of the pool of mortgage loans. As used in each
of the following tables, the column headed "0%" assumes that none of the
Mortgage Loans is prepaid before maturity. The columns headed "___%", "___%",
"___%" and "___%" assume that prepayments on the Mortgage Loans are made at
those levels of CPR. There is no assurance, however, that prepayments of the
Mortgage Loans will conform to any level of CPR, and no representation is made
that the Mortgage Loans will prepay at the levels of CPR shown or at any other
prepayment rate.]
The following tables indicate the percentage of the initial Bond
Balance of each of the Class __ Bonds and the Class __ Bonds that would be
outstanding after each of the dates shown at various CPRs and the corresponding
weighted average life of each such Class of Bonds. The tables have been prepared
on the basis of the following assumptions, among others: (i) scheduled monthly
payments of principal and interest on the Mortgage Loans, in each case prior to
any prepayment of the loan, will be timely received (with no defaults) and will
be distributed on the
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25th day of each month commencing in ________ 199___; (ii) the Mortgage Rate in
effect for each Mortgage Loan as of the Cut-off Date will remain in effect (a)
in the case of each Fixed Rate Loan, to maturity and, (b) in the case of each
ARM Loan, until its next Interest Rate Adjustment Date, when a new Mortgage Rate
that is to remain in effect to maturity will be calculated reflecting the value
of the related Index as of ________, 199__, subject to such Mortgage Loan's
lifetime and/or periodic rate caps and floors, if any; (iii) all Mortgage Loans
accrue and pay interest on a 30/360 basis; (iv) the monthly principal and
interest payment due for each Mortgage Loan on the first Due Date following the
Cut-off Date will continue to be due (a) in the case of each Fixed Rate Loan, on
each Due Date until maturity and (b) in the case of each ARM Loan, until its
next Payment Adjustment Date, when a new payment that is to be due on each Due
Date until maturity will be calculated reflecting the appropriate Mortgage Rate
and remaining amortization term; (v) any principal prepayments on the Mortgage
Loans will be received on their respective Due Dates at the respective levels of
CPR set forth in the tables, and there will be no Net Aggregate Prepayment
Interest Shortfalls in connection therewith; and (vi) the Mortgage Loan Seller
will not be required to repurchase any Mortgage Loan, and neither the Master
Servicer nor the Company will exercise its option to purchase all the Mortgage
Loans and thereby cause an early termination of the Trust Fund. To the extent
that the Mortgage Loans have characteristics that differ from those assumed in
preparing the tables set forth below, the Class __ Bonds or the Class __ Bonds
may mature earlier or later than indicated by the tables. It is highly unlikely
that the Mortgage Loans will prepay at any constant rate until maturity or that
all the Mortgage Loans will prepay at the same rate. In addition, variations in
the actual prepayment experience and the balance of the Mortgage Loans that
prepay may increase or decrease the percentages of initial Bond Balances (and
weighted average lives) shown in the following tables. Such variations may occur
even if the average prepayment experience of the Mortgage Loans were to equal
any of the specified CPR percentages. Investors are urged to conduct their own
analyses of the rates at which the Mortgage Loans may be expected to prepay.
Based on the foregoing assumptions, the following table indicates the resulting
weighted average lives of the Class __ Bonds and sets forth the percentage of
the initial Bond Balance of the Class __ Bonds that would be outstanding after
each of the dates shown at the indicated CPRs.
Percent of the Initial Bond Balance of the
Class __ Bonds at the Respective CPRs
Set Forth Below:
Date 0% % % % %
- ---- -- -- -- -- --
Delivery Date.................. 100.0 100.0 100.0 100.0 100.0
_________ 25, 1998.............
_________ 25, 1999.............
_________ 25, 2000.............
_________ 25, 2001.............
_________ 25, 2002.............
_________ 25, 2003.............
_________ 25, 2004.............
_________ 25, 2005.............
Weighted Average Life (years)..
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_____
(A) The weighted average life of a Class __ Bond is determined by (i)
multiplying the amount of each principal distribution thereon by the
number of years from the date of issuance of the Class __ Bonds to the
related Distribution Date, (ii) summing the results and (iii) dividing
the sum by the aggregate amount of the reductions in the principal
balance of such Class __ Bond.
Based on the foregoing assumptions, the following table indicates the
resulting weighted average lives of the Class __ Bonds and sets forth the
percentage of the initial Bond Balance of the Class __ Bonds that would be
outstanding after each of the dates shown at the indicated CPRs.
Percent of the Initial Bond Balance of the
Class __ Bonds at the Respective CPRs
Set Forth Below:
Date 0% % % % %
- ---- -- -- -- -- --
Delivery Date...................... 100.0 100.0 100.0 100.0 100.0
_________ 25, 1998.................
_________ 25, 1999.................
_________ 25, 2000.................
_________ 25, 2001.................
_________ 25, 2002.................
_________ 25, 2003.................
_________ 25, 2004.................
_________ 25, 2005.................
Weighted Average Life (years)(A)...
__________________
(A) The weighted average life of a Class __ Bond is determined by (i)
multiplying the amount of each principal distribution thereon by the
number of years from the date of issuance of the Class __ Bonds to the
related Distribution Date, (ii) summing the results and (iii) dividing
the sum by the aggregate amount of the reductions in the principal
balance of such Class __ Bond.
[The following disclosure is applicable to Stripped Interest Bonds, when
offered...
Yield Sensitivity of the Class __ Bonds
The yield to maturity of the Class __ Bonds will be especially
sensitive to the prepayment, repurchase and default experience on the Mortgage
Loans, which may fluctuate significantly from time to time. A rapid rate of
principal payments will have a material negative effect on the yield to maturity
of the Class __ Bonds. There can be no assurance that the Mortgage Loans will
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prepay at any particular rate. Prospective investors in the Class __ Bonds
should fully consider the associated risks, including the risk that such
investors may not fully recover their initial investment.
The following table indicates the sensitivity of the pre-tax yield to
maturity on the Class __ Bonds to various constant rates of prepayment on the
Mortgage Loans by projecting the monthly aggregate payments of interest on the
Class __ Bonds and computing the corresponding pre-tax yields to maturity on a
corporate bond equivalent basis, based on the assumptions described in the third
paragraph under the heading "--Weighted Average Life" above, including the
assumptions regarding the characteristics and performance of the Mortgage Loans
which differ from the actual characteristics and performance thereof and
assuming the aggregate purchase price set forth below. Any differences between
such assumptions and the actual characteristics and performance of the Mortgage
Loans and of the Class __ Bonds may result in yields being different from those
shown in such table. Discrepancies between assumed and actual characteristics
and performance underscore the hypothetical nature of the table, which is
provided only to give a general sense of the sensitivity of yields in varying
prepayment scenarios.
Pre-Tax Yield to Maturity of the Class __ Bonds
at the Following CPRs
Assumed Purchase Price 0% % % % % %
- ---------------------- -- -- -- -- -- --
$________________......... ____% ___% ____% ____% ____% ____%
Each pre-tax yield to maturity set forth in the preceding table was
calculated by determining the monthly discount rate which, when applied to the
assumed stream of cash flows to be paid on the Class __ Bonds, would cause the
discounted present value of such assumed stream of cash flows to equal the
assumed purchase price listed in the table. Accrued interest is included in the
assumed purchase price and is used in computing the corporate bond equivalent
yields shown. These yields do not take into account the different interest rates
at which investors may be able to reinvest funds received by them as
distributions on the Class __ Bonds, and thus do not reflect the return on any
investment in the Class __ Bonds when any reinvestment rates other than the
discount rates are considered.
Notwithstanding the assumed prepayment rates reflected in the preceding
tables, it is highly unlikely that the Mortgage Loans will be prepaid according
to one particular pattern. For this reason, and because the timing of cash flows
is critical to determining yields, the pre-tax yield to maturity on the Class __
Bonds is likely to differ from those shown in the tables, even if all of the
Mortgage Loans prepay at the indicated CPRs over any given time period or over
the entire life of the Bonds.
There can be no assurance that the Mortgage Loans will prepay at any
particular rate or that the yield on the Class __ Bonds will conform to the
yields described herein. Investors are urged to make their investment decisions
based on the determinations as to anticipated rates of prepayment under a
variety of scenarios. Investors in the Class __ Bonds should fully consider
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the risk that a rapid rate of prepayments on the Mortgage Loans could result in
the failure of such investors to fully recover their investments.]
DESCRIPTION OF THE SERVICING AGREEMENT
General
Each of the Master Servicer and the Special Servicer will be required
to service and administer the Mortgage Loans for which it is responsible, either
directly or through sub-servicers, on behalf of the Indenture Trustee and in the
best interests of and for the benefit of the Bondholders (as determined by the
Master Servicer or the Special Servicer, as the case may be, in its good faith
and reasonable judgment), in accordance with applicable law, the terms of the
Servicing Agreement, the terms of the respective Mortgage Loans and, to the
extent consistent with the foregoing, in the same manner as would prudent
institutional mortgage lenders and loan servicers servicing mortgage loans
comparable to the Mortgage Loans in the jurisdictions where the Mortgaged
Properties are located, and with a view to the maximization of timely and
complete recovery of principal and interest, but without regard to: (i) any
relationship that the Master Servicer or the Special Servicer, as the case may
be, or any affiliate thereof, may have with the related mortgagor; (ii) the
ownership of any Bond by the Master Servicer or the Special Servicer, as the
case may be, or any affiliate thereof; (iii) the Master Servicer's or the
Special Servicer's, as the case may be, obligation to make advances, whether in
respect of delinquent payments of principal and/or interest or to cover certain
servicing expenses; and (iv) the Master Servicer's or the Special Servicer's, as
the case may be, right to receive compensation for its services under the
Servicing Agreement or with respect to any particular transaction.
Except as otherwise described under "-Inspections; Collection of
Operating Information" below, the Master Servicer initially will be responsible
for the servicing and administration of the entire Mortgage Pool. With respect
to any Mortgage Loan (i) which has a Balloon Payment which is past due or any
other payment which is more than [60] days past due, (ii) as to which the
borrower has entered into or consented to bankruptcy, appointment of a receiver
or conservator or a similar insolvency proceeding, or the borrower has become
the subject of a decree or order for such a proceeding which shall have remained
in force undischarged or unstayed for a period of [60] days, (iii) as to which
the Master Servicer shall have received notice of the foreclosure or proposed
foreclosure of any other lien on the Mortgaged Property, or (iv) as to which, in
the judgment of the Master Servicer, a payment default has occurred or is
imminent and is not likely to be cured by the borrower within [60] days, and
prior to acceleration of amounts due under the related Mortgage Note or
commencement of any foreclosure or similar proceedings, the Master Servicer will
transfer its servicing responsibilities to the Special Servicer, but will
continue to receive payments on such Mortgage Loan (including amounts collected
by the Special Servicer), to make certain calculations with respect to such
Mortgage Loan and to make remittances and prepare certain reports to the
Bondholders with respect to such Mortgage Loan. If the related Mortgaged
Property is acquired in respect of any such Mortgage Loan (upon acquisition, an
"REO Property"), whether through foreclosure, deed-in-lieu of foreclosure or
otherwise, the Special Servicer will continue to be responsible for the
operation and management thereof. The Mortgage
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Loans serviced by the Special Servicer are referred to herein as the "Specially
Serviced Mortgage Loans" and, together with any REO Properties, constitute the
"Specially Serviced Mortgage Assets". The Master Servicer shall have no
responsibility for the performance by the Special Servicer of its duties under
the Servicing Agreement.
If any Specially Serviced Mortgage Loan, in accordance with its
original terms or as modified in accordance with the Servicing Agreement,
becomes a performing Mortgage Loan for at least [90] days, the Special Servicer
will return servicing of such Mortgage Loan to the Master Servicer.
Set forth below, following the subsection captioned "-The Master
Servicer", is a description of certain pertinent provisions of the Servicing
Agreement relating to the servicing of the Mortgage Loans. Reference is also
made to the Prospectus, in particular to the section captioned "Servicing
Agreements", for important information in addition to that set forth herein
regarding the terms and conditions of the Servicing Agreement as they relate to
the rights and obligations of the Master Servicer thereunder.
The Master Servicer
[__________________________________, a ___________________, will act as
Master Servicer with respect to the Mortgage Pool. Founded in ____ as a
____________, the Master Servicer today furnishes a variety of wholesale banking
services. As of December 31, 19__, the Master Servicer had a net worth of
approximately $__________, and a total mortgage loan servicing portfolio of
approximately $___________, of which approximately $_____________ represented
multifamily mortgage loans.
The offices of the Master Servicer that will be primarily responsible
for servicing and administering the Mortgage Pool are located at
____________________________.
[If and to the extent available and relevant to an investment decision:
The following table sets forth the historical prepayment information with
respect to the Master Servicer's multifamily and commercial mortgage loan
servicing portfolio:
Prepayment Experience of Master Servicer's Multifamily and Commercial
Mortgage Loan Servicing Portfolio
[Table to include relevant information regarding the size of the Master
Servicer's multifamily and commercial mortgage loan servicing portfolio (by
number and/or balance) and the portion of such loans that was subject to
prepayment.]]
The information set forth herein concerning the Master Servicer has
been provided by the Master Servicer, and neither the Company nor the
Underwriter makes any representation or warranty as to the accuracy or
completeness of such information.
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The Special Servicer
[_______________________________, a ____________________, will be
responsible for the servicing and administration of the Specially Serviced
Mortgage Assets. As of December 31, 19___, the Special Servicer had a total
mortgage loan servicing portfolio of approximately $____________, of which
approximately $_____________ represented multifamily mortgage loans.
The Special Servicer has ___ offices in ___ states with a total staff
of ____ employees. Its principal executive offices are located at
_________________________.]
The information set forth herein concerning the Special Servicer has
been provided by the Special Servicer, and neither the Company nor the
Underwriter makes any representation or warranty as to the accuracy or
completeness of such information.
Servicing and Other Compensation and Payment of Expenses
The principal compensation to be paid to the Master Servicer in respect
of its master servicing activities will be the Master Servicing Fee. The "Master
Servicing Fee" will be payable monthly on a loan-by-loan basis from amounts
received in respect of interest on each Mortgage Loan, will accrue in accordance
with the terms of the related Mortgage Note at a rate equal to ________% per
annum, in the case of Mortgage Loans other than Specially Serviced Mortgage
Loans, and ____% per annum, in the case of Specially Serviced Mortgage Loans,
and will be computed on the basis of the same principal amount and for the same
period respecting which any related interest payment on the related Mortgage
Loan is computed. [As additional servicing compensation, the Master Servicer
will be entitled to retain all Prepayment Premiums, assumption and modification
fees, late charges and penalty interest and, as and to the extent described
below, Prepayment Interest Excesses collected from mortgagors. In addition, the
Master Servicer is authorized but not required to invest or direct the
investment of funds held in the Collection Account in Permitted Investments, and
the Master Servicer will be entitled to retain any interest or other income
earned on such funds.]
The principal compensation to be paid to the Special Servicer in
respect of its special servicing activities will consist of the Special
Servicing Fee (together with the Master Servicing Fee, the "Servicing Fees") and
the Workout Fee. Like the Master Servicing Fee, the "Special Servicing Fee" will
be payable monthly on a loan-by-loan basis from amounts received in respect of
interest on each Mortgage Loan, will accrue in accordance with the terms of the
related Mortgage Note at a rate equal to _____% per annum, in the case of
Mortgage Loans other than Specially Serviced Mortgage Loans, and ___% per annum,
in the case of Specially Serviced Mortgage Loans, and will be computed on the
basis of the same principal amount and for the same period respecting which any
related interest payment on the related Mortgage Loan is computed. The "Workout
Fee" will equal a specified percentage (varying from ____% to ____% (the
"Workout Fee Rate") depending on the related unpaid principal balance) of, and
will be payable
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from, all collections and proceeds received in respect of principal of each
Mortgage Loan which is or has been a Specially Serviced Mortgage Loan (including
those for which servicing has been returned to the Master Servicer); provided
that, in the case of Liquidation Proceeds, the otherwise fixed Workout Fee Rate
will be proportionately reduced to reflect the extent to which, if at all, the
principal portion of such Liquidation Proceeds is less than the unpaid principal
balance of the related Mortgage Loan immediately prior to the receipt thereof.
As additional servicing compensation, the Special Servicer will be entitled to
retain all assumption and modification fees received on Mortgage Loans serviced
thereby.
Although the Master Servicer and Special Servicer are each required to
service and administer the Mortgage Pool in accordance with the general
servicing standard described under "-General" above and, accordingly, without
regard to its right to receive compensation under the Servicing Agreement,
additional servicing compensation in the nature of assumption and modification
fees, Prepayment Premiums and Prepayment Interest Excesses may under certain
circumstances provide the Master Servicer or the Special Servicer, as the case
may be, with an economic disincentive to comply with such standard.
[If a borrower voluntarily prepays a Mortgage Loan in whole or in part
during any Due Period (as defined herein) on a date that is prior to its Due
Date in such Due Period, a Prepayment Interest Shortfall may result. If such a
principal prepayment occurs during any Due Period after the Due Date for such
Mortgage Loan in such Due Period, the amount of interest (net of related
Servicing Fees) that accrues on the amount of such principal prepayment may
exceed (such excess, a "Prepayment Interest Excess") the corresponding amount of
interest accruing on the Bonds. As to any Due Period, to the extent Prepayment
Interest Excesses collected for all Mortgage Loans are greater than Prepayment
Interest Shortfalls incurred, such excess will be paid to the Master Servicer as
additional servicing compensation.]
[As and to the extent described herein under "Description of the
Bonds-Advances", the Master Servicer will be entitled to receive interest on
Advances, and the Master Servicer and the Special Servicer will be entitled to
receive interest on reimbursable servicing expenses, such interest to be paid,
contemporaneously with the reimbursement of the related Advance or servicing
expense, out of any other collections on the Mortgage Loans.]
The Master Servicer generally will be required to pay all expenses
incurred by it in connection with its servicing activities under the Servicing
Agreement, and will not be entitled to reimbursement therefor except as
expressly provided in the Servicing Agreement. However, the Master Servicer will
be permitted to pay certain of such expenses directly out of the Collection
Account and at times without regard to the relationship between the expense and
the funds from which it is being paid. In connection therewith, the Master
Servicer will be responsible for all fees of any sub-servicers, other than
management fees earned in connection with the operation of an REO Property,
which management fees the Master Servicer will be authorized to pay out of
revenues received from such property (thereby reducing the portion of such
revenues that would otherwise be available for distribution to Bondholders). See
"Description of the Bonds-Distributions-Method, Timing and Amount" herein and
"Description of the
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Bonds-Collection Account" and "Servicing of Mortgage Loans-Servicing
Compensation and Payment of Expenses" in the Prospectus.
Modifications, Waivers and Amendments
The Master Servicer or the Special Servicer may, consistent with its
normal servicing practices, agree to modify, waive or amend any term of any
Mortgage Loan, without the consent of the Indenture Trustee or any Bondholder,
subject, however, to each of the following limitations, conditions and
restrictions:
(a) with limited exception, the Master Servicer and the Special
Servicer may not agree to any modification, waiver or amendment that
will (i) affect the amount or timing of any scheduled payments of
principal or interest on the Mortgage Loan or (ii) in its judgment,
materially impair the security for the Mortgage Loan or reduce the
likelihood of timely payment of amounts due thereon; unless, in any
such case, in the Master Servicer's or the Special Servicer's judgment,
as the case may be, a material default on the Mortgage Loan has
occurred or a payment default is reasonably foreseeable, and such
modification, waiver or amendment is reasonably likely to produce a
greater recovery with respect to the Mortgage Loan, taking into account
the time value of money, than would liquidation.
(b) [describe additional limitations to permitted modification
standards]
The Master Servicer and the Special Servicer will notify the Indenture
Trustee of any modification, waiver or amendment of any term of any Mortgage
Loan, and must deliver to the Indenture Trustee or the related Custodian, for
deposit in the related Mortgage File, an original counterpart of the agreement
related to such modification, waiver or amendment, promptly (and in any event
within [10] business days) following the execution thereof. Copies of each
agreement whereby any such modification, waiver or amendment of any term of any
Mortgage Loan is effected are to be available for review during normal business
hours at the offices of the [Indenture Trustee]. See "Description of the
Bonds-Reports to Bondholders; Certain Available Information" herein.
Inspections; Collection of Operating Information
The Special Servicer will perform physical inspections of each
Mortgaged Property at such times and in such manner as are consistent with the
Special Servicer's normal servicing procedures, but in any event (i) at least
once per calendar year, commencing in the calendar year _______, and (ii), if
any scheduled payment becomes more than 60 days delinquent on the related
Mortgage Loan, as soon as practicable thereafter. The Special Servicer will
prepare a written report of each such inspection describing the condition of the
Mortgaged Property and specifying the existence of any material vacancies in the
Mortgaged Property, of any sale, transfer or abandonment of the Mortgaged
Property, of any material change in the condition or value of the Mortgaged
Property, or of any waste committed thereon.
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With respect to each Mortgage Loan that requires the borrower to
deliver such statements, the Special Servicer is also required to collect and
review the annual operating statements of the related Mortgaged Property. [Most]
of the Mortgages obligate the related borrower to deliver annual property
operating statements. However, there can be no assurance that any operating
statements required to be delivered will in fact be delivered, nor is the
Special Servicer likely to have any practical means of compelling such delivery
in the case of an otherwise performing Mortgage Loan.
Copies of the inspection reports and operating statements referred to
above are to be available for review by Bondholders during normal business hours
at the offices of the [Indenture Trustee]. See "Description of the Bonds-Reports
to Bondholders; Certain Available Information" herein.
Additional Obligations of the Master Servicer with Respect to ARM Loans
The Master Servicer is responsible for calculating adjustments in the
Mortgage Rate and the Monthly Payment for each ARM Loan and for notifying the
related borrower of such adjustments. If the base index for any ARM Loan is not
published or is otherwise unavailable, then the Master Servicer is required to
select a comparable alternative index over which it has no direct control, that
is readily verifiable and that is acceptable under the terms of the related
Mortgage Note. If the Mortgage Rate or the Monthly Payment with respect to any
ARM Loan is not properly adjusted by the Master Servicer pursuant to the terms
of such Mortgage Loan and applicable law, the Master Servicer is required to
deposit in the Collection Account on or prior to the Due Date of the affected
Monthly Payment, an amount equal to the excess, if any, of (i) the amount that
would have been received from the borrower if the Mortgage Rate or Monthly
Payment had been properly adjusted, over (ii) the amount of such improperly
adjusted Monthly Payment, subject to reimbursement only out of such amounts as
are recovered from the borrower in respect of such excess.
DESCRIPTION OF THE INDENTURE
The following summary describes certain terms of the Indenture. The
summary does not purport to be complete and is subject to, and qualified in its
entirety by reference to, the provisions of the Indenture. Whenever particular
sections or defined terms of the Indenture are referred to, such sections or
defined terms are thereby incorporated herein by reference.
The Trust Fund
Simultaneously with the issuance of the Bonds, the Issuer will pledge
the Trust Fund to the Indenture Trustee as collateral for the Bonds.
Reports To Holders
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The Indenture Trustee will mail to each Holder of Bonds, at its address
listed on the Security Register maintained with the Indenture Trustee a report
setting forth certain amounts relating to the Bonds for each Payment Date, among
other things:
(i) the amount of principal, if any, payable on such Payment Date
to Bondholders separately stating the portion thereof in respect of Liquidation
Loss Amounts and Additional Principal Distribution Amount and stating the amount
of any remaining Liquidation Loss Amounts;
(ii) the amount of interest payable on such Payment Date to
Bondholders separately stating the portion thereof in respect of overdue accrued
interest and stating the amount of remaining overdue accrued interest;
(iii) the Bond Principal Balance of the Bonds after giving effect
to the payment of principal on such Payment Date;
(iv) P&I Collections for the related Collection Period;
(v) the aggregate Principal Balance of the Mortgage Loans as of
last day of the related Collection Period; and
(vi) the Outstanding Reserve Amount after giving effect to the
payment of principal on the Bonds on such Payment Date.
In the case of information furnished pursuant to clauses (i) and (ii)
above, the amounts shall be expressed as a dollar amount per $1,000 in face
amount of Bonds.
Certain Covenants
The Indenture will provide that the Issuer may not consolidate with or
merge into any other entity, unless (i) the entity formed by or surviving such
consolidation or merger is organized under the laws of the United States, any
state or the District of Columbia, (ii) such entity expressly assumes the
Issuer's obligation to make due and punctual payments upon the Bonds and the
performance or observance of any agreement and covenant of the Issuer under the
Indenture, (iii) no Event of Default shall have occurred and be continuing
immediately after such merger or consolidation, (iv) the Issuer has been advised
that the ratings of the Bonds then in effect would not be reduced or withdrawn
by any Rating Agency as a result of such merger or consolidation, (v) any action
that is necessary to maintain the lien and security interest created by the
Indenture is taken and (vi) the Issuer has received an Opinion of Counsel to the
effect that such consolidation or merger would have no material adverse tax
consequence to the Issuer or to any Bondholder or Certificateholder. The Issuer
will not, among other things, (i) except as expressly permitted by the
Indenture, sell, transfer, exchange or otherwise dispose of any of the assets of
the Issuer, (ii) claim any credit on or make any deduction from the principal
and interest payable in respect of the Bonds (other than amounts withheld under
the Code or applicable state law) or assert any claim
S-51
<PAGE>
against any present or former holder of Bonds because of the payment of taxes
levied or assessed upon the Issuer, (iii) permit the validity or effectiveness
of the Indenture to be impaired or permit any person to be released from any
covenants or obligations with respect to the Bonds under the Indenture except as
may be expressly permitted thereby or (iv) permit any lien, charge excise,
claim, security interest, mortgage or other encumbrance to be created on or
extend to or otherwise arise upon or burden the assets of the Issuer or any part
thereof, or any interest therein or the proceeds thereof. The Issuer may not
engage in any activity other than as specified under "The Issuer" herein.
Modification of Indenture
With the consent of both the holders of a majority of the outstanding
Bonds and the Insurer, the Issuer and the Indenture Trustee may execute a
supplemental indenture to add provisions to, change in any manner or eliminate
any provisions of, the Indenture, or modify (except as provided below) in any
manner the rights of the Bondholders. Without the consent of the holder of each
outstanding Bond affected thereby, however, no supplemental indenture will: (i)
change the due date of any installment of principal of or interest on any Bond
or reduce the principal amount thereof, the interest rate specified thereon or
the redemption price with respect thereto or change any place of payment where
or the coin or currency in which any Bond or any interest thereon is payable;
(ii) impair the right to institute suit for the enforcement of certain
provisions of the Indenture regarding payment; (iii) reduce the percentage of
the aggregate amount of the outstanding Bonds, the consent of the holders of
which is required for any supplemental indenture or the consent of the holders
of which is required for any waiver of compliance with certain provisions of the
Indenture or of certain defaults thereunder and their consequences as provided
for in the Indenture; (iv) modify or alter the provisions of the Indenture
regarding the voting of Bonds held by the Issuer, the Company or an affiliate of
any of them; (v) decrease the percentage of the aggregate principal amount of
Bonds required to amend the sections of the Indenture which specify the
applicable percentage of aggregate principal amount of the Bonds necessary to
amend the Indenture or certain other related agreements; (vi) modify any of the
provisions of the Indenture in such manner as to affect the calculation of the
amount of any payment of interest of principal due on any Bond (including the
calculation of any of the individual components of such calculation); or (vii)
permit the creation of any lien ranking prior to or, except as otherwise
contemplated by the Indenture, on a parity with the lien of the Indenture with
respect to any of the collateral for the Bonds or, except as otherwise permitted
or contemplated in the Indenture, terminate the lien of the Indenture on any
such collateral or deprive the holder of any Bond of the security afforded by
the lien of the Indenture.
The Issuer and the Indenture Trustee may also enter into supplemental
indentures, with the consent of the Insurer and without obtaining the consent of
the Bondholders, for the purpose of, among other things, to cure any ambiguity
or to correct or supplement any provision in the Indenture that may be
inconsistent with any other provision therein.
Certain Matters Regarding the Indenture Trustee and the Issuer
S-52
<PAGE>
Neither the Issuer, the Indenture Trustee nor any director, officer or
employee of the Issuer or the Indenture Trustee will be under any liability to
the Issuer or the related Bondholders for any action taken or for refraining
from the taking of any action in good faith pursuant to the Indenture or for
errors in judgment; provided, however, that none of the Indenture Trustee, the
Issuer and any director, officer or employee thereof will be protected against
any liability which would otherwise be imposed by reason of willful malfeasance,
bad faith or negligence in the performance of duties or by reason of reckless
disregard of obligations and duties under the Indenture. Subject to certain
limitations set forth in the Indenture, the Indenture Trustee and any director,
officer, employee or agent of the Indenture Trustee shall be indemnified by the
Issuer and held harmless against any loss, liability or expense incurred in
connection with investigating, preparing to defend or defending any legal
action, commenced or threatened, relating to the Indenture other than any loss,
liability or expense incurred by reason of willful malfeasance, bad faith or
negligence in the performance of its duties under such Indenture or by reason of
reckless disregard of its obligations and duties under the Indenture. All
persons into which the Indenture Trustee may be merged or with which it may be
consolidated or any person resulting from such merger or consolidation shall be
the successor of the Indenture Trustee under each Indenture.
FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, the Bonds [will][will not] be treated
as having been issued with "original issue discount" (as defined in the
Prospectus). See "Federal Income Tax Consequences" in the Prospectus. The
prepayment assumption that will be used in determining the rate of accrual of
original issue discount, market discount and premium, if any, for federal income
tax purposes will be [ ]% [ ]. No representation is made that the Mortgage Loans
will prepay at that rate or any other rate.
The Bonds will not be treated as "qualifying real property loans" under
Section 593 (d) of the Code, assets described in Section 7701(a)(19)(C) of the
Code and "real estate assets" under Section 856(c)(5)(A) of the Code. In
addition, interest on the Bonds will not be treated as "interest on obligations
secured by mortgages on real property" under Section 856(c)(3)(B) of the Code.
The Bonds will also not be treated as "qualified mortgages" under Section
860G(a)(3)(C) of the Code.
Prospective investors in the Bonds should see "Federal Income Tax
Consequences" and "State and Other Tax Consequences" in the Prospectus for a
discussion of the application of certain federal income and state and local tax
laws to the Issuer and purchasers of the Bonds.
ERISA CONSIDERATIONS
Any fiduciary or other investor of Plan assets that proposes to acquire
or hold the Bonds on behalf of or with Plan assets of any Plan should consult
with its counsel with respect to the potential applicability of the fiduciary
responsibility provisions of ERISA and the prohibited transaction provisions of
ERISA and the Code to the proposed investment. See "ERISA Considerations" in the
Prospectus.
S-53
<PAGE>
LEGAL INVESTMENT
The Bonds will constitute "mortgage related securities" for purposes of
SMMEA so long as they are rated in the highest two rating categories by a Rating
Agency. See "Legal Investment" in the Prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company has agreed to sell to the Underwriter, and the
Underwriter has agreed to purchase from the Company, the Bonds.
The Bonds will be purchased from the Company by the Underwriter and
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
sale. The proceeds to the Company from the sale of the Bonds are expected to be
approximately $___________, before the deduction of expenses payable by the
Company estimated to be approximately $_______. The Underwriter may effect such
transactions by selling the Bonds to or through dealers, and such dealers may
receive compensation in the form of underwriting discounts, concessions or
commissions from the Underwriter. In connection with the sale of the Bonds, the
Underwriter may be deemed to have received compensation from the Company in the
form of underwriting compensation. The Underwriter and any dealers that
participate with the Underwriter in the distribution of the Bonds may be deemed
to be underwriters and any profit on the resale of the Bonds positioned by them
may be deemed to be underwriting discounts and commissions under the Securities
Act of 1933.
The Company has been advised by the Underwriter that it presently
intends to make a market in the Bonds offered hereby; however, it is not
obligated to do so, any market-making may be discontinued at any time, and there
can be no assurance that an active public market for the Bonds will develop.
The Underwriting Agreement provides that the Company will indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, or contribute payments the Underwriter may be required
to make in respect thereof.
LEGAL MATTERS
Certain legal matters with respect to the Bonds will be passed upon for
the Company by [Thacher Proffitt & Wood], New York, New York and for the
Underwriter by ________________, New York, New York.
RATINGS
It is a condition to issuance that the Bonds be rated "___" by
_______________ and "___" by ___________________. The Company has not requested
a rating on the Bonds by any rating
S-54
<PAGE>
agency other than _______________ and _______________. However, there can be no
assurance as to whether any other rating agency will rate the Bonds, or, if it
does, what rating would be assigned by any such other rating agency. A rating on
the Bonds by another rating agency, if assigned at all, may be lower than the
ratings assigned to the Bonds by ___________ and ___________________________. A
securities rating addresses the likelihood of the receipt by holders of Bonds of
distributions on the Mortgage Loans. The rating takes into consideration the
structural, legal and tax aspects associated with the Bonds. The ratings on the
Bonds do not, however, constitute statements regarding the possibility that
Holders might realize a lower than anticipated yield. A securities rating is not
a recommendation to buy, sell or hold securities and may be subject to revision
or withdrawal at any time by the assigning rating organization. Each securities
rating should be evaluated independently of similar ratings on different
securities.
S-55
<PAGE>
================================================================================
No dealer, salesman or other person has been authorized to give any
information or to make any representations not contained in this Prospectus
Supplement and the Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or by the Underwriter. This Prospectus Supplement and the Prospectus do not
constitute an offer to sell, or a solicitation of an offer to buy, the
securities offered hereby to anyone in any jurisdiction in which the person
making such offer or solicitation is not qualified to do so or to anyone to whom
it is unlawful to make any such offer or solicitation. Neither the delivery of
this Prospectus Supplement and the Prospectus nor any sale made hereunder shall,
under any circumstances, create an implication that information herein or
therein is correct as of any time since the date of this Prospectus Supplement
or the Prospectus.
________________
TABLE OF CONTENTS
[To be updated] Page
----
Prospectus Supplement
Summary............................................................. S-
Risk Factors........................................................ S-
Description of the Mortgage Pool.................................... S-
Servicing of the Mortgage Loans..................................... S-
The Issuer.......................................................... S-
The Owner Trustee................................................... S-
Description of the Bonds............................................ S-
Assignment to the Issuer............................................ S-
Description of the Servicing
Agreement...................................................... S-
Description of the Indenture........................................ S-
Federal Income Tax Consequences..................................... S-
ERISA Considerations................................................ S-
Legal Investment.................................................... S-
Method of Distribution.............................................. S-
Legal Matters....................................................... S-
Ratings............................................................. S-
Prospectus
Summary of Prospectus .............................................
Risk Factors.......................................................
The Mortgage Pools.................................................
Servicing of Mortgage Loans........................................
Description of Credit Enhancement..................................
Purchase Obligations...............................................
Primary Mortgage Insurance, Hazard
Insurance; Claims Thereunder.....................................
The Company........................................................
ICI Funding Corporation............................................
The Agreements.....................................................
Yield Considerations...............................................
Maturity and Prepayment Considerations.............................
Certain Legal Aspects of Mortgage Loans............................
Federal Income Tax Consequences....................................
State and Other Tax Consequences...................................
ERISA Considerations...............................................
Legal Investment Matters ..........................................
Use of Proceeds....................................................
Methods of Distribution............................................
Legal Matters......................................................
Financial Information..............................................
Rating.............................................................
Index of Principal Definitions.....................................
================================================================================
<PAGE>
================================================================================
IMH Assets Corp.
Impac CMB Trust
19__-__
$________________
Collateralized
Mortgage Bonds
Series 199__-__
___________________
PROSPECTUS SUPPLEMENT
___________________
______________________________________
_________, 19__
[UNDERWRITER]
================================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This preliminary prospectus supplement shall not constitute an offer
to sell or the solicitation of an offer to buy nor shall there be any sale of
these securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such State.
VERSION 3
---------
Subject to Completion Dated August 5, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED __________, 19__)
$_________________
IMH ASSETS CORP.
DEPOSITOR
IMPAC CMB TRUST 19__-___
[NAME OF MASTER SERVICER]
MASTER SERVICER
HOME EQUITY LOAN-BACKED TERM NOTES, SERIES 19__-___
The Impac CMB Trust 19__-__ (the "ISSUER" or the "TRUST") will be formed
pursuant to a Trust Agreement dated as of ___________, 19__ (the "TRUST
AGREEMENT") between IMH Assets Corp. (the "DEPOSITOR" or the "COMPANY") and
______________, the Owner Trustee. The Issuer will issue $___________ aggregate
principal amount of Home Equity Loan- Backed Term Notes, Series 19__-__ (the
"TERM NOTES"). The Term Notes will be issued pursuant to an Indenture to be
dated as of __________, 19__ (the "INDENTURE"), between the Issuer and
_____________, the Indenture Trustee. Pursuant to the Indenture, the Issuer will
also issue an aggregate amount up to the Maximum Variable Funding Balance (as
defined herein) of Home Equity Loan-Backed Variable Funding Notes, Series
19__-__ (the "VARIABLE FUNDING NOTES"). In addition, pursuant to the Trust
Agreement, the Issuer will issue Home Equity Loan-Backed Certificates, Series
19__-__ (the "CERTIFICATES"). The Term Notes and the Variable Funding Notes will
have equal payment priorities and are collectively referred to herein as the
"NOTES" and the Notes and the Certificates are collectively referred to herein
as the "Securities." Only the Term Notes are offered hereby.
The Term Notes will be secured by certain adjustable rate home equity revolving
credit loans made or to be made in the future (the "REVOLVING CREDIT LOANS")
secured by first or second deeds of trust or mortgages on residential properties
that are one- to four-family properties. In addition, the Notes will have the
benefit of an irrevocable and unconditional financial guaranty insurance policy
(the "POLICY") issued by _____________ (the "CREDIT ENHANCER") as described
under "Description of the Policy" herein.
[LOGO]
Payments of principal and interest on the Term Notes will be made on the 20th
day of each month or, if such day is not a business day, then on the next
business day, commencing in ______ 19__ (each, a "PAYMENT DATE"). Interest will
accrue on the Term Notes at a floating rate (the "NOTE RATE") during each
Interest Period, as described herein. See "Description of the
Securities--Interest Payments on the Notes" herein.
(Continued on following page)
______________________
THE TERM NOTES REPRESENT OBLIGATIONS OF THE TRUST ONLY AND DO NOT REPRESENT AN
INTEREST IN OR OBLIGATION OF THE DEPOSITOR, THE MASTER SERVICER, [NAME OF
INITIAL SUBSERVICER] OR ANY OF THEIR RESPECTIVE AFFILIATES. NONE OF THE TERM
NOTES OR THE
<PAGE>
UNDERLYING REVOLVING CREDIT LOANS ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL
AGENCY OR INSTRUMENTALITY OR BY THE DEPOSITOR, THE MASTER SERVICER, [NAME OF
INITIAL SUBSERVICER] OR ANY OF THEIR RESPECTIVE AFFILIATES.
______________________
THESE TERM NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
______________________
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
______________________
FOR A DISCUSSION OF SIGNIFICANT MATTERS AFFECTING INVESTMENTS IN THE TERM NOTES,
SEE "RISK FACTORS" COMMENCING ON PAGE S-13 HEREIN AND "RISK FACTORS" IN THE
PROSPECTUS COMMENCING ON PAGE 9.
There is currently no secondary market for the Term Notes. ____________
(the "UNDERWRITER") intends to make a secondary market in the Term Notes, but is
not obligated to do so. There can be no assurance that a secondary market for
the Term Notes will develop or, if it does develop, that it will continue. The
Term Notes will not be listed on any securities exchange.
The Term Notes will be purchased from the Company by the Underwriter
and will be offered by the Underwriter(s) from time to time to the public in
negotiated transactions or otherwise at varying prices to be determined at the
time of sale. The proceeds to the Company from the sale of the Term Notes,
before deducting expenses payable by the Company, will be equal to approximately
% of the initial aggregate principal balance of the Term Notes. The Term Notes
are offered by the Underwriters subject to prior sale, when, as and if delivered
to and accepted by the Underwriters and subject to certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject any order in whole or in part. It is expected that delivery of the Term
Notes will be made only in book-entry form through DTC, Cedel and Euroclear
(each as defined herein) as discussed herein, on or about ____________, 19__,
against payment therefor in immediately available funds.
[Name of Underwriter]
[Date of Prospectus Supplement]
S-2
<PAGE>
(Continued from previous page)
It is a condition of the issuance of the Term Notes that they be rated "Aaa" by
Moody's Investors Service, Inc. ("MOODY'S") and "AAA" by Standard & Poor's
Ratings Services ("STANDARD & POOR'S").
The yield to maturity on the Term Notes will depend on the rate and timing of
principal payments (including payments in excess of required installments,
prepayments in full or terminations, liquidations and repurchases) and the rate
and timing of Draws (as defined herein) on the Revolving Credit Loans. The
Revolving Credit Loans generally may be prepaid at any time without penalty. In
addition, the yield to investors on the Term Notes may also be adversely
affected to the extent of any Interest Shortfalls (as defined herein). See
"Certain Yield and Prepayment Considerations" herein and "Yield and Prepayment
Considerations" in the Prospectus.
THE TERM NOTES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE PART OF A
SEPARATE SERIES OF SECURITIES BEING OFFERED PURSUANT TO THE DEPOSITOR'S
PROSPECTUS DATED _________, 19__, OF WHICH THIS PROSPECTUS SUPPLEMENT IS A PART
AND WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE PROSPECTUS CONTAINS
IMPORTANT INFORMATION REGARDING THIS OFFERING WHICH IS NOT CONTAINED HEREIN, AND
PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS AND THIS PROSPECTUS
SUPPLEMENT IN FULL. SALES OF THE TERM NOTES MAY NOT BE CONSUMMATED UNLESS THE
PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
______________________
UNTIL NINETY DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE TERM NOTES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS TO WHICH IT RELATES. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
______________________
S-3
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
DEPOSITOR OR BY THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
DO NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
SECURITIES OFFERED HEREBY TO ANYONE IN ANY JURISDICTION IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM
IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT INFORMATION HEREIN OR
THEREIN IS CORRECT AS OF ANY TIME SINCE THE DATE OF THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS.
TABLE OF CONTENTS
Page
----
PROSPECTUS SUPPLEMENT
Summary.................................................................. S-6
Risk Factors............................................................. S-13
Description of the Mortgage Pool......................................... S-15
Servicing of Revolving Credit Loans...................................... S-26
The Issuer............................................................... S-28
The Owner Trustee........................................................ S-28
The Indenture Trustee ................................................... S-29
The Credit Enhancer...................................................... S-29
Description of the Securities............................................ S-29
Description of the Policy................................................ S-37
Certain Yield and Prepayment Considerations.............................. S-38
Description of the Purchase Agreement.................................... S-40
Description of the Servicing Agreement................................... S-41
Description of the Trust Agreement and Indenture......................... S-43
Certain Federal Income Tax Consequences.................................. S-45
Erisa Considerations..................................................... S-45
Legal Investment......................................................... S-45
Method of Distribution................................................... S-45
Experts.................................................................. S-46
Legal Matters............................................................ S-46
Ratings.................................................................. S-47
PROSPECTUS
Additional Information................................................... 2
Reports to Noteholders................................................... 2
Incorporation of Certain Information by Reference........................ 2
Summary of Prospectus.................................................... 4
Risk Factors............................................................. 9
The Pools................................................................ 16
Trust Asset Program...................................................... 21
Description of the Notes................................................. 27
Description of Credit Enhancement........................................ 38
Description of FHA Insurance Under Title I .............................. 42
The Company.............................................................. 44
Residential Funding Corporation.......................................... 44
Servicing of Trust Assets................................................ 44
S-4
<PAGE>
The Agreements........................................................... 50
Yield and Prepayment Considerations...................................... 53
Certain Legal Aspects of the Trust Assets and Related Matters............ 58
Certain Federal Income Tax Consequences.................................. 75
State and Other Tax Consequences......................................... 81
ERISA Considerations..................................................... 81
Legal Investment Matters................................................. 84
Use of Proceeds.......................................................... 85
Methods of Distribution.................................................. 85
Legal Matters............................................................ 86
Financial Information.................................................... 86
Index of Principal Definitions........................................... 87
S-5
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to the detailed
information appearing elsewhere herein and in the Prospectus. Capitalized terms
used herein and not otherwise defined herein have the meanings assigned
in the Prospectus.
Issuer............................. The Term Notes will be issued by Impac CMB
Trust 19__-__, a Delaware business trust
established pursuant to the Trust
Agreement, dated as of ________,19__
between the Depositor and the Owner
Trustee. The assets of the Issuer will
consist of the Revolving Credit Loans (as
defined herein) and certain related
assets.
The Term Notes..................... $____________ Home Equity Loan-Backed Term
Notes, Series 19__-__, are offered hereby.
The Term Notes will be issued pursuant to
an Indenture, dated as of ___________,19__
between the Issuer and the Indenture
Trustee.
Depositor.......................... IMH Assets Corp. (the "DEPOSITOR" or the
"COMPANY"). See "The Company" in the
Prospectus.
Master Servicer.................... [Name of Master Servicer] (the "MASTER
SERVICER"). See "[Name of Master
Servicer]" in the Prospectus.
Owner Trustee...................... ______________________.
Indenture Trustee.................. ______________________.
Closing Date....................... On or about ____________, 19__.
Payment Date....................... The 20th day of each month (or, if such
day is not a business day, the next
business day), commencing in ____________
19__ (each, a "PAYMENT DATE").
Denominations and Registration..... The Term Notes will be issued in minimum
denominations of $__________ and integral
multiples of $_____________ in excess
thereof. The Term Notes will initially be
issued in book-entry form. Persons
acquiring beneficial ownership interests
in the Term Notes ("TERM NOTE OWNERS") may
elect to hold their Term Notes through
DTC, in the United States, or Cedel or
Euroclear, in Europe. Transfers within
DTC, Cedel or Euroclear, as the case may
be, will be in accordance with the usual
rules and operating procedures of the
relevant system. No Term Note Owner will
be entitled to receive a physical
certificate representing such person's
interest, except in the event that
Definitive Term Notes (as defined herein)
are issued under the limited circumstances
described herein. All references in this
Prospectus Supplement to any Term Notes
reflect the rights of Term Note Owners
only as such rights may be exercised
through DTC and its participating
organizations for so long as such Term
Notes are Book-Entry Notes. See
"Description of the Securities--Book-Entry
Notes"
S-6
<PAGE>
herein and "Description of the Notes--Form
of Notes" in the Prospectus.
The Mortgage Pool.................. The Mortgage Pool will consist of a pool
of Revolving Credit Loans acquired by IMH
Assets Corp. pursuant to its Home Equity
Program, originated pursuant to Credit
Line Agreements and secured by Mortgaged
Properties. ___% of the Revolving Credit
Loans (by Cut-off Date Balance) are
secured by second mortgages or deeds of
trust and the remainder are secured by
first mortgages or deeds of trust. The
Mortgage Pool will include the unpaid
principal balance of the Revolving Credit
Loans as of the close of business on the
business day prior to ______, 19__ (the
"CUT-OFF DATE BALANCE," and _______, 19__,
the "CUT-OFF DATE") and any additions
thereto as a result of new advances of
money made pursuant to the applicable
Credit Line Agreement after such day (the
"ADDITIONAL BALANCES" or "DRAWS") except
as otherwise provided herein. With respect
to any date, the "POOL BALANCE" will be
equal to the aggregate of the Principal
Balances of all Revolving Credit Loans as
of such date. The "PRINCIPAL BALANCE" of a
Revolving Credit Loan (other than a
Liquidated Revolving Credit Loan) on any
day is equal to its Cut-off Date Balance,
plus (i) any Additional Balances in
respect of such Revolving Credit Loan
conveyed to the Trust as of such day,
minus (ii) all collections credited
against the Principal Balance of such
Revolving Credit Loan in accordance with
the related Credit Line Agreement since
the Cut-off Date. The Principal Balance of
a Liquidated Revolving Credit Loan after
the final recovery of related Liquidation
Proceeds shall be zero.
The Cut-off Date Balance of the Revolving
Credit Loans will be $____________. The
Combined Loan-to-Value Ratio (as defined
herein) for these Revolving Credit Loans
ranged from ___% to ___% and the weighted
average Combined Loan-to-Value Ratio based
on the Credit Limits of the Revolving
Credit Loans will be ___% as of the
Cut-off Date. The Junior Ratios for the
Revolving Credit Loans ranged from % to %,
and the weighted average Junior Ratio will
be ___%, as of the Cut-off Date. The
weighted average Credit Limit Utilization
Rate based on the Credit Limits of the
Revolving Credit Loans will be ___% as of
the Cut-off Date. The Principal Balances
of the Revolving Credit Loans as of the
Cut-off Date ranged from $_____ to $_____
and averaged $______. Credit Limits under
the Revolving Credit Loans as of the
Cut-off Date ranged from $_____ to $_____
and averaged $_______. Each Revolving
Credit Loan was originated in the period
from _______ 19__ to _________ 19__. With
respect to ____% of the Revolving Credit
Loans (by Cut-off Date Balance), the
related Mortgaged Properties will be
located in California. For a further
description of the Revolving Credit Loans,
see "Description of the Mortgage Pool"
herein.
S-7
<PAGE>
Interest Payments.................. Interest on the Notes will be paid monthly
on each Payment Date, commencing in
_____________, at the Note Rate for the
related Interest Period (as defined
below), subject to the limitations set
forth below which may result in Interest
Shortfalls (as described below). The Note
Rate for each Interest Period will be a
floating rate equal to the lesser of (i)
LIBOR plus ___% per annum and (ii) ____%
per annum. However, on any Payment Date on
which interest accrued on the Notes during
the related Interest Period exceeds an
amount equal to one-twelfth of the product
of (a) the aggregate Principal Balance of
the Revolving Credit Loans multiplied by
(b) the Net Loan Rate Cap (as defined
herein), the amount of such difference
(any such amount, an "INTEREST SHORTFALL")
will not be included as interest payments
on the Notes for such Payment Date and
such amount will accrue interest at the
Note Rate on the Notes (as adjusted from
time to time) and will be paid on future
Payment Dates only to the extent funds are
available therefor as set forth herein
under "Description of the
Securities--Allocation of Payments on the
Revolving Credit Loans." Interest
Shortfalls will not be covered by the
Policy and may remain unpaid on the final
Payment Date. Interest on the Notes in
respect of any Payment Date will accrue
from the preceding Payment Date (or in the
case of the first Payment Date, from the
date of initial issuance of the Notes (the
"CLOSING DATE") through the day preceding
such Payment Date (each such period, an
"INTEREST PERIOD")) on the basis of the
actual number of days in the Interest
Period and a 360-day year.
Principal Payments.................
On each Payment Date, other than the
Payment Date in _________, principal
payments will be due and payable on the
Notes in an aggregate amount (the
"PRINCIPAL COLLECTION DISTRIBUTION
AMOUNT") equal to either (i) Net Principal
Collections (as defined herein) for such
Payment Date, so long as no Amortization
Event (as defined herein) has occurred and
such Payment Date is during the Revolving
Period (as defined herein), or (ii)
Principal Collections (as defined herein)
for such Payment Date, if an Amortization
Event has occurred or if such Payment Date
is after the end of the Revolving Period.
In addition, on any Payment Date, to the
extent of funds available therefor,
Noteholders will also be entitled to
receive principal payments in an aggregate
amount generally equal to (i) Liquidation
Loss Distribution Amounts (as defined
herein), as and to the extent described
herein, and (ii) the amount, if any,
necessary to reduce the
Undercollateralization Amount (as defined
herein) to zero and then to bring the
Outstanding Reserve Amount up to the
Reserve Amount Target. On the Insured
Undercollateralization Payment Date (as
defined herein), Noteholders will be
entitled to receive an additional
principal payment equal to the then
applicable Undercollateralization Amount,
if any. On each Payment Date, the
aggregate amount payable in respect of
principal on the Notes will be allocated
to the Term Notes and Variable Funding
Notes on a pro rata basis based on the
outstanding Security Balances (as
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<PAGE>
defined herein) thereof until paid in
full. In no event will principal payments
on the Notes on any Payment Date exceed
the Security Balance thereof on such date.
On the Payment Date in ________, principal
will be due and payable on the Notes in an
amount equal to the Security Balance
remaining outstanding on such Payment
Date.
Allocation of Payments
on the Revolving Credit Loans ... All collections on the Revolving Credit
Loans will be allocated by the Master
Servicer in accordance with the terms of
the Credit Line Agreements between amounts
collected in respect of interest and
amounts collected in respect of principal.
See "Description of the Servicing
Agreement--Allocation of Payments on the
Revolving Credit Loans" herein, which
describes the calculation of the Interest
Collections and the Principal Collections
on the Revolving Credit Loans for the
Collection Period related to each Payment
Date. These amounts are calculated
exclusive of the pro rata portion of
collections attributable to Additional
Balances not conveyed to the Trust
following an Amortization Event. With
respect to any Payment Date, the portion
of Principal Collections and Interest
Collections that are distributable
pursuant to the Servicing Agreement
(together, the "P&I COLLECTIONS") will
equal (a) Interest Collections for such
Payment Date and (b) either (1) at any
time during the Revolving Period, so long
as an Amortization Event has not occurred,
the Net Principal Collections for such
Payment Date, or (2) at any time after the
end of the Revolving Period, or if an
Amortization Event has occurred, Principal
Collections for such Payment Date.
The Security Balances of the Variable
Funding Notes (as described herein) will
be increased from time to time during the
Revolving Period (so long as an
Amortization Event has not occurred) in
consideration for Additional Balances sold
to the Trust, if Principal Collections are
insufficient or unavailable to cover the
related Draws, up to the Maximum Variable
Funding Balance.
Upon the occurrence of an Amortization
Event or after the end of the Revolving
Period, Principal Collections for a
Collection Period will no longer be
applied to acquire Additional Balances
during such Collection Period. On any
Payment Date after the end of the
Revolving Period, so long as an
Amortization Event has not occurred, the
acquisition of all Additional Balances
will be reflected by an increase in the
Security Balance of the Variable Funding
Notes, up to the Maximum Variable Funding
Balance at such time, and all Principal
Collections will be paid to the
then-outstanding Securities. Upon the
occurrence of an Amortization Event, no
new Additional Balances will be acquired
by the Trust. The "REVOLVING PERIOD" is
the period commencing on the Closing Date
and ending on ____________. See
"Description of the
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<PAGE>
Securities--Allocation of Payments on the
Revolving Credit Loans" for a description
of "Amortization Events."
Credit Enhancement................. The Credit Enhancement provided for the
benefit of the Noteholders consists of (a)
the Liquidation Loss Distribution Amounts,
(b) the Outstanding Reserve Amount and (c)
the Policy, each as described below.
LIQUIDATION LOSS DISTRIBUTION AMOUNTS:
Holders of the Notes will be protected
against Liquidation Loss Amounts (other
than Excess Loss Amounts (as defined
herein)) as a result of the preferential
allocation to the Notes of the Liquidation
Loss Distribution Amount (representing
excess interest collections, if
available), as described herein which will
be used to make corresponding payments on
the Notes and distributions on the
Certificates.
OUTSTANDING RESERVE AMOUNT: After the
Undercollateralization Amount has been
reduced to zero, the Outstanding Reserve
Amount will be created by distributions of
the Reserve Increase Amount (as defined
herein), if any, to the Notes. The
Outstanding Reserve Amount, if any, will
represent overcollateralization which will
be available to absorb any Liquidation
Loss Amounts (other than Excess Loss
Amounts) that are not covered by
Liquidation Loss Distribution Amounts. Any
Liquidation Loss Amounts not so covered by
a Liquidation Loss Distribution Amount or
the Outstanding Reserve Amount will be
covered by draws on the Policy to the
extent provided herein. The "OUTSTANDING
RESERVE AMOUNT" available on any Payment
Date is the amount, if any, by which the
Pool Balance as of the end of the related
Collection Period exceeds the aggregate
Security Balance of the Notes on such
Payment Date (after application of Net
Principal Collections or Principal
Collections, as the case may be, for such
date).
As of the Closing Date, the aggregate
Security Balance of the Notes will exceed
the Cut-off Date Balance of the Mortgage
Loans by $________ (approximately ____% of
the Cut-off Date Balance) (such excess at
any time, the "UNDERCOLLATERALIZATION
AMOUNT"), representing an initial
undercollateralization of the Notes in
relationship to the Mortgage Loans. On
each Payment Date, the Reserve Increase
Amount will be used first, to eliminate
this initial undercollateralization by
reducing the aggregate Security Balance of
the Notes to the Pool Balance as of the
end of the related Collection Period, and
then to increase the Outstanding Reserve
Amount until such amount is equal to the
Reserve Amount Target.
As of the Closing Date, the Reserve Amount
Target is equal to ____% of the Cut-off
Date Balance. The Reserve Amount Target
may decrease from time to time pursuant to
the terms of the Indenture based on
specified trigger tests, as further
described
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<PAGE>
herein. See "Description of the
Securities-Allocation of Payments on the
Revolving Credit Loans" herein. To the
extent the Reserve Amount Target decreases
on any Payment Date, the amount of the
Principal Collection Distribution Amount
will be reduced on such Payment Date and
on each subsequent Payment Date to the
extent the remaining Outstanding Reserve
Amount is in excess of the reduced Reserve
Amount Target until the Outstanding
Reserve Amount equals the Reserve Amount
Target.
POLICY: On the Closing Date, the Credit
Enhancer will issue a Policy in favor of
the Owner Trustee on behalf of the Issuer.
The Policy will unconditionally and
irrevocably guarantee interest on the
Notes at the Note Rate (exclusive of any
Interest Shortfalls) plus any Liquidation
Loss Amounts allocated to the Notes. On
each Payment Date, a draw will be made on
the Policy to cover (a) any shortfall in
amounts available to make payments of
interest on the Notes at the Note Rate,
(b) any Liquidation Loss Amount (other
than any Excess Loss Amount) to the extent
not currently covered by Liquidation Loss
Distribution Amounts or a reduction in the
Outstanding Reserve Amount and (c) any
Excess Loss Amounts. Interest Shortfalls
will not be covered by the Policy. In
addition, on the date (the "INSURED
UNDERCOLLATERALIZATION PAYMENT DATE")
which is the earlier of (i) the twelfth
Payment Date and (ii) the Payment Date
immediately following the optional
redemption of the Notes by the Master
Servicer as described herein, a draw will
be made on the Policy to cover the then
applicable Undercollateralization Amount,
if any. See "Description of the Policy"
herein and "Description of Credit
Enhancement" in the Prospectus.
Credit Enhancer.................... [Name of Credit Enhancer]. See "The Credit
Enhancer" herein.
The Variable Funding Notes......... Home Equity Loan-Backed Variable Funding
Notes, Series 19__-__, which are not
offered hereby. The Variable Funding Notes
will be issued pursuant to the Indenture.
The Variable Funding Notes will have the
same interest rate and will be paid in the
same manner as the Term Notes. As of the
Closing Date, the Security Balance of the
Variable Funding Notes will be zero. See
"Description of the Securities-General."
The Certificates................... Home Equity Loan-Backed Certificates,
Series 19__-__, which are not offered
hereby. The Certificates will be issued
pursuant to the Trust Agreement and will
represent the beneficial ownership
interest in the Trust.
Final Payment of Principal on the
Notes........................... The Notes will be payable in full on the
Payment Date in ___________, to the extent
of the outstanding related Security
Balance on such date, if any. In addition,
the Issuer will pay the Notes in full upon
the exercise by the Master Servicer of its
option to purchase all Revolving Credit
Loans and all property acquired in respect
of
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<PAGE>
such Revolving Credit Loans. See
"Description of the Securities--Maturity
and Optional Redemption" herein and "The
Agreements--Termination; Redemption of
Notes" in the Prospectus.
Certain Federal Income Tax
Consequences.................... In the opinion of Thacher Proffitt & Wood,
counsel to the Depositor, for federal
income tax purposes, the Term Notes will
be characterized as indebtedness and the
Issuer, as created pursuant to the terms
and conditions of the Trust Agreement,
will not be characterized as an
association (or publicly traded
partnership within the meaning of section
7704 of the Code) taxable as a corporation
or as a taxable mortgage pool within the
meaning of section 7701(i) of the Code.
For further information regarding certain
federal income tax consequences of an
investment in the Notes, see "Certain
Federal Income Tax Consequences" herein
and "Certain Federal Income Tax
Consequences" and "State and Other Tax
Consequences" in the Prospectus.
Legal Investment................... THE TERM NOTES WILL NOT CONSTITUTE
"MORTGAGE RELATED SECURITIES" FOR PURPOSES
OF SMMEA, BECAUSE THE MORTGAGE POOL
INCLUDES REVOLVING CREDIT LOANS THAT ARE
SECURED BY SUBORDINATE LIENS ON THE
RELATED MORTGAGED PROPERTIES. Institutions
whose investment activities are subject to
legal investment laws and regulations or
to review by certain regulatory
authorities may be subject to restrictions
on investment in the Term Notes. See
"Legal Investment" herein.
Rating............................. It is a condition to the issuance of the
Term Notes that they be rated "Aaa" by
Moody's and "AAA" by Standard & Poor'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 rating organization.
A security rating does not address the
frequency of prepayments or Draws of
Revolving Credit Loans, the likelihood of
the receipt of any amounts in respect of
Interest Shortfalls, or the corresponding
effect on yield to investors. See "Certain
Yield and Prepayment Considerations" and
"Ratings" herein.
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<PAGE>
RISK FACTORS
PROSPECTIVE NOTEHOLDERS SHOULD CONSIDER, AMONG OTHER THINGS, THE ITEMS
DISCUSSED UNDER "RISK FACTORS" WHICH BEGINS ON PAGE 9 IN THE PROSPECTUS AND THE
FOLLOWING FACTORS IN CONNECTION WITH THE PURCHASE OF THE TERM
NOTES:
RISKS ASSOCIATED WITH THE REVOLVING CREDIT LOANS
Since % of the Revolving Credit Loans are 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 Revolving Credit Loans secured by
subordinate mortgages only to the extent that the claims of such senior
mortgages have been satisfied in full, including any related foreclosure costs.
In circumstances when it is determined to be uneconomical to foreclose on the
Mortgaged Property, the Master Servicer may write off the entire outstanding
balance of such Revolving Credit Loan as a bad debt. The foregoing
considerations will be particularly applicable to Revolving Credit Loans secured
by junior liens that have high Combined Loan-to-Value Ratios or low Junior
Ratios because it is comparatively more likely that the Master Servicer would
determine foreclosure to be uneconomical in the case of such Revolving Credit
Loans. Any losses on Revolving Credit Loans, to the extent such losses are not
covered by the Liquidation Loss Distribution Amount, a reduction in the
Outstanding Reserve Amount or the Policy will be borne by the Noteholders.
Under the Home Equity Program, Mortgagors are generally qualified based
on an assumed payment which reflects a rate significantly lower than the maximum
rate and, with respect to the Teaser Loans (as defined herein), the Loan Rate at
origination will be below the rate that would result from the sum of the
then-applicable Index and Gross Margin. The repayment of any Revolving Credit
Loan may thus be dependent on the ability of the Mortgagor to make larger
interest payments following the adjustment of the Loan Rate and during the life
of such Revolving Credit Loan.
Defaults on mortgage loans are generally expected to occur with greater
frequency in their early years. The rate of default of second mortgage loans may
be greater than that of mortgage loans secured by first liens on comparable
properties.
As to ___% of the Revolving Credit Loans, borrowers are not required to
make any principal payments until the maturity of such Revolving Credit Loans
(the "BALLOON LOANS"). As a result, a borrower generally will be required to pay
the entire remaining principal amount of the Balloon Loan at its maturity. The
ability of a borrower to make such a payment may depend on the ability of the
borrower to obtain refinancing of the balance due on the Balloon Loan. An
increase in interest rates over the Note Rate applicable at the time the Balloon
Loan was originated may have an adverse effect on the borrower's ability to
obtain refinancing or to pay the required monthly payment. Collections on the
Revolving Credit Loans may also vary due to seasonal purchasing and payment
habits of borrowers.
With respect to certain Balloon Loans, general credit risk may also be
greater to Noteholders than to holders of instruments representing interests in
level payment first mortgage loans since no or only a small payment of principal
generally is required until after either a five or fifteen year Draw Period
under the related Credit Line Agreements. Minimum monthly payments will at least
equal and may exceed accrued interest. Even assuming that the Mortgaged
Properties provide adequate security for the Revolving Credit Loans, substantial
delays could be encountered in connection with the liquidation of Revolving
Credit Loans that are delinquent and resulting shortfalls in payments to
Noteholders could occur if the Outstanding Reserve Amount has been reduced to
zero, and the Credit Enhancer were unable to perform on its obligations under
the Policy. Further, liquidation expenses (such as legal fees, real estate
taxes, and maintenance and preservation expenses) will reduce the proceeds
payable to Noteholders and thereby reduce the security for the Revolving Credit
Loans. In the event any of the Mortgaged Properties fail to provide adequate
security for the related Revolving Credit Loans, Noteholders could experience a
loss if the Credit Enhancer was unable to perform its obligations under the
Policy.
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<PAGE>
The Bankruptcy Reform Act of 1994 established the National Bankruptcy
Review Commission ("NBRC")for purposes of analyzing the nation's bankruptcy laws
and making recommendations to Congress for legislative changes to the bankruptcy
laws. A similar commission was involved in developing the Bankruptcy Code. The
NBRC delivered its report to Congress, the President of the United States and
the Chief Justice of the Supreme Court on October 20, 1997. Among other topics,
high leverage loans were addressed in the NBRC's report. Despite certain
ambiguities, the NBRC's report appears to recommend that Congress amend
Bankruptcy Code section 1322(b)(2) by treating a claim secured only by a junior
security interest in a borrower's principal residence as protected only to the
extent that the claim was secured when the security interest was made if the
value of the property securing the junior security interest is less than such
amount. However, the express language of the report implies that a claim secured
only by a junior security interest in a borrower's principal residence may not
be modified to reduce such claim below the appraised value of the property at
the time the security interest was made. A strong dissent by four of the nine
members of the NBRC recommends that the protections of Bankruptcy Code section
1322(b)(2) be extended to creditors "PRINCIPALLY" secured by the borrower's
principal residence. A bill currently pending before the United States House of
Representatives ("H.R. 2500"), if enacted, would prevent modification of a claim
secured by a residence that was used by the debtor as its principal residence at
any time during the 180 days prior to the date the bankruptcy petition was
filed. In addition, a debtor's "principal residence" would be defined to include
incidental property "including, without limitation, property commonly conveyed
with a principal residence where the real estate is located, window treatments,
carpets, appliances and equipment located in the residence, and easements,
appurtenances, fixtures, rents, royalties, mineral rights, oil and gas rights,
escrow funds and insurance proceeds."
Additionally, the NBRC's report recommends that a creditor's secured
claim in real property should be determined by the property's fair market value,
less hypothetical costs of sale. The standard advocated by this recommendation
would not apply to mortgages on the primary residence of a Chapter 11 or 13
borrower who retains the residence if such mortgages are protected from
modification such as those senior mortgages not subject to modification pursuant
to Bankruptcy Code Sections 1322(b)(2) and 1123(b)(5). A strong dissent by four
of the nine members of the NBRC recommends adoption of the tax-assessed value of
real property as the value of such real property in bankruptcy. H.R. 2500, if
enacted, would amend 11 U.S.C. ss. 506(a) to state that in an individual chapter
7 or 13 case, the value of the property securing a claim is determined based on
the replacement cost of such property as of the petition date. The final NBRC
report may ultimately lead to substantive changes to the existing Bankruptcy
Code, such as reducing outstanding loan balances to the appraised value of a
borrower's principal residence at the time the security interest in the property
was taken, which could affect the Mortgage Loans and the enforcement of rights
therein.
LIMITATIONS AND REDUCTION AND SUBSTITUTION OF CREDIT ENHANCEMENT
Credit enhancement will be provided for the Notes in the form of
Liquidation Loss Distribution Amounts (representing excess interest collections,
if available), by the Outstanding Reserve Amount (representing any
overcollateralization that may have been established as described herein), and
by the Policy to the limited extent described herein. None of the Depositor, the
Master Servicer, [Name of Initial Subservicer] or any of their affiliates will
have any obligation to replace or supplement such credit enhancement, or to take
any other action to maintain any rating of the Notes. To the extent that any
losses are incurred on any of the Revolving Credit Loans that are not covered by
Liquidation Loss Distribution Amounts, a reduction in the Outstanding Reserve
Amount or the Policy, the holders of the Notes will bear all risk of such losses
resulting from default by Mortgagors.
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The Revolving Credit Loans were originated pursuant to Credit Line
Agreements, approximately % (by Cut-off Date Balance) of which are secured by
second mortgages or deeds of trust and the remainder of which are
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<PAGE>
first mortgages or deeds of trust. The Mortgaged Properties securing the
Revolving Credit Loans consist primarily of residential properties that are one-
to four-family properties. As to each Revolving Credit Loan, except with respect
to one mortgage loan which converted to an investment property, the Mortgagor
represented at the time of origination that the related Mortgaged Property would
be owner occupied as a primary, second or vacation home.
All of the Revolving Credit Loans were acquired by IMH Assets Corp. (in
such capacity, the "SELLER") from banks, savings and loan associations, mortgage
bankers, investment banking firms and other mortgage loan originators and
sellers on a servicing released basis. ____% of the Revolving Credit Loans were
acquired by the Seller from __________________, an affiliate of the Seller. No
Unaffiliated Seller sold more than ___% of the Revolving Credit Loans to IMH
Assets Corp. All of the Revolving Credit Loans will be serviced by [Name of
Initial Subservicer]. See "Servicing of Revolving Credit Loans--Initial
Subservicer" herein.
All percentages of the Revolving Credit Loans described herein are
approximate percentages determined (except as otherwise indicated) by Cut-off
Date Balance.
The Cut-off Date Balance of the Revolving Credit Loans will be $______.
As of the Cut-off Date, no Revolving Credit Loan will be 30 days or more
delinquent. The average Cut-off Date Balance will be $______, the minimum
Cut-off Date Balance will be $______, the maximum Cut-off Date Balance will be
$______, the lowest Loan Rate and the highest Loan Rate on the Cut-off Date will
be ____% and _____% per annum, respectively, the weighted average Loan Rate on
the Cut-off Date will be ____% per annum and the maximum Combined Loan-to-Value
Ratio as of the Cut-off Date will be ____%. The weighted average Combined
Loan-to- Value Ratio based on the Credit Limits of the Revolving Credit Loans
will be ____% as of the Cut-off Date. The weighted average Credit Limit
Utilization Rate based on the Credit Limits of the Revolving Credit Loans will
be ____% as of the Cut-off Date. The weighted average Junior Ratio of the
Revolving Credit Loans based on the related Credit Limit will be approximately
____% as of the Cut-off Date. The latest scheduled maturity of any Revolving
Credit Loan will be _____________. With respect to ____% of the Revolving Credit
Loans, the related Mortgaged Properties will be located in California.
As of the Cut-off Date, the Loan Rates on approximately % of the
Revolving Credit Loans (the "TEASER LOANS") will be introductory rates that are
lower than the rate that would have been in effect if the applicable Index and
Gross Margin at the time these loans were originated were used to determine the
Loan Rate. Commencing on their first Adjustment Date, the Loan Rates on the
Teaser Loans will be based on the applicable Index and Gross Margin. As of the
Cut-off Date, the weighted average months until the Teaser Loans reach their
teaser expiration date is approximately three months.
REVOLVING CREDIT LOAN TERMS
Interest on each Revolving Credit Loan is calculated based on the
average daily balance outstanding during the Billing Cycle, and with respect to
each Revolving Credit Loan, the Billing Cycle is the calendar month preceding
the related Due Date (as defined herein).
Each Revolving Credit Loan has a Loan Rate that is subject to
adjustment on the first day of each related Billing Cycle commencing on a
specified date (each such day, an "ADJUSTMENT DATE") to equal the sum of (a) the
prime rate for corporate loans at United States commercial banks, as published
in The Wall Street Journal (the "INDEX") on the first business day of the month
in which such Billing Cycle begins, and (b) the Gross Margin specified in the
related Credit Line Agreement, provided, however, that the Loan Rate on each
Revolving Credit Loan will in no event be greater than the maximum Loan Rate
(the "MAXIMUM LOAN RATE") set forth in the related Credit Line Agreement
(subject to the maximum rate permitted by applicable law). If, on any day, more
than one prime rate or a range of prime rates for corporate loans at United
States commercial banks is published in The Wall Street Journal, the Index on
such day will be the highest of the prime rates.
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<PAGE>
Each Revolving Credit Loan had a term to maturity from the date of
origination of not more than ____ months. The Mortgagor for each Revolving
Credit Loan may make a Draw under the related Credit Line Agreement at any time
during the Draw Period. The Draw Period will be ___ years (with respect to ____%
of the Revolving Credit Loans) and ___ years (with respect to ____% of the
Revolving Credit Loans) from the date of origination thereof. The related
Mortgagor will not be permitted to make any Draw during the ____ year period
(or, with respect to ____% of the Revolving Credit Loans, during a period of no
more than ____ years) from the end of the related Draw Period to the related
maturity date (the "REPAYMENT PERIOD"). The maximum amount of each Draw with
respect to any Revolving Credit Loan is equal to the excess, if any, of the
Credit Limit over the outstanding principal balance under such Credit Line
Agreement at the time of such Draw. Each Revolving Credit Loan may be prepaid in
full or in part at any time and without penalty, but with respect to each
Revolving Credit Loan, the related Mortgagor will have the right during the
related Draw Period to make a Draw in the amount of any prepayment theretofore
made with respect to such Revolving Credit Loan. Each Mortgagor generally will
have access to make Draws with either checks or a credit card, subject to
applicable law. The Credit Line Agreement or Mortgage related to each Revolving
Credit Loan generally will contain a customary "due-on-sale" clause.
As to each Revolving Credit Loan, the Mortgagor's rights to receive
Draws during the Draw Period may be suspended, or the Credit Limit may be
reduced, for cause under a number of circumstances, including, but not limited
to: a materially adverse change in the Mortgagor's financial circumstances; a
decline in the value of the Mortgaged Property significantly below its appraised
value at origination; or a payment default by the Mortgagor. However, generally
such suspension or reduction will not affect the payment terms for previously
drawn balances. The Subservicers and the Master Servicer will have no obligation
to investigate as to whether any such circumstances have occurred and may have
no knowledge thereof; therefore there can be no assurance that any Mortgagor's
ability to receive Draws will be suspended or reduced in the event that the
foregoing circumstances occur. In the event of default under a Revolving Credit
Loan, the Revolving Credit Loan may be terminated and declared immediately due
and payable in full. For this purpose, a default includes, but is not limited
to: the Mortgagor's failure to make any payment as required; any action or
inaction by the Mortgagor that adversely affects the Mortgaged Property or the
rights in the Mortgaged Property; or fraud or material misrepresentation by a
Mortgagor in connection with the Revolving Credit Loan.
Prior to the related Repayment Period or prior to the date of maturity
for loans without Repayment Periods, the Mortgagor for each Revolving Credit
Loan will be obligated to make monthly payments thereon in a minimum amount that
generally will be equal to the Finance Charge (as defined below) for such
Billing Cycle. In addition, except as described below, if such loan has a
Repayment Period, during such period, the Mortgagor will be obligated to make
monthly payments consisting of principal installments which would substantially
amortize the Principal Balance by the maturity date, and to pay any current
Finance Charges and Additional Charges (as defined below).
Notwithstanding the foregoing, with respect to the Balloon Loans,
representing approximately ____% of the Revolving Credit Loans, the Mortgagor
will be obligated to make a payment on the related maturity date in an amount
equal to the related Account Balance. Such Balloon Loans will not have a
Repayment Period and prior to the related maturity date, the related Mortgagors
will be obligated to make monthly payments thereon in a minimum amount that
generally will equal the Finance Charge for the related Billing Cycle. See "Risk
Factors--Risks Associated with the Revolving Credit Loans" herein.
With respect to each Revolving Credit Loan, (a) the "FINANCE CHARGE"
for any Billing Cycle will be an amount equal to the aggregate of, as calculated
for each day in the Billing Cycle, the then-applicable Loan Rate divided by 365
multiplied by such day's Principal Balance and (b) the "ACCOUNT BALANCE" on any
day generally will be the principal balance of the Revolving Credit Loan for
such day, plus the sum of any unpaid fees, insurance premiums and other charges,
if any (collectively, "ADDITIONAL CHARGES") and any unpaid Finance Charges that
are due on such Revolving Credit Loan, plus the aggregate of all related Draws
funded on such day, minus the aggregate of all payments and credits that are
applied to the repayment of any such Draws on such day. Payments made by or
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<PAGE>
on behalf of the Mortgagor for each Revolving Credit Loan will be applied to any
unpaid Finance Charges that are due thereon prior to application, to any unpaid
principal outstanding.
With respect to each Revolving Credit Loan, the "COMBINED LOAN-TO-VALUE
RATIO" or "CLTV" generally will be the ratio, expressed as a percentage, of the
sum of (i) the Credit Limit and (ii) any outstanding principal balance, at
origination of such Revolving Credit Loan, of all other mortgage loans, if any,
secured by senior or subordinate liens on the related Mortgaged Property, to the
Appraised Value, or, when not available, the Stated Value. The "APPRAISED VALUE"
for any Revolving Credit Loan will be the appraised value of the related
Mortgaged Property determined in the appraisal used in the origination of such
Revolving Credit Loan (which may have been obtained at an earlier time);
provided that if such Revolving Credit Loan was originated simultaneously with
or not more than 12 months after a senior lien on the related Mortgaged
Property, the Appraised Value shall be the lesser of the appraised value at the
origination of the senior lien and the sales price for such Mortgaged Property;
provided, that with respect to any Revolving Credit Loan originated not more
than 12 months after a senior lien was originated on the related Mortgaged
Property, the Appraised Value will be the appraised value at the time of
origination of the senior lien. However, with respect to not more than ____% of
the Revolving Credit Loans, the "STATED VALUE" will be the stated value of the
property as made by the related Mortgagor in his or her application. See
"Revolving Credit Loan Program--Underwriting Standards" in the Prospectus and
"Description of the Mortgage Pool--Underwriting Standards" herein.
The Master Servicer will have the option to allow an increase in the
Credit Limit applicable to any Revolving Credit Loan (a "CREDIT LIMIT INCREASE")
in certain limited circumstances. The Master Servicer will have an unlimited
ability to obtain increases provided that the following conditions are met: (i)
a new appraisal is obtained, (ii) the new CLTV is less than or equal to the
original CLTV, (iii) verbal verification of employment is obtained and (iv) the
payment history of the related borrower is within the Guide (no 30-day
delinquencies in the past twelve months). If a new appraisal is not obtained and
the other conditions in the preceding sentence are met, the Master Servicer will
have the option to allow an increase, provided that the CLTV of the new
Revolving Credit Loan will be limited to ____%. In addition, the amount of
Credit Limit Increases without appraisals will be limited to no greater than
____% of the Cut-off Date Balance for new loans with CLTVs greater than ____%
and less than ____%, and limited to no greater than ____% of the Cut-off Date
Balance for new loans with CLTVs up to ____%.
REVOLVING CREDIT LOAN CHARACTERISTICS
Set forth below is a description of certain additional characteristics
of the Revolving Credit Loans as of the Cut-off Date. Unless otherwise
specified, all principal balances of the Revolving Credit Loans are as of the
Cut-off Date Balance and are rounded to the nearest dollar. All percentages are
approximate percentages by aggregate principal balance as of the Cut-off Date
(except as indicated otherwise).
S-17
<PAGE>
PROPERTY TYPES
PERCENT OF
NUMBER OF MORTGAGE POOL
REVOLVING CUT-OFF DATE BY CUT-OFF
PROPERTY TYPE CREDIT LOANS BALANCE DATE BALANCE
- ------------- ------------ ------- ------------
Single Family..................
PUD--Detached..................
Condominium....................
PUD--Attached..................
Multifamily (2-4 Units)........
Townhouse/Rowhouse-Attached....
Manufactured Home..............
Townhouse/Rowhouse-Detached....
Totals....................
OCCUPANCY TYPES
PERCENT OF
NUMBER OF MORTGAGE POOL
OCCUPANCY REVOLVING CUT-OFF DATE BY CUT-OFF
(AS INDICATED BY BORROWER) CREDIT LOANS BALANCE DATE BALANCE
- -------------------------- ------------ ------- ------------
Primary Residence..............
Second/Vacation................
Non-Owner Occupied.............
Totals....................
PRINCIPAL BALANCES
PERCENT OF
NUMBER OF MORTGAGE POOL
REVOLVING CUT-OFF DATE BY CUT-OFF
RANGE OF PRINCIPAL BALANCES CREDIT LOANS BALANCE DATE BALANCE
- --------------------------- ------------ ------- ------------
Equal to $0.00.................
$ 0.01 to 25,000.00......
25,000.01 to 50,000.00......
50,000.01 to 75,000.00......
75,000.01 to 100,000.00......
100,000.01 to 125,000.00......
125,000.01 to 150,000.00......
150,000.01 to 175,000.00......
175,000.01 to 200,000.00......
200,000.01 to 250,000.00......
250,000.01 to 300,000.00......
Greater than 300,000.00.......
Totals.....................
The average Principal Balance of the Revolving Credit Loans as of the
Cut-off Date will be $________.
S-18
<PAGE>
GEOGRAPHICAL DISTRIBUTIONS
PERCENT OF
NUMBER OF MORTGAGE POOL
REVOLVING CUT-OFF DATE BY CUT-OFF
STATE CREDIT LOANS BALANCE DATE BALANCE
- ----- ------------ ------- ------------
California.....................
Florida........................
Colorado.......................
Utah...........................
Michigan.......................
Washington.....................
Georgia........................
Oregon.........................
Other(1).......................
Totals....................
_________
(1) Other includes ____________________________.
COMBINED LOAN-TO-VALUE RATIOS
PERCENT OF
NUMBER OF MORTGAGE POOL
RANGE OF COMBINED REVOLVING CUT-OFF DATE BY CUT-OFF
LOAN-TO-VALUE RATIOS(%) CREDIT LOANS BALANCE DATE BALANCE
- ----------------------- ------------ ------- ------------
00.01 to 10.00...............
10.01 to 20.00...............
20.01 to 30.00...............
30.01 to 40.00...............
40.01 to 50.00...............
50.01 to 60.00...............
60.01 to 70.00...............
70.01 to 75.00................
75.01 to 80.00...............
80.01 to 85.00................
85.01 to 90.00...............
90.01 to 95.00...............
95.01 to 100.00...............
100.01 to 101.00...............
Totals.....................
The weighted average Combined Loan-to-Value Ratio based on the Credit
Limits of the Revolving Credit Loans as of the Cut-off Date will be ____%.
S-19
<PAGE>
JUNIOR RATIOS
PERCENT OF
NUMBER OF MORTGAGE POOL
RANGE OF REVOLVING CUT-OFF DATE BY CUT-OFF
JUNIOR RATIOS(%) CREDIT LOANS BALANCE DATE BALANCE
- ---------------- ------------ ------- ------------
0.01 to 5.00.................
5.01 to 10.00................
10.01 to 15.00.................
15.01 to 20.00.................
20.01 to 25.00.................
25.01 to 30.00.................
30.01 to 40.00.................
40.01 to 50.00.................
50.01 to 60.00.................
60.01 to 70.00.................
70.01 to 80.00.................
80.01 to 90.00.................
90.01 to 100.00................
Totals.........................
The weighted average junior ratio base on the credit limit of the
mortgage loans will be ____%.
LOAN RATES
PERCENT OF
NUMBER OF MORTGAGE POOL
REVOLVING CUT-OFF DATE BY CUT-OFF
RANGE OF LOAN RATES(%) CREDIT LOANS BALANCE DATE BALANCE
- ---------------------- ------------ ------- ------------
5.501 to 6.000................
6.501 to 7.000................
7.001 to 7.500................
8.001 to 8.500................
8.501 to 9.000................
9.001 to 9.500................
9.501 to 10.000...............
10.001 to 10.500...............
10.501 to 11.000...............
11.001 to 11.500...............
11.501 to 12.000...............
12.001 to 12.500...............
12.501 to 13.000...............
13.000 to 13.500...............
13.501 to 14.00................
14.001 to 14.500...............
14.501 to 15.000...............
17.001 to 17.500...............
Totals.........................
S-20
<PAGE>
The weighted average Loan Rate as of the Cut-off Date will be ____%.
GROSS MARGINS
PERCENT OF
NUMBER OF MORTGAGE POOL
REVOLVING CUT-OFF DATE BY CUT-OFF
RANGE OF GROSS MARGINS(%) CREDIT LOANS BALANCE DATE BALANCE
- ------------------------- ------------ ------- ------------
0.00...........................
0.001 to 0.500.................
0.501 to 1.000.................
1.001 to 1.500.................
1.501 to 2.000.................
2.001 to 2.500.................
2.501 to 3.000.................
3.001 to 3.500.................
3.501 to 4.000.................
4.001 to 4.500.................
4.501 to 5.000.................
5.001 to 5.500.................
Greater than 5.500.............
Totals....................
The weighted average Gross Margin as of the Cut-off Date will be ____%.
CREDIT LIMIT UTILIZATION RATES
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF MORTGAGE POOL
REVOLVING CUT-OFF DATE BY CUT-OFF
RANGE OF CREDIT LIMIT UTILIZATION RATES(%) CREDIT LOANS BALANCE DATE BALANCE
- ------------------------------------------ ------------ ------- ------------
<S> <C> <C> <C>
0.00......................................
00.01 to 10.00............................
10.01 to 20.00............................
20.01 to 30.00............................
30.01 to 40.00............................
40.01 to 50.00............................
50.01 to 60.00............................
60.01 to 70.00............................
70.01 to 80.00............................
80.01 to 90.00............................
90.01 to 100.00...........................
100.01 to 101.50..........................
Totals...............................
</TABLE>
The weighted average Credit Limit Utilization Rate based on the Credit
Limits of the Revolving Credit Loans as of the Cut-off Date will be ____%.
S-21
<PAGE>
CREDIT LIMITS
PERCENT OF
NUMBER OF MORTGAGE POOL BY
REVOLVING CUT-OFF DATE CUT-OFF
RANGE OF CREDIT LIMITS CREDIT LOANS BALANCE DATE BALANCE
- ---------------------- ------------ ------- ------------
$ 0.01 to 25,000.00......
25,000.01 to 50,000.00......
50,000.01 to 75,000.00......
75,000.01 to 100,000.00......
100,000.01 to 125,000.00......
125,000.01 to 150,000.00......
150,000.01 to 175,000.00......
175,000.01 to 200,000.00......
200,000.01 to 225,000.00......
225,000.01 to 250,000.00......
250,000.01 to 275,000.00......
275,000.01 to 300,000.00......
Greater than 300,000.00......
Totals.......................
The aggregate of the Credit Limits as of the Cut-off Date will be
$_______________.
MAXIMUM LOAN RATES
PERCENT OF
NUMBER OF MORTGAGE POOL BY
REVOLVING CUT-OFF DATE CUT-OFF
MAXIMUM LOAN RATES(%) CREDIT LOANS BALANCE DATE BALANCE
- --------------------- ------------ ------- ------------
14.00..........................
16.00..........................
18.00..........................
20.00..........................
21.00..........................
21.75..........................
22.20..........................
24.00..........................
25.00..........................
Totals......................
The weighted average Maximum Loan Rate as of the Cut-off Date will be
____%.
S-22
<PAGE>
MONTHS REMAINING TO SCHEDULED MATURITY
PERCENT OF
NUMBER OF MORTGAGE POOL BY
RANGE OF MONTHS REMAINING TO REVOLVING CUT-OFF DATE CUT-OFF
SCHEDULED MATURITY CREDIT LOANS BALANCE DATE BALANCE
- -------------------- ------------ ------- ------------
1 to 96......................
97 to 108.....................
109 to 120.....................
120 to 144.....................
145 to 156.....................
157 to 168.....................
169 to 180.....................
181 to 288.....................
289 to 300.....................
Totals......................
* Represents less than 0.01% Of the Cut-off Date Principal Balance.
The weighted average months remaining to scheduled maturity as of the
Cut-off Date will be ___ months.
ORIGINATION YEAR
PERCENT OF
NUMBER OF MORTGAGE POOL BY
REVOLVING CUT-OFF DATE CUT-OFF
ORIGINATION YEAR CREDIT LOANS BALANCE DATE BALANCE
- ---------------- ------------ ------- ------------
1988...........................
1989...........................
1990...........................
1991...........................
1992...........................
1993...........................
1994...........................
1995...........................
1996...........................
1997...........................
Totals......................
S-23
<PAGE>
LIEN PRIORITY
PERCENT OF
NUMBER OF MORTGAGE POOL
REVOLVING CUT-OFF DATE BY CUT-OFF
LIEN PRIORITY CREDIT LOANS BALANCE DATE BALANCE
- ------------- ------------ ------- ------------
First Lien.....................
Second Lien....................
Totals....................
CREDIT SCORES
<TABLE>
<CAPTION>
PERCENT OF
MORTGAGE POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
CREDIT SCORE RANGE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------ ----- -------------- ----------------- -----------------
<S> <C> <C> <C>
Less than 600..................
600 - 619......................
620 - 639......................
640 - 659......................
660 - 679......................
680 - 699......................
700 - 719......................
720 - 739......................
740 - 759......................
760 - 779......................
780 - 799......................
Greater than or equal to 800...
Not Available(1)...............
Totals.................
</TABLE>
(1) The Revolving Credit Loans indicated as having a Credit Score that is "not
available" are either Revolving Credit Loans where the credit score was not
provided by the related seller or revolving credit loans where no credit history
can be obtained for the related Mortgagor.
UNDERWRITING STANDARDS
The following is a brief description of the various underwriting
standards and procedures applicable to the Revolving Credit Loans. For a more
detailed description of the underwriting standards and procedures applicable to
the Revolving Credit Loans, see "Revolving Credit Loan Program--Underwriting
Standards" in the Prospectus.
The Seller's underwriting standards with respect to the Revolving
Credit Loans generally will conform to those published in the Seller Guide
(together with its Servicer Guide, the "GUIDE," as modified from time to time),
including the provisions of the Guide applicable to the Home Equity Program. The
underwriting standards as set forth in the Guide are continuously revised based
on prevailing conditions in the residential mortgage market and the market for
mortgage securities. Under the Guide, the Revolving Credit Loans are generally
underwritten by the related originator or by a designated third party, and the
Seller or a designated third party may perform only sample quality assurance
reviews to determine whether Revolving Credit Loans purchased by it were
underwritten in accordance with
S-24
<PAGE>
applicable standards.
The underwriting standards set forth in the Guide with respect to
Revolving Credit Loans originated under the Home Equity Program generally
require that such Revolving Credit Loans be fully documented or that such
Revolving Credit Loans be supported by alternative documentation. For fully
documented loans, a prospective borrower is required to fill out a detailed
application providing pertinent credit information. For alternatively documented
loans, a borrower may demonstrate income and employment directly by providing
alternative documentation in the form of copies of the borrower's own records
relating thereto, rather than by having the originator obtain independent
verifications from third parties (such as the borrower's employer or mortgage
servicer).
In determining the adequacy of the mortgaged property as collateral for
a Revolving Credit Loan originated under the Home Equity Program, an appraisal
is made of each property considered for financing. The Revolving Credit Loans
included in the Mortgage Pool generally were originated subject to a maximum
CLTV of ____% and a maximum total monthly debt to income ratio of ____%. There
can be no assurance that the CLTV or the debt to income ratio for any Revolving
Credit Loans will not increase from the levels established at origination.
The underwriting standards set forth in the Guide with respect to
Revolving Credit Loans originated under the Home Equity Program may be varied in
appropriate cases. There can be no assurance that every Revolving Credit Loan
was originated in conformity with the applicable underwriting standards in all
material respects, or that the quality or performance of the Revolving Credit
Loans will be equivalent under all circumstances.
SERVICING OF REVOLVING CREDIT LOANS
GENERAL
The Master Servicer will be responsible for servicing the Revolving
Credit Loans directly or through one or more Subservicers in accordance with the
Guide and the terms of the Servicing Agreement. See "Servicing of Revolving
Credit Loans" in the Prospectus.
Billing statements are mailed monthly by the Subservicers. The
statement details the monthly activity on the related Revolving Credit Loan and
specifies the minimum payment due to the Subservicers and the available credit
line. Notice of changes in the applicable Loan Rate are provided by the related
Subservicers to the Mortgagor with such statements. All payments are due by the
20th day of the month (the "DUE DATE").
For information regarding foreclosure procedures, see "Servicing of
Revolving Credit Loans--Realization Upon Defaulted Loans" in the Prospectus.
Servicing and charge-off policies and collection practices may change over time
in accordance with the Master Servicer's business judgment, changes in the
Master Servicer's portfolio of real estate secured revolving credit line loans
that it services for its clients and applicable laws and regulations, and other
considerations.
INITIAL SUBSERVICER
[Name of Initial Subservicer] (the "INITIAL SUBSERVICER"), an ________,
is the Initial Subservicer of the Revolving Credit Loans. [Name of Initial
Subservicer] will act as Initial Subservicer for the Revolving Credit Loans
pursuant to a Subservicing Agreement with the Master Servicer. [Describe Initial
Subservicer].
[Name of Initial Subservicer] executive offices are located at [Address
of Subservicer].
S-25
<PAGE>
DELINQUENCY AND LOSS EXPERIENCE OF THE MASTER SERVICER'S PORTFOLIO
[Information as available. The following is an example of sample
disclosure.
The following tables summarize the delinquency and loss experience for
all home equity lines of credit ("HELOC") loans originated or acquired by the
Master Servicer. The data presented in the following tables is for illustrative
purposes only, and there is no assurance that the delinquency and loss
experience of the Revolving Credit Loans will be similar to that set forth
below.
The information in the tables below has not been adjusted to eliminate
the effect of the significant growth in the size of the Master Servicer's HELOC
loan portfolio during the periods shown. Accordingly, loss and delinquency as
percentages of aggregate principal balance of such HELOC loans serviced for each
period would be higher than those shown if certain of such home equity loans
were artificially isolated at a point in time and the information showed the
activity only with respect to such HELOC loans.
There can be no assurance that the delinquency experience set forth
below will be representative of the results that may be experienced with respect
to the Revolving Credit Loans serviced by the Subservicers.
<TABLE>
<CAPTION>
HELOC LOAN PORTFOLIO DELINQUENCY EXPERIENCE
AT DECEMBER 31, 1995 AT DECEMBER 31, 1996 AT DECEMBER 31, 1997
By No. By Dollar By No. By Dollar By No. By Dollar
of Amount of of Amount of of Amount of
Loans Loans Loans Loans Loans Loans
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Total HELOC Loan Portfolio........
Period of Delinquency.............
30-59 days........................
60-89 days........................
90+ days..........................
Total delinquent loans............
Percent of Portfolio..............
</TABLE>
<TABLE>
<CAPTION>
TOTAL HELOC LOAN FORECLOSURE EXPERIENCE
AT DECEMBER 31, 1995 AT DECEMBER 31, 1996 AT DECEMBER 31, 1997
<S> <C> <C> <C>
Total HELOC Loan Portfolio........
Completed Foreclosure(1)..........
Foreclosure ____% ................
Completed Chargeoffs(2)...........
Completed Chargeoff ____% ........
Approved/Pending Foreclosures(3)
Approved/Pending Foreclosure ____%
Approved/Pending Chargeoffs(4)
Approved/Pending Chargeoff (%)
</TABLE>
(1) The aggregate of the outstanding principal balances of the related HELOC
loans for which foreclosure proceedings have been completed or a deed in
lieu of foreclosure has been accepted and resulted in an REO property or
alternative form of disposition.
(2) The aggregate of the outstanding principal balances of the related HELOC
loans actually charged-off.
(3) The aggregate of the outstanding principal balances of the related HELOC
loans for which foreclosure action has been approved and initiated.
(4) The aggregate of the outstanding principal balances of the related HELOC
loans approved for charge-off but will not be charged-off until foreclosure
or liquidation with respect to the related senior lien is completed.
S-26
<PAGE>
As a result of substantial differences between the Revolving Credit
Loans and other HELOC loans serviced by the Initial Subservicer with respect to
underwriting standards and loan terms and conditions, the loss and delinquency
experience of the Initial Subservicer does not provide a sufficient basis for
meaningful evaluation of the Initial Subservicer's ability to subservice the
Revolving Credit Loans and is therefore not included herein.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The Servicing Fees for each Revolving Credit Loan are payable out of
the interest payments on such Revolving Credit Loan. The weighted average
Servicing Fee as of the Cut-off Date will be approximately ____% per annum. The
Servicing Fees consist of (a) servicing compensation payable to the Master
Servicer in respect of its master servicing activities and (b) subservicing and
other related compensation retained by the Subservicer. The Master Servicer is
obligated to pay certain ongoing expenses associated with its servicing
activities and incurred by the Master Servicer in connection with its
responsibilities under the Servicing Agreement.
THE ISSUER
GENERAL
The Impac CMB Trust 19__-__ is a business trust formed under the laws
of the State of Delaware pursuant to the Trust Agreement dated as of __________,
19__ between the Depositor and the Owner Trustee for the purposes described in
this Prospectus Supplement. The Trust Agreement constitutes the "governing
instrument" under the laws of the State of Delaware relating to business trusts.
After its formation, the Issuer will not engage in any activity other than (i)
acquiring and holding the Revolving Credit Loans and the other assets of the
Issuer and proceeds therefrom, (ii) issuing the Notes and the Certificates,
(iii) making payments on the Notes and the Certificates and (iv) engaging in
other activities that are necessary, suitable or convenient to accomplish the
foregoing or are incidental thereto or connected therewith.
The Issuer's principal offices are in _________________, Delaware, in
care of ________________, as Owner Trustee, at the address listed below.
THE OWNER TRUSTEE
_________________ is the Owner Trustee under the Trust Agreement. The
Owner Trustee is a [Delaware] banking corporation and its principal offices are
located at ________________.
Neither the Owner Trustee nor any director, officer or employee of the
Owner Trustee will be under any liability to the Issuer or the Securityholders
for any action taken or for refraining from the taking of any action in good
faith pursuant to the Trust Agreement or for errors in judgment; provided,
however, that none of the Owner Trustee and any director, officer or employee
thereof will be protected against any liability which would otherwise be imposed
by reason of willful malfeasance, bad faith or negligence in the performance of
duties or by reason of reckless disregard of obligations and duties under the
Trust Agreement. All persons into which the Owner Trustee may be merged or with
which it may be consolidated or any person resulting from such merger or
consolidation shall be the successor of the Owner Trustee under the Trust
Agreement.
THE INDENTURE TRUSTEE
_____________________, a [Name of State of Incorporation] banking
corporation, is the Indenture Trustee under the Indenture. The principal offices
of the Indenture Trustee are located in __________________.
S-27
<PAGE>
THE CREDIT ENHANCER
The following information has been supplied by _______________ (the
"CREDIT ENHANCER") for inclusion in this Prospectus Supplement. No
representation is made by the Depositor, the Master Servicer, the Underwriters
or any of their affiliates as to the accuracy or completeness of such
information.
[Insert Description of Credit Enhancer as Appropriate]
THE POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND
SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
DESCRIPTION OF THE SECURITIES
GENERAL
The Notes will be issued pursuant to the Indenture dated as of
______________ between the Issuer and _________________, as Indenture
Trustee. The Certificates will be issued pursuant to the Trust Agreement. The
following summaries describe certain provisions of the Securities, the Indenture
and the Trust 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 applicable agreement. Only the Term Notes are offered hereby.
The Notes will be secured by the assets of the Trust pledged by the
Issuer to the Indenture Trustee pursuant to the Indenture which will consist of:
(i) the Revolving Credit Loans; (ii) all amounts on deposit in the Payment
Account; (iii) the Policy; and (iv) proceeds of the foregoing.
The Variable Funding Notes initially will be issued to Residential
Funding. The Security Balance of the Variable Funding Notes will be increased
from time to time during the Revolving Period (as long as an Amortization Event
has not occurred) in consideration for Additional Balances sold to the Trust
under the Purchase Agreement, if Principal Collections are insufficient or
unavailable to cover the related Draws. On any Payment Date after the end of the
Revolving Period, so long as an Amortization Event has not occurred, the
acquisition of all Additional Balances will be reflected in an increase in the
Security Balance of the Variable Funding Notes. Notwithstanding the foregoing,
the Security Balance of the Variable Funding Notes may not exceed an aggregate
amount equal to $___________ plus any Credit Limit Increases, minus any amounts
paid as principal on the Variable Funding Notes, or such greater amount as may
be permitted under the Indenture (the "MAXIMUM VARIABLE FUNDING BALANCE").
Initially the Variable Funding Notes will have no Security Balance.
BOOK-ENTRY NOTES
The Term Notes will initially be issued as Book-Entry Notes. Term Note
Owners may elect to hold their Term Notes through DTC in the United States, or
Cedel or Euroclear, in Europe if they are Participants of such systems, or
indirectly through organizations which are Participants in such systems. The
Book-Entry Notes will be issued in one or more securities which equal the
aggregate principal balance of the Term Notes and will initially be registered
in the name of Cede & Co., the nominee of DTC. Cedel and Euroclear will hold
omnibus positions on behalf of their Participants through customers' securities
accounts in Cedel's and Euroclear's names on the books of their respective
depositaries (in such capacities, individually the "RELEVANT DEPOSITARY" and
collectively the "EUROPEAN DEPOSITARIES") which in turn will hold such positions
in customers' securities accounts in the depositaries' names on the books of
DTC. Investors may hold such beneficial interests in the Book-Entry Notes in
minimum denominations representing Security Balances of $1,000 and in integral
multiples of $1,000 in excess thereof. Except as described below, no
S-28
<PAGE>
Beneficial Owner will be entitled to receive a physical certificate representing
such security (a "DEFINITIVE TERM NOTE"). Unless and until Definitive Term Notes
are issued, it is anticipated that the only "HOLDER" of the Term Notes will be
Cede & Co., as nominee of DTC. Term Note Owners will not be Holders as that term
is used in the
Indenture.
The Beneficial Owner's ownership of a Book-Entry Note will be recorded
on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a "FINANCIAL INTERMEDIARY") that maintains the
Beneficial Owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Notes will be recorded on the
records of DTC (or of a Participating firm that acts as agent for the Financial
Intermediary, whose interest will in turn be recorded on the records of DTC, if
the Beneficial Owner's Financial Intermediary is not a DTC Participant and on
the records of Cedel or Euroclear, as appropriate).
Term Note Owners will receive all payments of principal of, and
interest on, the Term Notes from the Indenture Trustee through DTC and DTC
Participants. While the Term Notes are outstanding (except under the
circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations (the "RULES"), DTC is required to
make book-entry transfers among Participants on whose behalf it acts with
respect to the Term Notes and is required to receive and transmit payments of
principal of, and interest on, the Term Notes.
Participants and Indirect Participants with whom Term Note Owners have
accounts with respect to Term Notes are similarly required to make book-entry
transfers and receive and transmit such payments on behalf of their respective
Term Note Owners. Accordingly, although Term Note Owners will not possess
physical certificates, the Rules provide a mechanism by which Term Note Owners
will receive payments and will be able to transfer their interest.
Term Note Owners will not receive or be entitled to receive Definitive
Term Notes representing their respective interests in the Term Notes, except
under the limited circumstances described below. Unless and until Definitive
Term Notes are issued, Term Note Owners who are not Participants may transfer
ownership of Term Notes only through Participants and Indirect Participants by
instructing such Participants and Indirect Participants to transfer the Term
Notes, by book-entry transfer, through DTC for the account of the purchasers of
such Term Notes, which account is maintained with their respective Participants.
Under the Rules and in accordance with DTC's normal procedures, transfers of
ownership of Term Notes will be executed through DTC and the accounts of the
respective Participants at DTC will be debited and credited. Similarly, the
Participants and Indirect Participants will make debits or credits, as the case
may be, on their records on behalf of the selling and purchasing Term Note
Owners.
Under a book-entry format, Beneficial Owners of the Book-Entry Notes
may experience some delay in their receipt of payments, since such payments will
be forwarded by the Indenture Trustee to Cede & Co. Payments with respect to
Term Notes held through Cedel or Euroclear will be credited to the cash accounts
of Cedel Participants or Euroclear Participants in accordance with the relevant
system's rules and procedures, to the extent received by the Relevant
Depositary. Such payments will be subject to tax reporting in accordance with
relevant United States tax laws and regulations. Because DTC can only act on
behalf of Financial Intermediaries, the ability of a Beneficial Owner to pledge
Book-Entry Notes to persons or entities that do not participate in the
Depositary system, or otherwise take actions in respect of such Book-Entry
Notes, may be limited due to the lack of physical certificates for such Book-
Entry Notes. In addition, issuance of the Book-Entry Notes in book-entry form
may reduce the liquidity of such Term Notes in the secondary market since
certain potential investors may be unwilling to purchase securities for which
they cannot obtain physical certificates.
DTC has advised the Indenture Trustee that, unless and until Definitive
Term Notes are issued, DTC will take any action permitted to be taken by the
holders of the Book-Entry Notes under the Indenture only at the direction of one
or more Financial Intermediaries to whose DTC accounts the Book-Entry Notes are
credited, to the extent that such actions are taken on behalf of Financial
Intermediaries whose holdings include such Book-Entry Notes. Cedel or the
Euroclear Operator, as the case may be, will take any other action permitted to
be taken by Term Noteholders under the Indenture on behalf of a Cedel
Participant or Euroclear Participant only in accordance with its relevant rules
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and procedures and subject to the ability of the Relevant Depositary to effect
such actions on its behalf through DTC. DTC may take actions, at the direction
of the related Participants, with respect to some Term Notes which conflict
with actions taken with respect to other Term Notes.
Definitive Term Notes will be issued to Beneficial Owners of the
Book-Entry Notes, or their nominees, rather than to DTC, if (a) the Indenture
Trustee determines that the DTC is no longer willing, qualified or able to
discharge properly its responsibilities as nominee and depository with respect
to the Book-Entry Notes and the Indenture Trustee is unable to locate a
qualified successor, (b) the Indenture Trustee elects to terminate a book-entry
system through DTC or (c) after the occurrence of an Event of Default, pursuant
to the Indenture, Beneficial Owners having Percentage Interests aggregating at
least a majority of the Security Balances of the Term Notes advise the DTC
through the Financial Intermediaries and the DTC Participants in writing that
the continuation of a book-entry system through DTC (or a successor thereto) is
no longer in the best interests of Beneficial Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Indenture Trustee will be required to notify all
Beneficial Owners of the occurrence of such event and the availability through
DTC of Definitive Term Notes. Upon surrender by DTC of the global certificate or
certificates representing the Book- Entry Notes and instructions for
re-registration, the Indenture Trustee will issue and authenticate Definitive
Term Notes, and thereafter the Indenture Trustee will recognize the holders of
such Definitive Term Notes as Holders under the Indenture.
Although DTC, Cedel and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Term Notes among Participants of
DTC, Cedel and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time. See
Annex I hereto.
For additional information regarding DTC, Cedel, Euroclear and the Term
Notes, see "Description of the Notes--Form of Notes" in the Prospectus.
PAYMENTS ON THE NOTES
Payments on the Notes will be made by the Indenture Trustee or the
Paying Agent on the 20th day of each month or, if such day is not a Business
Day, then the next succeeding Business Day, commencing in ___________. Payments
on the Term Notes will be made to the persons in whose names such Term Notes are
registered at the close of business on the day prior to each Payment Date or, if
the Term Notes are no longer Book-Entry Notes, on the Record Date. See
"Description of the Notes--Payments" in the Prospectus. Payments will be made by
check or money order mailed (or upon the request of a Holder owning Term Notes
having denominations aggregating at least $1,000,000, by wire transfer or
otherwise) to the address of the person entitled thereto (which, in the case of
Book- Entry Notes, will be DTC or its nominee) as it appears on the Security
Register in amounts calculated as described herein on the Determination Date.
However, the final payment in respect of the Term Notes will be made only upon
presentation and surrender thereof at the office or the agency of the Indenture
Trustee specified in the notice to Holders of such final payment. A "BUSINESS
DAY" is any day other than (i) a Saturday or Sunday or (ii) a day on which
banking institutions in the State of California, Minnesota, New York, Illinois
or Delaware are required or authorized by law to be closed.
INTEREST PAYMENTS ON THE NOTES
Interest payments will be made on the Notes on each Payment Date at the
Note Rate for the related Interest Period, subject to the limitations set forth
below, which may result in Interest Shortfalls. The "NOTE RATE" for an Interest
Period will generally be a floating rate equal to the lesser of (i) the sum of
(a) LIBOR, determined as specified herein, as of the second LIBOR Business Day
prior to the first day of such Interest Period (or as of two LIBOR Business Days
prior to the Closing Date, in the case of the first Interest Period) plus (b)
____% per annum and (ii) ____% per annum. However, on any Payment Date on which
interest accrued on the Notes during the related Interest
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Period exceeds an amount equal to one-twelfth of the product of (a) the
aggregate Principal Balance of the Revolving Credit Loans multiplied by (b) the
Net Loan Rate Cap (as described below), the amount of such difference (any such
amount, an "INTEREST SHORTFALL") will not be included as interest payments on
the Notes for such Payment Date and such amount will accrue interest at the Note
Rate on the Notes (as adjusted from time to time) and will be paid on future
Payment Dates pro rata based on the Security Balance thereof only to the extent
funds are available therefor as set forth herein under "--Allocation of Payments
on the Revolving Credit Loans." Interest Shortfalls will not be covered by the
Policy and may remain unpaid on the final Payment Date. The "NET LOAN RATE CAP"
will be equal to the weighted average of the Loan Rates as of the last day of
the related Billing Cycle (net of ____% per annum), adjusted to an effective
rate reflecting accrued interest calculated on the basis of the actual number of
days in the related Interest Period and a year assumed to consist of 360 days.
Interest on the Notes in respect of any Payment Date will accrue on the
applicable Security Balance from the preceding Payment Date (or in the case of
the first Payment Date, from the Closing Date) through the day preceding such
Payment Date (each such period, an "INTEREST PERIOD") on the basis of the actual
number of days in the Interest Period and a 360-day year. Interest payments on
the Notes will be funded from payments on the Revolving Credit Loans and, if
necessary, from draws on the Policy (subject to certain limitations).
On each Payment Date, LIBOR shall be established by the Indenture
Trustee and as to any Interest Period, LIBOR will equal the rate for United
States dollar deposits for one month which appears on the Telerate Screen Page
3750 as of 11:00 A.M., London time, on the second LIBOR Business Day prior to
the first day of such Interest Period. "TELERATE SCREEN PAGE 3750" means the
display designated as page 3750 on the Telerate Service (or such other page as
may replace page 3750 on that service for the purpose of displaying London
interbank offered rates of major banks). If such rate does not appear on such
page (or such other page as may replace that page on that service, or if such
service is no longer offered, such other service for displaying LIBOR or
comparable rates as may be selected by the Indenture Trustee after consultation
with the Master Servicer), the rate will be the Reference Bank Rate. The
"REFERENCE BANK RATE" will be determined on the basis of the rates at which
deposits in U.S. Dollars are offered by the reference banks (which shall be
three major banks that are engaged in transactions in the London interbank
market, selected by the Indenture Trustee after consultation with the Master
Servicer) as of 11:00 A.M., London time, on the day that is two LIBOR Business
Days prior to the immediately preceding Payment Date to prime banks in the
London interbank market for a period of one month in amounts approximately equal
to the aggregate Security Balances of all of the Securities then outstanding.
The Indenture Trustee will request the principal London office of each of the
reference banks to provide a quotation of its rate. If at least two such
quotations are provided, the rate will be the arithmetic mean of the quotations.
If on such date fewer than two quotations are provided as requested, the rate
will be the arithmetic mean of the rates quoted by one or more major banks in
New York City, selected by the Indenture Trustee after consultation with the
Master Servicer, as of 11:00 A.M., New York City time, on such date for loans in
U.S. Dollars to leading European banks for a period of one month in amounts
approximately equal to the aggregate Security Balances of all of the Securities
then outstanding. If no such quotations can be obtained, the rate will be LIBOR
for the prior Payment Date. "LIBOR BUSINESS DAY" means any day other than (i) a
Saturday or a Sunday or (ii) a day on which banking institutions in the city of
London, England are required or authorized by law to be closed.
The establishment of LIBOR as to each Interest Period by the Indenture
Trustee and the Indenture Trustee's calculation of the rate of interest
applicable to the Notes for the related Interest Period shall (in the absence of
manifest error) be final and binding.
PRINCIPAL PAYMENTS ON THE NOTES
On each Payment Date, other than the Payment Date in _____________,
principal payments will be due and payable on the Notes in an amount equal to
the aggregate of the Principal Collection Distribution Amount, together with any
Reserve Increase Amounts and Liquidation Loss Distribution Amounts (each as
defined below) for such Payment Date, as and to the extent described below. On
the Insured Undercollateralization Payment Date, Noteholders
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will be entitled to receive an additional principal payment equal to the then
applicable Undercollateralization Amount, if any. On the Payment Date in
_____________, principal will be due and payable on the Notes in amounts equal
to the Security Balance, if any, of the Notes on such Payment Date. In no event
will principal payments on the Notes on any Payment Date exceed the Security
Balance thereof on such date.
ALLOCATION OF PAYMENTS ON THE REVOLVING CREDIT LOANS
The Master Servicer on behalf of the Trust will establish an account
(the "PAYMENT ACCOUNT") into which the Master Servicer will deposit P&I
Collections for each Payment Date on the Business Day prior thereto. The Payment
Account will be an Eligible Account and amounts on deposit in the Payment
Account will be invested in Permitted Investments.
On each Payment Date, P&I Collections will be allocated from the
Payment Account in the following order of priority:
(i) to pay accrued interest due on the applicable Security Balance of
the Term Notes and the Variable Funding Notes (other than any Interest
Shortfalls);
(ii) to pay principal in an amount equal to the Principal Collection
Distribution Amount for such Payment Date on the Term Notes and the Variable
Funding Notes;
(iii) to pay as principal on the Term Notes and the Variable Funding
Notes, an amount equal to (A) 100% of the Liquidation Loss Amounts (other than
any Excess Loss Amounts) on such Payment Date, plus (B) any such Liquidation
Loss Amounts (other than any Excess Loss Amounts) remaining undistributed from
any preceding Payment Date (together with interest thereon from the date
initially distributable to the date paid), provided, that any such Liquidation
Loss Amount shall not be required to be paid to the extent that such Liquidation
Loss Amount was paid on the Term Notes and the Variable Funding Notes by means
of a draw on the Policy or was reflected in the reduction of the Outstanding
Reserve Amount (the aggregate amount so distributed under this clause (iii) on
any Payment Date, a "LIQUIDATION LOSS DISTRIBUTION AMOUNT");
(iv) to pay the Credit Enhancer the premium for the Policy and any
previously unpaid premiums for the Policy (with interest thereon);
(v) to reimburse the Credit Enhancer for prior draws made on the Policy
(other than those attributable to Excess Loss Amounts) with interest thereon;
(vi) to pay as principal on the Term Notes and the Variable Funding
Notes, an additional amount to the extent necessary to reduce the aggregate
Security Balance of the Notes to the Pool Balance as of the end of the related
Collection Period (if applicable) and then to bring the Outstanding Reserve
Amount up to the Reserve Amount Target (the aggregate amount so distributed on
any Payment Date, the "RESERVE INCREASE AMOUNT");
(vii) to pay the Credit Enhancer any other amounts owed pursuant to the
Insurance Agreement;
(viii) to pay the Term Notes and Variable Funding Notes, pro rata based
on the Security Balances thereof, any Interest Shortfalls not previously paid
together with interest thereon; and
(ix) to pay any remaining amounts to the holders of the Certificates.
The "SECURITY BALANCE" of any Security on any day is, with respect to
the Term Notes, the respective initial balance thereof as of the Closing Date,
and with respect to the Variable Funding Notes, the aggregate principal amount
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added to the Variable Funding Notes prior to such day, in each case reduced by
all payments of principal thereon prior to and as of such day.
Payments pursuant to clause (i) will be allocated to the Term Notes and
Variable Funding Notes pro rata based on the amount of interest each such
Security is entitled to receive pursuant to such clause. Payments pursuant to
clauses (ii), (iii) and (vi) will constitute payments of principal and will be
allocated among the Term Notes and Variable Funding Notes pro rata based on the
outstanding Security Balances.
For any Payment Date, the "PRINCIPAL COLLECTION DISTRIBUTION AMOUNT"
will equal (i) Net Principal Collections for such Payment Date, so long as no
Amortization Event has occurred and such Payment Date is during the Revolving
Period, or (ii) Principal Collections for such Payment Date if an Amortization
Event has occurred or if such Payment Date is after the end of the Revolving
Period, provided however, on any Payment Date with respect to which the
Outstanding Reserve Amount that would result without regard to this proviso
exceeds the Reserve Amount Target, the Principal Collection Distribution Amount
will be reduced by the amount of such excess until the Outstanding Reserve
Amount equals the Reserve Amount Target.
"LIQUIDATION LOSS AMOUNT" means with respect to any Liquidated
Revolving Credit Loan, the unrecovered Principal Balance thereof at the end of
the related Collection Period in which such Revolving Credit Loan became a
Liquidated Revolving Credit Loan, after giving effect to the Net Liquidation
Proceeds applied in reduction of the Principal Balance thereof.
A "LIQUIDATED REVOLVING CREDIT LOAN" means, as to any Payment Date, any
Revolving Credit Loan in respect of which the Master Servicer has determined,
based on the servicing procedures specified in the Servicing Agreement, as of
the end of the preceding Collection Period that all liquidation proceeds which
it expects to recover with respect to the disposition of the related Mortgaged
Property have been recovered.
As to any Payment Date prior to the Payment Date in ___________ 19__,
the "RESERVE AMOUNT TARGET" will be ____% of the Cut-off Date Balance. As to any
Payment Date on or after the Payment Date in ___________ 19__, the Reserve
Amount Target will be equal to the lesser of (a) the Reserve Amount Target as of
the Cut-off Date and (b) ____% of the Pool Balance as of the beginning of the
related Collection Period (but not lower than $__________ (____% of the Cut-off
Date Balance) plus ____% of the outstanding Principal Balance of all Revolving
Credit Loans 90 or more days delinquent as of such Payment Date); provided
however that any scheduled reduction to the Reserve Amount Target described
above shall not be made as of any Payment Date unless (i) the outstanding
Principal Balance of the Revolving Credit Loans delinquent 90 days or more
averaged over the last six months as a percentage of the aggregate outstanding
Principal Balance of all Revolving Credit Loans averaged over the last six
months does not exceed ____%, (ii) the aggregate cumulative Liquidation Loss
Amounts on the Revolving Credit Loans prior to any such Payment Date occurring
during the first year and the second year (or any year thereafter) after the
Payment Date in ________ 19__ are less than ____% and ____%, respectively, of
the aggregate Pool Balance and (iii) there has been no draw on the Policy on
such Payment Date that remains unreimbursed. In addition, the Reserve Amount
Target may be reduced with the prior written consent of the Credit Enhancer and
the Rating Agencies.
To the extent the Reserve Amount Target decreases on any Payment Date,
the amount of the Principal Collection Distribution Amount will be reduced on
such Payment Date and on each subsequent Payment Date to the extent the
remaining Outstanding Reserve Amount is in excess of the reduced Reserve Amount
Target until the Outstanding Reserve Amount equals the Reserve Amount Target.
An "AMORTIZATION EVENT" will be deemed to occur upon (i) the occurrence
of certain events relating to a violation of the Seller's obligations under the
Purchase Agreement, (ii) the occurrence of certain events of bankruptcy,
insolvency or receivership relating to the Seller or the Issuer, (iii) the
Issuer becomes subject to regulation as an investment company within the meaning
of the Investment Company Act of 1940, as amended, (iv) a Servicing Default
relating to the Master Servicer occurs under the Servicing Agreement and the
Master Servicer is the Seller, (v) if the
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aggregate of all draws under the Policy (other than those with respect to any
undercollateralization) exceeds ____% of the Cut-off Date Balance or (vi) the
Issuer is determined to be an association taxable as a corporation for federal
income tax purposes.
OUTSTANDING RESERVE AMOUNT
As of the Closing Date, the aggregate Security Balance of the Notes
will exceed the Cut-off Date Balance of the Mortgage Loans by $_______
(approximately ____% of the Cut-off Date Balance) (such excess at any time, the
"UNDERCOLLATERALIZATION AMOUNT"), representing an initial undercollateralization
of the Notes relative to the Mortgage Loans. On each Payment Date, the Reserve
Increase Amount, if any, will be used first, in reduction of the
Undercollateralization Amount by reducing the aggregate Security Balance of the
Notes until it is equal to the Pool Balance as of the end of the related
Collection Period, and then to increase the Outstanding Reserve Amount until
such amount is equal to the Reserve Amount Target. On each Payment Date, the
Outstanding Reserve Amount (as in effect immediately prior to such Payment
Date), if any, shall be deemed to be reduced by an amount equal to any
Liquidation Loss Amounts (other than any Excess Loss Amounts) for such Payment
Date, except to the extent that such Liquidation Loss Amounts were covered on
such Payment Date by a Liquidation Loss Distribution Amount (which amount would
be so distributed, if available, from any excess interest collections for such
Payment Date). Any Liquidation Loss Amounts not so covered will be covered by
draws on the Policy to the extent provided herein. However, any Excess Loss
Amounts are required to be covered by a draw on the Policy in all cases, without
regard to the availability of the Outstanding Reserve Amount, and the
Outstanding Reserve Amount will not be reduced by any Excess Loss Amount so long
as a corresponding draw on the Policy is made as so required. The "OUTSTANDING
RESERVE AMOUNT" available on any Payment Date is the amount, if any, by which
(i) the Pool Balance as of the end of the related Collection Period exceeds (ii)
the aggregate Security Balances of all of the Notes on such Payment Date (after
application of Net Principal Collections or Principal Collections, as the case
may be, for such date).
To the extent that the Outstanding Reserve Amount is insufficient or
not available to absorb Liquidation Loss Amounts that are not covered by the
Liquidation Loss Distribution Amount, if payments are not made under the Policy
as required, a Noteholder may incur a loss.
EXCESS LOSS AMOUNT
On any Payment Date, the "EXCESS LOSS AMOUNT" will be equal to the sum
of (i) any Liquidation Loss Amounts (other than as described in clauses (ii)-(v)
below) for the related Collection Period which, when added to the aggregate of
such Liquidation Loss Amounts for all preceding Collection Periods exceed
$_________, (ii) any Special Hazard Losses in excess of the Special Hazard
Amount, (iii) any Fraud Losses in excess of the Fraud Loss Amount, (iv) any
Bankruptcy Losses in excess of the Bankruptcy Loss Amount, and (v) certain
losses occasioned by war, civil insurrection, certain governmental actions,
nuclear reaction and certain other risks as described in the Indenture. Excess
Loss Amounts will not be covered by any Liquidation Loss Distribution Amount or
by a reduction in the Outstanding Reserve Amount. Any Excess Loss Amounts
however, will be covered by the Policy, and in the event payments are not made
as required under the Policy, such losses will be allocated first to the
Certificates and, after the Security Balance of the Certificates is reduced to
zero to the Notes pro rata based on the outstanding Security Balances thereof.
The "SPECIAL HAZARD AMOUNT" shall initially be equal to $______. As of
any date of determination following the Cut-off Date, the Special Hazard Amount
shall equal $_______ less the sum of (A) the aggregate of any Liquidation Loss
Amounts on the Revolving Credit Loans due to Special Hazard Losses and (B) the
Adjustment Amount. The Adjustment Amount will be equal to an amount calculated
pursuant to the terms of the Indenture.
The "FRAUD LOSS AMOUNT" shall initially be equal to $_________. As of
any date of determination after the Cut-off Date, the Fraud Loss Amount shall
equal (X) prior to the first anniversary of the Cut-off Date an amount equal to
____% of the aggregate of the Credit Limits of the Revolving Credit Loans as of
the Cut-off Date minus the
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aggregate of any Liquidation Loss Amounts on the Revolving Credit Loans due to
Fraud Losses up to such date of determination; (Y) from the first to the second
anniversary of the Cut-off Date, an amount equal to (1) the lesser of (a) the
Fraud Loss Amount as of the most recent anniversary of the Cut-off Date and (b)
____% of the aggregate of the Credit Limits of the Revolving Credit Loans as of
the most recent anniversary of the Cut-off Date minus (2) the aggregate of any
Liquidation Loss Amounts on the Revolving Credit Loans due to Fraud Losses since
the most recent anniversary of the Cut-off Date up to such date of
determination; and (Z) from the second to the fifth anniversary of the Cut-off
Date, an amount equal to (1) the lesser of (a) the Fraud Loss Amount as of the
most recent anniversary of the Cut-off Date and (b) ____% of the aggregate of
the Credit Limits of the Revolving Credit Loans as of the most recent
anniversary of the Cut-off Date minus (2) the aggregate of any Liquidation Loss
Amounts on the Revolving Credit Loans due to Fraud Losses since the most recent
anniversary of the Cut-off Date up to such date of determination. On and after
the fifth anniversary of the Cut-off Date the Fraud Loss Amount shall be zero.
The "BANKRUPTCY AMOUNT" will initially be equal to $_______. As of any
date of determination, the Bankruptcy Amount shall equal $________ less the sum
of any Liquidation Loss Amounts on the Revolving Credit Loans due to such losses
up to such date of determination.
THE PAYING AGENT
The Paying Agent shall initially be the Indenture Trustee, together
with any successor thereto. The Paying Agent shall have the revocable power to
withdraw funds from the Payment Account for the purpose of making payments to
the Noteholders.
MATURITY AND OPTIONAL REDEMPTION
The Notes will be payable in full on the Payment Date in ___________,
to the extent of the related outstanding Security Balance on such date, if any.
In addition, a principal payment may be made in partial or full redemption of
the Notes after the Pool Balance is reduced to an amount less than or equal to
$_________ ( ____% of the Cut-off Date Balance), upon the exercise by the Master
Servicer of its option to purchase all or a portion of the Revolving Credit
Loans and related assets. In the event that all of the Revolving Credit Loans
are purchased by the Master Servicer, the purchase price will be equal to the
sum of (i) the outstanding Pool Balance and accrued and unpaid interest thereon
at the weighted average of the Loan Rates through the day preceding the Payment
Date (including Interest Shortfalls and interest thereon) on which such purchase
occurs, and (ii) all amounts due and owing to the Credit Enhancer.
In the event that a portion of the Revolving Credit Loans are purchased
by the Master Servicer the purchase price will be equal to the sum of the
aggregate Principal Balances of the Revolving Credit Loans so purchased and
accrued and unpaid interest thereon at the weighted average of the related Loan
Rates on such Revolving Credit Loans through the day preceding the Payment Date
on which such purchase occurs together with all amounts due and owing to the
Credit Enhancer with respect to the Revolving Credit Loans so purchased. In lieu
of a cash payment, if an Amortization Event had previously occurred, all or a
portion of such purchase price may be in the form of Additional Balances on
other Revolving Credit Loans not previously conveyed to the Trust. Any such
purchase will be subject to satisfaction of certain conditions specified in the
Servicing Agreement, including: (i) the Master Servicer shall have delivered to
the Indenture Trustee a schedule containing a list of all Revolving Credit Loans
remaining in the Trust after such removal; (ii) the Master Servicer shall
represent and warrant that no selection procedures reasonably believed by the
Master Servicer to be adverse to the interests of the Securityholders or the
Credit Enhancer were used by the Master Servicer in selecting such Revolving
Credit Loans; and (iii) each Rating Agency shall have been notified of the
proposed retransfer and shall not have notified the Master Servicer that such
retransfer would result in a reduction or withdrawal of the ratings of the
Securities without regard to the Policy.
DESCRIPTION OF THE POLICY
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On the Closing Date, the Credit Enhancer will issue the Policy in favor
of the Owner Trustee on behalf of the Issuer. The Policy will unconditionally
and irrevocably guarantee certain payments on the Notes. On each Payment Date, a
draw will be made on the Policy equal to the sum of (a) the amount by which
accrued interest on the Notes at the Note Rate on such Payment Date (exclusive
of any Interest Shortfalls) exceeds the amount on deposit in the Payment Account
available for interest distributions on such Payment Date, (b) any Liquidation
Loss Amount (other than any Excess Loss Amount) for such Payment Date, to the
extent not currently covered by a Liquidation Loss Distribution Amount or a
reduction in the Outstanding Reserve Amount and (c) any Excess Loss Amount for
such Payment Date. In addition, on the date (the "INSURED UNDERCOLLATERALIZATION
PAYMENT DATE") which is the earlier of (i) the twelfth Payment Date and (ii) the
Payment Date immediately following the optional redemption of the Notes by the
Master Servicer as described herein, a draw will be made on the Policy to cover
the then applicable Undercollateralization Amount, if any. For purposes of the
foregoing, amounts in the Payment Account available for interest distributions
on any Payment Date shall be deemed to include all amounts in the Payment
Account for such Payment Date, other than the Principal Collection Distribution
Amount and the Liquidation Loss Distribution Amount (if any) distributed
thereon. Interest Shortfalls will not be covered by the Policy. Pursuant to the
terms of the Indenture, draws under the Policy in respect of any Liquidation
Loss Amount will be paid to the Notes by the Paying Agent as principal, pro rata
among the Term Notes and the Variable Funding Notes based on the Security
Balances thereof. In addition, a draw will be made on the Policy to cover
certain shortfalls in amounts allocable to the Noteholders following the sale,
liquidation or other disposition of the assets of the Trust in connection with
the liquidation of the Trust as permitted under the Indenture following an Event
of Default thereunder. In addition, the Policy will guarantee the payment of the
outstanding Security Balance of the Notes on the Payment Date in June 2023. In
the absence of payments under the Policy, Noteholders will directly bear the
credit risks associated with their investment to the extent such risks are not
covered by the Outstanding Reserve Amount or otherwise.
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
PROSPECTIVE NOTEHOLDERS SHOULD CONSIDER, AMONG OTHER THINGS, THE ITEMS
DISCUSSED UNDER "YIELD AND PREPAYMENT CONSIDERATIONS" IN THE PROSPECTUS AND THE
FOLLOWING FACTORS IN CONNECTION WITH THE PURCHASE OF THE TERM NOTES:
The yield to maturity of the Term Notes will depend on the price paid
by the holder for such Note, the Note Rate and the rate and timing of principal
payments (including payments in excess of required installments, prepayments in
full or terminations, liquidations and repurchases) on the Revolving Credit
Loans and the rate and timing of Draws and the allocation thereof.
In general, if a Term Note is purchased at a premium over its face
amount and payments of principal on such Term Note 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. Conversely, if a Term
Note is purchased at a discount from its face amount and payments of principal
on such Term Note occur at a rate slower than anticipated at the time of
purchase, the purchaser's actual yield to maturity will be lower than originally
assumed.
The rate and timing of defaults on the Revolving Credit Loans will also
affect the rate and timing of principal payments on the Revolving Credit Loans
and thus the yield on the Term Notes. There can be no assurance as to the rate
of losses or delinquencies on any of the Revolving Credit Loans, however, the
rate of such losses and delinquencies are likely to be higher than those of
traditional first lien mortgage loans, particularly in the case of Revolving
Credit Loans with high Combined Loan-to-Value Ratios or low Junior Ratios. In
addition, because borrowers of Balloon Loans are required to make a relatively
large single payment upon maturity, the default risk
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associated with Balloon Loans is greater than that associated with
fully-amortizing revolving credit loans. See "Risk Factors" herein. To the
extent that any losses are incurred on any of the Revolving Credit Loans that
are not covered by the Liquidation Loss Distribution Amount, a reduction in the
Outstanding Reserve Amount or the Policy, holders of the Term Notes will bear
all risk of such losses resulting from default by Mortgagors. See "Risk
Factors-Limitations, Reduction and Substitution of Credit Enhancement" in the
Prospectus. Even where the Policy covers all losses incurred on the Revolving
Credit Loans, the effect of losses may be to increase prepayment rates on the
Revolving Credit Loans, thus reducing the weighted average life and affecting
the yield to maturity. In addition, the rate of prepayments of the Revolving
Credit Loans and the yield to investors on the Term Notes may be affected by
certain refinancing programs, which may include general or targeted
solicitations, as described under "Maturity and Prepayment Considerations" in
the Prospectus.
With respect to the Teaser Loans, representing ____% of the Cut-off
Date Balance, the Loan Rate at origination is below the rate that would result
from the sum of the then-applicable Index and Gross Margin. The repayment of any
such Teaser Loan may thus be dependent on the ability of the mortgagor to make
larger interest payments following the initial adjustment of the Loan Rate.
In addition, the repayment of any Revolving Credit Loan may be
dependent on the ability of the Mortgagor to make larger interest payments
following the adjustment of the Loan Rate and during the life of such Revolving
Credit Loan.
There can be no assurance as to the rate of principal payments and
Draws on the Revolving Credit Loans. The rate of principal payments and the rate
of Draws may fluctuate substantially from time to time. Generally, home equity
loans are not viewed by mortgagors as permanent financing. Due to the
unpredictable nature of both principal payments and Draws, the rates of
principal payments net of Draws on the Revolving Credit Loans may be much more
volatile than for typical first lien mortgage loans. See "Yield and Prepayment
Considerations" in the Prospectus and "Risk Factors" herein.
Weighted average life refers to the average amount of time that will
elapse from the date of issuance of a security to the date of distribution to
the investor of each dollar distributed in reduction of principal of such
security (assuming no losses). The weighted average life of the Term Notes will
be influenced by, among other things, the rate of principal payments and Draws
on the Revolving Credit Loans.
The model used in this Prospectus Supplement assumes that the
outstanding principal balance of a pool of HELOC loans prepays at a specified
constant annual rate ("CPR"). In generating monthly cash flows, this rate is
converted to an equivalent constant monthly rate. To assume 30% of CPR or any
other CPR percentage is to assume that the stated percentage of the outstanding
principal balance of the pool is prepaid over the course of a year. No
representation is made that the Revolving Credit Loans will prepay at that or
any other rate. In addition, the model assumes that the amount of Additional
Balances on the Revolving Credit Loans drawn each month is drawn at a specified
annual rate (the "CONSTANT DRAW RATE"). This rate is converted to a constant
monthly rate. To assume a 15% Constant Draw Rate or any other Constant Draw Rate
is to assume the stated percentage of the outstanding principal balance of the
pool is drawn on over the course of the year.
The tables set forth below are based on a CPR, Constant Draw Rate and
optional termination assumptions as indicated in the tables below. For the
following tables, it was assumed that the Revolving Credit Loans have been
aggregated into three pools, one pool with a principal balance of $_______, a
second pool with a principal balance of $_______ and a third pool with a
principal balance of $_______. Further, Revolving Credit Loans with respect to
the three pools are assumed to have Loan Rates of ____% per annum, ____% per
annum and ____% per annum, respectively, which will adjust to ____% per annum,
____% per annum and ____% per annum, respectively, in the second month, the
second month and third month, respectively, Credit Limit Utilization Rates of
____%, ____% and ____%, respectively, terms in which the loans do not amortize
and in which Additional Draws may be made of ___ months, ____ months and ___
months, respectively,
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and as of the Closing Date, remaining terms to maturity of ___ months, ___
months and ___ months, respectively. In addition, each pool is assumed to have
an aggregate Servicing Fee Rate and Policy premium rate of ____% per annum.
In addition, it was assumed that (i) payments are made in accordance
with the description set forth under "Description of the Securities," (ii)
payments on the Notes will be made on the 20th day of each calendar month
regardless of the day on which the Payment Date actually occurs commencing in
_______ 19__, (iii) no extension past the scheduled maturity date of a
Revolving Credit Loan is made, (iv) no delinquencies or defaults occur, (v)
monthly Draws are calculated under each of the assumptions as set forth in the
tables below before giving effect to prepayments, (vi) the Revolving Credit
Loans pay on the basis of a 30-day month and a 360-day year, (vii) there is no
restriction on the Maximum Variable Funding Balance, (viii) no Amortization
Event occurs, (ix) the scheduled Due Date for each of the Revolving Credit Loans
is the first day of each month, (x) the Closing Date is ________, 19__, (xi) for
each Payment Date, the Note Rate is equal to ____% per annum and (xii) the
initial Security Balance of the Term Notes as set forth on the cover page hereof
is $______.
The actual characteristics and performance of the Revolving Credit
Loans will differ from the assumptions used in constructing the tables set forth
below, which are hypothetical in nature and are provided only to give a general
sense of how the principal cash flows might behave under varying prepayment and
Draw scenarios. For example, it is very unlikely that the Revolving Credit Loans
will prepay and experience Draws at a constant rate until maturity or that all
of the Revolving Credit Loans will prepay or experience Draws at the same rate.
Moreover, the diverse remaining terms to stated maturity of the Revolving Credit
Loans could produce slower or faster principal distributions than indicated in
the tables at the various assumptions specified, even if the weighted average
remaining term to stated maturity of the Revolving Credit Loans is as assumed.
Any difference between such assumptions and the actual characteristics and
performance of the Revolving Credit Loans, or actual prepayment experience, will
affect the percentages of initial Security Balance outstanding over time and the
weighted average life of the Term Notes.
Subject to the foregoing discussion and assumptions, the following
table indicates the weighted average life of the Notes, and sets forth the
percentages of the initial Security Balance of the Notes that would be
outstanding after each of the dates shown at various percentages of the
Prepayment Assumption.
[INSERT DEC TABLES]
DESCRIPTION OF THE PURCHASE AGREEMENT
The Revolving Credit Loans to be transferred to the Trust by the
Depositor were or will be purchased by the Depositor from ____________ (in such
capacity, the "SELLER") pursuant to a Revolving Credit Loan Purchase Agreement
(the "PURCHASE AGREEMENT"). Under the Purchase Agreement, the Depositor acquired
the Revolving Credit Loans and related Additional Balances. The following
summary describes certain terms of the form of the Purchase Agreement and is
qualified in its entirety by reference to the form of Purchase Agreement.
TRANSFER OF REVOLVING CREDIT LOANS
Pursuant to the Purchase Agreement, the Seller will transfer and assign
to the Depositor all of its right, title and interest in and to the Revolving
Credit Loans, the related Credit Line Agreement, mortgages and other related
documents (collectively, the "RELATED DOCUMENTS") and all of the Additional
Balances thereafter created prior to the occurrence of an Amortization Event.
The purchase price of the Revolving Credit Loans is a specified percentage of
the face amount thereof as of the time of transfer and is payable by the
Depositor as provided in the Purchase Agreement. The purchase price of each
Additional Balance is the amount of the related new advance and is payable by
the Trust, either in cash or in the form of an increase in the Security Balance
of the Variable Funding Notes (or, in certain circumstances, the issuance of
additional Certificates), as provided in the Purchase Agreement.
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The Purchase Agreement will require that, within the time period
specified therein, the Seller deliver to the Indenture Trustee (as the Trust's
agent for such purpose) the Revolving Credit Loans and the Related Documents. In
lieu of delivery of original mortgages, the Seller may deliver true and correct
copies thereof which have been certified as to authenticity by the appropriate
county recording office where such mortgage is recorded. In addition, under the
terms of the Purchase Agreement, the Seller will cause the Custodian to record
assignments of mortgages relating to such Revolving Credit Loans.
REPRESENTATIONS AND WARRANTIES
The Seller will also represent and warrant to the Depositor that, among
other things, (a) the information with respect to the Revolving Credit Loans set
forth in the schedule attached to the Purchase Agreement is true and correct in
all material respects and (b) immediately prior to the sale of the Revolving
Credit Loans to the Depositor, the Seller was the sole owner and holder of the
Revolving Credit Loans free and clear of any and all liens and security
interests. The Seller will also represent and warrant to the Depositor that,
among other things, as of the Closing Date, (a) the Purchase Agreement
constitutes a legal, valid and binding obligation of the Seller and (b) the
Purchase Agreement constitutes a valid transfer and assignment to the Depositor
of all right, title and interest of the Seller in and to the Revolving Credit
Loans and the proceeds thereof. The benefit of the representations and
warranties made to the Depositor by the Seller in the Purchase Agreement will be
assigned by the Depositor to the Trust.
Within 90 days of the Closing Date, ___________ (the "CUSTODIAN") will
review or cause to be reviewed the Revolving Credit Loans and the Related
Documents and if any Revolving Credit Loan or Related Document is found to be
defective in any material respect, which may materially and adversely affect the
value of the related Revolving Credit Loan, or the interests of the Indenture
Trustee (as pledgee of the Trust Fund), the Securityholders or the Credit
Enhancer in such Revolving Credit Loan and such defect is not cured within 90
days following notification thereof to the Seller and the Trust by the
Custodian, the Seller will be obligated under the Purchase Agreement to deposit
the Repurchase Price into the Custodial Account. In lieu of any such deposit,
the Seller may substitute an Eligible Substitute Loan. Any such purchase or
substitution will result in the removal of such Revolving Credit Loan required
to be removed from the Trust (each such Revolving Credit Loan, a "DELETED
LOAN"). The obligation of the Seller to remove a Deleted Loan from the Trust is
the sole remedy regarding any defects in the Revolving Credit Loans and Related
Documents available to the Trust, the Certificateholders (or the Owner Trustee
on behalf of the Certificateholders) and the Noteholders (or the Indenture
Trustee on behalf of the Noteholders) against the Seller.
With respect to any Revolving Credit Loan, the "REPURCHASE PRICE" is
equal to the Principal Balance of such Revolving Credit Loan at the time of any
removal described above plus accrued and unpaid interest thereon to the date of
removal. In connection with the substitution of an Eligible Substitute Loan, the
Seller will be required to deposit in the Custodial Account an amount (the
"SUBSTITUTION ADJUSTMENT AMOUNT") equal to the excess of the Principal Balance
of the related Deleted Loan over the Principal Balance of such Eligible
Substitute Loan.
An "ELIGIBLE SUBSTITUTE LOAN" is a mortgage loan substituted by the
Seller for a Deleted Loan which must, on the date of such substitution, (i) have
an outstanding Principal Balance (or in the case of a substitution of more than
one Revolving Credit Loan for a Deleted Loan, an aggregate Principal Balance)
not in excess of the Principal Balance relating to such Deleted Loan; (ii) have
a Loan Rate, Net Loan Rate and Gross Margin no lower than and not more than 1%
in excess of the Loan Rate, Net Loan Rate and Gross Margin, respectively, of
such Deleted Loan; (iii) have a Combined Loan-to-Value Ratio at the time of
substitution no higher than that of the Deleted Loan at the time of
substitution; (iv) have a remaining term to maturity not more than one year
earlier and not later than the remaining term to maturity of the Deleted Loan;
(v) comply with each representation and warranty as to the Revolving Credit
Loans set forth in the Purchase Agreement (deemed to be made as of the date of
substitution); and (vi) satisfy certain other conditions specified in the
Indenture.
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In addition the Seller will be obligated to deposit the Repurchase
Price or substitute an Eligible Substitute Loan with respect to a Revolving
Credit Loan as to which there is a breach of a representation or warranty in the
Purchase Agreement and such breach is not cured by the Seller within the time
provided in the Purchase Agreement.
DESCRIPTION OF THE SERVICING AGREEMENT
The following summary describes certain terms of the Servicing
Agreement, dated as of ___________, 19__ among the Trust, the Indenture Trustee
and the Master Servicer. The summary does not purport to be complete and is
subject to, and qualified in its entirety by reference to, the provisions of the
Servicing Agreement. Whenever particular defined terms of the Servicing
Agreement are referred to, such defined terms are thereby incorporated herein by
reference. See "Servicing of Revolving Credit Loans" and "The Agreements" in the
Prospectus.
P&I COLLECTIONS
The Master Servicer shall establish and maintain an account (the
"CUSTODIAL ACCOUNT") in which the Master Servicer shall deposit or cause to be
deposited any amounts representing payments on and any collections received in
respect of the Revolving Credit Loans received by it subsequent to the Cut-off
Date. The Custodial Account shall be an Eligible Account. On the 15th day of
each month or if such day is not a Business Day, the next succeeding Business
Day (the "DETERMINATION DATE"), the Master Servicer will notify the Paying Agent
and the Indenture Trustee of the amount of aggregate amounts required to be
withdrawn from the Custodial Account and deposited into the Payment Account
prior to the close of business on the Business Day next succeeding each
Determination Date.
"PERMITTED INVESTMENTS" are specified in the Servicing Agreement and
are limited to investments which meet the criteria of the Rating Agencies from
time to time as being consistent with their then-current ratings of the
Securities.
The Master Servicer will make the following withdrawals from the
Custodial Account and deposit such amounts as follows:
(i) to the Payment Account, an amount equal to the P&I Collections on
the Business Day prior to each Payment Date; and
(ii) to pay to itself or the Seller various reimbursement amounts and
other amounts as provided in the Servicing Agreement.
As to any Payment Date, "P&I COLLECTIONS" will equal the sum of (a)
Interest Collections for such Payment Date and (b) so long as an Amortization
Event has not occurred and if during the Revolving Period, "NET PRINCIPAL
COLLECTIONS" for such Payment Date which are the excess, if any, of Principal
Collections for such Payment Date over the aggregate amount of Additional
Balances created during the related Collection Period and conveyed to the Trust,
or if an Amortization Event has occurred or the Revolving Period has ended,
Principal Collections for such date. Upon the occurrence of an Amortization
Event or after the end of the Revolving Period, Principal Collections for a
Collection Period will no longer be applied to acquire Additional Balances
during such Collection Period.
All collections on the Revolving Credit Loans will generally be
allocated in accordance with the Credit Line Agreements between amounts
collected in respect of interest and amounts collected in respect of principal.
As to any Payment Date, "INTEREST COLLECTIONS" will be equal to the sum of (i)
the amounts collected during the related Collection Period, including Net
Liquidation Proceeds (as defined below), allocated to interest pursuant to the
terms of the Credit Line Agreements (exclusive of the pro rata portion thereof
attributable to Additional Balances not conveyed to the Trust following an
Amortization Event), reduced by the Servicing Fees for such Collection Period
and (ii) the interest portion of the Repurchase Price for any Deleted Loans and
the cash purchase price paid in
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connection with any optional purchase of the Revolving Credit Loans by the
Master Servicer. As to any Payment Date, "PRINCIPAL COLLECTIONS" will be equal
to the sum of (i) the amount collected during the related Collection Period,
including Net Liquidation Proceeds allocated to principal pursuant to the terms
of the Credit Line Agreements (exclusive of the pro rata portion thereof
attributable to Additional Balances not conveyed to the Trust following an
Amortization Event) and (ii) any Substitution Adjustment Amounts and the
principal portion of the Repurchase Price for any Deleted Loans and (iii) the
cash purchase price paid in connection with any optional purchase of the
Revolving Credit Loans by the Master Servicer.
As to any Payment Date, the "COLLECTION PERIOD" is the calendar month
preceding the month of such Payment Date.
"NET LIQUIDATION PROCEEDS" with respect to a Revolving Credit Loan are
the proceeds (excluding amounts drawn on the Policy) received in connection with
the liquidation of any Revolving Credit Loan, whether through trustee's sale,
foreclosure sale or otherwise, reduced by related expenses, but not including
the portion, if any, of such amount that exceeds the Principal Balance of the
Revolving Credit Loan at the end of the Collection Period immediately preceding
the Collection Period in which such Revolving Credit Loan became a Liquidated
Revolving Credit Loan.
With respect to any date, the "POOL BALANCE" will be equal to the
aggregate of the Principal Balances of all Revolving Credit Loans as of such
date owned by the Trust. The Principal Balance of a Revolving Credit Loan (other
than a Liquidated Revolving Credit Loan) on any day is equal to the Cut-off Date
Balance thereof, plus (i) any Additional Balances in respect of such Revolving
Credit Loan conveyed to the Trust minus (ii) all collections credited against
the Principal Balance of such Revolving Credit Loan in accordance with the
related Credit Line Agreement prior to such day (exclusive of the pro rata
portion thereof attributable to Additional Balances not conveyed to the Trust
following an Amortization Event or the end of the Revolving Period). The
Principal Balance of a Liquidated Revolving Credit Loan after final recovery of
substantially all of the related Liquidation Proceeds which the Master Servicer
reasonably expects to receive shall be zero.
DESCRIPTION OF THE TRUST AGREEMENT AND INDENTURE
The following summary describes certain terms of the Trust Agreement
and the Indenture. The summary does not purport to be complete and is subject
to, and qualified in its entirety by reference to, the provisions of the Trust
Agreement and the Indenture. Whenever particular defined terms of the Indenture
are referred to, such defined terms are thereby incorporated herein by
reference. See "The Agreements" in the Prospectus.
THE TRUST FUND
Simultaneously with the issuance of the Notes, the Issuer will pledge
the Trust Fund to the Indenture Trustee as collateral for the Notes. As pledgee
of the Revolving Credit Loans, the Indenture Trustee will be entitled to direct
the Issuer in the exercise of all rights and remedies of the Depositor against
the Seller under the Purchase Agreement and against the Master Servicer under
the Servicing Agreement.
REPORTS TO HOLDERS
The Indenture Trustee will mail to each Holder of Term Notes, at its
address listed on the Security Register maintained with the Indenture Trustee, a
report setting forth certain amounts relating to the Notes for each Payment
Date, among other things:
(i) the amount of principal, if any, payable on such Payment Date to
Securityholders;
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(ii) the amount of interest payable on such Payment Date to
Securityholders separately stating the portion thereof in respect
of overdue accrued interest;
(iii)the Security Balances of the Notes after giving effect to the
payment of principal on such Payment Date;
(iv) P&I Collections for the related Collection Period;
(v) the aggregate Principal Balance of the Revolving Credit Loans as
of the end of the preceding Collection Period;
(vi) the Outstanding Reserve Amount as of the end of the related
Collection Period; and
(vii) the amount paid, if any, under the Policy for such Payment Date.
In the case of information furnished pursuant to clauses (i) and (ii)
above, the amounts shall be expressed as a dollar amount per $1,000 in face
amount of Notes.
CERTAIN COVENANTS
The Indenture will provide that the Issuer may not consolidate with or
merge into any other entity, unless (i) the entity formed by or surviving such
consolidation or merger is organized under the laws of the United States, any
state or the District of Columbia, (ii) such entity expressly assumes, by an
indenture supplemental to the Indenture, the Issuer's obligation to make due and
punctual payments upon the Notes and the performance or observance of any
agreement and covenant of the Issuer under the Indenture, (iii) no Event of
Default shall have occurred and be continuing immediately after such merger or
consolidation, (iv) the Issuer has received consent of the Credit Enhancer and
has been advised that the ratings of the Securities (without regard to the
Policy) then in effect would not be reduced or withdrawn by any Rating Agency as
a result of such merger or consolidation, (v) any action that is necessary to
maintain the lien and security interest created by the Indenture is taken and
(vi) the Issuer has received an Opinion of Counsel to the effect that such
consolidation or merger would have no material adverse tax consequence to the
Issuer or to any Noteholder or Certificateholder and (vii) the Issuer has
delivered to the Indenture Trustee an officer's certificate and an Opinion of
Counsel each stating that such consolidation or merger and such supplemental
indenture comply with the Indenture and that all conditions precedent, as
provided in the Indenture, relating to such transaction have been complied with.
The Issuer will not, among other things, (i) except as expressly permitted by
the Indenture, sell, transfer, exchange or otherwise dispose of any of the
assets of the Issuer, (ii) claim any credit on or make any deduction from the
principal and interest payable in respect of the Notes (other than amounts
withheld under the Code or applicable state law) or assert any claim against any
present or former holder of Notes because of the payment of taxes levied or
assessed upon the Issuer, (iii) permit the validity or effectiveness of the
Indenture to be impaired or permit any person to be released from any covenants
or obligations with respect to the Notes under the Indenture except as may be
expressly permitted thereby or (iv) permit any lien, charge, excise, claim,
security interest, mortgage or other encumbrance to be created on or extend to
or otherwise arise upon or burden the assets of the Issuer or any part thereof,
or any interest therein or the proceeds thereof. The Issuer may not engage in
any activity other than as specified under "The Issuer" herein.
MODIFICATION OF INDENTURE
With the consent of the holders of a majority of each of the
outstanding Term Notes and Variable Funding Notes and the Credit Enhancer, the
Issuer and the Indenture Trustee may execute a supplemental indenture to add
provisions to, change in any manner or eliminate any provisions of, the
Indenture, or modify (except as provided below) in any manner the rights of the
Noteholders. Without the consent of the holder of each outstanding Note affected
thereby and the Credit Enhancer, however, no supplemental indenture will: (i)
change the due date of any installment of principal
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of or interest on any Note or reduce the principal amount thereof, the interest
rate specified thereon or change any place of payment where or the coin or
currency in which any Note or any interest thereon is payable; (ii) impair the
right to institute suit for the enforcement of certain provisions of the
Indenture regarding payment; (iii) reduce the percentage of the aggregate amount
of the outstanding Notes, the consent of the holders of which is required for
any supplemental indenture or the consent of the holders of which is required
for any waiver of compliance with certain provisions of the Indenture or of
certain defaults thereunder and their consequences as provided for in the
Indenture; (iv) modify or alter the provisions of the Indenture regarding the
voting of Notes held by the Issuer, the Depositor or an affiliate of any of
them; (v) decrease the percentage of the aggregate principal amount of Notes
required to amend the sections of the Indenture which specify the applicable
percentage of aggregate principal amount of the Notes necessary to amend the
Indenture or certain other related agreements; (vi) modify any of the provisions
of the Indenture in such manner as to affect the calculation of the amount of
any payment of interest or principal due on any Note (including the calculation
of any of the individual components of such calculation); or (vii) permit the
creation of any lien ranking prior to or, except as otherwise contemplated by
the Indenture, on a parity with the lien of the Indenture with respect to any of
the collateral for the Notes or, except as otherwise permitted or contemplated
in the Indenture, terminate the lien of the Indenture on any such collateral or
deprive the holder of any Note of the security afforded by the lien of the
Indenture.
The Issuer and the Indenture Trustee may also enter into supplemental
indentures, with the consent of the Credit Enhancer and without obtaining the
consent of the Noteholders, for the purpose of, among other things, curing any
ambiguity or correcting or supplementing any provision in the Indenture that may
be inconsistent with any other provision therein.
CERTAIN MATTERS REGARDING THE INDENTURE TRUSTEE AND THE ISSUER
Neither the Indenture Trustee nor any director, officer or employee of
the Indenture Trustee will be under any liability to the Issuer or the related
Noteholders for any action taken or for refraining from the taking of any action
in good faith pursuant to the Indenture or for errors in judgment; provided,
however, that none of the Indenture Trustee and any director, officer or
employee thereof will be protected against any liability which would otherwise
be imposed by reason of willful malfeasance, bad faith or negligence in the
performance of duties or by reason of reckless disregard of obligations and
duties under the Indenture. Subject to certain limitations set forth in the
Indenture, the Indenture Trustee and any director, officer, employee or agent of
the Indenture Trustee shall be indemnified by the Issuer and held harmless
against any loss, liability or expense incurred in connection with
investigating, preparing to defend or defending any legal action, commenced or
threatened, relating to the Indenture other than any loss, liability or expense
incurred by reason of willful malfeasance, bad faith or negligence in the
performance of its duties under such Indenture or by reason of reckless
disregard of its obligations and duties under the Indenture. All persons into
which the Indenture Trustee may be merged or with which it may be consolidated
or any person resulting from such merger or consolidation shall be the successor
of the Indenture Trustee under the Indenture.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Thacher Proffitt & Wood, counsel to the Depositor,
for federal income tax purposes, the Term Notes will be characterized as
indebtedness and the Issuer, as created pursuant to the terms and conditions of
the Trust Agreement, will not be characterized as an association (or publicly
traded partnership within the meaning of section 7704 of the Code) taxable as a
corporation or as a taxable mortgage pool within the meaning of section 7701(i)
of the Code.
For federal income tax purposes, the Term Notes will not be treated as
having been issued with "original issue discount" (as defined in the
Prospectus). See "Certain Federal Income Tax Consequences" in the Prospectus.
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Prospective investors in the Notes should see "Certain Federal Income
Tax Consequences" and "State and Other Tax Consequences" in the Prospectus for a
discussion of the application of certain federal income and state and local tax
laws to the Issuer and purchasers of the Term Notes.
ERISA CONSIDERATIONS
Any fiduciary or other investor of Plan assets that proposes to acquire
or hold the Term Notes on behalf of or with Plan assets of any Plan should
consult with its counsel with respect to the potential applicability of the
fiduciary responsibility provisions of ERISA and the prohibited transaction
provisions of ERISA and the Code to the proposed investment. See "ERISA
Considerations" in the Prospectus.
LEGAL INVESTMENT
The Term Notes will not constitute "mortgage related securities" for
purposes of SMMEA. Accordingly, many institutions with legal authority to invest
in mortgage related securities may not be legally authorized to invest in the
Term Notes. No representation is made herein as to whether the Term Notes
constitute legal investments for any entity under any applicable statute, law,
rule, regulation or order. Prospective purchasers are urged to consult with
their counsel concerning the status of the Term Notes as legal investments for
such purchasers prior to investing in Term Notes.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in an Underwriting
Agreement, dated _____ __, 199_ (the "UNDERWRITING AGREEMENT") the Underwriters
have severally agreed to purchase and the Depositor has agreed to sell to the
Underwriters the Term Notes. It is expected that delivery of the Term Notes will
be made only in book-entry form through the Same Day Funds Settlement System of
DTC, Cedel and Euroclear on or about _______ __, 199_, against payment therefor
in immediately available funds.
The Underwriting Agreement provides that the obligation of the
Underwriters to pay for and accept delivery of the Term Notes is subject to,
among other things, the receipt of certain legal opinions and to the conditions,
among others, that no stop order suspending the effectiveness of the Company's
Registration Statement shall be in effect, and that no proceedings for such
purpose shall be pending before or threatened by the Securities and Exchange
Commission.
The distribution of the Term Notes by the Underwriters may be effected
from time to time in one or more negotiated transactions, or otherwise, at
varying prices to be determined at the time of sale. Proceeds to the Company
from the sale of the Term Notes, before deducting expenses payable by the
Company, will be approximately _____% of the aggregate Security Balance of the
Term Notes. The Underwriters may effect such transactions by selling the Term
Notes to or through dealers, and such dealers may receive compensation in the
form of underwriting discounts, concessions or commissions from the related
Underwriter for whom they act as agent. In connection with the sale of the Term
Notes, the related Underwriter may be deemed to have received compensation from
the Company in the form of underwriting compensation. The related Underwriter
and any dealers that participate with the related Underwriter in the
distribution of the Term Notes may be deemed to be underwriters and any profit
on the resale of the Term Notes positioned by them may be deemed to be
underwriting discounts and commissions under the Securities Act of 1933.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters, and that under limited circumstances the related Underwriter will
indemnify the Company, against certain civil liabilities under the Securities
Act of 1933, or contribute to payments required to be made in respect thereof.
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There can be no assurance that a secondary market for the Term Notes
will develop or, if it does develop, that it will continue. The primary source
of information available to investors concerning the Term Notes will be the
monthly statements discussed in the Prospectus under "Description of the
Notes--Reports to Noteholders," which will include information as to the
outstanding principal balance of the Term Notes. There can be no assurance that
any additional information regarding the Term Notes will be available through
any other source. In addition, the Company is not aware of any source through
which price information about the Term Notes will be generally available on an
ongoing basis. The limited nature of such information regarding the Term Notes
may adversely affect the liquidity of the Term Notes, even if a secondary market
for the Term Notes becomes available.
RFSC is an affiliate of the Depositor and the Master Servicer.
EXPERTS
The consolidated financial statements of [Name of Credit Enhancer], as
of _______ and _________ and for each of the years in the three-year period
ended ______________ are incorporated by reference herein and in the
registration statement in reliance upon the report of _____________, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters with respect to the Term Notes will be passed
upon for the Depositor and [name of Master Servicer] by Thacher Proffitt & Wood,
New York, New York and for [Name of Underwriter] by [name of Underwriter's
counsel].
RATINGS
It is a condition to issuance that the Term Notes be rated "Aaa" by
Moody's and "AAA" by Standard & Poor's. The Depositor has not requested a rating
on the Term Notes by any rating agency other than Moody's and Standard & Poor's.
However, there can be no assurance as to whether any other rating agency will
rate the Term Notes, or, if it does, what rating would be assigned by any such
other rating agency. A rating on the Term Notes by another rating agency, if
assigned at all, may be lower than the ratings assigned to the Term Notes by
Moody's and Standard & Poor's. A securities rating addresses the likelihood of
the receipt by holders of Term Notes of distributions on the Revolving Credit
Loans. The rating takes into consideration the structural and legal aspects
associated with the Term Notes. The ratings on the Term Notes do not, however,
constitute statements regarding the possibility that Holders might realize a
lower than anticipated yield. In addition, such ratings do not address the
likelihood of the receipt of any amounts in respect of Interest Shortfalls. A
securities rating is not a recommendation to buy, sell or hold securities and
may be subject to revision or withdrawal at any time by the assigning rating
organization. Each securities rating should be evaluated independently of
similar ratings on different securities.
S-45
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PRELIMINARY PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
SUCH STATE.
Subject to completion Dated August 5, 1998
PROSPECTUS
Collateralized Mortgage Bonds
IMH Assets Corp.
The collateralized mortgage bonds (the "Bonds") offered hereby and by the
supplements hereto (each, a "Prospectus Supplement") will be offered from time
to time in series.
Each series of Bonds will represent indebtedness of the related trust fund (with
respect to any series, the "Trust Fund") to be established by IMH Assets Corp.
(the "Company") pursuant to a trust agreement (the "Trust Agreement") and will
be secured by certain assets deposited therein. Each Trust Fund for a series of
Bonds and the related Certificates (as defined herein, and together with the
Bonds, the "Securities") will consist primarily of a segregated pool (a
"Mortgage Pool") of one- to four-family and/or multifamily residential first
and/or junior mortgage loans, including home equity revolving lines of credit
("Revolving Credit Loans"), or manufactured housing conditional sales contracts
and installment loan agreements (collectively, the "Mortgage Loans") or
interests therein, acquired by the Company from one or more affiliated or
unaffiliated institutions (the "Sellers"). See "The Mortgage Pools." The
Mortgage Loans and other assets in each Trust Fund, which may only include, if
applicable, reinvestment income, reserve funds, cash accounts and various forms
of credit enhancement as described herein (collectively, the "Trust Fund
Assets") will be pledged pursuant to an indenture (the "Indenture") to secure a
series of Bonds to the extent and as more fully described herein under "The
Agreements" and in the related Prospectus Supplement. Information regarding the
Bonds of a series, and the general characteristics of the Mortgage Loans and
other Trust Fund Assets in the related Trust Fund, will be set forth in the
related Prospectus Supplement.
Each series of Bonds will include one or more classes. Each class of Bonds of
any series will represent the right, which right may be senior or subordinate to
the rights of one or more of the other classes of Bonds to receive a specified
portion of payments of principal or interest (or both) on the Mortgage Loans and
the other Trust Fund Assets in the related Trust Fund in the manner described
herein under "Description of the Bonds" and in the related Prospectus
Supplement. A series may include one or more classes of Bonds entitled to
principal distributions, with disproportionate, nominal or no interest
distributions, or to interest distributions, with disproportionate, nominal or
no principal distributions. A series may include two or more classes of Bonds
which differ as to the timing, sequential order, priority of payment,
pass-through rate or amount of distributions of principal or interest or both.
THE COMPANY'S ONLY OBLIGATIONS WITH RESPECT TO A SERIES OF BONDS WILL BE
PURSUANT TO CERTAIN REPRESENTATIONS AND WARRANTIES MADE BY THE COMPANY, EXCEPT
AS PROVIDED IN THE RELATED PROSPECTUS SUPPLEMENT. THE MASTER SERVICER (THE
"MASTER SERVICER") FOR ANY SERIES OF BONDS WILL BE NAMED IN THE RELATED
PROSPECTUS SUPPLEMENT. THE PRINCIPAL OBLIGATIONS OF THE MASTER SERVICER WILL BE
PURSUANT TO ITS CONTRACTUAL SERVICING OBLIGATIONS (WHICH INCLUDE ITS LIMITED
OBLIGATION TO MAKE CERTAIN ADVANCES IN THE EVENT OF DELINQUENCIES IN PAYMENTS ON
THE RELATED MORTGAGE LOANS). SEE "DESCRIPTION OF THE BONDS."
If so specified in the related Prospectus Supplement, the Trust Fund for a
series of Bonds may include any one or any combination of a financial guaranty
insurance policy, mortgage pool insurance policy, letter of credit, bankruptcy
bond, special hazard insurance policy or reserve fund. In addition to or in lieu
of the foregoing, credit enhancement may be provided by means of subordination
of one or more classes of Bonds or by Overcollateralization (as defined herein).
See "Description of Credit Enhancement."
The rate of payment of principal of each class of Bonds entitled to a portion of
principal payments on the Mortgage Loans and the other Trust Fund Assets in the
related Mortgage Pool will depend on the priority of payment of such class and
the rate and timing of principal payments (including by reason of prepayments,
defaults, liquidations and repurchases of Mortgage Loans) on such Mortgage Loans
and other Trust Fund Assets and the rate and timing of Draws (as defined herein)
in the case of the Revolving Credit Loans. A rate of principal payment slower or
faster than that anticipated may affect the yield on a class of Bonds in the
manner described herein and in the related Prospectus Supplement. See "Yield
Considerations."
Bonds of a series will be characterized for federal income tax purposes as debt
instruments. No election will be made to treat a Trust Fund or a designated
portion thereof as a real estate mortgage investment conduit ("REMIC") for
federal income tax purposes.
See "Federal Income Tax Consequences" herein.
SEE "RISK FACTORS" BEGINNING ON PAGE __ HEREIN AND ON PAGE S-__ IN THE RELATED
PROSPECTUS SUPPLEMENT FOR A DISCUSSION OF SIGNIFICANT MATTERS AFFECTING
INVESTMENTS IN THE BONDS.
PROCEEDS OF THE ASSETS IN THE RELATED TRUST FUND AND PAYMENTS UNDER ANY BOND
INSURANCE POLICY ARE THE SOLE SOURCE OF PAYMENTS ON THE BONDS. THE BONDS DO NOT
REPRESENT AN INTEREST IN OR OBLIGATION OF THE COMPANY, THE MASTER SERVICER OR
ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE BONDS OF ANY SERIES NOR THE
UNDERLYING MORTGAGE LOANS WILL BE GUARANTEED OR INSURED BY ANY GOVERNMENTAL
AGENCY OR INSTRUMENTALITY OR BY THE COMPANY, THE MASTER SERVICER OR ANY OF THEIR
RESPECTIVE AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Bonds may be offered through one or more different methods, including
offerings through underwriters, as more fully described under "Methods of
Distribution" and in the related Prospectus Supplement.
There will be no secondary market for the Bonds of any series prior to the
offering thereof. There can be no assurance that a secondary market for any of
the Bonds will develop or, if it does develop, that it will continue. The Bonds
will not be listed on any securities exchange.
Retain this Prospectus for future reference. This Prospectus may not be used to
consummate sales of securities offered hereby unless accompanied by a Prospectus
Supplement.
The date of this Prospectus is August __, 1998.
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND ANY PROSPECTUS
SUPPLEMENT WITH RESPECT HERETO AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON. THIS PROSPECTUS AND ANY PROSPECTUS
SUPPLEMENT WITH RESPECT HERETO DO NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE BONDS OFFERED
HEREBY AND THEREBY OR AN OFFER OF SUCH BONDS TO ANY PERSON IN ANY STATE OR OTHER
JURISDICTION IN WHICH SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF THIS
PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT INFORMATION HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE; HOWEVER, IF ANY MATERIAL CHANGE OCCURS WHILE
THIS PROSPECTUS IS REQUIRED BY LAW TO BE DELIVERED, THIS PROSPECTUS WILL BE
AMENDED OR SUPPLEMENTED ACCORDINGLY.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
CAPTION PAGE
<S> <C>
SUMMARY OF PROSPECTUS............................................................................................4
RISK FACTORS....................................................................................................14
THE MORTGAGE POOLS..............................................................................................20
General ..............................................................................................20
The Mortgage Loans.....................................................................................21
Allocation of Revolving Credit Loan Balances...........................................................27
Underwriting Standards.................................................................................28
Qualifications of Originators and Sellers..............................................................30
Representations by Sellers.............................................................................31
SERVICING OF MORTGAGE LOANS.....................................................................................33
General ..............................................................................................33
The Master Servicer....................................................................................33
Collection and Other Servicing Procedures; Mortgage Loan
Modifications.................................................................................33
Subservicers...........................................................................................36
Special Servicers......................................................................................36
Realization Upon or Sale of Defaulted Mortgage Loans
.............................................................................................36
Servicing and Other Compensation and Payment of
Expenses; Spread..............................................................................39
Evidence as to Compliance..............................................................................39
DESCRIPTION OF THE BONDS........................................................................................40
General ..............................................................................................40
Form of Bonds..........................................................................................41
Assignment of Trust Fund Assets........................................................................42
Collection Account.....................................................................................45
Distributions..........................................................................................49
Distributions of Interest and Principal on the Bonds...................................................49
Funding Account........................................................................................50
Distributions on the Bonds in Respect of Prepayment
Premiums......................................................................................51
Allocation of Losses and Shortfalls....................................................................51
Advances ..............................................................................................51
Reports to Bondholders.................................................................................52
DESCRIPTION OF CREDIT ENHANCEMENT...............................................................................54
General ..............................................................................................54
Financial Guaranty Insurance Policy....................................................................55
Subordinate Bonds......................................................................................55
Letter of Credit.......................................................................................55
Mortgage Pool Insurance Policies.......................................................................56
Special Hazard Insurance Policies......................................................................58
Bankruptcy Bonds.......................................................................................59
Overcollateralization..................................................................................59
Reserve Funds..........................................................................................59
Maintenance of Credit Enhancement......................................................................60
Reduction or Substitution of Credit Enhancement........................................................62
PURCHASE OBLIGATIONS............................................................................................63
PRIMARY MORTGAGE INSURANCE, HAZARD INSURANCE;
CLAIMS THEREUNDER......................................................................................63
General ..............................................................................................63
Primary Mortgage Insurance Policies....................................................................63
Hazard Insurance Policies..............................................................................65
FHA Insurance..........................................................................................66
THE COMPANY.....................................................................................................67
IMPAC FUNDING CORPORATION.......................................................................................67
THE AGREEMENTS..................................................................................................67
Events of Default; Rights Upon Event of Default........................................................67
Amendment..............................................................................................69
Termination; Redemption of Bonds.......................................................................70
The Owner Trustee......................................................................................71
The Indenture Trustee..................................................................................71
YIELD CONSIDERATIONS............................................................................................71
MATURITY AND PREPAYMENT CONSIDERATIONS..........................................................................75
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS.........................................................................77
Single Family Loans and Multifamily Loans..............................................................77
Contracts..............................................................................................77
Foreclosure on Mortgages...............................................................................79
Repossession with respect to Contracts.................................................................81
Rights of Redemption...................................................................................82
Anti-Deficiency Legislation and Other Limitations on
Lenders.......................................................................................83
Junior Mortgages.......................................................................................85
Consumer Protection Laws with respect to Contracts
.............................................................................................85
Environmental Legislation..............................................................................86
Enforceability of Certain Provisions...................................................................86
Subordinate Financing..................................................................................87
Applicability of Usury Laws............................................................................88
Alternative Mortgage Instruments.......................................................................88
Formaldehyde Litigation with respect to Contracts......................................................89
Soldiers' and Sailors' Civil Relief Act of 1940........................................................89
FEDERAL INCOME TAX CONSEQUENCES.................................................................................90
General ..............................................................................................90
STATE AND OTHER TAX CONSEQUENCES................................................................................97
ERISA CONSIDERATIONS............................................................................................97
Tax-Exempt Investors...................................................................................98
LEGAL INVESTMENT MATTERS........................................................................................98
USE OF PROCEEDS.................................................................................................99
METHODS OF DISTRIBUTION........................................................................................100
LEGAL MATTERS..................................................................................................101
FINANCIAL INFORMATION..........................................................................................101
RATING ......................................................................................................101
INDEX OF PRINCIPAL DEFINITIONS.................................................................................102
-2-
</TABLE>
<PAGE>
UNTIL 90 DAYS AFTER THE DATE OF EACH PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE RELATED BONDS, WHETHER OR NOT PARTICIPATING IN THE
DISTRIBUTION THEREOF, MAY BE REQUIRED TO DELIVER THIS PROSPECTUS AND THE RELATED
PROSPECTUS SUPPLEMENT. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and in accordance therewith
files reports and other information with the Securities and Exchange Commission
(the "Commission"). Such reports and other information filed by the Company can
be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and its Regional
Offices located as follows: Chicago Regional Office, 500 West Madison, 14th
Floor, Chicago, Illinois 60661; New York Regional Office, Seven World Trade
Center, New York, New York 10048. Copies of such material can also be obtained
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates and electronically through the
Commission's Electronic Data Gathering, Analysis and Retrieval system at the
Commission's Web site (http:\\www.sec.gov). The Company does not intend to send
any financial reports to Bondholders.
This Prospectus does not contain all of the information set forth in
the Registration Statement (of which this Prospectus forms a part) and exhibits
thereto which the Company has filed with the Commission under the Securities
Act of 1933 (the "Securities Act") and to which reference is hereby made.
REPORTS TO BONDHOLDERS
The Master Servicer or other designated person will be required to
provide periodic unaudited reports concerning each Trust Fund to all registered
holders of Bonds of the related series as are required under the Exchange Act
and the rules and regulations of the Commission thereunder. See "Description of
the Bonds--Reports to
Bondholders."
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein and in the related Prospectus Supplement
by reference all documents and reports filed or caused to be filed by the
Company with respect to a Trust Fund pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act, prior to the termination of the offering of the Bonds
of the related series. The Company will provide or cause to be provided without
charge to each person to whom this Prospectus is delivered in connection with
the offering of one or more classes of Bonds, upon written or oral request of
such person, a copy of any or all such reports incorporated herein by reference,
in each case to the extent such reports relate to one or more of such classes of
such Bonds, other than the exhibits to such documents, unless such exhibits are
specifically incorporated by reference in such documents. Requests should be
directed in writing to IMH Assets Corp., 20371 Irvine Avenue, Suite 200, Santa
Ana Heights, California 92707, or by telephone at (714) 556-0122. The Company
has determined that its financial statements will not be material to the
offering of any Bonds.
-3-
<PAGE>
SUMMARY OF PROSPECTUS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to each series of Bonds contained in the Prospectus
Supplement to be prepared and delivered in connection with the offering of Bonds
of such series. Capitalized terms used in this summary that are not otherwise
defined shall have the meanings ascribed thereto elsewhere in this Prospectus.
An index indicating where certain capitalized terms used herein are defined
appears at the end of this Prospectus.
Securities Offered............................... Collateralized mortgage bonds
(the "Bonds"). The Bonds
offered hereby and by the
various Prospectus Supplements
with respect hereto will be
offered from time to time in
series.
Company.......................................... IMH Assets Corp. (the
"Company"), a limited- purpose
wholly owned subsidiary of
Impac Mortgage Holdings, Inc.
("Impac Holdings"), formerly
known as Imperial Credit
Mortgage Holdings, Inc., and
an affiliate of Impac Funding
Corporation ("Impac Funding"),
formerly known as ICI Funding
Corporation. See "The
Company."
Issuer........................................... The Issuer with respect to a
series of Bonds will be the
Company or an owner trust
established by it for the
purpose of issuing one or more
series of Bonds. Each such
owner trust will be created
pursuant to a trust agreement
(the "Trust Agreement")
between the Company, acting as
depositor, and the Owner
Trustee. Each series of Bonds
will represent indebtedness of
the Issuer and will be issued
pursuant to an indenture
between the Issuer and the
Indenture Trustee (the
"Indenture") whereby the
Issuer will pledge the Trust
Fund to secure the Bonds under
the lien of the Indenture. As
to each series of Bonds where
the Issuer is an owner trust,
the ownership of the Trust
Fund will be evidenced by
certificates (the
"Certificates," and together
with the Bonds, the
"Securities") issued under the
Trust Agreement, which are not
offered hereby. The Bonds will
represent nonrecourse
obligations solely of the
Issuer, and the proceeds of
the Trust Fund will be the
sole source of payments on the
Bonds, except as described
herein under "Description of
-4-
<PAGE>
Credit Enhancement" and in the
related Prospectus Supplement.
Master Servicer.................................. The master servicer (the
"Master Servicer"), if any,
for a series of Bonds will be
specified in the related
Prospectus Supplement and may
be Impac Funding or another
affiliate of the Company. See
"Impac Funding Corporation"
and "Servicing of Mortgage
Loans--The Master Servicer."
Special Servicer................................. The special servicer (the
"Special Servicer"), if any,
for a series of Bonds will be
specified, or the
circumstances under which a
Special Servicer will be
appointed will be described,
in the related Prospectus
Supplement. Any Special
Servicer may be an affiliate
of the Company. See "Servicing
of Mortgage Loans--Special
Servicers."
Administrator.................................... An entity may be named as the
Administrator in the related
Prospectus Supplement, if
required in addition to or in
lieu of the Master Servicer or
Servicer for a series of Bonds
(the "Administrator").
Indenture Trustee................................ The Indenture Trustee for each
series of Bonds will be
specified in the related
Prospectus Supplement (the
"Indenture Trustee").
Owner Trustee.................................... As to each series of Bonds
where the Issuer in an owner
trust, the Owner Trustee for
each related Trust Fund will
be specified in the related
Prospectus Supplement (the
"Owner Trustee").
The Bonds........................................ Each series of Bonds will
include one or more classes of
Bonds which will represent
indebtedness secured by a
segregated pool of Mortgage
Loans (exclusive of any
portion of interest payments
(the "Spread") relating to
each Mortgage Loan retained by
the Company or any of its
affiliates) or interests
therein and certain other
assets, which may only
include, if applicable,
reinvestment income, reserve
funds, cash accounts and
various forms of credit
enhancement as described
herein (collectively, the
"Trust Fund Assets," and the
related trust fund, the "Trust
Fund").
-5-
<PAGE>
Except for certain Strip Bonds
(as hereinafter described),
each series of Bonds, or class
of Bonds in the case of a
series consisting of two or
more classes, will have a
stated principal balance and
will be entitled to
distributions of interest
based on a specified interest
rate or rates (each, an
"Interest Rate"). Each series
or class of Bonds may have a
different Interest Rate, which
may be a fixed, variable or
adjustable Interest Rate, or
any combination of two or more
such Interest Rates. The
related Prospectus Supplement
will specify the Interest Rate
or Rates for each series or
class of Bonds, or the initial
Interest Rate or Rates and the
method for determining
subsequent changes to the
Interest Rate or Rates.
A series may include one or
more classes of Bonds ("Strip
Bonds") entitled (i) to
principal distribu tions, with
disproportionate, nominal or
no interest distributions, or
(ii) to interest
distributions, with
disproportionate, nominal or
no principal distribu tions.
In addition, a series may
include two or more classes of
Bonds which differ as to
timing, sequential order,
priority of payment,
pass-through rate or amount of
distributions of principal or
interest or both, or as to
which distributions of
principal or interest or both
on any class may be made upon
the occurrence of specified
events, in accordance with a
schedule or formula, or on the
basis of collections from
designated portions of the
Mortgage Pool, which series
may include one or more
classes of Bonds ("Accrual
Bonds"), as to which certain
accrued interest will not be
distributed but rather will be
added to the principal balance
thereof on each Distribution
Date, as hereinafter defined,
in the manner described in the
related Prospectus Supplement.
If so provided in the related
Prospectus Supplement, a
series of Bonds may include
one or more classes of Bonds
(collectively, the "Senior
Bonds") which are senior to
one or more classes of Bonds
(collectively, the
"Subordinate Bonds") in
respect of certain
distributions of principal and
interest and allocations of
losses on Mortgage
-6-
<PAGE>
Loans. In addition, certain
classes of Senior (or
Subordinate) Bonds may be
senior to other classes of
Senior (or Subordinate) Bonds
in respect of such
distributions or losses. The
Certificates, insofar as they
represent the beneficial
ownership interest in the
Issuer, will be subordinate to
the Bonds. See "Description of
the Bonds."
The Bonds will not be
guaranteed or insured by any
governmental agency or
instrumentality, by the
Company, the Master Servicer
or any of their respective
affiliates.
Bonds of one or more classes
of a series may be issued in
book-entry form. See
"Description of the
Bonds--Form of Bonds."
The Mortgage Pools............................... Each Trust Fund will consist
primarily of a segregated pool
(a "Mortgage Pool") of
mortgage loans (which may
include Revolving Credit
Loans) and/or manufactured
housing conditional sales and
installment loan agreements
(collectively, the "Mortgage
Loans") or interests therein.
Each Mortgage Loan will be
secured by a first or junior
lien on or security interest
in (i) a one- to four-family
residential property, (ii) a
residential property
consisting of five or more
rental or cooperatively-owned
dwelling units or (iii) a new
or used manufactured home
(each, a "Mortgaged
Property"). The Mortgaged
Properties may be located in
any one of the 50 states, the
District of Columbia or the
Commonwealth of Puerto Rico.
For a description of the types
of Mortgage Loans that may be
included in the Mortgage
Pools, see "The Mortgage
Pools--The Mortgage Loans."
The Mortgage Loans will not be
guaranteed or insured by the
Company, any of its affiliates
or by any governmental agency
or instrumentality.
With respect to any series of
Bonds backed by Revolving
Credit Loans, the related
Trust Fund may include the
entire balance of such loans
including Draws made after the
Cut-off Date, or may include
only the Trust Balances (as
defined herein) thereof which
generally will exclude Draws
-7-
<PAGE>
made after the Cut-off Date
and may exclude Draws made
prior to the Cut-off Date. See
"Description of the Mortgage
Pools--Allocation of Revolving
Credit Loan Balances" herein.
If specified in the related
Prospectus Supplement,
Mortgage Loans which are
converting or converted from
an adjustable-rate to a
fixed-rate or certain Mortgage
Loans for which the Mortgage
Rate has been reset may be
repurchased by the Company or
purchased by the related
Master Servicer, the
applicable Seller or another
party, or a designated
remarketing agent will use its
best efforts to arrange the
sale thereof as further
described herein under "The
Mortgage Pools--The Mortgage
Loans."
If so specified in the related
Prospectus Supplement, some
Mortgage Loans may be
delinquent or non-performing
as of the date of their
deposit in the related Trust
Fund.
Each Mortgage Loan included in
a Trust Fund will have been
selected by the Company from
among those purchased, either
directly or indirectly, from a
prior holder thereof (a
"Seller"), which prior holder
may or may not be the
originator of such Mortgage
Loan and may be an affiliate
of the Company.
A Current Report on Form 8-K
will be available upon request
to purchasers of the Bonds of
the related series and will be
filed, together with the
related Servicing Agreement,
Trust Agreement (if any) and
Indenture, with the Securities
and Exchange Commission within
fifteen days after such
initial issuance.
Interest Distributions........................... Except as otherwise specified
herein or in the related
Prospectus Supplement,
interest on each class of
Bonds of each series, other
than Strip Bonds or Accrual
Bonds (prior to the time when
accrued interest becomes
payable thereon), will accrue
at the applicable Interest
Rate (which may be a fixed,
variable or adjustable rate or
any
-8-
<PAGE>
combination thereof) on such
class's principal balance
outstanding from time to time
and will be remitted on the
25th day (or, if such day is
not a business day, on the
next succeeding business day)
of each month, commencing with
the month following the month
in which the Cut-off Date (as
defined in the applicable
Prospectus Supplement) occurs
(each, a "Distribution Date").
Distributions, if any, with
respect to interest on Strip
Bonds will be calculated and
made on each Distribution Date
as described herein under
"Description of the
Bonds--Distribution of
Interest and Principal on the
Bonds" and in the related
Prospectus Supplement.
Interest that has accrued but
is not yet payable on any
Accrual Bonds will be added to
the principal balance of such
class on each Distribution
Date, and will thereafter bear
interest at the applicable
Interest Rate. Distributions
of interest with respect to
one or more classes of Bonds
(or, in the case of a class of
Accrual Bonds, accrued
interest to be added to the
principal balance thereof) may
be reduced as a result of the
occurrence of certain
delinquencies not covered by
advances, losses, prepayments
and other contingencies
described herein and in the
related Prospectus Supplement.
See "Yield Considerations" and
"Description of the
Bonds--Distribution of
Interest and Principal on the
Bonds."
Principal Distributions.......................... Except as otherwise specified
in the related Prospectus
Supplement, principal
distributions on the Bonds of
each series will be payable on
each Distribution Date,
commencing with the
Distribution Date in the month
following the month in which
the Cut-off Date occurs, to
the holders of the Bonds of
such series, or of the class
or classes of Bonds then
entitled thereto, on a pro
rata basis among all such
Bonds or among the Bonds of
any such class, in proportion
to their respective
outstanding principal
balances, or in the priority
and manner otherwise specified
in the related Prospectus
Supplement. Strip Bonds with
no principal balance will not
receive distributions in
respect of principal.
Distributions of principal
with respect to any series of
Bonds, or with respect to
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one or more classes included
therein, may be reduced to the
extent of certain
delinquencies not covered by
advances or losses not covered
by the applicable form of
credit enhancement. For a
series of Bonds backed by
Revolving Credit Loans, as a
result of the payment terms of
the Mortgage Loans or of the
Bond provisions relating to
future Draws, there may be no
principal distributions on
such Bonds in any given month.
See "The Mortgage Pools,"
"Maturity and Prepayment
Considerations" and
"Description of the Bonds."
Funding Account.................................. If so specified in the related
Prospectus Supplement, a
portion of the proceeds of the
sale of one or more Classes of
Bonds of a series may be
deposited in a segregated
account to be applied to
acquire additional Mortgage
Loans from the Sellers,
subject to the limitations set
forth herein under
"Description of the
Bonds-Funding Account." Monies
on deposit in the Funding
Account and not applied to
acquire such additional
Mortgage Loans within the time
set forth in the related Trust
Agreement or other applicable
agreement may be treated as
principal and applied in the
manner described in the
related Prospectus Supplement.
Credit Enhancement............................... If so specified in the
Prospectus Supplement, the
Trust Fund with respect to any
series of Bonds may include
any one or any combination of
a financial guaranty insurance
policy, mortgage pool
insurance policy, letter of
credit, special hazard
insurance policy, bankruptcy
bond or reserve fund to
provide partial coverage for
certain defaults and losses
relating to the Mortgage
Loans. Credit support also
will be provided in the form
of subordination of the
Certificates (if applicable)
and also may be provided in
the form of subordination of
one or more classes of Bonds
in a series under which losses
are first allocated to any
Subordinate Bonds up to a
specified limit or in the form
of Overcollateralization. Any
form of credit enhancement may
have certain limitations and
exclusions from coverage
thereunder, which will be
described in the related
Prospectus Supplement.
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Losses not covered by any form
of credit enhancement will be
borne by the holders of the
related Bonds (or certain
classes thereof). To the
extent not set forth herein,
the amount and types of
coverage, the identification
of any entity providing the
coverage, the terms of any
subordination and related
information will be set forth
in the Prospectus Supplement
relating to a series of Bonds.
See "Description of Credit
Enhancement" and
"Subordination."
Advances......................................... If and to the extent described
in the related Prospectus
Supplement, and subject to any
limitations specified therein,
the Master Servicer for any
Trust Fund will be obligated
to make, or have the option of
making, certain advances with
respect to delinquent
scheduled payments on the
Mortgage Loans (other than the
Revolving Credit Loans) in
such Trust Fund. Any such
advance made by the Master
Servicer with respect to a
Mortgage Loan (other than a
Revolving Credit Loan) is
recoverable by it as described
herein under "Description of
the Bonds--Advances" either
from recoveries on or in
respect of the specific
Mortgage Loan or, with respect
to any advance subsequently
determined to be
nonrecoverable from recoveries
on or in respect of the
specific Mortgage Loan, out of
funds otherwise distributable
to the holders of the related
series of Bonds, which may
include the holders of any
Senior Bonds of such series.
If and to the extent provided
in the Prospectus Supplement
for a series of Bonds, the
Master Servicer will be
entitled to receive interest
on its advances for the period
that they are outstanding
payable from amounts in the
related Trust Fund.
Optional Termination............................. The Master Servicer, the
Company or a person specified
in the related Prospectus
Supplement (other than any
Bondholder) may at its option
either (i) effect early
retirement of a series of
Bonds through the purchase of
the assets in the related
Trust Fund or (ii) purchase,
in whole but not in part, the
Bonds specified in the related
Prospectus Supplement; in each
case under the
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<PAGE>
circumstances and in the
manner set forth herein under
"The Agreements--Termination;
Redemption of Bonds" and in
the related Prospectus
Supplement.
Legal Investment................................ At the date of issuance, as to
each series, each class of
Bonds will be rated at the
request of the Company in one
of the four highest rating
categories by one or more
nationally recognized
statistical rating agencies
(each, a "Rating Agency").
Each class of Bonds that is
rated in one of the two
highest rating categories by
at least one Rating Agency
will constitute "mortgage
related securities" for
purposes of the Secondary
Mortgage Market Enhancement
Act of 1984, as amended
("SMMEA"). Investors whose
investment authority is
subject to legal restrictions
should consult their own legal
advisors to determine whether
and to what extent the Bonds
of any series constitute legal
investments for them. See
"Legal Investment Matters."
ERISA Considerations............................. A fiduciary of an employee
benefit plan and certain other
retirement plans and
arrangements, including
individual retirement accounts
and annuities, Keogh plans,
and collective investment
funds and separate accounts in
which such plans, accounts,
annuities or arrangements are
invested, that is subject to
the Employee Retirement Income
Security Act of 1974, as
amended ("ERISA"), or Section
4975 of the Code (each, a
"Plan") should carefully
review with its legal advisors
whether the purchase or
holding of Bonds could give
rise to a transaction that is
prohibited or is not otherwise
permissible either under ERISA
or Section 4975 of the Code.
Investors are advised to
consult their counsel and to
review "ERISA Considerations"
herein and in the related
Prospectus Supplement.
Federal Income
Tax Consequences............................... In the opinion of Tax Counsel
(as defined herein), for
federal income tax purposes,
the Bonds will constitute
indebtedness of the Issuer.
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<PAGE>
(i) Bonds held by a domestic
building and loan association
will not constitute
"loans...secured by an
interest in real property"
within the meaning of Code
section 7701(a)(19)(C)(v);
(ii) Bonds held by a real
estate investment trust will
not constitute "real estate
assets" within the meaning of
Code section 856(c)(4)(A); and
(iii) interest on Bonds will
not be considered "interest on
obligations secured by
mortgages on real property"
within the meaning of Code
section 856(c)(3)(B).
Investors are advised to
consult their tax advisors as
to the tax consequences of an
investment in the Bonds in
light of investors' individual
circumstances and to review
"Federal Income Tax
Consequences" herein and in
the related Prospectus
Supplement for a more general
discussion of material tax
matters related to the Bonds.
See "Federal Income Tax
Consequences."
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<PAGE>
RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of the Bonds:
LIMITED LIQUIDITY. There can be no assurance that a secondary market
for the Bonds of any series will develop or, if it does develop, that it will
provide Bondholders with liquidity of investment or that it will continue for
the life of the Bonds of any series. The Prospectus Supplement for any series of
Bonds may indicate that an underwriter specified therein intends to establish a
secondary market in such Bonds, however no underwriter will be obligated to do
so. As a result, any resale prices that may be available for any Bond in any
market that may develop may be at a discount from the initial offering price or
the fair market value thereof. The Bonds will not be listed on any securities
exchange.
LIMITED OBLIGATIONS. The Bonds will evidence an obligation of the
related Issuer to remit certain payments to the registered holder thereof. The
Bonds will not represent an interest in or obligation of the Company, the Master
Servicer or any of their respective affiliates. The only obligations of the
foregoing entities with respect to the Bonds and the Mortgage Loans will be the
obligations (if any) of the Company pursuant to certain limited representations
and warranties made with respect to the Mortgage Loans, the Master Servicer's
servicing obligations under the related Servicing Agreement (including, if and
to the extent described in the related Prospectus Supplement, its limited
obligation to make certain advances in the event of delinquencies on the
Mortgage Loans) and, if and to the extent expressly described in the related
Prospectus Supplement, certain limited obligations of the Master Servicer (i) in
connection with a Purchase Obligation or an agreement to purchase or act as
remarketing agent with respect to a Convertible Mortgage Loan upon conversion to
a fixed rate and (ii) to advance funds to Mortgagors in respect of Draws on
Revolving Credit Loans (if applicable). Neither the Bonds nor the underlying
Mortgage Loans will be guaranteed or insured by any governmental agency or
instrumentality, by the Company, the Master Servicer or any of their respective
affiliates. Proceeds of the assets included in the related Trust Fund for each
series of Bonds (including the Mortgage Loans and any form of credit
enhancement) will be the sole source of payments on the Bonds, and there will be
no recourse to the Company, the Master Servicer or any other entity in the event
that such proceeds are insufficient or otherwise unavailable to make all
payments provided for under the Bonds.
LIMITATIONS, REDUCTION AND SUBSTITUTION OF CREDIT ENHANCEMENT. With
respect to each series of Bonds, credit enhancement will be provided in limited
amounts to cover certain types of losses on the underlying Mortgage Loans.
Credit enhancement will be provided in one or more of the forms referred to
herein, including: subordination of any Subordinate Bonds of the same series; a
Financial Guaranty Insurance Policy; a Letter of Credit; a Purchase Obligation;
a Mortgage Pool Insurance Policy; a Special Hazard Insurance Policy; a
Bankruptcy Bond; Overcollateralization; a Reserve Fund; or any combination
thereof. See "Subordination" and "Description of Credit Enhancement" herein.
Regardless of the form of credit enhancement provided, the amount of coverage
will be limited in amount and in most cases will be subject to periodic
reduction in accordance with a schedule or formula. Furthermore, such credit
enhancements may provide only very limited coverage as to certain types of
losses or risks, and may provide no coverage as to certain other types of losses
or risks. In the event losses exceed the amount of coverage provided by any
credit enhancement or losses of a type not covered by any credit enhancement
occur, such losses will be borne by the holders of the related Bonds (or certain
classes thereof). The Company, the Master Servicer or other specified person
will generally be permitted to reduce, terminate or substitute all or a portion
of the credit enhancement for any series of Bonds, if each applicable Rating
Agency indicates that the then-current rating(s) thereof will not be adversely
affected. The rating(s) of any series of Bonds by any applicable Rating Agency
may be lowered following the initial issuance thereof as a result of the
downgrading of the obligations of any applicable credit support provider, or as
a result of
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<PAGE>
losses on the related Mortgage Loans in excess of the levels contemplated by
such Rating Agency at the time of its initial rating analysis. Neither the
Company, the Master Servicer nor any of their respective affiliates will have
any obligation to replace or supplement any credit enhancement, or to take any
other action to maintain any rating(s) of any series of Bonds. See "Description
of Credit Enhancement--Reduction of Credit Enhancement."
LIMITED NATURE OF RATINGS. It is a condition to the issuance of the
Bonds that each class of Bonds be rated in one of the four highest rating
categories by a nationally recognized statistical rating agency. A security
rating is not a recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal at any time. No person is obligated to
maintain the rating on any Bond, and, accordingly, there can be no assurance
that the ratings assigned to any Bond on the date on which such Bonds are
initially issued will not be lowered or withdrawn by a Rating Agency at any time
thereafter. In the event any rating is revised or withdrawn, the liquidity or
the market value of the related Bonds may be adversely affected. See "Rating"
herein.
FORECLOSURE RISKS OF THE MORTGAGE LOANS. Statutory and judicial
limitations on foreclosure procedures may delay recovery in respect of the
mortgaged property and, in some instances, limit the amount that may be
recovered by the foreclosing lender. Foreclosure procedures may vary from state
to state. Two primary methods of foreclosing a mortgage instrument are judicial
foreclosure, involving court proceedings, and non-judicial foreclosure pursuant
to a power of sale granted in the mortgage instrument. A foreclosure action is
subject to most of the delays and expenses of other lawsuits if defenses are
raised or counterclaims are asserted. Delays may also result from difficulties
in locating necessary defendants. Non-judicial foreclosures may be subject to
delays resulting from state laws mandating the recording of notice of default
and notice of sale and, in certain states, notice to any party having an
interest of record in the real property, including junior lienholders. Certain
states have adopted "anti-deficiency" statutes that limit the ability of a
lender to realize upon assets securing a mortgage loan. In addition, United
States courts have traditionally imposed general equitable principles to limit
the remedies available to lenders in foreclosure actions that are perceived by
the court as harsh or unfair. The effect of such statutes and judicial
principles may be to delay and/or reduce distributions in respect of the Bonds.
See "Certain Legal Aspects of Mortgage Loans--Foreclosure on Mortgage Loans."
RISKS OF MORTGAGE LOANS AND PROPERTY VALUE. An investment in securities
such as the Bonds that are secured by mortgage loans and/or manufactured housing
conditional sales contracts and installment loan agreements may be affected by,
among other things, a decline in real estate values and changes in the
borrowers' financial condition. No assurance can be given that values of the
Mortgaged Properties have remained or will remain at their levels on the dates
of origination of the related Mortgage Loans. If the residential real estate
market should experience an overall decline in property values such that the
outstanding balances of the Mortgage Loans, and any secondary financing on the
Mortgaged Properties, in a particular Mortgage Pool become equal to or greater
than the value of the Mortgaged Properties, the actual rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced in
the mortgage lending industry. In particular, Mortgage Loans with high
Loan-to-Value Ratios will be affected by any decline in real estate values. Any
decrease in the value of such Mortgage Loans may result in the allocation of
losses which are not covered by credit enhancement to the Bonds.
RISKS OF NON-CONFORMING MORTGAGE LOANS. Certain Mortgage Loans may be
underwritten in accordance with underwriting standards which are primarily
intended to provide single family mortgage loans for non-conforming credits. A
"non-conforming credit" means a mortgage loan which is ineligible for purchase
by FNMA or FHLMC due to credit characteristics that do not meet the FNMA or
FHLMC underwriting guidelines, including mortgagors whose creditworthiness and
repayment ability do not satisfy such FNMA or FHLMC underwriting guidelines and
mortgagors who may have a record of credit write-offs, outstanding judgments,
prior bankruptcies and other credit items that do not satisfy such FNMA or
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<PAGE>
FHLMC underwriting guidelines. Accordingly, Mortgage Loans underwritten under
the Originators' non-conforming credit underwriting standards are likely to
experience rates of delinquency, foreclosure and loss that are higher, and may
be substantially higher, than mortgage loans originated in accordance with the
FNMA or FHLMC underwriting guidelines. Any such losses, to the extent not
covered by credit enhancement, may affect the yield to maturity of the Bonds.
RISKS OF MORTGAGE LOANS WITH VARIABLE PAYMENTS. Certain of the types of
loans which may be included in the Mortgage Pools may involve additional
uncertainties not present in traditional types of loans. In the case of Mortgage
Loans that are subject to negative amortization, due to the addition to
principal balance of Deferred Interest, the principal balances of such Mortgage
Loans could be increased to an amount equal to or in excess of the value of the
underlying Mortgaged Properties, thereby increasing the likelihood of default.
In the case of Buydown Loans, the increase in the Monthly Payment by the
Mortgagor during and following the Buydown Period may result in an increased
risk of default on such Buydown Loan. Certain of the Mortgage Loans provide for
escalating or variable payments by the borrower under the Mortgage Loan (the
"Mortgagor"), as to which the Mortgagor is generally qualified on the basis of
the initial payment amount. In some instances, Mortgagors may not be able to
make their loan payments as such payments increase and thus the likelihood of
default will increase.
This is a consideration with respect to Revolving Credit Loans, since
additional Draws may be made by the Mortgagor in the future up to the applicable
Credit Limit. Although Revolving Credit Loans are generally subject to
provisions whereby the Credit Limit may be reduced as a result of a material
adverse change in the Mortgagor's economic circumstances, the Servicer or Master
Servicer generally will not monitor for such changes and may not become aware of
them until after the Mortgagor has defaulted. Under extreme circumstances, a
Mortgagor may draw his entire Credit Limit in response to personal financial
needs resulting from an adverse change in circumstances. For a series of Bonds
backed by the Trust Balances of Revolving Credit Loans, even though the Trust
Balance of a Revolving Credit Loan will not increase as a result of Draws after
the Bonds are issued, the foregoing considerations are relevant because such
Trust Balance will share pro rata in any losses incurred on such Revolving
Credit Loan.
Any risks associated with the variable payments of such Mortgage Loans
may affect the yield to maturity of the Bonds to the extent losses caused by
such risks which are not covered by credit enhancement are allocated to the
Bonds.
RISKS OF MORTGAGE LOANS WITH JUNIOR LIENS. Certain Mortgage Loans may
be secured by second liens on the related Mortgaged Properties. As to Mortgage
Loans secured by second mortgages, the proceeds from any liquidation, insurance
or condemnation proceedings will be available to satisfy the outstanding balance
of such Mortgage Loans only to the extent that the claims of such senior
mortgages have been satisfied in full, including any related foreclosure costs.
In addition, the holder of a Mortgage Loan secured by a junior mortgage may not
foreclose on the Mortgaged Property 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, although the Master Servicer or Subservicer may, at its option,
advance such amounts to the extent deemed recoverable and prudent. In the event
that such proceeds from a foreclosure or similar sale of the related Mortgaged
Property are insufficient to satisfy all senior liens and the Mortgage Loan in
the aggregate, the Trust Fund, as the holder of the junior lien, and,
accordingly, Holders of one or more classes of the Bonds, to the extent not
covered by credit enhancement, are likely to (i) incur losses in jurisdictions
in which a deficiency judgment against the borrower is not available, and (ii)
incur losses if any deficiency judgment obtained is not realized upon. In
addition, the rate of default of second mortgage loans may be greater than that
of mortgage loans secured by first liens on comparable properties.
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<PAGE>
RISKS OF MORTGAGE LOAN CONCENTRATION. Certain geographic regions of the
United States from time to time will experience weaker regional economic
conditions and housing markets, and, consequently, will experience higher rates
of loss and delinquency than will be experienced on mortgage loans generally.
For example, a region's economic condition and housing market may be directly,
or indirectly, adversely affected by natural disasters or civil disturbances
such as earthquakes, hurricanes, floods, eruptions or riots. The economic impact
of any of these types of events may also be felt in areas beyond the region
immediately affected by the disaster or disturbance. The Mortgage Loans securing
certain series of Bonds may be concentrated in these regions, and such
concentration may present risk considerations in addition to those generally
present for similar mortgage-backed securities without such concentration.
Moreover, as described below, any Mortgage Loan for which a breach of a
representation or warranty exists will remain in the related Trust Fund in the
event that a Seller is unable, or disputes its obligation, to repurchase such
Mortgage Loan and such a breach does not also constitute a breach of any
representation made by any other person. In such event, any resulting losses
will be borne by the related form of credit enhancement, to the extent
available. Any risks associated with Mortgage Loan concentration may affect the
yield to maturity of the Bonds to the extent losses caused by such risks which
are not covered by credit enhancement are allocated to the Bonds.
RISKS ASSOCIATED WITH BALLOON LOANS. Certain of the Mortgage Loans
included in a Trust Fund, particularly those secured by Multifamily Properties,
may not be fully amortizing (or may not amortize at all) over their terms to
maturity and, thus, will require substantial payments of principal and interest
(that is, balloon payments) at their stated maturity. Mortgage Loans of this
type involve a greater degree of risk than self-amortizing loans because the
ability of a Mortgagor to make a balloon payment typically will depend upon its
ability either to fully refinance the loan or to sell the related Mortgaged
Property at a price sufficient to permit the Mortgagor to make the balloon
payment. The ability of a Mortgagor to accomplish either of these goals will be
affected by a number of factors, including the value of the related Mortgaged
Property, the level of available mortgage rates at the time of sale or
refinancing, the Mortgagor's equity in the related Mortgaged Property,
prevailing general economic conditions, the availability of credit for loans
secured by comparable real properties and, in the case of Multifamily
Properties, the financial condition and operating history of the Mortgagor and
the related Mortgaged Property, tax laws and rent control laws. Any risks
associated with the Balloon Loans may affect the yield to maturity of the Bonds
to the extent losses caused by such risks which are not covered by credit
enhancement are allocated to the Bonds.
RISKS WITH RESPECT TO MORTGAGE LOANS WITH LIMITED RECOURSE. It is
anticipated that some or all of the Mortgage Loans included in any Trust Fund,
particularly Mortgage Loans secured by Multifamily Properties, will be
nonrecourse loans or loans for which recourse may be restricted or
unenforceable. As to those Mortgage Loans, recourse in the event of Mortgagor
default will be limited to the specific real property and other assets, if any,
that were pledged to secure the Mortgage Loan. However, even with respect to
those Mortgage Loans that provide for recourse against the Mortgagor and its
assets generally, there can be no assurance that enforcement of such recourse
provisions will be practicable, or that the other assets of the Mortgagor will
be sufficient to permit a recovery in respect of a defaulted Mortgage Loan in
excess of the liquidation value of the related Mortgaged Property. Any risks
associated with Mortgage Loans with no or limited recourse may affect the yield
to maturity of the Bonds to the extent losses caused by such risks which are not
covered by credit enhancement are allocated to the Bonds.
RISKS ASSOCIATED WITH MULTIFAMILY LOANS. Mortgage Loans made on the
security of Multifamily Properties may entail risks of delinquency and
foreclosure, and risks of loss in the event thereof, that are greater than
similar risks associated with loans made on the security of Single Family
Properties. The ability of a borrower to repay a loan secured by an
income-producing property typically is dependent primarily upon the successful
operation of such property rather than upon the existence of independent income
or assets of the borrower; thus, the value of an income-producing property is
directly related to
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<PAGE>
the net operating income derived from such property. If the net operating income
of the property is reduced (for example, if rental or occupancy rates decline or
real estate tax rates or other operating expenses increase), the borrower's
ability to repay the loan may be impaired. In addition, the concentration of
default, foreclosure and loss risk for a pool of Mortgage Loans secured by
Multifamily Properties may be greater than for a pool of Mortgage Loans secured
by Single Family Properties of comparable aggregate unpaid principal balance
because the pool of Mortgage Loans secured by Multifamily Properties is likely
to consist of a smaller number of higher balance loans. Any risks associated
with the Multifamily Loans may affect the yield to maturity of the Bonds to the
extent losses caused by such risks which are not covered by credit enhancement
are allocated to the Bonds.
RISKS OF HIGH LTV LOANS. Some or all of the Mortgage Loans included in
any Trust Fund may be High LTV Loans. High LTV Loans with Combined Loan-to-Value
Ratios in excess of 100% may have been originated with a limited expectation of
recovering any amounts from the foreclosure of the related Mortgaged Property
and are underwritten with an emphasis on the creditworthiness of the related
borrower. If such Mortgage Loans go into foreclosure and are liquidated, there
may be no amounts recovered from the related Mortgaged Property unless the value
of the property increases or the principal amount of the related senior liens
have been reduced such as to reduce the current Combined Loan-to- Value Ratio of
the related Mortgage Loan to below 100%. Any such losses, to the extent not
covered by credit enhancement, may affect the yield to maturity of the Bonds.
RISKS RELATING TO REVOLVING CREDIT LOANS. With respect to Revolving
Credit Loans, except for certain programs under which the Draw Period is less
than the full term thereof, required minimum monthly payments are generally
equal to or not significantly larger than the amount of interest currently
accruing thereon, and therefore are not expected to significantly amortize the
outstanding principal amount of such Mortgage Loans prior to maturity, which
amount may include substantial Draws recently made. As a result, a borrower will
generally be required to pay a substantial principal amount at the maturity of a
Revolving Credit Loan. The ability of a borrower to make such a payment may be
dependent on the ability to obtain refinancing of the balance due on such
Revolving Credit Loan or to sell the related Mortgaged Property. Furthermore,
Revolving Credit Loans generally have adjustable rates that are subject to much
higher maximum rates than typically apply to adjustable rate first mortgage
loans, and which may be as high as applicable usury limitations. Mortgagors
under Revolving Credit Loans are generally qualified based on an assumed payment
which reflects either the initial interest rate or a rate significantly lower
than the maximum rate. An increase in the interest rate over the Mortgage Rate
applicable at the time the Revolving Credit Loan was originated may have an
adverse effect on the Mortgagor's ability to pay the required monthly payment.
In addition, an increase in prevailing market interest rates may reduce the
borrower's ability to obtain refinancing and to pay the balance of a Revolving
Credit Loan at its maturity.
RISKS OF UNDERWRITING STANDARDS OF UNAFFILIATED SELLERS. Mortgage Loans
to be included in a Mortgage Pool will have been purchased by the Company,
either directly or indirectly from Sellers. Such Mortgage Loans will generally
have been originated in accordance with underwriting standards acceptable to the
Company and generally described herein under "The Mortgage Pools--Underwriting
Standards" or such alternative underwriting criteria as may be described in the
related Prospectus Supplement. However, in some cases, particularly those
involving Unaffiliated Sellers, the Company may not be able to establish the
underwriting standards used in the origination of the related Mortgage Loans. In
those cases, the related Prospectus Supplement will include a statement to such
effect and will reflect what, if any, reunderwriting of the related Mortgage
Loans was done by the Company or any of its affiliates. To the extent the
Mortgage Loans cannot be reunderwritten or the underwriting criteria cannot be
verified, the Mortgage Loans may suffer losses greater than they would had they
been directly underwritten by the Company or an affiliate thereof. Any such
losses, to the extent not covered by credit enhancement, may affect the yield to
maturity of the Bonds.
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LEGAL AND REGULATORY RISKS. Applicable federal and state laws generally
regulate interest rates and other charges, require certain disclosures, prohibit
unfair and deceptive practices, regulate debt collection, and require licensing
of the originators of the mortgage loans and contracts. Depending on the
provisions of the applicable law and the specified facts and circumstances
involved, violations of those laws, policies and principles may limit the
ability to collect all or part of the principal of or interest on the Mortgage
Loans and may entitle the borrower to a refund of amounts previously paid. See
"Certain Legal Aspects of Mortgage Loans" herein. To the extent such laws and
regulations result in losses on the mortgage loans, the yield to maturity of the
Bonds, to the extent not covered by credit enhancement, may be affected.
YIELD AND PREPAYMENT CONSIDERATIONS. The yield to maturity of the Bonds
of each series will depend on, among other things, the rate and timing of
principal payments (including prepayments, liquidations due to defaults, and
repurchases due to conversion of ARM Loans to fixed interest rate loans or
breaches of representations and warranties), or Draws (if applicable) on the
related Mortgage Loans and the price paid by Bondholders. Such yield may be
adversely affected by a higher or lower than anticipated rate of prepayments (or
Draws if applicable) on the related Mortgage Loans. The yield to maturity on
Strip Bonds will be extremely sensitive to the rate of prepayments (or Draws if
applicable) on the related Mortgage Loans. In addition, the yield to maturity on
certain other types of classes of Bonds, including Accrual Bonds, Bonds with a
Interest Rate which fluctuates inversely with an index or certain other classes
in a series including more than one class of Bonds, may be relatively more
sensitive to the rate of prepayment (or Draws if applicable) on the related
Mortgage Loans than other classes of Bonds. In addition, to the extent amounts
in any Funding Account have not been used to purchase additional Mortgage Loans,
holders of the Bonds may receive an additional prepayment. Prepayments are
influenced by a number of factors, including prevailing mortgage market interest
rates, local and regional economic conditions and homeowner mobility. See "Yield
Considerations" and "Maturity and Prepayment Considerations" herein.
The yield to maturity of the Bonds of any series, or the rate and
timing of principal payments (or Draws if applicable) on the related Mortgage
Loans may be affected by a wide variety of specific terms and conditions
applicable to the respective programs under which the Mortgage Loans were
originated. For example, Revolving Credit Loans may provide for future Draws to
be made only in specified minimum amounts, or alternatively may permit Draws to
be made by check or through a credit card in any amount. A pool of Revolving
Credit Loans subject to the latter provisions may be likely to remain
outstanding longer with a higher aggregate principal balance than a pool of
Revolving Credit Loans with the former provisions, because of the relative ease
of making new Draws. Furthermore, Revolving Credit Loans may provide for
interest rate changes on a daily or monthly basis, or may have Gross Margins
that may vary under certain circumstances over the term of the loan. In
extremely high market interest rate scenarios, Bonds backed by Revolving Credit
Loans with adjustable rates subject to substantially higher maximum rates than
typically apply to adjustable rate first mortgage loans may experience rates of
default and liquidation substantially higher than those that have been
experienced on other adjustable rate mortgage loan pools.
For any series of Bonds backed by Revolving Credit Loans, provisions
governing whether future Draws on the Revolving Credit Loans will be included in
the Trust Fund will have a significant effect on the rate and timing of
principal distributions on the Bonds. For a series of Bonds backed by the Trust
Balances of Revolving Credit Loans, the specific provisions applicable to the
allocation of payments, Draws and losses on the Revolving Credit Loans between
the Trust Balances and the Excluded Balances thereof will also have a
significant effect on the rate and timing of principal distributions on the
Bonds. See "Description of the Mortgage Pools--Allocation of Revolving Credit
Balances" herein.
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ENVIRONMENTAL RISKS OF THE MORTGAGE LOANS. To the extent the Master
Servicer acquires title to any Mortgaged Property with contaminated with or
affected by hazardous wastes or hazardous substances, or, with respect to any
Multifamily Property, not in compliance with environmental laws and regulations,
the Mortgage Loans may incur losses. See "Servicing of Mortgage
Loans--Realization Upon or Sale of Defaulted Mortgage Loans" and "Certain Legal
Aspects of Mortgage Loans--Environmental Legislation." To the extent such
environmental risks result in losses on the mortgage loans, the yield to
maturity of the Bonds, to the extent not covered by credit enhancement, may be
affected.
ERISA CONSIDERATIONS. Generally, ERISA applies to investments made by
employee benefit plans and transactions involving the assets of such plans. Due
to the complexity of regulations that govern such plans, prospective investors
that are subject to ERISA are urged to consult their own counsel regarding
consequences under ERISA of acquisition, ownership and disposition of the Bonds
of any series. See "ERISA Considerations".
THE MORTGAGE POOLS
GENERAL
Each Mortgage Pool will consist primarily of Mortgage Loans, minus the
Spread, if any, or any other interest retained by the Company or any affiliate
of the Company. The Mortgage Loans may consist of Single Family Loans,
Multifamily Loans and Contracts, each as described below. The Mortgage Loans
will either be (i) mortgage loans as to which the entire principal amount is
advanced at origination or (ii) revolving home equity lines of credit
("Revolving Credit Loans"). In connection with a series of Bonds backed by
Revolving Credit Loans, if the related Prospectus Supplement indicates that the
Mortgage Pool consists of certain balances of such Revolving Credit Loans, then
the term "Mortgage Loans" as used herein refers only to such balances where the
context so requires.
The Mortgage Loans (other than the Contracts) will be evidenced by
promissory notes ("Mortgage Notes") and secured by mortgages, deeds of trust or
other similar security instruments ("Mortgages") that, in each case, create a
first or junior lien on the related Mortgagor's fee or leasehold interest in the
related Mortgaged Property. The Mortgaged Properties for such loans may consist
of attached or detached one-family dwelling units, two- to four-family dwelling
units, condominiums, townhouses, row houses, individual units in planned-unit
developments and certain other individual dwelling units (a "Single Family
Property" and the related loans, "Single Family Loans"), which in each case may
be owner-occupied or may be a vacation, second or non-owner-occupied home. The
Mortgaged Properties for such loans may also consist of residential properties
consisting of five or more rental or cooperatively-owned dwelling units in
high-rise, mid-rise or garden apartment buildings or projects ("Multifamily
Properties" and the related loans, "Multifamily Loans").
The "Contracts" will consist of manufactured housing conditional sales
contracts and installment loan agreements each secured by a Manufactured Home.
The "Manufactured Homes" securing the Contracts will consist of manufactured
homes within the meaning of 42 United States Code, Section 5402(6), which
defines a "manufactured home" as "a structure, transportable in one or more
sections, which in the traveling mode, is eight body feet or more in width or
forty body feet or more in length, or, when erected on site, is three hundred
twenty or more square feet, and which is built on a permanent chassis and
designed to be used as a dwelling with or without a permanent foundation when
connected to the required utilities, and includes the plumbing, heating, air
conditioning, and electrical systems contained therein; except that such term
shall include any structure which meets all the requirements of this paragraph
except
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the size requirements and with respect to which the manufacturer voluntarily
files a certification required by the Secretary of Housing and Urban Development
and complies with the standards established under this chapter."
Mortgaged Properties may be located in any one of the 50 states, the
District of Columbia or the Commonwealth of Puerto Rico.
The Mortgage Loans will not be guaranteed or insured by the Company,
any of its affiliates or by any governmental agency or instrumentality. However,
if so specified in the related Prospectus Supplement, the Mortgage Loans may be
insured by the Federal Housing Administration (the "FHA" and such loans, "FHA
Loans"). See "Description of Primary Insurance Policies--FHA Insurance."
A Mortgage Pool may include Mortgage Loans that are delinquent or
non-performing as of the date the related series of Bonds is issued. In that
case, the related Prospectus Supplement will set forth, as to each such Mortgage
Loan, available information as to the period of such delinquency or
non-performance and any other information relevant for a prospective purchaser
to make an investment decision.
Each Mortgage Loan will be selected by the Company for inclusion in a
Mortgage Pool from among those purchased by the Company, either directly or
through its affiliates, from banks, savings and loan associations, mortgage
bankers, investment banking firms, the Resolution Trust Corporation (the "RTC"),
the Federal Deposit Insurance Corporation (the "FDIC") and other mortgage loan
originators or sellers not affiliated with the Company ("Unaffiliated Sellers")
or from affiliates of the Company such as Impac Funding, Impac Holdings,
Southern Pacific Thrift and Loan Association, Southern Pacific Funding
Corporation and Imperial Credit Industries, Inc. (collectively, the "Affiliated
Sellers"; Unaffiliated Sellers and Affiliated Sellers are collectively referred
to herein as "Sellers"). If a Mortgage Pool is composed of Mortgage Loans
acquired by the Company directly from Unaffiliated Sellers, the related
Prospectus Supplement will specify the extent of Mortgage Loans so acquired. The
characteristics of the Mortgage Loans are as described in the related Prospectus
Supplement. Other mortgage loans available for purchase by the Company may have
characteristics which would make them eligible for inclusion in a Mortgage Pool
but were not selected for inclusion in such Mortgage Pool.
Under certain circumstances, the Mortgage Loans to be included in a
Mortgage Pool will be delivered either directly or indirectly to the Company by
one or more Sellers identified in the related Prospectus Supplement,
concurrently with the issuance of the related series of Bonds (a "Designated
Seller Transaction"). Such Bonds may be sold in whole or in part to any such
Seller in exchange for the related Mortgage Loans, or may be offered under any
of the other methods described herein under "Methods of Distribution." The
related Prospectus Supplement for a Mortgage Pool composed of Mortgage Loans
acquired by the Company pursuant to a Designated Seller Transaction will
generally include information, provided by the related Seller, about the Seller,
the Mortgage Loans and the underwriting standards applicable to the Mortgage
Loans. None of the Company or, unless it is the Seller, Impac Funding or any of
their affiliates will make any representation or warranty with respect to such
Mortgage Loans, or any representation as to the accuracy or completeness of such
information provided by the Seller.
THE MORTGAGE LOANS
Each of the Mortgage Loans will be a type of mortgage loan described or
referred to in paragraphs numbered (1) through (7) below, with any variations
described in the Prospectus Supplement:
(1) Fixed-rate, fully-amortizing mortgage loans (which may
include mortgage loans converted from adjustable-rate mortgage loans or
otherwise modified) providing for level monthly
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payments of principal and interest and terms at origination or
modification of not more than approximately 15 years;
(2) Fixed-rate, fully-amortizing mortgage loans (which may
include mortgage loans converted from adjustable-rate mortgage loans
or otherwise modified) providing for level monthly payments of
principal and interest and terms at origination or modification of
more than 15 years, but not more than approximately 25 or 30 years;
(3) Fully-amortizing adjustable-rate mortgage loans ("ARM
Loans") having an original or modified term to maturity of not more
than approximately 25 or 30 years with a related interest rate (a
"Mortgage Rate") which generally adjusts initially either three months,
six months or one, three, five or seven years subsequent to the initial
payment date, and thereafter at either three-month, six-month, one-year
or other intervals (with corresponding adjustments in the amount of
monthly payments) over the term of the mortgage loan to equal the sum
of a fixed percentage set forth in the related Mortgage Note (the "Note
Margin") and an index*. The related Prospectus Supplement will set
forth the relevant index and the highest, lowest and weighted average
Note Margin with respect to the ARM Loans in the related Mortgage Pool.
The related Prospectus Supplement will also indicate any periodic or
lifetime limitations on changes in any per annum Mortgage Rate at the
time of any adjustment. If specified in the related Prospectus
Supplement, an ARM Loan may include a provision that allows the
Mortgagor to convert the adjustable Mortgage Rate to a fixed rate at
some point during the term of such ARM Loan generally not later than
six to ten years subsequent to the initial payment date;
(4) Negatively-amortizing ARM Loans having original or
modified terms to maturity of not more than approximately 25 or 30
years with Mortgage Rates which generally adjust initially on the
payment date referred to in the related Prospectus Supplement, and on
each of certain periodic payment dates thereafter, to equal the sum of
the Note Margin and the index. The scheduled monthly payment will be
adjusted as and when described in the related Prospectus Supplement to
an amount that would fully amortize the Mortgage Loan over its
remaining term on a level debt service basis; provided that increases
in the scheduled monthly payment may be subject to certain limitations
as specified in the related Prospectus Supplement. If an adjustment to
the Mortgage Rate on a Mortgage Loan causes the amount of interest
accrued thereon in any month to exceed the scheduled monthly payment on
such mortgage loan, the resulting amount of interest that has accrued
but is not then payable ("Deferred Interest") will be added to the
principal balance of such Mortgage Loan;
(5) Fixed-rate, graduated payment mortgage loans having
original or modified terms to maturity of not more than approximately
15 years with monthly payments during the first year calculated on the
basis of an assumed interest rate which is a specified percentage below
the Mortgage Rate on such mortgage loan. Such monthly payments increase
at the beginning of the second year by a specified percentage of the
monthly payment during the preceding year and each
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* The index (the "Index") for a particular Mortgage Pool will be
specified in the related Prospectus Supplement and may include one of
the following indexes: (i) the weekly average yield on U.S. Treasury
securities adjusted to a constant maturity of either six months or one
year, (ii) the weekly auction average investment yield of U.S. Treasury
bills of six months, (iii) the daily Bank Prime Loan rate made
available by the Federal Reserve Board, (iv) the cost of funds of
member institutions for the Federal Home Loan Bank of San Francisco,
(v) the interbank offered rates for U.S. dollar deposits in the London
market, each calculated as of a date prior to each scheduled interest
rate adjustment date which will be specified in the related Prospectus
Supplement or (vi) any other index described in the related Prospectus
Supplement.
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year thereafter to the extent necessary to amortize the mortgage loan
over the remainder of its approximately 15-year term. Deferred
Interest, if any, will be added to the principal balance of such
mortgage loans;
(6) Fixed-rate, graduated payment mortgage loans having
original or modified terms to maturity of not more than approximately
25 or 30 years with monthly payments during the first year calculated
on the basis of an assumed interest rate which is a specified
percentage below the Mortgage Rate. Such monthly payments increase at
the beginning of the second year by a specified percentage of the
monthly payment during the preceding year and each year thereafter to
the extent necessary to fully amortize the mortgage loan within its
approximately 25- or 30-year term. Deferred Interest, if any, will be
added to the principal balance of such mortgage loan; or
(7) Mortgage loans ("Balloon Loans") having payment terms
similar to those described in one of the preceding paragraphs numbered
(1) through (6), calculated on the basis of an assumed amortization
term, but providing for a payment (a "Balloon Payment") of all
outstanding principal and interest to be made at the end of a specified
term that is shorter than such assumed amortization term.
If provided in the related Prospectus Supplement, certain of the
Mortgage Pools may contain Single Family and Multifamily Loans secured by junior
liens, and the related senior liens ("Senior Liens") may not be included in the
Mortgage Pool. The primary risk to holders of such Mortgage Loans secured by
junior liens is the possibility that adequate funds will not be received in
connection with a foreclosure of the related Senior Liens to satisfy fully both
the Senior Liens and the Mortgage Loan. In the event that a holder of a Senior
Lien forecloses on a Mortgaged Property, the proceeds of the foreclosure or
similar sale will be applied first to the payment of court costs and fees in
connection with the foreclosure, second to real estate taxes, third in
satisfaction of all principal, interest, prepayment or acceleration penalties,
if any, and any other sums due and owing to the holder of the Senior Liens. The
claims of the holders of the Senior Liens will be satisfied in full out of
proceeds of the liquidation of the related Mortgaged Property, if such proceeds
are sufficient, before the Trust Fund as holder of the junior lien receives any
payments in respect of the Mortgage Loan. If the Master Servicer were to
foreclose on any such Mortgage Loan, it would do so subject to any related
Senior Liens. In order for the debt related to the Mortgage Loan to be paid in
full at such sale, a bidder at the foreclosure sale of such Mortgage Loan would
have to bid an amount sufficient to pay off all sums due under the Mortgage Loan
and the Senior Liens or purchase the Mortgaged Property subject to the Senior
Liens. In the event that such proceeds from a foreclosure or similar sale of the
related Mortgaged Property are insufficient to satisfy all Senior Liens and the
Mortgage Loan in the aggregate, the Trust Fund, as the holder of the junior
lien, and, accordingly, holders of one or more classes of the Bonds of the
related series bear (i) the risk of delay in distributions while a deficiency
judgment against the borrower is obtained and (ii) the risk of loss if the
deficiency judgment is not realized upon. Moreover, deficiency judgments may not
be available in certain jurisdictions or the Mortgage Loan may be nonrecourse.
In addition, a junior mortgagee may not foreclose on the property securing a
junior mortgage unless it forecloses subject to the senior mortgages.
If so specified in the related Prospectus Supplement, a Mortgage Loan
may contain a prohibition on prepayment (the period of such prohibition, a
"Lock-out Period" and its date of expiration, a "Lock-out Expiration Date") or
require payment of a premium or a yield maintenance penalty (a "Prepayment
Penalty").
Certain information, including information regarding loan-to-value
ratios (each, a "Loan-to-Value Ratio") at origination of the Mortgage Loans
underlying each series of Bonds, will be supplied in the related Prospectus
Supplement. In the case of most Mortgage Loans, the "Loan-to-Value Ratio" at
origination is defined generally as the ratio, expressed as a percentage, of the
principal amount of the
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Mortgage Loan at origination (or, if appropriate, at the time of an appraisal
subsequent to origination) or of the Credit Limit, if applicable, plus, in the
case of a Mortgage Loan secured by a junior lien, the outstanding principal
balance of the related Senior Liens, to the Value of the related Mortgaged
Property. The "Value" of a Mortgaged Property securing a Single Family or
Multifamily Mortgage Loan will generally be equal to the lesser of (x) the
appraised value determined in an appraisal obtained at origination of such
Mortgage Loan, if any, or, if the related Mortgaged Property has been appraised
subsequent to origination, the value determined in such subsequent appraisal and
(y) the sales price for the related Mortgaged Property (except in certain
circumstances in which there has been a subsequent appraisal). In the case of
certain refinanced, modified or converted Single Family or Multifamily Loans,
the "Value" of the related Mortgaged Property will generally be equal to the
lesser of (x) the appraised value of the related Mortgaged Property determined
at origination or in an appraisal, if any, obtained at the time of refinancing,
modification or conversion and (y) the sales price of the related Mortgage
Property or, if the Mortgage Loan is not a rate and term refinance Mortgage Loan
and if the Mortgaged Property was owned for a relatively short period of time
prior to refinancing, modification or conversion, the sum of the sales price of
the related Mortgaged Property plus the added value of any improvements. Certain
Mortgage Loans which are subject to negative amortization will have
Loan-to-Value Ratios which will increase after origination as a result of such
negative amortization. For purposes of calculating the Loan-to-Value Ratio of a
Contract relating to a new Manufactured Home, the "Value" is generally no
greater than the sum of a fixed percentage of the list price of the unit
actually billed by the manufacturer to the dealer (exclusive of freight to the
dealer site), including "accessories" identified in the invoice (the
"Manufacturer's Invoice Price"), plus the actual cost of any accessories
purchased from the dealer, a delivery and set-up allowance, depending on the
size of the unit, and the cost of state and local taxes, filing fees and up to
three years prepaid hazard insurance premiums. With respect to a used
Manufactured Home, the "Value" is generally the least of the sale price, the
appraised value, and the National Automobile Dealer's Association book value
plus prepaid taxes and hazard insurance premiums. The appraised value of a
Manufactured Home is based upon the age and condition of the manufactured
housing unit and the quality and condition of the mobile home park in which it
is situated, if applicable. Manufactured Homes are less likely than other types
of housing to experience appreciation in value and more likely to experience
depreciation in value over time. The "Credit Utilization Rate" is determined by
dividing the Cut-off Date Principal Balance of a Revolving Credit Loan by the
Credit Limit of the related Credit Line Agreement.
The Mortgage Loans may be "equity refinance" Mortgage Loans, as to
which a portion of the proceeds are used to refinance an existing mortgage loan,
and the remaining proceeds may be retained by the Mortgagor or used for purposes
unrelated to the Mortgaged Property. Alternatively, the Mortgage Loans may be
"rate and term refinance" Mortgage Loans, as to which substantially all of the
proceeds (net of related costs incurred by the Mortgagor) are used to refinance
an existing mortgage loan or loans (which may include a junior lien) primarily
in order to change the interest rate or other terms thereof. The Mortgage Loans
may be mortgage loans which have been consolidated and/or have had various terms
changed, mortgage loans which have been converted from adjustable rate mortgage
loans to fixed rate mortgage loans, or construction loans which have been
converted to permanent mortgage loans. In addition, a Mortgaged Property may be
subject to secondary financing at the time of origination of the Mortgage Loan
or thereafter. In addition, certain or all of the Single Family Loans may have
Loan-to- Value Ratios in excess of 80% and as high as 125% and will not be
insured by a Primary Insurance Policy (such Mortgage Loans, "High LTV Loans").
If provided for in the related Prospectus Supplement, a Mortgage Pool
may contain ARM Loans which allow the Mortgagors to convert the adjustable rates
on such Mortgage Loans to a fixed rate at some point during the life of such
Mortgage Loans (each such Mortgage Loan, a "Convertible Mortgage Loan"),
generally not later than six to ten years subsequent to the date of origination,
depending upon the length of the initial adjustment period. If specified in the
related Prospectus Supplement, upon any conversion, the Company, the related
Master Servicer, the applicable Seller or a third party will purchase the
converted
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Mortgage Loan as and to the extent set forth in the related Prospectus
Supplement. Alternatively, if specified in the related Prospectus Supplement,
the Company or the related Master Servicer (or another party specified therein)
may agree to act as remarketing agent with respect to such converted Mortgage
Loans and, in such capacity, to use its best efforts to arrange for the sale of
converted Mortgage Loans under specified conditions. Upon the failure of any
party so obligated to purchase any such converted Mortgage Loan, the inability
of any remarketing agent to arrange for the sale of the converted Mortgage Loan
and the unwillingness of such remarketing agent to exercise any election to
purchase the converted Mortgage Loan for its own account, the related Mortgage
Pool will thereafter include both fixed rate and adjustable rate Mortgage Loans.
If provided for in the related Prospectus Supplement, certain of the
Mortgage Loans may be subject to temporary buydown plans ("Buydown Mortgage
Loans") pursuant to which the monthly payments made by the Mortgagor during the
early years of the Mortgage Loan (the "Buydown Period") will be less than the
scheduled monthly payments on the Mortgage Loan, the resulting difference to be
made up from (i) an amount (such amount, exclusive of investment earnings
thereon, being hereinafter referred to as "Buydown Funds") contributed by the
seller of the Mortgaged Property or another source and placed in a custodial
account (the "Buydown Account"), (ii) if the Buydown Funds are contributed on a
present value basis, investment earnings on such Buydown Funds or (iii)
additional buydown funds to be contributed over time by the Mortgagor's employer
or another source. See "Description of the Bonds--Payments on Mortgage Loans;
Deposits to Collection Account." Generally, the Mortgagor under each Buydown
Mortgage Loan will be qualified at the applicable lower monthly payment.
Accordingly, the repayment of a Buydown Mortgage Loan is dependent on the
ability of the Mortgagor to make larger level monthly payments after the Buydown
Funds have been depleted and, for certain Buydown Mortgage Loans, during the
Buydown Period.
If provided for in the related Prospectus Supplement, certain of the
Mortgage Loans may be revolving credit loans (the "Revolving Credit Loans"). The
Revolving Credit Loans will be originated pursuant to loan agreements (the
"Credit Line Agreements"). Interest on each Revolving Credit Loan will be
calculated according to the daily simple interest method, and with respect to
each Revolving Credit Loan, the billing cycle generally will be the calendar
month preceding a Due Date. Each Revolving Credit Loan will have a Mortgage Rate
that is subject to adjustment on the day specified in the related Mortgage Note,
which may be daily or monthly, equal to the sum of (a) the Index on such day as
specified in the related Prospectus Supplement, and (b) the gross margin
specified in the related Mortgage Note (which may vary under circumstances if so
specified in the related Prospectus Supplement), subject to the maximum rate set
forth in the Mortgage Note and the maximum rate permitted by applicable law.
Notwithstanding the forgoing, if so specified in the related Prospectus
Supplement, a Mortgage Loan may have an introductory rate that is lower than the
rate that would be in effect if the applicable Index and gross margin were used
to determine the Mortgage Rate and as a result of such introductory rate,
interest distributions on the Bonds may initially be lower than expected. See
"Risk Factors--Risks Relating to Revolving Credit Loans" herein.
Each Revolving Credit Loan will have a term to maturity from the date
of origination of not more than 30 years. The Mortgagor for each Revolving
Credit Loan may draw money (each, an "Additional Balance" or a "Draw") under the
related Credit Line Agreement at any time during the period specified therein
(such period as to any Mortgage Loan, the "Draw Period"). The Draw Period
generally will not be more than 15 years. With respect to each Revolving Credit
Loan, if the Draw Period is less than the full term thereof, the related
Mortgagor will not be permitted to make any Draw during the period from the end
of the related Draw Period to the related maturity date. The Mortgagor for each
Revolving Credit Loan will be obligated to make monthly payments thereon in a
minimum amount as specified in the related Mortgage Note, which generally will
not be less than the Finance Charge (as defined herein) for the related billing
cycle. The Mortgagor for each Mortgage Loan will be obligated to make a payment
on the related
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maturity date in an amount equal to the Account Balance (as defined herein)
thereof on such maturity date, which may be a substantial principal amount. The
maximum amount of any Draw with respect to any Revolving Credit Loan is equal to
the excess, if any, of the Credit Limit over the principal balance outstanding
under such Mortgage Note at the time of such Draw. Unless otherwise provided in
the related Prospectus Supplement, Draws made after the related Cut-off Date
will be excluded from the Mortgage Pool.
Unless otherwise specified in the related Prospectus Supplement, with
respect to each Revolving Credit Loan, (a) the Finance Charge (the "Finance
Charge") for any billing cycle generally will be equal to interest accrued on
the average daily principal balance of such Mortgage Loan for such billing cycle
at the related Mortgage Rate, (b) the Account Balance (the "Account Balance") on
any day generally will be the aggregate of all related Draws funded on such day
and outstanding at the beginning of such day, plus the sum of any unpaid Finance
Charges and any unpaid fees, insurance premiums and other charges (collectively,
"Additional Charges") that are due on such Mortgage Loan minus the aggregate of
all payments and credits that are applied to the repayment of any such Draws on
such day, and (c) the "principal balance" on any day generally will be the
related Account Balance minus the sum of any unpaid Finance Charges and
Additional Charges that are due on such Revolving Credit Loan. Payments made by
or on behalf of the Mortgagor for each Mortgage Loan will be applied, first, to
any unpaid Finance Charges that are due thereon, second, to any unpaid
Additional Charges that are due thereon, and third, to any related Draws
outstanding.
The Mortgaged Property securing each Revolving Credit Loan will be
subject to the lien created by the related Mortgage in respect of the
outstanding principal balance of each related Draw or portion thereof that is
not included in the related Mortgage Pool, whether made on or prior to the
related Cut-off Date or thereafter. Such lien will be the same rank as the lien
created by such Mortgage in respect of such Revolving Credit Loan, and monthly
payments, collections and other recoveries under the Credit Line Agreement
related to such Revolving Credit Loan will be allocated as described in the
related Prospectus Supplement among such Revolving Credit Loan and the
outstanding principal balance of each Draw or portion thereof excluded from the
Mortgage Pool. The Company, an affiliate of the Company or an Unaffiliated
Seller may have an interest in any Draw or portion thereof excluded from the
Mortgage Pool.
Each Revolving Credit Loan may be prepaid in full or in part at any
time and without penalty, but with respect to each Revolving Credit Loan, the
related Mortgagor will have the right during the related Draw Period to make a
Draw in the amount of any prepayment theretofore made with respect to such
Mortgage Loan. The Mortgage Note or Mortgage related to each Revolving Credit
Loan will contain a customary "due-on-sale" clause.
As to each Revolving Credit Loan, the Mortgagor's rights to receive
Draws during the Draw Period may be suspended, or the Credit Limit may be
reduced, for cause under a limited number of circumstances, including, but not
limited to: a materially adverse change in the Mortgagor's financial
circumstances or a non-payment default by the Mortgagor. However, with respect
to each Revolving Credit Loan, generally such suspension or reduction will not
affect the payment terms for previously drawn balances. In the event of default
under a Revolving Credit Loan, at the discretion of the Master Servicer, the
Revolving Credit Loan may be terminated and declared immediately due and payable
in full. For this purpose, a default includes, but is not limited to: the
Mortgagor's failure to make any payment as required; any action or inaction by
the Mortgagor that materially and adversely affects the Mortgaged Property or
the rights in the Mortgaged Property; or fraud or material misrepresentation by
a Mortgagor in connection with the loan.
The Prospectus Supplement for each series of Bonds will contain
information as to the type of Mortgage Loans that will be included in the
related Mortgage Pool. Each Prospectus Supplement
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applicable to a series of Bonds will include certain information, generally as
of the Cut-off Date and to the extent then available to the Company, on an
approximate basis, as to (i) the aggregate principal balance of the Mortgage
Loans, (ii) the type of property securing the Mortgage Loans, (iii) the original
or modified terms to maturity of the Mortgage Loans, (iv) the range of principal
balances of the Mortgage Loans at origination or modification, (v) the earliest
origination or modification date and latest maturity date of the Mortgage Loans,
(vi) the Loan-to-Value Ratios of the Mortgage Loans, (vii) the Mortgage Rate or
range of Mortgage Rates borne by the Mortgage Loans, (viii) if any of the
Mortgage Loans are ARM Loans or Revolving Credit Loans, the applicable Index,
the range of Note Margins and the weighted average Note Margin, (ix) the
geographical distribution of the Mortgage Loans, (x) the number of Buydown
Mortgage Loans, if applicable, (xi) the percent of ARM Loans which are
convertible to fixed-rate mortgage loans, if applicable and (xii) if the
Mortgage Loans are Revolving Credit Loans, the aggregate Credit Limits of the
related Credit Line Agreements and the Credit Utilization Rate. A Current Report
on Form 8-K will be available upon request to holders of the related series of
Bonds and will be filed, together with the related Master Servicing Agreement,
Trust Agreement and Indenture, with the Securities and Exchange Commission
within fifteen days after the initial issuance of such Bonds. The composition
and characteristics of a Mortgage Pool containing Revolving Credit Loans may
change form time to time as a result of any Draws made after the related Cut-off
Date under the related Credit Line Agreements that are included in the Mortgage
Pool. In the event that Mortgage Loans are added to or deleted from the Trust
Fund after the date of the related Prospectus Supplement other than as a result
of any such Draws, such addition or deletion will be noted in the Current Report
on Form 8-K.
The Company will cause the Mortgage Loans constituting each Mortgage
Pool to be assigned, without recourse, to the Indenture Trustee named in the
related Prospectus Supplement, for the benefit of the holders of all of the
Securities of a series (the "Securityholders"). Except to the extent that
servicing of any Mortgage Loan is to be transferred to a Special Servicer, the
Master Servicer named in the related Prospectus Supplement will service the
Mortgage Loans, directly or through other mortgage servicing institutions
("Subservicers"), pursuant to a Servicing Agreement and will receive a fee for
such services. See "Servicing of Mortgage Loans," "Description of the Bonds" and
"The Agreements." With respect to those Mortgage Loans serviced by the Master
Servicer through a Subservicer, the Master Servicer will remain liable for its
servicing obligations under the related Servicing Agreement as if the Master
Servicer alone were servicing such Mortgage Loans. The Master Servicer's
obligations with respect to the Mortgage Loans will consist principally of its
contractual servicing obligations under the related Servicing Agreement
(including its obligation to enforce certain purchase and other obligations of
Subservicers and Sellers, as more fully described herein under
"--Representations by Sellers" below, "Servicing of Mortgage
Loans--Subservicers," and "Description of the Bonds--Assignment of Trust Fund
Assets," and, if and to the extent set forth in the related Prospectus
Supplement, its obligation to make certain cash advances in the event of
delinquencies in payments on or with respect to the Mortgage Loans as described
herein under "Description of the Bonds--Advances"). With respect to the
Revolving Credit Loans, the Master Servicer (or such other entity identified in
the related Prospectus Supplement) will be obligated to advance funds to
Mortgagors in respect of Draws made after the related Cut-off Date. In addition
to or in lieu of the Master Servicer for a series of Bonds, the related
Prospectus Supplement may identify an Administrator for the Trust Fund. The
Administrator may be an affiliate of the Company. All references herein to
"Master Servicer" and any discussions of the servicing and administration
functions of the Master Servicer will also apply to the Administrator to the
extent applicable.
ALLOCATION OF REVOLVING CREDIT LOAN BALANCES
With respect to any series of Bonds backed by Revolving Credit Loans,
the related Trust Fund may include either (i) the entire principal balance of
each Revolving Credit Loan outstanding at any time, including balances
attributable to Draws made after the related Cut-off Date, or (ii) only a
specified portion (the "Trust Balance") of the total principal balance of each
Revolving Credit Loan outstanding at any time,
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which except as otherwise indicated in the related Prospectus Supplement will
consist of the principal balance thereof as of the Cut-off Date minus the
portion of all payments and losses thereafter that are allocated to the Trust
Balance, and will not include any portion of the principal balance attributable
to Draws made after the Cut-off Date.
In the latter case, that portion of the principal balance of any
Revolving Credit Loan not included in the Trust Balance at any time is referred
to as the "Excluded Balance," which will include balances attributable to Draws
after the Cut-off Date and may include, if so specified in the related
Prospectus Supplement, a portion of the principal balance outstanding as of the
Cut-off Date (such as any such portion included in a different Trust Fund). The
related Prospectus Supplement will set forth the specific provisions by which
payments and losses on any such Revolving Credit Loan will be allocated as
between the Trust Balance and any Excluded Balance. Generally, except as
otherwise so specified, such provisions (i) may provide that principal payments
made by the Mortgagor will be allocated as between the Trust Balance and any
Excluded Balance either (a) on a pro rata basis, (b) first to the Trust Balance
until reduced to zero, then to the Excluded Balance, or (c) in accordance with
other specified priorities, and (ii) will provide that interest payments, as
well as liquidation proceeds or similar proceeds following a default and any
Realized Losses, will be allocated as between the Trust Balance and any Excluded
Balance on a pro rata basis.
Even where a Trust Fund initially includes the entire principal balance
of the Revolving Credit Loans, the Servicing Agreement may provide that after a
specified date or upon the occurrence of specified events, the Trust Fund may
not include balances attributable to additional Draws made thereafter. The
related Prospectus Supplement will describe such provisions as well as the
allocation provisions that would be applicable thereto.
Any Seller, including a Designated Seller, may retain or acquire any
Excluded Balances with respect to any related Revolving Credit Loans.
UNDERWRITING STANDARDS
Mortgage Loans to be included in a Mortgage Pool will have been
purchased by the Company, either directly or indirectly from Sellers. Such
Mortgage Loans will generally have been originated in accordance with
underwriting standards acceptable to the Company or alternative underwriting
criteria. The underwriting standards for the Mortgage Loans included in each
Mortgage Pool are described below and in the related Prospectus Supplement.
However, in some cases, particularly those involving Unaffiliated Sellers, the
Company may not be able to establish the underwriting standards used in the
origination of the related Mortgage Loans. In those cases, the related
Prospectus Supplement will include a statement to such effect and will reflect
what, if any, re-underwriting of the related Mortgage Loans was done by the
Company or any of its affiliates.
The underwriting standards to be used in originating the Mortgage Loans
are primarily intended to assess the creditworthiness of the Mortgagor, the
value of the Mortgaged Property and the adequacy of
such property as collateral for the Mortgage Loan.
The primary considerations in underwriting a Single Family Loan or
Contract are the Mortgagor's employment stability and whether the Mortgagor has
sufficient monthly income available (i) to meet the Mortgagor's monthly
obligations on the proposed Mortgage Loan (generally determined on the basis of
the monthly payments due in the year of origination) and other expenses related
to the home (such as property taxes and hazard insurance) and (ii) to meet
monthly housing expenses and other financial obligations and monthly living
expenses. However, the Loan-to-Value Ratio of the Mortgage Loan is
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another critical factor. In addition, a Mortgagor's credit history and repayment
ability, as well as the type and use of the Mortgaged Property, are also
considerations.
High LTV Loans are underwritten with an emphasis on the
creditworthiness of the related Mortgagor. Such Mortgage Loans are underwritten
with a limited expectation of recovering any amounts from the foreclosure of the
related Mortgaged Property.
In the case of the Multifamily Loans, lenders typically look to the
Debt Service Coverage Ratio of a loan as an important measure of the risk of
default on such a loan. The "Debt Service Coverage Ratio" of a Multifamily Loan
at any given time is generally equal to the ratio of (i) the Net Operating
Income of the related Mortgaged Property for a twelve-month period to (ii) the
annualized scheduled payments on the Mortgage Loan and on any other loan that is
secured by a lien on the Mortgaged Property prior to the lien of the related
Mortgage. "Net Operating Income" generally means, for any given period, the
total operating revenues derived from a Multifamily Property during such period,
minus the total operating expenses incurred in respect of such property during
such period other than (i) non-cash items such as depreciation and amortization,
(ii) capital expenditures and (iii) debt service on loans (including the related
Mortgage Loan) secured by liens on such property. The Net Operating Income of a
Multifamily Property will fluctuate over time and may or may not be sufficient
to cover debt service on the related Mortgage Loan at any given time. As the
primary source of the operating revenues of a Multifamily Property, rental
income (and maintenance payments from tenant-stockholders of a cooperatively
owned Multifamily Property) may be affected by the condition of the applicable
real estate market and/or area economy. Increases in operating expenses due to
the general economic climate or economic conditions in a locality or industry
segment, such as increases in interest rates, real estate tax rates, energy
costs, labor costs and other operating expenses, and/or to changes in
governmental rules, regulations and fiscal policies, may also affect the risk of
default on a Multifamily Loan. Lenders also look to the Loan-to-Value Ratio of a
Multifamily Loan as a measure of risk of loss if a property must be liquidated
following a default.
It is expected that each prospective Mortgagor will complete a mortgage
loan application that includes information with respect to the applicant's
liabilities, income, credit history, employment history and personal
information. One or more credit reports on each applicant from national credit
reporting companies will generally be required. The report typically contains
information relating to such matters as credit history with local and national
merchants and lenders, installment debt payments and any record of defaults,
bankruptcies, repossessions, or judgments. In the case of a Multifamily Loan,
the Mortgagor will also be required to provide certain information regarding the
related Multifamily Property, including a current rent roll and operating income
statements (which may be pro forma and unaudited). In addition, the originator
will generally also consider the location of the Multifamily Property, the
availability of competitive lease space and rental income of comparable
properties in the relevant market area, the overall economy and demographic
features of the geographic area and the Mortgagor's prior experience in owning
and operating properties similar to the Multifamily Properties.
Mortgaged Properties will generally be appraised by licensed
appraisers. The appraiser will generally address neighborhood conditions, site
and zoning status and condition and valuation of improvements. In the case of
Single Family Properties, the appraisal report will generally include a
reproduction cost analysis (when appropriate) based on the current cost of
constructing a similar home and a market value analysis based on recent sales of
comparable homes in the area. With respect to Multifamily Properties, the
appraisal must specify whether an income analysis, a market analysis or a cost
analysis was used. An appraisal employing the income approach to value analyzes
a property's projected net cash flow, capitalization and other operational
information in determining the property's value. The market approach to value
analyzes the prices paid for the purchase of similar properties in the
property's area, with adjustments made for variations between those other
properties and the property being appraised. The cost approach to value requires
the appraiser to make an estimate of land value and then determine the
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current cost of reproducing the improvements less any accrued depreciation. In
any case, the value of the property being financed, as indicated by the
appraisal, must be such that it currently supports, and is anticipated to
support in the future, the outstanding loan balance. All appraisals are usually
required to conform to the Uniform Standards of Professional Appraisal Practice
and the Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") and must be on forms acceptable to the Federal National Mortgage
Association ("FNMA") and/or the Federal Home Loan Mortgage Corporation
("FHLMC").
Notwithstanding the foregoing, Loan-to-Value Ratios will not
necessarily constitute an accurate measure of the risk of liquidation loss in a
pool of Mortgage Loans. For example, the value of a Mortgaged Property as of the
date of initial issuance of the related series of Bonds may be less than the
Value determined at loan origination, and will likely continue to fluctuate from
time to time based upon changes in economic conditions and the real estate
market. Moreover, even when current, an appraisal is not necessarily a reliable
estimate of value for a Multifamily Property. As stated above, appraised values
of Multifamily Properties are generally based on the market analysis, the cost
analysis, the income analysis, or upon a selection from or interpolation of the
values derived from such approaches. Each of these appraisal methods can present
analytical difficulties. It is often difficult to find truly comparable
properties that have recently been sold; the replacement cost of a property may
have little to do with its current market value; and income capitalization is
inherently based on inexact projections of income and expenses and the selection
of an appropriate capitalization rate. Where more than one of these appraisal
methods are used and provide significantly different results, an accurate
determination of value and, correspondingly, a reliable analysis of default and
loss risks, is even more difficult.
If so specified in the related Prospectus Supplement, the underwriting
of a Multifamily Loan may also include environmental testing. Under the laws of
certain states, contamination of real property may give rise to a lien on the
property to assure the costs of cleanup. In several states, such a lien has
priority over an existing mortgage lien on 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 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 the borrower or
a prior owner. A lender also risks such liability on foreclosure of the
mortgage. See "Certain Legal Aspects of Mortgage Loans--Environmental
Legislation".
With respect to any FHA Loan the Mortgage Loan Seller will be required
to represent that it has complied with the applicable underwriting policies of
the FHA. See "Description of Primary Insurance Policies--FHA Insurance".
To the extent relevant and available, the related Prospectus Supplement
will include delinquency and foreclosure experience for the applicable
Seller(s).
QUALIFICATIONS OF ORIGINATORS AND SELLERS
Each Mortgage Loan will be originated, directly or through mortgage
brokers and correspondents, by a savings and loan association, savings bank,
commercial bank, credit union, insurance company, or similar institution which
is supervised and examined by a federal or state authority, or by a mortgagee
approved by the Secretary of Housing and Urban Development pursuant to sections
203 and 211 of the National Housing Act of 1934, as amended (the "Housing Act").
Except with respect to Designated Seller Transactions, each Seller must satisfy
certain criteria as to financial stability evaluated on a case-by-case basis by
the Company.
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REPRESENTATIONS BY SELLERS
Each Seller will generally have made representations and warranties in
respect of the Mortgage Loans sold by such Seller and evidenced by a series of
Bonds. In the case of Mortgage Loans, such representations and warranties will
generally include, among other things, that as to each such Mortgage Loan: (i)
as of the Cut-off Date, no Mortgage Loan is 30 or more days delinquent in
payment of principal and interest; (ii) a lender's policy of title insurance or
a commitment (binder) to issue the same or an attorney's certificate or opinion
of title was effective on the date of the origination of each Mortgage Loan and
each such policy or certificate or opinion of title is valid and remains in full
force and effect; (iii) there are no mechanics' liens or claims for work, labor
or material affecting any Mortgaged Property which are or may be a lien prior
to, or equal with, the lien of such Mortgage except those which are insured
against by the title insurance policy; (iv) there is no delinquent tax or
assessment lien against any Mortgaged Property; (v) there is no proceeding
pending or threatened for the total or partial condemnation of any Mortgaged
Property, nor is such a proceeding currently occurring, and such property is
undamaged by waste, fire, earthquake or earth movement, windstorm, flood,
tornado or other casualty, so as to affect adversely the value of the Mortgaged
Property as security for the Mortgage Loan or the use for which the premises
were intended; (vi) no misrepresentation of a material fact or fraud in respect
of the origination, modification or amendment of any Mortgage Loan has taken
place on the part of any person, including, without limitation, the related
Mortgagor, any appraiser, any builder or developer or any party involved in the
origination of such Mortgage Loan; (vii) each Mortgage Loan at origination
complied in all material respects with applicable state and federal laws,
including, without limitation, usury, equal credit opportunity, real estate
settlement procedures, truth-in-lending and disclosure laws; (viii) the Seller
has good title to such Mortgage Loan and such Mortgage Loan was subject to no
offsets, defenses or counterclaims except as may be provided under the Relief
Act and except to the extent that any buydown agreement exists for a Buydown
Mortgage Loan; and (ix) each Mortgage and Mortgage Note is the legal, valid and
binding obligation of the related Mortgagor and is enforceable by the Trustee or
any co-trustee appointed hereunder against the Mortgagor 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 law, and all parties to each Mortgage Loan
and the originator had full legal capacity to execute all Mortgage Loan
documents and to convey the estate therein purported to be conveyed; and the
Mortgage and each Mortgage Note have been duly and validly executed by such
parties. In the event of a breach of a Seller's representation or warranty that
materially adversely affects the interests of the Securityholders in a Mortgage
Loan, the related Seller will be obligated to cure the breach or repurchase or,
if permitted, replace such Mortgage Loan as described below. However, there can
be no assurance that a Seller will honor its obligation to repurchase or, if
permitted, replace any Mortgage Loan as to which such a breach of a
representation or warranty arises.
All of the representations and warranties of a Seller in respect of a
Mortgage Loan will have been made as of the date on which such Mortgage Loan was
purchased from the Seller by or on behalf of the Company; the date as of which
such representations and warranties were made will be a date prior to the date
of initial issuance of the related series of Bonds or, in the case of a
Designated Seller Transaction, will be the date of closing of the related sale
by the applicable Seller. A substantial period of time may have elapsed between
the date as of which the representations and warranties were made and the later
date of initial issuance of the related series of Bonds. Accordingly, the
Seller's purchase obligation (or, if specified in the related Prospectus
Supplement, limited replacement option) described below will not arise if,
during the period commencing on the date of sale of a Mortgage Loan by the
Seller, an event occurs that would have given rise to such an obligation had the
event occurred prior to sale of the affected Mortgage Loan. The only
representations and warranties to be made for the benefit of holders of Bonds in
respect of any related Mortgage Loan relating to the period commencing on the
date of sale of such Mortgage Loan by the Seller to or on behalf of the Company
will be certain limited representations of the Company and the Master Servicer
described under "Description of the Bonds--Assignment of Trust Fund Assets"
below.
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The Company will assign to the Indenture Trustee for the benefit of the
holders of the related series of Securities all of its right, title and interest
in each agreement by which it purchased a Mortgage Loan from a Seller insofar as
such agreement relates to the representations and warranties made by such Seller
in respect of such Mortgage Loan and any remedies provided for with respect to
any breach of such representations and warranties. If a Seller cannot cure a
breach of any representation or warranty made by it in respect of a Mortgage
Loan which materially and adversely affects the interests of the Securityholders
therein within a specified period after having discovered or received notice of
such breach, then such Seller may be obligated to purchase such Mortgage Loan at
a price (the "Purchase Price") set forth in the related Servicing Agreement
which Purchase Price will generally be equal to the principal balance thereof as
of the date of purchase plus accrued and unpaid interest through or about the
date of purchase at the related Mortgage Rate (net of any portion of such
interest payable to such Seller in respect of master servicing compensation,
special servicing compensation or subservicing compensation, as applicable, and
the Spread, if any).
As to any Mortgage Loan required to be purchased by an Affiliated
Seller as provided above, rather than repurchase the Mortgage Loan, the Seller
may be entitled, at its sole option, to remove such Mortgage Loan (a "Deleted
Mortgage Loan") from the Trust Fund and substitute in its place another Mortgage
Loan of like kind (a "Qualified Substitute Mortgage Loan"). Except as otherwise
provided in the related Prospectus Supplement, any Qualified Substitute Mortgage
Loan generally will, on the date of substitution, (i) have an outstanding
principal balance, after deduction of the principal portion of the monthly
payment due in the month of substitution, not in excess of the outstanding
principal balance of the Deleted Mortgage Loan (the amount of any shortfall to
be deposited in the Certificate Account by the Master Servicer in the month of
substitution for distribution to the Certificateholders), (ii) have a Mortgage
Rate and a Net Mortgage Rate not less than (and not more than one percentage
point greater than) the Mortgage Rate and Net Mortgage Rate, respectively, of
the Deleted Mortgage Loan as of the date of substitution, (iii) have a
Loan-to-Value Ratio at the time of substitution no higher than that of the
Deleted Mortgage Loan at the time of substitution, (iv) have a remaining term to
maturity not greater than (and not more than one year less than) that of the
Deleted Mortgage Loan and (v) comply with all of the representations and
warranties made by such Affiliated Seller as of the date of substitution. The
related purchase agreement may include additional requirements relating to ARM
Loans, Revolving Credit Loans or other specific types of Mortgage Loans, or
additional provisions relating to meeting the foregoing requirements on an
aggregate basis where a number of substitutions occur contemporaneously. An
Unaffiliated Seller will generally have no option to substitute for a Mortgage
Loan that it is obligated to repurchase in connection with a breach of a
representation and warranty.
The Master Servicer will be required under the applicable Servicing
Agreement to use reasonable efforts to enforce this purchase or substitution
obligation for the benefit of the Indenture Trustee and the Securityholders,
following such practices it would employ in its good faith business judgment and
which are normal and usual in its general mortgage servicing activities;
provided, however, that this purchase or substitution obligation will not become
an obligation of the Master Servicer in the event the applicable Seller fails to
honor such obligation. In instances where a Seller is unable, or disputes its
obligation, to purchase affected Mortgage Loans, the Master Servicer, employing
the standards set forth in the preceding sentence, may negotiate and enter into
one or more settlement agreements with such Seller that could provide for, among
other things, the purchase of only a portion of the affected Mortgage Loans. Any
such settlement could lead to losses on the Mortgage Loans which would be borne
by the related Securities. In accordance with the above described practices, the
Master Servicer will not be required to enforce any purchase obligation of a
Seller arising from any misrepresentation by the Seller, if the Master Servicer
determines in the reasonable exercise of its business judgment that the matters
related to such misrepresentation did not directly cause or are not likely to
directly cause a loss on the related Mortgage Loan. If the Seller fails to
repurchase and no breach of any other party's representations has occurred, the
Seller's purchase obligation will not become an obligation of the Company or any
other party. In the case
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of a Designated Seller Transaction where the Seller fails to repurchase a
Mortgage Loan and neither the Company nor any other entity has assumed the
representations and warranties, such repurchase obligation of the Seller will
not become an obligation of the Company or any other party. The foregoing
obligations will constitute the sole remedies available to Securityholders or
the Indenture Trustee for a breach of any representation by a Seller or for any
other event giving rise to such obligations as described above.
Neither the Company nor the Master Servicer will be obligated to
purchase a Mortgage Loan if a Seller defaults on its obligation to do so, and no
assurance can be given that the Sellers will carry out such purchase
obligations. Such a default by a Seller is not a default by the Company or by
the Master Servicer. However, to the extent that a breach of the representations
and warranties of a Seller also constitutes a breach of a representation made by
the Company or the Master Servicer, as described below under "Description of the
Bonds--Assignment of Trust Fund Assets," the Company or the Master Servicer may
have a purchase or substitution obligation. Any Mortgage Loan not so purchased
or substituted for shall remain in the related Trust Fund and any losses related
thereto shall be allocated to the related credit enhancement, to the extent
available, and otherwise to one or more classes of the related series of Bonds.
If a person other than a Seller makes the representations and
warranties referred to in the first paragraph of this "--Representations by
Sellers" section, or a person other than a Seller is responsible for
repurchasing or replacing any Mortgage Loan in connection with a breach of such
representations and warranties, the identity of such person will be specified in
the related Prospectus Supplement.
SERVICING OF MORTGAGE LOANS
GENERAL
The Mortgage Loans included in each Mortgage Pool will be serviced and
administered pursuant to a Servicing Agreement. A form of Servicing Agreement
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. However, the provisions of each Servicing Agreement will
vary depending upon the nature of the related Mortgage Pool. The following
summaries describe certain servicing-related provisions that may appear in a
Servicing Agreement for a Mortgage Pool that includes Mortgage Loans. The
related Prospectus Supplement will describe any servicing-related provision of
such a Servicing Agreement that materially differs from the description thereof
contained in this Prospectus. The summaries herein do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all of
the provisions of the related Servicing Agreement and the description of such
provisions in the related Prospectus Supplement.
THE MASTER SERVICER
The master servicer (the "Master Servicer"), if any, for a series of
Bonds will be named in the related Prospectus Supplement and may be an affiliate
of the Company. The Master Servicer is required to maintain a fidelity bond and
errors and omissions policy with respect to its officers and employees and other
persons acting on behalf of the Master Servicer in connection with its
activities under a Servicing Agreement.
COLLECTION AND OTHER SERVICING PROCEDURES; MORTGAGE LOAN MODIFICATIONS
The Master Servicer for any Mortgage Pool, directly or through
Subservicers, will be obligated under the Servicing Agreement to service and
administer the Mortgage Loans in such Mortgage Pool for the benefit of the
related Securityholders, in accordance with applicable law and the terms of such
Servicing Agreement, such Mortgage Loans and any instrument of credit
enhancement included in the
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related Trust Fund, and, to the extent consistent with the foregoing, in the
same manner as would prudent institutional mortgage lenders servicing comparable
mortgage loans for their own account in the jurisdictions where the related
Mortgaged Properties are located. Subject to the foregoing, the Master Servicer
will have full power and authority to do any and all things in connection with
such servicing and administration that it may deem necessary and desirable.
As part of its servicing duties, a Master Servicer will be required to
make reasonable efforts to collect all payments called for under the terms and
provisions of the Mortgage Loans that it services and will be obligated to
follow such collection procedures as it would follow with respect to mortgage
loans that are comparable to such Mortgage Loans and held for its own account,
provided such procedures are consistent with the terms of the related Servicing
Agreement, including the servicing standard specified therein and generally
described in the preceding paragraph (as such may be more particularly described
in the related Prospectus Supplement, the "Servicing Standard"), and do not
impair recovery under any instrument of credit enhancement included in the
related Trust Fund. Consistent with the foregoing, the Master Servicer will be
permitted, in its discretion, to waive any Prepayment Premium, late payment
charge or other charge in connection with any Mortgage Loan.
Under a Servicing Agreement, a Master Servicer will be granted certain
discretion to extend relief to Mortgagors whose payments become delinquent. In
the case of Single Family Loans and Contracts, a Master Servicer may, among
other things, grant a period of temporary indulgence (generally up to four
months) to a Mortgagor or may enter into a liquidating plan providing for
repayment by such Mortgagor of delinquent amounts within a specified period
(generally up to one year) from the date of execution of the plan. However, the
Master Servicer must first determine that any such waiver or extension will not
impair the coverage of any related insurance policy or materially adversely
affect the security for such Mortgage Loan. In addition, if a material default
occurs or a payment default is reasonably foreseeable with respect to a
Multifamily Loan, the Master Servicer will be permitted, subject to any specific
limitations set forth in the related Servicing Agreement and described in the
related Prospectus Supplement, to modify, waive or amend any term of such
Mortgage Loan, including deferring payments, extending the stated maturity date
or otherwise adjusting the payment schedule, provided that such modification,
waiver or amendment (i) is reasonably likely to produce a greater recovery with
respect to such Mortgage Loan on a present value basis than would liquidation
and (ii) will not adversely affect the coverage under any applicable instrument
of credit enhancement.
In the case of Multifamily Loans, a Mortgagor's failure to make
required Mortgage Loan payments may mean that operating income is insufficient
to service the mortgage debt, or may reflect the diversion of that income from
the servicing of the mortgage debt. In addition, a Mortgagor under a Multifamily
Loan that is unable to make Mortgage Loan payments may also be unable to make
timely payment of taxes and otherwise to maintain and insure the related
Mortgaged Property. In general, the related Master Servicer will be required to
monitor any Multifamily Loan that is in default, evaluate whether the causes of
the default can be corrected over a reasonable period without significant
impairment of the value of the related Mortgaged Property, initiate corrective
action in cooperation with the Mortgagor if cure is likely, inspect the related
Mortgaged Property and take such other actions as are consistent with the
Servicing Standard. A significant period of time may elapse before the Master
Servicer is able to assess the success of any such corrective action or the need
for additional initiatives. The time within which the Master Servicer can make
the initial determination of appropriate action, evaluate the success of
corrective action, develop additional initiatives, institute foreclosure
proceedings and actually foreclose (or accept a deed to a Mortgaged Property in
lieu of foreclosure) on behalf of the Securityholders of the related series may
vary considerably depending on the particular Multifamily Loan, the Mortgaged
Property, the Mortgagor, the presence of an acceptable party to assume the
Multifamily Loan and the laws of the jurisdiction in which the Mortgaged
Property is located. If a Mortgagor files a bankruptcy petition, the Master
Servicer may
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not be permitted to accelerate the maturity of the related Multifamily Loan or
to foreclose on the Mortgaged Property for a considerable period of time. See
"Certain Legal Aspects of Mortgage Loans."
Certain of the Mortgage Loans in a Mortgage Pool may contain a
due-on-sale clause that entitles the lender to accelerate payment of the
Mortgage Loan upon any sale or other transfer of the related Mortgaged Property
made without the lender's consent. Certain of the Multifamily Loans in a
Mortgage Pool may also contain a due-on-encumbrance clause that entitles the
lender to accelerate the maturity of the Mortgage Loan upon the creation of any
other lien or encumbrance upon the Mortgaged Property. In any case in which
property subject to a Single Family Loan or Contract is being conveyed by the
Mortgagor, unless the related Prospectus Supplement provides otherwise, the
Master Servicer will in general be obligated, to the extent it has knowledge of
such conveyance, to exercise its rights to accelerate the maturity of such
Mortgage Loan under any due-on-sale clause applicable thereto, but only if the
exercise of such rights is permitted by applicable law and only to the extent it
would not adversely affect or jeopardize coverage under any Primary Insurance
Policy or applicable credit enhancement arrangements. If the Master Servicer is
prevented from enforcing such due-on-sale clause under applicable law or if the
Master Servicer determines that it is reasonably likely that a legal action
would be instituted by the related Mortgagor to avoid enforcement of such
due-on-sale clause, the Master Servicer will enter into an assumption and
modification agreement with the person to whom such property has been or is
about to be conveyed, pursuant to which such person becomes liable under the
Mortgage Loan subject to certain specified conditions. The original Mortgagor
may be released from liability on a Single Family Loan or Contract if the Master
Servicer shall have determined in good faith that such release will not
adversely affect the collectability of the Mortgage Loan. The Master Servicer
will determine whether to exercise any right the Owner Trustee may have under
any due-on-sale or due-on-encumbrance provision in a Multifamily Loan in a
manner consistent with the Servicing Standard. The Master Servicer will
generally be entitled to retain as additional servicing compensation any fee
collected in connection with the permitted transfer of a Mortgaged Property. See
"Certain Legal Aspects of Mortgage Loans--Enforceability of Certain Provisions."
FHA Loans contain no such clause and may be assumed by the purchaser of the
mortgaged property.
Mortgagors may, from time to time, request partial releases of the
Mortgaged Properties, easements, consents to alteration or demolition and other
similar matters. The Master Servicer may approve such a request if it has
determined, exercising its good faith business judgment in the same manner as it
would if it were the owner of the related Mortgage Loan, that such approval will
not adversely affect the security for, or the timely and full collectability of,
the related Mortgage Loan. Any fee collected by the Master Servicer for
processing such request will be retained by the Master Servicer as additional
servicing compensation.
In the case of Single Family and Multifamily Loans secured by junior
liens on the related Mortgaged Properties, the Master Servicer will be required
to file (or cause to be filed) of record a request for notice of any action by a
superior lienholder under the Senior Lien for the protection of the related
Indenture Trustee's interest, where permitted by local law and whenever
applicable state law does not require that a junior lienholder be named as a
party defendant in foreclosure proceedings in order to foreclose such junior
lienholder's equity of redemption. The Master Servicer also will be required to
notify any superior lienholder in writing of the existence of the Mortgage Loan
and request notification of any action (as described below) to be taken against
the Mortgagor or the Mortgaged Property by the superior lienholder. If the
Master Servicer is notified that any superior lienholder has accelerated or
intends to accelerate the obligations secured by the related Senior Lien, or has
declared or intends to declare a default under the mortgage or the promissory
note secured thereby, or has filed or intends to file an election to have the
related Mortgaged Property sold or foreclosed, then the Master Servicer will be
required to take, on behalf of the related Trust Fund, whatever actions are
necessary to protect the interests of the related Securityholders, and/or to
preserve the security of the related Mortgage Loan. The Master Servicer will
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generally be required to advance the necessary funds to cure the default or
reinstate the superior lien, if such advance is in the best interests of the
related Securityholders and the Master Servicer determines such advances are
recoverable out of payments on or proceeds of the related Mortgage Loan.
The Master Servicer for any Mortgage Pool will also be required to
perform other customary functions of a servicer of comparable loans, including
maintaining escrow or impound accounts for payment of taxes, insurance premiums
and similar items, or otherwise monitoring the timely payment of those items;
adjusting Mortgage Rates on ARM Loans and Revolving Credit Loans; maintaining
Buydown Accounts; supervising foreclosures and similar proceedings; managing
Mortgage Properties acquired through or in lieu of foreclosure (each, an "REO
Property"); and maintaining servicing records relating to the Mortgage Loans in
such Mortgage Pool. The Master Servicer will generally be responsible for filing
and settling claims in respect of particular Mortgage Loans under any applicable
instrument of credit enhancement. See "Description of Credit Enhancement."
SUBSERVICERS
A Master Servicer may delegate its servicing obligations in respect of
the Mortgage Loans serviced by it to one or more third-party servicers (each, a
"Subservicer"), but the Master Servicer will remain liable for such obligations
under the related Servicing Agreement. The Master Servicer will be solely liable
for all fees owed by it to any Subservicer, irrespective of whether the Master
Servicer's compensation pursuant to the related Servicing Agreement is
sufficient to pay such fees. Each Subservicer will be entitled to reimbursement
for certain expenditures which it makes, generally to the same extent as would
the Master Servicer for making the same expenditures. See "--Servicing and Other
Compensation and Payment of Expenses; Spread" below and "Description of the
Bonds--The Collection Account."
SPECIAL SERVICERS
If and to the extent specified in the related Prospectus Supplement, a
special servicer (a "Special Servicer") may be a party to the related Servicing
Agreement or may be appointed by the Master Servicer or another specified party
to perform certain specified duties in respect of servicing the related Mortgage
Loans that would otherwise be performed by the Master Servicer (for example, the
workout and/or foreclosure of defaulted Mortgage Loans). The rights and
obligations of any Special Servicer will be specified in the related Prospectus
Supplement, and the Master Servicer will be liable for the performance of a
Special Servicer only if, and to the extent, set forth in such Prospectus
Supplement.
REALIZATION UPON OR SALE OF DEFAULTED MORTGAGE LOANS
Except as described below or in the related Prospectus Supplement, the
Master Servicer will be required, in a manner consistent with the Servicing
Standard, to foreclose upon or otherwise comparably convert the ownership of
properties securing such of the Mortgage Loans in the related Mortgage Pool as
come into and continue in default and as to which no satisfactory arrangements
can be made for collection of delinquent payments. In connection therewith, the
Master Servicer will be authorized to institute foreclosure proceedings,
exercise any power of sale contained in the related Mortgage, obtain a deed in
lieu of foreclosure, or otherwise acquire title to the related Mortgaged
Property, by operation of law or otherwise, if such action is consistent with
the Servicing Standard. The Master Servicer's actions in this regard must be
conducted, however, in a manner that will permit recovery under any instrument
of credit enhancement included in the related Trust Fund. In addition, the
Master Servicer will not be required to expend its own funds in connection with
any foreclosure or to restore any damaged property unless it shall determine
that (i) such foreclosure and/or restoration will increase the proceeds of
liquidation of the Mortgage Loan to the related Securityholders after
reimbursement to itself for such expenses and (ii) such expenses will be
recoverable to it from related Insurance Proceeds, Liquidation Proceeds or
amounts drawn
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out of any fund or under any instrument constituting credit enhancement
(respecting which it shall have priority for purposes of withdrawal from the
Collection Account in accordance with the Servicing Agreement).
Notwithstanding the foregoing, the Master Servicer may not acquire
title to any Multifamily Property securing a Mortgage Loan or take any other
action that would cause the related Indenture Trustee, for the benefit of
Securityholders of the related series, or any other specified person to be
considered to hold title to, to be a "mortgagee-in-possession" of, or to be an
"owner" or an "operator" of such Mortgaged Property within the meaning of
certain federal environmental laws, unless the Master Servicer has previously
determined, based on a report prepared by a person who regularly conducts
environmental audits (which report will be an expense of the Trust Fund), that
either:
(i) the Mortgaged Property is in compliance with applicable
environmental laws and regulations or, if not, that taking such actions
as are necessary to bring the Mortgaged Property into compliance
therewith is reasonably likely to produce a greater recovery on a
present value basis than not taking such actions; and
(ii) there are no circumstances or conditions present at the
Mortgaged Property that have resulted in any contamination for which
investigation, testing, monitoring, containment, clean-up or
remediation could be required under any applicable environmental laws
and regulations or, if such circumstances or conditions are present for
which any such action could be required, taking such actions with
respect to the Mortgaged Property is reasonably likely to produce a
greater recovery on a present value basis than not taking such actions.
See "Certain Legal Aspects of Mortgage Loans--Environmental
Legislation."
In addition, the Master Servicer will not be obligated to foreclose
upon or otherwise convert the ownership of any Single Family Property securing a
Mortgage Loan if it has received notice or has actual knowledge that such
property may be contaminated with or affected by hazardous wastes or hazardous
substances; however, no environmental testing will generally be required. The
Master Servicer will not be liable to the Bondholders of the related series if,
based on its belief that no such contamination or effect exists, the Master
Servicer forecloses on a Mortgaged Property and takes title to such Mortgaged
Property, and thereafter such Mortgaged Property is determined to be so
contaminated or affected.
With respect to a Mortgage Loan in default, the Master Servicer may
pursue foreclosure (or similar remedies) concurrently with pursuing any remedy
for a breach of a representation and warranty.
However,
the Master Servicer is not required to continue to pursue both such remedies if
it determines that one such remedy is more likely to result in a greater
recovery. Upon the first to occur of final liquidation (by foreclosure or
otherwise) and a repurchase or substitution pursuant to a breach of a
representation and warranty, such Mortgage Loan will be removed from the related
Trust Fund if it has not been removed previously. The Master Servicer may elect
to treat a defaulted Mortgage Loan as having been finally liquidated if
substantially all amounts expected to be received in connection therewith have
been received. Any additional liquidation expenses relating to such Mortgage
Loan thereafter incurred will be reimbursable to the Master Servicer (or any
Subservicer) from any amounts otherwise distributable to holders of Securities
of the related series, or may be offset by any subsequent recovery related to
such Mortgage Loan. Alternatively, for purposes of determining the amount of
related Liquidation Proceeds to be distributed to Securityholders, the amount of
any Realized Loss or the amount required to be drawn under any applicable form
of credit support, the Master Servicer may take into account minimal amounts of
additional receipts expected to be received, as well as estimated additional
liquidation expenses expected to be incurred in connection with such defaulted
Mortgage Loan. Upon foreclosure of a Revolving Credit Loan, the related
Liquidation Proceeds will be allocated among the Trust Balances and Excluded
Balances as described in the Prospectus Supplement.
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With respect to certain series of Bonds, if so provided in the related
Prospectus Supplement, the applicable form of credit enhancement may provide, to
the extent of coverage thereunder, that a defaulted Mortgage Loan will be
removed from the Trust Fund prior to the final liquidation thereof. In addition,
a Servicing Agreement may grant to the Master Servicer, a Special Servicer, a
provider of credit enhancement and/or the holder or holders of certain classes
of Securities of the related series a right of first refusal to purchase from
the Trust Fund, at a predetermined purchase price (which, if insufficient to
fully fund the entitlements of Bondholders to principal and interest thereon,
will be specified in the related Prospectus Supplement), any Mortgage Loan as to
which a specified number of scheduled payments are delinquent. Furthermore, a
Servicing Agreement may authorize the Master Servicer to sell any defaulted
Mortgage Loan if and when the Master Servicer determines, consistent with the
Servicing Standard, that such a sale would produce a greater recovery to
Securityholders on a present value basis than would liquidation of the related
Mortgaged Property.
In the event that title to any Mortgaged Property is acquired in
foreclosure, deed in lieu of foreclosure or otherwise, the deed or certificate
of sale will be issued to the Indenture Trustee or to its nominee on behalf of
Securityholders of the related series. Notwithstanding any such acquisition of
title and cancellation of the related Mortgage Loan, such Mortgage Loan (an "REO
Mortgage Loan") will be considered for most purposes to be an outstanding
Mortgage Loan, or an outstanding Trust Balance of the related Revolving Credit
Loan, held in the Trust Fund until such time as the Mortgaged Property is sold
and all recoverable Liquidation Proceeds and Insurance Proceeds have been
received with respect to such defaulted Mortgage Loan (a "Liquidated Mortgage
Loan"). For purposes of calculations of amounts distributable to Securityholders
in respect of an REO Mortgage Loan, the amortization schedule in effect at the
time of any such acquisition of title (before any adjustment thereto by reason
of any bankruptcy or any similar proceeding or any moratorium or similar waiver
or grace period) will be deemed to have continued in effect (and, in the case of
an ARM Loan, such amortization schedule will be deemed to have adjusted in
accordance with any interest rate changes occurring on any adjustment date
therefor) so long as such REO Mortgage Loan is considered to remain in the Trust
Fund.
If Liquidation Proceeds collected with respect to a defaulted Mortgage
Loan are less than the outstanding principal balance of the defaulted Mortgage
Loan plus interest accrued thereon plus the aggregate amount of reimbursable
expenses incurred by the Master Servicer with respect to such Mortgage Loan, and
the shortfall is not covered under any applicable instrument or fund
constituting credit enhancement, the Trust Fund will realize a loss in the
amount of such difference. The Master Servicer will be entitled to reimburse
itself from the Liquidation Proceeds recovered on any defaulted Mortgage Loan,
prior to the distribution of such Liquidation Proceeds to Securityholders,
amounts that represent unpaid servicing compensation in respect of the Mortgage
Loan, unreimbursed servicing expenses incurred with respect to the Mortgage Loan
and any unreimbursed advances of delinquent payments made with respect to the
Mortgage Loan. If so provided in the related Prospectus Supplement, the
applicable form of credit enhancement may provide for reinstatement subject to
certain conditions in the event that, following the final liquidation of a
Mortgage Loan and a draw under such credit enhancement, subsequent recoveries
are received. If a gain results from the final liquidation of a defaulted
Mortgage Loan or an REO Mortgage Loan which is not required by law to be
remitted to the related Mortgagor, the Master Servicer will not be entitled to
retain such gain as additional servicing compensation unless the related
Prospectus Supplement provides otherwise. For a description of the Master
Servicer's (or other specified person's) obligations to maintain and make claims
under applicable forms of credit enhancement and insurance relating to the
Mortgage Loans, see "Description of Credit Enhancement" and "Primary Mortgage
Insurance, Hazard Insurance; Claims Thereunder."
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SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES; SPREAD
The principal servicing compensation to be paid to the Master Servicer
in respect of its master servicing activities for a series of Bonds will be
equal to the percentage per annum described in the related Prospectus Supplement
(which may vary under certain circumstances) of the outstanding principal
balance of each Mortgage Loan, and such compensation will be retained by it on a
monthly or other periodic basis from collections of interest on such Mortgage
Loan in the related Trust Fund at the time such collections are deposited into
the applicable Collection Account. This portion of the servicing fee will be
calculated with respect to each Mortgage Loan by multiplying such fee by the
principal balance of such Mortgage Loan. In addition, the Master Servicer will
not retain any Prepayment Premiums, assumption fees and late payment charges, to
the extent collected from Mortgagors, and any benefit which may accrue as a
result of the investment of funds in the applicable Collection Account. Any
additional servicing compensation will be described in the related Prospectus
Supplement. Any Subservicer will receive a portion of the Master Servicer's
compensation as its sub-servicing compensation.
In addition to amounts payable to any Subservicer, the Master Servicer
will pay or cause to be paid certain ongoing expenses associated with each Trust
Fund and incurred by it in connection with its responsibilities under the
Servicing Agreement, including, if so specified in the related Prospectus
Supplement, payment of any fee or other amount payable in respect of any
alternative credit enhancement arrangements, payment of the fees and
disbursements of the Owner Trustee and the Indenture Trustee, any custodian
appointed by the Owner Trustee and the Bond Registrar, and payment of expenses
incurred in enforcing the obligations of Subservicers and Sellers. The Master
Servicer will be entitled to reimbursement of expenses incurred in enforcing the
obligations of Subservicers and Sellers under certain limited circumstances. In
addition, the Master Servicer will be entitled to reimbursements for certain
expenses incurred by it in connection with Liquidated Mortgage Loans and in
connection with the restoration of Mortgaged Properties, such right of
reimbursement being prior to the rights of Securityholders to receive any
related Liquidation Proceeds or Insurance Proceeds. If and to the extent so
provided in the related Prospectus Supplement, the Master Servicer will be
entitled to receive interest on amounts advanced to cover such reimbursable
expenses for the period that such advances are outstanding at the rate specified
in such Prospectus Supplement, and the Master Servicer will be entitled to
payment of such interest periodically from general collections on the Mortgage
Loans in the related Trust Fund prior to any payment to Securityholders or as
otherwise provided in the related Servicing Agreement and described in such
Prospectus Supplement.
The Prospectus Supplement for a series of Bonds will specify whether
there will be any Spread retained. Any such Spread will be a specified portion
of the interest payable on each Mortgage Loan in a Mortgage Pool and will not be
part of the related Trust Fund. Any such Spread will be established on a
loan-by-loan basis and the amount thereof with respect to each Mortgage Loan in
a Mortgage Pool will be specified on an exhibit to the related Servicing
Agreement. Any partial recovery of interest in respect of a Mortgage Loan will
be allocated between the owners of any Spread and the holders of classes of
Securities entitled to payments of interest as provided in the related
Prospectus Supplement and the applicable Servicing Agreement.
If and to the extent provided in the related Prospectus Supplement, the
Master Servicer may be required to apply a portion of the servicing compensation
otherwise payable to it in respect of any period to any Prepayment Interest
Shortfalls resulting from Mortgagor prepayments during such period. See "Yield
Considerations."
EVIDENCE AS TO COMPLIANCE
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Each Servicing Agreement will provide that on or before a specified
date in each year, beginning the first such date that is at least a specified
number of months after the Cut-off Date, a firm of independent public
accountants will furnish a statement to the Company and the Indenture Trustee to
the effect that, on the basis of an examination by such firm conducted
substantially in compliance with the Uniform Single Attestation Program for
Mortgage Bankers or the Audit Program for Mortgages serviced for FHLMC, the
servicing of mortgage loans under agreements (including the related Servicing
Agreement) substantially similar to each other was conducted in compliance with
such agreements except for such significant exceptions or errors in records
that, in the opinion of the firm, the Uniform Single Attestation Program for
Mortgage Bankers or the Audit Program for Mortgages serviced for FHLMC requires
it to report. In rendering its statement such firm may rely, as to the matters
relating to the direct servicing of mortgage loans by Subservicers, upon
comparable statements for examinations conducted substantially in compliance
with the Uniform Single Attestation Program for Mortgage Bankers or the Audit
Program for Mortgages serviced for FHLMC (rendered within one year of such
statement) of firms of independent public accountants with respect to those
Subservicers which also have been the subject of such an examination.
Each Servicing Agreement will also provide for delivery to the
Indenture Trustee, on or before a specified date in each year, of an annual
statement signed by one or more officers of the Master Servicer to the effect
that, to the best knowledge of each such officer, the Master Servicer has
fulfilled in all material respects its obligations under the Servicing Agreement
throughout the preceding year or, if there has been a material default in the
fulfillment of any such obligation, such statement shall specify each such known
default and the nature and status thereof. Such statement may be provided as a
single form making the required statements as to more than one Servicing
Agreement.
Copies of the annual accountants' statement and the annual statement of
officers of a Master Servicer may be obtained by Bondholders without charge upon
written request to the Master Servicer or
the Indenture Trustee.
DESCRIPTION OF THE BONDS
GENERAL
The Bonds will be issued in series. Each series of Bonds (or, in
certain instances, two or more series of Bonds) will be issued pursuant to an
Indenture between the Company and the Indenture Trustee, similar to the form
filed as an exhibit to the Registration Statement of which this Prospectus is a
part. Each Indenture, Trust Agreement and Servicing Agreement will be filed with
the Securities and Exchange Commission as an exhibit to a Current Report on Form
8-K. The following summaries (together with additional summaries under "The
Agreements" below) describe certain provisions relating to the Bonds common to
each of the Agreements. The summaries do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all of the
provisions of the Agreements for each Trust Fund and the related Prospectus
Supplement. Wherever particular sections or defined terms of the Agreements are
referred to herein, such sections or defined terms are thereby incorporated
herein by reference.
Bonds of each series covered by a particular Indenture will evidence
indebtedness of the related Issuer secured by a separate Trust Fund. A Trust
Fund will consist of, to the extent provided in the Indenture: (i) such Mortgage
Loans (and the related mortgage documents) or interests therein underlying a
particular series of Bonds as from time to time are subject to the Indenture,
exclusive of, if specified in the related Prospectus Supplement, any Spread or
other interest retained by the Company or any of its affiliates with respect to
each such Mortgage Loan; (ii) such assets including, without limitation, all
payments and collections in respect of the Mortgage Loans due after the related
Cut-off Date, as from time to time are identified as deposited in respect
thereof in the related Collection Account as described below;
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(iii) any property acquired in respect of Mortgage Loans in the Trust Fund,
whether through foreclosure of such Mortgage Loans or by deed in lieu of
foreclosure or otherwise; (iv) hazard insurance policies, Primary Insurance
Policies and FHA insurance policies, if any, maintained in respect of Mortgage
Loans in the Trust Fund and certain proceeds of such policies; (v) certain
rights of the Company under any Mortgage Loan Purchase Agreement, including in
respect of any representations and warranties therein; and (vi) any combination,
as and to the extent specified in the related Prospectus Supplement, of a
Financial Guaranty Insurance Policy, Letter of Credit, Purchase Obligation,
Mortgage Pool Insurance Policy, Special Hazard Insurance Policy or Bankruptcy
Bond as described under "Description of Credit Enhancement." To the extent that
any Trust Fund includes certificates of interest or participations in Mortgage
Loans, the related Prospectus Supplement will describe the material terms and
conditions of such certificates or participations.
Each series of Bonds may consist of any one or a combination of the
following: (i) a single class of Bonds; (ii) two or more classes of Bonds, one
or more classes of which will be senior ("Senior Bonds") in right of payment to
one or more of the other classes of Bonds, if any (collectively, the
"Subordinate Bonds"), and as to which certain classes of Bonds may be senior to
other classes of Senior Bonds or Subordinate Bonds, as described in the
respective Prospectus Supplement (any such series, a "Senior/Subordinate
Series"); (iii) two or more classes of Bonds, one or more classes ("Strip
Bonds") of which will be entitled to (a) principal distributions, with
disproportionate, nominal or no interest distributions or (b) interest
distributions, with disproportionate, nominal or no principal distributions;
(iv) two or more classes of Bonds which differ as to the timing, sequential
order, rate, pass-through rate or amount of distributions of principal or
interest or both, or as to which distributions of principal or interest or both
on any such class may be made upon the occurrence of specified events, in
accordance with a schedule or formula (including "planned amortization classes"
and "targeted amortization classes"), or on the basis of collections from
designated portions of the Mortgage Pool, and which classes may include one or
more classes of Bonds ("Accrual Bonds") with respect to which certain accrued
interest will not be distributed but rather will be added to the principal
balance thereof on each Distribution Date for the period described in the
related Prospectus Supplement; or (v) other types of classes of Bonds, as
described in the related Prospectus Supplement. The Certificates, insofar as
they represent the beneficial ownership interest in the Issuer, will be
subordinate to the Bonds. As to each series, all Bonds offered hereby (the
"Bonds") will be rated in one of the four highest rating categories by one or
more Rating Agencies. Credit support for the Bonds of each series may be
provided by a Financial Guaranty Insurance Policy, Mortgage Pool Insurance
Policy, Special Hazard Insurance Policy, Bankruptcy Bond, Letter of Credit,
Purchase Obligation, Overcollateralization or Reserve Fund as described under
"Description of Credit Enhancement," by the subordination of one or more other
classes of Subordinate Bonds or by any combination of the foregoing.
FORM OF BONDS
Except as described below, the Bonds of each series will be issued as
physical certificates in fully registered form only in the denominations
specified in the related Prospectus Supplement, and will be transferrable and
exchangeable at the corporate trust office of the registrar (the "Bond
Registrar") named in the related Prospectus Supplement. No service charge will
be made for any registration of exchange or transfer of Bonds, but the Indenture
Trustee may require payment of a sum sufficient to cover any tax or other
governmental charge. The term "Bondholder" or "Holder" as used herein refers to
the entity whose name appears on the records of the Bond Registrar (consisting
of or including the "Bond Register") as the registered holder of a Bond, except
as otherwise indicated in the related Prospectus Supplement.
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If so specified in the related Prospectus Supplement, specified classes
of a series of Bonds will be initially issued through the book-entry facilities
of The Depository Trust Company ("DTC"). As to any such class of Bonds ("DTC
Registered Bonds"), the record Holder of such Bonds will be DTC's nominee. DTC
is a limited-purpose trust company organized under the laws of the State of New
York, which holds securities for its participating organizations
("Participants") and facilitates the clearance and settlement of securities
transactions between Participants through electronic book-entry changes in the
accounts of Participants. Participants include securities brokers and dealers,
banks, trust companies and clearing corporations and may include certain other
organizations. Other institutions that are not Participants but clear through or
maintain a custodial relationship with Participants (such institutions,
"Intermediaries") have indirect access to DTC's clearance system.
No person acquiring an interest in any DTC Registered Bonds (each such
person, a "Beneficial Owner") will be entitled to receive a Bond representing
such interest in registered, certificated form, unless either (i) DTC ceases to
act as depository in respect thereof and a successor depository is not obtained,
or (ii) the Company elects in its sole discretion to discontinue the
registration of such Bonds through DTC. Prior to any such event, Beneficial
Owners will not be recognized by the Indenture Trustee or the Master Servicer as
Holders of the related Bonds for purposes of the related Indenture, and
Beneficial Owners will be able to exercise their rights as owners of such Bonds
only indirectly through DTC, Participants and Intermediaries. Any Beneficial
Owner that desires to purchase, sell or otherwise transfer any interest in DTC
Registered Bonds may do so only through DTC, either directly if such Beneficial
Owner is a Participant or indirectly through Participants and, if applicable,
Intermediaries. Pursuant to the procedures of DTC, transfers of the beneficial
ownership of any DTC Registered Bonds will be required to be made in minimum
denominations specified in the related Prospectus Supplement. The ability of a
Beneficial Owner to pledge DTC Registered Bonds to persons or entities that are
not Participants in the DTC system, or to otherwise act with respect to such
Bonds, may be limited because of the lack of physical certificates evidencing
such Bonds and because DTC may act only on behalf of Participants.
Distributions in respect of the DTC Registered Bonds will be forwarded
by the Indenture Trustee or other specified person to DTC, and DTC will be
responsible for forwarding such payments to Participants, each of which will be
responsible for disbursing such payments to the Beneficial Owners it represents
or, if applicable, to Intermediaries. Accordingly, Beneficial Owners may
experience delays in the receipt of payments in respect of their Bonds. Under
DTC's procedures, DTC will take actions permitted to be taken by Holders of any
class of DTC Registered Bonds under the Indenture only at the direction of one
or more Participants to whose account the DTC Registered Bonds are credited and
whose aggregate holdings represent no less than any minimum amount of Percentage
Interests required therefor. DTC may take conflicting actions with respect to
any action of Holders of Bonds of any Class to the extent that Participants
authorize such actions. None of the Master Servicer, the Company, the Indenture
Trustee or any of their respective affiliates will have any liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the DTC Registered Bonds, or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests.
ASSIGNMENT OF TRUST FUND ASSETS
At the time of issuance of a series of Bonds, the Company will assign,
or cause to be assigned, to the related Indenture Trustee (or its nominee),
without recourse, the Mortgage Loans being included in the related Trust Fund,
together with all principal and interest received on or with respect to such
Mortgage Loans after the Cut-off Date, other than principal and interest due on
or before the Cut-off Date. If specified in the related Prospectus Supplement,
the Company or any of its affiliates may retain the Spread, if any, for itself
or transfer the same to others. Each Mortgage Loan will be identified in a
schedule appearing as an exhibit to the related Servicing Agreement. Such
schedule will include, among other things, information as to the principal
balance of each Mortgage Loan in the related Trust Fund as of the
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Cut-off Date, as well as information respecting the Mortgage Rate, the currently
scheduled monthly payment of principal and interest, the maturity of the
Mortgage Note and the Loan-to-Value Ratio at origination or modification
(without regard to any secondary financing).
As to each series of Bonds, the foregoing assignment of the Mortgage
Loans to the Indenture Trustee will be made for the purpose of granting a
security interest in the Mortgage Loans to the Indenture Trustee to secure the
Bonds. As to any series of Bonds where the Issuer is an owner trust, immediately
prior to such pledge to the Indenture Trustee, the Company will convey the
Mortgage Loans to the Owner Trustee pursuant to the Trust Agreement.
In addition, the Company will, as to each Mortgage Loan (other than
Contracts and Revolving Credit Loans), deliver, or cause to be delivered, to the
related Indenture Trustee (or to the custodian described below) the Mortgage
Note endorsed, without recourse, either in blank or to the order of the
Indenture Trustee (or a nominee thereof), the Mortgage with evidence of
recording indicated thereon (except for any Mortgage not returned from the
public recording office), an assignment of the Mortgage in blank or to the
Indenture Trustee (or a nominee thereof) in recordable form, together with any
intervening assignments of the Mortgage with evidence of recording thereon
(except for any such assignment not returned from the public recording office),
and, if applicable, any riders or modifications to such Mortgage Note and
Mortgage, together with certain other documents at such times as set forth in
the related Servicing Agreement. Such assignments may be blanket assignments
covering Mortgages on Mortgaged Properties located in the same county, if
permitted by law. Notwithstanding the foregoing, a Trust Fund may include
Mortgage Loans where the original Mortgage Note is not delivered to the
Indenture Trustee if the Company delivers, or causes to be delivered, to the
related Indenture Trustee (or the custodian) a copy or a duplicate original of
the Mortgage Note, together with an affidavit certifying that the original
thereof has been lost or destroyed. In addition, if the Company cannot deliver,
with respect to any Mortgage Loan, the Mortgage or any intervening assignment
with evidence of recording thereon concurrently with the execution and delivery
of the related Servicing Agreement because of a delay caused by the public
recording office, the Company will deliver, or cause to be delivered, to the
related Indenture Trustee (or the custodian) a true and correct photocopy of
such Mortgage or assignment as submitted for recording. The Company will
deliver, or cause to be delivered, to the related Indenture Trustee (or the
custodian) such Mortgage or assignment with evidence of recording indicated
thereon after receipt thereof from the public recording office. If the Company
cannot deliver, with respect to any Mortgage Loan, the Mortgage or any
intervening assignment with evidence of recording thereon concurrently with the
execution and delivery of the related Servicing Agreement because such Mortgage
or assignment has been lost, the Company will deliver, or cause to be delivered,
to the related Indenture Trustee (or the custodian) a true and correct photocopy
of such Mortgage or assignment with evidence of recording thereon. Assignments
of the Mortgage Loans to the Indenture Trustee (or a nominee thereof) will be
recorded in the appropriate public recording office, except in states where, in
the opinion of counsel acceptable to the Indenture Trustee, such recording is
not required to protect the Indenture Trustee's interests in the Mortgage Loan
against the claim of any subsequent transferee or any successor to or creditor
of the Company or the originator of such Mortgage Loan, or except as otherwise
specified in the related Prospectus Supplement as to any series of Bonds. In
addition, unless specified in the related Prospectus Supplement, the Company
will, as to each Contract, deliver, or cause to be delivered, the original
Contract endorsed, without recourse, to the order of the Indenture Trustee and
copies of documents and instruments related to the Contract and the security
interest in the Manufactured Home securing the Contract, together with a blanket
assignment to the Indenture Trustee of all Contracts in the related Trust Fund
and such documents and instruments. In order to give notice of the right, title
and interest of the Bondholders to the Contracts, the Company will cause to be
executed and delivered to the Indenture Trustee a UCC-1 financing statement
identifying the Indenture Trustee as the secured party and identifying all
Contracts as collateral.
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Notwithstanding the preceding paragraph, with respect to any series of
Bonds backed by Trust Balances of Revolving Credit Loans, the foregoing
documents generally will have been delivered to an entity specified in the
related Prospectus Supplement which may be the Indenture Trustee, a Custodian or
another entity appointed by the Indenture Trustee, and such entity shall hold
such documents as or on behalf of the Indenture Trustee for the benefit of the
Bondholders, with respect to the Trust Balances thereof, and on behalf of any
other applicable entity with respect to any Excluded Balance thereof, as their
respective interests may appear.
The Indenture Trustee (or the custodian hereinafter referred to) will
hold such documents in trust for the benefit of the related Securityholders, and
generally will review such documents within 90 days after receipt thereof in the
case of documents delivered concurrently with the execution and delivery of the
related Indenture, and within the time period specified in the related Indenture
in the case of all other documents delivered. If any such document is found to
be missing or defective in any material respect, the Indenture Trustee (or such
custodian) will be required to promptly so notify the Master Servicer, the
Company, and the related Seller. If the related Seller does not cure the
omission or defect within a specified period after notice is given thereto by
the Indenture Trustee, and such omission or defect materially and adversely
affects the interests of Securityholders in the affected Mortgage Loan, then the
related Seller will be obligated to purchase such Mortgage Loan from the
Indenture Trustee at its Purchase Price (or, if and to the extent it would
otherwise be permitted to do so for a breach of representation and warranty as
described under "The Mortgage Pools--Representations of Sellers," to substitute
for such Mortgage Loan). The Indenture Trustee will be obligated to enforce this
obligation of the Seller to the extent described above under "The Mortgage
Pools--Representations by Sellers," but there can be no assurance that the
applicable Seller will fulfill its obligation to purchase (or substitute for)
the affected Mortgage Loan as described above. Except as described in the
Prospectus Supplement, neither the Master Servicer nor the Company will be
obligated to purchase or substitute for such Mortgage Loan if the Seller
defaults on its obligation to do so. This purchase or substitution obligation
generally constitutes the sole remedy available to the related Securityholders
and the related Indenture Trustee for omission of, or a material defect in, a
constituent document. Any affected Mortgage Loan not so purchased or substituted
for shall remain in the related Trust Fund.
Notwithstanding the foregoing, with respect to the Trust Balance of a
Revolving Credit Loan, such review of the related documents need not be
preformed if a similar review has previously been performed by the entity
holding such documents with respect to an Excluded Balance and such review
covered all documentation with respect to any Trust Balance.
The Indenture Trustee will be authorized at any time to appoint one or
more custodians pursuant to a custodial agreement to hold title to the Mortgage
Loans in any Mortgage Pool, and to maintain possession of and, if applicable, to
review, the documents relating to such Mortgage Loans, in any case as the agent
of the Indenture Trustee. The identity of any such custodian to be appointed on
the date of initial issuance of the Bonds will be set forth in the related
Prospectus Supplement. Any such custodian may be an affiliate of the Company or
the Master Servicer.
With respect to the Mortgage Loans in a Mortgage Pool, except in the
case of a Designated Seller Transaction, the Company will make certain
representations and warranties as to the types and geographical concentrations
of such Mortgage Loans and as to the accuracy, in all material respects, of
certain identifying information furnished to the related Indenture Trustee in
respect of each such Mortgage Loan (E.G., original Loan-to-Value Ratio,
principal balance as of the Cut-off Date, Mortgage Rate and maturity). Upon a
breach of any such representation which materially and adversely affects the
interests of the Securityholders in a Mortgage Loan, the Company will be
obligated to cure the breach in all material respects, to purchase the Mortgage
Loan at its Purchase Price or, if specified in the related Prospectus
Supplement, to substitute for such Mortgage Loan a Qualified Substitute Mortgage
Loan in accordance with
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the provisions for such substitution by Affiliated Sellers as described above
under "The Mortgage Pools--Representations by Sellers." However, the Company
will not be required to repurchase or substitute for any Mortgage Loan in
connection with a breach of a representation and warranty if the substance of
any such breach also constitutes fraud in the origination of the related
Mortgage Loan. This purchase or substitution obligation generally constitutes
the sole remedy available to Securityholders or the Indenture Trustee for such a
breach of representation by the Company. Any Mortgage Loan not so purchased or
substituted for shall remain in the related Trust Fund.
Pursuant to the related Servicing Agreement, the Master Servicer for
any Mortgage Pool, either directly or through Subservicers, will service and
administer the Mortgage Loans included in such Mortgage Pool and assigned to the
related Indenture Trustee as more fully set forth under "Servicing of Mortgage
Loans." The Master Servicer will make certain representations and warranties
regarding its authority to enter into, and its ability to perform its
obligations under, the Servicing Agreement.
COLLECTION ACCOUNT
GENERAL. The Master Servicer and/or the Indenture Trustee will, as to
each Trust Fund, establish and maintain or cause to be established and
maintained one or more separate accounts for the collection of payments on the
related Mortgage Loans constituting such Trust Fund (collectively, the
"Collection Account"), which will be established so as to comply with the
standards of each Rating Agency that has rated any one or more classes of Bonds
of the related series. A Collection Account may be maintained either as an
interest-bearing or a non-interest-bearing account, and the funds held therein
may be held as cash or invested in United States government securities and other
investment grade obligations specified in the related Servicing Agreement or
Indenture ("Permitted Investments"). Any interest or other income earned on
funds in the Collection Account will be not paid to the related Master Servicer
or Indenture Trustee as additional compensation. If permitted by such Rating
Agency or Agencies and so specified in the related Prospectus Supplement, a
Collection Account may contain funds relating to more than one series of
mortgage pass-through certificates and may contain other funds representing
payments on mortgage loans owned by the related Master Servicer or serviced by
it on behalf of others.
DEPOSITS. The related Master Servicer, Indenture Trustee or Special
Servicer will be required to deposit or cause to be deposited in the Collection
Account for each Trust Fund within a certain period following receipt (in the
case of collections and payments), the following payments and collections
received, or advances made, by the Master Servicer, the Indenture Trustee or any
Special Servicer subsequent to the Cut-off Date with respect to the Mortgage
Loans in such Trust Fund (other than payments due on or before the Cut-off
Date):
(i) all payments on account of principal, including principal
prepayments, on the Mortgage Loans;
(ii) all payments on account of interest on the Mortgage
Loans, including any default interest collected, in each case net of
any portion thereof retained by the Master Servicer, any Special
Servicer or Sub-Servicer as its servicing compensation or as
compensation to the Indenture Trustee, and further net of any Spread;
(iii)all proceeds received under any hazard, title, primary
mortgage, FHA or other insurance policy that provides coverage with
respect to a particular Mortgaged Property or the related Mortgage Loan
(other than proceeds applied to the restoration of the property or
released to the related borrower in accordance with the customary
servicing practices of the Master Servicer (or, if applicable, a
Special Servicer) and/or the terms and conditions of the related
Mortgage (collectively, "Insurance Proceeds") and all other amounts
received and retained in connection with
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the liquidation of defaulted Mortgage Loans or property acquired in
respect thereof, by foreclosure or otherwise ("Liquidation Proceeds"),
together with the net operating income (less reasonable reserves for
future expenses) derived from the operation of any Mortgaged
Properties acquired by the Trust Fund through foreclosure or
otherwise;
(iv) any amounts paid under any instrument or drawn from any
fund that constitutes credit enhancement for the related series of
Bonds as described under "Description of Credit
Enhancement";
(v) any advances made as described under "--Advances" below;
(vi) any Buydown Funds (and, if applicable, investment
earnings thereon) required to be paid to Bondholders, as described
below;
(vii) all proceeds of any Mortgage Loan purchased (or, in the
case of a substitution, certain amounts representing a principal
adjustment) by the Master Servicer, the Company, a Seller or any other
person pursuant to the terms of the related Servicing Agreement as
described under "The Mortgage Pools--Representations by Sellers,"
"Servicing of Mortgage Loans--Realization Upon and Sale of Defaulted
Mortgage Loans," "--Assignment of Trust Fund Assets" above, "The
Servicing Agreement--Termination" and "Purchase Obligations";
(viii) any amounts paid by the Master Servicer to cover
Prepayment Interest Shortfalls arising out of the prepayment of
Mortgage Loans as described under "Servicing of Mortgage
Loans--Servicing and Other Compensation and Payment of Expenses;
Spread";
(ix) to the extent that any such item does not constitute
additional servicing compensation to the Master Servicer or a Special
Servicer, any payments on account of modification or assumption fees,
late payment charges or Prepayment Premiums on the Mortgage Loans;
(x) any amount required to be deposited by the Master Servicer
or the Indenture Trustee in connection with losses realized on
investments for the benefit of the Master Servicer or the Indenture
Trustee, as the case may be, of funds held in the Collection Account;
and
(xi) any other amounts required to be deposited in the
Collection Account as provided in the related Servicing Agreement and
described herein or in the related Prospectus Supplement.
With respect to each Buydown Mortgage Loan, the Master Servicer will be
required to deposit the related Buydown Funds provided to it in a Buydown
Account which will comply with the requirements set forth herein with respect to
the Collection Account. The terms of all Buydown Mortgage Loans provide for the
contribution of Buydown Funds in an amount equal to or exceeding either (i) the
total payments to be made from such funds pursuant to the related buydown plan
or (ii) if such Buydown Funds are to be deposited on a discounted basis, that
amount of Buydown Funds which, together with investment earnings thereon at a
rate as will support the scheduled level of payments due under the Buydown
Mortgage Loan. Neither the Master Servicer nor the Company will be obligated to
add to any such discounted Buydown Funds any of its own funds should investment
earnings prove insufficient to maintain the scheduled level of payments. To the
extent that any such insufficiency is not recoverable from the Mortgagor or, in
an appropriate case, from the Seller, distributions to Bondholders may be
affected. With respect to each Buydown Mortgage Loan, the Master Servicer will
be required monthly to withdraw from the Buydown Account and deposit in the
Collection Account as described above the amount, if any, of the Buydown Funds
(and, if applicable, investment earnings thereon) for each Buydown Mortgage Loan
that, when added to the amount due from the Mortgagor on such Buydown Mortgage
Loan, equals the full monthly
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payment which would be due on the Buydown Mortgage Loan if it were not subject
to the buydown plan. The Buydown Funds will in no event be a part of the related
Trust Fund.
If the Mortgagor on a Buydown Mortgage Loan prepays such Mortgage Loan
in its entirety during the Buydown Period, the Master Servicer will be required
to withdraw from the Buydown Account and remit to the Mortgagor or such other
designated party in accordance with the related buydown plan any Buydown Funds
remaining in the Buydown Account. If a prepayment by a Mortgagor during the
Buydown Period together with Buydown Funds will result in full prepayment of a
Buydown Mortgage Loan, the Master Servicer will generally be required to
withdraw from the Buydown Account and deposit in the Collection Account the
Buydown Funds and investment earnings thereon, if any, which together with such
prepayment will result in a prepayment in full; provided that Buydown Funds may
not be available to cover a prepayment under certain Mortgage Loan programs. Any
Buydown Funds so remitted to the Master Servicer in connection with a prepayment
described in the preceding sentence will be deemed to reduce the amount that
would be required to be paid by the Mortgagor to repay fully the related
Mortgage Loan if the Mortgage Loan were not subject to the buydown plan. Any
investment earnings remaining in the Buydown Account after prepayment or after
termination of the Buydown Period will be remitted to the related Mortgagor or
such other designated party pursuant to the agreement relating to each Buydown
Mortgage Loan (the "Buydown Agreement"). If the Mortgagor defaults during the
Buydown Period with respect to a Buydown Mortgage Loan and the property securing
such Buydown Mortgage Loan is sold in liquidation (either by the Master
Servicer, the Primary Insurer, the insurer under the Mortgage Pool Insurance
Policy (the "Pool Insurer") or any other insurer), the Master Servicer will be
required to withdraw from the Buydown Account the Buydown Funds and all
investment earnings thereon, if any, and either deposit the same in the
Collection Account or, alternatively, pay the same to the Primary Insurer or the
Pool Insurer, as the case may be, if the Mortgaged Property is transferred to
such insurer and such insurer pays all of the loss incurred in respect of such
default.
WITHDRAWALS. A Master Servicer, Indenture Trustee or Special Servicer
may make withdrawals from the Collection Account for each Trust Fund for any of
the following purposes:
(i) to make distributions to the related Securityholders on
each Distribution Date;
(ii) to reimburse the Master Servicer or any other specified
person for unreimbursed amounts advanced by it as described under
"--Advances" below in respect of Mortgage Loans in the Trust Fund, such
reimbursement to be made out of amounts received which were identified
and applied by the Master Servicer as late collections of interest (net
of related servicing fees) on and principal of the particular Mortgage
Loans with respect to which the advances were made or out of amounts
drawn under any form of credit enhancement with respect to such
Mortgage Loans;
(iii) to reimburse the Master Servicer or a Special Servicer
for unpaid servicing fees earned by it and certain unreimbursed
servicing expenses incurred by it with respect to Mortgage Loans in the
Trust Fund and properties acquired in respect thereof, such
reimbursement to be made out of amounts that represent Liquidation
Proceeds and Insurance Proceeds collected on the particular Mortgage
Loans and properties, and net income collected on the particular
properties, with respect to which such fees were earned or such
expenses were incurred or out of amounts drawn under any form of credit
enhancement with respect to such Mortgage Loans and properties;
(iv) to reimburse the Master Servicer or any other specified
person for any advances described in clause (ii) above made by it and
any servicing expenses referred to in clause (iii) above incurred by it
which, in the good faith judgment of the Master Servicer or such other
person, will not be recoverable from the amounts described in clauses
(ii) and (iii), respectively, such reimbursement to be made from
amounts collected on other Mortgage Loans in the Trust
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Fund or, if and to the extent so provided by the related Servicing
Agreement and described in the related Prospectus Supplement, only from
that portion of amounts collected on such other Mortgage Loans that is
otherwise distributable on one or more classes of Subordinate Bonds of
the related series;
(v) if and to the extent described in the related
Prospectus Supplement, to pay the Master Servicer, a Special Servicer
or another specified entity (including a provider of credit
enhancement) interest accrued on the advances described in clause (ii)
above made by it and the servicing expenses described in clause (iii)
above incurred by it while such remain outstanding and unreimbursed;
(vi) to pay for costs and expenses incurred by the Trust
Fund for environmental site assessments performed with respect to
Multifamily Properties that constitute security for defaulted Mortgage
Loans, and for any containment, clean-up or remediation of hazardous
wastes and materials present on such Mortgaged Properties, as
described under "Servicing of Mortgage Loans--Realization Upon
Defaulted Mortgage Loans";
(vii) to reimburse the Master Servicer, the Company, or any
of their respective directors, officers, employees and agents, as the
case may be, for certain expenses, costs and liabilities incurred
thereby, as and to the extent described under "The Servicing
Agreement--Certain Matters Regarding the Master Servicer and the
Company";
(viii) if and to the extent described in the related
Prospectus Supplement, to pay the fees of the Owner Trustee and the
Indenture Trustee;
(ix) to reimburse the Owner Trustee or the Indenture Trustee
or any of its directors, officers, employees and agents, as the case
may be, for certain expenses, costs and liabilities incurred thereby,
as and to the extent described under "The Agreements";
(x) if specified in the related Prospectus Supplement, to
pay the Master Servicer or the Indenture Trustee, as additional
compensation, interest and investment income earned in respect
of amounts held in the Collection Account;
(xi) to pay (generally from related income) for costs
incurred in connection with the operation, management and maintenance
of any Mortgaged Property acquired by the Trust Fund by foreclosure or
otherwise;
(xii) to pay for the cost of an independent appraiser or
other expert in real estate matters retained to determine a fair sale
price for a defaulted Mortgage Loan or a property acquired in respect
thereof in connection with the liquidation of such Mortgage Loan or
property;
(xiii) to pay for the cost of various opinions of counsel
obtained pursuant to the related Indenture for the benefit of the
related Bondholders;
(xiv) to pay to itself, the Company, a Seller or any other
appropriate person all amounts received with respect to each Mortgage
Loan purchased, repurchased or removed from the Trust Fund pursuant to
the terms of the related Servicing Agreement and not required to be
distributed as of the date on which the related Purchase Price is
determined;
(xv) to make any other withdrawals permitted by the related
Servicing Agreement and described in the related Prospectus Supplement;
and
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(xvi) to clear and terminate the Collection Account upon the
termination of the Trust Fund.
DISTRIBUTIONS
Distributions on the Bonds of each series will be made by or on behalf
of the related Indenture Trustee or Master Servicer on each Distribution Date as
specified in the related Prospectus Supplement from the Available Distribution
Amount for such series and such Distribution Date. The "Available Distribution
Amount" for any series of Bonds and any Distribution Date will generally refer
to the total of all payments or other collections (or advances in lieu thereof)
on, under or in respect of the Mortgage Loans and any other Trust Fund Assets
included in the related Trust Fund that are available for distribution to the
Bondholders of such series on such date. The particular components of the
Available Distribution Amount for any series on each Distribution Date will be
more specifically described in the related Prospectus Supplement.
Except as otherwise specified in the related Prospectus Supplement,
distributions on the Bonds of each series (other than the final distribution in
retirement of any such Bond) will be made to the persons in whose names such
Bonds are registered at the close of business on the last business day of the
month preceding the month in which the applicable Distribution Date occurs (the
"Record Date"), and the amount of each distribution will be determined as of the
close of business on the date (the "Determination Date") specified in the
related Prospectus Supplement. All distributions with respect to each class of
Bonds on each Distribution Date will be allocated PRO RATA among the outstanding
Bonds in such class. Payments will be made either by wire transfer in
immediately available funds to the account of a Bondholder at a bank or other
entity having appropriate facilities therefor, if such Bondholder has provided
the Indenture Trustee or other person required to make such payments with wiring
instructions no later than five business days prior to the related Record Date
or such other date specified in the related Prospectus Supplement (and, if so
provided in the related Prospectus Supplement, such Bondholder holds Bonds in
the requisite amount or denomination specified therein), or by check mailed to
the address of such Bondholder as it appears on the Bond Register; provided,
however, that the final distribution in retirement of any class of Bonds will be
made only upon presentation and surrender of such Bonds at the location
specified in the notice to Bondholders of such final distribution. Payments will
be made to each Bondholder in accordance with such holder's Percentage Interest
in a particular class. The ("Percentage Interest") represented by a Bond of a
particular class will be equal to the percentage obtained by dividing the
initial principal balance or notional amount of such Bond by the aggregate
initial amount or notional balance of all the Bonds of such class. In addition,
amounts remaining in the Payment Account on each Payment Date after payments on
the Bonds will be applied for the purposes set forth in the Agreements, as
described in the related Prospectus Supplement, including distributions on the
related Certificates or release to the Company. Any amounts so distributed on
the Certificates or released to the Company will be released from the lien of
the Indenture.
DISTRIBUTIONS OF INTEREST AND PRINCIPAL ON THE BONDS
Each class of Bonds of each series may have a different Interest Rate,
which may be fixed, variable or adjustable, or any combination of two or more
such rates. The related Prospectus Supplement will specify the Interest Rate or,
in the case of a variable or adjustable Interest Rate, the method for
determining the Interest Rate, for each class. Interest on the Bonds of each
series will be calculated on the basis of a specified period (generally one
month) and a 360-day year.
Distributions of interest in respect of the Bonds of any class (other
than any class of Accrual Bonds and other than any class of Strip Bonds that is
not entitled to any distributions of interest) will be made on
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each Distribution Date based on the Accrued Bond Interest for such class and
such Distribution Date, subject to the sufficiency of the portion of the
Available Distribution Amount allocable to such class on such Distribution Date.
Prior to the time interest is distributable on any class of Accrual Bonds, the
amount of Accrued Bond Interest otherwise distributable on such class will be
added to the principal balance thereof on each Distribution Date. With respect
to each class of Bonds (other than certain classes of Strip Bonds), "Accrued
Bond Interest" for each Distribution Date will be equal to interest at the
applicable Interest Rate accrued for a specified period (generally one month) on
the outstanding principal balance thereof immediately prior to such Distribution
Date. Accrued Bond Interest for each Distribution Date on Strip Bonds entitled
to distributions of interest will be similarly calculated except that it will
accrue on a notional amount that is either (i) based on the principal balances
of some or all of the Mortgage Loans in the related Trust Fund or (ii) equal to
the principal balances of one or more other classes of Bonds of the same series.
Reference to such a notional amount with respect to a class of Strip Bonds is
solely for convenience in making certain calculations and does not represent the
right to receive any distribution of principal. If so specified in the related
Prospectus Supplement, the amount of Accrued Bond Interest that is otherwise
distributable on (or, in the case of Accrual Bonds, that may otherwise be added
to the principal balance of) one or more classes of the Bonds of a series will
be reduced to the extent that any Prepayment Interest Shortfalls, as described
under "Yield Considerations", exceed the amount of any sums (including, if and
to the extent specified in the related Prospectus Supplement, the Master
Servicer's servicing compensation) that are applied to offset such shortfalls.
The particular manner in which such shortfalls will be allocated among some or
all of the classes of Bonds of that series will be specified in the related
Prospectus Supplement. The related Prospectus Supplement will also describe the
extent to which the amount of Accrued Bond Interest that is otherwise
distributable on (or, in the case of Accrual Bonds, that may otherwise be added
to the principal balance of) a class of Bonds may be reduced as a result of any
other contingencies, including delinquencies, losses and Deferred Interest on or
in respect of the related Mortgage Loans or application of the Relief Act with
respect to such Mortgage Loans. Any reduction in the amount of Accrued Bond
Interest otherwise distributable on a class of Bonds by reason of the allocation
to such class of a portion of any Deferred Interest on or in respect of the
related Mortgage Loans will result in a corresponding increase in the principal
balance of such class.
As and to the extent described in the related Prospectus Supplement,
distributions of principal with respect to a series of Bonds will be made on
each Distribution Date to the holders of the class or classes of Bonds of such
series entitled thereto until the principal balance(s) of such Bonds have been
reduced to zero. In the case of a series of Bonds which includes two or more
classes of Bonds, the timing, sequential order, priority of payment or amount of
distributions in respect of principal, and any schedule or formula or other
provisions applicable to the determination thereof (including distributions
among multiple classes of Senior Bonds or Subordinate Bonds), shall be as set
forth in the related Prospectus Supplement. Distributions of principal with
respect to one or more classes of Bonds may be made at a rate that is faster
(and, in some cases, substantially faster) than the rate at which payments or
other collections of principal are received on the Mortgage Loans in the related
Trust Fund, may not commence until the occurrence of certain events, such as the
retirement of one or more other classes of Bonds of the same series, or may be
made at a rate that is slower (and, in some cases, substantially slower) than
the rate at which payments or other collections of principal are received on
such Mortgage Loans. In addition, distributions of principal with respect to one
or more classes of Bonds may be made, subject to available funds, based on a
specified principal payment schedule and, with respect to one or more classes of
Bonds, may be contingent on the specified principal payment schedule for another
class of the same series and the rate at which payments and other collections of
principal on the Mortgage Loans in the related Trust Fund are received.
FUNDING ACCOUNT
If so specified in the related Prospectus Supplement, the Trust
Agreement or other agreement may provide for the transfer by the Sellers of
additional Mortgage Loans to the related Trust after the Closing
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Date. Such additional Mortgage Loans will be required to conform to the
requirements set forth in the related Agreement or other agreement providing for
such transfer, and will generally be underwritten to the same standards as the
Mortgage Loans initially included in the Trust Fund. As specified in the related
Prospectus Supplement, such transfer may be funded by the establishment of a
Funding Account (a "Funding Account"). If a Funding Account is established, all
or a portion of the proceeds of the sale of one or more classes of Bonds of the
related series will be deposited in such account to be released as additional
Mortgage Loans are transferred. A Funding Account will be required to be
maintained as an Eligible Account, all amounts therein will be required to be
invested in Permitted Investments and the amount held therein shall at no time
exceed 25% of the aggregate outstanding principal balance of the Bonds. The
related Agreement or other agreement providing for the transfer of additional
Mortgage Loans will generally provide that all such transfers must be made
within 3 months after the Closing Date, and that amounts set aside to fund such
transfers (whether in a Funding Account or otherwise) and not so applied within
the required period of time will be deemed to be principal prepayments and
applied in the manner set forth in such Prospectus Supplement.
The Company will be required to provide data regarding the additional
Mortgage Loans to the Rating Agencies and the Credit Enhancer, if any,
sufficiently in advance of the scheduled transfer to permit review by such
parties. Transfer of the additional Mortgage Loans will be further conditioned
upon confirmation by the Rating Agencies that the addition of such Mortgage
Loans to the Trust Fund will not result in the downgrading of the Bonds or, in
the case of a series guaranteed or supported by a Credit Enhancer, will not
adversely affect the capital requirements of such Credit Enhancer. Finally, a
legal opinion to the effect that the conditions to the transfer of the
additional Mortgage Loans have been satisfied.
DISTRIBUTIONS ON THE BONDS IN RESPECT OF PREPAYMENT PREMIUMS
If so provided in the related Prospectus Supplement, Prepayment
Premiums received on or in connection with the Mortgage Assets in any Trust Fund
will be distributed on each Distribution Date to the holders of the class of
Bonds of the related series entitled thereto in accordance with the provisions
described in such Prospectus Supplement.
ALLOCATION OF LOSSES AND SHORTFALLS
The amount of any losses or shortfalls in collections on the Mortgage
Loans in any Trust Fund (to the extent not covered or offset by draws on any
reserve fund or under any instrument of credit enhancement or by
overcollateralization) will be allocated among the respective classes of Bonds
of the related series in the priority and manner, and subject to the
limitations, specified in the related Prospectus Supplement. As described in the
related Prospectus Supplement, such allocations may result in reductions in the
entitlements to interest and/or principal balances of one or more such classes
of Bonds, or may be effected simply by a prioritization of payments among such
classes of Bonds.
ADVANCES
If and to the extent provided in the related Prospectus Supplement, and
subject to any limitations specified therein, the related Master Servicer may be
obligated to advance, or have the option of advancing, on or before each
Distribution Date, from its or their own funds or from excess funds held in the
related Collection Account that are not part of the Available Distribution
Amount for the related series of Bonds for such Distribution Date, an amount up
to the aggregate of any payments of principal (other than the principal portion
of any Balloon Payments) and interest that were due on or in respect of such
Mortgage Loans (other than the Revolving Credit Loans) during the related Due
Period and were delinquent on the related Determination Date. Generally,
advances will not be made in connection with Revolving Credit Loans, except as
otherwise provided in the related Prospectus Supplement. A "Due
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Period" is the period between Distribution Dates, and scheduled payments on the
Mortgage Loans in any Trust Fund that became due during a given Due Period will,
to the extent received by the related Determination Date or advanced by the
related Master Servicer or other specified person, be distributed
on the Distribution Date next succeeding such Determination Date.
Advances are intended to maintain a regular flow of scheduled interest
and principal payments to holders of the class or classes of Bonds entitled
thereto, rather than to guarantee or insure against losses. Accordingly, all
advances made from the Master Servicer's own funds will be reimbursable out of
related recoveries on the Mortgage Loans (including amounts received under any
fund or instrument constituting credit enhancement) respecting which such
advances were made (as to any Mortgage Loan, "Related Proceeds") and such other
specific sources as may be identified in the related Prospectus Supplement,
including in the case of a series that includes one or more classes of
Subordinate Bonds, collections on other Mortgage Loans in the related Trust Fund
that would otherwise be distributable to the holders of one or more classes of
such Subordinate Bonds. No advance will be required to be made by the Master
Servicer if, in the good faith judgment of the Master Servicer, such advance
would not be recoverable from Related Proceeds or another specifically
identified source (any such advance, a "Nonrecoverable Advance"); and, if
previously made by a Master Servicer, a Nonrecoverable Advance will be
reimbursable from any amounts in the related Collection Account prior to any
distributions being made to the related series of Securities.
If advances have been made from excess funds in a Collection Account,
the Master Servicer that advanced such funds will be required to replace such
funds in the Collection Account on any future Distribution Date to the extent
that funds then in the Collection Account are insufficient to permit full
distributions to Securityholders on such date. If so specified in the related
Prospectus Supplement, the obligation of a Master Servicer to make advances may
be secured by a cash advance reserve fund or a surety bond. If applicable,
information regarding the characteristics of, and the identity of any obligor
on, any such surety bond, will be set forth in the related Prospectus
Supplement.
If any person other than the Master Servicer has any obligation to make
advances as described above, the related Prospectus Supplement will identify
such person.
If and to the extent so provided in the related Prospectus Supplement,
any entity making advances will be entitled to receive interest thereon for the
period that such advances are outstanding at the rate specified in such
Prospectus Supplement, and such entity will be entitled to payment of such
interest periodically from general collections on the Mortgage Loans in the
related Trust Fund prior to any payment to Securityholders or as otherwise
provided in the related Indenture and described in such Prospectus Supplement.
REPORTS TO BONDHOLDERS
With each distribution to Bondholders of a particular class of Bonds,
the related Master Servicer or Indenture Trustee will forward or cause to be
forwarded to each holder of record of such class of Bonds a statement or
statements with respect to the related Trust Fund setting forth the information
specifically described in the related Indenture, which generally will include
the following as applicable except as otherwise provided therein:
(i) the amount, if any, of such distribution allocable to
principal;
(ii) the amount, if any, of such distribution allocable to
interest;
(iii) the amount, if any, of such distribution allocable to
Prepayment Premiums;
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(iv) with respect to a series consisting of two or more
classes, the outstanding principal balance or notional amount of each
class after giving effect to the distribution of principal on such
Distribution Date;
(v) the amount of servicing compensation received by the
related Master Servicer (and, if payable directly out of the related
Trust Fund, by any Special Servicer and any Sub-Servicer);
(vi) the aggregate amount of advances included in the
distributions on such Distribution Date, and the aggregate amount of
unreimbursed advances at the close of business on such Distribution
Date;
(vii) the aggregate principal balance of the Mortgage Loans in
the related Mortgage Pool on, or as of a specified date shortly prior
to, such Distribution Date;
(viii) the number and aggregate principal balance of any
Mortgage Loans in the related Mortgage Pool in respect of which (A) one
scheduled payment is delinquent, (B) two scheduled payments are
delinquent, (C) three or more scheduled payments are delinquent and (D)
foreclosure proceedings have been commenced;
(ix) the book value of any real estate acquired by such Trust
Fund through foreclosure or grant of a deed in lieu of foreclosure;
(x) the balance of the Reserve Fund, if any, at the close of
business on such Distribution Date;
(xi) the amount of coverage under any Financial Guaranty
Insurance Policy, Letter of Credit or Mortgage Pool Insurance Policy
covering default risk as of the close of business on the applicable
Determination Date and a description of any credit enhancement
substituted therefor;
(xii) the Special Hazard Amount, Fraud Loss Amount and
Bankruptcy Amount as of the close of business on the applicable
Distribution Date and a description of any change in the calculation of
such amounts; and
(xiii) in the case of Bonds benefitting from alternative
credit enhancement arrangements described in a Prospectus Supplement,
the amount of coverage under such alternative arrangements as of the
close of business on the applicable Determination Date.
In the case of information furnished pursuant to subclauses (i)-(iii)
above, the amounts will be expressed as a dollar amount per minimum denomination
of the relevant class of Bonds or per a specified portion of such minimum
denomination. In addition to the information described above, reports to
Bondholders will contain such other information as is set forth in the
applicable Indenture, which may include, without limitation, prepayments,
reimbursements to Subservicers and the Master Servicer and losses borne by the
related Trust Fund.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer or Indenture Trustee will furnish a report to
each holder of record of a class of Bonds at any time during such calendar year
which, among other things, will include information as to the aggregate of
amounts reported pursuant to subclauses (i)-(iii) above for such calendar year
or, in the event such person was a holder of record of a class of Bonds during a
portion of such calendar year, for the applicable portion of such a year.
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DESCRIPTION OF CREDIT ENHANCEMENT
GENERAL
Credit support with respect to the Bonds of each series may be
comprised of one or more of the following components. Each component will have a
dollar limit and will provide coverage with respect to certain losses on the
related Mortgage Loans (as more particularly described in the related Prospectus
Supplement, "Realized Losses") that are (i) attributable to the Mortgagor's
failure to make any payment of principal or interest as required under the
Mortgage Note, but not including Special Hazard Losses, Extraordinary Losses or
other losses resulting from damage to a Mortgaged Property, Bankruptcy Losses or
Fraud Losses (any such loss, a "Defaulted Mortgage Loss"); (ii) of a type
generally covered by a Special Hazard Insurance Policy (as defined below) (any
such loss, a "Special Hazard Loss"); (iii) attributable to certain actions which
may be taken by a bankruptcy court in connection with a Mortgage Loan, including
a reduction by a bankruptcy court of the principal balance of or the Mortgage
Rate on a Mortgage Loan or an extension of its maturity (any such loss, a
"Bankruptcy Loss"); and (iv) incurred on defaulted Mortgage Loans as to which
there was fraud in the origination of such Mortgage Loans (any such loss, a
"Fraud Loss"). Defaulted Mortgage Losses, Special Hazard Losses, Bankruptcy
Losses and Fraud Losses in excess of the amount of coverage provided therefor
and losses occasioned by war, civil insurrection, certain governmental actions,
nuclear reaction and certain other risks ("Extraordinary Losses") will generally
not be covered. To the extent that the credit support for the Bonds of any
series is exhausted, the holders thereof will bear all further risks of loss not
otherwise insured against.
As set forth below and in the applicable Prospectus Supplement, (i)
coverage with respect to Defaulted Mortgage Losses may be provided by one or
more of a Financial Guaranty Insurance Policy, a Letter of Credit or a Mortgage
Pool Insurance Policy, (ii) coverage with respect to Special Hazard Losses may
be provided by one or more of a Financial Guaranty Insurance Policy, a Letter of
Credit or a Special Hazard Insurance Policy (any instrument, to the extent
providing such coverage, a "Special Hazard Instrument"), (iii) coverage with
respect to Bankruptcy Losses may be provided by one or more of a Financial
Guaranty Insurance Policy, Letter of Credit or a Bankruptcy Bond and (iv)
coverage with respect to Fraud Losses may be provided by one or more of a
Financial Guaranty Insurance Policy, Letter of Credit, Mortgage Pool Insurance
Policy or mortgage repurchase bond. In addition, if provided in the applicable
Prospectus Supplement, in lieu of or in addition to any or all of the foregoing
arrangements, credit enhancement may be in the form of a Reserve Fund to cover
such losses, in the form of subordination provided by one or more classes of
Subordinate Bonds to provide credit support to one or more classes of Senior
Bonds, or in the form of Overcollateralization, or in the form of a specified
entity's agreement to repurchase certain Mortgage Loans or fund certain losses
pursuant to a Purchase Obligation, which obligations may be supported by a
Letter of Credit, surety bonds or other types of insurance policies, certain
other secured or unsecured corporate guarantees or in such other form as may be
described in the related Prospectus Supplement, or in the form of a combination
of two or more of the foregoing. The credit support may be provided by an
assignment of the right to receive certain cash amounts, a deposit of cash into
a Reserve Fund or other pledged assets, or by banks, insurance companies,
guarantees or any combination thereof identified in the applicable Prospectus
Supplement.
For any series of Bonds backed by Trust Balances of Revolving Credit
Loans, the credit enhancement provided with respect to such Bonds will cover any
portion of any Realized Losses allocated to such Trust Balances, subject to any
limitations described herein and in the related Prospectus Supplement. See
"Description of the Mortgage Pools--Allocation of Revolving Credit Loan
Balances"
herein.
The amounts and type of credit enhancement arrangement as well as the
provider thereof, if applicable, with respect to the Bonds of each series will
be set forth in the related Prospectus Supplement.
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To the extent provided in the applicable Prospectus Supplement and the
Indenture, the credit enhancement arrangements may be periodically modified,
reduced and substituted for based on the aggregate outstanding principal balance
of the Mortgage Loans covered thereby. See "Description of Credit
Enhancement--Reduction or Substitution of Credit Enhancement." If specified in
the applicable Prospectus Supplement, credit support for the Bonds of one series
may cover the Bonds of one or more other series.
The descriptions of any insurance policies or bonds described in this
Prospectus or any Prospectus Supplement and the coverage thereunder do not
purport to be complete and are qualified in their entirety by reference to the
actual forms of such policies, copies of which are available upon request.
FINANCIAL GUARANTY INSURANCE POLICY
If so specified in the related Prospectus Supplement, a financial
guaranty insurance policy or surety bond (a "Financial Guaranty Insurance
Policy") may be obtained and maintained for a class or series of Bonds. The
issuer of the Financial Guaranty Insurance Policy (the "Insurer") will be
described in the related Prospectus Supplement and a copy of the form of
Financial Guaranty Insurance Policy will be filed with the related Current
Report on Form 8-K.
A Financial Guaranty Insurance Policy will be unconditional and
irrevocable and will guarantee to holders of the applicable Bonds that an amount
equal to the full amount of payments due to such holders will be received by the
Indenture Trustee or its agent on behalf of such holders for payment on each
Payment Date. The specific terms of any Financial Guaranty Insurance Policy will
be set forth in the related Prospectus Supplement. A Financial Guaranty
Insurance Policy may have limitations and generally will not insure the
obligation of the Sellers or the Master Servicer to purchase or substitute for a
defective Mortgage Loan and will not guarantee any specific rate of principal
prepayments. The Insurer will be subrogated to the rights of each holder to the
extent the Insurer makes payments under the Financial Guaranty Insurance Policy.
SUBORDINATE BONDS
If so specified in the related Prospectus Supplement, one or more
classes of Bonds of a series may be Subordinate Bonds. To the extent specified
in the related Prospectus Supplement, the rights of the holders of Subordinate
Bonds to receive distributions from the Collection Account on any Distribution
Date will be subordinated to the corresponding rights of the holders of Senior
Bonds. If so provided in the related Prospectus Supplement, the subordination of
a class may apply only in the event of (or may be limited to) certain types of
losses or shortfalls. The related prospectus Supplement will set forth
information concerning the manner and amount of subordination provided by a
class or classes of Subordinate Bonds in a series and the circumstances under
which such subordination will be available. The Bonds of any series may include
one or more classes of Subordinate Bonds.
If the Mortgage Loans in any Trust Fund are divided into separate
groups, each supporting a separate class or classes of Bonds of the related
series, credit enhancement may be provided by cross- support provisions
requiring that distributions be made on Senior Bonds evidencing interests in one
group of Mortgage Loans prior to distributions on Subordinate Bonds evidencing
interests in a different group of Mortgage Loans within the Trust Fund. The
Prospectus Supplement for a series that includes a cross- support provision will
describe the manner and conditions for applying such provisions.
LETTER OF CREDIT
If any component of credit enhancement as to the Bonds of any series is
to be provided by a letter of credit (the "Letter of Credit"), a bank (the
"Letter of Credit Bank") will deliver to the related Indenture
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Trustee an irrevocable Letter of Credit. The Letter of Credit may provide direct
coverage with respect to the Mortgage Loans or, if specified in the related
Prospectus Supplement, support an entity's obligation pursuant to a Purchase
Obligation to make certain payments to the related Indenture Trustee with
respect to one or more components of credit enhancement. The Letter of Credit
Bank, as well as the amount available under the Letter of Credit with respect to
each component of credit enhancement, will be specified in the applicable
Prospectus Supplement. If so specified in the related Prospectus Supplement, the
Letter of Credit may permit draws only in the event of certain types of losses
and shortfalls. The Letter of Credit may also provide for the payment of
advances which the Master Servicer would be obligated to make with respect to
delinquent monthly mortgage payments. The amount available under the Letter of
Credit will, in all cases, be reduced to the extent of the unreimbursed payments
thereunder and may otherwise be reduced as described in the related Prospectus
Supplement. The Letter of Credit will expire on the expiration date set forth in
the related Prospectus Supplement, unless earlier terminated or extended in
accordance with its terms.
MORTGAGE POOL INSURANCE POLICIES
Any Mortgage Pool Insurance Policy obtained by the Company for each
Trust Fund will be issued by the Pool Insurer named in the applicable Prospectus
Supplement. Each Mortgage Pool Insurance Policy will, subject to the limitations
described below, cover Defaulted Mortgage Losses in an amount equal to a
percentage specified in the applicable Prospectus Supplement of the aggregate
principal balance of the Mortgage Loans on the Cut-off Date. As set forth under
"Maintenance of Credit Enhancement," the Master Servicer will use reasonable
efforts to maintain the Mortgage Pool Insurance Policy and to present claims
thereunder to the Pool Insurer on behalf of itself, the related Indenture
Trustee and the related Bondholders. The Mortgage Pool Insurance Policies,
however, are not blanket policies against loss, since claims thereunder may only
be made respecting particular defaulted Mortgage Loans and only upon
satisfaction of certain conditions precedent described below. Unless specified
in the related Prospectus Supplement, the Mortgage Pool Insurance Policies may
not cover losses due to a failure to pay or denial of a claim under a Primary
Insurance Policy, irrespective of the reason therefor.
Each Mortgage Pool Insurance Policy will generally provide that no
claims may be validly presented thereunder unless, among other things, (i) any
required Primary Insurance Policy is in effect for the defaulted Mortgage Loan
and a claim thereunder has been submitted and settled, (ii) hazard insurance on
the property securing such Mortgage Loan has been kept in force and real estate
taxes and other protection and preservation expenses have been paid by the
Master Servicer, (iii) if there has been physical loss or damage to the
Mortgaged Property, it has been restored to its condition (reasonable wear and
tear excepted) at the Cut-off Date and (iv) the insured has acquired good and
merchantable title to the Mortgaged Property free and clear of liens except
certain permitted encumbrances. Upon satisfaction of these conditions, the Pool
Insurer will have the option either (a) to purchase the property securing the
defaulted Mortgage Loan at a price equal to the principal balance thereof plus
accrued and unpaid interest at the applicable Mortgage Rate to the date of
purchase and certain expenses incurred by the Master Servicer, Special Servicer
or Subservicer on behalf of the related Indenture Trustee and Bondholders, or
(b) to pay the amount by which the sum of the principal balance of the defaulted
Mortgage Loan plus accrued and unpaid interest at the Mortgage Rate to the date
of payment of the claim and the aforementioned expenses exceeds the proceeds
received from an approved sale of the Mortgaged Property, in either case net of
certain amounts paid or assumed to have been paid under any related Primary
Insurance Policy. Bondholders will experience a shortfall in the amount of
interest payable on the related Bonds in connection with the payment of claims
under a Mortgage Pool Insurance Policy because the Pool Insurer is only required
to remit unpaid interest through the date a claim is paid rather than through
the end of the month in which such claim is paid. In addition, the Bondholders
will also experience losses with respect to the related Bonds in connection with
payments made under a Mortgage Pool Insurance Policy to the extent that the
Master Servicer expends funds to cover unpaid real estate taxes or to repair the
related
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Mortgaged Property in order to make a claim under a Mortgage Pool Insurance
Policy, as those amounts will not be covered by payments under such policy and
will be reimbursable to the Master Servicer from funds otherwise payable to the
Bondholders. If any Mortgaged Property securing a defaulted Mortgage Loan is
damaged and proceeds, if any (see "Special Hazard Insurance Policies" below for
risks which are not covered by such policies), from the related hazard insurance
policy or applicable Special Hazard Instrument are insufficient to restore the
damaged property to a condition sufficient to permit recovery under the Mortgage
Pool Insurance Policy, the Master Servicer is not required to expend its own
funds to restore the damaged property unless it determines (x) that such
restoration will increase the proceeds to one or more classes of Bondholders on
liquidation of the Mortgage Loan after reimbursement of the Master Servicer for
its expenses and (y) that such expenses will be recoverable by it through
Liquidation Proceeds or Insurance Proceeds.
A Mortgage Pool Insurance Policy (and certain Primary Insurance
Policies) will likely not insure against loss sustained by reason of a default
arising from, among other things, (i) fraud or negligence in the origination or
servicing of a Mortgage Loan, including misrepresentation by the Mortgagor, the
Seller or other persons involved in the origination thereof, or (ii) failure to
construct a Mortgaged Property in accordance with plans and specifications.
Depending upon the nature of the event, a breach of representation made by a
Seller may also have occurred. Such a breach, if it materially and adversely
affects the interests of Bondholders and cannot be cured, would give rise to a
purchase obligation on the part of the Seller, as more fully described under
"The Mortgage Pools--Representations by Sellers." However, such an event would
not give rise to a breach of a representation and warranty or a purchase
obligation on the part of the Company or Master Servicer.
The original amount of coverage under each Mortgage Pool Insurance
Policy will be reduced over the life of the related series of Bonds by the
aggregate dollar amount of claims paid less the aggregate of the net amounts
realized by the Pool Insurer upon disposition of all foreclosed properties. The
amount of claims paid includes certain expenses incurred by the Master Servicer,
Special Servicer or Subservicer as well as accrued interest on delinquent
Mortgage Loans to the date of payment of the claim. Accordingly, if aggregate
net claims paid under any Mortgage Pool Insurance Policy reach the original
policy limit, coverage under that Mortgage Pool Insurance Policy will be
exhausted and any further losses will be borne by holders of the related series
of Bonds. In addition, unless the Master Servicer could determine that an
advance in respect of a delinquent Mortgage Loan would be recoverable to it from
the proceeds of the liquidation of such Mortgage Loan or otherwise, the Master
Servicer would not be obligated to make an advance respecting any such
delinquency since the advance would not be ultimately recoverable to it from
either the Mortgage Pool Insurance Policy or from any other related source. See
"Description of the Bonds--Advances."
Since each Mortgage Pool Insurance Policy will require that the
property subject to a defaulted Mortgage Loan be restored to its original
condition prior to claiming against the Pool Insurer, such policy will not
provide coverage against hazard losses. As set forth under "Primary Mortgage
Insurance, Hazard Insurance; Claims Thereunder," the hazard policies covering
the Mortgage Loans typically exclude from coverage physical damage resulting
from a number of causes and, even when the damage is covered, may afford
recoveries which are significantly less than full replacement cost of such
losses. Further, no coverage in respect of Special Hazard Losses, Fraud Losses
or Bankruptcy Losses will cover all risks, and the amount of any such coverage
will be limited. See "Special Hazard Insurance Policies" below. As a result,
certain hazard risks will not be insured against and will therefore be borne by
the related Bondholders.
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SPECIAL HAZARD INSURANCE POLICIES
Any insurance policy covering Special Hazard Losses (a "Special Hazard
Insurance Policy") obtained by the Company for a Trust Fund will be issued by
the insurer named in the applicable Prospectus Supplement. Each Special Hazard
Insurance Policy will, subject to limitations described below, protect holders
of the related series of Bonds from (i) losses due to direct physical damage to
a Mortgaged Property other than any loss of a type covered by a hazard insurance
policy or a flood insurance policy, if applicable, and (ii) losses from partial
damage caused by reason of the application of the co-insurance clauses contained
in hazard insurance policies ("Special Hazard Losses"). See "Primary Mortgage
Insurance, Hazard Insurance; Claims Thereunder." However, a Special Hazard
Insurance Policy will not cover losses occasioned by war, civil insurrection,
certain governmental actions, errors in design, faulty workmanship or materials
(except under certain circumstances), nuclear reaction, chemical contamination,
waste by the Mortgagor and certain other risks. Aggregate claims under a Special
Hazard Insurance Policy will be limited to the amount set forth in the related
Prospectus Supplement and will be subject to reduction as described in such
related Prospectus Supplement. A Special Hazard Insurance Policy will provide
that no claim may be paid unless hazard and, if applicable, flood insurance on
the property securing the Mortgage Loan has been kept in force and other
protection and preservation expenses have been paid by the Master Servicer.
Subject to the foregoing limitations, a Special Hazard Insurance Policy
will provide that, where there has been damage to property securing a foreclosed
Mortgage Loan (title to which has been acquired by the insured) and to the
extent such damage is not covered by the hazard insurance policy or flood
insurance policy, if any, maintained by the Mortgagor or the Master Servicer,
Special Servicer or the Subservicer, the insurer will pay the lesser of (i) the
cost of repair or replacement of such property or (ii) upon transfer of the
property to the insurer, the unpaid principal balance of such Mortgage Loan at
the time of acquisition of such property by foreclosure or deed in lieu of
foreclosure, plus accrued interest at the Mortgage Rate to the date of claim
settlement and certain expenses incurred by the Master Servicer, Special
Servicer or Subservicer with respect to such property. If the property is
transferred to a third party in a sale approved by the issuer of the Special
Hazard Insurance Policy (the "Special Hazard Insurer"), the amount that the
Special Hazard Insurer will pay will be the amount under (ii) above reduced by
the net proceeds of the sale of the property. No claim may be validly presented
under the Special Hazard Insurance Policy unless hazard insurance on the
property securing a defaulted Mortgage Loan has been kept in force and other
reimbursable protection, preservation and foreclosure expenses have been paid
(all of which must be approved in advance by the Special Hazard Insurer). If the
unpaid principal balance plus accrued interest and certain expenses is paid by
the insurer, the amount of further coverage under the related Special Hazard
Insurance Policy will be reduced by such amount less any net proceeds from the
sale of the property. Any amount paid as the cost of repair of the property will
further reduce coverage by such amount. Restoration of the property with the
proceeds described under (i) above will satisfy the condition under each
Mortgage Pool Insurance Policy that the property be restored before a claim
under such Mortgage Pool Insurance Policy may be validly presented with respect
to the defaulted Mortgage Loan secured by such property. The payment described
under (ii) above will render presentation of a claim in respect of such Mortgage
Loan under the related Mortgage Pool Insurance Policy unnecessary. Therefore, so
long as a Mortgage Pool Insurance Policy remains in effect, the payment by the
insurer under a Special Hazard Insurance Policy of the cost of repair or of the
unpaid principal balance of the related Mortgage Loan plus accrued interest and
certain expenses will not affect the total Insurance Proceeds paid to
Bondholders, but will affect the relative amounts of coverage remaining under
the related Special Hazard Insurance Policy and Mortgage Pool Insurance Policy.
As and to the extent set forth in the applicable Prospectus Supplement,
coverage in respect of Special Hazard Losses for a series of Bonds may be
provided, in whole or in part, by a type of Special Hazard Instrument other than
a Special Hazard Insurance Policy or by means of the special hazard
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representation of the Company.
BANKRUPTCY BONDS
In the event of a personal bankruptcy of a Mortgagor, it is possible
that the bankruptcy court may establish the value of the Mortgaged Property of
such Mortgagor at an amount less than the then outstanding principal balance of
the Mortgage Loan secured by such Mortgaged Property (a "Deficient Valuation").
The amount of the secured debt could then be reduced to such value, and, thus,
the holder of such Mortgage Loan would become an unsecured creditor to the
extent the outstanding principal balance of such Mortgage Loan exceeds the value
assigned to the Mortgaged Property by the bankruptcy court. In addition, certain
other modifications of the terms of a Mortgage Loan can result from a bankruptcy
proceeding, including a reduction in the amount of the Monthly Payment on the
related Mortgage Loan (a "Debt Service Reduction"; Debt Service Reductions and
Deficient Valuations, collectively referred to herein as Bankruptcy Losses). See
"Certain Legal Aspects of Mortgage Loans and Related Matters--Anti-Deficiency
Legislation and Other Limitations on Lenders." Any Bankruptcy Bond to provide
coverage for Bankruptcy Losses for proceedings under the federal Bankruptcy Code
obtained by the Company for a Trust Fund will be issued by an insurer named in
the applicable Prospectus Supplement. The level of coverage under each
Bankruptcy Bond will be set forth in the applicable Prospectus Supplement.
OVERCOLLATERALIZATION
If so specified in the related Prospectus Supplement, interest
collections on the Mortgage Loans may exceed interest payments on the Bonds for
the related Payment Date (such excess referred to as "Excess Interest"). Such
Excess Interest may be deposited into a Reserve Fund or applied as a payment of
principal on the Bonds. To the extent Excess Interest is applied as principal
payments on the Bonds, the effect will be to reduce the principal balance of the
Bonds relative to the outstanding balance of the Mortgage Loans, thereby
creating "Overcollateralization" and additional protection to the Bondholders,
as specified in the related Prospectus Supplement. If so provided in the related
Prospectus Supplement, Overcollateralization may also be provided as to any
series of Bonds by the issuance of Bonds in an initial aggregate principal
amount (together with the related Certificates, if any) which is less than the
aggregate principal amount of the related Mortgage Loans.
RESERVE FUNDS
If so provided in the related Prospectus Supplement, the Company will
deposit or cause to be deposited in an account (a "Reserve Fund") any
combination of cash, one or more irrevocable letters of credit or one or more
Permitted Investments in specified amounts, or any other instrument satisfactory
to the relevant Rating Agency or Agencies, which will be applied and maintained
in the manner and under the conditions specified in such Prospectus Supplement.
In the alternative or in addition to such deposit, to the extent described in
the related Prospectus Supplement, a Reserve Fund may be funded through
application of all or a portion of amounts otherwise payable on any related
Subordinate Bonds, from the Spread or otherwise. To the extent that the funding
of the Reserve Fund is dependent on amounts otherwise payable on related
Subordinate Bonds, Spread or other cash flows attributable to the related
Mortgage Loans or on reinvestment income, the Reserve Fund may provide less
coverage than initially expected if the cash flows or reinvestment income on
which such funding is dependent are lower than anticipated. In addition, with
respect to any series of Bonds as to which credit enhancement includes a Letter
of Credit, if so specified in the related Prospectus Supplement, under certain
circumstances the remaining amount of the Letter of Credit may be drawn by the
Indenture Trustee and deposited in a Reserve Fund. Amounts in a Reserve Fund may
be distributed to Bondholders, or applied to reimburse the Master Servicer for
outstanding advances, or may be used for other purposes, in the manner and to
the
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extent specified in the related Prospectus Supplement. Any such Reserve Fund
will generally not be deemed to be part of the related Trust Fund. If set forth
in the related Prospectus Supplement, a Reserve Fund may provide coverage to
more than one series of Bonds.
In connection with the establishment of any Reserve Fund, the Reserve
Fund will be structured so that the Indenture Trustee will have a perfected
security interest for the benefit of the Bondholders in the assets in the
Reserve Fund. However, to the extent that the Company, any affiliate thereof or
any other entity has an interest in any Reserve Fund, in the event of the
bankruptcy, receivership or insolvency of such entity, there could be delays in
withdrawals from the Reserve Fund and corresponding payments to the Bondholders
which could adversely affect the yield to investors on the related Bonds.
Amounts deposited in any Reserve Fund for a series will be invested in
Permitted Investments by, or at the direction of, and for the benefit of the
Master Servicer or any other person named in the related
Prospectus Supplement.
MAINTENANCE OF CREDIT ENHANCEMENT
To the extent that the applicable Prospectus Supplement does not
expressly provide for alternative credit enhancement arrangements in lieu of
some or all of the arrangements mentioned below, the following
paragraphs shall apply.
If a Letter of Credit or alternate form of credit enhancement has been
obtained for a series of Bonds, the Master Servicer will be obligated to
exercise reasonable efforts to keep or cause to be kept such Letter of Credit
(or an alternate form of credit support) in full force and effect throughout the
term of the applicable Indenture, unless coverage thereunder has been exhausted
through payment of claims or otherwise, or substitution therefor is made as
described below under "--Reduction or Substitution of Credit Enhancement." If a
Letter of Credit obtained for a series of Bonds is scheduled to expire prior to
the date the final distribution on such Bonds is made and coverage under such
Letter of Credit has not been exhausted and no substitution has occurred, the
Indenture Trustee will draw the amount available under the Letter of Credit and
maintain such amount in trust for such Bondholders.
If a Mortgage Pool Insurance Policy has been obtained for a series of
Bonds, the Master Servicer will be obligated to exercise reasonable efforts to
keep such Mortgage Pool Insurance Policy (or an alternate form of credit
support) in full force and effect throughout the term of the applicable
Indenture, unless coverage thereunder has been exhausted through payment of
claims or until such Mortgage Pool Insurance Policy is replaced in accordance
with the terms of the applicable Indenture. The Master Servicer will generally
agree to pay the premiums for each Mortgage Pool Insurance Policy on a timely
basis. In the event the Pool Insurer ceases to be a Qualified Insurer (such term
being defined to mean a private mortgage guaranty insurance company duly
qualified as such under the laws of the state of its incorporation and each
state having jurisdiction over the insurer in connection with the Mortgage Pool
Insurance Policy and approved as an insurer by FHLMC, FNMA or any successor
entity) because it ceases to be qualified under any such law to transact such
insurance business or coverage is terminated for any reason other than
exhaustion of such coverage, the Master Servicer will use reasonable efforts to
obtain from another Qualified Insurer a replacement insurance policy comparable
to the Mortgage Pool Insurance Policy with a total coverage equal to the then
outstanding coverage of such Mortgage Pool Insurance Policy, provided that, if
the cost of the replacement policy is greater than the cost of such Mortgage
Pool Insurance Policy, the coverage of the replacement policy will, unless
otherwise agreed to by the Company, be reduced to a level such that its premium
rate does not exceed the premium rate on such Mortgage Pool Insurance Policy. In
the event that the Pool Insurer ceases to be a Qualified Insurer because it
ceases to be approved as an insurer by FHLMC, FNMA or any successor entity, the
Master Servicer will be obligated to review, not less often than monthly, the
financial condition of the Pool Insurer with a view toward determining whether
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recoveries under the Mortgage Pool Insurance Policy are jeopardized for reasons
related to the financial condition of the Pool Insurer. If the Master Servicer
determines that recoveries are so jeopardized, it will be obligated to exercise
its best reasonable efforts to obtain from another Qualified Insurer a
replacement insurance policy as described above, subject to the same cost limit.
Any losses associated with any reduction or withdrawal in rating by an
applicable Rating Agency shall be borne by the related Bondholders.
In lieu of the Master Servicer's obligation to maintain a Letter of
Credit or Mortgage Pool Insurance Policy as provided above, the Master Servicer
may obtain a substitute Letter of Credit, Mortgage Pool Insurance Policy or an
alternate form of credit enhancement. If the Master Servicer obtains such a
substitute Letter of Credit or Mortgage Pool Insurance Policy, it will maintain
and keep such Letter of Credit, Mortgage Pool Insurance Policy or alternate form
of credit enhancement in full force and effect as provided herein. Prior to its
obtaining any substitute Letter of Credit, Mortgage Pool Insurance Policy or
alternate form of credit enhancement, the Master Servicer will obtain written
confirmation from the Rating Agency or Agencies that rated the related series of
Bonds that the substitution of such Mortgage Pool Insurance Policy, Letter of
Credit, or alternate form of credit enhancement for the existing credit
enhancement will not adversely affect the then-current ratings assigned to such
Bonds by such Rating Agency or Agencies.
If a Special Hazard Instrument has been obtained for a series of Bonds,
the Master Servicer will also be obligated to exercise reasonable efforts to
maintain and keep such Special Hazard Instrument in full force and effect
throughout the term of the applicable Indenture, unless coverage thereunder has
been exhausted through payment of claims or otherwise or substitution therefor
is made as described below under "--Reduction or Substitution of Credit
Enhancement." If the Special Hazard Instrument takes the form of a Special
Hazard Insurance Policy, such policy will provide coverage against risks of the
type described herein under "Description of Credit Enhancement--Special Hazard
Insurance Policies." The Master Servicer may obtain a substitute Special Hazard
Instrument for the existing Special Hazard Instrument if prior to such
substitution the Master Servicer obtains written confirmation from the Rating
Agency or Agencies that rated the related Bonds that such substitution shall not
adversely affect the then-current ratings assigned to such Bonds by such Rating
Agency or Agencies.
If a Bankruptcy Bond has been obtained for a series of Bonds, the
Master Servicer will be obligated to exercise reasonable efforts to maintain and
keep such Bankruptcy Bond in full force and effect throughout the term of the
Indenture, unless coverage thereunder has been exhausted through payment of
claims or substitution therefor is made as described below under "--Reduction or
Substitution of Credit Enhancement." The Master Servicer may obtain a substitute
Bankruptcy Bond or other credit enhancement for the existing Bankruptcy Bond if
prior to such substitution the Master Servicer obtains written confirmation from
the Rating Agency or Agencies that rated the related Bonds that such
substitution shall not adversely affect the then-current ratings assigned to
such Bonds by such Rating Agency or Agencies. See "--Bankruptcy Bonds" above.
The Master Servicer, on behalf of itself, the Indenture Trustee and
Bondholders, will provide the Indenture Trustee information required for the
Indenture Trustee to draw under the Letter of Credit and will present claims to
the provider of any Purchase Obligation, to each Pool Insurer, to the issuer of
each Special Hazard Insurance Policy or other Special Hazard Instrument, to the
issuer of each Bankruptcy Bond and, in respect of defaulted Mortgage Loans for
which there is no Subservicer, to each Primary Insurer and take such reasonable
steps as are necessary to permit recovery under such Letter of Credit, Purchase
Obligation, insurance policies or comparable coverage respecting defaulted
Mortgage Loans or Mortgage Loans which are the subject of a bankruptcy
proceeding. Additionally, the Master Servicer will present such claims and take
such steps as are reasonably necessary to provide for the performance by the
provider of the Purchase Obligation of its Purchase Obligation. As set forth
above, all collections by the Master
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Servicer under any Purchase Obligation, any Mortgage Pool Insurance Policy, any
Primary Insurance Policy or any Bankruptcy Bond and, where the related property
has not been restored, any Special Hazard Instrument, are to be deposited in the
related Collection Account, subject to withdrawal as described above. All draws
under any Letter of Credit are also to be deposited in the related Collection
Account. In those cases in which a Mortgage Loan is serviced by a Subservicer,
the Subservicer, on behalf of itself, the Indenture Trustee and the Bondholders
will present claims to the Primary Insurer, and all collections thereunder shall
initially be deposited in a subservicing account that generally meets the
requirements for the Collection Account prior to being delivered to the Master
Servicer for deposit in the related Collection Account.
If any property securing a defaulted Mortgage Loan is damaged and
proceeds, if any, from the related hazard insurance policy or any applicable
Special Hazard Instrument are insufficient to restore the damaged property to a
condition sufficient to permit recovery under any Financial Guaranty Insurance
Policy, Letter of Credit, Mortgage Pool Insurance Policy or any related Primary
Insurance Policy, the Master Servicer is not required to expend its own funds to
restore the damaged property unless it determines (i) that such restoration will
increase the proceeds to one or more classes of Bondholders on liquidation of
the Mortgage Loan after reimbursement of the Master Servicer for its expenses
and (ii) that such expenses will be recoverable by it through Liquidation
Proceeds or Insurance Proceeds. If recovery under any Financial Guaranty
Insurance Policy, Letter of Credit, Mortgage Pool Insurance Policy, other credit
enhancement or any related Primary Insurance Policy is not available because the
Master Servicer has been unable to make the above determinations, has made such
determinations incorrectly or recovery is not available for any other reason,
the Master Servicer is nevertheless obligated to follow such normal practices
and procedures (subject to the preceding sentence) as it deems necessary or
advisable to realize upon the defaulted Mortgage Loan and in the event such
determination has been incorrectly made, is entitled to reimbursement of its
expenses in connection with such restoration.
REDUCTION OR SUBSTITUTION OF CREDIT ENHANCEMENT
The amount of credit support provided pursuant to any form of credit
enhancement may be reduced under certain specified circumstances. In most cases,
the amount available pursuant to any form of credit enhancement will be subject
to periodic reduction in accordance with a schedule or formula on a
nondiscretionary basis pursuant to the terms of the related Indenture.
Additionally, in most cases, such form of credit support (and any replacements
therefor) may be replaced, reduced or terminated, and the formula used in
calculating the amount of coverage with respect to Bankruptcy Losses, Special
Hazard Losses or Fraud Losses may be changed, without the consent of the
Bondholders, upon the written assurance from each applicable Rating Agency that
the then-current rating of the related series of Bonds will not be adversely
affected. Furthermore, in the event that the credit rating of any obligor under
any applicable credit enhancement is downgraded, the credit rating(s) of the
related series of Bonds may be downgraded to a corresponding level, and the
Master Servicer will not be obligated to obtain replacement credit support in
order to restore the rating(s) of the related series of Bonds. The Master
Servicer will also be permitted to replace such credit support with other credit
enhancement instruments issued by obligors whose credit ratings are equivalent
to such downgraded level and in lower amounts which would satisfy such
downgraded level, provided that the then-current rating(s) of the related series
of Bonds are maintained. Where the credit support is in the form of a Reserve
Fund, a permitted reduction in the amount of credit enhancement will result in a
release of all or a portion of the assets in the Reserve Fund to the Company,
the Master Servicer or such other person that is entitled thereto. Any assets so
released will not be available for distributions in future periods.
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PURCHASE OBLIGATIONS
With respect to certain types of Mortgage Loans to be included in any
Mortgage Pool, if specified in the related Prospectus Supplement, the Mortgage
Loans may be sold subject to a Purchase Obligation as described below that would
become applicable on a specified date or upon the occurrence of a specified
event. For example, with respect to certain types of ARM Loans as to which the
Mortgage Rate is fixed for the first five years, a Purchase Obligation may apply
on the first date that the Mortgage Rate of such Mortgage Loan is adjusted, and
such obligation may apply to the Mortgage Loans or to the related Bonds
themselves, or to a corresponding Purchase Obligation of the Company or another
person as specified in the related Prospectus Supplement. With respect to any
Purchase Obligation, such obligation will be an obligation of an entity (which
may include a bank or other financial institution or an insurance company)
specified in the related Prospectus Supplement, and an instrument evidencing
such obligation (a "Purchase Obligation") shall be delivered to the related
Indenture Trustee for the benefit of the Bondholders to the related series.
The specific terms and conditions applicable to any Purchase Obligation
will be described in the related Prospectus Supplement, including the purchase
price, the timing of and any limitations and conditions to any such purchase.
Any Purchase Obligation will be payable solely to the Indenture Trustee for the
benefit of the Bondholders of the related series and will be nontransferable.
Each Purchase Obligation will be a general unsecured obligation of the provider
thereof, and prospective purchasers of Bonds must look solely to the credit of
such entity for payment under the Purchase Obligation.
PRIMARY MORTGAGE INSURANCE, HAZARD INSURANCE;
CLAIMS THEREUNDER
GENERAL
Each Mortgage Loan will be required to be covered by a hazard insurance
policy (as described below) and, if required as described below, a Primary
Insurance Policy. The following is only a brief description of certain insurance
policies and does not purport to summarize or describe all of the provisions of
these policies. Such insurance is subject to underwriting and approval of
individual Mortgage Loans by the respective insurers. The descriptions of any
insurance policies described in this Prospectus or any Prospectus Supplement and
the coverage thereunder do not purport to be complete and are qualified in their
entirety by reference to such forms of policies, sample copies of which are
available upon request.
PRIMARY MORTGAGE INSURANCE POLICIES
Except in the case of High LTV Loans and as otherwise provided in the
related Prospectus Supplement, each Single Family Loan having a Loan-to-Value
Ratio at origination of over 80% will generally be required by the Company to be
covered by a primary mortgage guaranty insurance policy (a "Primary Insurance
Policy") insuring against default on such Mortgage Loan as to at least the
principal amount thereof exceeding 75% of the Value of the related Mortgaged
Property at origination of the Mortgage Loan, unless and until the principal
balance of the Mortgage Loan is reduced to a level that would produce a
Loan-to-Value Ratio equal to or less than at least 80%. The Company will
represent and warrant that, to the best of the Company's knowledge, such
Mortgage Loans are so covered. However, the foregoing standard may vary
significantly depending on the characteristics of the Mortgage Loans and the
applicable underwriting standards, and any variation will be described in the
related Prospectus Supplement. A Mortgage Loan will not be considered to be an
exception to the foregoing standard if no Primary Insurance Policy was obtained
at origination but the Mortgage Loan has amortized to below an 80% Loan-to-Value
Ratio level as of the applicable Cut-off Date. Mortgage Loans which are subject
to
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negative amortization will only be covered by a Primary Insurance Policy if such
coverage was so required upon their origination, notwithstanding that subsequent
negative amortization may cause such Mortgage Loan's Loan-to-Value Ratio (based
on the then-current balance) to subsequently exceed the limits which would have
required such coverage upon their origination. Multifamily Loans will not be
covered by a Primary Insurance Policy, regardless of the related Loan-to-Value
Ratio.
While the terms and conditions of the Primary Insurance Policies issued
by one primary mortgage guaranty insurer (a "Primary Insurer") will differ from
those in Primary Insurance Policies issued by other Primary Insurers, each
Primary Insurance Policy will in general provide substantially the following
coverage. The amount of the loss as calculated under a Primary Insurance Policy
covering a Mortgage Loan (herein referred to as the "Loss") will generally
consist of the unpaid principal amount of such Mortgage Loan and accrued and
unpaid interest thereon and reimbursement of certain expenses, less (i) rents or
other payments collected or received by the insured (other than the proceeds of
hazard insurance) that are derived from the related Mortgaged Property, (ii)
hazard insurance proceeds in excess of the amount required to restore such
Mortgaged Property and which have not been applied to the payment of the
Mortgage Loan, (iii) amounts expended but not approved by the Primary Insurer,
(iv) claim payments previously made on such Mortgage Loan and (v) unpaid
premiums and certain other amounts.
The Primary Insurer will generally be required to pay either: (i) the
insured percentage of the Loss; (ii) the entire amount of the Loss, after
receipt by the Primary Insurer of good and merchantable title to, and possession
of, the Mortgaged Property; or (iii) at the option of the Primary Insurer under
certain Primary Insurance Policies, the sum of the delinquent monthly payments
plus any advances made by the insured, both to the date of the claim payment
and, thereafter, monthly payments in the amount that would have become due under
the Mortgage Loan if it had not been discharged plus any advances made by the
insured until the earlier of (a) the date the Mortgage Loan would have been
discharged in full if the default had not occurred or (b) an approved sale.
As conditions precedent to the filing or payment of a claim under a
Primary Insurance Policy, in the event of default by the Mortgagor, the insured
will typically be required, among other things, to: (i) advance or discharge (a)
hazard insurance premiums and (b) as necessary and approved in advance by the
Primary Insurer, real estate taxes, protection and preservation expenses and
foreclosure and related costs; (ii) in the event of any physical loss or damage
to the Mortgaged Property, have the Mortgaged Property restored to at least its
condition at the effective date of the Primary Insurance Policy (ordinary wear
and tear excepted); and (iii) tender to the Primary Insurer good and
merchantable title to, and possession of, the Mortgaged Property.
For any Bonds offered hereunder, the Master Servicer will maintain or
cause each Subservicer to maintain, as the case may be, in full force and effect
and to the extent coverage is available a Primary Insurance Policy with regard
to each Single Family Loan for which such coverage is required under the
standard described above, provided that such Primary Insurance Policy was in
place as of the Cut-off Date and the Company had knowledge of such Primary
Insurance Policy. In the event that the Company gains knowledge that as of the
Closing Date, a Mortgage Loan had a Loan-to-Value Ratio at origination in excess
of 80% and was not the subject of a Primary Insurance Policy (and was not
included in any exception to such standard disclosed in the related Prospectus
Supplement) and that such Mortgage Loan has a then current Loan-to-Value Ratio
in excess of 80%, then the Master Servicer is required to use reasonable efforts
to obtain and maintain a Primary Insurance Policy to the extent that such a
policy is obtainable at a reasonable price. The Master Servicer or, in the case
of a Designated Seller Transaction, the Seller will not cancel or refuse to
renew any such Primary Insurance Policy in effect at the time of the initial
issuance of a series of Bonds that is required to be kept in force under the
applicable Servicing Agreement unless the replacement Primary Insurance Policy
for such cancelled or non-renewed policy is maintained with an insurer whose
claims-paying ability is acceptable to the Rating Agency or Agencies that rated
such series
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of Bonds for mortgage pass-through certificates having a rating equal to or
better than the highest then-current rating of any class of such series of
Bonds. For further information regarding the extent of coverage under any
Mortgage Pool Insurance Policy or Primary Insurance Policy, see "Description of
Credit Enhancement--Mortgage Pool Insurance Policies."
HAZARD INSURANCE POLICIES
The terms of the Mortgage Loans require each Mortgagor to maintain a
hazard insurance policy for their Mortgage Loan. Additionally, the Servicing
Agreement will require the Master Servicer to cause to be maintained for each
Mortgage Loan a hazard insurance policy providing for no less than the coverage
of the standard form of fire insurance policy with extended coverage customary
in the state in which the property is located. Such coverage generally will be
in an amount equal to the lesser of the principal balance owing on such Mortgage
Loan or 100% of the insurable value of the improvements securing the Mortgage
Loan except that, if generally available, such coverage must not be less than
the minimum amount required under the terms thereof to fully compensate for any
damage or loss on a replacement cost basis. The ability of the Master Servicer
to ensure that hazard insurance proceeds are appropriately applied may be
dependent on its being named as an additional insured under any hazard insurance
policy and under any flood insurance policy referred to below, or upon the
extent to which information in this regard is furnished to the Master Servicer
by Mortgagors or Subservicers.
As set forth above, all amounts collected by the Master Servicer under
any hazard policy (except for amounts to be applied to the restoration or repair
of the Mortgaged Property or released to the Mortgagor in accordance with the
Master Servicer's normal servicing procedures) will be deposited in the related
Collection Account. The Servicing Agreement will provide that the Master
Servicer may satisfy its obligation to cause hazard policies to be maintained by
maintaining a blanket policy insuring against losses on the Mortgage Loans. If
such blanket policy contains a deductible clause, the Master Servicer will
deposit in the applicable Collection Account all sums which would have been
deposited therein but for such clause.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements on the property by
fire, lightning, explosion, smoke, windstorm, hail, riot, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies relating to the Mortgage Loans will be underwritten by
different insurers under different state laws in accordance with different
applicable state forms and therefore will not contain identical terms and
conditions, the basic terms thereof are dictated by respective state laws, and
most such policies typically do not cover any physical damage resulting from the
following: war, revolution, governmental actions, floods and other water-related
causes, earth movement (including earthquakes, landslides and mudflows), nuclear
reactions, wet or dry rot, vermin, rodents, insects or domestic animals, theft
and, in certain cases, vandalism. The foregoing list is merely indicative of
certain kinds of uninsured risks and is not intended to be all-inclusive. Where
the improvements securing a Mortgage Loan are located in a federally designated
flood area at the time of origination of such Mortgage Loan, the Servicing
Agreement requires the Master Servicer to cause to be maintained for each such
Mortgage Loan serviced, flood insurance (to the extent available) in an amount
equal in general to the lesser of the amount required to compensate for any loss
or damage on a replacement cost basis or the maximum insurance available under
the federal flood insurance program.
The hazard insurance policies covering the Mortgaged Properties
typically contain a co-insurance clause which in effect requires the insured at
all times to carry insurance of a specified percentage (generally 80% to 90%) of
the full replacement value of the improvements on the property in order to
recover the full amount of any partial loss. If the insured's coverage falls
below this specified percentage, such clause generally provides that the
insurer's liability in the event of partial loss does not exceed the
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greater of (i) the replacement cost of the improvements damaged or destroyed
less physical depreciation or (ii) such proportion of the loss as the amount of
insurance carried bears to the specified percentage of
the full replacement cost of such improvements.
Since the amount of hazard insurance that Mortgagors are required to
maintain on the improvements securing the Mortgage Loans may decline as the
principal balances owing thereon decrease, and since residential properties have
historically appreciated in value over time, hazard insurance proceeds could be
insufficient to restore fully the damaged property in the event of a partial
loss. See "Description of Credit Enhancement--Special Hazard Insurance Policies"
for a description of the limited protection afforded by any Special Hazard
Insurance Policy against losses occasioned by hazards which are otherwise
uninsured against (including losses caused by the application of the
co-insurance clause described in the preceding paragraph).
Under the terms of the Mortgage Loans, Mortgagors are generally
required to present claims to insurers under hazard insurance policies
maintained on the Mortgaged Properties. The Master Servicer, on behalf of the
Indenture Trustee and Bondholders, is obligated to present claims under any
Special Hazard Insurance Policy or other Special Hazard Instrument and any
blanket insurance policy insuring against hazard losses on the Mortgaged
Properties. However, the ability of the Master Servicer to present such claims
is dependent upon the extent to which information in this regard is furnished to
the Master Servicer or the Subservicers by Mortgagors.
FHA INSURANCE
The FHA is responsible for administering various federal programs,
including mortgage insurance, authorized under The Housing Act and the United
States Housing Act of 1937, as amended.
There are two primary FHA insurance programs that are available for
multifamily mortgage loans. Sections 221(d)(3) and (d)(4) of the Housing Act
allow the Department of Housing and Urban Development ("HUD") to insure mortgage
loans that are secured by newly constructed and substantially rehabilitated
multifamily rental projects. Section 244 of the Housing Act provides for
co-insurance of such mortgage loans made under Sections 221(d)(3) and (d)(4) by
HUD/FHA and a HUD-approved co-insurer. Generally the term of such a mortgage
loan may be up to 40 years and the ratio of the loan amount to property
replacement cost can be up to 90%.
Section 223(f) of the Housing Act allows HUD to insure mortgage loans
made for the purchase or refinancing of existing apartment projects which are at
least three years old. Section 244 also provides for co-insurance of mortgage
loans made under Section 223(f). Under Section 223(f), the loan proceeds cannot
be used for substantial rehabilitation work, but repairs may be made for up to,
in general, the greater of 15% of the value of the project or a dollar amount
per apartment unit established from time to time by HUD. In general the loan
term may not exceed 35 years and a loan to value ratio of no more than 85% is
required for the purchase of a project and 70% for the refinancing of a project.
HUD has the option, in most cases, to pay insurance claims in cash or
in debentures issued by HUD. Presently, claims are being paid in cash, and
claims have not been paid in debentures since 1965. HUD debentures issued in
satisfaction of FHA insurance claims bear interest at the applicable HUD
debenture interest rate. The Master Servicer will generally be obligated to
purchase any such debenture issued in satisfaction of a defaulted FHA insured
Mortgage Loan serviced by it for an amount equal to the principal amount of any
such debenture.
The Master Servicer will be required to take such steps as are
reasonably necessary to keep FHA insurance in full force and effect.
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THE COMPANY
The Company is a limited-purpose wholly-owned subsidiary of Impac
Mortgage Holdings, Inc. ("Impac Holdings"), formerly known as Imperial Credit
Mortgage Holdings, Inc., a publicly traded real estate investment trust
("REIT"). The Company was incorporated in the State of California on April 12,
1996. The Company was organized for the purpose of serving as a private
secondary mortgage market conduit.
The Company maintains its principal office at 20371 Irvine Avenue,
Suite 200, Santa Ana Heights, California 92707. Its telephone number is (909)
788-7808.
IMPAC FUNDING CORPORATION
Impac Funding Corporation ("Impac Funding"), formerly known as
ICI Funding Corporation, is an affiliate of the Company and may from time to
time be a Seller or act as Master Servicer with respect to a Mortgage Pool.
Impac Funding is a mortgage banking conduit that acquires conventional one-to
four-family residential mortgage loans nationwide. Impac Funding is a
non-consolidating subsidiary of Impac Holdings. Impac Funding primarily acquires
mortgage loans from approved correspondents. Impac Funding's executive offices
are located at 20371 Irvine Avenue, Suite 200, Santa Ana Heights, California
92707, and its telephone number is (714) 556-0122.
Prior to November 1995, Impac Funding was a division of
Imperial Credit Industries, Inc. ("ICII"), a California corporation. ICII is a
publicly traded mortgage banking company. In November 1995, ICII restructured
its operations pursuant to which Impac Funding became a separate corporation and
ICII contributed, among other things, all of the outstanding nonvoting preferred
stock of Impac Funding, which represents 99% of the economic interest in Impac
Funding, to Impac Holdings, in exchange for approximately 10% of the common
stock of Impac Holdings. The common stock of Impac Funding was retained by ICII
until March 1997 when it was distributed to certain officers and/or directors of
Impac Funding who are also officers and/or directors of IMH.
THE AGREEMENTS
The following summaries describe certain provisions of the Trust
Agreement, the Indenture and Servicing Agreement relating to a series of Bonds
(each, an "Agreement" and, collectively, the "Agreements"). The summaries do not
purport to be complete and are qualified entirely by reference to the actual
terms of the Agreements relating to a series of Bonds.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
SERVICING AGREEMENT
A "Servicing Default" under the Servicing Agreement in respect of a
series of Bonds generally will include: (i) any failure by the Master Servicer
to make a required deposit to the Collection Account or, if the Master Servicer
is so required, to distribute to the holders of any class of Securities of such
series any required payment which continues unremedied for five business days
(or other period of time described in the related Prospectus Supplement) after
the giving of written notice of such failure to the Master Servicer by the
Indenture Trustee or the Issuer; (ii) any failure by the Master Servicer duly to
observe or perform in any material respect any other of its covenants or
agreements in the Servicing Agreement with
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respect to such series of Securities which continues unremedied for 30 days
after the giving of written notice of such failure to the Master Servicer by the
Indenture Trustee or the Issuer (or the Pool Insurer, if applicable); (iii)
certain events of insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings regarding the Master Servicer and certain
actions by the Master Servicer indicating its insolvency or inability to pay its
obligations and (iv) any other Servicing Default as set forth in the Servicing
Agreement.
So long as a Servicing Default remains unremedied, either the Issuer,
subject to the direction of the Indenture Trustee of pledgee of the Mortgage
Loans, with the consent of the holders of at least 51% of the aggregate Bond
Principal Balance of the Bonds, by notice then given in writing to the Master
Servicer (and to the Indenture Trustee), whereupon the Indenture Trustee will
succeed to all responsibilities, duties and liabilities of the Master Servicer
under such Servicing Agreement (other than the obligation to purchase Mortgage
Loans under certain circumstances) and will be entitled to similar compensation
arrangements. In the event that the Indenture Trustee would be obligated to
succeed the Master Servicer but is unwilling so to act, it may appoint (or if it
is unable so to act, it shall appoint) or petition a court of competent
jurisdiction for the appointment of an approved mortgage servicing institution
with a net worth of at least $10,000,000 to act as successor to the Master
Servicer under the Servicing Agreement (unless otherwise set forth in the
Servicing Agreement). Pending such appointment, the Indenture Trustee is
obligated to act in such capacity. The Indenture Trustee and such successor may
agree upon the servicing compensation to be paid, which in no event may be
greater than the compensation to the initial Master Servicer under the Servicing
Agreement.
INDENTURE
An "Event of Default" under the Indenture in respect of each series of
Bonds, generally will include: (i) a default for five days or more (or other
period of time described in the related Prospectus Supplement) in the payment of
any principal of or interest on any Bond of such series; (ii) failure to perform
any other covenant of the Company or the Trust Fund in the Indenture which
continues for a period of thirty days after notice thereof is given in
accordance with the procedures described in the related Prospectus Supplement
(and if the Pool Insurer defaults in the performance of its obligations, if
applicable); (iii) any representation or warranty made by the Company or the
Trust Fund in the Indenture 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 thirty days after notice thereof is given in
accordance with the procedures described in the related Prospectus Supplement;
(iv) certain events of bankruptcy, insolvency, receivership or liquidation of
the Company or the Trust Fund (and if the Pool Insurer defaults in the
performance of its obligations, if applicable); or (v) any other Event of
Default provided with respect to Bonds of that series as described in the
Prospectus Supplement.
If an Event of Default with respect to the Bonds of any series at the
time outstanding occurs and is continuing, either the Indenture Trustee, the
Pool Insurer (if applicable) or the holders of a majority of the then aggregate
outstanding amount of the Bonds of such series may declare the principal amount
(or, if the Bonds of that series are Accrual Bonds, such portion of the
principal amount as may be specified in the terms of that series, as provided in
the related Prospectus Supplement) of all the Bonds of such series to be due and
payable immediately. Such declaration may, under certain circumstances, be
rescinded and annulled by the holders of a majority in aggregate outstanding
amount of the related Bonds.
If following an Event of Default with respect to any series of Bonds,
the Bonds of such series have been declared to be due and payable, the Indenture
Trustee (with the consent of the Pool Insurer, if applicable) may, in its
discretion, notwithstanding such acceleration, elect to maintain possession of
the collateral securing the Bonds of such series and to continue to apply
payments on such collateral as if there
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had been no declaration of acceleration if such collateral continues to provide
sufficient funds for the payment of principal of and interest on the Bonds of
such series as they would have become due if there had not been such a
declaration. In addition, the Indenture Trustee may not sell or otherwise
liquidate the collateral securing the Bonds of a series following an Event of
Default, unless (a) the holders of 100% of the then aggregate outstanding amount
of the Bonds of such series 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 Bonds of such series (and to
reimburse the Pool Insurer, if applicable) at the date of such sale or (c) the
Indenture Trustee determines that such collateral would not be sufficient on an
ongoing basis to make all payments on such Bonds as such payments would have
become due if such Bonds had not been declared due and payable, and the
Indenture Trustee obtains the consent of the holders of 66 2/3% of the then
aggregate outstanding amount of the Bonds of such series (and the Pool Insurer,
if applicable).
In the event that the Indenture Trustee liquidates the collateral in
connection with an Event of Default, the Indenture provides that the Indenture
Trustee will 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 payments to the Bondholders would be less than
would otherwise be the case. However, the Indenture 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 Indenture for the benefit of
the Bondholders after the occurrence of such an Event of Default.
In the event the principal of the Bonds of a series is declared due and
payable, as described above, the holders of any such Bonds 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 that is unamortized.
No Securityholder generally will have any right under a Trust Agreement
or Indenture to institute any proceeding with respect to such Agreement unless
(a) such holder previously has given to the Indenture Trustee written notice of
default and the continuance thereof, (b) the holders of Securities of any class
evidencing not less than 25% of the aggregate Percentage Interests constituting
such class (i) have made written request upon the Indenture Trustee to institute
such proceeding in its own name as Indenture Trustee thereunder and (ii) have
offered to the Indenture Trustee reasonable indemnity, (c) the Indenture Trustee
has neglected or refused to institute any such proceeding for 60 days after
receipt of such request and indemnity and (d) 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 Bond Balances of such class (except
as otherwise provided for in the related Agreement with respect to the Pool
Insurer). However, the Indenture Trustee will be under no obligation to exercise
any of the trusts or powers vested in it by the applicable Agreement or to
institute, conduct or defend any litigation thereunder or in relation thereto at
the request, order or direction of any of the holders of Securities covered by
such Agreement, unless such Securityholders have offered to the Indenture
Trustee reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred therein or thereby.
AMENDMENT
The Servicing Agreement may be amended by the parties thereto, provided
that any amendment be accompanied by a letter from the Rating Agencies that the
amendment will not result in the downgrading or withdrawal of the rating then
assigned to the Bonds; and provided further, that the Indenture Trustee may
decline to consent (or allow the Issuer to consent) to such amendment if the
Bondholders' rights, duties or immunities shall be adversely affected.
The holders of a majority of the outstanding Bonds, the Issuer and the
Indenture Trustee may execute a supplemental indenture to add provisions to,
change in any manner or eliminate any provisions of, the Indenture, or modify
(except as provided below) in any manner the rights of the Bondholders.
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Without the consent of the holder of each outstanding Bond affected thereby,
however, no supplemental indenture will: (i) change the due date of any
installment of principal of or interest on any Bond or reduce the principal
amount thereof, the interest rate specified thereon or change any place of
payment where or the coin or currency in which any Bond or any interest thereon
is payable; (ii) impair the right to institute suit for the enforcement of
certain provisions of the Indenture regarding payment; (iii) reduce the
percentage of the aggregate amount of the outstanding Bonds, the consent of the
holders of which is required for any supplemental indenture or the consent of
the holders of which is required for any waiver of compliance with certain
provisions of the Indenture or of certain defaults thereunder and their
consequences as provided for in the Indenture; (iv) modify or alter the
provisions of the Indenture regarding the voting of Bonds held by the Issuer,
the Company or an affiliate of any of them; (v) decrease the percentage of the
aggregate principal amount of Bonds required to amend the sections of the
Indenture which specify the applicable percentage of aggregate principal amount
of the Bonds necessary to amend the Indenture or certain other related
agreements; (vi) modify any of the provisions of the Indenture in such manner as
to affect the calculation of the amount of any payment of interest or principal
due on any Bond (including the calculation of any of the individual components
of such calculation); or (vii) permit the creation of any lien ranking prior to
or, except as otherwise contemplated by the Indenture, on a parity with the lien
of the Indenture with respect to any of the collateral for the Bonds or, except
as otherwise permitted or contemplated in the Indenture, terminate the lien of
the Indenture on any such collateral or deprive the holder of any Bond of the
security afforded by the lien of the Indenture.
The Issuer and the Indenture Trustee may also enter into supplemental
indentures, without obtaining the consent of the Bondholders, for the purpose
of, among other things, curing any ambiguity or correcting or supplementing any
provision in the Indenture that may be inconsistent with any other provision
therein; provided, however, that such action shall not, as evidenced by an
opinion of counsel, (i) adversely affect in any material respect the interests
of any Bondholder or (ii) cause the Issuer to be subject to an entity level tax
for federal income tax purposes.
TERMINATION; REDEMPTION OF BONDS
TRUST AGREEMENT
The obligations created by the Trust Agreement for each series of
Securities (other than certain limited payment and notice obligations of the
Owner Trustee and the Company, respectively) will terminate upon the payment to
the related Securityholders (including, the Bonds issued pursuant to the related
Indenture) of all amounts held by the Master Servicer and required to be paid to
Securityholders following the earlier of (i) the final payment or other
liquidation or disposition (or any advance with respect thereto) of the last
Mortgage Loan subject thereto and all property acquired upon foreclosure or deed
in lieu of foreclosure of any such Mortgage Loan and (ii) the purchase, in whole
but not in part, by the Master Servicer or the Company or a person specified in
the related Prospectus Supplement (other than any Bondholder) of the Bonds of
such series; provided, however, that no such purchase shall be made unless the
aggregate Bond Principal Balance as of such date is equal to or less than 25%
(or other, lesser percentage described in the related Prospectus Supplement) of
the aggregate Bond Principal Balance as of the Delivery Date or a period of
seven years (or other period of time described in the related Prospectus
Supplement) has elapsed since the initial Payment Date. Any purchase pursuant to
clause (ii) above will be at a purchase price equal to 100% of the aggregate
Bond Principal Balance of the Bonds redeemed, plus any accrued and unpaid
interest thereon, plus, if applicable, other amounts described in the Prospectus
Supplement.
INDENTURE
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The Indenture will be discharged with respect to a series of Bonds
(except with respect to certain continuing rights specified in the Indenture)
upon the distribution to Bondholders of all amounts required
to be distributed pursuant to the Indenture.
THE OWNER TRUSTEE
The Owner Trustee under the Trust Agreement will be named in the
related Prospectus Supplement. The commercial bank or trust company serving as
Owner Trustee may have normal banking relationships with the Company and/or its
affiliates, including Impac Holdings.
The Owner Trustee may resign at any time, in which event the
Administrator or the Company will be obligated to appoint a successor owner
trustee as set forth in the Agreements. The Administrator or the Company may
also remove the Owner Trustee if the Owner Trustee ceases to be eligible to
continue as such under the Trust Agreement or if the Owner Trustee becomes
insolvent. Upon becoming aware of such circumstances, the Administrator or the
Company will be obligated to appoint a successor Owner Trustee. Any resignation
or removal of the Owner Trustee and appointment of a successor Owner Trustee
will not become effective until acceptance of the appointment by the successor
Owner Trustee.
THE INDENTURE TRUSTEE
The Indenture Trustee under the Indenture will be named in the related
Prospectus Supplement. The commercial bank or trust company serving as Indenture
Trustee may have normal banking relationships with the Company and/or its
affiliates, including Impac Holdings.
The Indenture Trustee may resign at any time, in which event the
Company, the Owner Trustee or the Administrator will be obligated to appoint a
successor indenture trustee as set forth in the Indenture. The Company, the
Owner Trustee or the Administrator as set forth in the Indenture may also remove
the Indenture Trustee if the Indenture Trustee ceases to be eligible to continue
as such under the Indenture or if the Indenture Trustee becomes insolvent. Upon
becoming aware of such circumstances, the Company, the Owner Trustee or the
Administrator will be obligated to appoint a successor Indenture Trustee. If so
specified in the Indenture, the Indenture Trustee may also be removed at any
time by the holders of a majority principal balance of the Bonds. Any
resignation or removal of the Indenture Trustee and appointment of a successor
Indenture Trustee will not become effective until acceptance of the appointment
by the successor Indenture Trustee.
YIELD CONSIDERATIONS
The yield to maturity of an Bond will depend on the price paid by the
holder for such Bond, the Interest Rate on any such Bond entitled to payments of
interest (which Interest Rate may vary if so specified in the related Prospectus
Supplement), the rate and timing of principal payments (including prepayments,
defaults, liquidations and repurchases) on the Mortgage Loans and the allocation
thereof to reduce the principal balance of such Bond (or notional amount thereof
if applicable) and the rate and timing of Draws on the Revolving Credit Loans
and other factors.
A class of Bonds may be entitled to payments of interest at a fixed
Interest Rate, a variable Interest Rate or adjustable Interest Rate, or any
combination of such Interest Rates, each as specified in the related Prospectus
Supplement. A variable Interest Rate may be calculated based on the weighted
average of the Mortgage Rates (in each case, net of the per annum rate or rates
applicable to the calculation of servicing and administrative fees and any
Spread (each, a "Net Mortgage Rate")) of the related Mortgage Loans for the
month preceding the Distribution Date if so specified in the related Prospectus
Supplement. As will
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be described in the related Prospectus Supplement, the aggregate payments of
interest on a class of Bonds, and the yield to maturity thereon, will be
affected by the rate of payment of principal on the Bonds (or the rate of
reduction in the notional balance of Bonds entitled only to payments of
interest) and, in the case of Bonds evidencing interests in ARM Loans, by
changes in the Net Mortgage Rates on the ARM Loans. See "Maturity and Prepayment
Considerations" below. The yield on the Bonds will also be affected by
liquidations of Mortgage Loans following Mortgagor defaults and by purchases of
Mortgage Loans in the event of breaches of representations made in respect of
such Mortgage Loans by the Company, the Master Servicer and others, or
conversions of ARM Loans to a fixed interest rate. See "The Mortgage
Pools--Representations by Sellers" and "Descriptions of the Bonds--Assignment of
Trust Fund Assets" above. Holders of certain Strip Bonds or a class of Bonds
having a Interest Rate that varies based on the weighted average Mortgage Rate
of the underlying Mortgage Loans will be affected by disproportionate
prepayments and repurchases of Mortgage Loans having higher Net Mortgage Rates
or rates applicable to the Strip Bonds, as applicable.
With respect to any series of Bonds, a period of time will elapse
between the date upon which payments on the related Mortgage Loans are due and
the Distribution Date on which such payments are passed through to Bondholders.
That delay will effectively reduce the yield that would otherwise be produced if
payments on such Mortgage Loans were distributed to Bondholders on or near the
date they
were due.
In general, if a class of Bonds is purchased at initial issuance at a
premium and payments of principal (or Draws if applicable) on the related
Mortgage 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. Conversely, if a class of Bonds is purchased at initial
issuance at a discount and payments of principal (or Draws if applicable) on the
related Mortgage 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
Bonds 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 and any faster than anticipated rate of
prepayments (or Draws if applicable) will adversely affect the yield to holders
thereof. In certain circumstances extremely 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 Bonds, including Accrual
Bonds, Bonds with a Interest Rate which fluctuates inversely with or at a
multiple of an index or certain other classes in a series including more than
one class of Bonds, may be relatively more sensitive to the rate of prepayment
on the related Mortgage Loans than other classes of Bonds.
The timing of changes in the rate of principal payments (or Draws if
applicable) on or repurchases of the Mortgage 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 Mortgage 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 Bonds would not be fully offset by a subsequent like reduction
(or increase) in the rate of principal payments.
The yield to maturity of the Bonds of any series, or the rate and
timing of principal payments (or Draws if applicable) on the related Mortgage
Loans may also be affected by a wide variety of specific terms and conditions
applicable to the respective programs under which the Mortgage Loans were
originated. For example, Revolving Credit Loans may provide for future Draws to
be made only in specified minimum amounts, or alternatively may permit Draws to
be made by check or through a credit
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card in any amount. A pool of Revolving Credit Loans subject to the latter
provisions may be likely to remain outstanding longer with a higher aggregate
principal balance than a pool of Revolving Credit Loans with the former
provisions, because of the relative ease of making new Draws. Furthermore,
Revolving Credit Loans may provide for interest rate changes on a daily or
monthly basis, or may have Gross Margins that may vary under certain
circumstances over the term of the loan. In extremely high market interest rate
scenarios, Bonds backed by Revolving Credit Loans with adjustable rates subject
to substantially higher maximum rates than typically apply to adjustable rate
first mortgage loans may experience rates of default and liquidation
substantially higher than those that have been experienced on other adjustable
rate mortgage loan pools.
For any series of Bonds backed by Revolving Credit Loans, provisions
governing whether future Draws on the Revolving Credit Loans will be included in
the Trust Fund will have a significant effect on the rate and timing of
principal distributions on the Bonds. For a series of Bonds backed by the Trust
Balances of Revolving Credit Loans, the specific provisions applicable to the
allocation of payments, Draws and losses on the Revolving Credit Loans between
the Trust Balances and the Excluded Balances thereof will also have a
significant effect on the rate and timing of principal distributions on the
Bonds. See "Description of the Mortgage Pools--Allocation of Revolving Credit
Balances" herein. For a series of Bonds backed by Revolving Credit Loans, as a
result of the payment terms of the Mortgage Loans or of the Bond provisions
relating to future Draws, there may be no principal distributions on such Bonds
in any given month. In addition, it is possible that the aggregate Draws on
Revolving Credit Loans included in a Mortgage Pool may exceed the aggregate
payments with respect to principal on such Revolving Credit Loans for the
related period.
When a principal prepayment in full is made on a Mortgage Loan, the
borrower is generally charged interest only for the period from the due date of
the preceding scheduled payment up to the date of such prepayment, instead of
for the full accrual period, that is, the period from the due date of the
preceding scheduled payment up to the due date for the next scheduled payment.
In addition, a partial principal prepayment may likewise be applied as of a date
prior to the next scheduled due date (and, accordingly, be accompanied by
interest thereon for less than the full accrual period). However, interest
accrued on any series of Bonds and distributable thereon on any Distribution
Date will generally correspond to interest accrued on the principal balance of
Mortgage Loans for their respective full accrual periods. Consequently, if a
prepayment on any Mortgage Loan is distributable to Bondholders on a particular
Distribution Date, but such prepayment is not accompanied by interest thereon
for the full accrual period, the interest charged to the borrower (net of
servicing and administrative fees and any Spread) may be less (such shortfall, a
"Prepayment Interest Shortfall") than the corresponding amount of interest
accrued and otherwise payable on the Bonds of the related series. If and to the
extent that any such shortfall is allocated to a class of Bonds, the yield
thereon will be adversely affected. The Prospectus Supplement for a series of
Bonds will describe the manner in which any such shortfalls will be allocated
among the classes of such Bonds. If so specified in the related Prospectus
Supplement, the Master Servicer will be required to apply some or all of its
servicing compensation for the corresponding period to offset the amount of any
such shortfalls. The related Prospectus Supplement will also describe any other
amounts available to offset such shortfalls. See Servicing of Mortgage
Loans--Servicing and Other Compensation and Payment of Expenses; Spread".
The Trust Fund with respect to any series may include Convertible
Mortgage Loans. As is the case with conventional, fixed-rate mortgage loans
originated in a high interest rate environment which may be subject to a greater
rate of principal prepayments when interest rates decrease, Convertible Mortgage
Loans may be subject to a greater rate of principal prepayments (or purchases by
the related Subservicer or the Master Servicer) due to their refinancing or
conversion to fixed interest rate loans in a low interest rate environment. For
example, if prevailing interest rates fall significantly, Convertible Mortgage
Loans could
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be subject to higher prepayment and conversion rates than if prevailing interest
rates remain constant because the availability of fixed-rate or other
adjustable-rate mortgage loans at competitive interest rates may encourage
Mortgagors to refinance their adjustable-rate mortgages to "lock in" a lower
fixed interest rate or to take advantage of the availability of such other
adjustable-rate mortgage loans, or, in the case of convertible adjustable-rate
mortgage loans, to exercise their option to convert the adjustable interest
rates to fixed interest rates. The conversion feature may also be exercised in a
rising interest rate environment as Mortgagors attempt to limit their risk of
higher rates. Such a rising interest rate environment may also result in an
increase in the rate of defaults on the Mortgage Loans. If the related
Subservicer or the Master Servicer purchases Convertible Mortgage Loans, a
Mortgagor's exercise of the conversion option will result in a distribution of
the principal portion thereof to the Bondholders, as described herein.
Alternatively, to the extent Subservicers or the Master Servicer fail to
purchase Converting Mortgage Loans, the Mortgage Pool will include fixed-rate
Mortgage Loans.
The rate of defaults on the Mortgage Loans will also affect the rate
and timing of principal payments on the Mortgage Loans and thus the yield on the
Bonds. In general, defaults on Single Family Loans are expected to occur with
greater frequency in their early years. However, there is a risk that Mortgage
Loans, including Multifamily Loans, that require Balloon Payments may default at
maturity, or that the maturity of such a Mortgage Loan may be extended in
connection with a workout. The rate of default on Single Family Loans which are
refinance or limited documentation mortgage loans, and on Mortgage Loans,
including Multifamily Loans, with high Loan-to-Value Ratios, may be higher than
for other types of Mortgage Loans. Furthermore, the rate and timing of
prepayments, defaults and liquidations on the Mortgage Loans will be affected by
the general economic condition of the region of the country in which the related
Mortgaged Properties are located. The risk of delinquencies and loss is greater
and prepayments are less likely in regions where a weak or deteriorating economy
exists, as may be evidenced by, among other factors, increasing unemployment or
falling property values. See "Risk Factors."
With respect to certain Mortgage Loans including ARM Loans and
Revolving Credit Loans, the Mortgage Rate at origination may be below the rate
that would result if the index and margin relating thereto were applied at
origination. Under the applicable underwriting standards, the Mortgagor under
each Mortgage Loan (other than the Revolving Credit Loans) generally will be
qualified, or the Mortgage Loan otherwise approved, on the basis of the Mortgage
Rate in effect at origination, and Mortgagors under the Revolving Credit Loans
are generally qualified based on an assumed rate of payment which reflects a
rate significantly lower than the maximum rate. The repayment of any such
Mortgage Loan may thus be dependent on the ability of the mortgagor to make
larger level monthly payments following the adjustment of the Mortgage Rate. In
addition, the periodic increase in the amount paid by the Mortgagor of a Buydown
Mortgage Loan during or at the end of the applicable Buydown Period may create a
greater financial burden for the Mortgagor, who might not have otherwise
qualified for a mortgage under applicable underwriting guidelines, and may
accordingly increase the risk of default with respect to the related Mortgage
Loan.
The Mortgage Rates on certain ARM Loans subject to negative
amortization generally adjust monthly and their amortization schedules adjust
less frequently. During a period of rising interest rates as well as immediately
after origination (initial Mortgage Rates are generally lower than the sum of
the Indices applicable at origination and the related Bond Margins), the amount
of interest accruing on the principal balance of such Mortgage Loans may exceed
the amount of the minimum scheduled monthly payment thereon. As a result, a
portion of the accrued interest on negatively amortizing Mortgage Loans may
become Deferred Interest which will be added to the principal balance thereof
and will bear interest at the applicable Mortgage Rate. The addition of any such
Deferred Interest to the principal balance of any related class or classes of
Bonds will lengthen the weighted average life thereof and may adversely affect
yield to holders thereof, depending upon the price at which such Bonds were
purchased. In addition, with respect to certain ARM Loans subject to negative
amortization, during a period of declining interest
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rates, it might be expected that each minimum scheduled monthly payment on such
a Mortgage 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 the principal balance of the related class or classes of Bonds, the
weighted average life of such Bonds will be reduced and may adversely affect
yield to holders thereof, depending upon the price at which such Bonds were
purchased.
With respect to Revolving Credit Loans, except for certain programs
under which the Draw Period is less than the full term thereof, required minimum
monthly payments are generally equal to or not significantly larger than the
amount of interest currently accruing thereon, and therefore are not expected to
significantly amortize the outstanding principal amounts of such Mortgage Loans
prior to maturity, which amounts may include substantial Draws recently made. As
a result, a borrower will generally be required to pay a substantial principal
amount at the maturity of a Revolving Credit Loan. Such Mortgage Loans pose a
greater risk of default than fully-amortizing Mortgage Loans, because the
Mortgagor's ability to make such a substantial payment at maturity will
generally depend on the Mortgagor's ability to obtain refinancing of such
Mortgage Loans or to sell the Mortgaged Property prior to the maturity of the
Revolving Credit Loan. The ability to obtain refinancing will depend on a number
of factors prevailing at the time refinancing or sale is required, including,
without limitation, the Mortgagor's personal economic circumstances, the
Mortgagor's equity in the related Mortgaged Property, real estate values,
prevailing market interest rates, tax laws and national and regional economic
conditions.
MATURITY AND PREPAYMENT CONSIDERATIONS
As indicated above under "The Mortgage Pools," the original terms to
maturity of the Mortgage Loans in a given Mortgage Pool will vary depending upon
the type of Mortgage Loans included in such Mortgage Pool. The Prospectus
Supplement for a series of Bonds will contain information with respect to the
types and maturities of the Mortgage Loans in the related Mortgage Pool.
Mortgage Loans may generally be prepaid without penalty in full or in part at
any time. The prepayment experience with respect to the Mortgage Loans in a
Mortgage Pool will affect the life and yield of the related series of Bonds.
With respect to Balloon Loans, payment of the Balloon Payment (which,
based on the amortization schedule of such Mortgage Loans, is expected to be a
substantial amount) will generally depend on the Mortgagor's ability to obtain
refinancing of such Mortgage Loans or to sell the Mortgaged Property prior to
the maturity of the Balloon Loan. The ability to obtain refinancing will depend
on a number of factors prevailing at the time refinancing or sale is required,
including, without limitation, real estate values, the Mortgagor's financial
situation, prevailing mortgage loan interest rates, the Mortgagor's equity in
the related Mortgaged Property, tax laws and prevailing general economic
conditions. None of the Company, the Master Servicer, or any of their affiliates
will be obligated to refinance or repurchase any Mortgage Loan or to sell the
Mortgaged Property.
The extent of prepayments of principal of the Mortgage Loans may be
affected by a number of factors, including, without limitation, solicitations
and the availability of mortgage credit, the relative economic vitality of the
area in which the Mortgaged Properties are located and, in the case of
Multifamily Loans, the quality of management of the Mortgage Properties, the
servicing of the Mortgage Loans, possible changes in tax laws and other
opportunities for investment. In addition, the rate of principal payments on the
Mortgage Loans may be affected by the existence of Lock-out Periods and
requirements that principal prepayments be accompanied by Prepayment Premiums,
as well as due-on-sale and due-on-encumbrance provisions, and by the extent to
which such provisions may be practicably enforced. See "Servicing of Mortgage
Loans--Collection and Other Servicing Procedures" and "Certain Legal Aspects of
the Mortgage Loans--Enforceability of Certain Provisions" for a description of
certain provisions of the
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Indenture and certain legal developments that may affect the prepayment
experience on the Mortgage Loans.
The rate of prepayment (or Draws if applicable) on a pool of mortgage
loans is also affected by prevailing market interest rates for mortgage loans of
a comparable type, term and risk level. When the prevailing market interest rate
is below a mortgage coupon, a borrower may have an increased incentive to
refinance its mortgage loan. In addition, as prevailing market interest rates
decline, even borrowers with ARM Loans that have experienced a corresponding
interest rate decline may have an increased incentive to refinance for purposes
of either (i) converting to a fixed rate loan and thereby "locking in" such rate
or (ii) taking advantage of the initial "teaser rate" (a mortgage interest rate
below what it would otherwise be if the applicable index and gross margin were
applied) on another adjustable rate mortgage loan. Moreover, although the
Mortgage Rates on ARM Loans and the Revolving Credit Loans will be subject to
periodic adjustments, such adjustments generally (i) as to the ARM Loans will
not increase or decrease such Mortgage Rates by more than a fixed percentage
amount on each adjustment date, (ii) will not increase such Mortgage Rates over
a fixed percentage amount during the life of any ARM Loan or Revolving Credit
Loan and (iii) be based on an index (which may not rise and fall consistently
with mortgage interest rates) plus the related Bond Margin (which may be
different from margins being used at the time for newly originated adjustable
rate mortgage loans). As a result, the Mortgage Rates on the ARM Loans and the
Revolving Credit Loans at any time may not equal the prevailing rates for
similar, newly originated adjustable rate mortgage loans or lines of credit, and
accordingly the rate of principal payments (or Draws if applicable) may be lower
than otherwise would be anticipated. In certain rate environments, the
prevailing rates on fixed-rate mortgage loans may be sufficiently low in
relation to the then-current Mortgage Rates on ARM Loans or the Revolving Credit
Loans that the rate of prepayment may increase as a result of refinancings.
There can be no certainty as to the rate of prepayments (or Draws if applicable)
on the Mortgage Loans during any period or over the life of any series of Bonds.
If the applicable Agreement for a series of Bonds provides for a
Funding Account or other means of funding the transfer of additional Mortgage
Loans to the related Trust Fund, as described under "Description of the
Bonds--Funding Account" herein, and the Trust Fund is unable to acquire such
additional Mortgage Loans within any applicable time limit, the amounts set
aside for such purpose may be applied as principal payments on one or more
classes of Bonds of such series. See "Risk Factors--Yield and Prepayment
Considerations."
There can be no assurance as to the rate of prepayment of the Mortgage
Loans. The Company is not aware of any publicly available statistics relating to
the principal prepayment experience of diverse portfolios of mortgage loans such
as the Mortgage Loans over an extended period of time. All statistics known to
the Company 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. No representation is made as to the particular
factors that will affect the prepayment of the Mortgage Loans or as to the
relative importance of such factors.
Under certain circumstances, the Master Servicer, the Company or a
person specified in the related Prospectus Supplement may have the option to
purchase the assets in a Trust Fund and effect early retirement of the related
series of Bonds. See "The Agreements--Termination; Redemption of Bonds."
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CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans that are general in nature. Because such legal aspects are
governed in part by applicable state law (which laws may differ substantially),
the summaries do not purport to be complete nor to reflect the laws of any
particular state nor to encompass the laws of all states in which the Mortgaged
Properties may be situated. The summaries are qualified in their entirety by
reference to the applicable federal and state laws governing the Mortgage Loans.
SINGLE FAMILY LOANS AND MULTIFAMILY LOANS
GENERAL. Each Single Family and Multifamily Loan will be evidenced by a
note or bond and secured by an instrument granting a security interest in real
property, which may be a mortgage, deed of trust or a deed to secure debt,
depending upon the prevailing practice and law in the state in which the related
Mortgaged Property is located. Mortgages, deed of trust and deeds to secure debt
are herein collectively referred to as "mortgages". A mortgage creates a lien
upon, or grants a title interest in, the real property covered thereby, and
represents the security for the repayment of the indebtedness customarily
evidenced by a promissory note. The priority of the lien created or interest
granted will depend on the terms of the mortgage and, in some cases, on the
terms of separate subordination agreements or intercreditor agreements with
others that hold interests in the real property, the knowledge of the parties to
the mortgage and, generally, the order of recordation of the mortgage in the
appropriate public recording office. However, the lien of a recorded mortgage
will generally be subordinate to later-arising liens for real estate taxes and
assessments and other charges imposed under governmental police powers.
TYPES OF MORTGAGE INSTRUMENTS. There are two parties to a mortgage: a
mortgagor (the borrower and usually the owner of the subject property) and a
mortgagee (the lender). In contrast, a deed of trust is a three-party
instrument, among a trustor (the equivalent of a borrower), a trustee to whom
the real property is conveyed, and a beneficiary (the lender) for whose benefit
the conveyance is made. Under a deed of trust, the trustor grants the property,
irrevocably until the debt is paid, in trust and generally with a power of sale,
to the trustee to secure repayment of the indebtedness evidenced by the related
note. A deed to secure debt typically has two parties. The borrower, or grantor,
conveys title to the real property to the grantee, or lender, generally with a
power of sale, until such time as the debt is repaid. In a case where the
borrower is a land trust, there would be an additional party because legal title
to the property is held by a land trustee under a land trust agreement for the
benefit of the borrower. At origination of a mortgage loan involving a land
trust, the borrower executes a separate undertaking to make payments on the
mortgage note. The mortgagee's authority under a mortgage, the trustee's
authority under a deed of trust and the grantee's authority under a deed to
secure debt are governed by the express provisions of the related instrument,
the law of the state in which the real property is located, certain federal laws
(including, without limitation, the Relief Act) and, in some deed of trust
transactions, the directions of the beneficiary.
LEASES AND RENTS. Mortgages that encumber income-producing multifamily
properties often contain an assignment of rents and leases, pursuant to which
the borrower assigns to the lender the borrower's right, title and interest as
landlord under each lease and the income derived therefrom, while (unless rents
are to be paid directly to the lender) retaining a revocable license to collect
the rents for so long as there is no default. If the borrower defaults, the
license terminates and the lender is entitled to collect the rents. Local law
may require that the lender take possession of the property and/or obtain a
court-appointed receiver before becoming entitled to collect the rents.
CONTRACTS
Under the laws of most states, manufactured housing constitutes
personal property and is subject
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to the motor vehicle registration laws of the state or other jurisdiction in
which the unit is located. In a few states, where certificates of title are not
required for manufactured homes, security interests are perfected by the filing
of a financing statement under Article 9 of the UCC which has been adopted by
all states. Such financing statements are effective for five years and must be
renewed at the end of each five years. The certificate of title laws adopted by
the majority of states provide that ownership of motor vehicles and manufactured
housing shall be evidenced by a certificate of title issued by the motor
vehicles department (or a similar entity) of such state. In the states that have
enacted certificate of title laws, a security interest in a unit of manufactured
housing, so long as it is not attached to land in so permanent a fashion as to
become a fixture, is generally perfected by the recording of such interest on
the certificate of title to the unit in the appropriate motor vehicle
registration office or by delivery of the required documents and payment of a
fee to such office, depending on state law.
The Master Servicer will be required under the related Servicing
Agreement to effect such notation or delivery of the required documents and
fees, and to obtain possession of the certificate of title, as appropriate under
the laws of the state in which any Manufactured Home is registered. In the event
the Master Servicer fails, due to clerical errors or otherwise, to effect such
notation or delivery, or files the security interest under the wrong law (for
example, under a motor vehicle title statute rather than under the UCC, in a few
states), the Indenture Trustee may not have a first priority security interest
in the Manufactured Home securing a Contract. As manufactured homes have become
larger and often have been attached to their sites without any apparent
intention by the borrowers to move them, courts in many states have held that
manufactured homes may, under certain circumstances, become subject to real
estate title and recording laws. As a result, a security interest in a
manufactured home could be rendered subordinate to the interests of other
parties claiming an interest in the home under applicable state real estate law.
In order to perfect a security interest in a manufactured home under real estate
laws, the holder of the security interest must file either a "fixture filing"
under the provisions of the UCC or a real estate mortgage under the real estate
laws of the state where the home is located. These filings must be made in the
real estate records office of the county where the home is located. Generally,
Contracts will contain provisions prohibiting the obligor from permanently
attaching the Manufactured Home to its site. So long as the obligor does not
violate this agreement, a security interest in the Manufactured Home will be
governed by the certificate of title laws or the UCC, and the notation of the
security interest on the certificate of title or the filing of a UCC financing
statement will be effective to maintain the priority of the security interest in
the Manufactured Home. If, however, a Manufactured Home is permanently attached
to its site, other parties could obtain an interest in the Manufactured Home
that is prior to the security interest originally retained by the Seller and
transferred to the Company.
The Company will assign or cause to be assigned a security interest in
the Manufactured Homes to the Indenture Trustee, on behalf of the Bondholders.
Neither the Company, the Master Servicer nor the Indenture Trustee will amend
the certificates of title to identify the Indenture Trustee, on behalf of the
Bondholders, as the new secured party and, accordingly, the Company or the
Seller will continue to be named as the secured party on the certificates of
title relating to the Manufactured Homes. In most states, such assignment is an
effective conveyance of such security interest without amendment of any lien
noted on the related certificate of title and the new secured party succeeds to
the Company's rights as the secured party. However, in some states there exists
a risk that, in the absence of an amendment to the certificate of title, such
assignment of the security interest might not be held effective against
creditors of the Company or Seller.
In the absence of fraud, forgery or permanent affixation of the
Manufactured Home to its site by the Manufactured Home owner, or administrative
error by state recording officials, the notation of the lien of the Company on
the certificate of title or delivery of the required documents and fees will be
sufficient to protect the Indenture Trustee against the rights of subsequent
purchasers of a Manufactured Home or subsequent lenders who take a security
interest in the Manufactured Home. If there are any Manufactured
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Homes as to which the Company has failed to perfect or cause to be perfected the
security interest assigned to the Trust Fund, such security interest would be
subordinate to, among others, subsequent purchasers for value of Manufactured
Homes and holders of perfected security interests. There also exists a risk in
not identifying the Indenture Trustee, on behalf of the Bondholders, as the new
secured party on the certificate of title that, through fraud or negligence, the
security interest of the Indenture Trustee could be released.
In the event that the owner of a Manufactured Home moves it to a state
other than the state in which such Manufactured Home initially is registered,
under the laws of most states the perfected security interest in the
Manufactured Home would continue for four months after such relocation and
thereafter until the owner re-registers the Manufactured Home in such state. If
the owner were to relocate a Manufactured Home to another state and re-register
the Manufactured Home in such state, and if the Company did not take steps to
re-perfect its security interest in such state, the security interest in the
Manufactured Home would cease to be perfected. A majority of states generally
require surrender of a certificate of title to re-register a Manufactured Home;
accordingly, the Company must surrender possession if it holds the certificate
of title to such Manufactured Home or, in the case of Manufactured Homes
registered in states that provide for notation of lien, the Company would
receive notice of surrender if the security interest in the Manufactured Home is
noted on the certificate of title. Accordingly, the Company would have the
opportunity to re-perfect its security interest in the Manufactured Home in the
state of relocation. In states that do not require a certificate of title for
registration of a manufactured home, re-registration could defeat perfection.
Similarly, when an obligor under a manufactured housing conditional sales
contract sells a manufactured home, the obligee must surrender possession of the
certificate of title or it will receive notice as a result of its lien noted
thereon and accordingly will have an opportunity to require satisfaction of the
related manufactured housing conditional sales contract before release of the
lien. Under each related Servicing Agreement, the Master Servicer will be
obligated to take such steps, at the Master Servicer's expense, as are necessary
to maintain perfection of security interests in the Manufactured Homes.
Under the laws of most states, liens for repairs performed on a
Manufactured Home take priority even over a perfected security interest. The
Company will obtain the representation of the related Seller that it has no
knowledge of any such liens with respect to any Manufactured Home securing a
Contract. However, such liens could arise at any time during the term of a
Contract. No notice will be given to the Indenture Trustee or Bondholders in the
event such a lien arises.
FORECLOSURE ON MORTGAGES
Foreclosure of a deed of trust is generally accomplished by a
non-judicial trustee's sale under a specific provision in the deed of trust
which authorizes the trustee to sell the property upon any default by the
borrower under the terms of the note or deed of trust. In addition to any notice
requirements contained in a deed of trust, in some states, the trustee must
record a notice of default and send a copy to the borrower trustor and to any
person who has recorded a request for a copy of notice of default and notice of
sale. In addition, the trustee must provide notice in some states to any other
individual having an interest of record in the real property, including any
junior lienholders. If the deed of trust is not reinstated within a specified
period, a notice of sale must be posted in a public place and, in most states,
published for a specific period of time in one or more newspapers. In addition,
some state laws require that a copy of the notice of sale be posted on the
property and sent to all parties having an interest of record in the real
property.
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 may occasionally result from difficulties in locating
necessary
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parties. Judicial foreclosure proceedings are often not contested by any of the
applicable parties. If the mortgagee's right to foreclose is contested, the
legal proceedings necessary to resolve the issue can be time-consuming.
In some states, the borrower-trustor has the right to reinstate the
loan at any time following default until shortly before the trustee's sale. In
general, in such states, the borrower, or any other person having a junior
encumbrance on the real estate, may, during a reinstatement period, cure the
default by paying the entire amount in arrears plus the costs and expenses
incurred in enforcing the obligation.
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 a potential buyer at the sale
would have in determining the exact status of title and because the physical
condition of the property may have deteriorated during 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 a credit bid less than or equal to the unpaid
principal amount of the mortgage or deed of trust, accrued and unpaid interest
and the expense of foreclosure. Generally, state law controls the amount of
foreclosure costs and expenses, including attorneys' fees, which may be
recovered by a lender. Thereafter, subject to the right of the borrower in some
states to remain in possession during the redemption period, the lender will
assume the burdens of ownership, including obtaining hazard insurance and making
such repairs at its own expense as are necessary to render the property suitable
for sale. The lender will commonly obtain the services of a real estate broker
and pay the broker's commission in connection with the sale of the property.
Depending upon market conditions, the ultimate proceeds of the sale of the
property may not equal the lender's investment in the property and, in some
states, subject to the terms of the loan, the lender may be entitled to a
deficiency judgment. Any loss may be reduced by the receipt of any mortgage
insurance proceeds.
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 prior to or at the time of the foreclosure sale or undertake the
obligation to make payments on the senior mortgages in the event the mortgagor
is in default thereunder, in either event adding the amounts expended to the
balance due on the junior loan, and may be subrogated to the rights of the
senior mortgagees. In addition, in the event that the foreclosure of a junior
mortgage triggers the enforcement of a "due-on-sale" clause, the junior
mortgagee may be required to pay the full amount of the senior mortgages to the
senior mortgagees. Accordingly, with respect to those Single Family and
Multifamily Loans which are junior mortgage loans, if the lender purchases the
property, the lender's title will be subject to all senior liens and claims and
certain governmental liens. The proceeds received by the referee or trustee from
the sale are applied first to the costs, fees and expenses of sale and then in
satisfaction of the indebtedness secured by the mortgage or deed of trust under
which the sale was conducted. Any remaining proceeds are generally payable to
the holders of junior mortgages or deeds of trust and other liens and claims in
order of their priority, whether or not the borrower is in default. Any
additional proceeds are generally payable to the mortgagor or trustor. The
payment of the proceeds to the holders of junior mortgages may occur in the
foreclosure action of the senior mortgagee or may require the institution of
separate legal proceeds.
In foreclosure, courts have imposed general equitable principles. The
equitable principles are generally designed to relieve the borrower from the
legal effect of its defaults under the loan documents. Examples of judicial
remedies that have been fashioned include judicial requirements that the lender
undertake affirmative and expensive actions to determine the causes for the
borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's judgment and have required that lenders reinstate loans or recast
payment schedules in order to accommodate borrowers who are suffering from
temporary financial disability. In
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other cases, courts have limited the right of a lender to foreclose if the
default under the mortgage instrument is not monetary, such as the borrower's
failure to adequately maintain the property or the borrower's execution of a
second mortgage or deed of trust affecting the property. Finally, some courts
have been faced with the issue of whether or not federal or state constitutional
provisions reflecting due process concerns for adequate notice require that
borrowers under deeds of trust or mortgages receive notices in addition to the
statutorily-prescribed minimums. For the most part, these cases have upheld the
notice provisions as being reasonable or have found that the sale by a trustee
under a deed of trust, or under a mortgage having a power of sale, does not
involve sufficient state action to afford constitutional protection to the
borrower.
REPOSSESSION WITH RESPECT TO CONTRACTS
GENERAL. Repossession of manufactured housing is governed by state law.
A few states have enacted legislation that requires that the debtor be given an
opportunity to cure its default (typically 30 days to bring the account current)
before repossession can commence. So long as a manufactured home has not become
so attached to real estate that it would be treated as a part of the real estate
under the law of the state where it is located, repossession of such home in the
event of a default by the obligor will generally be governed by the UCC (except
in Louisiana). Article 9 of the UCC provides the statutory framework for the
repossession of manufactured housing. While the UCC as adopted by the various
states may vary in certain small particulars, the general repossession procedure
established by the UCC is as follows:
(i) Except in those states where the debtor must receive
notice of the right to cure a default, repossession can commence
immediately upon default without prior notice. Repossession may be
effected either through self-help (peaceable retaking without court
order), voluntary repossession or through judicial process
(repossession pursuant to court-issued writ of replevin). The
self-help and/or voluntary repossession methods are more commonly
employed, and are accomplished simply by retaking possession of the
manufactured home. In cases in which the debtor objects or raises a
defense to repossession, a court order must be obtained from the
appropriate state court, and the manufactured home must then be
repossessed in accordance with that order. Whether the method employed
is self-help, voluntary repossession or judicial repossession, the
repossession can be accomplished either by an actual physical removal
of the manufactured home to a secure location for refurbishment and
resale or by removing the occupants and their belongings from the
manufactured home and maintaining possession of the manufactured home
on the location where the occupants were residing. Various factors may
affect whether the manufactured home is physically removed or left on
location, such as the nature and term of the lease of the site on
which it is located and the condition of the unit. In many cases,
leaving the manufactured home on location is preferable, in the event
that the home is already set up, because the expenses of retaking and
redelivery will be saved. However, in those cases where the home is
left on location, expenses for site rentals will usually be incurred.
(ii) Once repossession has been achieved, preparation for
the subsequent disposition of the manufactured home can commence. The
disposition may be by public or private sale provided the method,
manner, time, place and terms of the sale are commercially reasonable.
(iii) Sale proceeds are to be applied first to repossession
expenses (expenses incurred in retaking, storage, preparing for sale to
include refurbishing costs and selling) and then to satisfaction of the
indebtedness. While some states impose prohibitions or limitations on
deficiency judgments if the net proceeds from resale do not cover the
full amount of the indebtedness, the remainder may be sought from the
debtor in the form of a deficiency judgement in those states that do
not prohibit or limit such judgments. The deficiency judgment is a
personal judgment against the debtor for the shortfall. Occasionally,
after resale of a manufactured home and payment of all
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expenses and indebtedness, there is a surplus of funds. In that case,
the UCC requires the party suing for the deficiency judgment to remit
the surplus to the debtor. Because the defaulting owner of a
manufactured home generally has very little capital or income available
following repossession, a deficiency judgment may not be sought in many
cases or, if obtained, will be settled at a significant discount in
light of the defaulting owner's strained financial condition.
LOUISIANA LAW. Any contract secured by a manufactured home located in
Louisiana will be governed by Louisiana law rather than Article 9 of the UCC.
Louisiana laws provide similar mechanisms for perfection and enforcement of
security interests in manufactured housing used as collateral for an
installment sale contract or installment loan agreement.
Under Louisiana law, a manufactured home that has been permanently
affixed to real estate will nevertheless remain subject to the motor vehicle
registration laws unless the obligor and any holder of a security interest in
the property execute and file in the real estate records for the parish in which
the property is located a document converting the unit into real property. A
manufactured home that is converted into real property but is then removed from
its site can be converted back to personal property governed by the motor
vehicle registration laws if the obligor executes and files various documents in
the appropriate real estate records and all mortgagees under real estate
mortgages on the property and the land to which it was affixed file releases
with the motor vehicle commission.
So long as a manufactured home remains subject to the Louisiana motor
vehicle laws, liens are recorded on the certificate of title by the motor
vehicle commissioner and repossession can be accomplished by voluntary consent
of the obligor, executory process (repossession proceedings which must be
initiated through the courts but which involve minimal court supervision) or a
civil suit for possession. In connection with a voluntary surrender, the obligor
must be given a full release from liability for all amounts due under the
contract. In executory process repossessions, a sheriff's sale (without court
supervision) is permitted, unless the obligor brings suit to enjoin the sale,
and the lender is prohibited from seeking a deficiency judgment against the
obligor unless the lender obtained an appraisal of the manufactured home prior
to the sale and the property was sold for at least two-thirds of its appraised
value.
RIGHTS OF REDEMPTION
SINGLE FAMILY PROPERTIES AND MULTIFAMILY Properties. The purposes of a
foreclosure action in respect of a Single Family Property or Multifamily
Property are to enable the lender to realize upon its security and to bar the
borrower, and all persons who have interests in the property that are
subordinate to that of the foreclosing lender, from exercise of their "equity of
redemption". The doctrine of equity of redemption provides that, until the
property encumbered by a mortgage has been sold in accordance with a properly
conducted foreclosure and foreclosure sale, those having interests that are
subordinate to that of the foreclosing lender have an equity of redemption and
may redeem the property by paying the entire debt with interest. Those having an
equity of redemption must generally be made parties and joined in the
foreclosure proceeding in order for their equity of redemption to be terminated.
The equity of redemption is a common-law (non-statutory) right which
should be distinguished from post-sale statutory rights of redemption. In some
states, after sale pursuant to a deed of trust or foreclosure of a mortgage, the
borrower and foreclosed junior lienors are given a statutory period in which to
redeem the property. In some states, statutory redemption may occur only upon
payment of the foreclosure sale price. In other states, redemption may be
permitted 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 because the exercise of a right of redemption would
defeat the title of any purchase through a foreclosure. Consequently, the
practical effect of the redemption right is to force the lender to maintain the
property and pay the expenses of ownership until the redemption period
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has expired. In some states, a post-sale statutory right of redemption may exist
following a judicial foreclosure, but not following a trustee's sale under a
deed of trust.
MANUFACTURED HOMES. While state laws do not usually require notice to
be given to debtors prior to repossession, many states do require delivery of a
notice of default and of the debtor's right to cure defaults before
repossession. The law in most states also requires that the debtor be given
notice of sale prior to the resale of the home so that the owner may redeem at
or before resale. In addition, the sale must comply with the requirements of the
UCC.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
SINGLE FAMILY LOANS AND MULTIFAMILY Loans. 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 including California,
statutes limit the right of the beneficiary or mortgagee to obtain a deficiency
judgment against the borrower following foreclosure. 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. In the case of a Mortgage Loan
secured by a property owned by a trust where the Mortgage Note is executed on
behalf of the trust, a deficiency judgment against the trust following
foreclosure or sale under a deed of trust, even if obtainable under applicable
law, may be of little value to the mortgagee or beneficiary if there are no
trust assets against which such deficiency judgment may be executed. In the case
of a Mortgage Loan secured by a property owned by a trust where the Mortgage
Note is executed on behalf of the trust, a deficiency judgment against the trust
following foreclosure or sale under a deed of trust, even if obtainable under
applicable law, may be of little value to the mortgagee or beneficiary if there
are no trust assets against which such deficiency judgment may be executed.
Other statutes require the beneficiary or mortgagee to exhaust the security
afforded under a deed of trust or mortgage by foreclosure in an attempt to
satisfy the full debt before bringing a personal action against the borrower. In
certain other states, the lender has the option of bringing a personal action
against the borrower on the debt without first exhausting such security; however
in some of these states, the lender, following judgment on such personal action,
may be deemed to have elected a remedy and may be precluded from exercising
remedies with respect to the security. Consequently, the practical effect of the
election requirement, in those states permitting such election, is that lenders
will usually proceed against the security first rather than bringing a personal
action against the borrower. Finally, in certain other states, statutory
provisions limit any deficiency judgment against the former borrower following a
foreclosure to the excess of the outstanding debt over the fair value of the
property at the time of the public sale. The purpose of these statutes is
generally to prevent a beneficiary or mortgagee from obtaining a large
deficiency judgment against the former borrower as a result of low or no bids at
the judicial sale.
In addition to laws limiting or prohibiting deficiency judgments,
numerous other federal and state statutory provisions, including the federal
bankruptcy laws and state laws affording relief to debtors, may interfere with
or affect the ability of the secured mortgage lender to realize upon collateral
or enforce a deficiency judgment. For example, under the federal Bankruptcy
Code, as amended from time to time (Title 11 of the United States Code) (the
"Bankruptcy Code"), virtually all actions (including foreclosure actions and
deficiency judgment proceedings) to collect a debt are automatically stayed upon
the filing of the bankruptcy petition and, often, no interest or principal
payments are made during the course of the bankruptcy case. The delay and the
consequences thereof caused by such automatic stay can be significant. Also,
under the Bankruptcy Code, the filing of a petition in a bankruptcy by or on
behalf of a junior lienor may stay the senior lender from taking action to
foreclose out of such junior lien. Moreover, with respect to federal bankruptcy
law, a court with federal bankruptcy jurisdiction may permit a debtor through
his or her Chapter 11 or Chapter 13 rehabilitative plan to cure a monetary
default in respect of a mortgage loan on a debtor's residence by paying
arrearage within a reasonable time period and reinstating the original
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mortgage loan payment schedule even though the lender accelerated the mortgage
loan and final judgment of foreclosure had been entered in state court (provided
no sale of the residence had yet occurred) prior to the filing of the debtor's
petition. Some courts with federal bankruptcy jurisdiction have approved plans,
based on the particular facts of the reorganization case, that effected the
curing of a mortgage loan default by paying arrearage over a number of years.
Courts with federal bankruptcy jurisdiction have also indicated that
the terms of a mortgage loan secured by property of the debtor may be modified.
These courts have allowed modifications that include reducing the amount of each
monthly payment, changing the rate of interest, altering the repayment schedule,
forgiving all or a portion of the debt 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. Generally, however, the terms of a mortgage
loan secured only by a mortgage on real property that is the debtor's principal
residence may not be modified pursuant to a plan confirmed pursuant to Chapter
13 except with respect to mortgage payment arrearages, which may be cured within
a reasonable time period.
In the case of income-producing multifamily properties, federal
bankruptcy law may also have the effect of interfering with or affecting the
ability of the secured lender to enforce the borrower's assignment of rents and
leases related to the mortgaged property. Under Section 362 of the Bankruptcy
Code, the lender will be stayed from enforcing the assignment, and the legal
proceedings necessary to resolve the issue could be time-consuming, with
resulting delays in the lender's receipt of the rents.
Certain tax liens arising under the Internal Revenue Code of 1986, as
amended (the "Code"), may in certain circumstances provide priority over the
lien of a mortgage or deed of trust. In addition, substantive requirements are
imposed upon mortgage lenders in connection with the origination and the
servicing of single family mortgage loans by numerous federal and some state
consumer protection laws. These laws include the federal Truth-in-Lending Act,
Regulation "Z," Real Estate Settlement Procedures Act, Regulation "X," Equal
Credit Opportunity Act, Regulation "B," Fair Credit Billing Act, the Fair
Housing Act, Fair Credit Reporting Act and related statutes. These federal laws
impose specific statutory liabilities upon lenders who originate mortgage loans
and who fail to comply with the provisions of the law. In some cases, this
liability may affect assignees of the mortgage loans. In particular, the
originators' failure to comply with certain requirements of the Federal
Truth-in-Lending Act, as implemented by Regulation Z, could subject both
originators and assignees of such obligations to monetary penalties and could
result in obligors' rescinding the mortgage loans against either the originators
or assignees.
In addition, certain of the Mortgage Loans are also subject to the Home
Ownership and Equity Protection Act of 1994 (the "Homeownership Act") (such
mortgage loans, "High Cost Loans"), if such Mortgage Loans were originated on or
after October 1, 1995, are not mortgage loans made to finance the purchase of
the mortgaged property and have interest rates or origination costs in excess of
certain prescribed levels. The Homeownership Act requires certain additional
disclosures, specifies the timing of such disclosures and limits or prohibits
inclusion of certain provisions in mortgages subject to the Homeownership Act.
Remedies available to the mortgagor include monetary penalties, as well as
recission rights if the appropriate disclosures were not given as required. The
Homeownership Act also provides that any purchaser or assignee of a mortgage
covered by the Homeownership Act is subject to all of the claims and defenses to
loan payment, whether under the Federal Truth-in-Lending Act, as amended by the
Homeownership Act or other law, which the borrower could assert against the
original lender unless the purchaser or assignee did not know and could not with
reasonable diligence have determined that the Mortgage Loan was subject to the
provisions of the Homeownership Act. The maximum damages that may be recovered
under the Homeownership Act from an assignee is the remaining amount of
indebtedness plus the total amount paid by the borrower in connection with the
Mortgage Loan.
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CONTRACTS. In addition to the laws limiting or prohibiting deficiency
judgments, numerous other statutory provisions, including federal bankruptcy
laws and related state laws, may interfere with or affect the ability of a
lender to realize upon collateral and/or enforce a deficiency judgment. For
example, in a Chapter 13 proceeding under the federal bankruptcy law, a court
may prevent a lender from repossessing a home, and, as part of the
rehabilitation plan, reduce the amount of the secured indebtedness to the market
value of the home at the time of bankruptcy (as determined by the court),
leaving the party providing financing as a general unsecured creditor for the
remainder of the indebtedness. A bankruptcy court may also reduce the monthly
payments due under a contract or change the rate of interest and time of
repayment of the indebtedness.
JUNIOR MORTGAGES
Some of the Mortgage Loans may be secured by junior mortgages or deeds
of trust, which are junior to senior mortgages or deeds of trust which are not
part of the Trust Fund. The rights of the Bondholders as the holders of a junior
deed of trust or a junior mortgage are subordinate in lien priority and in
payment priority to those of the holder of the senior mortgage or deed of trust,
including the prior rights of the senior mortgagee or beneficiary to receive and
apply hazard insurance and condemnation proceeds and, upon default of the
mortgagor, to cause a foreclosure on the property. Upon completion of the
foreclosure proceedings by the holder of the senior mortgage or the sale
pursuant to the deed of trust, the junior mortgagee's or junior beneficiary's
lien will be extinguished unless the junior lienholder satisfies the defaulted
senior loan or asserts its subordinate interest in a property in foreclosure
proceedings. See "--Foreclosure on Mortgages" above.
Furthermore, the terms of the junior mortgage or deed of trust are
subordinate to the terms of the senior mortgage or deed of trust. In the event
of a conflict between the terms of the senior mortgage or deed of trust and the
junior mortgage or deed of trust, the terms of the senior mortgage or deed of
trust will govern generally. Upon a failure of the mortgagor or trustor to
perform any of its obligations, the senior mortgagee or beneficiary, subject to
the terms of the senior mortgage or deed of trust, may have the right to perform
the obligation itself. Generally, all sums so expended by the mortgagee or
beneficiary become part of the indebtedness secured by the mortgage or deed of
trust. To the extent a senior mortgagee expends such sums, such sums will
generally have priority over all sums due under the junior mortgage.
CONSUMER PROTECTION LAWS WITH RESPECT TO CONTRACTS
Numerous federal and state consumer protection laws impose substantial
requirements upon creditors involved in consumer finance. These laws include the
federal Truth-in-Lending Act, Regulation "Z", the Equal Credit Opportunity Act,
Regulation "B", the Fair Credit Reporting Act, the Real Estate Settlement
Procedures Act, Regulation "X," the Fair Housing Act and related statutes. These
laws can impose specific statutory liabilities upon creditors who fail to comply
with their provisions. In some cases, this liability may affect an assignee's
ability to enforce a contract. In particular, the originators' failure to comply
with certain requirements of the Federal Truth-in-Lending Act, as implemented by
Regulation Z, could subject both originators and assignees of such obligations
to monetary penalties and could result in obligors' rescinding the Contracts
against either the originators or assignees. Further, if such Contracts are
deemed High Cost Loans within the meaning of the Homeownership Act, they would
be subject to the same provisions of the Homeownership Act as Mortgage Loans as
described in "--Anti-Deficiency Legislation and Other Limitations on Lenders"
above.
Manufactured housing contracts often contain provisions obligating the
obligor to pay late charges if payments are not timely made. In certain cases,
federal and state law may specifically limit the amount of late charges that may
be collected. Under the related Servicing Agreement, late charges will not be
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retained by the Master Servicer as additional servicing compensation, and any
inability to collect these amounts will not affect payments to Bondholders.
Courts have imposed general equitable principles upon repossession and
litigation involving deficiency balances. These equitable principles are
generally designed to relieve a consumer from the legal consequences of a
default.
In several cases, consumers have asserted that the remedies provided to
secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the United
States. For the most part, courts have upheld the notice provisions of the UCC
and related laws as reasonable or have found that the repossession and resale by
the creditor does not involve sufficient state action to afford constitutional
protection to consumers.
The so-called "Holder-in-Due-Course" Rule of the Federal Trade
Commission (the "FTC Rule") has the effect of subjecting a seller (and certain
related creditors and their assignees) in a consumer credit transaction and any
assignee of the creditor to all claims and defenses which the debtor in the
transaction could assert against the seller of the goods. Liability under the
FTC Rule is limited to the amounts paid by a debtor on the contract, and the
holder of the contract may also be unable to collect amounts still due
thereunder. Most of the Contracts in a Trust Fund will be subject to the
requirements of the FTC Rule. Accordingly, the Trust Fund, as holder of the
Contracts, will be subject to any claims or defenses that the purchaser of the
related manufactured home may assert against the seller of the manufactured
home, subject to a maximum liability equal to the amounts paid by the obligor on
the Contract. Further, if such Contracts are deemed High Cost Loans within the
meaning of the Homeownership Act, assignees of such obligations would be subject
to the same liability as Mortgage Loans as described in "--Anti-Deficiency
Legislation and Other Limitations on Lenders" above.
ENVIRONMENTAL LEGISLATION
Certain states impose a statutory lien for associated costs on property
that is the subject of a cleanup action by the state on account of hazardous
wastes or hazardous substances released or disposed of on the property. Such a
lien will generally have priority over all subsequent liens on the property and,
in certain of these states, will have priority over prior recorded liens
including the lien of a mortgage. In addition, under federal environmental
legislation and under state law in a number of states, a secured party which
takes a deed in lieu of foreclosure or acquires a mortgaged property at a
foreclosure sale or becomes involved in the operation or management of a
property so as to be deemed an "owner" or "operator" of the property may be
liable for the costs of cleaning up a contaminated site. Although such costs
could be substantial, it is unclear whether they would be imposed on a lender
(such as a Trust Fund) secured by residential real property. In the event that
title to a Mortgaged Property securing a Mortgage Loan in a Trust Fund was
acquired by the Trust Fund and cleanup costs were incurred in respect of the
Mortgaged Property, the holders of the Bonds of the related series might realize
a loss if such costs were required to be paid by the Trust Fund.
ENFORCEABILITY OF CERTAIN PROVISIONS
TRANSFER OF SINGLE FAMILY PROPERTIES AND MULTIFAMILY Properties. Unless
the related Prospectus Supplement indicates otherwise, the Single Family Loans
and Multifamily Loans generally contain due-on-sale clauses. These clauses
permit the lender to accelerate the maturity of the loan if the borrower sells,
transfers or conveys the property. The enforceability of these clauses has been
the subject of legislation or litigation in many states, and in some cases the
enforceability of these clauses was limited or denied. However, the Garn-St
Germain Depository Institutions Act of 1982 (the "Garn-St Germain Act") preempts
state constitutional, statutory and case law that prohibits the enforcement of
due-on-sale clauses
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and permits lenders to enforce these clauses in accordance with their terms,
subject to certain limited exceptions. The Garn-St Germain Act does "encourage"
lenders to permit assumption of loans at the original rate of interest or at
some other rate less than the average of the original rate and the market rate.
The Garn-St Germain Act also sets forth nine specific instances in
which a mortgage lender covered by the Garn-St Germain Act may not exercise a
due-on-sale clause, notwithstanding the fact that a transfer of the property may
have occurred. These include intra-family transfers, certain transfers by
operation of law, leases of fewer than three years and the creation of a junior
encumbrance. Regulations promulgated under the Garn-St Germain Act also prohibit
the imposition of a prepayment penalty upon the acceleration of a loan pursuant
to a due-on-sale clause.
The inability to enforce a due-on-sale clause may result in a mortgage
loan bearing an interest rate below the current market rate being assumed by the
buyer rather than being paid off, which may have an impact upon the average life
of the Mortgage Loans and the number of Mortgage Loans which may be
outstanding until maturity.
TRANSFER OF MANUFACTURED HOMES. Generally, manufactured housing
contracts contain provisions prohibiting the sale or transfer of the related
manufactured homes without the consent of the obligee on the contract and
permitting the acceleration of the maturity of such contracts by the obligee on
the contract upon any such sale or transfer that is not consented to. The Master
Servicer will, to the extent it has knowledge of such conveyance or proposed
conveyance, exercise or cause to be exercised its rights to accelerate the
maturity of the related Contracts through enforcement of due-on-sale clauses,
subject to applicable state law. In certain cases, the transfer may be made by a
delinquent obligor in order to avoid a repossession proceeding with respect to a
Manufactured Home.
In the case of a transfer of a Manufactured Home as to which the Master
Servicer desires to accelerate the maturity of the related Contract, the Master
Servicer's ability to do so will depend on the enforceability under state law of
the due-on-sale clause. The Garn-St Germain Act preempts, subject to certain
exceptions and conditions, state laws prohibiting enforcement of due-on-sale
clauses applicable to the Manufactured Homes. Consequently, in some cases the
Master Servicer may be prohibited from enforcing a due-on-sale clause in respect
of certain Manufactured Homes.
LATE PAYMENT CHARGES AND PREPAYMENT RESTRICTIONS. Mortgage notes and
mortgages, as well as manufactured housing conditional sales contracts and
installment loan agreements, may contain provisions that obligate the borrower
to pay a late charge or additional interest if payments are not timely made, and
in some circumstances, may prohibit prepayments for a specified period and/or
condition prepayments upon the borrower's payment of prepayment fees or yield
maintenance penalties. In certain states, there are or may be specific
limitations upon the late charges which a lender may collect from a borrower for
delinquent payments. Certain states also limit the amounts that a lender may
collect from a borrower as an additional charge if the loan is prepaid. In
addition, the enforceability of provisions that provide for prepayment fees or
penalties upon an involuntary prepayment is unclear under the laws of many
states.
SUBORDINATE FINANCING
When the mortgagor encumbers mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the mortgagor
may have difficulty servicing and repaying multiple loans. In addition, if the
junior loan permits recourse to the mortgagor (as junior loans often do) and the
senior loan does not, a mortgagor may be more likely to repay sums due on the
junior loan than those on the senior loan. Second, acts of the senior lender
that prejudice the junior lender or impair the junior lender's security may
create a superior equity in favor of the junior lender. For example, if the
mortgagor and the senior lender agree to an increase in the principal amount of
or the interest rate payable
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on the senior loan, the senior lender may lose its priority to the extent an
existing junior lender is harmed or the mortgagor is additionally burdened.
Third, if the mortgagor defaults on the senior loan and/or any junior loan or
loans, the existence of junior loans and actions taken by junior lenders can
impair the security available to the senior lender and can interfere with or
delay the taking of action by the senior lender. Moreover, the bankruptcy of a
junior lender may operate to stay foreclosure or similar proceeds by the senior
lender.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980, enacted in March 1980 ("Title V"), provides that state
usury limitations shall not apply to certain types of residential first mortgage
loans originated by certain lenders after March 31, 1980. A similar federal
statute was in effect with respect to mortgage loans made during the first three
months of 1980. The Office of Thrift Supervision is authorized to issue rules
and regulations and to publish interpretations governing implementation of Title
V. The statute authorized any state to reimpose interest rate limits by
adopting, before April 1, 1983, a law or constitutional provision which
expressly rejects application of the federal law. 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.
Certain states have taken action to reimpose interest rate limits or to limit
discount points or other charges.
Title V also provides that, subject to the following conditions, state
usury limitations shall not apply to any loan that is secured by a first lien on
certain kinds of manufactured housing. The Contracts would be covered if they
satisfy certain conditions, among other things, governing the terms of any
prepayments, late charges and deferral fees and requiring a 30-day notice period
prior to instituting any action leading to repossession of or foreclosure with
respect to the related unit. 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. In any state in which application of Title
V was expressly rejected or a provision limiting discount points or other
charges has been adopted, no Contract which imposes finance charges or provides
for discount points or charges in excess of permitted levels has been included
in the Trust Fund.
As indicated above under "The Mortgage Pools--Representations by
Sellers," each Seller of a Mortgage Loan will have represented that such
Mortgage Loan was originated in compliance with then applicable state laws,
including usury laws, in all material respects. However, the Mortgage Rates on
the Mortgage Loans will be subject to applicable usury laws as in effect from
time to time.
ALTERNATIVE MORTGAGE INSTRUMENTS
Alternative mortgage instruments, including adjustable rate mortgage
loans and early ownership mortgage loans, originated by non-federally chartered
lenders have historically been subjected to a variety of restrictions. Such
restrictions differed from state to state, resulting in difficulties in
determining whether a particular alternative mortgage instrument originated by a
state-chartered lender was in compliance with applicable law. These difficulties
were alleviated substantially as a result of the enactment of Title VIII of the
Garn-St Germain Act ("Title VIII"). Title VIII provides that, notwithstanding
any state law to the contrary, state-chartered banks may originate alternative
mortgage instruments in accordance with regulations promulgated by the
Comptroller of the Currency with respect to origination of alternative mortgage
instruments by national banks, state-chartered credit unions may originate
alternative mortgage instruments in accordance with regulations promulgated by
the National Credit Union Administration with respect to origination of
alternative mortgage instruments by federal credit unions, and all other
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non-federally chartered housing creditors, including state-chartered savings and
loan associations, state-chartered savings banks and mutual savings banks and
mortgage banking companies, may originate alternative mortgage instruments in
accordance with the regulations promulgated by the Federal Home Loan Bank Board,
predecessor to the Office of Thrift Supervision, with respect to origination of
alternative mortgage instruments by federal savings and loan associations. Title
VIII provides that any state may reject applicability of the provisions of Title
VIII by adopting, prior to October 15, 1985, a law or constitutional provision
expressly rejecting the applicability of such provisions. Certain states have
taken such action.
FORMALDEHYDE LITIGATION WITH RESPECT TO CONTRACTS
A number of lawsuits are pending in the United States alleging personal
injury from exposure to the chemical formaldehyde, which is present in many
building materials, including such components of manufactured housing as plywood
flooring and wall paneling. Some of these lawsuits are pending against
manufacturers of manufactured housing, suppliers of component parts, and related
persons in the distribution process. The Company is aware of a limited number of
cases in which plaintiffs have won judgments in these lawsuits.
Under the FTC Rule, which is described above under "Consumer Protection
Laws", the holder of any Contract secured by a Manufactured Home with respect to
which a formaldehyde claim has been successfully asserted may be liable to the
obligor for the amount paid by the obligor on the related Contract and may be
unable to collect amounts still due under the Contract. In the event an obligor
is successful in asserting such a claim, the related Bondholders could suffer a
loss if (i) the related Seller fails or cannot be required to repurchase the
affected Contract for a breach of representation and warranty and (ii) the
Master Servicer or the Indenture Trustee were unsuccessful in asserting any
claim of contribution or subrogation on behalf of the Bondholders against the
manufacturer or other persons who were directly liable to the plaintiff for the
damages. Typical products liability insurance policies held by manufacturers and
component suppliers of manufactured homes may not cover liabilities arising from
formaldehyde in manufactured housing, with the result that recoveries from such
manufacturers, suppliers or other persons may be limited to their corporate
assets without the benefit of insurance.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940,
as amended (the "Relief Act"), a Mortgagor who enters military service after the
origination of such Mortgagor's Mortgage Loan (including a Mortgagor who was in
reserve status and is called to active duty after origination of the Mortgage
Loan), 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. The Relief Act applies to
individuals who are members of the Army, Navy, Air Force, Marines, National
Guard, Reserves, Coast Guard, and officers of the U.S. Public Health Service
assigned to duty with the military. Because the Relief Act applies to Mortgagors
who enter military service (including reservists who are called to active duty)
after origination of the related Mortgage Loan, no information can be provided
as to the number of loans that may be affected by the Relief Act. Application of
the Relief Act would adversely affect, for an indeterminate period of time, the
ability of the Master Servicer to collect full amounts of interest on certain of
the Mortgage Loans. Any shortfall in interest collections resulting from the
application of the Relief Act or similar legislation or regulations, which would
not be recoverable from the related Mortgage Loans, would result in a reduction
of the amounts distributable to the holders of the related Bonds, and would not
be covered by advances or by any Letter of Credit provided in connection with
the related series of Bonds. In addition, the Relief Act imposes limitations
that would impair the ability of the Master Servicer to foreclose on an affected
Mortgage Loan or enforce rights under a Contract during the Mortgagor's period
of active duty status, and, under certain circumstances, during an additional
three month period thereafter. Thus, in the event that the Relief Act
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or similar legislation or regulations applies to any Mortgage Loan which goes
into default, there may be delays in payment and losses on the related Bonds in
connection therewith. Any other interest shortfalls, deferrals or forgiveness of
payments on the Mortgage Loans resulting from similar legislation or regulations
may result in delays in payments or losses to Bondholders of the related series.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following general discussion of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of the Bonds
offered hereunder to the extent it relates to matter of law or legal conclusions
with respect thereto, represents the opinion of counsel to the Depositor with
respect to that series on the material matters associated with such
consequences, subject to any qualifications set forth herein. This discussion
has been prepared with the advice of Thacher Proffitt & Wood, counsel to the
Company. This discussion is directed solely to Bondholders that hold the Bonds
as capital assets within the meaning of Section 1221 of the Code and does not
purport to discuss all federal income tax consequences that may be applicable to
particular categories of investors, some of which (such as banks, insurance
companies and foreign investors) may be subject to special rules. Further, the
authorities on which this discussion, and the opinion referred to below, are
based are subject to change or differing interpretations, which could apply
retroactively. Prospective investors should note that no rulings have been or
will be sought from the Internal Revenue Service ("IRS") with respect to any of
the federal income tax consequences discussed below, and no assurance can be
given the IRS will not take contrary positions. Taxpayers and preparers of tax
returns should be aware that under applicable Treasury regulations a provider of
advice on specific issues of law is not considered an income tax return preparer
unless the advice (i) is given with respect to events that have occurred at the
time the advice is rendered and is not given with respect to the consequences of
contemplated actions, and (ii) is directly relevant to the determination of an
entry on a tax return. Accordingly, taxpayers should consult their tax advisors
and tax return preparers regarding the preparation of any item on a tax return,
even where the anticipated tax treatment has been discussed herein. In addition
to the federal income tax consequences described herein, potential investors
should consider the state and local tax consequences, if any, of the purchase,
ownership and disposition of the Bonds. See "State and Other Tax Consequences."
Bondholders are advised to consult their tax advisors concerning the federal,
state, local or other tax consequences to them of the purchase, ownership and
disposition of the Bonds offered hereunder.
Taxable mortgage pool ("TMP") rules enacted as part of the Tax Reform
Act of 1986 treat certain arrangements that securitize real estate mortgages as
taxable corporations. An entity will be characterized as a TMP if (i)
substantially all of its assets are debt obligations and more than 50 percent of
such debt obligations consist of real estate mortgages or interests therein,
(ii) the entity is the obligor under debt obligations with two or more
maturities, and (iii) payments on the debt obligations referred to in (ii) bear
a relationship to payments on the debt obligations referred to in (i).
Furthermore, a group of assets held by an entity can be treated as a separate
TMP if the assets are expected to produce significant cash flow that will
support one or more of the entity's issues of debt obligation.
It is possible that the Issuer or a portion of the Issuer relating to
the ownership of the Mortgage Loans and the issuance of the Bonds could be
treated as a TMP. The related Prospectus Supplement for each series of Bonds
will discuss whether the Issuer is anticipated to be characterized as a TMP for
federal income tax purposes. Such characterization would require that the Issuer
be treated as a "separate" corporation and not includible with any other
corporation in a consolidated return, therefore subjecting the Issuer to
corporate income tax. However, it is anticipated that for federal income tax
purposes the Issuer will be disregarded as an entity separate from the Company
(a "Wholly Owned Entity") pursuant to
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Treasury regulation Section 301.7701-2(c)(2) (the "Entity Classification
Regulations"), because one hundred percent of the equity of the Issuer will be
owned by the Company which is a "qualified REIT subsidiary" (as defined in
Section 856(i)(2) of the Code) of Impac Holdings, which itself is a REIT.
Characterization of the Issuer as a TMP would result only in the shareholders of
Impac Holdings being required to include in income, as "excess inclusion"
income, some or all of their allocable share of the Issuer's net income that
would be excess inclusion income, if any, if the Issuer were treated as a REMIC.
Such characterization of the Issuer as a Wholly Owned Entity or a "qualified
REIT subsidiary" would not result in entity-level, corporate income taxation
with respect to the Issuer. If the Issuer were to fail to qualify as a Wholly
Owned Entity and fail to continue to be treated as a "qualified REIT subsidiary"
by reason of the Company's failure to continue to qualify as a "qualified REIT
subsidiary" for federal income tax purposes, or for any other reason, the net
income of the Issuer would be subject to corporate income tax and if the Issuer
were characterized as a TMP the Issuer would not be permitted to be included on
a consolidated income tax return of another corporate entity. If the Company
were to dispose of a portion of the equity of the Issuer, the Issuer would be
characterized as a partnership pursuant to the Entity Classification
Regulations, unless the Issuer was characterized as a TMP, in which case the net
income of the Issuer would be subject to corporate income tax and the Issuer
would not be permitted to be included on a consolidated income tax return of
another corporate entity. No assurance can be given with regard to the
prospective qualification of the Issuer as either a Wholly Owned Entity or a
"qualified REIT subsidiary" or of the Company as a "qualified REIT subsidiary"
for federal income tax purposes.
Upon the issuance of the Bonds, Thacher Proffitt & Wood ("Tax
Counsel"), counsel to the Company, will deliver its opinion generally to the
effect that, for federal income tax purposes, assuming compliance with all
provisions of the Indenture and certain related documents, the Bonds will be
treated as indebtedness. The following discussion is based in part upon the
rules governing original issue discount that are set forth in Sections 1271-1273
and 1275 of the Code and in the Treasury regulations issued thereunder (the "OID
Regulations"). For purposes of this tax discussion, references to a "Bondholder"
or a "holder" are to the beneficial owner of a Bond.
STATUS AS REAL PROPERTY LOANS. (i) Bonds held by a domestic building
and loan association will not constitute "loans...secured by an interest in real
property" within the meaning of Code section 7701(a)(19)(C)(v); (ii) Bonds held
by a real estate investment trust will not constitute "real estate assets"
within the meaning of Code section 856(c)(4)(A); and (iii) interest on Bonds
will not be considered "interest on obligations secured by mortgages on real
property" within the meaning of Code section 856(c)(3)(B).
INTEREST AND ORIGINAL ISSUE DISCOUNT. The related Prospectus Supplement
for a series of Bonds will disclose whether such Bonds are anticipated to be
issued with original issue discount. Any holders of Bonds issued with original
issue discount generally will be required to include original issue discount in
income as it accrues, in accordance with the method described below, in advance
of the receipt of the cash attributable to such income. In addition, Section
1272(a)(6) of the Code provides special rules applicable to any class of Bonds
issued with original issue discount. Regulations have not been issued under that
section.
Under the OID Regulations, a holder of a Bond issued with a DE MINIMIS
amount of original issue discount must include such DE MINIMIS discount in
income, on a PRO RATA basis, as principal payments are made on the Bond. Stated
interest on the Bonds will be taxable to a Bondholder as ordinary interest
income when received or accrued in accordance with such Bondholder's method of
tax accounting.
Section 1272(a)(6) of the Code requires that a prepayment assumption
(the "Prepayment Assumption") be used with respect to the collateral underlying
debt instruments in computing the accrual of original issue discount if payments
under such debt instruments may be accelerated by reason of prepayments of other
obligations securing such debt instruments, and that adjustments be made in the
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amount and rate of accrual of such discount to reflect differences between the
actual prepayment rate and the Prepayment Assumption. The Prepayment Assumption
is to be determined in a manner prescribed in Treasury regulations; as noted
above, those regulations have not been issued. The Conference Committee Report
(the "Committee Report") accompanying the Tax Reform Act of 1986 indicates that
the regulations will provide that the Prepayment Assumption used with respect to
a Bond must be the same as that used in pricing the initial offering of such
Bond. The Prepayment Assumption used by the Issuer in reporting original issue
discount for each series of Bonds will be consistent with this standard and will
be disclosed in the related Prospectus Supplement. However, no representation
will be made that the Mortgage Loans will in fact prepay at a rate conforming to
the Prepayment Assumption or at any other rate.
The original issue discount, if any, on a Bond would be the excess of
its stated redemption price at maturity over its issue price. The issue price of
a particular class of Bonds will be the first cash price at which a substantial
amount of Bonds of that class is sold (excluding sales to bond houses, brokers
and underwriters). If less than a substantial amount of a particular class of
Bonds is sold for cash on or prior to the date of their initial issuance (the
"Closing Date"), the issue price for such class will be treated as the fair
market value of such class on the Closing Date. Under the OID Regulations, the
stated redemption price of a Bond is equal to the total of all payments to be
made on such Bond other than "qualified stated interest." "Qualified stated
interest" includes interest that is unconditionally payable at least annually at
a single fixed rate, or in the case of a variable rate debt instrument, at a
"qualified floating rate," an "objective rate," a combination of a single fixed
rate and one or more "qualified floating rates" or one "qualified inverse
floating rate," or a combination of "qualified floating rates" that generally
does not operate in a manner that accelerates or defers interest payments on
such Bond.
In the case of Bonds bearing adjustable interest rates, the
determination of the total amount of original issue discount and the timing of
the inclusion thereof will vary according to the characteristics of such Bonds.
If the original issue discount rules apply to such Bonds, the related Prospectus
Supplement will describe the manner in which such rules will be applied by the
Issuer with respect to those Bonds in preparing information returns to the
Bondholders and the IRS.
Certain classes of the Bonds may provide for the first interest payment
with respect to such Bonds to be made more than one month after the date of
issuance, a period which is longer than the subsequent monthly intervals between
interest payments. Assuming the "accrual period" (as defined below) for original
issue discount is each monthly period that ends on a Distribution Date, in some
cases, as a consequence of this "long first accrual period," some or all
interest payments may be required to be included in the stated redemption price
of the Bond and accounted for as original issue discount.
In addition, if the accrued interest to be paid on the first
Distribution Date is computed with respect to a period that begins prior to the
Closing Date, a portion of the purchase price paid for a Bond will reflect such
accrued interest. In such cases, information returns to the Bondholders and the
IRS will be based on the position that the portion of the purchase price paid
for the interest accrued with respect to periods prior to the Closing Date is
treated as part of the overall purchase price of such Bond (and not as a
separate asset the purchase price of which is recovered entirely out of interest
received on the next Distribution Date) and that portion of the interest paid on
the first Distribution Date in excess of interest accrued for a number of days
corresponding to the number of days from the Closing Date to the first
Distribution Date should be included in the stated redemption price of such
Bond. However, the OID Regulations state that all or some portion of such
accrued interest may be treated as a separate asset the cost of which is
recovered entirely out of interest paid on the first Distribution Date. It is
unclear how an election to do so would be made under the OID Regulations and
whether such an election could be made unilaterally by a Bondholder.
Notwithstanding the general definition of original issue discount,
original issue discount on a Bond will be considered to be DE MINIMIS if it is
less than 0.25% of the stated redemption price of the Bond
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multiplied by its weighted average maturity. For this purpose, the weighted
average maturity of the Bond is computed as the sum of the amounts determined,
as to each payment included in the stated redemption price of such Bond, by
multiplying (i) the number of complete years (rounding down for partial years)
from the issue date until such payment is expected to be made (presumably taking
into account the Prepayment Assumption) by (ii) a fraction, the numerator of
which is the amount of the payment, and the denominator of which is the stated
redemption price at maturity of such Bond. Under the OID Regulations, original
issue discount of only a DE MINIMIS amount (other than DE MINIMIS original issue
discount attributable to a so-called "teaser" interest rate or an initial
interest holiday) will be included in income as each payment of stated principal
is made, based on the product of the total amount of such DE MINIMIS original
issue discount and a fraction, the numerator of which is the amount of such
principal payment and the denominator of which is the outstanding stated
principal amount of the Bond. The OID Regulations also would permit a Bondholder
to elect to accrue DE MINIMIS original issue discount into income currently
based on a constant yield method. See "--Market Discount" for a description of
such election under the OID Regulations.
If original issue discount on a Bond is in excess of a DE MINIMIS
amount, the holder of such Bond must include in ordinary gross income the sum of
the "daily portions" of original issue discount for each day during its taxable
year on which it held such Bond, including the purchase date but excluding the
disposition date. In the case of an original holder of a Bond, the daily
portions of original issue discount will be determined as follows.
As to each "accrual period," that is each period that ends on a date
that corresponds to a Distribution Date and begins on the first day following
the immediately preceding accrual period (or in the case of the first such
period, begins on the Closing Date), a calculation will be made of the portion
of the original issue discount that accrued during such accrual period. The
portion of original issue discount that accrues in any accrual period will equal
the excess, if any, of (i) the sum of (A) the present value, as of the end of
the accrual period, of all of the distributions remaining to be made on the
Bond, if any, in future periods and (B) the distributions made on such Bond
during the accrual period of amounts included in the stated redemption price,
over (ii) the adjusted issue price of such Bond at the beginning of the accrual
period. The present value of the remaining distributions referred to in the
preceding sentence will be calculated (1) assuming that distributions on the
Bonds will be received in future periods based on the Mortgage Loans being
prepaid at a rate equal to the Prepayment Assumption and (2) using a discount
rate equal to the original yield to maturity of the Bond. For these purposes,
the original yield to maturity of the Bond will be calculated based on its issue
price and assuming that distributions on the Bond will be made in all accrual
periods based on the Mortgage Loans being prepaid at a rate equal to the
Prepayment Assumption. The adjusted issue price of a Bond at the beginning of
any accrual period will equal the issue price of such Bond, increased by the
aggregate amount of original issue discount that accrued with respect to such
Bond in prior accrual periods, and reduced by the amount of any distributions
made on such Bond in prior accrual periods of amounts included in its stated
redemption price. The original issue discount accruing during any accrual
period, computed as described above, will be allocated ratably to each day
during the accrual period to determine the daily portion of original issue
discount for such day.
A subsequent purchaser of a Bond that purchases such Bond at a price
(excluding any portion of such price attributable to accrued qualified stated
interest) less than its remaining stated redemption price will also be required
to include in gross income the daily portions of any original issue discount
with respect to such Bond. However, each such daily portion will be reduced, if
such cost is in excess of its "adjusted issue price," in proportion to the ratio
such excess bears to the aggregate original issue discount remaining to be
accrued on such Bond. The adjusted issue price of a Bond on any given day equals
the sum of (i) the adjusted issue price (or, in the case of the first accrual
period, the issue price) of such Bond at the beginning of the accrual period
which includes such day and (ii) the daily portions of original issue discount
for all days during such accrual period prior to such day.
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MARKET DISCOUNT. A Bondholder that purchases a Bond at a market
discount, that is, in the case of a Bond issued without original issue discount,
at a purchase price less than its remaining stated principal amount, or in the
case of a Bond issued with original issue discount, at a purchase price less
than its adjusted issue price will recognize gain upon receipt of each
distribution representing stated redemption price. In particular, under Section
1276 of the Code, such a Bondholder generally will be required to allocate the
portion of each such distribution representing stated redemption price first to
accrued market discount not previously included in income, and to recognize
ordinary income to that extent. A Bondholder may elect to include market
discount in income currently as it accrues rather than including it on a
deferred basis in accordance with the foregoing. If made, such election will
apply to all market discount bonds acquired by such Bondholder on or after the
first day of the first taxable year to which such election applies. In addition,
the OID Regulations permit a Bondholder to elect to accrue all interest,
discount (including DE MINIMIS market or original issue discount) and premium in
income as interest, based on a constant yield method. If such an election were
made with respect to a Bond with market discount, the Bondholder would be deemed
to have made an election to include currently market discount in income with
respect to all other debt instruments having market discount that such
Bondholder acquires during the taxable year of the election or thereafter, and
possibly previously acquired instruments. Similarly, a Bondholder that made this
election for a Bond that is acquired at a premium would be deemed to have made
an election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such Bondholder owns or acquires. See "-Premium"
below. Each of these elections to accrue interest, discount and premium with
respect to a Bond on a constant yield method or as interest would be
irrevocable.
However, market discount with respect to a Bond will be considered to
be DE MINIMIS for purposes Section 1276 of the Code if such market discount is
less than 0.25% of the remaining stated redemption price of such Bond multiplied
by the number of complete years to maturity remaining after the date of its
purchase. In interpreting a similar rule with respect to original issue discount
on obligations payable in installments, the OID Regulations refer to the
weighted average maturity of obligations, and it is likely that the same rule
will be applied with respect to market discount, presumably taking into account
the Prepayment Assumption. If market discount is treated as DE MINIMIS under
this rule, it appears that the actual discount would be treated in a manner
similar to original issue discount of a DE MINIMIS amount. See "-Original Issue
Discount" above. Such treatment would result in discount being included in
income at a slower rate than discount would be required to be included in income
using the method described above.
Section 1276(b)(3) of the Code specifically authorizes the Treasury
Department to issue regulations providing for the method for accruing market
discount on debt instruments, the principal of which is payable in more than one
installment. Until regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. The Committee Report indicates
that in each accrual period market discount on Bonds should accrue, at the
Bondholder's option: (i) on the basis of a constant yield method, (ii) in the
case of a Bond issued without original issue discount, in an amount that bears
the same ratio to the total remaining market discount as the stated interest
paid in the accrual period bears to the total amount of stated interest
remaining to be paid on the Bonds as of the beginning of the accrual period or
(iii) in the case of a Bond issued with original issue discount, in an amount
that bears the same ratio to the total remaining market discount as the original
issue discount accrued in the accrual period bears to the total original issue
discount remaining on the Bond at the beginning of the accrual period. Moreover,
the Prepayment Assumption used in calculating the accrual of original issue
discount is also used in calculating the accrual of market discount. Because the
regulations referred to in this paragraph have not been issued, it is not
possible to predict what effect such regulations might have on the tax treatment
of a Bond purchased at a discount in the secondary market.
To the extent that Bonds provide for monthly or other periodic
distributions throughout their term, the effect of these rules may be to require
market discount to be includible in income at a rate that is not
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significantly slower than the rate at which such discount would accrue if it
were original issue discount. Moreover, in any event a holder of a Bond
generally will be required to treat a portion of any gain on the sale or
exchange of such Bond as ordinary income to the extent of the market discount
accrued to the date of disposition under one of the foregoing methods, less any
accrued market discount previously reported as ordinary income.
Further, under Section 1277 of the Code, a holder of a Bond may be
required to defer a portion of its interest deductions for the taxable year
attributable to any indebtedness incurred or continued to purchase or carry a
Bond purchased with market discount. For these purposes, the DE MINIMIS rule
referred to above applies. Any such deferred interest expense would not exceed
the market discount that accrues during such taxable year and is, in general,
allowed as a deduction not later than the year in which such market discount is
includible in income. If such holder elects to include market discount in income
currently as it accrues on all market discount instruments acquired by such
holder in that taxable year or thereafter, the interest deferral rule described
above will not apply.
PREMIUM. A Bond purchased at a cost (excluding any portion of such cost
attributable to accrued qualified stated interest) greater than its remaining
stated redemption price will be considered to be purchased at a premium. The
holder of such a Bond may elect under Section 171 of the Code to amortize such
premium under the constant yield method over the remaining term of the Bond. If
made, such an election will apply to all debt instruments having amortizable
bond premium that the holder owns or subsequently acquires. Amortizable premium
will be treated as an offset to interest income on the related Bond, rather than
as a separate interest deduction. The OID Regulations also permit Bondholders to
elect to include all interest, discount and premium in income based on a
constant yield method, further treating the Bondholder as having made the
election to amortize premium generally. See "-Market Discount" above. The
Committee Report states that the same rules that apply to accrual of market
discount (which rules may require use of a prepayment assumption in accruing
market discount with respect to Bonds without regard to whether such Bonds have
original issue discount) would also apply in amortizing bond premium under
Section 171 of the Code.
REALIZED LOSSES. Under Section 166 of the Code, both corporate holders
of the Bonds and noncorporate holders of the Bonds that acquire such Bonds in
connection with a trade or business should be allowed to deduct, as ordinary
losses, any losses sustained during a taxable year in which their Bonds become
wholly or partially worthless as the result of one or more realized losses on
the Mortgage Loans. However, it appears that a noncorporate holder that does not
acquire a Bond in connection with a trade or business will not be entitled to
deduct a loss under Section 166 of the Code until such holder's Bond becomes
wholly worthless (i.e., until its outstanding principal balance has been reduced
to zero) and that the loss will be characterized as a short-term capital loss.
Each holder of a Bond will be required to accrue interest and original
issue discount with respect to such Bond, without giving effect to any
reductions in distributions attributable to defaults or delinquencies on the
Mortgage Loans until it can be established that any such reduction ultimately
will not be recoverable. As a result, the amount of taxable income reported in
any period by the holder of a Bond could exceed the amount of economic income
actually realized by the holder in such period. Although the holder of a Bond
eventually will recognize a loss or reduction in income attributable to
previously accrued and included income that, as the result of a realized loss,
ultimately will not be realized, the law is unclear with respect to the timing
and character of such loss or reduction in income.
SALES OF BONDS. If a Bond is sold, the selling Bondholder will
recognize gain or loss equal to the difference between the amount realized on
the sale and its adjusted basis in the Bond. The adjusted basis of a Bond
generally will equal the cost of such Bond to such Bondholder, increased by
income reported by such Bondholder with respect to such Bond (including original
issue discount and market discount
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income) and reduced (but not below zero) by any amortized premium and any
distributions on such bond received by such Bondholder. Except as provided in
the following two paragraphs, any such gain or loss will be capital gain or
loss, provided such Bond is held as a capital asset (generally, property held
for investment) within the meaning of Section 1221 of the Code. As a result of
the enactment of the Taxpayer Relief Act of 1997 on August 5, 1997, long-term
capital gains may be taxable at different rates depending upon when they are
realized, the holding period for the assets that produce the gain, and the
investor's tax bracket.
Gain recognized on the sale of a Bond by a seller who purchased such
Bond at a market discount will be taxable as ordinary income in an amount not
exceeding the portion of such discount that accrued during the period such Bond
was held by such holder, reduced by any market discount included in income under
the rules described above under "-Market Discount" and "-Premium."
A portion of any gain from the sale of a Bond that might otherwise be
capital gain may be treated as ordinary income to the extent that such Bond is
held as part of a "conversion transaction" within the meaning of Section 1258 of
the Code. A conversion transaction generally is one in which the taxpayer has
taken two or more positions in the same or similar property that reduce or
eliminate market risk, if substantially all of the taxpayer's return is
attributable to the time value of the taxpayer's net investment in such
transaction. The amount of gain so realized in a conversion transaction that is
recharacterized as ordinary income generally will not exceed the amount of
interest that would have accrued on the taxpayer's net investment at 120% of the
appropriate "applicable Federal rate" (which rate is computed and published
monthly by the IRS) at the time the taxpayer enters into the conversion
transaction, subject to appropriate reduction for prior inclusion of interest
and other ordinary income items from the transaction.
Finally, a taxpayer may elect to have net capital gain taxed at
ordinary income rates rather than capital gains rates in order to include such
net capital gain in total net investment income for the taxable year, for
purposes of the rule that limits the deduction of interest on indebtedness
incurred to purchase or carry property held for investment to a taxpayer's net
investment income.
BACKUP WITHHOLDING AND INFORMATION REPORTING. Payments of interest and
principal, as well as payments of proceeds from the sale of Bonds, may be
subject to the "backup withholding tax" under Section 3406 of the Code at a rate
of 31% if recipients of such payments fail to furnish to the payor certain
information, including their taxpayer identification numbers, or otherwise fail
to establish an exemption from such tax. Any amounts deducted and withheld from
a distribution to a recipient would be allowed as a credit against such
recipient's federal income tax. Furthermore, certain penalties may be imposed by
the IRS on a recipient of payments that is required to supply information but
that does not do so in the proper manner.
The Issuer will report to the Holders and to the IRS for each calendar
year the amount of any "reportable payments" during such year and the amount of
tax withheld, if any, with respect to payments
on the Bonds.
TAX TREATMENT OF FOREIGN INVESTORS. Interest paid on a Bond to a
nonresident alien individual, foreign partnership or foreign corporation that
has no connection with the United States other than holding Bonds
("Nonresidents"), such interest will normally qualify as portfolio interest
(except where (i) the recipient is a holder, directly or by attribution, of 10%
or more of the capital or profits interest in the Company, or (ii) the recipient
is a controlled foreign corporation to which the Company is a related person)
and will be exempt from federal income tax. Upon receipt of appropriate
ownership statements, the Issuer normally will be relieved of obligations to
withhold tax from such interest payments. These provisions supersede the
generally applicable provisions of United States law that would otherwise
require the issuer to withhold at a 30% rate (unless such rate were reduced or
eliminated by an applicable tax treaty) on,
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among other things, interest and other fixed or determinable, annual or periodic
income paid to Nonresidents. For these purposes a Bondholder may be considered
to be related to the Company by holding a Bond or by having common ownership
with any other holder of a Bond or any affiliate thereof.
STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described in
"Federal Income Tax Consequences", potential investors should consider the state
and local tax consequences of the acquisition, ownership, and disposition of the
Bonds offered hereunder. State tax law may differ substantially from the
corresponding federal tax law, and the discussion above does not purport to
describe any aspect of the tax laws of any state or other jurisdiction.
Therefore, prospective investors should consult their own tax advisors with
respect to the various tax consequences of investments in the certificates
offered hereunder.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Code impose certain requirements on employee benefit plans
and on certain other retirement plans and arrangements, including individual
retirement accounts and annuities, Keogh plans and collective investment funds
and separate accounts (and, as applicable, insurance company general accounts)
in which such plans, accounts or arrangements are invested that are subject to
the fiduciary responsibility provisions of ERISA and Section 4975 of the Code
("Plans") and on persons who are fiduciaries with respect to such Plans in
connection with the investment of Plan assets. Certain employee benefit plans,
such as governmental plans (as defined in ERISA Section 3(32)), and, if no
election has been made under Section 410(d) of the Code, church plans (as
defined in Section 3(33) of ERISA) are not subject to ERISA requirements.
Accordingly, assets of such plans may be invested in Bonds without regard to the
ERISA considerations described below, subject to the provisions of other
applicable federal and state law. Any such plan which is qualified and exempt
from taxation under Sections 401(a) and 501(a) of the Code, however, is subject
to the prohibited transaction rules set forth in Section 503 of the Code.
ERISA generally imposes on Plan fiduciaries certain general fiduciary
requirements, including those of investment prudence and diversification and the
requirement that a Plan's investments be made in accordance with the documents
governing the Plan. In addition, Section 406 of ERISA and Section 4975 of the
Code prohibit a broad range of transactions involving assets of a Plan and
persons (parties in interest under ERISA and disqualified persons under the
Code, collectively, "Parties in Interest") who have certain specified
relationships to the Plan unless a statutory or administrative exemption is
available. Certain Parties in Interest that participate in a prohibited
transaction may be subject to an excise tax imposed pursuant to Section 4975 of
the Code or a penalty imposed pursuant to Section 502(i) of ERISA, unless a
statutory or administrative exemption is available. These prohibited
transactions generally are set forth in Section 406 of ERISA and Section 4975 of
the Code.
The Trust Fund, the Company, any underwriter, the Owner Trustee, the
Indenture Trustee, the Master Servicer, any Administrator, any Servicer, any
provider of credit support or any of their affiliates may be considered to be or
may become Parties in Interest (or Disqualified Persons) with respect to certain
Plans. Prohibited transactions under Section 406 of ERISA and Section 4975 of
the Code may arise if a Bond is acquired by a Plan with respect to which such
persons are Parties in Interest (or Disqualified Persons) unless such
transactions are subject to one or more statutory or administrative exemptions,
such as: Prohibited Transaction Class Exemption ("PTCE") 75-1, which exempts
certain transactions involving Plans and certain broker-dealers, reporting
dealers and banks; PTCE 90-1, which exempts certain transactions between
insurance company separate accounts and Parties in Interest (or Disqualified
Persons); PTCE 91-38, which exempts certain transactions between bank collective
investment funds and Parties in
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Interest (or Disqualified Persons); PTCE 95-60, which exempts certain
transactions between insurance company general accounts and Parties in Interest
(or Disqualified Persons); or PTCE 84-14, which exempts certain transactions
effected on behalf of a Plan by a "qualified professional asset manager". There
can be no assurance that any of these class exemptions will apply with respect
to any particular Plan investment in Bonds or, even if it were deemed to apply,
that any exemption would apply to all prohibited transactions that may occur in
connection with such investment. Accordingly, prior to making an investment in
the Bonds, investing Plans should determine whether the Trust Fund, the Company,
any underwriter, the Owner Trustee, the Indenture Trustee, the Master Servicer,
any Administrator, any Servicer, any provider of credit support or any of their
affiliates is a Party in Interest (or Disqualified Person) with respect to such
Plan and, if so, whether such transaction is subject to one or more statutory or
administrative exemptions.
Any Plan fiduciary considering whether to invest in Bonds on
behalf of a Plan should consult with its counsel regarding the applicability of
the fiduciary responsibility and prohibited transaction provisions of ERISA and
the Code to such investment. Each Plan fiduciary also should determine whether,
under the general fiduciary standards of investment prudence and
diversification, an investment in the Bonds is appropriate for the Plan
considering the overall investment policy of the Plan and the composition of the
Plan's investment portfolio as well as whether such investment is permitted
under the governing Plan instruments.
TAX-EXEMPT INVESTORS
A Plan that is exempt from federal income taxation pursuant to
Section 501 of the Code (a "Tax-Exempt Investor") nonetheless will be subject to
federal income taxation to the extent that its income is "unrelated business
taxable income" ("UBTI") within the meaning of Section 512 of the Code.
LEGAL INVESTMENT MATTERS
Each class of Bonds offered hereby and by the related Prospectus
Supplement will be rated at the date of issuance in one of the four highest
rating categories by at least one Rating Agency. Each such class that is rated
in one of the two highest rating categories by at least one Rating Agency will
constitute "mortgage related securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 ("SMMEA"), and, as such, will be legal
investments for persons, trusts, corporations, partnerships, associations,
business trusts and business entities (including depository institutions, life
insurance companies and pension funds) created pursuant to or existing under the
laws of the United States or of any State whose authorized investments are
subject to state regulation to the same extent that, under applicable law,
obligations issued by or guaranteed as to principal and interest by the United
States or any agency or instrumentality thereof constitute legal investments for
such entities. Under SMMEA, if a State enacted legislation on or prior to
October 3, 1991 specifically limiting the legal investment authority of any such
entities with respect to "mortgage related securities," such securities will
constitute legal investments for entities subject to such legislation only to
the extent provided therein. Certain States have enacted legislation which
overrides the preemption provisions of SMMEA. SMMEA provides, however, that in
no event will the enactment of any such legislation affect the validity of any
contractual commitment to purchase, hold or invest in "mortgage related
securities," or require the sale or other disposition of such securities, so
long as such contractual commitment was made or such securities acquired prior
to the enactment of such legislation.
SMMEA also amended the legal investment authority of
federally-chartered depository institutions as follows: federal savings and loan
associations and federal savings banks may invest in, sell or otherwise deal
with "mortgage related securities" without limitation as to the percentage of
their assets represented thereby, federal credit unions may invest in such
securities, and national banks may purchase such securities for their own
account without regard to the limitations generally applicable to investment
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securities set forth in 12 U.S.C. 24 (Seventh), subject in each case to such
regulations as the applicable federal regulatory authority may prescribe.
The Federal Financial Institutions Examination Council has issued a
supervisory policy statement (the "Policy Statement") applicable to all
depository institutions, setting forth guidelines for and significant
restrictions on investments in "high-risk mortgage securities." The Policy
Statement has been adopted by the Federal Reserve Board, the Office of the
Comptroller of the Currency, the FDIC and the OTS with an effective date of
February 10, 1992. The Policy Statement generally indicates that a mortgage
derivative product will be deemed to be high risk if it exhibits greater price
volatility than a standard fixed rate thirty-year mortgage security. According
to the Policy Statement, prior to purchase, a depository institution will be
required to determine whether a mortgage derivative product that it is
considering acquiring is high-risk, and if so that the proposed acquisition
would reduce the institution's overall interest rate risk. Reliance on analysis
and documentation obtained from a securities dealer or other outside party
without internal analysis by the institution would be unacceptable. There can be
no assurance as to which classes of Bonds will be treated as high-risk under the
Policy Statement.
The predecessor to the Office of Thrift Supervision ("OTS") issued a
bulletin, entitled, "Mortgage Derivative Products and Mortgage Swaps", which is
applicable to thrift institutions regulated by the OTS. The bulletin established
guidelines for the investment by savings institutions in certain "high-risk"
mortgage derivative securities and limitations on the use of such securities by
insolvent, undercapitalized or otherwise "troubled" institutions. According to
the bulletin, such "high-risk" mortgage derivative securities include securities
having certain specified characteristics, which may include certain classes of
Bonds. In addition, the National Credit Union Administration has issued
regulations governing federal credit union investments which prohibit investment
in certain specified types of securities, which may include certain classes of
Bonds. Similar policy statements have been issued by regulators having
jurisdiction over other types of depository institutions.
Certain classes of Bonds offered hereby, including any class that is
not rated in one of the two highest rating categories by at least one Rating
Agency, will not constitute "mortgage related securities" for purposes of SMMEA.
Any such class of Bonds will be identified in the related Prospectus Supplement.
Prospective investors in such classes of Bonds, in particular, should consider
the matters discussed in the following paragraph.
There may be other restrictions on the ability of certain investors
either to purchase certain classes of Bonds or to purchase any class of Bonds
representing more than a specified percentage of the investors' assets. The
Company will make no representations as to the proper characterization of any
class of Bonds for legal investment or other purposes, or as to the ability of
particular investors to purchase any class of Bonds under applicable legal
investment restrictions. These uncertainties may adversely affect the liquidity
of any class of Bonds. Accordingly, all investors whose investment activities
are subject to legal investment laws and regulations, regulatory capital
requirements or review by regulatory authorities should consult with their own
legal advisors in determining whether and to what extent the Bonds of any class
thereof constitute legal investments or are subject to investment, capital or
other restrictions, and, if applicable, whether SMMEA has been overridden in any
jurisdiction relevant to such investor.
USE OF PROCEEDS
Substantially all of the net proceeds to be received from the sale of
Bonds will be applied by the Company to finance the purchase of, or to repay
short-term loans incurred to finance the purchase of, the Mortgage Loans in the
respective Mortgage Pools, and to pay other expenses. The Company expects that
it will make additional sales of securities similar to the Bonds from time to
time, but the timing and amount
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of any such additional offerings will be dependent upon a number of factors,
including the volume of mortgage loans purchased by the Company, prevailing
interest rates, availability of funds and general market conditions.
METHODS OF DISTRIBUTION
The Bonds offered hereby and by the related Prospectus Supplements 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 net proceeds to the
Company from such sale.
The Company intends that Bonds 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 the Bonds of a particular
series 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 Company with institutional investors
through dealers; and
3. By direct placements by the Company with institutional
investors.
If underwriters are used in a sale of any Bonds (other than in
connection with an underwriting on a best efforts basis), such Bonds 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. Such underwriters may be broker-dealers
affiliated with the Company whose identities and relationships to the Company
will be as set forth in the related Prospectus Supplement. The managing
underwriter or underwriters with respect to the offer and sale of the Bonds of a
particular series 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 Bonds, underwriters may receive
compensation from the Company or from purchasers of such Bonds in the form of
discounts, concessions or commissions. Underwriters and dealers participating in
the distribution of the Bonds may be deemed to be underwriters in connection
with such Bonds, and any discounts or commissions received by them from the
Company and any profit on the resale of Bonds by them may be deemed to be
underwriting discounts and commissions under the Securities Act of 1933, as
amended (the "Securities Act").
It is anticipated that the underwriting agreement pertaining to the
sale of Bonds of any series 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 Bonds if any are purchased
(other than in connection with an underwriting on a best efforts basis) and
that, in limited circumstances, the Company will indemnify the several
underwriters and the underwriters will indemnify the Company against certain
civil liabilities, including liabilities under the Securities Act or will
contribute to payments required to be made in respect thereof.
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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 Company and
purchasers of Bonds of such series.
The Company anticipates that the Bonds offered hereby will be sold
primarily to institutional investors or sophisticated non-institutional
investors. Purchasers of Bonds, 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
such Bonds. Holders of Bonds should consult with their legal advisors in this
regard prior to any such reoffer or sale.
LEGAL MATTERS
Certain legal matters, including certain federal income tax matters, in
connection with the Bonds of each series will be passed upon for the Company by
Thacher Proffitt & Wood, New York, New
York.
FINANCIAL INFORMATION
A new Trust fund will be formed with respect to each series of Bonds,
and no Trust Fund will engage in any business activities or have any assets or
obligations prior to the issuance of the related series of Bonds. Accordingly,
no financial statements with respect to any Trust Fund will be included in this
Prospectus or in the related Prospectus Supplement.
RATING
It is a condition to the issuance of any class of Bonds that they shall
have been rated not lower than investment grade, that is, in one of the four
highest rating categories, by at least one Rating Agency.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by the holders thereof of all collections on the underlying mortgage
assets to which such holders are entitled. These ratings address the structural,
legal and issuer-related aspects associated with such certificates, the nature
of the underlying mortgage assets and the credit quality of the guarantor, if
any. Ratings on mortgage pass-through certificates do not represent any
assessment of the likelihood of principal prepayments by borrowers or of the
degree by which such prepayments might differ from those originally anticipated.
As a result, Bondholders might suffer a lower than anticipated yield, and, in
addition, holders of stripped interest certificates in extreme cases might fail
to recoup their initial investments.
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<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
PAGE
----
1986 Act ........................................................90
Account Balance ........................................................26
Accrual Bonds .....................................................6, 41
Accrued Bond Interest.....................................................50
Additional Balance........................................................25
Additional Charges........................................................26
Administrator .........................................................5
Affiliated Sellers........................................................21
Agreements ........................................................67
ARM Loans ........................................................22
Available Distribution Amount.............................................49
Balloon Loans ........................................................23
Balloon Payment ....................................................23, 25
Bankruptcy Code ........................................................83
Bankruptcy Loss ........................................................54
Beneficial Owner ........................................................42
Bond Register ........................................................41
Bond Registrar ........................................................41
Bondholder ........................................................41
Bonds ..................................................1, 4, 41
Buydown Account ........................................................25
Buydown Agreement ........................................................47
Buydown Funds ........................................................25
Buydown Mortgage Loans....................................................25
Buydown Period ........................................................25
CERCLA ........................................................30
Certificates .........................................................4
Closing Date ........................................................92
Code ........................................................84
Collection Account........................................................45
Commission .........................................................3
Company ......................................................1, 4
Contracts ........................................................20
Convertible Mortgage Loan.................................................24
Credit Line Agreements....................................................25
Credit Utilization Rate...................................................24
Debt Service Coverage Ratio...............................................29
Debt Service Reduction....................................................59
Defaulted Mortgage Loss...................................................54
Deferred Interest ........................................................22
Deficient Valuation.......................................................59
Deleted Mortgage Loan.....................................................32
Designated Seller Transaction.............................................21
Determination Date........................................................49
Distribution Date .........................................................9
Draw ........................................................25
Draw Period ........................................................25
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DTC ........................................................42
DTC Registered Bonds......................................................42
Due Period ........................................................51
Entity Classification Regulations.........................................91
ERISA ....................................................12, 97
Event of Default ........................................................68
Excess Interest ........................................................59
Exchange Act .........................................................3
Excluded Balance ........................................................28
Extraordinary Losses......................................................54
FDIC ........................................................21
FHA ........................................................21
FHA Loans ........................................................21
FHLMC ........................................................30
Finance Charge ........................................................26
Financial Guaranty Insurance Policy.......................................55
FIRREA ........................................................30
FNMA ........................................................30
Fraud Loss ........................................................54
FTC Rule ........................................................86
Funding Account ........................................................51
Garn-St Germain Act.......................................................86
High Cost Loans ........................................................84
High LTV Loans ........................................................24
Holder ........................................................41
Homeownership Act ........................................................84
Housing Act ........................................................30
HUD ........................................................66
ICII ........................................................67
Impac Funding .....................................................4, 67
Impac Holdings .....................................................4, 67
Indenture ......................................................1, 4
Indenture Trustee .........................................................5
Index ........................................................22
Insurance Proceeds........................................................45
Insurer ........................................................55
Interest Rate .........................................................6
Intermediaries ........................................................42
IRS ........................................................90
Letter of Credit ........................................................55
Letter of Credit Bank.....................................................55
Liquidated Mortgage Loan..................................................38
Liquidation Proceeds......................................................46
Loan-to-Value Ratio.......................................................23
Lock-out Expiration Date..................................................23
Lock-out Period ........................................................23
Loss ........................................................64
Manufactured Homes........................................................20
Manufacturer's Invoice Price..............................................24
Master Servicer ..................................................1, 5, 33
Mortgage Loans ......................................................1, 5
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Mortgage Notes ........................................................20
Mortgage Pool ......................................................1, 7
Mortgage Rate ........................................................22
Mortgaged Property.........................................................7
Mortgages ........................................................20
Mortgagor ........................................................16
Multifamily Loans ........................................................20
Multifamily Properties....................................................20
Multifamily Property.......................................................7
Net Mortgage Rate ........................................................71
Net Operating Income......................................................29
Non-conforming credit.....................................................15
Nonrecoverable Advance....................................................52
Nonresidents ........................................................96
Note Margin ........................................................22
OID Regulations ........................................................91
OTS ........................................................99
Overcollateralization.....................................................59
Owner Trust .........................................................4
Owner Trustee .........................................................4
Participants ........................................................42
Parties in Interest.......................................................97
Percentage Interest.......................................................49
Permitted Investments.....................................................45
Plan ....................................................12, 97
Policy Statement ........................................................99
Pool Insurer ........................................................47
Prepayment Interest Shortfall.............................................73
Prepayment Penalty........................................................23
Primary Insurance Policy..................................................63
Primary Insurer ........................................................64
Prospectus Supplement......................................................1
PTCE ........................................................97
Purchase Obligation.......................................................63
Purchase Price ........................................................32
Qualified Substitute Mortgage Loan........................................32
Rating Agency ........................................................12
Realized Losses ........................................................54
Record Date ........................................................49
REIT ........................................................67
Related Proceeds ........................................................52
Relief Act ........................................................89
REMIC .........................................................1
REO Mortgage Loan ........................................................38
REO Property ........................................................36
Reserve Fund ........................................................59
Revolving Credit Loans....................................................25
RTC ........................................................21
Securities ......................................................1, 4
Securities Act ....................................................3, 100
Securityholders ........................................................27
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Seller .........................................................8
Sellers .....................................................1, 21
Senior Bonds .....................................................6, 41
Senior Liens ........................................................23
Senior/Subordinate Series.................................................41
Servicing Default ........................................................67
Servicing Standard........................................................34
Single Family Loans.......................................................20
Single Family Property....................................................20
SMMEA ....................................................12, 98
Special Hazard Instrument.................................................54
Special Hazard Insurance Policy...........................................58
Special Hazard Insurer....................................................58
Special Hazard Loss.......................................................54
Special Hazard Losses.....................................................58
Special Servicer .....................................................5, 36
Spread .........................................................5
Strip Bonds .....................................................6, 41
Subordinate Securities.................................................6, 41
Subservicer ........................................................36
Subservicers ........................................................27
Tax Counsel ........................................................91
Title V ........................................................88
Title VIII ........................................................88
TMP ........................................................90
Trust Agreement ......................................................1, 4
Trust Balance ........................................................27
Trust Fund ......................................................1, 5
Trust Fund Assets ......................................................1, 5
Unaffiliated Sellers......................................................21
Value ........................................................24
Wholly Owned Entity.......................................................90
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<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This preliminary prospectus supplement shall not constitute an offer
to sell or the solicitation of an offer to buy nor shall there be any sale of
these securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such State.
Subject to Completion Dated August 5, 1998
PROSPECTUS
Collateralized Mortgage Bonds
IMH Assets Corp.
The collateralized mortgage bonds (the "Bonds") offered hereby and by the
supplements hereto (each, a "Prospectus Supplement") will be offered from time
to time in series.
Each series of Bonds will represent indebtedness of the related trust fund (with
respect to any series, the "Trust Fund") to be established by IMH Assets Corp.
(the "Company") pursuant to a trust agreement (the "Trust Agreement") and will
be secured by certain assets deposited therein. Each Trust Fund for a series of
Bonds and the related Certificates (as defined herein, and together with the
Bonds, the "Securities") will consist primarily of a segregated pool (a
"Mortgage Pool") of various types of multifamily and commercial mortgage loans
(collectively, the "Mortgage Loans") that evidence interests in, or that are
secured by pledges of, one or more of various types of multifamily or commercial
mortgage loans. The Mortgage Loans in (and the mortgage loans underlying the
Notes in) any Trust Fund will be secured by first or junior liens on, or
security interests in, one or more of the following types of real property: (i)
residential properties consisting of five or more rental or cooperatively-owned
dwelling units and mobile home parks; and (ii) commercial properties consisting
of office buildings, retail shopping facilities, hotels and motels, health
care-related facilities, recreational vehicle parks, warehouse facilities,
mini-warehouse facilities, self-storage facilities, industrial facilities,
parking lots, restaurants, mixed use properties (that is, any combination of the
foregoing), and unimproved land. The Mortgage Loans were acquired by the Company
from one or more affiliated or unaffiliated institutions (the "Sellers"). See
"The Mortgage Pools." The Mortgage Loans and other assets in each Trust Fund,
which may only include, if applicable, reinvestment income, reserve funds, cash
accounts and various forms of credit enhancement as described herein
(collectively, the "Trust Fund Assets") will be pledged pursuant to an indenture
(the "Indenture") to secure a series of Bonds to the extent and as more fully
described herein under "The Agreements" and in the related Prospectus
Supplement. Information regarding the Bonds of a series, and the general
characteristics of the Mortgage Loans and other Trust Fund Assets in the related
Trust Fund, will be set forth in the related Prospectus Supplement.
Each series of Bonds will include one or more classes. Each class of Bonds of
any series will represent the right, which right may be senior or subordinate to
the rights of one or more of the other classes of Bonds to receive a specified
portion of payments of principal or interest (or both) on the Mortgage Loans and
the other Trust Fund Assets in the related Trust Fund in the manner described
herein under "Description of the Bonds" and in the related Prospectus
Supplement. A series may include one or more classes of Bonds entitled to
principal distributions, with disproportionate, nominal or no interest
distributions, or to interest distributions, with disproportionate, nominal or
no principal distributions. A series may include two or more classes of Bonds
which differ as to the timing, sequential order, priority of payment,
pass-through rate or amount of distributions of principal or interest or both.
The Company's only obligations with respect to a series of Bonds will be
pursuant to certain representations and warranties made by the Company, except
as provided in the related Prospectus Supplement. The master servicer (the
"Master Servicer") for any series of Bonds will be named in the related
Prospectus Supplement. The principal obligations of the Master Servicer will be
pursuant to its contractual servicing obligations (which include its limited
obligation to make certain advances in the event of delinquencies in payments on
the related Mortgage Loans). See "Description of the Bonds."
If so specified in the related Prospectus Supplement, the Trust Fund for a
series of Bonds may include any one or any combination of a financial guaranty
insurance policy, mortgage pool insurance policy, letter of credit, bankruptcy
bond, special hazard insurance policy or reserve fund. In addition to or in lieu
of the foregoing, Credit Enhancement (as defined herein) may be provided by
means of subordination of one or more classes of Bonds or by
Overcollateralization (as defined herein). See "Description of Credit
Enhancement."
The rate of payment of principal of each class of Bonds entitled to a portion of
principal payments on the Mortgage Loans and the other Trust Fund Assets in the
related Mortgage Pool will depend on the priority of payment of such class and
the rate and timing of principal payments (including by reason of prepayments,
defaults, liquidations and repurchases of Mortgage Loans) on such Mortgage Loans
and other Trust Fund Assets. A rate of principal payment slower or faster than
that anticipated may affect the yield on a class of Bonds in the manner
described herein and in the related Prospectus Supplement. See "Yield and
Maturity Considerations."
Bonds of a series will be characterized for federal income tax purposes as debt
instruments. No election will be made to treat a Trust Fund or a designated
portion thereof as a real estate mortgage investment conduit ("REMIC") for
federal income tax purposes. See "Federal Income Tax Consequences" herein.
SEE "RISK FACTORS" BEGINNING ON PAGE 13 HEREIN AND ON PAGE S-12 IN THE RELATED
PROSPECTUS SUPPLEMENT FOR A DISCUSSION OF SIGNIFICANT MATTERS AFFECTING
INVESTMENTS IN THE BONDS.
PROCEEDS OF THE ASSETS IN THE RELATED TRUST FUND AND PAYMENTS UNDER ANY BOND
INSURANCE POLICY ARE THE SOLE SOURCE OF PAYMENTS ON THE BONDS. THE BONDS DO NOT
REPRESENT AN INTEREST IN OR OBLIGATION OF THE COMPANY, THE MASTER SERVICER OR
ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE BONDS OF ANY SERIES NOR THE
UNDERLYING MORTGAGE LOANS WILL BE GUARANTEED OR INSURED BY ANY GOVERNMENTAL
AGENCY OR INSTRUMENTALITY OR BY THE COMPANY, THE MASTER SERVICER OR ANY OF THEIR
RESPECTIVE AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Bonds may be offered through one or more different methods, including
offerings through underwriters, as more fully described under "Methods of
Distribution" and in the related Prospectus Supplement.
<PAGE>
There will be no secondary market for the Bonds of any series prior to the
offering thereof. There can be no assurance that a secondary market for any of
the Bonds will develop or, if it does develop, that it will continue. The Bonds
will not be listed on any securities exchange.
Retain this Prospectus for future reference. This Prospectus may not be used to
consummate sales of securities offered hereby unless accompanied by a Prospectus
Supplement.
The date of this Prospectus is January __, 1998.
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<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Bonds offered
hereby and thereby or an offer of such Bonds to any person in any state or other
jurisdiction in which such offer would be unlawful. The delivery of this
Prospectus at any time does not imply that information herein is correct as of
any time subsequent to its date; however, if any material change occurs while
this Prospectus is required by law to be delivered, this Prospectus will be
amended or supplemented accordingly.
TABLE OF CONTENTS
Caption Page
- ------- ----
SUMMARY OF PROSPECTUS.........................................................5
RISK FACTORS.................................................................16
Limited Liquidity...................................................16
Limited Obligations.................................................16
Credit Enhancement Limitations......................................16
Limited Nature of Ratings...........................................17
Certain Factors Affecting Delinquency, Foreclosure and
Loss of the Mortgage Loans.................................17
Inclusion of Delinquent and Nonperforming Mortgage
Loans in a Mortgage Pool...................................20
THE MORTGAGE POOLS...........................................................21
General ...........................................................21
Mortgage Loans......................................................21
Collection Accounts.................................................25
Representations and Warranties; Repurchases.........................26
Credit Enhancement..................................................26
Cash Flow Agreements................................................27
SERVICING OF MORTGAGE LOANS..................................................27
General ...........................................................27
The Master Servicer.................................................27
Special Servicer....................................................27
Collection and Other Servicing Procedures...........................27
Sub-Servicers.......................................................30
Modifications, Waivers and Amendments of Mortgage
Loans......................................................30
Realization Upon Defaulted Mortgage Loans...........................30
Hazard Insurance Policies...........................................32
Due-on-Sale and Due-on-Encumbrance Provisions.......................33
Servicing Compensation and Payment of Expenses......................33
Evidence as to Compliance...........................................34
DESCRIPTION OF THE BONDS.....................................................34
General ...........................................................34
Form of Bonds.......................................................35
Assignment of Trust Fund Assets.....................................37
Collection Account..................................................39
Distributions.......................................................42
Distributions of Interest and Principal on the Bonds................43
Funding Account.....................................................44
Distributions on the Bonds in Respect of Prepayment
Premiums...................................................44
Allocation of Losses and Shortfalls.................................44
Advances ...........................................................45
Reports to Bondholders..............................................45
DESCRIPTION OF CREDIT ENHANCEMENT............................................47
General ...........................................................47
Subordinate Bonds...................................................47
Insurance or Guarantees with Respect to Mortgage Loans..............48
Letter of Credit....................................................48
Bond Insurance and Surety Bonds.....................................48
Reserve Funds.......................................................48
THE COMPANY..................................................................49
ICI FUNDING CORPORATION......................................................49
THE AGREEMENTS...............................................................49
Events of Default; Rights Upon Event of Default.....................50
Amendment...........................................................52
Termination; Redemption of Bonds....................................52
The Owner Trustee...................................................53
The Indenture Trustee...............................................53
YIELD AND MATURITY CONSIDERATIONS............................................53
General ...........................................................53
Pass-Through Rate...................................................53
Caption Page
- ------- ----
Payment Delays......................................................54
Certain Shortfalls in Collections of Interest.......................54
Yield and Prepayment Considerations.................................54
Weighted Average Life and Maturity..................................56
Other Factors Affecting Yield, Weighted Average Life and
Maturity...................................................57
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS......................................59
General ...........................................................59
Types of Mortgage Instruments.......................................59
Leases and Rents....................................................60
Personalty..........................................................60
Foreclosure.........................................................60
Bankruptcy Laws.....................................................64
Environmental Considerations........................................65
Due-on-Sale and Due-on-Encumbrance Provisions.......................67
Junior Liens; Rights of Holders of Senior Liens.....................67
Subordinate Financing...............................................67
Default Interest and Limitations on Prepayments.....................68
Applicability of Usury Laws.........................................68
Certain Laws and Regulations........................................68
Americans with Disabilities Act.....................................68
Soldiers' and Sailors' Civil Relief Act of 1940.....................69
Forfeitures in Drug and RICO Proceedings............................69
FEDERAL INCOME TAX CONSEQUENCES..............................................69
General ...........................................................69
STATE AND OTHER TAX CONSEQUENCES.............................................76
ERISA CONSIDERATIONS.........................................................77
Tax-Exempt Investors................................................78
LEGAL INVESTMENT MATTERS.....................................................78
USE OF PROCEEDS..............................................................79
METHODS OF DISTRIBUTION......................................................79
LEGAL MATTERS................................................................81
FINANCIAL INFORMATION........................................................81
RATING ......................................................................81
INDEX OF PRINCIPAL DEFINITIONS...............................................82
-3-
<PAGE>
UNTIL 90 DAYS AFTER THE DATE OF EACH PROSPECTUS SUPPLEMENT, ALL
DEALERS EFFECTING TRANSACTIONS IN THE RELATED BONDS, WHETHER OR NOT
PARTICIPATING IN THE DISTRIBUTION THEREOF, MAY BE REQUIRED TO DELIVER THIS
PROSPECTUS AND THE RELATED PROSPECTUS SUPPLEMENT. THIS DELIVERY REQUIREMENT IS
IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and in accordance therewith
files reports and other information with the Securities and Exchange Commission
(the "Commission"). Such reports and other information filed by the Company can
be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and its Regional
Offices located as follows: Chicago Regional Office, 500 West Madison, 14th
Floor, Chicago, Illinois 60661; New York Regional Office, Seven World Trade
Center, New York, New York 10048. Copies of such material can also be obtained
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates and electronically through the
Commission's Electronic Data Gathering, Analysis and Retrieval system at the
Commission's Web site (http:\\www.sec.gov). The Company does not intend to send
any financial reports to Bondholders.
This Prospectus does not contain all of the information set forth in
the Registration Statement (of which this Prospectus forms a part) and exhibits
thereto which the Company has filed with the Commission under the Securities Act
of 1933 (the "Securities Act") and to which reference is hereby made.
REPORTS TO BONDHOLDERS
The Master Servicer or other designated person will be required to
provide periodic unaudited reports concerning each Trust Fund to all registered
holders of Bonds of the related series as are required under the Exchange Act
and the rules and regulations of the Commission thereunder. See "Description of
the Bonds--Reports to Bondholders."
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein and in the related Prospectus Supplement
by reference all documents and reports filed or caused to be filed by the
Company with respect to a Trust Fund pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act, prior to the termination of the offering of the Bonds
of the related series. The Company will provide or cause to be provided without
charge to each person to whom this Prospectus is delivered in connection with
the offering of one or more classes of Bonds, upon written or oral request of
such person, a copy of any or all such reports incorporated herein by reference,
in each case to the extent such reports relate to one or more of such classes of
such Bonds, other than the exhibits to such documents, unless such exhibits are
specifically incorporated by reference in such documents. Requests should be
directed in writing to IMH Assets Corp., 20371 Irvine Avenue, Suite 200, Santa
Ana Heights, California 92707, or by telephone at (714) 556-0122. The Company
has determined that its financial statements will not be material to the
offering of any Bonds.
-4-
<PAGE>
SUMMARY OF PROSPECTUS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to each series of Bonds contained in the Prospectus
Supplement to be prepared and delivered in connection with the offering of Bonds
of such series. Capitalized terms used in this summary that are not otherwise
defined shall have the meanings ascribed thereto elsewhere in this Prospectus.
An index indicating where certain capitalized terms used herein are defined
appears at the end of this Prospectus.
Securities Offered.......... Collateralized mortgage bonds (the "Bonds"). The
Bonds offered hereby and by the various
Prospectus Supplements with respect hereto will
be offered from time to time in series.
Company..................... IMH Assets Corp. (the "Company"), a limited-
purpose wholly owned subsidiary of Imperial
Credit Mortgage Holdings, Inc. ("Imperial
Holdings") and an affiliate of ICI Funding
Corporation ("ICI Funding"). See "The Company."
Issuer...................... The Issuer with respect to a series of Bonds
will be the Company or an owner trust
established by it for the purpose of issuing one
or more series of Bonds. Each such owner trust
will be created pursuant to a trust agreement
(the "Trust Agreement") between the Company,
acting as depositor, and the Owner Trustee. Each
series of Bonds will represent indebtedness of
the Issuer and will be issued pursuant to an
indenture between the Issuer and the Indenture
Trustee (the "Indenture") whereby the Issuer
will pledge the Trust Fund to secure the Bonds
under the lien of the Indenture. As to each
series of Bonds where the Issuer is an owner
trust, the ownership of the Trust Fund will be
evidenced by certificates (the "Certificates,"
and together with the Bonds, the "Securities")
issued under the Trust Agreement, which are not
offered hereby. The Bonds will represent
nonrecourse obligations solely of the Issuer,
and the proceeds of the Trust Fund will be the
sole source of payments on the Bonds, except as
described herein under "Description of Credit
Enhancement" and in the related Prospectus
Supplement.
-5-
<PAGE>
Master Servicer............. The master servicer (the "Master Servicer"), if
any, for a series of Bonds will be specified in
the related Prospectus Supplement and may be ICI
Funding or another affiliate of the Company. See
"ICI Funding Corporation" and "Servicing of
Mortgage Loans--The Master Servicer."
Special Servicer............ The special servicer (the "Special Servicer"),
if any, for a series of Bonds will be specified,
or the circumstances under which a Special
Servicer will be appointed will be described, in
the related Prospectus Supplement. Any Special
Servicer may be an affiliate of the Company. See
"Servicing of Mortgage Loans--Special
Servicers."
Administrator............... An entity may be named as the Administrator in
the related Prospectus Supplement, if required
in addition to or in lieu of the Master Servicer
or Servicer for a series of Bonds (the
"Administrator").
Indenture Trustee........... The Indenture Trustee for each series of Bonds
will be specified in the related Prospectus
Supplement (the "Indenture Trustee").
Owner Trustee............... As to each series of Bonds where the Issuer in
an owner trust, the Owner Trustee for each
related Trust Fund will be specified in the
related Prospectus Supplement (the "Owner
Trustee").
The Bonds................... Each series of Bonds will include one or more
classes of Bonds which will represent
indebtedness secured by a segregated pool of
Mortgage Loans (exclusive of any portion of
interest payments (the "Spread") relating to
each Mortgage Loan retained by the Company or
any of its affiliates) or interests therein and
certain other assets, which may only include, if
applicable, reinvestment income, reserve funds,
cash accounts and various forms of Credit
Enhancement as described herein (collectively,
the "Trust Fund Assets," and the related trust
fund, the "Trust Fund").
Except for certain Strip Bonds (as hereinafter
described), each series of Bonds, or class of
Bonds
-6-
<PAGE>
in the case of a series consisting of two or
more classes, will have a stated principal
balance and will be entitled to distributions of
interest based on a specified interest rate or
rates (each, an "Interest Rate"). Each series or
class of Bonds may have a different Interest
Rate, which may be a fixed, variable or
adjustable Interest Rate, or any combination of
two or more such Interest Rates. The related
Prospectus Supplement will specify the Interest
Rate or Rates for each series or class of Bonds,
or the initial Interest Rate or Rates and the
method for determining subsequent changes to the
Interest Rate or Rates.
A series may include one or more classes of
Bonds ("Strip Bonds") entitled (i) to principal
distribu tions, with disproportionate, nominal
or no interest distributions, or (ii) to
interest distributions, with disproportionate,
nominal or no principal distribu tions. In
addition, a series may include two or more
classes of Bonds which differ as to timing,
sequential order, priority of payment,
pass-through rate or amount of distributions of
principal or interest or both, or as to which
distributions of principal or interest or both
on any class may be made upon the occurrence of
specified events, in accordance with a schedule
or formula, or on the basis of collections from
designated portions of the Mortgage Pool, which
series may include one or more classes of Bonds
("Accrual Bonds"), as to which certain accrued
interest will not be distributed but rather will
be added to the principal balance thereof on
each Distribution Date, as hereinafter defined,
in the manner described in the related
Prospectus Supplement.
If so provided in the related Prospectus
Supplement, a series of Bonds may include one or
more classes of Bonds (collectively, the "Senior
Bonds") which are senior to one or more classes
of Bonds (collectively, the "Subordinate Bonds")
in respect of certain distributions of principal
and interest and allocations of losses on
Mortgage Loans. In addition, certain classes of
Senior (or Subordinate) Bonds may be senior to
other classes
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of Senior (or Subordinate) Bonds in respect of
such distributions or losses. The Certificates,
insofar as they represent the beneficial
ownership interest in the Issuer, will be
subordinate to the Bonds. See "Description of
the Bonds."
The Bonds will not be guaranteed or insured by
any governmental agency or instrumentality, by
the Company, the Master Servicer or any of their
respective affiliates.
Bonds of one or more classes of a series may be
issued in book-entry form. See "Description of
the Bonds--Form of Bonds."
The Mortgage Pools.......... Each Trust Fund will consist primarily of a
segregated pool (a "Mortgage Pool") of mortgage
loans secured by first or junior liens on, or
security interests in, one or more of the
following types of real property: (i)
residential properties ("Multifamily
Properties") consisting of five or more rental
or cooperatively-owned dwelling units in
high-rise, mid-rise or garden apartment
buildings or other residential structures, and
mobile home parks; and (ii) commercial
properties ("Commercial Properties") consisting
of office buildings, retail shopping facilities
(such as shopping centers, malls and individual
stores), hotels and motels, health care-related
facilities (such as hospitals, skilled nursing
facilities, nursing homes, congregate care
facilities and senior housing), recreational
vehicle parks, warehouse facilities,
mini-warehouse facilities, self-storage
facilities, industrial facilities, parking lots,
restaurants, mixed use properties (that is, any
combination of the foregoing), and unimproved
land. The Mortgaged Properties may be located in
any one of the 50 states, the District of
Columbia or the Commonwealth of Puerto Rico. For
a description of the types of Mortgage Loans
that may be included in the Mortgage Pools, see
"The Mortgage Pools--The Mortgage Loans." The
Mortgage Loans will not be guaranteed or insured
by the Company, any of its affiliates or by any
governmental agency or instrumentality.
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As and to the extent described in the related
Prospectus Supplement, a Mortgage Loan (i) may
provide for no accrual of interest or for
accrual of interest thereon at an interest rate
(a "Mortgage Rate") that is fixed over its term
or that adjusts from time to time, or that may
be converted at the borrower's election from an
adjustable to a fixed Mortgage Rate, or from a
fixed to an adjustable Mortgage Rate, (ii) may
provide for level payments to maturity or for
payments that adjust from time to time to
accommodate changes in the Mortgage Rate or to
reflect the occurrence of certain events, and
may permit negative amortization, (iii) may be
fully amortizing or may be partially amortizing
or nonamortizing, with a balloon payment due on
its stated maturity date, (iv) may prohibit over
its term or for a certain period prepayments
and/or require payment of a premium or a yield
maintenance payment in connection with certain
prepayments and (v) may provide for payments of
principal, interest or both, on due dates that
occur monthly, quarterly, semi-annually or at
such other interval as is specified in the
related Prospectus Supplement. Each Mortgage
Loan will have had an original term to maturity
of not more than 40 years. No Mortgage Loan will
have been originated by the Company. See "The
Mortgage Pools-Mortgage Loans".
If any Mortgage Loan, or group of related
Mortgage Loans, constitutes a concentration of
credit risk, financial statements or other
financial information with respect to the
related Mortgaged Property or Mortgaged
Properties will be included in the related
Prospectus Supplement. [See "The Mortgage
Pools-Mortgage Loans-Mortgage Loan Information
in Prospectus Supplements".]
If specified in the related Prospectus
Supplement, Mortgage Loans which are converting
or converted from an adjustable-rate to a
fixed-rate or certain Mortgage Loans for which
the Mortgage Rate has been reset may be
repurchased by the Company or
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purchased by the related Master Servicer, the
applicable Seller or another party, or a
designated remarketing agent will use its best
efforts to arrange the sale thereof as further
described herein under "The Mortgage Pools--The
Mortgage Loans."
If so specified in the related Prospectus
Supplement, some Mortgage Loans may be
delinquent or non-performing as of the date of
their deposit in the related Trust Fund.
Each Mortgage Loan included in a Trust Fund will
have been selected by the Company from among
those purchased, either directly or indirectly,
from a prior holder thereof (a "Seller"), which
prior holder may or may not be the originator of
such Mortgage Loan and may be an affiliate of
the Company.
A Current Report on Form 8-K will be available
upon request to purchasers of the Bonds of the
related series and will be filed, together with
the related Servicing Agreement, Trust Agreement
(if any) and Indenture, with the Securities and
Exchange Commission within fifteen days after
such initial issuance.
Interest Distributions...... Except as otherwise specified herein or in the
related Prospectus Supplement, interest on each
class of Bonds of each series, other than Strip
Bonds or Accrual Bonds (prior to the time when
accrued interest becomes payable thereon), will
accrue at the applicable Interest Rate (which
may be a fixed, variable or adjustable rate or
any combination thereof) on such class's
principal balance outstanding from time to time
and will be remitted on the 25th day (or, if
such day is not a business day, on the next
succeeding business day) of each month,
commencing with the month following the month in
which the Cut-off Date (as defined in the
applicable Prospectus Supplement) occurs (each,
a "Distribution Date"). Distributions, if any,
with respect to interest on Strip Bonds will be
calculated and made on each
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Distribution Date as described herein under
"Description of the Bonds--Distribution of
Interest and Principal on the Bonds" and in the
related Prospectus Supplement. Interest that has
accrued but is not yet payable on any Accrual
Bonds will be added to the principal balance of
such class on each Distribution Date, and will
thereafter bear interest at the applicable
Interest Rate. Distributions of interest with
respect to one or more classes of Bonds (or, in
the case of a class of Accrual Bonds, accrued
interest to be added to the principal balance
thereof) may be reduced as a result of the
occurrence of certain delinquencies not covered
by advances, losses, prepayments and other
contingencies described herein and in the
related Prospectus Supplement. See "Yield and
Maturity Considerations" and "Description of the
Bonds--Distribution of Interest and Principal on
the Bonds."
Principal Distributions..... Except as otherwise specified in the related
Prospectus Supplement, principal distributions
on the Bonds of each series will be payable on
each Distribution Date, commencing with the
Distribution Date in the month following the
month in which the Cut-off Date occurs, to the
holders of the Bonds of such series, or of the
class or classes of Bonds then entitled thereto,
on a pro rata basis among all such Bonds or
among the Bonds of any such class, in proportion
to their respective outstanding principal
balances, or in the priority and manner
otherwise specified in the related Prospectus
Supplement. Strip Bonds with no principal
balance will not receive distributions in
respect of principal. Distributions of principal
with respect to any series of Bonds, or with
respect to one or more classes included therein,
may be reduced to the extent of certain
delinquencies not covered by advances or losses
not covered by the applicable form of Credit
Enhancement. See "The Mortgage Pools," "Yield
and Maturity Considerations" and "Description of
the Bonds."
Funding Account............. If so specified in the related Prospectus
Supplement, a portion of the proceeds of the
sale
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of one or more Classes of Bonds of a series may
be deposited in a segregated account to be
applied to acquire additional Mortgage Loans
from the Sellers, subject to the limitations set
forth herein under "Description of the
Bonds-Funding Account." Monies on deposit in the
Funding Account and not applied to acquire such
additional Mortgage Loans within the time set
forth in the related Trust Agreement or other
applicable agreement may be treated as principal
and applied in the manner described in the
related Prospectus Supplement.
Credit Enhancement.......... If so provided in the related Prospectus
Supplement, partial or full protection against
certain defaults and losses on the Mortgage
Loans in the related Trust Fund may be provided
to one or more classes of Bonds of the related
series in the form of subordination of one or
more other classes of Bonds of such series,
which other classes may include one or more
classes of Bonds, or by one or more other types
of credit enhancement, such as a letter of
credit, insurance policy, guarantee, reserve
fund or another type of credit enhancement, or a
combination thereof (any such coverage with
respect to the Bonds of any series, "Credit
Enhancement"). If so provided in the related
Prospectus Supplement, a Trust Fund may include:
(i) guaranteed investment contracts pursuant to
which moneys held in the funds and accounts
established for the related series will be
invested at a specified rate; or (ii) certain
other agreements, such as interest rate exchange
agreements, interest rate cap or floor
agreements, or other agreements designed to
reduce the effects of interest rate fluctuations
on the Mortgage Loans or on one or more classes
of Bonds (any such agreement, in the case of
clause (i) or (ii), a "Cash Flow Agreement").
Certain relevant information regarding any
applicable Credit Enhancement or Cash Flow
Agreement will be set forth in the Prospectus
Supplement for a series of Bonds. See "Risk
Factors-Credit Enhancement Limitations",
"Description of the Trust Funds-Credit
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Enhancement" and "-Cash Flow Agreements" and
"Description of Credit Enhancement".
Advances.................... If and to the extent described in the related
Prospectus Supplement, and subject to any
limitations specified therein, the Master
Servicer for any Trust Fund will be obligated to
make, or have the option of making, certain
advances with respect to delinquent scheduled
payments on the Mortgage Loans in such Trust
Fund. Any such advance made by the Master
Servicer with respect to a Mortgage Loan is
recoverable by it as described herein under
"Description of the Bonds--Advances" either from
recoveries on or in respect of the specific
Mortgage Loan or, with respect to any advance
subsequently determined to be nonrecoverable
from recoveries on or in respect of the specific
Mortgage Loan, out of funds otherwise
distributable to the holders of the related
series of Bonds, which may include the holders
of any Senior Bonds of such series. If and to
the extent provided in the Prospectus Supplement
for a series of Bonds, the Master Servicer will
be entitled to receive interest on its advances
for the period that they are outstanding payable
from amounts in the related Trust Fund.
Optional Termination........ The Master Servicer, the Company or a person
specified in the related Prospectus Supplement
(other than any Bondholder) may at its option
either (i) effect early retirement of a series
of Bonds through the purchase of the assets in
the related Trust Fund or (ii) purchase, in
whole but not in part, the Bonds specified in
the related Prospectus Supplement; in each case
under the circumstances and in the manner set
forth herein under "The Agreements--Termination;
Redemption of Bonds" and in the related
Prospectus Supplement.
Legal Investment............ At the date of issuance, as to each series, each
class of Bonds will be rated at the request of
the Company in one of the four highest rating
categories by one or more nationally recognized
statistical rating agencies (each, a "Rating
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<PAGE>
Agency"). Each class of Bonds that is rated in
one of the two highest rating categories by at
least one Rating Agency will constitute
"mortgage related securities" for purposes of
the Secondary Mortgage Market Enhancement Act of
1984, as amended ("SMMEA"). Investors whose
investment authority is subject to legal
restrictions should consult their own legal
advisors to determine whether and to what extent
the Bonds of any series constitute legal
investments for them. See "Legal Investment
Matters."
ERISA Considerations........ A fiduciary of an employee benefit plan and
certain other retirement plans and arrangements,
including individual retirement accounts and
annuities, Keogh plans, and collective
investment funds and separate accounts in which
such plans, accounts, annuities or arrangements
are invested, that is subject to the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA"), or Section 4975 of the Code
(each, a "Plan") should carefully review with
its legal advisors whether the purchase or
holding of Bonds could give rise to a
transaction that is prohibited or is not
otherwise permissible either under ERISA or
Section 4975 of the Code. Investors are advised
to consult their counsel and to review "ERISA
Considerations" herein and in the related
Prospectus Supplement.
Federal Income
Tax Consequences.......... In the opinion of Tax Counsel (as defined
herein), for federal income tax purposes, the
Bonds will constitute indebtedness of the
Issuer.
(i) Bonds held by a domestic building and loan
association will not constitute "loans...secured
by an interest in real property" within the
meaning of Code section 7701(a)(19)(C)(v); (ii)
Bonds held by a real estate investment trust
will not constitute "real estate assets" within
the meaning of Code section 856(c)(4)(A); and
(iii) interest on Bonds will not be considered
"interest on obligations secured by mortgages on
real property" within the meaning of Code
section 856(c)(3)(B).
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<PAGE>
Investors are advised to consult their tax
advisors as to the tax consequences of an
investment in the Bonds in light of investors'
individual circumstances and to review "Federal
Income Tax Consequences" herein and in the
related Prospectus Supplement for a more general
discussion of material tax matters related to
the Bonds. See "Federal Income Tax
Consequences."
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RISK FACTORS
Investors should consider, among other things, the following factors
in connection with the purchase of the Bonds:
LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Bonds of any
series will develop or, if it does develop, that it will provide Bondholders
with liquidity of investment or that it will continue for the life of the Bonds
of any series. The Prospectus Supplement for any series of Bonds may indicate
that an underwriter specified therein intends to establish a secondary market in
such Bonds, however no underwriter will be obligated to do so. As a result, any
resale prices that may be available for any Bond in any market that may develop
may be at a discount from the initial offering price or the fair market value
thereof. The Bonds will not be listed on any securities exchange.
LIMITED OBLIGATIONS
The Bonds will evidence an obligation of the related Issuer to remit
certain payments to the registered holder thereof. The Bonds will not represent
an interest in or obligation of the Company, the Master Servicer or any of their
respective affiliates. The only obligations of the foregoing entities with
respect to the Bonds and the Mortgage Loans will be the obligations (if any) of
the Company or the Master Servicer pursuant to certain limited representations
and warranties made with respect to the Mortgage Loans, the Master Servicer's
servicing obligations under the related Servicing Agreement (including, if and
to the extent described in the related Prospectus Supplement, its limited
obligation to make certain advances in the event of delinquencies on the
Mortgage Loans). Neither the Bonds nor the underlying Mortgage Loans will be
guaranteed or insured by any governmental agency or instrumentality, by the
Company, the Master Servicer or any of their respective affiliates. Proceeds of
the assets included in the related Trust Fund for each series of Bonds
(including the Mortgage Loans and any form of Credit Enhancement) will be the
sole source of payments on the Bonds, and there will be no recourse to the
Company, the Master Servicer or any other entity in the event that such proceeds
are insufficient or otherwise unavailable to make all payments provided for
under the Bonds.
CREDIT ENHANCEMENT LIMITATIONS
LIMITATIONS REGARDING TYPES OF LOSSES COVERED. The Prospectus
Supplement for a series of Bonds will describe any Credit Enhancement provided
with respect thereto. Use of Credit Enhancement will be subject to the
conditions and limitations described herein and in the related Prospectus
Supplement. Moreover, such Credit Enhancement may not cover all potential
losses; for example, Credit Enhancement may or may not cover loss by reason of
fraud or negligence by a mortgage loan originator or other parties. Any such
losses not covered by Credit Enhancement may, at least in part, be allocated to
one or more classes of Bonds.
DISPROPORTIONATE BENEFITS TO CERTAIN CLASSES AND SERIES. A series of
Bonds may include one or more classes of Subordinate Bonds, if so provided in
the related Prospectus Supplement. Although subordination is intended to reduce
the likelihood of temporary shortfalls and ultimate losses to holders of Senior
Bonds, the amount of subordination will be limited and may decline under certain
circumstances. In addition, if principal payments on one or more classes of
Bonds of a series are made in a specified order of priority, any related Credit
Enhancement may be exhausted before the principal of the later paid classes of
Bonds of such series has been repaid in full. As a result, the impact of losses
and shortfalls experienced with respect to the Mortgage Loans may fall primarily
upon those classes of Bonds having a later right of
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payment. Moreover, if a form of Credit Enhancement covers the Bonds of more than
one series and losses on the related Mortgage Loans exceed the amount of such
Credit Enhancement, it is possible that the holders of Bonds of one (or more)
such series will be disproportionately benefited by such Credit Enhancement to
the detriment of the holders of Bonds of one (or more) other such series.
LIMITATIONS REGARDING THE AMOUNT OF CREDIT ENHANCEMENT. The amount of
any applicable Credit Enhancement supporting one or more classes of Bonds,
including the subordination of one or more other classes of Bonds, will be
determined on the basis of criteria established by each Rating Agency rating
such classes of Bonds based on an assumed level of defaults, delinquencies and
losses on the underlying Mortgage Loans and certain other factors. There can,
however, be no assurance that the loss experience on the related Mortgage Loans
will not exceed such assumed levels. See "Description of the Bonds--Allocation
of Losses and Shortfalls" and "Description of Credit Enhancement". If the losses
on the related Mortgage Loans do exceed such assumed levels, the holders of one
or more classes of Bonds will be required to bear such additional losses.
LIMITED NATURE OF RATINGS
It is a condition to the issuance of the Bonds that each class of
Bonds be rated in one of the four highest rating categories by a nationally
recognized statistical rating agency. A security rating is not a recommendation
to buy, sell or hold securities and may be subject to revision or withdrawal at
any time. No person is obligated to maintain the rating on any Bond, and,
accordingly, there can be no assurance that the ratings assigned to any Bond on
the date on which such Bonds are initially issued will not be lowered or
withdrawn by a Rating Agency at any time thereafter. In the event any rating is
revised or withdrawn, the liquidity or the market value of the related Bonds may
be adversely affected. See "Rating" herein.
CERTAIN FACTORS AFFECTING DELINQUENCY, FORECLOSURE AND LOSS OF THE MORTGAGE
LOANS
GENERAL. The payment performance of the Bonds of any series will be
directly related to the payment performance of the underlying Mortgage Loans.
Set forth below is a discussion of certain factors that will affect the full and
timely payment of the Mortgage Loans in any Trust Fund. In addition, a
description of certain material considerations associated with investments in
mortgage loans is included herein under "Certain Legal Aspects of Mortgage
Loans".
The Bonds will be directly or indirectly backed by mortgage loans
secured by multifamily and/or commercial properties. Mortgage loans made on the
security of multifamily or commercial property may have a greater likelihood of
delinquency and foreclosure, and a greater likelihood of loss in the event
thereof, than loans made on the security of an owner-occupied single-family
property. See "The Mortgage Pools-Mortgage Loans-Default and Loss Considerations
with Respect to the Mortgage Loans". The ability of a borrower to repay a loan
secured by an income-producing property typically is dependent primarily upon
the successful operation of such property rather than upon the existence of
independent income or assets of the borrower; thus, the value of an
income-producing property is directly related to the net operating income
derived from such property. If the net operating income of the property is
reduced (for example, if rental or occupancy rates decline or real estate tax
rates or other operating expenses increase), the borrower's ability to repay the
loan may be impaired. A number of the Mortgage Loans may be secured by liens on
owner-occupied Mortgaged Properties or on Mortgaged Properties leased to a
single tenant or a small number of significant tenants. Accordingly, a decline
in the financial condition of the borrower or a significant tenant, as
applicable, may have a disproportionately greater effect on the net operating
income from such Mortgaged Properties than would be the case with respect to
Mortgaged Properties with multiple tenants. Furthermore, the value of any
Mortgaged Property may be adversely affected by factors generally incident to
interests in real property, including changes in general or local
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economic conditions and/or specific industry segments; declines in real estate
values; declines in rental or occupancy rates; increases in interest rates, real
estate tax rates and other operating expenses; changes in governmental rules,
regulations and fiscal policies, including environmental legislation; natural
disasters and civil disturbances such as earthquakes, hurricanes, floods,
eruptions or riots; and other circumstances, conditions or events beyond the
control of a Master Servicer or a Special Servicer. Additional considerations
may be presented by the type and use of a particular Mortgaged Property. For
instance, Mortgaged Properties that operate as hospitals and nursing homes are
subject to significant governmental regulation of the ownership, operation,
maintenance and financing of health care institutions. Hotel and motel
properties are often operated pursuant to franchise, management or operating
agreements that may be terminable by the franchisor or operator, and the
transferability of a hotel's operating, liquor and other licenses upon a
transfer of the hotel, whether through purchase or foreclosure, is subject to
local law requirements.
In addition, the concentration of default, foreclosure and loss risks
in individual Mortgage Loans in a particular Trust Fund will generally be
greater than for pools of single-family loans because Mortgage Loans in a Trust
Fund will generally consist of a smaller number of higher balance loans than
would a pool of single-family loans of comparable aggregate unpaid principal
balance.
LIMITED RECOURSE NATURE OF THE MORTGAGE LOANS. It is anticipated that
some or all of the Mortgage Loans included in any Trust Fund will be nonrecourse
loans or loans for which recourse may be restricted or unenforceable. As to any
such Mortgage Loan, recourse in the event of borrower default will be limited to
the specific real property and other assets, if any, that were pledged to secure
the Mortgage Loan. However, even with respect to those Mortgage Loans that
provide for recourse against the borrower and its assets generally, there can be
no assurance that enforcement of such recourse provisions will be practicable,
or that the assets of the borrower will be sufficient to permit a recovery in
respect of a defaulted Mortgage Loan in excess of the liquidation value of the
related Mortgaged Property. See "Certain Legal Aspects of Mortgage
Loans-Foreclosure--Anti-Deficiency Legislation".
LIMITATIONS ON ENFORCEABILITY OF CROSS-COLLATERALIZATION. A Mortgage
Pool may include groups of Mortgage Loans which are cross-collateralized and
cross-defaulted. These arrangements are designed primarily to ensure that all of
the collateral pledged to secure the respective Mortgage Loans in a cross-
collateralized group, and the cash flows generated thereby, are available to
support debt service on, and ultimate repayment of, the aggregate indebtedness
evidenced by those Mortgage Loans. These arrangements thus seek to reduce the
risk that the inability of one or more of the Mortgaged Properties securing any
such group of Mortgage Loans to generate net operating income sufficient to pay
debt service will result in defaults and ultimate losses.
There may not be complete identity of ownership of the Mortgaged
Properties securing a group of cross-collateralized Mortgage Loans. In such an
instance, creditors of one or more of the related borrowers could challenge the
cross-collateralization arrangement as a fraudulent conveyance. Generally, under
federal and state fraudulent conveyance statutes, the incurring of an obligation
or the transfer of property by a person will be subject to avoidance under
certain circumstances if the person did not receive fair consideration or
reasonably equivalent value in exchange for such obligation or transfer and was
then insolvent or was rendered insolvent by such obligation or transfer.
Accordingly, a creditor seeking ownership of a Mortgaged Property subject to
such cross-collateralization to repay such creditor's claim against the related
borrower could assert (i) that such borrower was insolvent at the time the
cross- collateralized Mortgage Loans were made and (ii) that such borrower did
not, when it allowed its property to be encumbered by a lien securing the
indebtedness represented by the other Mortgage Loans in the group of
cross-collateralized Mortgage Loans, receive fair consideration or reasonably
equivalent value for, in effect, "guaranteeing" the performance of the other
borrowers. Although the borrower making such "guarantee" will be receiving
"guarantees" from each of the other borrowers in return, there can be no
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assurance that such exchanged "guarantees" would be found to constitute fair
consideration or be of reasonably equivalent value, and no unqualified legal
opinion to that effect will be obtained.
The cross-collateralized Mortgage Loans constituting any group thereof
may be secured by mortgage liens on Mortgaged Properties located in different
states. Because of various state laws governing foreclosure or the exercise of a
power of sale and because, in general, foreclosure actions are brought in state
court, and the courts of one state cannot exercise jurisdiction over property in
another state, it may be necessary upon a default under any such Mortgage Loan
to foreclose on the related Mortgaged Properties in a particular order rather
than simultaneously in order to ensure that the lien of the related Mortgages is
not impaired or released.
INCREASED RISK OF DEFAULT ASSOCIATED WITH BALLOON PAYMENTS. Certain of
the Mortgage Loans included in a Trust Fund may be nonamortizing or only
partially amortizing over their terms to maturity and, thus, will require
substantial payments of principal and interest (that is, balloon payments) at
their stated maturity. Mortgage Loans of this type involve a greater likelihood
of default than self-amortizing loans because the ability of a borrower to make
a balloon payment typically will depend upon its ability either to refinance the
loan or to sell the related Mortgaged Property. The ability of a borrower to
accomplish either of these goals will be affected by a number of factors,
including the value of the related Mortgaged Property, the level of available
mortgage rates at the time of sale or refinancing, the borrower's equity in the
related Mortgaged Property, the financial condition and operating history of the
borrower and the related Mortgaged Property, tax laws, rent control laws (with
respect to certain residential properties), Medicaid and Medicare reimbursement
rates (with respect to hospitals and nursing homes), prevailing general economic
conditions and the availability of credit for loans secured by multifamily or
commercial, as the case may be, real properties generally. Neither the Company
nor any of its affiliates will be required to refinance any Mortgage Loan.
If and to the extent described herein and in the related Prospectus
Supplement, in order to maximize recoveries on defaulted Mortgage Loans, the
Master Servicer or the Special Servicer will be permitted (within prescribed
limits) to extend and modify Mortgage Loans that are in default or as to which a
payment default is imminent. See "Servicing of Mortgage Loans-Realization Upon
Defaulted Mortgage Loans". While the Master Servicer or the Special Servicer
generally will be required to determine that any such extension or modification
is reasonably likely to produce a greater recovery than liquidation, taking into
account the time value of money, there can be no assurance that any such
extension or modification will in fact increase the present value of receipts
from or proceeds of the affected Mortgage Loans.
LENDER DIFFICULTY IN COLLECTING RENTS UPON THE DEFAULT AND/OR
BANKRUPTCY OF BORROWER. Each Mortgage Loan included in any Trust Fund secured by
Mortgaged Property that is subject to leases typically will be secured by an
assignment of leases and rents pursuant to which the borrower assigns to the
lender its right, title and interest as landlord under the leases of the related
Mortgaged Property, and the income derived therefrom, as further security for
the related Mortgage Loan, while retaining a license to collect rents for so
long as there is no default. If the borrower defaults, the license terminates
and the lender is entitled to collect rents. Some state laws may require that
the lender take possession of the Mortgaged Property and obtain a judicial
appointment of a receiver before becoming entitled to collect the rents. In
addition, if bankruptcy or similar proceedings are commenced by or in respect of
the borrower, the lender's ability to collect the rents may be adversely
affected. See "Certain Legal Aspects of Mortgage Loans-Leases and Rents".
LIMITATIONS ON ENFORCEABILITY OF DUE-ON-SALE AND DEBT-ACCELERATION
CLAUSES. Mortgages may contain a due-on-sale clause, which permits the lender to
accelerate the maturity of the Mortgage Loan if the borrower sells, transfers or
conveys the related Mortgaged Property or its interest in the Mortgaged
Property. Mortgages also may include a debt-acceleration clause, which permits
the lender to accelerate
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the debt upon a monetary or nonmonetary default of the mortgagor. Such clauses
are generally enforceable subject to certain exceptions. The courts of all
states will enforce clauses providing for acceleration in the event of a
material payment default. The equity courts of any state, however, may refuse
the foreclosure of a mortgage or deed of trust when an acceleration of the
indebtedness would be inequitable or unjust or the circumstances would render
the acceleration unconscionable.
RISK OF LIABILITY ARISING FROM ENVIRONMENTAL CONDITIONS. Under the
laws of certain states, contamination of real property may give rise to a lien
on the property to assure the costs of cleanup. In several states, such a lien
has priority over an existing mortgage lien on such property. In addition, under
the laws of some states and under the federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, a lender may be
liable, as an "owner" or "operator", for costs of addressing releases or
threatened releases of hazardous substances at a property, if agents or
employees of the lender have become sufficiently involved in the operations of
the borrower, regardless of whether the environmental damage or threat was
caused by the borrower or a prior owner. A lender also risks such liability on
foreclosure of the mortgage. See "Certain Legal Aspects of Mortgage
Loans-Environmental Considerations".
LACK OF INSURANCE COVERAGE FOR CERTAIN SPECIAL HAZARD LOSSES. Unless
otherwise specified in a Prospectus Supplement, the Master Servicer and Special
Servicer for the related Trust Fund will be required to cause the borrower on
each Mortgage Loan in such Trust Fund to maintain such insurance coverage in
respect of the related Mortgaged Property as is required under the related
Mortgage, including hazard insurance; provided that, as and to the extent
described herein and in the related Prospectus Supplement, each of the Master
Servicer and the Special Servicer may satisfy its obligation to cause hazard
insurance to be maintained with respect to any Mortgaged Property through
acquisition of a blanket policy. In general, the standard form of fire and
extended coverage policy covers physical damage to or destruction of the
improvements of the property by fire, lightning, explosion, smoke, windstorm and
hail, and riot, strike and civil commotion, subject to the conditions and
exclusions specified in each policy. Although the policies covering the
Mortgaged Properties will be underwritten by different insurers under different
state laws in accordance with different applicable state forms, and therefore
will not contain identical terms and conditions, most such policies typically do
not cover any physical damage resulting from war, revolution, governmental
actions, floods and other water-related causes, earth movement (including
earthquakes, landslides and mudflows), wet or dry rot, vermin, domestic animals
and certain other kinds of risks. Unless the related Mortgage specifically
requires the mortgagor to insure against physical damage arising from such
causes, then, to the extent any consequent losses are not covered by Credit
Enhancement, such losses may be borne, at least in part, by the holders of one
or more classes of Bonds of the related series. See "Servicing of Mortgage
Loans-Hazard Insurance Policies".
INCLUSION OF DELINQUENT AND NONPERFORMING MORTGAGE LOANS IN A MORTGAGE POOL
If so provided in the related Prospectus Supplement, the Trust Fund
for a particular series of Bonds may include Mortgage Loans that are past due or
are nonperforming. If so specified in the related Prospectus Supplement, the
servicing of such Mortgage Loans will be performed by the Special Servicer;
however, the same entity may act as both Master Servicer and Special Servicer.
Credit Enhancement provided with respect to a particular series of Bonds may not
cover all losses related to such delinquent or nonperforming Mortgage Loans, and
investors should consider the risk that the inclusion of such Mortgage Loans in
the Trust Fund may adversely affect the rate of defaults and prepayments in
respect of the subject Mortgage Pool and the yield on the Bonds of such series.
See "The Mortgage Pools-Mortgage Loans-General".
Yield and Prepayment Considerations. The yield to maturity of the
Bonds of each series will depend on, among other things, the rate and timing of
principal payments (including prepayments,
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liquidations due to defaults, and repurchases due to breaches of representations
and warranties) on the related Mortgage Loans and the price paid by Bondholders.
Such yield may be adversely affected by a higher or lower than anticipated rate
of prepayments on the related Mortgage Loans. The yield to maturity on Strip
Bonds will be extremely sensitive to the rate of prepayments on the related
Mortgage Loans. In addition, the yield to maturity on certain other types of
classes of Bonds, including Accrual Bonds, Bonds with a Interest Rate which
fluctuates inversely with an index or certain other classes in a series
including more than one class of Bonds, may be relatively more sensitive to the
rate of prepayment on the related Mortgage Loans than other classes of Bonds. In
addition, to the extent amounts in any Funding Account have not been used to
purchase additional Mortgage Loans, holders of the Bonds may receive an
additional prepayment. Prepayments are influenced by a number of factors,
including prevailing mortgage market interest rates, local and regional economic
conditions and homeowner mobility. See "Yield and Maturity Considerations"
herein.
Environmental Risks of the Mortgage Loans. To the extent the Master
Servicer acquires title to any Mortgaged Property contaminated with or affected
by hazardous wastes or hazardous substances or not in compliance with
environmental laws and regulations, the Mortgage Loans may incur losses. See
"Servicing of Mortgage Loans--Realization Upon or Sale of Defaulted Mortgage
Loans" and "Certain Legal Aspects of Mortgage Loans--Environmental Legislation."
To the extent such environmental risks result in losses on the mortgage loans,
the yield to maturity of the Bonds, to the extent not covered by Credit
Enhancement, may be affected.
ERISA Considerations. Generally, ERISA applies to investments made by
employee benefit plans and transactions involving the assets of such plans. Due
to the complexity of regulations that govern such plans, prospective investors
that are subject to ERISA are urged to consult their own counsel regarding
consequences under ERISA of acquisition, ownership and disposition of the Bonds
of any series. See "ERISA Considerations".
THE MORTGAGE POOLS
GENERAL
The primary assets of each Trust Fund will consist of a segregated
pool (a "Mortgage Pool") of various types of multifamily and commercial mortgage
loans (collectively, the "Mortgage Loans") that evidence interests in, or that
are secured by pledges of, one or more of various types of multifamily or
commercial mortgage loans. Each Trust Fund will be established by the Company.
Each Mortgage Loan will be selected by the Company for inclusion in a Trust Fund
from among those purchased, either directly or indirectly, from a prior holder
thereof (a "Seller"), which prior holder may or may not be the originator of
such Mortgage Loan. The Mortgage Loans will not be guaranteed or insured by the
Company or any of its affiliates or, unless otherwise provided in the related
Prospectus Supplement, by any governmental agency or instrumentality or by any
other person.
MORTGAGE LOANS
General. The Mortgage Loans will be evidenced by promissory notes (the
"Mortgage Notes") secured by mortgages, deeds of trust or similar security
instruments (the "Mortgages") that create first or junior liens on fee or
leasehold estates in properties (the "Mortgaged Properties") consisting of (i)
residential properties consisting of five or more rental or cooperatively-owned
dwelling units in high-rise, mid-rise or garden apartment buildings or other
residential structures ("Multifamily Properties") or (ii) office buildings,
retail centers, malls, stores and establishments, hotels or motels, nursing
homes, hospitals or other health care-related facilities, recreational vehicle
and mobile home parks, warehouse facilities,
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mini-warehouse facilities, self-storage facilities, industrial facilities,
parking lots, restaurants, mixed use (that is, any combination of the foregoing)
or unimproved land ("Commercial Properties"). The Multifamily Properties may
include mixed commercial and residential structures and apartment buildings
owned by private cooperative housing corporations ("Cooperatives"). Unless
otherwise specified in the related Prospectus Supplement, each Mortgage will
create a first priority mortgage lien on a borrower's fee estate in a Mortgaged
Property. If a Mortgage creates a lien on a borrower's leasehold estate in a
property, then, unless otherwise specified in the related Prospectus Supplement,
the term of any such leasehold will exceed the term of the Mortgage Note by at
least ten years. Unless otherwise specified in the related Prospectus
Supplement, each Mortgage Loan will have been originated by a person (the
"Originator") other than the Company.
If so provided in the related Prospectus Supplement, Mortgage Loans
for a series of Bonds may include Mortgage Loans secured by junior liens, and
the loans secured by the related senior liens ("Senior Liens") may not be
included in the Mortgage Pool. The primary risk to holders of Mortgage Loans
secured by junior liens is the possibility that adequate funds will not be
received in connection with a foreclosure of the related Senior Liens to satisfy
fully both the Senior Liens and the Mortgage Loan. In the event that a holder of
a Senior Lien forecloses on a Mortgaged Property, the proceeds of the
foreclosure or similar sale will be applied first to the payment of court costs
and fees in connection with the foreclosure, second to real estate taxes, third
in satisfaction of all principal, interest, prepayment or acceleration
penalties, if any, and any other sums due and owing to the holder of the Senior
Liens. The claims of the holders of the Senior Liens will be satisfied in full
out of proceeds of the liquidation of the related Mortgage Property, if such
proceeds are sufficient, before the Trust Fund as holder of the junior lien
receives any payments in respect of the Mortgage Loan. If the Master Servicer
were to foreclose on any Mortgage Loan, it would do so subject to any related
Senior Liens. In order for the debt related to such Mortgage Loan to be paid in
full at such sale, a bidder at the foreclosure sale of such Mortgage Loan would
have to bid an amount sufficient to pay off all sums due under the Mortgage Loan
and any Senior Liens or purchase the Mortgaged Property subject to such Senior
Liens. In the event that such proceeds from a foreclosure or similar sale of the
related Mortgaged Property are insufficient to satisfy all Senior Liens and the
Mortgage Loan in the aggregate, the Trust Fund, as the holder of the junior
lien, and, accordingly, holders of one or more classes of the Bonds of the
related series bear (i) the risk of delay in distributions while a deficiency
judgment against the borrower is obtained and (ii) the risk of loss if the
deficiency judgment is not obtained and satisfied. Moreover, deficiency
judgments may not be available in certain jurisdictions, or the particular
Mortgage Loan may be a nonrecourse loan, which means that, absent special facts,
recourse in the case of default will be limited to the Mortgaged Property and
such other assets, if any, that were pledged to secure repayment of the Mortgage
Loan.
If so specified in the related Prospectus Supplement, the Mortgage
Loans for a particular series of Bonds may include Mortgage Loans that are
delinquent or nonperforming as of the date such Bonds are issued. In that case,
the related Prospectus Supplement will set forth, as to each such Mortgage Loan,
available information as to the period of such delinquency or nonperformance,
any forbearance arrangement then in effect, the condition of the related
Mortgaged Property and the ability of the Mortgaged Property to generate income
to service the mortgage debt.
DEFAULT AND LOSS CONSIDERATIONS WITH RESPECT TO THE MORTGAGE LOANS.
Mortgage loans secured by liens on income-producing properties are substantially
different from loans made on the security of owner-occupied single-family homes.
The repayment of a loan secured by a lien on an income-producing property is
typically dependent upon the successful operation of such property (that is, its
ability to generate income). Moreover, as noted above, some or all of the
Mortgage Loans included in a particular Trust Fund may be nonrecourse loans.
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Lenders typically look to the Debt Service Coverage Ratio of a loan
secured by income-producing property as an important factor in evaluating the
likelihood of default on such a loan. Unless otherwise defined in the related
Prospectus Supplement, the "Debt Service Coverage Ratio" of a Mortgage Loan at
any given time is the ratio of (i) the Net Operating Income derived from the
related Mortgaged Property for a twelve-month period to (ii) the annualized
scheduled payments of principal and/or interest on the Mortgage Loan and any
other loans senior thereto that are secured by the related Mortgaged Property.
Unless otherwise defined in the related Prospectus Supplement, "Net Operating
Income" means, for any given period, the total operating revenues derived from a
Mortgaged Property during such period, minus the total operating expenses
incurred in respect of such Mortgaged Property during such period other than (i)
noncash items such as depreciation and amortization, (ii) capital expenditures
and (iii) debt service on the related Mortgage Loan or on any other loans that
are secured by such Mortgaged Property. The Net Operating Income of a Mortgaged
Property will generally fluctuate over time and may or may not be sufficient to
cover debt service on the related Mortgage Loan at any given time. As the
primary source of the operating revenues of a nonowner occupied,
income-producing property, rental income (and, with respect to a Mortgage Loan
secured by a Cooperative apartment building, maintenance payments from
tenant-stockholders of a Cooperative) may be affected by the condition of the
applicable real estate market and/or area economy. In addition, properties
typically leased, occupied or used on a short-term basis, such as certain health
care-related facilities, hotels and motels, and mini-warehouse and self-storage
facilities, tend to be affected more rapidly by changes in market or business
conditions than do properties typically leased for longer periods, such as
warehouses, retail stores, office buildings and industrial facilities.
Commercial Properties may be owner-occupied or leased to a small number of
tenants. Thus, the Net Operating Income of such a Mortgaged Property may depend
substantially on the financial condition of the borrower or a tenant, and
Mortgage Loans secured by liens on such properties may pose a greater likelihood
of default and loss than loans secured by liens on Multifamily Properties or on
multi-tenant Commercial Properties.
Increases in operating expenses due to the general economic climate or
economic conditions in a locality or industry segment, such as increases in
interest rates, real estate tax rates, energy costs, labor costs and other
operating expenses, and/or to changes in governmental rules, regulations and
fiscal policies, may also affect the likelihood of default on a Mortgage Loan.
As may be further described in the related Prospectus Supplement, in some cases
leases of Mortgaged Properties may provide that the lessee, rather than the
borrower/landlord, is responsible for payment of operating expenses ("Net
Leases"). However, the existence of such "net of expense" provisions will result
in stable Net Operating Income to the borrower/landlord only to the extent that
the lessee is able to absorb operating expense increases while continuing to
make rent payments.
Lenders also look to the Loan-to-Value Ratio of a mortgage loan as a
factor in evaluating the likelihood of loss if a property must be liquidated
following a default. Unless otherwise defined in the related Prospectus
Supplement, the "Loan-to-Value Ratio" of a Mortgage Loan at any given time is
the ratio (expressed as a percentage) of (i) the then outstanding principal
balance of the Mortgage Loan and any other loans senior thereto that are secured
by the related Mortgaged Property to (ii) the Value of the related Mortgaged
Property. Unless otherwise specified in the related Prospectus Supplement, the
"Value" of a Mortgaged Property will be its fair market value as determined by
an appraisal of such property conducted by or on behalf of the Originator in
connection with the origination of such loan. The lower the Loan-to-Value Ratio,
the greater the percentage of the borrower's equity in a Mortgaged Property, and
thus (a) the greater the incentive of the borrower to perform under the terms of
the related Mortgage Loan (in order to protect such equity) and (b) the greater
the cushion provided to the lender against loss on liquidation following a
default.
Loan-to-Value Ratios will not necessarily constitute an accurate
measure of the likelihood of liquidation loss in a pool of Mortgage Loans. For
example, the value of a Mortgaged Property as of the
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date of initial issuance of the related series of Bonds may be less than the
Value determined at loan origination, and will likely continue to fluctuate from
time to time based upon certain factors including changes in economic conditions
and the real estate market. Moreover, even when current, an appraisal is not
necessarily a reliable estimate of value. Appraised values of income-producing
properties are generally based on the market comparison method (recent resale
value of comparable properties at the date of the appraisal), the cost
replacement method (the cost of replacing the property at such date), the income
capitalization method (a projection of value based upon the property's projected
net cash flow), or upon a selection from or interpolation of the values derived
from such methods. Each of these appraisal methods can present analytical
difficulties. It is often difficult to find truly comparable properties that
have recently been sold; the replacement cost of a property may have little to
do with its current market value; and income capitalization is inherently based
on inexact projections of income and expense and the selection of an appropriate
capitalization rate and discount rate. Where more than one of these appraisal
methods are used and provide significantly different results, an accurate
determination of value and, correspondingly, a reliable analysis of the
likelihood of default and loss, is even more difficult.
Although there may be multiple methods for determining the value of a
Mortgaged Property, value will in all cases be affected by property performance.
As a result, if a Mortgage Loan defaults because the income generated by the
related Mortgaged Property is insufficient to cover operating costs and expenses
and pay debt service, then the value of the Mortgaged Property will reflect such
and a liquidation loss may occur.
While the Company believes that the foregoing considerations are
important factors that generally distinguish loans secured by liens on
income-producing real estate from single-family mortgage loans, there can be no
assurance that all of such factors will in fact have been prudently considered
by the Originators of the Mortgage Loans, or that, for a particular Mortgage
Loan, they are complete or relevant. See "Risk Factors-Certain Factors Affecting
Delinquency, Foreclosure and Loss of the Mortgage Loans-General" and "-Certain
Factors Affecting Delinquency, Foreclosure and Loss of the Mortgage
Loans-Increased Risk of Default Associated With Balloon Payments".
PAYMENT PROVISIONS OF THE MORTGAGE LOANS. All of the Mortgage Loans
will (i) have had original terms to maturity of not more than 40 years and (ii)
provide for scheduled payments of principal, interest or both, to be made on
specified dates ("Due Dates") that occur monthly, quarterly, semi-annually or
annually. A Mortgage Loan (i) may provide for no accrual of interest or for
accrual of interest thereon at a Mortgage Rate that is fixed over its term or
that adjusts from time to time, or that may be converted at the borrower's
election from an adjustable to a fixed Mortgage Rate, or from a fixed to an
adjustable Mortgage Rate, (ii) may provide for level payments to maturity or for
payments that adjust from time to time to accommodate changes in the Mortgage
Rate or to reflect the occurrence of certain events, and may permit negative
amortization, (iii) may be fully amortizing or may be partially amortizing or
nonamortizing, with a balloon payment due on its stated maturity date, and (iv)
may prohibit over its term or for a certain period prepayments (the period of
such prohibition, a "Lock-out Period" and its date of expiration, a "Lock-out
Date") and/or require payment of a premium or a yield maintenance payment (a
"Prepayment Premium") in connection with certain prepayments, in each case as
described in the related Prospectus Supplement. A Mortgage Loan may also contain
a provision that entitles the lender to a share of appreciation of the related
Mortgaged Property, or profits realized from the operation or disposition of
such Mortgaged Property or the benefit, if any, resulting from the refinancing
of the Mortgage Loan (any such provision, an "Equity Participation"), as
described in the related Prospectus Supplement.
MORTGAGE LOAN INFORMATION IN PROSPECTUS SUPPLEMENTS. Each Prospectus
Supplement will contain certain information pertaining to the Mortgage Loans in
the related Trust Fund, which, to the extent then applicable, will generally
include the following: (i) the aggregate outstanding principal balance and the
largest, smallest and average outstanding principal balance of the Mortgage
Loans, (ii) the type or types
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of property that provide security for repayment of the Mortgage Loans, (iii) the
earliest and latest origination date and maturity date of the Mortgage Loans,
(iv) the original and remaining terms to maturity of the Mortgage Loans, or the
respective ranges thereof, and the weighted average original and remaining terms
to maturity of the Mortgage Loans, (v) the Loan-to-Value Ratios of the Mortgage
Loans (either at origination or as of a more recent date), or the range thereof,
and the weighted average of such Loan-to- Value Ratios, (vi) the Mortgage Rates
borne by the Mortgage Loans, or the range thereof, and the weighted average
Mortgage Rate borne by the Mortgage Loans, (vii) with respect to Mortgage Loans
with adjustable Mortgage Rates ("ARM Loans"), the index or indices upon which
such adjustments are based, the adjustment dates, the range of gross margins and
the weighted average gross margin, and any limits on Mortgage Rate adjustments
at the time of any adjustment and over the life of the ARM Loan, (viii)
information regarding the payment characteristics of the Mortgage Loans,
including, without limitation, balloon payment and other amortization
provisions, Lock-out Periods and Prepayment Premiums, (ix) the Debt Service
Coverage Ratios of the Mortgage Loans (either at origination or as of a more
recent date), or the range thereof, and the weighted average of such Debt
Service Coverage Ratios, and (x) the geographic distribution of the Mortgaged
Properties on a state-by-state basis. In appropriate cases, the related
Prospectus Supplement will also contain certain information available to the
Company that pertains to the provisions of leases and the nature of tenants of
the Mortgaged Properties. If the Company is unable to provide the specific
information described above at the time Bonds of a series are initially offered,
more general information of the nature described above will be provided in the
related Prospectus Supplement, and specific information will be set forth in a
report which will be available to purchasers of those Bonds at or before the
initial issuance thereof and will be filed as part of a Current Report on Form
8-K with the Commission within fifteen days following such issuance.
If any Mortgage Loan, or group of related Mortgage Loans, constitutes
a concentration of credit risk, financial statements or other financial
information with respect to the related Mortgaged Property or Mortgaged
Properties will be included in the related Prospectus Supplement.
If and to the extent available and relevant to an investment decision
in the Bonds of the related series, information regarding the prepayment
experience of a Master Servicer's multifamily and/or commercial mortgage loan
servicing portfolio will be included in the related Prospectus Supplement.
However, many servicers do not maintain records regarding such matters or, at
least, not in a format that can be readily aggregated. In addition, the relevant
characteristics of a Master Servicer's servicing portfolio may be so materially
different from those of the related Mortgage Pool that such prepayment
experience would not be meaningful to an investor. For example, differences in
geographic dispersion, property type and/or loan terms (e.g., mortgage rates,
terms to maturity and/or prepayment restrictions) between the two pools of loans
could render the Master Servicer's prepayment experience irrelevant. Because of
the nature of the assets to be serviced and administered by a Special Servicer,
no comparable prepayment information will be presented with respect to the
Special Servicer's multifamily and/or commercial mortgage loan servicing
portfolio.
COLLECTION ACCOUNTS
Each Trust Fund will include one or more accounts (collectively, the
"Collection Account") established and maintained on behalf of the Bondholders
into which all payments and collections received or advanced with respect to the
Mortgage Loans and other assets in the Trust Fund will be deposited to the
extent described herein and in the related Prospectus Supplement. See
"Description of the Bonds-Collection Account".
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REPRESENTATIONS AND WARRANTIES; REPURCHASES
Unless otherwise provided in the Prospectus Supplement for a series of
Certificates, the Company will, with respect to each Mortgage Loan in the
related Trust Fund, make or assign, or cause to be made or assigned, certain
representations and warranties (the person making such representations and
warranties, the "Warranting Party") covering, by way of example: (i) the
accuracy of the information set forth for such Mortgage Loan on the schedule of
Mortgage Loans appearing as an exhibit to the related Indenture; (ii) the
enforceability of the related Mortgage Note and Mortgage and the existence of
title insurance insuring the lien priority of the related Mortgage; (iii) the
Warranting Party's title to the Mortgage Loan and the authority of the
Warranting Party to sell the Mortgage Loan; and (iv) the payment status of the
Mortgage Loan. It is expected that in most cases the Warranting Party will be
the Seller; however, the Warranting Party may also be an affiliate of the
Seller, the Company or an affiliate of the Company, the Master Servicer, the
Special Servicer or another person acceptable to the Company. The Warranting
Party, if other than the Seller, will be identified in the related Prospectus
Supplement.
Unless otherwise provided in the related Prospectus Supplement, each
Indenture will provide that the Master Servicer and/or Indenture Trustee will be
required to notify promptly any Warranting Party of any breach of any
representation or warranty made by it in respect of a Mortgage Loan that
materially and adversely affects the interests of the Bondholders of the related
series. If such Warranting Party cannot cure such breach within a specified
period following the date on which it was notified of such breach, then, unless
otherwise provided in the related Prospectus Supplement, it will be obligated to
repurchase such Mortgage Loan from the Indenture Trustee at the applicable
Purchase Price. If so provided in the Prospectus Supplement for a series of
Certificates, a Warranting Party, in lieu of repurchasing a Mortgage Loan as to
which a breach has occurred, will have the option, exercisable upon certain
conditions and/or within a specified period after initial issuance of such
series of Bonds, to replace such Mortgage Loan with one or more other mortgage
loans, in accordance with standards that will be described in the Prospectus
Supplement. Unless otherwise specified in the related Prospectus Supplement,
this repurchase or substitution obligation will constitute the sole remedy
available to holders of the Bonds of any series or to the related Indenture
Trustee on their behalf for a breach of representation and warranty by a
Warranting Party, and neither the Company nor the Master Servicer, in either
case unless it is the Warranting Party, will be obligated to purchase or replace
a Mortgage Loan if a Warranting Party defaults on its obligation to do so.
In some cases, representations and warranties will have been made in
respect of a Mortgage Loan as of a date prior to the date upon which the related
series of Bonds is issued, and thus may not address events that may occur
following the date as of which they were made. However, the Company will not
include any Mortgage Loan in the Trust Fund for any series of Bonds if anything
has come to the Depositor's attention that would cause it to believe that the
representations and warranties made in respect of such Mortgage Loan will not be
accurate in all material respects as of the date of issuance. The date as of
which the representations and warranties regarding the Mortgage Loans in any
Trust Fund were made will be specified in the related Prospectus Supplement.
CREDIT ENHANCEMENT
If so provided in the Prospectus Supplement for a series of Bonds,
partial or full protection against certain defaults and losses on the Mortgage
Loans in the related Trust Fund may be provided to one or more classes of Bonds
of such series in the form of subordination of one or more other classes of
Bonds of such series or by one or more other types of Credit Enhancement, such
as a letter of credit, insurance policy, guarantee or reserve fund, among
others, or a combination thereof. The amount and types of Credit Enhancement,
the identity of the entity providing it (if applicable) and related information
with respect to each type of Credit Enhancement, if any, will be set forth in
the Prospectus Supplement for a
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series of Bonds. See "Risk Factors-Limitations, Reduction and Substitution of
Credit Enhancement" and "Description of Credit Enhancement".
CASH FLOW AGREEMENTS
If so provided in the Prospectus Supplement for a series of Bonds, the
related Trust Fund may include guaranteed investment contracts pursuant to which
moneys held in the funds and accounts established for such series will be
invested at a specified rate. The Trust Fund may also include certain other
agreements, such as interest rate exchange agreements, interest rate cap or
floor agreements, or other agreements designed to reduce the effects of interest
rate fluctuations on the Mortgage Loans on one or more classes of Bonds. The
principal terms of any such Cash Flow Agreement, including, without limitation,
provisions relating to the timing, manner and amount of payments thereunder and
provisions relating to the termination thereof, will be described in the related
Prospectus Supplement. The related Prospectus Supplement will also identify the
obligor under the Cash Flow Agreement.
SERVICING OF MORTGAGE LOANS
GENERAL
The Mortgage Loans included in each Mortgage Pool will be serviced and
administered pursuant to a Servicing Agreement. A form of Servicing Agreement
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. However, the provisions of each Servicing Agreement will
vary depending upon the nature of the related Mortgage Pool. The following
summaries describe certain servicing-related provisions that may appear in a
Servicing Agreement for a Mortgage Pool that includes Mortgage Loans. The
related Prospectus Supplement will describe any servicing-related provision of
such a Servicing Agreement that materially differs from the description thereof
contained in this Prospectus. The summaries herein do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all of
the provisions of the related Servicing Agreement and the description of such
provisions in the related Prospectus Supplement.
THE MASTER SERVICER
The master servicer (the "Master Servicer"), if any, for a series of
Bonds will be named in the related Prospectus Supplement and may be an affiliate
of the Company. The Master Servicer is require to maintain a fidelity bond and
errors and omissions policy with respect to its officers and employees and other
persons acting on behalf of the Master Servicer in connection with its
activities under a Servicing Agreement.
SPECIAL SERVICER
If and to the extent specified in the related Prospectus Supplement, a
special servicer (a "Special Servicer") may be a party to the related Servicing
Agreement or may be appointed by the Master Servicer or another specified party
to perform certain specified duties in respect of servicing the related Mortgage
Loans that would otherwise be performed by the Master Servicer (for example, the
workout and/or foreclosure of defaulted Mortgage Loans). The rights and
obligations of any Special Servicer will be specified in the related Prospectus
Supplement, and the Master Servicer will be liabile for the performance of a
Special Servicer only if, and to the extent, set forth in such Prospectus
Supplement.
COLLECTION AND OTHER SERVICING PROCEDURES
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Unless otherwise specified in the related Prospectus Supplement, the
Master Servicer and the Special Servicer for any Mortgage Pool, directly or
through Sub-Servicers, will each be obligated under the related Servicing
Agreement to service and administer the Mortgage Loans in such Mortgage Pool for
the benefit of the related Bondholders, in accordance with applicable law and
further in accordance with the terms of such Servicing Agreement, such Mortgage
Loans and any instrument of Credit Enhancement included in the related Trust
Fund. Subject to the foregoing, the Master Servicer and the Special Servicer
will each have full power and authority to do any and all things in connection
with such servicing and administration that it may deem necessary and desirable.
As part of its servicing duties, each of the Master Servicer and the
Special Servicer will be required to make reasonable efforts to collect all
payments called for under the terms and provisions of the Mortgage Loans that it
services and will be obligated to follow such collection procedures as it would
follow with respect to mortgage loans that are comparable to such Mortgage Loans
and held for its own account, provided (i) such procedures are consistent with
the terms of the related Servicing Agreement and (ii) do not impair recovery
under any instrument of Credit Enhancement included in the related Trust Fund.
Consistent with the foregoing, the Master Servicer and the Special Servicer will
each be permitted, in its discretion, unless otherwise specified in the related
Prospectus Supplement, to waive any Prepayment Premium, late payment charge or
other charge in connection with any Mortgage Loan.
The Master Servicer and the Special Servicer for any Trust Fund,
either separately or jointly, directly or through Sub-Servicers, will also be
required to perform as to the Mortgage Loans in such Trust Fund various other
customary functions of a servicer of comparable loans, including maintaining
escrow or impound accounts, if required under the related Servicing Agreement,
for payment of taxes, insurance premiums, ground rents and similar items, or
otherwise monitoring the timely payment of those items; attempting to collect
delinquent payments; supervising foreclosures; negotiating modifications;
conducting property inspections on a periodic or other basis; managing (or
overseeing the management of) Mortgaged Properties acquired on behalf of such
Trust Fund through foreclosure, deed-in-lieu of foreclosure or otherwise (each,
an "REO Property"); and maintaining servicing records relating to such Mortgage
Loans. The related Prospectus Supplement will specify when and the extent to
which servicing of a Mortgage Loan is to be transferred from the Master Servicer
to the Special Servicer. In general, and subject to the discussion in the
related Prospectus Supplement, a Special Servicer will be responsible for the
servicing and administration of: (i) Mortgage Loans that are delinquent in
respect of a specified number of scheduled payments; (ii) Mortgage Loans as to
which the related borrower has entered into or consented to bankruptcy,
appointment of a receiver or conservator or similar insolvency proceeding, or
the related borrower has become the subject of a decree or order for such a
proceeding which shall have remained in force undischarged or unstayed for a
specified number of days; and (iii) REO Properties. If so specified in the
related Prospectus Supplement, a Servicing Agreement also may provide that if a
default on a Mortgage Loan has occurred or, in the judgment of the related
Master Servicer, a payment default is reasonably foreseeable, the related Master
Servicer may elect to transfer the servicing thereof, in whole or in part, to
the related Special Servicer. Unless otherwise provided in the related
Prospectus Supplement, when the circumstances no longer warrant a Special
Servicer's continuing to service a particular Mortgage Loan (e.g., the related
borrower is paying in accordance with the forbearance arrangement entered into
between the Special Servicer and such borrower), the Master Servicer will resume
the servicing duties with respect thereto. If and to the extent provided in the
related Servicing Agreement and described in the related Prospectus Supplement,
a Special Servicer may perform certain limited duties in respect of Mortgage
Loans for which the Master Servicer is primarily responsible (including, if so
specified, performing property inspections and evaluating financial statements);
and a Master Servicer may perform certain limited duties in respect of any
Mortgage Loan for which the Special Servicer is primarily responsible
(including, if so specified, continuing to receive payments on such Mortgage
Loan (including amounts collected by the Special Servicer), making certain
calculations with respect to such Mortgage Loan and making remittances and
preparing certain reports to the Indenture Trustee and/or Bondholders with
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respect to such Mortgage Loan. Unless otherwise specified in the related
Prospectus Supplement, the Master Servicer will be responsible for filing and
settling claims in respect of particular Mortgage Loans under any applicable
instrument of Credit Enhancement. See "Description of Credit Enhancement".
A mortgagor's failure to make required Mortgage Loan payments may mean
that operating income is insufficient to service the mortgage debt, or may
reflect the diversion of that income from the servicing of the mortgage debt. In
addition, a mortgagor that is unable to make Mortgage Loan payments may also be
unable to make timely payment of taxes and otherwise to maintain and insure the
related Mortgaged Property. In general, the related Special Servicer will be
required to monitor any Mortgage Loan that is in default, evaluate whether the
causes of the default can be corrected over a reasonable period without
significant impairment of the value of the related Mortgaged Property, initiate
corrective action in cooperation with the Mortgagor if cure is likely, inspect
the related Mortgaged Property and take such other actions as it deems necessary
and appropriate. A significant period of time may elapse before the Special
Servicer is able to assess the success of any such corrective action or the need
for additional initiatives. The time within which the Special Servicer can make
the initial determination of appropriate action, evaluate the success of
corrective action, develop additional initiatives, institute foreclosure
proceedings and actually foreclose (or accept a deed to a Mortgaged Property in
lieu of foreclosure) on behalf of the Bondholders of the related series may vary
considerably depending on the particular Mortgage Loan, the Mortgaged Property,
the mortgagor, the presence of an acceptable party to assume the Mortgage Loan
and the laws of the jurisdiction in which the Mortgaged Property is located. If
a mortgagor files a bankruptcy petition, the Special Servicer may not be
permitted to accelerate the maturity of the Mortgage Loan or to foreclose on the
related Mortgaged Property for a considerable period of time. See "Certain Legal
Aspects of Mortgage Loans-Bankruptcy Laws."
Mortgagors may, from time to time, request partial releases of the
Mortgaged Properties, easements, consents to alteration or demolition and other
similar matters. In general, the Master Servicer may approve such a request if
it has determined, exercising its business judgment in accordance with the
applicable servicing standard, that such approval will not adversely affect the
security for, or the timely and full collectability of, the related Mortgage
Loan. Any fee collected by the Master Servicer for processing such request will
be retained by the Master Servicer as additional servicing compensation.
In the case of Mortgage Loans secured by junior liens on the related
Mortgaged Properties, unless otherwise provided in the related Prospectus
Supplement, the Master Servicer will be required to file (or cause to be filed)
of record a request for notice of any action by a superior lienholder under the
Senior Lien for the protection of the related Indenture Trustee's interest,
where permitted by local law and whenever applicable state law does not require
that a junior lienholder be named as a party defendant in foreclosure
proceedings in order to foreclose such junior lienholder's equity of redemption.
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer also will be required to notify any superior lienholder in writing of
the existence of the Mortgage Loan and request notification of any action (as
described below) to be taken against the mortgagor or the Mortgaged Property by
the superior lienholder. If the Master Servicer is notified that any superior
lienholder has accelerated or intends to accelerate the obligations secured by
the related Senior Lien, or has declared or intends to declare a default under
the mortgage or the promissory note secured thereby, or has filed or intends to
file an election to have the related Mortgaged Property sold or foreclosed,
then, unless otherwise specified in the related Prospectus Supplement, the
Master Servicer and the Special Servicer will each be required to take, on
behalf of the related Trust Fund, whatever actions are necessary to protect the
interests of the related Bondholders and/or to preserve the security of the
related Mortgage Loan. Unless otherwise specified in the related Prospectus
Supplement, the Master Servicer or Special Servicer, as applicable, will be
required to advance the necessary funds to cure the default or reinstate the
Senior Lien, if such advance is in the best interests of the related Bondholders
and the Master Servicer or Special Servicer, as applicable, determines such
advances are recoverable out of payments on or proceeds of the related Mortgage
Loan.
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SUB-SERVICERS
A Master Servicer or Special Servicer may delegate its servicing
obligations in respect of the Mortgage Loans serviced thereby to one or more
third-party servicers (each, a "Sub-Servicer"); provided that, unless otherwise
specified in the related Prospectus Supplement, such Master Servicer or Special
Servicer will remain obligated under the related Servicing Agreement. Unless
otherwise provided in the related Prospectus Supplement, each sub-servicing
agreement between a Master Servicer and a Sub-Servicer (a "Sub-Servicing
Agreement") must provide for servicing of the applicable Mortgage Loans
consistent with the related Servicing Agreement. The Master Servicer and Special
Servicer in respect of any Mortgage Pool will each be required to monitor the
performance of Sub-Servicers retained by it and will have the right to remove a
Sub-Servicer retained by it at any time it considers such removal to be in the
best interests of Bondholders.
Unless otherwise provided in the related Prospectus Supplement, a
Master Servicer or Special Servicer will be solely liable for all fees owed by
it to any Sub-Servicer, irrespective of whether the Master Servicer's or Special
Servicer's compensation pursuant to the related Servicing Agreement is
sufficient to pay such fees. Each Sub-Servicer will be reimbursed by the Master
Servicer or Special Servicer, as the case may be, that retained it for certain
expenditures which it makes, generally to the same extent such Master Servicer
or Special Servicer would be reimbursed under a Servicing Agreement. See
"-Collection Account" and "-Servicing Compensation and Payment of Expenses".
MODIFICATIONS, WAIVERS AND AMENDMENTS OF MORTGAGE LOANS
The Master Servicer and the Special Servicer may each agree to modify,
waive or amend any term of any Mortgage Loan serviced by it in a manner
consistent with the applicable Servicing Standard; provided that, unless
otherwise set forth in the related Prospectus Supplement, the modification,
waiver or amendment (i) will not affect the amount or timing of any scheduled
payments of principal or interest on the Mortgage Loan, (ii) will not, in the
judgment of the Master Servicer or the Special Servicer, as the case may be,
materially impair the security for the Mortgage Loan or reduce the likelihood of
timely payment of amounts due thereon and (iii) will not adversely affect the
coverage under any applicable instrument of Credit Enhancement. Unless otherwise
provided in the related Prospectus Supplement, the Special Servicer also may
agree to any other modification, waiver or amendment if, in its judgment, (i) a
material default on the Mortgage Loan has occurred or a payment default is
imminent, (ii) such modification, waiver or amendment is reasonably likely to
produce a greater recovery with respect to the Mortgage Loan, taking into
account the time value of money, than would liquidation and (iii) such
modification, waiver or amendment will not adversely affect the coverage under
any applicable instrument of Credit Enhancement.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
If a default on a Mortgage Loan has occurred or, in the Special
Servicer's judgment, a payment default is imminent, the Special Servicer, on
behalf of the Indenture Trustee, may at any time institute foreclosure
proceedings, exercise any power of sale contained in the related Mortgage,
obtain a deed in lieu of foreclosure, or otherwise acquire title to the related
Mortgaged Property, by operation of law or otherwise. Unless otherwise specified
in the related Prospectus Supplement, the Special Servicer may not, however,
acquire title to any Mortgaged Property, have a receiver of rents appointed with
respect to any Mortgaged Property or take any other action with respect to any
Mortgaged Property that would cause the Indenture Trustee, for the benefit of
the related series of Bondholders, or any other specified person to be
considered to hold title to, to be a "mortgagee-in-possession" of, or to be an
"owner" or an "operator" of such Mortgaged Property within the meaning of
certain federal environmental laws, unless the Special
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Servicer has previously received a report prepared by a person who regularly
conducts environmental audits (which report will be an expense of the Trust
Fund) and either:
(i) such report indicates that (a) the Mortgaged Property is in
compliance with applicable environmental laws and regulations and (b)
there are no circumstances or conditions present at the Mortgaged
Property that have resulted in any contamination for which
investigation, testing, monitoring, containment, clean-up or
remediation could be required under any applicable environmental laws
and regulations; or
(ii) the Special Servicer, based solely (as to environmental
matters and related costs) on the information set forth in such
report, determines that taking such actions as are necessary to bring
the Mortgaged Property into compliance with applicable environmental
laws and regulations and/or taking the actions contemplated by clause
(i)(b) above, is reasonably likely to produce a greater recovery,
taking into account the time value of money, than not taking such
actions. See "Certain Legal Aspects of Mortgage Loans-Environmental
Considerations".
A Servicing Agreement may grant to the Master Servicer, the Special
Servicer, a provider of Credit Enhancement and/or the holder or holders of
certain classes of the related series of Bonds a right of first refusal to
purchase from the Trust Fund, at a predetermined price (which, if less than the
Purchase Price, will be specified in the related Prospectus Supplement), any
Mortgage Loan as to which a specified number of scheduled payments are
delinquent. In addition, unless otherwise specified in the related Prospectus
Supplement, the Special Servicer may offer to sell any defaulted Mortgage Loan
if and when the Special Servicer determines, consistent with its normal
servicing procedures, that such a sale would produce a greater recovery, taking
into account the time value of money, than would liquidation of the related
Mortgaged Property. In the absence of any such sale, the Special Servicer will
generally be required to proceed against the related Mortgaged Property, subject
to the discussion above.
The Special Servicer will generally be required to attempt to sell any
Mortgaged Property so acquired on the same terms and conditions it would if it
were the owner. If the Trust Fund acquires title to any Mortgaged Property, the
Special Servicer, on behalf of the Trust Fund, may retain an independent
contractor to manage and operate such property. The retention of an independent
contractor, however, will not relieve the Special Servicer of its obligation to
manage such Mortgaged Property as required under the related Servicing
Agreement.
If Liquidation Proceeds collected with respect to a defaulted Mortgage
Loan are less than the outstanding principal balance of the defaulted Mortgage
Loan plus interest accrued thereon plus the aggregate amount of reimbursable
expenses incurred by the Special Servicer and/or the Master Servicer in
connection with such Mortgage Loan, then, to the extent that such shortfall is
not covered by any instrument or fund constituting Credit Enhancement, the Trust
Fund will realize a loss in the amount of such shortfall. The Special Servicer
and/or the Master Servicer will be entitled to reimbursement out of the
Liquidation Proceeds recovered on any defaulted Mortgage Loan, prior to the
distribution of such Liquidation Proceeds to Bondholders, any and all amounts
that represent unpaid servicing compensation in respect of the Mortgage Loan,
unreimbursed servicing expenses incurred with respect to the Mortgage Loan and
any unreimbursed advances of delinquent payments made with respect to the
Mortgage Loan. In addition, if and to the extent set forth in the related
Prospectus Supplement, amounts otherwise distributable on the Bonds may be
further reduced by interest payable to the Master Servicer and/or Special
Servicer on such servicing expenses and advances.
If any Mortgaged Property suffers damage such that the proceeds, if
any, of the related hazard insurance policy are insufficient to restore fully
the damaged property, neither the Special Servicer nor the Master Servicer will
be required to expend its own funds to effect such restoration unless (and to
the extent
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not otherwise provided in the related Prospectus Supplement) it determines (i)
that such restoration will increase the proceeds to Bondholders on liquidation
of the Mortgage Loan after reimbursement of the Special Servicer or the Master
Servicer, as the case may be, for its expenses and (ii) that such expenses will
be recoverable by it from related Insurance and Condemnation Proceeds,
Liquidation Proceeds and/or amounts drawn on any instrument or fund constituting
Credit Enhancement.
HAZARD INSURANCE POLICIES
Unless otherwise specified in the related Prospectus Supplement, each
Servicing Agreement will require the Master Servicer (or the Special Servicer
with respect to Mortgage Loans serviced thereby) to use reasonable efforts to
cause each Mortgage Loan borrower to maintain a hazard insurance policy that
provides for such coverage as is required under the related Mortgage or, if the
Mortgage permits the holder thereof to dictate to the borrower the insurance
coverage to be maintained on the related Mortgaged Property, such coverage as is
consistent with the Master Servicer's (or Special Servicer's) normal servicing
procedures. Unless otherwise specified in the related Prospectus Supplement,
such coverage generally will be in an amount equal to the lesser of the
principal balance owing on such Mortgage Loan and the replacement cost of the
related Mortgaged Property. The ability of a Master Servicer (or Special
Servicer) to assure that hazard insurance proceeds are appropriately applied may
be dependent upon its being named as an additional insured under any hazard
insurance policy and under any other insurance policy referred to below, or upon
the extent to which information concerning covered losses is furnished by
borrowers. All amounts collected by a Master Servicer (or Special Servicer)
under any such policy (except for amounts to be applied to the restoration or
repair of the Mortgaged Property or released to the borrower in accordance with
the Master Servicer's (or Special Servicer's) normal servicing procedures and/or
to the terms and conditions of the related Mortgage and Mortgage Note) will be
deposited in the related Collection Account. The Servicing Agreement may provide
that the Master Servicer (or Special Servicer) may satisfy its obligation to
cause each borrower to maintain such a hazard insurance policy by maintaining a
blanket policy insuring against hazard losses on the Mortgage Loans in a Trust
Fund. If such blanket policy contains a deductible clause, the Master Servicer
(or Special Servicer) will be required, in the event of a casualty covered by
such blanket policy, to deposit in the related Collection Account all additional
sums that would have been deposited therein under an individual policy but were
not because of such deductible clause.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements of the property by
fire, lightning, explosion, smoke, windstorm and hail, and riot, strike and
civil commotion, subject to the conditions and exclusions specified in each
policy. Although the policies covering the Mortgaged Properties will be
underwritten by different insurers under different state laws in accordance with
different applicable state forms, and therefore will not contain identical terms
and conditions, most such policies typically do not cover any physical damage
resulting from war, revolution, governmental actions, floods and other
water-related causes, earth movement (including earthquakes, landslides and
mudflows), wet or dry rot, vermin and domestic animals. Accordingly, a Mortgaged
Property may not be insured for losses arising from any such cause unless the
related Mortgage specifically requires, or permits the holder thereof to
require, such coverage.
The hazard insurance policies covering the Mortgaged Properties will
typically contain co-insurance clauses that in effect require an insured at all
times to carry insurance of a specified percentage (generally 80% to 90%) of the
full replacement value of the improvements on the property in order to recover
the full amount of any partial loss. If the insured's coverage falls below this
specified percentage, such clauses generally provide that the insurer's
liability in the event of partial loss does not exceed the lesser of (i) the
replacement cost of the improvements less physical depreciation and (ii) such
proportion of the loss as the amount of insurance carried bears to the specified
percentage of the full replacement cost of such improvements.
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DUE-ON-SALE AND DUE-ON-ENCUMBRANCE PROVISIONS
Certain of the Mortgage Loans may contain a due-on-sale clause that
entitles the lender to accelerate payment of the Mortgage Loan upon any sale or
other transfer of the related Mortgaged Property made without the lender's
consent. Certain of the Mortgage Loans may also contain a due-on-encumbrance
clause that entitles the lender to accelerate the maturity of the Mortgage Loan
upon the creation of any other lien or encumbrance upon the Mortgaged Property.
Unless otherwise provided in the related Prospectus Supplement, the Master
Servicer (or Special Servicer) will determine whether to exercise any right the
Indenture Trustee may have under any such provision in a manner consistent with
the Master Servicer's (or Special Servicer's) normal servicing procedures.
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer or Special Servicer, as applicable, will be entitled to retain as
additional servicing compensation any fee collected in connection with the
permitted transfer of a Mortgaged Property. See "Certain Legal Aspects of
Mortgage Loans-Due-on-Sale and Due-on-Encumbrance".
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Unless otherwise specified in the related Prospectus Supplement, a
Master Servicer's primary servicing compensation with respect to a series of
Bonds will come from the periodic payment to it of a specified portion of the
interest payments on each Mortgage Loan in the related Trust Fund, including
Mortgage Loans serviced by the related Special Servicer. If and to the extent
described in the related Prospectus Supplement, a Special Servicer's primary
compensation with respect to a series of Bonds may consist of any or all of the
following components: (i) a specified portion of the interest payments on each
Mortgage Loan in the related Trust Fund, whether or not serviced by it; (ii) an
additional specified portion of the interest payments on each Mortgage Loan then
currently serviced by it; and (iii) subject to any specified limitations, a
fixed percentage of some or all of the collections and proceeds received with
respect to each Mortgage Loan which was at any time serviced by it, including
Mortgage Loans for which servicing was returned to the Master Servicer. Insofar
as any portion of the Master Servicer's or Special Servicer's compensation
consists of a specified portion of the interest payments on a Mortgage Loan,
such compensation will generally be based on a percentage of the principal
balance of such Mortgage Loan outstanding from time to time and, accordingly,
will decrease with the amortization of the Mortgage Loan. As additional
compensation, a Master Servicer or Special Servicer may be entitled to retain
all or a portion of late payment charges, Prepayment Premiums, modification fees
and other fees collected from borrowers and any interest or other income that
may be earned on funds held in the related Collection Account. A more detailed
description of each Master Servicer's and Special Servicer's compensation will
be provided in the related Prospectus Supplement. Any Sub-Servicer will receive
as its sub-servicing compensation a portion of the servicing compensation to be
paid to the Master Servicer or Special Servicer that retained such Sub-Servicer.
In addition to amounts payable to any Sub-Servicer, a Master Servicer
or Special Servicer may be required, to the extent provided in the related
Prospectus Supplement, to pay from amounts that represent its servicing
compensation certain expenses incurred in connection with the administration of
the related Trust Fund, including, without limitation, payment of the fees and
disbursements of independent accountants, payment of fees and disbursements of
the Indenture Trustee and any custodians appointed thereby and payment of
expenses incurred in connection with distributions and reports to Bondholders.
Certain other expenses, including certain expenses related to Mortgage Loan
defaults and liquidations and, to the extent so provided in the related
Prospectus Supplement, interest on such expenses at the rate specified therein,
may be required to be borne by the Trust Fund.
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EVIDENCE AS TO COMPLIANCE
Unless otherwise specified in the related Prospectus Supplement, each
Servicing Agreement will provide that on or before a specified date in each
year, beginning the first such date that is at least a specified number of
months after the Cut-off Date, there will be furnished to the related Indenture
Trustee a report of a firm of independent certified public accountants stating
that (i) it has obtained a letter of representation regarding certain matters
from the management of the Master Servicer which includes an assertion that the
Master Servicer has complied with certain minimum mortgage loan servicing
standards (to the extent applicable to commercial and multifamily mortgage
loans), identified in the Uniform Single Attestation Program for Mortgage
Bankers established by the Mortgage Bankers Association of America, with respect
to the Master Servicer's servicing of commercial and multifamily mortgage loans
during the most recently completed calendar year and (ii) on the basis of an
examination conducted by such firm in accordance with standards established by
the American Institute of Certified Public Accountants, such representation is
fairly stated in all material respects, subject to such exceptions and other
qualifications that, in the opinion of such firm, such standards require it to
report. In rendering its report such firm may rely, as to the matters relating
to the direct servicing of commercial and multifamily mortgage loans by
Sub-Servicers, upon comparable reports of firms of independent public
accountants rendered on the basis of examinations conducted in accordance the
same standards (rendered within one year of such report) with respect to those
Sub-Servicers. The Prospectus Supplement may provide that additional reports of
independent certified public accountants relating to the servicing of mortgage
loans may be required to be delivered to the Indenture Trustee.
Each Servicing Agreement will also provide that, on or before a
specified date in each year, beginning the first such date that is at least a
specified number of months after the Cut-off Date, the Master Servicer and
Special Servicer shall each deliver to the related Indenture Trustee an annual
statement signed by one or more officers of the Master Servicer or the Special
Servicer, as the case may be, to the effect that, to the best knowledge of each
such officer, the Master Servicer or the Special Servicer, as the case may be,
has fulfilled in all material respects its obligations under the Servicing
Agreement throughout the preceding year or, if there has been a material default
in the fulfillment of any such obligation, such statement shall specify each
such known default and the nature and status thereof. Such statement may be
provided as a single form making the required statements as to more than one
Servicing Agreement.
Unless otherwise specified in the related Prospectus Supplement,
copies of the annual accountants' statement and the annual statement of officers
of a Master Servicer or Special Servicer may be obtained by Bondholders upon
written request to the Indenture Trustee.
DESCRIPTION OF THE BONDS
GENERAL
The Bonds will be issued in series. Each series of Bonds (or, in
certain instances, two or more series of Bonds) will be issued pursuant to an
Indenture between the Company and the Indenture Trustee, similar to the form
filed as an exhibit to the Registration Statement of which this Prospectus is a
part. Each Indenture, Trust Agreement and Servicing Agreement will be filed with
the Securities and Exchange Commission as an exhibit to a Current Report on Form
8-K. The following summaries (together with additional summaries under "The
Agreements" below) describe certain provisions relating to the Bonds common to
each of the Agreements. The summaries do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all of the
provisions of the Agreements for each Trust Fund
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and the related Prospectus Supplement. Wherever particular sections or defined
terms of the Agreements are referred to herein, such sections or defined terms
are thereby incorporated herein by reference.
Bonds of each series covered by a particular Indenture will evidence
indebtedness of the related Issuer secured by a separate Trust Fund. A Trust
Fund will consist of, to the extent provided in the Indenture: (i) such Mortgage
Loans (and the related mortgage documents) or interests therein underlying a
particular series of Bonds as from time to time are subject to the Indenture,
exclusive of, if specified in the related Prospectus Supplement, any Spread or
other interest retained by the Company or any of its affiliates with respect to
each such Mortgage Loan; (ii) such assets including, without limitation, all
payments and collections in respect of the Mortgage Loans due after the related
Cut-off Date, as from time to time are identified as deposited in respect
thereof in the related Collection Account as described below; (iii) any property
acquired in respect of Mortgage Loans in the Trust Fund, whether through
foreclosure of such Mortgage Loans or by deed in lieu of foreclosure or
otherwise; (iv) hazard insurance policies and Primary Insurance Policies, if
any, maintained in respect of Mortgage Loans in the Trust Fund and certain
proceeds of such policies; (v) certain rights of the Company under any Mortgage
Loan Purchase Agreement, including in respect of any representations and
warranties therein; and (vi) any combination, as and to the extent specified in
the related Prospectus Supplement, of a Financial Guaranty Insurance Policy,
Letter of Credit, Purchase Obligation, Mortgage Pool Insurance Policy, Special
Hazard Insurance Policy or Bankruptcy Bond as described under "Description of
Credit Enhancement." To the extent that any Trust Fund includes participations
in Mortgage Loans, the related Prospectus Supplement will describe the material
terms and conditions of such participations.
Each series of Bonds may consist of any one or a combination of the
following: (i) a single class of Bonds; (ii) two or more classes of Bonds, one
or more classes of which will be senior ("Senior Bonds") in right of payment to
one or more of the other classes of Bonds, if any (collectively, the
"Subordinate Bonds"), and as to which certain classes of Bonds may be senior to
other classes of Senior Bonds or Subordinate Bonds, as described in the
respective Prospectus Supplement (any such series, a "Senior/Subordinate
Series"); (iii) two or more classes of Bonds, one or more classes ("Strip
Bonds") of which will be entitled to (a) principal distributions, with
disproportionate, nominal or no interest distributions or (b) interest
distributions, with disproportionate, nominal or no principal distributions;
(iv) two or more classes of Bonds which differ as to the timing, sequential
order, rate, pass-through rate or amount of distributions of principal or
interest or both, or as to which distributions of principal or interest or both
on any such class may be made upon the occurrence of specified events, in
accordance with a schedule or formula (including "planned amortization classes"
and "targeted amortization classes"), or on the basis of collections from
designated portions of the Mortgage Pool, and which classes may include one or
more classes of Bonds ("Accrual Bonds") with respect to which certain accrued
interest will not be distributed but rather will be added to the principal
balance thereof on each Distribution Date for the period described in the
related Prospectus Supplement; or (v) other types of classes of Bonds, as
described in the related Prospectus Supplement. The Certificates, insofar as
they represent the beneficial ownership interest in the Issuer, will be
subordinate to the Bonds. As to each series, all Bonds offered hereby (the
"Bonds") will be rated in one of the four highest rating categories by one or
more Rating Agencies. Credit Enhancement for the Bonds of each series may be
provided by a Financial Guaranty Insurance Policy, Mortgage Pool Insurance
Policy, Special Hazard Insurance Policy, Bankruptcy Bond, Letter of Credit,
Purchase Obligation, Overcollateralization or Reserve Fund as described under
"Description of Credit Enhancement," by the subordination of one or more other
classes of Subordinate Bonds or by any combination of the foregoing.
FORM OF BONDS
Except as described below, the Bonds of each series will be issued in
physical, fully registered form only in the denominations specified in the
related Prospectus Supplement, and will be transferrable
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and exchangeable at the corporate trust office of the registrar (the "Bond
Registrar") named in the related Prospectus Supplement. No service charge will
be made for any registration of exchange or transfer of Bonds, but the Indenture
Trustee may require payment of a sum sufficient to cover any tax or other
governmental charge. The term "Bondholder" or "Holder" as used herein refers to
the entity whose name appears on the records of the Bond Registrar (consisting
of or including the "Bond Register") as the registered holder of a Bond, except
as otherwise indicated in the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, specified
classes of a series of Bonds will be initially issued through the book-entry
facilities of The Depository Trust Company ("DTC"). As to any such class of
Bonds ("DTC Registered Bonds"), the record Holder of such Bonds will be DTC's
nominee. DTC is a limited-purpose trust company organized under the laws of the
State of New York, which holds securities for its participating organizations
("Participants") and facilitates the clearance and settlement of securities
transactions between Participants through electronic book-entry changes in the
accounts of Participants. Participants include securities brokers and dealers,
banks, trust companies and clearing corporations and may include certain other
organizations. Other institutions that are not Participants but clear through or
maintain a custodial relationship with Participants (such institutions,
"Intermediaries") have indirect access to DTC's clearance system.
No person acquiring an interest in any DTC Registered Bonds (each such
person, a "Beneficial Owner") will be entitled to receive a Bond representing
such interest in registered, certificated form, unless either (i) DTC ceases to
act as depository in respect thereof and a successor depository is not obtained,
or (ii) the Company elects in its sole discretion to discontinue the
registration of such Bonds through DTC. Prior to any such event, Beneficial
Owners will not be recognized by the Indenture Trustee or the Master Servicer as
Holders of the related Bonds for purposes of the related Indenture, and
Beneficial Owners will be able to exercise their rights as owners of such Bonds
only indirectly through DTC, Participants and Intermediaries. Any Beneficial
Owner that desires to purchase, sell or otherwise transfer any interest in DTC
Registered Bonds may do so only through DTC, either directly if such Beneficial
Owner is a Participant or indirectly through Participants and, if applicable,
Intermediaries. Pursuant to the procedures of DTC, transfers of the beneficial
ownership of any DTC Registered Bonds will be required to be made in minimum
denominations specified in the related Prospectus Supplement. The ability of a
Beneficial Owner to pledge DTC Registered Bonds to persons or entities that are
not Participants in the DTC system, or to otherwise act with respect to such
Bonds, may be limited because of the lack of physical certificates evidencing
such Bonds and because DTC may act only on behalf of Participants.
Distributions in respect of the DTC Registered Bonds will be forwarded
by the Indenture Trustee or other specified person to DTC, and DTC will be
responsible for forwarding such payments to Participants, each of which will be
responsible for disbursing such payments to the Beneficial Owners it represents
or, if applicable, to Intermediaries. Accordingly, Beneficial Owners may
experience delays in the receipt of payments in respect of their Bonds. Under
DTC's procedures, DTC will take actions permitted to be taken by Holders of any
class of DTC Registered Bonds under the Indenture only at the direction of one
or more Participants to whose account the DTC Registered Bonds are credited and
whose aggregate holdings represent no less than any minimum amount of Percentage
Interests required therefor. DTC may take conflicting actions with respect to
any action of Holders of Bonds of any Class to the extent that Participants
authorize such actions. None of the Master Servicer, the Company, the Indenture
Trustee or any of their respective affiliates will have any liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the DTC Registered Bonds, or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests.
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ASSIGNMENT OF TRUST FUND ASSETS
At the time of issuance of a series of Bonds, the Company will assign,
or cause to be assigned, to the related Indenture Trustee (or its nominee),
without recourse, the Mortgage Loans being included in the related Trust Fund,
together with all principal and interest received on or with respect to such
Mortgage Loans after the Cut-off Date, other than principal and interest due on
or before the Cut-off Date. If specified in the related Prospectus Supplement,
the Company or any of its affiliates may retain the Spread, if any, for itself
or transfer the same to others. Each Mortgage Loan will be identified in a
schedule appearing as an exhibit to the related Servicing Agreement. Such
schedule will include, among other things, information as to the principal
balance of each Mortgage Loan in the related Trust Fund as of the Cut-off Date,
as well as information respecting the Mortgage Rate, the currently scheduled
monthly payment of principal and interest, the maturity of the Mortgage Note and
the Loan-to-Value Ratio at origination or modification (without regard to any
secondary financing).
As to each series of Bonds, the foregoing assignment of the Mortgage
Loans to the Indenture Trustee will be made for the purpose of granting a
security interest in the Mortgage Loans to the Indenture Trustee to secure the
Bonds. As to any series of Bonds where the Issuer is an owner trust, immediately
prior to such pledge to the Indenture Trustee, the Company will convey the
Mortgage Loans to the Owner Trustee pursuant to the Trust Agreement.
In addition, the Company will, as to each Mortgage Loan (other than
Contracts), deliver, or cause to be delivered, to the related Indenture Trustee
(or to the custodian described below) the Mortgage Note endorsed, without
recourse, either in blank or to the order of the Indenture Trustee (or a nominee
thereof), the Mortgage with evidence of recording indicated thereon (except for
any Mortgage not returned from the public recording office), an assignment of
the Mortgage in blank or to the Indenture Trustee (or a nominee thereof) in
recordable form, together with any intervening assignments of the Mortgage with
evidence of recording thereon (except for any such assignment not returned from
the public recording office), and, if applicable, any riders or modifications to
such Mortgage Note and Mortgage, together with certain other documents at such
times as set forth in the related Servicing Agreement. Such assignments may be
blanket assignments covering Mortgages on Mortgaged Properties located in the
same county, if permitted by law. Notwithstanding the foregoing, a Trust Fund
may include Mortgage Loans where the original Mortgage Note is not delivered to
the Indenture Trustee if the Company delivers, or causes to be delivered, to the
related Indenture Trustee (or the custodian) a copy or a duplicate original of
the Mortgage Note, together with an affidavit certifying that the original
thereof has been lost or destroyed. In addition, if the Company cannot deliver,
with respect to any Mortgage Loan, the Mortgage or any intervening assignment
with evidence of recording thereon concurrently with the execution and delivery
of the related Servicing Agreement because of a delay caused by the public
recording office, the Company will deliver, or cause to be delivered, to the
related Indenture Trustee (or the custodian) a true and correct photocopy of
such Mortgage or assignment as submitted for recording. The Company will
deliver, or cause to be delivered, to the related Indenture Trustee (or the
custodian) such Mortgage or assignment with evidence of recording indicated
thereon after receipt thereof from the public recording office. If the Company
cannot deliver, with respect to any Mortgage Loan, the Mortgage or any
intervening assignment with evidence of recording thereon concurrently with the
execution and delivery of the related Servicing Agreement because such Mortgage
or assignment has been lost, the Company will deliver, or cause to be delivered,
to the related Indenture Trustee (or the custodian) a true and correct photocopy
of such Mortgage or assignment with evidence of recording thereon. Assignments
of the Mortgage Loans to the Indenture Trustee (or a nominee thereof) will be
recorded in the appropriate public recording office, except in states where, in
the opinion of counsel acceptable to the Indenture Trustee, such recording is
not required to protect the Indenture Trustee's interests in the Mortgage Loan
against the claim of any subsequent transferee or any successor to or creditor
of the Company or the originator of such Mortgage Loan, or except as otherwise
specified in the related Prospectus Supplement as to any series of Bonds. In
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addition, unless specified in the related Prospectus Supplement, the Company
will, as to each Contract, deliver, or cause to be delivered, the original
Contract endorsed, without recourse, to the order of the Indenture Trustee and
copies of documents and instruments related to the Contract and the security
interest in the Manufactured Home securing the Contract, together with a blanket
assignment to the Indenture Trustee of all Contracts in the related Trust Fund
and such documents and instruments. In order to give notice of the right, title
and interest of the Bondholders to the Contracts, the Company will cause to be
executed and delivered to the Indenture Trustee a UCC-1 financing statement
identifying the Indenture Trustee as the secured party and identifying all
Contracts as collateral.
The Indenture Trustee (or the custodian hereinafter referred to) will
hold such documents in trust for the benefit of the related Securityholders, and
generally will review such documents within 90 days after receipt thereof in the
case of documents delivered concurrently with the execution and delivery of the
related Indenture, and within the time period specified in the related Indenture
in the case of all other documents delivered. If any such document is found to
be missing or defective in any material respect, the Indenture Trustee (or such
custodian) will be required to promptly so notify the Master Servicer, the
Company, and the related Seller. If the related Seller does not cure the
omission or defect within a specified period after notice is given thereto by
the Indenture Trustee, and such omission or defect materially and adversely
affects the interests of Securityholders in the affected Mortgage Loan, then the
related Seller will be obligated to purchase such Mortgage Loan from the
Indenture Trustee at its Purchase Price (or, if and to the extent it would
otherwise be permitted to do so for a breach of representation and warranty as
described under "The Mortgage Pools--Representations and Warranties;
Repurchases," to substitute for such Mortgage Loan). The Indenture Trustee will
be obligated to enforce this obligation of the Seller to the extent described
above under "The Mortgage Pools--Representations and Warranties; Repurchases,"
but there can be no assurance that the applicable Seller will fulfill its
obligation to purchase (or substitute for) the affected Mortgage Loan as
described above. Except as described in the Prospectus Supplement, neither the
Master Servicer nor the Company will be obligated to purchase or substitute for
such Mortgage Loan if the Seller defaults on its obligation to do so. This
purchase or substitution obligation generally constitutes the sole remedy
available to the related Securityholders and the related Indenture Trustee for
omission of, or a material defect in, a constituent document. Any affected
Mortgage Loan not so purchased or substituted for shall remain in the related
Trust Fund.
The Indenture Trustee will be authorized at any time to appoint one or
more custodians pursuant to a custodial agreement to hold title to the Mortgage
Loans in any Mortgage Pool, and to maintain possession of and, if applicable, to
review, the documents relating to such Mortgage Loans, in any case as the agent
of the Indenture Trustee. The identity of any such custodian to be appointed on
the date of initial issuance of the Bonds will be set forth in the related
Prospectus Supplement. Any such custodian may be an affiliate of the Company or
the Master Servicer.
With respect to the Mortgage Loans in a Mortgage Pool, except in the
case of a Designated Seller Transaction, the Company will make certain
representations and warranties as to the types and geographical concentrations
of such Mortgage Loans and as to the accuracy, in all material respects, of
certain identifying information furnished to the related Indenture Trustee in
respect of each such Mortgage Loan (e.g., original Loan-to-Value Ratio,
principal balance as of the Cut-off Date, Mortgage Rate and maturity). Upon a
breach of any such representation which materially and adversely affects the
interests of the Securityholders in a Mortgage Loan, the Company will be
obligated to cure the breach in all material respects, to purchase the Mortgage
Loan at its Purchase Price or, if specified in the related Prospectus
Supplement, to substitute for such Mortgage Loan a Qualified Substitute Mortgage
Loan in accordance with the provisions for such substitution by Affiliated
Sellers as described above under "The Mortgage Pools--Representations by
Sellers." However, the Company will not be required to repurchase or substitute
for any Mortgage Loan in connection with a breach of a representation and
warranty if the substance of any such breach also constitutes fraud in the
origination of the related Mortgage Loan. This
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purchase or substitution obligation generally constitutes the sole remedy
available to Securityholders or the Indenture Trustee for such a breach of
representation by the Company. Any Mortgage Loan not so purchased or substituted
for shall remain in the related Trust Fund.
Pursuant to the related Servicing Agreement, the Master Servicer for
any Mortgage Pool, either directly or through Subservicers, will service and
administer the Mortgage Loans included in such Mortgage Pool and assigned to the
related Indenture Trustee as more fully set forth under "Servicing of Mortgage
Loans." The Master Servicer will make certain representations and warranties
regarding its authority to enter into, and its ability to perform its
obligations under, the Servicing Agreement.
COLLECTION ACCOUNT
GENERAL. The Master Servicer and/or the Indenture Trustee will, as to
each Trust Fund, establish and maintain or cause to be established and
maintained one or more separate accounts for the collection of payments on the
related Mortgage Loans constituting such Trust Fund (collectively, the
"Collection Account"), which will be established so as to comply with the
standards of each Rating Agency that has rated any one or more classes of Bonds
of the related series. A Collection Account may be maintained either as an
interest-bearing or a non-interest-bearing account, and the funds held therein
may be held as cash or invested in United States government securities and other
investment grade obligations specified in the related Servicing Agreement or
Indenture ("Permitted Investments"). Any interest or other income earned on
funds in the Collection Account will be not paid to the related Master Servicer
or Indenture Trustee as additional compensation. If permitted by such Rating
Agency or Agencies and so specified in the related Prospectus Supplement, a
Collection Account may contain funds relating to more than one series of
collateralized mortgage bonds and may contain other funds representing payments
on mortgage loans owned by the related Master Servicer or serviced by it on
behalf of others.
DEPOSITS. The related Master Servicer, Indenture Trustee or Special
Servicer will be required to deposit or cause to be deposited in the Collection
Account for each Trust Fund within a certain period following receipt (in the
case of collections and payments), the following payments and collections
received, or advances made, by the Master Servicer, the Indenture Trustee or any
Special Servicer subsequent to the Cut-off Date with respect to the Mortgage
Loans in such Trust Fund (other than payments due on or before the Cut-off
Date):
(i) all payments on account of principal, including principal
prepayments, on the Mortgage Loans;
(ii) all payments on account of interest on the Mortgage Loans,
including any default interest collected, in each case net of any
portion thereof retained by the Master Servicer, any Special Servicer
or Sub-Servicer as its servicing compensation or as compensation to
the Indenture Trustee, and further net of any Spread;
(iii) all proceeds received under any hazard, title, primary
mortgage or other insurance policy that provides coverage with respect
to a particular Mortgaged Property or the related Mortgage Loan (other
than proceeds applied to the restoration of the property or released
to the related borrower in accordance with the customary servicing
practices of the Master Servicer (or, if applicable, a Special
Servicer) and/or the terms and conditions of the related Mortgage
(collectively, "Insurance Proceeds") and all other amounts received
and retained in connection with the liquidation of defaulted Mortgage
Loans or property acquired in respect thereof, by foreclosure or
otherwise ("Liquidation Proceeds"), together with the net operating
income (less reasonable reserves for future expenses) derived from the
operation of any Mortgaged Properties acquired by the Trust Fund
through foreclosure or otherwise;
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(iv) any amounts paid under any instrument or drawn from any fund
that constitutes Credit Enhancement for the related series of Bonds as
described under "Description of Credit Enhancement";
(v) any advances made as described under "--Advances" below;
(vi) any amounts paid under any Cash Flow Agreement;
(vii) all proceeds of any Mortgage Loan purchased (or, in the
case of a substitution, certain amounts representing a principal
adjustment) by the Master Servicer, the Company, a Seller or any other
person pursuant to the terms of the related Servicing Agreement as
described under "The Mortgage Pools--Representations by Sellers,"
"Servicing of Mortgage Loans--Realization Upon and Sale of Defaulted
Mortgage Loans," "--Assignment of Trust Fund Assets" above, "The
Servicing Agreement--Termination" and "Purchase Obligations";
(viii) any amounts paid by the Master Servicer to cover
Prepayment Interest Shortfalls arising out of the prepayment of
Mortgage Loans as described under "Servicing of Mortgage
Loans--Servicing and Other Compensation and Payment of Expenses;
Spread";
(ix) to the extent that any such item does not constitute
additional servicing compensation to the Master Servicer or a Special
Servicer, any payments on account of modification or assumption fees,
late payment charges or Prepayment Premiums on the Mortgage Loans;
(x) any amount required to be deposited by the Master Servicer or
the Indenture Trustee in connection with losses realized on
investments for the benefit of the Master Servicer or the Indenture
Trustee, as the case may be, of funds held in the Collection Account;
and
(xi) any other amounts required to be deposited in the Collection
Account as provided in the related Servicing Agreement and described
herein or in the related Prospectus Supplement.
WITHDRAWALS. A Master Servicer, Indenture Trustee or Special Servicer
may make withdrawals from the Collection Account for each Trust Fund for any of
the following purposes:
(i) to make distributions to the related Securityholders on each
Distribution Date;
(ii) to reimburse the Master Servicer or any other specified
person for unreimbursed amounts advanced by it as described under
"--Advances" below in respect of Mortgage Loans in the Trust Fund,
such reimbursement to be made out of amounts received which were
identified and applied by the Master Servicer as late collections of
interest (net of related servicing fees) on and principal of the
particular Mortgage Loans with respect to which the advances were made
or out of amounts drawn under any form of Credit Enhancement with
respect to such Mortgage Loans;
(iii) to reimburse the Master Servicer or a Special Servicer for
unpaid servicing fees earned by it and certain unreimbursed servicing
expenses incurred by it with respect to Mortgage Loans in the Trust
Fund and properties acquired in respect thereof, such reimbursement to
be made out of amounts that represent Liquidation Proceeds and
Insurance Proceeds collected on the particular Mortgage Loans and
properties, and net income collected on the particular properties,
with respect to which such fees were earned or such expenses were
incurred or out of amounts drawn under any form of Credit Enhancement
with respect to such Mortgage Loans and properties;
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(iv) to reimburse the Master Servicer or any other specified
person for any advances described in clause (ii) above made by it and
any servicing expenses referred to in clause (iii) above incurred by
it which, in the good faith judgment of the Master Servicer or such
other person, will not be recoverable from the amounts described in
clauses (ii) and (iii), respectively, such reimbursement to be made
from amounts collected on other Mortgage Loans in the Trust Fund or,
if and to the extent so provided by the related Servicing Agreement
and described in the related Prospectus Supplement, only from that
portion of amounts collected on such other Mortgage Loans that is
otherwise distributable on one or more classes of Subordinate Bonds of
the related series;
(v) if and to the extent described in the related Prospectus
Supplement, to pay the Master Servicer, a Special Servicer or another
specified entity (including a provider of Credit Enhancement) interest
accrued on the advances described in clause (ii) above made by it and
the servicing expenses described in clause (iii) above incurred by it
while such remain outstanding and unreimbursed;
(vi) to pay for costs and expenses incurred by the Trust Fund for
environmental site assessments performed with respect to a Mortgaged
Properties that constitute security for defaulted Mortgage Loans, and
for any containment, clean-up or remediation of hazardous wastes and
materials present on such Mortgaged Properties, as described under
"Servicing of Mortgage Loans--Realization Upon Defaulted Mortgage
Loans";
(vii) to reimburse the Master Servicer, the Company, or any of
their respective directors, officers, employees and agents, as the
case may be, for certain expenses, costs and liabilities incurred
thereby, as and to the extent described under "The Servicing
Agreement--Certain Matters Regarding the Master Servicer and the
Company";
(viii) if and to the extent described in the related Prospectus
Supplement, to pay the fees of the Owner Trustee and the Indenture
Trustee;
(ix) to reimburse the Owner Trustee or the Indenture Trustee or
any of its directors, officers, employees and agents, as the case may
be, for certain expenses, costs and liabilities incurred thereby, as
and to the extent described under "The Agreements";
(x) if specified in the related Prospectus Supplement, to pay the
Master Servicer or the Indenture Trustee, as additional compensation,
interest and investment income earned in respect of amounts held in
the Collection Account;
(xi) to pay (generally from related income) for costs incurred in
connection with the operation, management and maintenance of any
Mortgaged Property acquired by the Trust Fund by foreclosure or
otherwise;
(xii) to pay for the cost of an independent appraiser or other
expert in real estate matters retained to determine a fair sale price
for a defaulted Mortgage Loan or a property acquired in respect
thereof in connection with the liquidation of such Mortgage Loan or
property;
(xiii) to pay for the cost of various opinions of counsel
obtained pursuant to the related Indenture for the benefit of the
related Bondholders;
(xiv) to pay to itself, the Company, a Seller or any other
appropriate person all amounts received with respect to each Mortgage
Loan purchased, repurchased or removed from the Trust
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Fund pursuant to the terms of the related Servicing Agreement and not
required to be distributed as of the date on which the related
Purchase Price is determined;
(xv) to make any other withdrawals permitted by the related
Servicing Agreement and described in the related Prospectus
Supplement; and
(xvi) to clear and terminate the Collection Account upon the
termination of the Trust Fund.
DISTRIBUTIONS
Distributions on the Bonds of each series will be made by or on behalf
of the related Indenture Trustee or Master Servicer on each Distribution Date as
specified in the related Prospectus Supplement from the Available Distribution
Amount for such series and such Distribution Date. The "Available Distribution
Amount" for any series of Bonds and any Distribution Date will generally refer
to the total of all payments or other collections (or advances in lieu thereof)
on, under or in respect of the Mortgage Loans and any other Trust Fund Assets
included in the related Trust Fund that are available for distribution to the
Bondholders of such series on such date. The particular components of the
Available Distribution Amount for any series on each Distribution Date will be
more specifically described in the related Prospectus Supplement.
Except as otherwise specified in the related Prospectus Supplement,
distributions on the Bonds of each series (other than the final distribution in
retirement of any such Bond) will be made to the persons in whose names such
Bonds are registered at the close of business on the last business day of the
month preceding the month in which the applicable Distribution Date occurs (the
"Record Date"), and the amount of each distribution will be determined as of the
close of business on the date (the "Determination Date") specified in the
related Prospectus Supplement. All distributions with respect to each class of
Bonds on each Distribution Date will be allocated pro rata among the outstanding
Bonds in such class. Payments will be made either by wire transfer in
immediately available funds to the account of a Bondholder at a bank or other
entity having appropriate facilities therefor, if such Bondholder has provided
the Indenture Trustee or other person required to make such payments with wiring
instructions no later than five business days prior to the related Record Date
or such other date specified in the related Prospectus Supplement (and, if so
provided in the related Prospectus Supplement, such Bondholder holds Bonds in
the requisite amount or denomination specified therein), or by check mailed to
the address of such Bondholder as it appears on the Bond Register; provided,
however, that the final distribution in retirement of any class of Bonds will be
made only upon presentation and surrender of such Bonds at the location
specified in the notice to Bondholders of such final distribution. Payments will
be made to each Bondholder in accordance with such holder's Percentage Interest
in a particular class. The ("Percentage Interest") represented by a Bond of a
particular class will be equal to the percentage obtained by dividing the
initial principal balance or notional amount of such Bond by the aggregate
initial amount or notional balance of all the Bonds of such class. In addition,
amounts remaining in the Payment Account on each Payment Date after payments on
the Bonds will be applied for the purposes set forth in the Agreements, as
described in the related Prospectus Supplement, including distributions on the
related Bonds or release to the Company. Any amounts so distributed on the Bonds
or released to the Company will be released from the lien of the Indenture.
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DISTRIBUTIONS OF INTEREST AND PRINCIPAL ON THE BONDS
Each class of Bonds of each series may have a different Interest Rate,
which may be fixed, variable or adjustable, or any combination of two or more
such rates. The related Prospectus Supplement will specify the Interest Rate or,
in the case of a variable or adjustable Interest Rate, the method for
determining the Interest Rate, for each class. Interest on the Bonds of each
series will be calculated on the basis of a specified period (generally one
month) and a 360-day year.
Distributions of interest in respect of the Bonds of any class (other
than any class of Accrual Bonds and other than any class of Strip Bonds that is
not entitled to any distributions of interest) will be made on each Distribution
Date based on the Accrued Bond Interest for such class and such Distribution
Date, subject to the sufficiency of the portion of the Available Distribution
Amount allocable to such class on such Distribution Date. Prior to the time
interest is distributable on any class of Accrual Bonds, the amount of Accrued
Bond Interest otherwise distributable on such class will be added to the
principal balance thereof on each Distribution Date. With respect to each class
of Bonds (other than certain classes of Strip Bonds), "Accrued Bond Interest"
for each Distribution Date will be equal to interest at the applicable Interest
Rate accrued for a specified period (generally one month) on the outstanding
principal balance thereof immediately prior to such Distribution Date. Accrued
Bond Interest for each Distribution Date on Strip Bonds entitled to
distributions of interest will be similarly calculated except that it will
accrue on a notional amount that is either (i) based on the principal balances
of some or all of the Mortgage Loans in the related Trust Fund or (ii) equal to
the principal balances of one or more other classes of Bonds of the same series.
Reference to such a notional amount with respect to a class of Strip Bonds is
solely for convenience in making certain calculations and does not represent the
right to receive any distribution of principal. If so specified in the related
Prospectus Supplement, the amount of Accrued Bond Interest that is otherwise
distributable on (or, in the case of Accrual Bonds, that may otherwise be added
to the principal balance of) one or more classes of the Bonds of a series will
be reduced to the extent that any Prepayment Interest Shortfalls, as described
under "Yield and Maturity Considerations", exceed the amount of any sums
(including, if and to the extent specified in the related Prospectus Supplement,
the Master Servicer's servicing compensation) that are applied to offset such
shortfalls. The particular manner in which such shortfalls will be allocated
among some or all of the classes of Bonds of that series will be specified in
the related Prospectus Supplement. The related Prospectus Supplement will also
describe the extent to which the amount of Accrued Bond Interest that is
otherwise distributable on (or, in the case of Accrual Bonds, that may otherwise
be added to the principal balance of) a class of Bonds may be reduced as a
result of any other contingencies, including delinquencies, losses and Deferred
Interest on or in respect of the related Mortgage Loans or application of the
Relief Act with respect to such Mortgage Loans. Any reduction in the amount of
Accrued Bond Interest otherwise distributable on a class of Bonds by reason of
the allocation to such class of a portion of any Deferred Interest on or in
respect of the related Mortgage Loans will result in a corresponding increase in
the principal balance of such class.
As and to the extent described in the related Prospectus Supplement,
distributions of principal with respect to a series of Bonds will be made on
each Distribution Date to the holders of the class or classes of Bonds of such
series entitled thereto until the principal balance(s) of such Bonds have been
reduced to zero. In the case of a series of Bonds which includes two or more
classes of Bonds, the timing, sequential order, priority of payment or amount of
distributions in respect of principal, and any schedule or formula or other
provisions applicable to the determination thereof (including distributions
among multiple classes of Senior Bonds or Subordinate Bonds), shall be as set
forth in the related Prospectus Supplement. Distributions of principal with
respect to one or more classes of Bonds may be made at a rate that is faster
(and, in some cases, substantially faster) than the rate at which payments or
other collections of principal are received on the Mortgage Loans in the related
Trust Fund, may not commence until the occurrence of certain events, such as the
retirement of one or more other classes of Bonds of the same series, or may be
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made at a rate that is slower (and, in some cases, substantially slower) than
the rate at which payments or other collections of principal are received on
such Mortgage Loans. In addition, distributions of principal with respect to one
or more classes of Bonds may be made, subject to available funds, based on a
specified principal payment schedule and, with respect to one or more classes of
Bonds, may be contingent on the specified principal payment schedule for another
class of the same series and the rate at which payments and other collections of
principal on the Mortgage Loans in the related Trust Fund are received.
FUNDING ACCOUNT
If so specified in the related Prospectus Supplement, the Trust
Agreement or other agreement may provide for the transfer by the Sellers of
additional Mortgage Loans to the related Trust after the Closing Date. Such
additional Mortgage Loans will be required to conform to the requirements set
forth in the related Agreement or other agreement providing for such transfer,
and will generally be underwritten to the same standards as the Mortgage Loans
initially included in the Trust Fund. As specified in the related Prospectus
Supplement, such transfer may be funded by the establishment of a Funding
Account (a "Funding Account"). If a Funding Account is established, all or a
portion of the proceeds of the sale of one or more classes of Bonds of the
related series will be deposited in such account to be released as additional
Mortgage Loans are transferred. A Funding Account will be required to be
maintained as an Eligible Account, all amounts therein will be required to be
invested in Permitted Investments and the amount held therein shall at no time
exceed 25% of the aggregate outstanding principal balance of the Bonds. The
related Agreement or other agreement providing for the transfer of additional
Mortgage Loans will generally provide that all such transfers must be made
within 3 months after the Closing Date, and that amounts set aside to fund such
transfers (whether in a Funding Account or otherwise) and not so applied within
the required period of time will be deemed to be principal prepayments and
applied in the manner set forth in such Prospectus Supplement.
The Company will be required to provide data regarding the additional
Mortgage Loans to the Rating Agencies and the Credit Enhancer, if any,
sufficiently in advance of the scheduled transfer to permit review by such
parties. Transfer of the additional Mortgage Loans will be further conditioned
upon confirmation by the Rating Agencies that the addition of such Mortgage
Loans to the Trust Fund will not result in the downgrading of the Bonds or, in
the case of a series guaranteed or supported by a Credit Enhancer, will not
adversely affect the capital requirements of such Credit Enhancer. Finally, a
legal opinion to the effect that the conditions to the transfer of the
additional Mortgage Loans have been satisfied.
DISTRIBUTIONS ON THE BONDS IN RESPECT OF PREPAYMENT PREMIUMS
If so provided in the related Prospectus Supplement, Prepayment
Premiums received on or in connection with the Mortgage Loans in any Trust Fund
will be distributed on each Distribution Date to the holders of the class of
Bonds of the related series entitled thereto in accordance with the provisions
described in such Prospectus Supplement.
ALLOCATION OF LOSSES AND SHORTFALLS
The amount of any losses or shortfalls in collections on the Mortgage
Loans in any Trust Fund (to the extent not covered or offset by draws on any
reserve fund or under any instrument of Credit Enhancement or by
overcollateralization) will be allocated among the respective classes of Bonds
of the related series in the priority and manner, and subject to the
limitations, specified in the related Prospectus Supplement. As described in the
related Prospectus Supplement, such allocations may result in reductions in the
entitlements to interest and/or principal balances of one or more such classes
of Bonds, or may be effected simply by a prioritization of payments among such
classes of Bonds.
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ADVANCES
If and to the extent provided in the related Prospectus Supplement,
and subject to any limitations specified therein, the related Master Servicer
may be obligated to advance, or have the option of advancing, on or before each
Distribution Date, from its or their own funds or from excess funds held in the
related Collection Account that are not part of the Available Distribution
Amount for the related series of Bonds for such Distribution Date, an amount up
to the aggregate of any payments of principal (other than the principal portion
of any Balloon Payments) and interest that were due on or in respect of such
Mortgage Loans during the related Due Period and were delinquent on the related
Determination Date. A "Due Period" is the period between Distribution Dates, and
scheduled payments on the Mortgage Loans in any Trust Fund that became due
during a given Due Period will, to the extent received by the related
Determination Date or advanced by the related Master Servicer or other specified
person, be distributed on the Distribution Date next succeeding such
Determination Date.
Advances are intended to maintain a regular flow of scheduled interest
and principal payments to holders of the class or classes of Bonds entitled
thereto, rather than to guarantee or insure against losses. Accordingly, all
advances made from the Master Servicer's own funds will be reimbursable out of
related recoveries on the Mortgage Loans (including amounts received under any
fund or instrument constituting Credit Enhancement) respecting which such
advances were made (as to any Mortgage Loan, "Related Proceeds") and such other
specific sources as may be identified in the related Prospectus Supplement,
including in the case of a series that includes one or more classes of
Subordinate Bonds, collections on other Mortgage Loans in the related Trust Fund
that would otherwise be distributable to the holders of one or more classes of
such Subordinate Bonds. No advance will be required to be made by the Master
Servicer if, in the good faith judgment of the Master Servicer, such advance
would not be recoverable from Related Proceeds or another specifically
identified source (any such advance, a "Nonrecoverable Advance"); and, if
previously made by a Master Servicer, a Nonrecoverable Advance will be
reimbursable from any amounts in the related Collection Account prior to any
distributions being made to the related series of Securities.
If advances have been made from excess funds in a Collection Account,
the Master Servicer that advanced such funds will be required to replace such
funds in the Collection Account on any future Distribution Date to the extent
that funds then in the Collection Account are insufficient to permit full
distributions to Securityholders on such date. If so specified in the related
Prospectus Supplement, the obligation of a Master Servicer to make advances may
be secured by a cash advance reserve fund or a surety bond. If applicable,
information regarding the characteristics of, and the identity of any obligor
on, any such surety bond, will be set forth in the related Prospectus
Supplement.
If any person other than the Master Servicer has any obligation to
make advances as described above, the related Prospectus Supplement will
identify such person.
If and to the extent so provided in the related Prospectus Supplement,
any entity making advances will be entitled to receive interest thereon for the
period that such advances are outstanding at the rate specified in such
Prospectus Supplement, and such entity will be entitled to payment of such
interest periodically from general collections on the Mortgage Loans in the
related Trust Fund prior to any payment to Securityholders or as otherwise
provided in the related Indenture and described in such Prospectus Supplement.
REPORTS TO BONDHOLDERS
With each distribution to Bondholders of a particular class of Bonds,
the related Master Servicer or Indenture Trustee will forward or cause to be
forwarded to each holder of record of such class of Bonds
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a statement or statements with respect to the related Trust Fund setting forth
the information specifically described in the related Indenture, which generally
will include the following as applicable except as otherwise provided therein:
(i) the amount, if any, of such distribution allocable to
principal;
(ii) the amount, if any, of such distribution allocable to
interest;
(iii)the amount, if any, of such distribution allocable to
Prepayment Premiums;
(iv) with respect to a series consisting of two or more classes,
the outstanding principal balance or notional amount of each class
after giving effect to the distribution of principal on such
Distribution Date;
(v) the amount of servicing compensation received by the related
Master Servicer (and, if payable directly out of the related Trust
Fund, by any Special Servicer and any Sub-Servicer);
(vi) the aggregate amount of advances included in the
distributions on such Distribution Date, and the aggregate amount of
unreimbursed advances at the close of business on such Distribution
Date;
(vii) the aggregate principal balance of the Mortgage Loans in
the related Mortgage Pool on, or as of a specified date shortly prior
to, such Distribution Date;
(viii) the number and aggregate principal balance of any Mortgage
Loans in the related Mortgage Pool in respect of which (A) one
scheduled payment is delinquent, (B) two scheduled payments are
delinquent, (C) three or more scheduled payments are delinquent and
(D) foreclosure proceedings have been commenced;
(ix) the book value of any real estate acquired by such Trust
Fund through foreclosure or grant of a deed in lieu of foreclosure;
(x) the balance of the Reserve Fund, if any, at the close of
business on such Distribution Date;
(xi) the amount of coverage under any Financial Guaranty
Insurance Policy, Letter of Credit or Mortgage Pool Insurance Policy
covering default risk as of the close of business on the applicable
Determination Date and a description of any Credit Enhancement
substituted therefor;
(xii) the Special Hazard Amount, Fraud Loss Amount and Bankruptcy
Amount as of the close of business on the applicable Distribution Date
and a description of any change in the calculation of such amounts;
and
(xiii) in the case of Bonds benefitting from alternative Credit
Enhancement arrangements described in a Prospectus Supplement, the
amount of coverage under such alternative arrangements as of the close
of business on the applicable Determination Date.
In the case of information furnished pursuant to subclauses (i)-(iii)
above, the amounts will be expressed as a dollar amount per minimum denomination
of the relevant class of Bonds or per a specified portion of such minimum
denomination. In addition to the information described above, reports to
Bondholders will contain such other information as is set forth in the
applicable Indenture, which may
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include, without limitation, prepayments, reimbursements to Subservicers and the
Master Servicer and losses borne by the related Trust Fund.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer or Indenture Trustee will furnish a report to
each holder of record of a class of Bonds at any time during such calendar year
which, among other things, will include information as to the aggregate of
amounts reported pursuant to subclauses (i)-(iii) above for such calendar year
or, in the event such person was a holder of record of a class of Bonds during a
portion of such calendar year, for the applicable portion of such a year.
DESCRIPTION OF CREDIT ENHANCEMENT
GENERAL
Credit Enhancement may be provided with respect to one or more classes
of the Bonds of any series or with respect to the related Mortgage Loans. Credit
Enhancement may be in the form of a letter of credit, the subordination of one
or more classes of Bonds, the use of a pool insurance policy or guarantee
insurance, the establishment of one or more reserve funds or another method of
Credit Enhancement described in the related Prospectus Supplement, or any
combination of the foregoing. If and to the extent so provided in the related
Prospectus Supplement, any of the foregoing forms of Credit Enhancement may
provide credit enhancement for more than one series of Bonds.
Unless otherwise provided in the related Prospectus Supplement for a
series of Bonds, the Credit Enhancement will not provide protection against all
risks of loss and will not guarantee payment to Bondholders of all amounts to
which they are entitled under the related Pooling Agreement. If losses or
shortfalls occur that exceed the amount covered by the related Credit
Enhancement or that are of a type not covered by such Credit Enhancement,
Bondholders will bear their allocable share of deficiencies. Moreover, if a form
of Credit Enhancement covers the Bonds of more than one series and losses on the
related Mortgage Loans exceed the amount of such Credit Enhancement, it is
possible that the holders of Bonds of one (or more) such series will be
disproportionately benefited by such Credit Enhancement to the detriment of the
holders of Bonds of one (or more) other such series.
If Credit Enhancement is provided with respect to one or more classes
of Bonds of a series, or with respect to the related Mortgage Loans, the related
Prospectus Supplement will include a description of (i) the nature and amount of
coverage under such Credit Enhancement, (ii) any conditions to payment
thereunder not otherwise described herein, (iii) the conditions (if any) under
which the amount of coverage under such Credit Enhancement may be reduced and
under which such Credit Enhancement may be terminated or replaced and (iv) the
material provisions relating to such Credit Enhancement. Additionally, the
related Prospectus Supplement will set forth certain information with respect to
the obligor, if any, under any instrument of Credit Enhancement. See "Risk
Factors-Credit Enhancement Limitations".
SUBORDINATE BONDS
If so specified in the related Prospectus Supplement, one or more
classes of Bonds of a series may be Subordinate Bonds. To the extent specified
in the related Prospectus Supplement, the rights of the holders of Subordinate
Bonds to receive distributions from the Bond Account on any Distribution Date
will be subordinated to the corresponding rights of the holders of Senior Bonds.
If so provided in the related Prospectus Supplement, the subordination of a
class may apply only in the event of certain types of losses or shortfalls. The
related Prospectus Supplement will set forth information concerning the method
and
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amount of subordination provided by a class or classes of Subordinate Bonds in a
series and the circumstances under which such subordination will be available.
If the Mortgage Loans in any Trust Fund are divided into separate
groups, each supporting a separate class or classes of Bonds of the related
series, Credit Enhancement may be provided by cross-support provisions requiring
that distributions be made on Senior Bonds evidencing interests in one group of
Mortgage Loans prior to distributions on Subordinate Bonds evidencing interests
in a different group of Mortgage Loans within the Trust Fund. The Prospectus
Supplement for a series that includes a cross-support provision will describe
the manner and conditions for applying such provisions.
INSURANCE OR GUARANTEES WITH RESPECT TO MORTGAGE LOANS
If so provided in the Prospectus Supplement for a series of Bonds,
Mortgage Loans included in the related Trust Fund will be covered for certain
default risks by insurance policies or guarantees. The related Prospectus
Supplement will describe the nature of such default risks and the extent of such
coverage.
LETTER OF CREDIT
If so provided in the Prospectus Supplement for a series of Bonds,
deficiencies in amounts otherwise payable on such Bonds or certain classes
thereof will be covered by one or more letters of credit, issued by a bank or
other financial institution specified in such Prospectus Supplement (the "Letter
of Credit Bank"). Under a letter of credit, the Letter of Credit Bank will be
obligated to honor draws thereunder in an aggregate fixed dollar amount, net of
unreimbursed payments thereunder, generally equal to a percentage specified in
the related Prospectus Supplement of the aggregate principal balance of some or
all of the related Mortgage Loans on the related Cut-off Date or of the initial
aggregate Bond Balance of one or more classes of Bonds. If so specified in the
related Prospectus Supplement, the letter of credit may permit draws only in the
event of certain types of losses and shortfalls. The amount available under the
letter of credit will, in all cases, be reduced to the extent of the
unreimbursed payments thereunder and may otherwise be reduced as described in
the related Prospectus Supplement. The obligations of the Letter of Credit Bank
under the letter of credit for each series of Bonds will expire at the earlier
of the date specified in the related Prospectus Supplement or the termination of
the Trust Fund.
BOND INSURANCE AND SURETY BONDS
If so provided in the Prospectus Supplement for a series of Bonds,
deficiencies in amounts otherwise payable on such Bonds or certain classes
thereof will be covered by insurance policies or surety bonds provided by one or
more insurance companies or sureties. Such instruments may cover, with respect
to one or more classes of Bonds of the related series, timely distributions of
interest or distributions of principal on the basis of a schedule of principal
distributions set forth in or determined in the manner specified in the related
Prospectus Supplement. The related Prospectus Supplement will describe any
limitations on the draws that may be made under any such instrument.
RESERVE FUNDS
If so provided in the Prospectus Supplement for a series of Bonds,
deficiencies in amounts otherwise payable on such Bonds or certain classes
thereof will be covered (to the extent of available funds) by one or more
reserve funds in which cash, a letter of credit, Permitted Investments, a demand
note or a combination thereof will be deposited, in the amounts specified in
such Prospectus Supplement. If so specified in the related Prospectus
Supplement, the reserve fund for a series may also be funded over time by a
specified amount of certain collections received on the related Mortgage Loans.
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Amounts on deposit in any reserve fund for a series will be applied
for the purposes, in the manner, and to the extent specified in the related
Prospectus Supplement. If so specified in the related Prospectus Supplement,
reserve funds may be established to provide protection only against certain
types of losses and shortfalls. Following each Distribution Date, amounts in a
reserve fund in excess of any amount required to be maintained therein may be
released from the reserve fund under the conditions and to the extent specified
in the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, amounts
deposited in any reserve fund will be invested in Permitted Investments. Unless
otherwise specified in the related Prospectus Supplement, any reinvestment
income or other gain from such investments will be credited to the related
reserve fund for such series, and any loss resulting from such investments will
be charged to such reserve fund. However, such income may be payable to any
related Master Servicer or another service provider as additional compensation
for its services. The reserve fund, if any, for a series will not be a part of
the Trust Fund unless otherwise specified in the related Prospectus Supplement.
THE COMPANY
The Company is a limited-purpose wholly-owned subsidiary of Imperial
Credit Mortgage Holdings, Inc. ("Imperial Holdings"), a publicly traded real
estate investment trust ("REIT"). The Company was incorporated in the State of
California on April 12, 1996. The Company was organized for the purpose of
serving as a private secondary mortgage market conduit.
The Company maintains its principal office at 20371 Irvine Avenue,
Suite 200, Santa Ana Heights, California 92707. Its telephone number is (909)
788-7808.
ICI FUNDING CORPORATION
ICI Funding Corporation ("ICI Funding") is an affiliate of the Company
and may from time to time be a Seller or act as Master Servicer with respect to
a Mortgage Pool. ICI Funding is a mortgage banking conduit that acquires
[conventional one-to four-family residential mortgage loans] nationwide. ICI
Funding is a non-consolidating subsidiary of Imperial Holdings. ICI Funding
primarily acquires mortgage loans from approved correspondents. ICI Funding's
executive offices are located at 20371 Irvine Avenue, Suite 200, Santa Ana
Heights, California 92707, and its telephone number is (714) 556-0122.
Prior to November 1995, ICI Funding was a division of Imperial Credit
Industries, Inc. ("ICII"), a California corporation. ICII is a publicly traded
mortgage banking company. In November 1995, ICII restructured its operations
pursuant to which ICI Funding became a separate corporation and ICII
contributed, among other things, all of the outstanding nonvoting preferred
stock of ICI Funding, which represents 99% of the economic interest in ICI
Funding, to Imperial Holdings, in exchange for approximately 10% of the common
stock of Imperial Holdings. All of the outstanding shares of common stock of ICI
Funding were retained by ICII. In the first quarter of 1997, the common stock of
ICI Funding was transferred to private individuals.
THE AGREEMENTS
The following summaries describe certain provisions of the Trust
Agreement, the Indenture and Servicing Agreement relating to a series of Bonds
(each, an "Agreement" and, collectively, the
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"Agreements"). The summaries do not purport to be complete and are qualified
entirely by reference to the actual terms of the Agreements relating to a series
of Bonds.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
SERVICING AGREEMENT
A "Servicing Default" under the Servicing Agreement in respect of a
series of Securities generally will include: (i) any failure by the Master
Servicer to make a required deposit to the Collection Account or, if the Master
Servicer is so required, to distribute to the holders of any class of Securities
of such series any required payment which continues unremedied for five business
days (or other period of time described in the related Prospectus Supplement)
after the giving of written notice of such failure to the Master Servicer by the
Indenture Trustee or the Issuer; (ii) any failure by the Master Servicer duly to
observe or perform in any material respect any other of its covenants or
agreements in the Servicing Agreement with respect to such series of Securities
which continues unremedied for 45 days after the giving of written notice of
such failure to the Master Servicer by the Indenture Trustee or the Issuer (or
the Pool Insurer, if applicable); (iii) certain events of insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings regarding the Master Servicer and certain actions by the Master
Servicer indicating its insolvency or inability to pay its obligations and (iv)
any other Servicing Default as set forth in the Servicing Agreement.
So long as a Servicing Default remains unremedied, either the Company
or the Indenture Trustee may (except as otherwise provided for in the related
Agreement with respect to the Pool Insurer, if applicable), by written
notification to the Master Servicer and to the Issuer or the Indenture Trustee
or Trust Fund, as applicable, terminate all of the rights and obligations of the
Master Servicer under the Servicing Agreement (other than any right of the
Master Servicer as Securityholder and other than the right to receive servicing
compensation and expenses for servicing the Mortgage Loans during any period
prior to the date of such termination), whereupon the Indenture Trustee will
succeed to all responsibilities, duties and liabilities of the Master Servicer
under such Servicing Agreement (other than the obligation to purchase Mortgage
Loans under certain circumstances) and will be entitled to similar compensation
arrangements. In the event that the Indenture Trustee would be obligated to
succeed the Master Servicer but is unwilling so to act, it may appoint (or if it
is unable so to act, it shall appoint) or petition a court of competent
jurisdiction for the appointment of an approved mortgage servicing institution
with a net worth of at least $10,000,000 to act as successor to the Master
Servicer under the Servicing Agreement (unless otherwise set forth in the
Servicing Agreement). Pending such appointment, the Indenture Trustee is
obligated to act in such capacity. The Indenture Trustee and such successor may
agree upon the servicing compensation to be paid, which in no event may be
greater than the compensation to the initial Master Servicer under the Servicing
Agreement.
INDENTURE
An "Event of Default" under the Indenture in respect of each series of
Bonds, generally will include: (i) a default for five days or more (or other
period of time described in the related Prospectus Supplement) in the payment of
any principal of or interest on any Bond of such series; (ii) failure to perform
any other covenant of the Company or the Trust Fund in the Indenture which
continues for a period of thirty days after notice thereof is given in
accordance with the procedures described in the related Prospectus Supplement
(and if the Pool Insurer defaults in the performance of its obligations, if
applicable); (iii) any representation or warranty made by the Company or the
Trust Fund in the Indenture 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 thirty days after notice thereof is given in
accordance with the procedures described in the related
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Prospectus Supplement; (iv) certain events of bankruptcy, insolvency,
receivership or liquidation of the Company or the Trust Fund (and if the Pool
Insurer defaults in the performance of its obligations, if applicable); or (v)
any other Event of Default provided with respect to Bonds of that series.
If an Event of Default with respect to the Bonds of any series at the
time outstanding occurs and is continuing, either the Indenture Trustee, the
Pool Insurer (if applicable) or the holders of a majority of the then aggregate
outstanding amount of the Bonds of such series may declare the principal amount
(or, if the Bonds of that series are Accrual Bonds, such portion of the
principal amount as may be specified in the terms of that series, as provided in
the related Prospectus Supplement) of all the Bonds of such series to be due and
payable immediately. Such declaration may, under certain circumstances, be
rescinded and annulled by the holders of a majority in aggregate outstanding
amount of the related Bonds.
If following an Event of Default with respect to any series of Bonds,
the Bonds of such series have been declared to be due and payable, the Indenture
Trustee (with the consent of the Pool Insurer, if applicable) may, in its
discretion, notwithstanding such acceleration, elect to maintain possession of
the collateral securing the Bonds of such series and to continue to apply
payments 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 Bonds of such series as they would have become
due if there had not been such a declaration. In addition, the Indenture Trustee
may not sell or otherwise liquidate the collateral securing the Bonds of a
series following an Event of Default, unless (a) the holders of 100% of the then
aggregate outstanding amount of the Bonds of such series 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 Bonds of
such series (and to reimburse the Pool Insurer, if applicable) at the date of
such sale or (c) the Indenture Trustee determines that such collateral would not
be sufficient on an ongoing basis to make all payments on such Bonds as such
payments would have become due if such Bonds had not been declared due and
payable, and the Indenture Trustee obtains the consent of the holders of 66 2/3%
of the then aggregate outstanding amount of the Bonds of such series (and the
Pool Insurer, if applicable).
In the event that the Indenture Trustee liquidates the collateral in
connection with an Event of Default, the Indenture provides that the Indenture
Trustee will 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 payments to the Bondholders would be less than
would otherwise be the case. However, the Indenture 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 Indenture for the benefit of
the Bondholders after the occurrence of such an Event of Default.
In the event the principal of the Bonds of a series is declared due
and payable, as described above, the holders of any such Bonds 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 that is
unamortized.
No Securityholder generally will have any right under a Trust
Agreement or Indenture to institute any proceeding with respect to such
Agreement unless (a) such holder previously has given to the Indenture Trustee
written notice of default and the continuance thereof, (b) the holders of
Securities of any class evidencing not less than 25% of the aggregate Percentage
Interests constituting such class (i) have made written request upon the
Indenture Trustee to institute such proceeding in its own name as Indenture
Trustee thereunder and (ii) have offered to the Indenture Trustee reasonable
indemnity, (c) the Indenture Trustee has neglected or refused to institute any
such proceeding for 60 days after receipt of such request and indemnity and (d)
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
Bond Balances of such class (except as otherwise provided for in the related
Agreement with respect to the Pool Insurer). However, the Indenture Trustee will
be under no obligation to exercise any of the trusts or powers vested in it by
the
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applicable Agreement or to institute, conduct or defend any litigation
thereunder or in relation thereto at the request, order or direction of any of
the holders of Securities covered by such Agreement, unless such Securityholders
have offered to the Indenture Trustee reasonable security or indemnity against
the costs, expenses and liabilities which may be incurred therein or thereby.
AMENDMENT
Each Agreement may be amended by the parties thereto (except as
otherwise provided for in the related Agreement with respect to the Pool
Insurer) without the consent of any of the holders of Securities covered by such
Agreement, (i) to cure any ambiguity; (ii) to correct or supplement any
provision therein which may be inconsistent with any other provision therein or
to correct any error; (iii) to change the timing and/or nature of deposits in
the Collection Account or to change the name in which the Collection Account is
maintained (except that (a) deposits to the Payment Account may not occur later
than the related Payment Date, (b) such change may not adversely affect in any
material respect the interests of any Securityholder, as evidenced by an opinion
of counsel, and (c) such change may not adversely affect the then-current rating
of any rated Bonds, as evidenced by a letter from each applicable Rating
Agency); or (iv) to make any other provisions with respect to matters or
questions arising under such Agreement which are not materially inconsistent
with the provisions thereof, so long as such action will not adversely affect in
any material respect the interests of any Securityholder.
Each Agreement may also be amended by the parties thereto (except as
otherwise provided for in the related Agreement with respect to the Pool
Insurer) with the consent of the holders of Securities of each class affected
thereby evidencing, in each case, not less than 66% of the aggregate Percentage
Interests constituting such class for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of such Agreement or
of modifying in any manner the rights of the related Securityholders, except
that no such amendment may (i) reduce in any manner the amount of, or delay the
timing of, payments received on Mortgage Loans which are required to be paid on
a Security of any class without the consent of the holder of such Security, (ii)
impair the right of any Securityholder to institute suit for the enforcement of
the provisions of the Agreements or (iii) reduce the percentage of Securities of
any class the holders of which are required to consent to any such amendment
unless the holders of all Securities of such class have consented to the change
in such percentage.
TERMINATION; REDEMPTION OF BONDS
TRUST AGREEMENT
The obligations created by the Trust Agreement for each series of
Securities (other than certain limited payment and notice obligations of the
Owner Trustee and the Company, respectively) will terminate upon the payment to
the related Securityholders (including, the Bonds issued pursuant to the related
Indenture) of all amounts held by the Master Servicer and required to be paid to
Securityholders following the earlier of (i) the final payment or other
liquidation or disposition (or any advance with respect thereto) of the last
Mortgage Loan subject thereto and all property acquired upon foreclosure or deed
in lieu of foreclosure of any such Mortgage Loan and (ii) the purchase, in whole
but not in part, by the Master Servicer or the Company or a person specified in
the related Prospectus Supplement (other than any Bondholder) of the Bonds of
such series; provided, however, that no such purchase shall be made unless the
aggregate Bond Principal Balance as of such date is equal to or less than 25% of
the aggregate Bond Principal Balance as of the Delivery Date or a period of
seven years has elapsed since the initial Payment Date. Any purchase pursuant to
clause (ii) above will be at a purchase price equal to 100% of the aggregate
Bond Principal Balance of the Bonds redeemed, plus any accrued and unpaid
interest thereon, plus, if applicable, other amounts described in the Prospectus
Supplement.
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INDENTURE
The Indenture will be discharged with respect to a series of Bonds
(except with respect to certain continuing rights specified in the Indenture)
upon the distribution to Bondholders of all amounts required to be distributed
pursuant to the Indenture.
THE OWNER TRUSTEE
The Owner Trustee under the Trust Agreement will be named in the
related Prospectus Supplement. The commercial bank or trust company serving as
Owner Trustee may have normal banking relationships with the Company and/or its
affiliates, including Imperial Holdings.
The Owner Trustee may resign at any time, in which event the
Administrator or the Indenture Trustee will be obligated to appoint a successor
owner trustee as set forth in the Agreements. The Administrator or the Indenture
Trustee may also remove the Owner Trustee if the Owner Trustee ceases to be
eligible to continue as such under the Trust Agreement or if the Owner Trustee
becomes insolvent. Upon becoming aware of such circumstances, the Administrator
or the Indenture Trustee will be obligated to appoint a successor Owner Trustee.
Any resignation or removal of the Owner Trustee and appointment of a successor
Owner Trustee will not become effective until acceptance of the appointment by
the successor Owner Trustee.
THE INDENTURE TRUSTEE
The Indenture Trustee under the Indenture will be named in the related
Prospectus Supplement. The commercial bank or trust company serving as Indenture
Trustee may have normal banking relationships with the Company and/or its
affiliates, including Imperial Holdings.
The Indenture Trustee may resign at any time, in which event the
Company, the Owner Trustee or the Administrator will be obligated to appoint a
successor indenture trustee as set forth in the Indenture. The Company, the
Owner Trustee or the Administrator as set forth in the Indenture may also remove
the Indenture Trustee if the Indenture Trustee ceases to be eligible to continue
as such under the Indenture or if the Indenture Trustee becomes insolvent. Upon
becoming aware of such circumstances, the Company, the Owner Trustee or the
Administrator will be obligated to appoint a successor Indenture Trustee. If so
specified in the Indenture, the Indenture Trustee may also be removed at any
time by the holders of a majority principal balance of the Bonds. Any
resignation or removal of the Indenture Trustee and appointment of a successor
Indenture Trustee will not become effective until acceptance of the appointment
by the successor Indenture Trustee.
YIELD AND MATURITY CONSIDERATIONS
GENERAL
The yield on any Bond will depend on the price paid by the Bondholder,
the Interest Rate of the Bond and the amount and timing of distributions on the
Bond. See "Risk Factors-Effect of Prepayments on Average Life of Bonds".
PASS-THROUGH RATE
The Bonds of any class within a series may have a fixed, variable or
adjustable Interest Rate, which may or may not be based upon the interest rates
borne by the Mortgage Loans in the related Trust Fund.
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The Prospectus Supplement with respect to any series of Bonds will specify the
Interest Rate for each class of Bonds of such series or, in the case of a class
of Bonds with a variable or adjustable Interest Rate, the method of determining
the Interest Rate; the effect, if any, of the prepayment of any Mortgage Loan on
the Interest Rate of one or more classes of Bonds; and whether the distributions
of interest on the Bonds of any class will be dependent, in whole or in part, on
the performance of any obligor under a Cash Flow Agreement.
PAYMENT DELAYS
With respect to any series of Bonds, a period of time will elapse
between the date upon which payments on the Mortgage Loans in the related Trust
Fund are due and the Distribution Date on which such payments are passed through
to Bondholders. That delay will effectively reduce the yield that would
otherwise be produced if payments on such Mortgage Loans were distributed to
Bondholders on the date they were due.
CERTAIN SHORTFALLS IN COLLECTIONS OF INTEREST
When a principal prepayment in full or in part is made on a Mortgage
Loan, the borrower is generally charged interest on the amount of such
prepayment only through the date of such prepayment, instead of through the Due
Date for the next succeeding scheduled payment. However, interest accrued on any
series of Bonds and distributable thereon on any Distribution Date will
generally correspond to interest accrued on the Mortgage Loans to their
respective Due Dates during the related Due Period. A "Due Period" will be a
specified time period (generally corresponding in length to the period between
Distribution Dates) and all scheduled payments on the Mortgage Loans in the
related Trust Fund that are due during a given Due Period will, to the extent
received by a specified date (the "Determination Date") or otherwise advanced by
the related Master Servicer, Special Servicer or other specified person, be
distributed to the holders of the Bonds of such series on the next succeeding
Distribution Date. Consequently, if a prepayment on any Mortgage Loan is
distributable to Bondholders on a particular Distribution Date, but such
prepayment is not accompanied by interest thereon to the Due Date for such
Mortgage Loan in the related Due Period, then the interest charged to the
borrower (net of servicing and administrative fees) may be less (such shortfall,
a "Prepayment Interest Shortfall") than the corresponding amount of interest
accrued and otherwise payable on the Bonds of the related series. If and to the
extent that any such shortfall is allocated to a class of Bonds, the yield
thereon will be adversely affected. The Prospectus Supplement for each series of
Bonds will describe the manner in which any such shortfalls will be allocated
among the classes of such Bonds. The related Prospectus Supplement will also
describe any amounts available to offset such shortfalls.
YIELD AND PREPAYMENT CONSIDERATIONS
A Bond's yield to maturity will be affected by the rate of principal
payments on the Mortgage Loans in the related Trust Fund and the allocation
thereof to reduce the principal balance (or notional amount, if applicable) of
such Bond. The rate of principal payments on the Mortgage Loans in any Trust
Fund will in turn be affected by the amortization schedules thereof (which, in
the case of ARM Loans, may change periodically to accommodate adjustments to the
Mortgage Rates thereon), the dates on which any balloon payments are due, and
the rate of principal prepayments thereon (including for this purpose, voluntary
prepayments by borrowers and also prepayments resulting from liquidations of
Mortgage Loans due to defaults, casualties or condemnations affecting the
related Mortgaged Properties, or purchases of Mortgage Loans out of the related
Trust Fund). Because the rate of principal prepayments on the Mortgage Loans in
any Trust Fund will depend on future events and a variety of factors (as
described below), no assurance can be given as to such rate.
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The extent to which the yield to maturity of a class of Bonds of any
series may vary from the anticipated yield will depend upon the degree to which
they are purchased at a discount or premium and when, and to what degree,
payments of principal on the Mortgage Loans in the related Trust Fund are in
turn distributed on such Bonds (or, in the case of a class of Stripped Interest
Bonds, result in the reduction of the Notional Amount thereof). An investor
should consider, in the case of any Bond purchased at a discount, the risk that
a slower than anticipated rate of principal payments on the Mortgage Loans in
the related Trust Fund could result in an actual yield to such investor that is
lower than the anticipated yield and, in the case of any Bond purchased at a
premium, the risk that a faster than anticipated rate of principal payments on
such Mortgage Loans could result in an actual yield to such investor that is
lower than the anticipated yield. In addition, if an investor purchases a Bond
at a discount (or premium), and principal payments are made in reduction of the
principal balance or notional amount of such investor's Bonds at a rate slower
(or faster) than the rate anticipated by the investor during any particular
period, any consequent adverse effects on such investor's yield would not be
fully offset by a subsequent like increase (or decrease) in the rate of
principal payments.
In general, the Notional Amount of a class of Stripped Interest Bonds
will either (i) be based on the principal balances of some or all of the
Mortgage Loans in the related Trust Fund or (ii) equal the Bond Balances of one
or more of the other classes of Bonds of the same series. Accordingly, the yield
on such Stripped Interest Bonds will be inversely related to the rate at which
payments and other collections of principal are received on such Mortgage Loans
or distributions are made in reduction of the Bond Balances of such classes of
Bonds, as the case may be.
Consistent with the foregoing, if a class of Bonds of any series
consists of Stripped Interest Bonds or Stripped Principal Bonds, a lower than
anticipated rate of principal prepayments on the Mortgage Loans in the related
Trust Fund will negatively affect the yield to investors in Stripped Principal
Bonds, and a higher than anticipated rate of principal prepayments on such
Mortgage Loans will negatively affect the yield to investors in Stripped
Interest Bonds. If the Offered Bonds of a series include any such Bonds, the
related Prospectus Supplement will include a table showing the effect of various
constant assumed levels of prepayment on yields on such Bonds. Such tables will
be intended to illustrate the sensitivity of yields to various constant assumed
prepayment rates and will not be intended to predict, or to provide information
that will enable investors to predict, yields or prepayment rates.
The extent of prepayments of principal of the Mortgage Loans in any
Trust Fund may be affected by a number of factors, including, without
limitation, the availability of mortgage credit, the relative economic vitality
of the area in which the Mortgaged Properties are located, the quality of
management of the Mortgaged Properties, the servicing of the Mortgage Loans,
possible changes in tax laws and other opportunities for investment. In general,
those factors which increase the attractiveness of selling a Mortgaged Property
or refinancing a Mortgage Loan or which enhance a borrower's ability to do so,
as well as those factors which increase the likelihood of default under a
Mortgage Loan, would be expected to cause the rate of prepayment in respect of
any Mortgage Loan Pool to accelerate. In contrast, those factors having an
opposite effect would be expected to cause the rate of prepayment of any
Mortgage Loan Pool to slow.
The rate of principal payments on the Mortgage Loans in any Trust Fund
may also be affected by the existence of Lock-out Periods and requirements that
principal prepayments be accompanied by Prepayment Premiums, and by the extent
to which such provisions may be practicably enforced. To the extent enforceable,
such provisions could constitute either an absolute prohibition (in the case of
a Lock-out Period) or a disincentive (in the case of a Prepayment Premium) to a
borrower's voluntarily prepaying its Mortgage Loan, thereby slowing the rate of
prepayments.
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The rate of prepayment on a pool of mortgage loans is likely to be
affected by prevailing market interest rates for mortgage loans of a comparable
type, term and risk level. When the prevailing market interest rate is below a
mortgage coupon, a borrower may have an increased incentive to refinance its
mortgage loan. Even in the case of ARM Loans, as prevailing market interest
rates decline, and without regard to whether the Mortgage Rates on such ARM
Loans decline in a manner consistent therewith, the related borrowers may have
an increased incentive to refinance for purposes of either (i) converting to a
fixed rate loan and thereby "locking in" such rate or (ii) taking advantage of a
different index, margin or rate cap or floor on another adjustable rate mortgage
loan. Therefore, as prevailing market interest rates decline, prepayment speeds
would be expected to accelerate.
Depending on prevailing market interest rates, the outlook for market
interest rates and economic conditions generally, some borrowers may sell
Mortgaged Properties in order to realize their equity therein, to meet cash flow
needs or to make other investments. In addition, some borrowers may be motivated
by federal and state tax laws (which are subject to change) to sell Mortgaged
Properties prior to the exhaustion of tax depreciation benefits. The Depositor
makes no representation as to the particular factors that will affect the
prepayment of the Mortgage Loans in any Trust Fund, as to the relative
importance of such factors, as to the percentage of the principal balance of
such Mortgage Loans that will be paid as of any date or as to the overall rate
of prepayment on such Mortgage Loans.
WEIGHTED AVERAGE LIFE AND MATURITY
The rate at which principal payments are received on the Mortgage
Loans in any Trust Fund will affect the ultimate maturity and the weighted
average life of one or more classes of the Bonds of such series. Unless
otherwise specified in the related Prospectus Supplement, weighted average life
refers to the average amount of time that will elapse from the date of issuance
of an instrument until each dollar allocable as principal of such instrument is
repaid to the investor.
The weighted average life and maturity of a class of Bonds of any
series will be influenced by the rate at which principal on the related Mortgage
Loans, whether in the form of scheduled amortization or prepayments (for this
purpose, the term "prepayment" includes voluntary prepayments by borrowers and
also prepayments resulting from liquidations of Mortgage Loans due to default,
casualties or condemnations affecting the related Mortgaged Properties and
purchases of Mortgage Loans out of the related Trust Fund), is paid to such
class. Prepayment rates on loans are commonly measured relative to a prepayment
standard or model, such as the Constant Prepayment Rate ("CPR") prepayment model
or the Standard Prepayment Assumption ("SPA") prepayment model. CPR represents
an assumed constant rate of prepayment each month (expressed as an annual
percentage) relative to the then outstanding principal balance of a pool of
mortgage loans for the life of such loans. SPA represents an assumed variable
rate of prepayment each month (expressed as an annual percentage) relative to
the then outstanding principal balance of a pool of mortgage loans, with
different prepayment assumptions often expressed as percentages of SPA. For
example, a prepayment assumption of 100% of SPA assumes prepayment rates of 0.2%
per annum of the then outstanding principal balance of such loans in the first
month of the life of the loans and an additional 0.2% per annum in each month
thereafter until the thirtieth month. Beginning in the thirtieth month, and in
each month thereafter during the life of the loans, 100% of SPA assumes a
constant prepayment rate of 6% per annum each month.
Neither CPR nor SPA nor any other prepayment model or assumption
purports to be a historical description of prepayment experience or a prediction
of the anticipated rate of prepayment of any particular pool of mortgage loans.
Moreover, the CPR and SPA models were developed based upon historical prepayment
experience for single-family mortgage loans. Thus, it is unlikely that the
prepayment experience of the Mortgage Loans included in any Trust Fund will
conform to any particular level of CPR or SPA.
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The Prospectus Supplement with respect to each series of Bonds will
contain tables, if applicable, setting forth the projected weighted average life
of each class of Bonds of such series with a Bond Balance, and the percentage of
the initial Bond Balance of each such class that would be outstanding on
specified Distribution Dates, based on the assumptions stated in such Prospectus
Supplement, including assumptions that prepayments on the related Mortgage Loans
are made at rates corresponding to various percentages of CPR or SPA, or at such
other rates specified in such Prospectus Supplement. Such tables and assumptions
will illustrate the sensitivity of the weighted average lives of the Bonds to
various assumed prepayment rates and will not be intended to predict, or to
provide information that will enable investors to predict, the actual weighted
average lives of the Bonds.
OTHER FACTORS AFFECTING YIELD, WEIGHTED AVERAGE LIFE AND MATURITY
BALLOON PAYMENTS; EXTENSIONS OF MATURITY. Some or all of the Mortgage
Loans included in a particular Trust Fund may require that balloon payments be
made at maturity. Because the ability of a borrower to make a balloon payment
typically will depend upon its ability either to refinance the loan or to sell
the related Mortgaged Property, there is a possibility that Mortgage Loans that
require balloon payments may default at maturity, or that the maturity of such a
Mortgage Loan may be extended in connection with a workout. In the case of
defaults, recovery of proceeds may be delayed by, among other things, bankruptcy
of the borrower or adverse conditions in the market where the property is
located. In order to minimize losses on defaulted Mortgage Loans, the Master
Servicer or the Special Servicer, to the extent and under the circumstances set
forth herein and in the related Prospectus Supplement, may be authorized to
modify Mortgage Loans that are in default or as to which a payment default is
imminent. Any defaulted balloon payment or modification that extends the
maturity of a Mortgage Loan may delay distributions of principal on a class of
Bonds and thereby extend the weighted average life of such Bonds and, if such
Bonds were purchased at a discount, reduce the yield thereon.
NEGATIVE AMORTIZATION. The weighted average life of a class of Bonds
can be affected by Mortgage Loans that permit negative amortization to occur
(that is, Mortgage Loans that provide for the current payment of interest
calculated at a rate lower than the rate at which interest accrues thereon, with
the unpaid portion of such interest being added to the related principal
balance). Negative amortization on one or more Mortgage Loans in any Trust Fund
may result in negative amortization on the Bonds of the related series. The
related Prospectus Supplement will describe, if applicable, the manner in which
negative amortization in respect of the Mortgage Loans in any Trust Fund is
allocated among the respective classes of Bonds of the related series. The
portion of any Mortgage Loan negative amortization allocated to a class of Bonds
may result in a deferral of some or all of the interest payable thereon, which
deferred interest may be added to the Bond Balance thereof. In addition, an ARM
Loan that permits negative amortization would be expected during a period of
increasing interest rates to amortize at a slower rate (and perhaps not at all)
than if interest rates were declining or were remaining constant. Such slower
rate of Mortgage Loan amortization would correspondingly be reflected in a
slower rate of amortization for one or more classes of Bonds of the related
series. Accordingly, the weighted average lives of Mortgage Loans that permit
negative amortization (and that of the classes of Bonds to which any such
negative amortization would be allocated or that would bear the effects of a
slower rate of amortization on such Mortgage Loans) may increase as a result of
such feature.
Negative amortization may occur in respect of an ARM Loan that (i)
limits the amount by which its scheduled payment may adjust in response to a
change in its Mortgage Rate, (ii) provides that its scheduled payment will
adjust less frequently than its Mortgage Rate or (iii) provides for constant
scheduled payments notwithstanding adjustments to its Mortgage Rate.
Accordingly, during a period of declining interest rates, the scheduled payment
on such a Mortgage Loan may exceed the amount necessary to amortize the loan
fully over its remaining amortization schedule and pay interest at the then
applicable Mortgage Rate, thereby resulting in the accelerated amortization of
such Mortgage Loan. Any such
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acceleration in amortization of its principal balance will shorten the weighted
average life of such Mortgage Loan and, correspondingly, the weighted average
lives of those classes of Bonds entitled to a portion of the principal payments
on such Mortgage Loan.
The extent to which the yield on any Bond will be affected by the
inclusion in the related Trust Fund of Mortgage Loans that permit negative
amortization, will depend upon (i) whether such Bond was purchased at a premium
or a discount and (ii) the extent to which the payment characteristics of such
Mortgage Loans delay or accelerate the distributions of principal on such Bond
(or, in the case of a Stripped Interest Bond, delay or accelerate the reduction
of the notional amount thereof). See "-Yield and Prepayment Considerations"
above.
FORECLOSURES AND PAYMENT PLANS. The number of foreclosures and the
principal amount of the Mortgage Loans that are foreclosed in relation to the
number and principal amount of Mortgage Loans that are repaid in accordance with
their terms will affect the weighted average lives of those Mortgage Loans and,
accordingly, the weighted average lives of and yields on the Bonds of the
related series. Servicing decisions made with respect to the Mortgage Loans,
including the use of payment plans prior to a demand for acceleration and the
restructuring of Mortgage Loans in bankruptcy proceedings or otherwise, may also
have an effect upon the payment patterns of particular Mortgage Loans and thus
the weighted average lives of and yields on the Bonds of the related series.
LOSSES AND SHORTFALLS ON THE MORTGAGE LOANS. The yield to holders of
the Bonds of any series will directly depend on the extent to which such holders
are required to bear the effects of any losses or shortfalls in collections
arising out of defaults on the Mortgage Loans in the related Trust Fund and the
timing of such losses and shortfalls. In general, the earlier that any such loss
or shortfall occurs, the greater will be the negative effect on yield for any
class of Bonds that is required to bear the effects thereof.
The amount of any losses or shortfalls in collections on the Mortgage
Loans in any Trust Fund (to the extent not covered or offset by draws on any
reserve fund or under any instrument of Credit Support) will be allocated among
the respective classes of Bonds of the related series in the priority and
manner, and subject to the limitations, specified in the related Prospectus
Supplement. As described in the related Prospectus Supplement, such allocations
may be effected by (i) a reduction in the entitlements to interest and/or the
Bond Balances of one or more such classes of Bonds and/or (ii) establishing a
priority of payments among such classes of Bonds.
The yield to maturity on a class of Subordinate Bonds may be extremely
sensitive to losses and shortfalls in collections on the Mortgage Loans in the
related Trust Fund.
ADDITIONAL BOND AMORTIZATION. In addition to entitling the holders
thereof to a specified portion (which may during specified periods range from
none to all) of the principal payments received on the Mortgage Loans in the
related Trust Fund, one or more classes of Bonds of any series may provide for
distributions of principal thereof from (i) amounts attributable to interest
accrued but not currently distributable on one or more classes of Accrual Bonds,
(ii) Excess Funds or (iii) any other amounts described in the related Prospectus
Supplement. Unless otherwise specified in the related Prospectus Supplement,
"Excess Funds" will, in general, represent that portion of the amounts
distributable in respect of the Bonds of any series on any Distribution Date
that represent (i) interest received or advanced on the Mortgage Loans in the
related Trust Fund that is in excess of the interest currently accrued on the
Bonds of such series, or (ii) Prepayment Premiums, payments from Equity
Participations or any other amounts received on the Mortgage Loans in the
related Trust Fund that do not constitute interest thereon or principal thereof.
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The amortization of any class of Bonds out of the sources described in
the preceding paragraph would shorten the weighted average life of such Bonds
and, if such Bonds were purchased at a premium, reduce the yield thereon. The
related Prospectus Supplement will discuss the relevant factors to be considered
in determining whether distributions of principal of any class of Bonds out of
such sources is likely to have any material effect on the rate at which such
Bonds are amortized and the consequent yield with respect thereto.
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains general summaries of certain legal
aspects of mortgage loans secured by commercial and multifamily residential
properties. Because such legal aspects are governed by applicable state law
(which laws may differ substantially), the summaries do not purport to be
complete, to reflect the laws of any particular state, or to encompass the laws
of all states in which the security for the Mortgage Loans is situated.
Accordingly, the summaries are qualified in their entirety by reference to the
applicable laws of those states. See "The Mortgage Pools-Mortgage Loans".
GENERAL
Each Mortgage Loan will be evidenced by a note or bond and secured by
an instrument granting a security interest in real property, which may be a
mortgage, deed of trust or a deed to secure debt, depending upon the prevailing
practice and law in the state in which the related Mortgaged Property is
located. Mortgages, deeds of trust and deeds to secure debt are herein
collectively referred to as "mortgages". A mortgage creates a lien upon, or
grants a title interest in, the real property covered thereby, and represents
the security for the repayment of the indebtedness customarily evidenced by a
promissory note. The priority of the lien created or interest granted will
depend on the terms of the mortgage and, in some cases, on the terms of separate
subordination agreements or intercreditor agreements with others that hold
interests in the real property, the knowledge of the parties to the mortgage
and, generally, the order of recordation of the mortgage in the appropriate
public recording office. However, the lien of a recorded mortgage will generally
be subordinate to later-arising liens for real estate taxes and assessments and
other charges imposed under governmental police powers.
TYPES OF MORTGAGE INSTRUMENTS
There are two parties to a mortgage: a mortgagor (the borrower and
usually the owner of the subject property) and a mortgagee (the lender). In
contrast, a deed of trust is a three-party instrument, among a trustor (the
equivalent of a borrower), a trustee to whom the real property is conveyed, and
a beneficiary (the lender) for whose benefit the conveyance is made. Under a
deed of trust, the trustor grants the property, irrevocably until the debt is
paid, in trust and generally with a power of sale, to the trustee to secure
repayment of the indebtedness evidenced by the related note. A deed to secure
debt typically has two parties, pursuant to which the borrower, or grantor,
conveys title to the real property to the grantee, or lender, generally with a
power of sale, until such time as the debt is repaid. In a case where the
borrower is a land trust, there would be an additional party because legal title
to the property is held by a land trustee under a land trust agreement for the
benefit of the borrower. At origination of a mortgage loan involving a land
trust, the borrower may execute a separate undertaking to make payments on the
mortgage note. In no event is the land trustee personally liable for the
mortgage note obligation. The mortgagee's authority under a mortgage, the
trustee's authority under a deed of trust and the grantee's authority under a
deed to secure debt are governed by the express provisions of the related
instrument, the law of the state in which the real property is located, certain
federal laws and, in some deed of trust transactions, the directions of the
beneficiary.
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LEASES AND RENTS
Mortgages that encumber income-producing property often contain an
assignment of rents and leases and/or may be accompanied by a separate
assignment of rents and leases, pursuant to which the borrower assigns to the
lender the borrower's right, title and interest as landlord under each lease and
the income derived therefrom, while (unless rents are to be paid directly to the
lender) retaining a revocable license to collect the rents for so long as there
is no default. If the borrower defaults, the license terminates and the lender
is entitled to collect the rents. Local law may require that the lender take
possession of the property and/or obtain a court-appointed receiver before
becoming entitled to collect the rents.
In most states, hotel and motel room rates are considered accounts
receivable under the Uniform Commercial Code ("UCC"); in cases where hotels or
motels constitute loan security, the rates are generally pledged by the borrower
as additional security for the loan. In general, the lender must file financing
statements in order to perfect its security interest in the room rates and must
file continuation statements, generally every five years, to maintain perfection
of such security interest. In certain cases, Mortgage Loans secured by hotels or
motels may be included in a Trust Fund even if the security interest in the room
rates was not perfected or the requisite UCC filings were allowed to lapse. Even
if the lender's security interest in room rates is perfected under applicable
nonbankruptcy law, it will generally be required to commence a foreclosure
action or otherwise take possession of the property in order to enforce its
rights to collect the room rates following a default. In the bankruptcy setting,
however, the lender will be stayed from enforcing its rights to collect room
rates, but those room rates (in light of certain revisions to the Bankruptcy
Code which are effective for all bankruptcy cases commenced on or after October
22, 1994) constitute "cash collateral" and therefore cannot be used by the
bankruptcy debtor without a hearing or lender's consent and unless the lender's
interest in the room rates is given adequate protection (e.g., cash payment for
otherwise encumbered funds or a replacement lien on unencumbered property, in
either case equal in value to the amount of room rates that the debtor proposes
to use, or other similar relief). See "-Bankruptcy Laws".
PERSONALTY
In the case of certain types of mortgaged properties, such as hotels,
motels and nursing homes, personal property (to the extent owned by the borrower
and not previously pledged) may constitute a significant portion of the
property's value as security. The creation and enforcement of liens on personal
property are governed by the UCC. Accordingly, if a borrower pledges personal
property as security for a mortgage loan, the lender generally must file UCC
financing statements in order to perfect its security interest therein, and must
file continuation statements, generally every five years, to maintain that
perfection. In certain cases, Mortgage Loans secured in part by personal
property may be included in a Trust Fund even if the security interest in such
personal property was not perfected or the requisite UCC filings were allowed to
lapse.
FORECLOSURE
General. Foreclosure is a legal procedure that allows the lender to
recover its mortgage debt by enforcing its rights and available legal remedies
under the mortgage. If the borrower defaults in payment or performance of its
obligations under the note or mortgage, the lender has the right to institute
foreclosure proceedings to sell the real property at public auction to satisfy
the indebtedness.
Foreclosure procedures vary from state to state. Two primary methods
of foreclosing a mortgage are judicial foreclosure, involving court proceedings,
and nonjudicial foreclosure pursuant to a power of
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sale granted in the mortgage instrument. Other foreclosure procedures are
available in some states, but they are either infrequently used or available
only in limited circumstances.
A foreclosure action is subject to most of the delays and expenses of
other lawsuits if defenses are raised or counterclaims are interposed, and
sometimes requires several years to complete.
JUDICIAL FORECLOSURE. A judicial foreclosure proceeding is conducted
in a court having jurisdiction over the mortgaged property. Generally, the
action is initiated by the service of legal pleadings upon all parties having a
subordinate interest of record in the real property and all parties in
possession of the property, under leases or otherwise, whose interests are
subordinate to the mortgage. Delays in completion of the foreclosure may
occasionally result from difficulties in locating defendants. When the lender's
right to foreclose is contested, the legal proceedings can be time-consuming.
Upon successful completion of a judicial foreclosure proceeding, the court
generally issues a judgment of foreclosure and appoints a referee or other
officer to conduct a public sale of the mortgaged property, the proceeds of
which are used to satisfy the judgment. Such sales are made in accordance with
procedures that vary from state to state.
EQUITABLE AND OTHER LIMITATIONS ON ENFORCEABILITY OF CERTAIN
PROVISIONS. United States courts have traditionally imposed general equitable
principles to limit the remedies available to lenders in foreclosure actions.
These principles are generally designed to relieve borrowers from the effects of
mortgage defaults perceived as harsh or unfair. Relying on such principles, a
court may alter the specific terms of a loan to the extent it considers
necessary to prevent or remedy an injustice, undue oppression or overreaching,
or may require the lender to undertake affirmative actions to determine the
cause of the borrower's default and the likelihood that the borrower will be
able to reinstate the loan. In some cases, courts have substituted their
judgment for the lender's and have required that lenders reinstate loans or
recast payment schedules in order to accommodate borrowers who are suffering
from a temporary financial disability. In other cases, courts have limited the
right of the lender to foreclose in the case of a nonmonetary default, such as a
failure to adequately maintain the mortgaged property or an impermissible
further encumbrance of the mortgaged property. Finally, some courts have
addressed the issue of whether federal or state constitutional provisions
reflecting due process concerns for adequate notice require that a borrower
receive notice in addition to statutorily-prescribed minimum notice. For the
most part, these cases have upheld the reasonableness of the notice provisions
or have found that a public sale under a mortgage providing for a power of sale
does not involve sufficient state action to trigger constitutional protections.
In addition, some states may have statutory protection such as the
right of the borrower to reinstate mortgage loans after commencement of
foreclosure proceedings but prior to a foreclosure sale.
NONJUDICIAL FORECLOSURE/POWER OF SALE. In states permitting
nonjudicial foreclosure proceedings, foreclosure of a deed of trust is generally
accomplished by a nonjudicial trustee's sale pursuant to a power of sale
typically granted in the deed of trust. A power of sale may also be contained in
any other type of mortgage instrument if applicable law so permits. A power of
sale under a deed of trust allows a nonjudicial public sale to be conducted
generally following a request from the beneficiary/lender to the trustee to sell
the property upon default by the borrower and after notice of sale is given in
accordance with the terms of the mortgage and applicable state law. In some
states, prior to such sale, the trustee under the deed of trust must record a
notice of default and notice of sale and send a copy to the borrower and to any
other party who has recorded a request for a copy of a notice of default and
notice of sale. In addition, in some states the trustee must provide notice to
any other party having an interest of record in the real property, including
junior lienholders. 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.
The borrower or junior lienholder may then have the right, during a
reinstatement period required in some states, to cure the default by paying the
entire actual amount in arrears (without regard to the acceleration of the
indebtedness), plus the lender's expenses incurred in enforcing the obligation.
In other states, the borrower
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or the junior lienholder is not provided a period to reinstate the loan, but has
only the right to pay off the entire debt to prevent the foreclosure sale.
Generally, state law governs the procedure for public sale, the parties entitled
to notice, the method of giving notice and the applicable time periods.
PUBLIC SALE. A third party may be unwilling to purchase a mortgaged
property at a public sale because of the difficulty in determining the exact
status of title to the property (due to, among other things, redemption rights
that may exist) and because of the possibility that physical deterioration of
the property may have occurred during the foreclosure proceedings. Therefore, it
is common for the lender to purchase the mortgaged property for an amount equal
to the secured indebtedness and accrued and unpaid interest plus the expenses of
foreclosure, in which event the borrower's debt will be extinguished, or for a
lesser amount in order to preserve its right to seek a deficiency judgment if
such is available under state law and under the terms of the Mortgage Loan
documents. (The Mortgage Loans, however, may be nonrecourse. See "Risk
Factors-Certain Factors Affecting Delinquency, Foreclosure and Loss of the
Mortgage Loans-Limited Recourse Nature of the Mortgage Loans".) Thereafter,
subject to the borrower's right in some states to remain in possession during a
redemption period, the lender will become the owner of the property and have
both the benefits and burdens of ownership, including the obligation to pay debt
service on any senior mortgages, to pay taxes, to obtain casualty insurance and
to make such repairs as are necessary to render the property suitable for sale.
The costs of operating and maintaining a commercial or multifamily residential
property may be significant and may be greater than the income derived from that
property. The lender also will commonly obtain the services of a real estate
broker and pay the broker's commission in connection with the sale or lease of
the property. Depending upon market conditions, the ultimate proceeds of the
sale of the property may not equal the lender's investment in the property.
Moreover, because of the expenses associated with acquiring, owning and selling
a mortgaged property, a lender could realize an overall loss on a mortgage loan
even if the mortgaged property is sold at foreclosure, or resold after it is
acquired through foreclosure, for an amount equal to the full outstanding
principal amount of the loan plus accrued interest.
The holder of a junior mortgage that forecloses on a mortgaged
property does so subject to senior mortgages and any other prior liens, and may
be obliged to keep senior mortgage loans current in order to avoid foreclosure
of its interest in the property. In addition, if the foreclosure of a junior
mortgage triggers the enforcement of a "due-on-sale" clause contained in a
senior mortgage, the junior mortgagee could be required to pay the full amount
of the senior mortgage indebtedness or face foreclosure.
RIGHTS OF REDEMPTION. The purposes of a foreclosure action are to
enable the lender to realize upon its security and to bar the borrower, and all
persons who have interests in the property that are subordinate to that of the
foreclosing lender, from exercise of their "equity of redemption". The doctrine
of equity of redemption provides that, until the property encumbered by a
mortgage has been sold in accordance with a properly conducted foreclosure and
foreclosure sale, those having interests that are subordinate to that of the
foreclosing lender have an equity of redemption and may redeem the property by
paying the entire debt with interest. Those having an equity of redemption must
generally be made parties and joined in the foreclosure proceeding in order for
their equity of redemption to be terminated.
The equity of redemption is a common-law (nonstatutory) right which
should be distinguished from post-sale statutory rights of redemption. In some
states, after sale pursuant to a deed of trust or foreclosure of a mortgage, the
borrower and foreclosed junior lienors are given a statutory period in which to
redeem the property. In some states, statutory redemption may occur only upon
payment of the foreclosure sale price. In other states, redemption may be
permitted 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 because the exercise of a right of redemption would
defeat the title of any purchaser through a foreclosure. Consequently, the
practical effect of the redemption right is to force the lender to maintain the
property and pay the expenses of ownership until the redemption period has
expired. In some
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states, a post-sale statutory right of redemption may exist following a judicial
foreclosure, but not following a trustee's sale under a deed of trust.
ANTI-DEFICIENCY LEGISLATION. Some or all of the Mortgage Loans may be
nonrecourse loans, as to which recourse in the case of default will be limited
to the Mortgaged Property and such other assets, if any, that were pledged to
secure the Mortgage Loan. However, even if a mortgage loan by its terms provides
for recourse to the borrower's other assets, a lender's ability to realize upon
those assets may be limited by state law. For example, in some states a lender
cannot 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 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 may require the lender to exhaust the security afforded
under a mortgage 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 those states, the lender, following judgment on such
personal action, may be deemed to have elected a remedy and thus may be
precluded from foreclosing upon the security. Consequently, lenders in those
states where such an election of remedy provision exists will usually proceed
first against the security. Finally, other statutory provisions, designed to
protect borrowers from exposure to large deficiency judgments that might result
from bidding at below-market values at the foreclosure sale, limit any
deficiency judgment to the excess of the outstanding debt over the fair market
value of the property at the time of the sale.
LEASEHOLD CONSIDERATIONS. Mortgage Loans may be secured by a mortgage
on the borrower's leasehold interest in a ground lease. Leasehold mortgage loans
are subject to certain risks not associated with mortgage loans secured by a
lien on the fee estate of the borrower. The most significant of these risks is
that if the borrower's leasehold were to be terminated upon a lease default, the
leasehold mortgagee would lose its security. This risk may be lessened if the
ground lease requires the lessor to give the leasehold mortgagee notices of
lessee defaults and an opportunity to cure them, permits the leasehold estate to
be assigned to and by the leasehold mortgagee or the purchaser at a foreclosure
sale, and contains certain other protective provisions typically included in a
"mortgageable" ground lease. Certain Mortgage Loans, however, may be secured by
ground leases which do not contain these provisions.
COOPERATIVE SHARES. Mortgage Loans may be secured by a security
interest on the borrower's ownership interest in shares, and the proprietary
leases appurtenant thereto, allocable to cooperative dwelling units that may be
vacant or occupied by nonowner tenants. Such loans are subject to certain risks
not associated with mortgage loans secured by a lien on the fee estate of a
borrower in real property. Such a loan typically is subordinate to the mortgage,
if any, on the Cooperative's building which, if foreclosed, could extinguish the
equity in the building and the proprietary leases of the dwelling units derived
from ownership of the shares of the Cooperative. Further, transfer of shares in
a Cooperative are subject to various regulations as well as to restrictions
under the governing documents of the Cooperative, and the shares may be
cancelled in the event that associated maintenance charges due under the related
proprietary leases are not paid. Typically, a recognition agreement between the
lender and the Cooperative provides, among other things, the lender with an
opportunity to cure a default under a proprietary lease.
Under the laws applicable in many states, "foreclosure" on Cooperative
shares is accomplished by a sale in accordance with the provisions of Article 9
of the UCC and the security agreement relating to the shares. Article 9 of the
UCC requires that a sale be conducted in a "commercially reasonable" manner,
which may be dependent upon, among other things, the notice given the debtor and
the method, manner, time, place and terms of the sale. Article 9 of the UCC
provides that the proceeds of the sale will be applied first to pay the costs
and expenses of the sale and then to satisfy the indebtedness secured by the
lender's security interest. A recognition agreement, however, generally provides
that the lender's right
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to reimbursement is subject to the right of the Cooperative to receive sums due
under the proprietary leases.
BANKRUPTCY LAWS
Operation of the Bankruptcy Code and related state laws may interfere
with or affect the ability of a lender to realize upon collateral and/or to
enforce a deficiency judgment. For example, under the Bankruptcy Code, virtually
all actions (including foreclosure actions and deficiency judgment proceedings)
to collect a debt are automatically stayed upon the filing of the bankruptcy
petition and, often, no interest or principal payments are made during the
course of the bankruptcy case. The delay and the consequences thereof caused by
such automatic stay can be significant. Also, under the Bankruptcy Code, the
filing of a petition in bankruptcy by or on behalf of a junior lienor may stay
the senior lender from taking action to foreclose out such junior lien.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards protective of the lender are met, the amount and terms of a mortgage
loan secured by a lien on property of the debtor may be modified under certain
circumstances. For example, the outstanding amount of the loan may be reduced to
the then-current value of the property (with a corresponding partial reduction
of the amount of lender's security interest) pursuant to a confirmed plan or
lien avoidance proceeding, thus leaving the lender a general unsecured creditor
for the difference between such value and the outstanding balance of the loan.
Other modifications may include the reduction in the amount of each scheduled
payment, by means of a reduction in the rate of interest and/or an alteration of
the repayment schedule (with or without affecting the unpaid principal balance
of the loan), and/or by an extension (or shortening) of the term to maturity.
Some bankruptcy courts have approved plans, based on the particular facts of the
reorganization case, that effected the cure of a mortgage loan default by paying
arrearages over a number of years. Also, a bankruptcy court may permit a debtor,
through its rehabilitative plan, to reinstate a loan mortgage payment schedule
even if the lender has obtained a final judgment of foreclosure prior to the
filing of the debtor's petition.
Federal bankruptcy law may also have the effect of interfering with or
affecting the ability of a secured lender to enforce the borrower's assignment
of rents and leases related to the mortgaged property. Under the Bankruptcy
Code, a lender may be stayed from enforcing the assignment, and the legal
proceedings necessary to resolve the issue could be time-consuming, with
resulting delays in the lender's receipt of the rents. Recent amendments to the
Bankruptcy code, however, may minimize the impairment of the lender's ability to
enforce the borrower's assignment of rents and leases. In addition to the
inclusion of hotel revenues within the definition of "cash collateral" as noted
previously in the section entitled "-Leases and Rents", the amendments provide
that a pre-petition security interest in rents or hotel revenues is designed to
overcome those cases holding that a security interest in rents is unperfected
under the laws of certain states until the lender has taken some further action,
such as commencing foreclosure or obtaining a receiver prior to activation of
the assignment of rents.
If a borrower's ability to make payment on a mortgage loan is
dependent on its receipt of rent payments under a lease of the related property,
that ability may be impaired by the commencement of a bankruptcy case relating
to a lessee under such lease. Under the Bankruptcy Code, the filing of a
petition in bankruptcy by or on behalf of a lessee results in a stay in
bankruptcy against the commencement or continuation of any state court
proceeding for past due rent, for accelerated rent, for damages or for a summary
eviction order with respect to a default under the lease that occurred prior to
the filing of the lessee's petition. In addition, the Bankruptcy Code generally
provides that a trustee or debtor-in-possession may, subject to approval of the
court, (i) assume the lease and retain it or assign it to a third party or (ii)
reject the lease. If the lease is assumed, the trustee or debtor-in-possession
(or assignee, if applicable) must cure any defaults under the lease, compensate
the lessor for its losses and provide the lessor with "adequate
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assurance" of future performance. Such remedies may be insufficient, and any
assurances provided to the lessor may, in fact, be inadequate. If the lease is
rejected, the lessor will be treated as an unsecured creditor with respect to
its claim for damages for termination of the lease. The Bankruptcy Code also
limits a lessor's damages for lease rejection to the rent reserved by the lease
(without regard to acceleration) for the greater of one year, or 15%, not to
exceed three years, of the remaining term of the lease.
ENVIRONMENTAL CONSIDERATIONS
GENERAL. A lender may be subject to environmental risks when taking a
security interest in real property. Of particular concern may be properties that
are or have been used for industrial, manufacturing, military or disposal
activity. Such environmental risks include the possible diminution of the value
of a contaminated property or, as discussed below, potential liability for
clean-up costs or other remedial actions that could exceed the value of the
property or the amount of the lender's loan. In certain circumstances, a lender
may decide to abandon a contaminated mortgaged property as collateral for its
loan rather than foreclose and risk liability for clean-up costs.
SUPERLIEN LAWS. Under the laws of many states, contamination on a
property may give rise to a lien on the property for clean-up costs. In several
states, such a lien has priority over all existing liens, including those of
existing mortgages. In these states, the lien of a mortgage may lose its
priority to such a "superlien".
CERCLA. The federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("CERCLA"), imposes strict liability on
present and past "owners" and "operators" of contaminated real property for the
costs of clean-up. A secured lender may be liable as an "owner" or "operator" of
a contaminated mortgaged property if agents or employees of the lender have
participated in the management of such mortgaged property or the operations of
the borrower. Such liability may exist even if the lender did not cause or
contribute to the contamination and regardless of whether the lender has
actually taken possession of a mortgaged property through foreclosure, deed in
lieu of foreclosure or otherwise. Moreover, such liability is not limited to the
original or unamortized principal balance of a loan or to the value of the
property securing a loan. Excluded from CERCLA's definition of "owner" or
"operator", however, is a person "who without participating in the management of
the facility, holds indicia of ownership primarily to protect his security
interest".
In general, what constitutes participation in the management of a
mortgaged property or the business of a borrower to render the secured creditor
exemption unavailable to a lender is based upon judicial interpretation of the
statutory language, and court decisions have been inconsistent in this matter.
The Court of Appeals for the Eleventh Circuit has suggested that the mere
capacity of the lender to influence a borrower's disposal of hazardous
substances was sufficient participation in the management of the borrower's
business to deny the secured creditor exemption to the lender. However, the
Court of Appeals for the Ninth Circuit disagreed with the Eleventh Circuit and
held that there must be some degree of "actual management" of a facility on the
part of a lender in order to bar its reliance on the secured creditor exemption.
In addition, certain cases decided in the First Circuit and the Fourth Circuit
have held that lenders were entitled to the secured creditor exemption,
notwithstanding a lender's taking title to a mortgaged property through
foreclosure or deed in lieu of foreclosure.
CERCLA's "innocent landowner" defense may be available to a lender
that has taken title to a mortgaged property and has performed an appropriate
environmental site assessment that does not disclose existing contamination and
that meets other requirements of the defense. However, it is unclear whether the
environmental site assessment must be conducted upon loan origination, prior to
foreclosure, or both, and uncertainty exists as to what kind of environmental
site assessment must be performed in order to qualify for the defense.
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CERTAIN OTHER FEDERAL AND STATE LAWS. Many states have statutes
similar to CERCLA, and not all those statutes provide for a secured creditor
exemption. In addition, under federal law, there is potential liability relating
to hazardous wastes and underground storage tanks under the federal Resource
Conservation and Recovery Act.
In a few states, transfers of some types of properties are conditioned
upon cleanup of contamination prior to transfer. In these cases, a lender that
becomes the owner of a property through foreclosure, deed in lieu of foreclosure
or otherwise, may be required to clean up the contamination before selling or
otherwise transferring the property.
Beyond statute-based environmental liability, there exist common law
causes of action (for example, actions based on nuisance or on toxic tort
resulting in death, personal injury or damage to property) related to hazardous
environmental conditions on a property. While it may be more difficult to hold a
lender liable in such cases, unanticipated or uninsured liabilities of the
borrower may jeopardize the borrower's ability to meet its loan obligations.
Federal, state and local environmental regulatory requirements change
often. It is possible that compliance with a new regulatory requirement could
impose significant compliance costs on a borrower. Such costs may jeopardize the
borrower's ability to meet its loan obligations.
ADDITIONAL CONSIDERATIONS. The cost of remediating hazardous substance
contamination at a property can be substantial. If a lender becomes liable, it
can bring an action for contribution against the owner or operator who created
the environmental hazard, but that individual or entity may be without
substantial assets. Accordingly, it is possible that such costs could become a
liability of the Trust Fund and occasion a loss to the Bondholders.
To reduce the likelihood of such a loss, unless otherwise specified in
the related Prospectus Supplement, the Servicing Agreement will provide that
neither the Master Servicer nor the Special Servicer, acting on behalf of the
Trustee, may acquire title to a Mortgaged Property or take over its operation
unless the Special Servicer, based solely (as to environmental matters) on a
report prepared by a person who regularly conducts environmental audits, has
made the determination that it is appropriate to do so, as described under
"Servicing of Mortgage Loans-Realization Upon Defaulted Mortgage Loans".
If a lender forecloses on a mortgage secured by a property, the
operations on which are subject to environmental laws and regulations, the
lender will be required to operate the property in accordance with those laws
and regulations. Such compliance may entail substantial expense, especially in
the case of industrial or manufacturing properties.
In addition, a lender may be obligated to disclose environmental
conditions on a property to government entities and/or to prospective buyers
(including prospective buyers at a foreclosure sale or following foreclosure).
Such disclosure may decrease the amount that prospective buyers are willing to
pay for the affected property, sometimes substantially, and thereby decrease the
ability of the lender to recoup its investment in a loan upon foreclosure.
ENVIRONMENTAL SITE ASSESSMENTS. In most cases, an environmental site
assessment of each Mortgaged Property will have been performed in connection
with the origination of the related Mortgage Loan or at some time prior to the
issuance of the related Bonds. Environmental site assessments, however, vary
considerably in their content, quality and cost. Even when adhering to good
professional practices, environmental consultants will sometimes not detect
significant environmental problems because to do an exhaustive environmental
assessment would be far too costly and time-consuming to be practical.
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DUE-ON-SALE AND DUE-ON-ENCUMBRANCE PROVISIONS
Certain of the Mortgage Loans may contain "due-on-sale" and
"due-on-encumbrance" clauses that purport to permit the lender to accelerate the
maturity of the loan if the borrower transfers or encumbers the related
Mortgaged Property. In recent years, court decisions and legislative actions
placed substantial restrictions on the right of lenders to enforce such clauses
in many states. However, the Garn-St Germain Depository Institutions Act of 1982
(the "Garn Act") generally preempts state laws that prohibit the enforcement of
due-on-sale clauses and permits lenders to enforce these clauses in accordance
with their terms, subject to certain limitations as set forth in the Garn Act
and the regulations promulgated thereunder. Accordingly, a Master Servicer may
nevertheless have the right to accelerate the maturity of a Mortgage Loan that
contains a "due-on-sale" provision upon transfer of an interest in the property,
without regard to the Master Servicer's ability to demonstrate that a sale
threatens its legitimate security interest.
JUNIOR LIENS; RIGHTS OF HOLDERS OF SENIOR LIENS
If so provided in the related Prospectus Supplement, Mortgage Loans
for a series of Bonds may include Mortgage Loans secured by junior liens, and
the loans secured by the related Senior Liens may not be included in the
Mortgage Pool. The primary risk to holders of Mortgage Loans secured by junior
liens is the possibility that adequate funds will not be received in connection
with a foreclosure of the related Senior Liens to satisfy fully both the Senior
Liens and the Mortgage Loan. In the event that a holder of a Senior Lien
forecloses on a Mortgaged Property, the proceeds of the foreclosure or similar
sale will be applied first to the payment of court costs and fees in connection
with the foreclosure, second to real estate taxes, third in satisfaction of all
principal, interest, prepayment or acceleration penalties, if any, and any other
sums due and owing to the holder of the Senior Liens. The claims of the holders
of the Senior Liens will be satisfied in full out of proceeds of the liquidation
of the related Mortgage Property, if such proceeds are sufficient, before the
Trust Fund as holder of the junior lien receives any payments in respect of the
Mortgage Loan. In the event that such proceeds from a foreclosure or similar
sale of the related Mortgaged Property are insufficient to satisfy all Senior
Liens and the Mortgage Loan in the aggregate, the Trust Fund, as the holder of
the junior lien, and, accordingly, holders of one or more classes of the Bonds
of the related series bear (i) the risk of delay in distributions while a
deficiency judgment against the borrower is obtained and (ii) the risk of loss
if the deficiency judgment is not realized upon. Moreover, deficiency judgments
may not be available in certain jurisdictions or the Mortgage Loan may be
nonrecourse.
SUBORDINATE FINANCING
The terms of certain of the Mortgage Loans may not restrict the
ability of the borrower to use the Mortgaged Property as security for one or
more additional loans, or such restrictions may be unenforceable. Where a
borrower encumbers a mortgaged property with one or more junior liens, the
senior lender is subjected to additional risk. First, the borrower may have
difficulty servicing and repaying multiple loans. Moreover, if the subordinate
financing permits recourse to the borrower (as is frequently the case) and the
senior loan does not, a borrower may have more incentive to repay sums due on
the subordinate loan. Second, acts of the senior lender that prejudice the
junior lender or impair the junior lender's security may create a superior
equity in favor of the junior lender. For example, if the borrower and the
senior lender agree to an increase in the principal amount of or the interest
rate payable on the senior loan, the senior lender may lose its priority to the
extent any existing junior lender is harmed or the borrower is additionally
burdened. Third, if the borrower defaults on the senior loan and/or any junior
loan or loans, the existence of junior loans and actions taken by junior lenders
can impair the security available to the senior lender and can interfere with or
delay the taking of action by the senior lender. Moreover, the bankruptcy of a
junior lender may operate to stay foreclosure or similar proceedings by the
senior lender.
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DEFAULT INTEREST AND LIMITATIONS ON PREPAYMENTS
Notes and mortgages may contain provisions that obligate the borrower
to pay a late charge or additional interest if payments are not timely made, and
in some circumstances, may prohibit prepayments for a specified period and/or
condition prepayments upon the borrower's payment of prepayment fees or yield
maintenance penalties. In certain states, there are or may be specific
limitations upon the late charges which a lender may collect from a borrower for
delinquent payments. Certain states also limit the amounts that a lender may
collect from a borrower as an additional charge if the loan is prepaid. In
addition, the enforceability of provisions that provide for prepayment fees or
penalties upon an involuntary prepayment is unclear under the laws of many
states.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980 ("Title V") provides that state usury limitations shall not
apply to certain types of residential (including multifamily) first mortgage
loans originated by certain lenders after March 31, 1980. Title V authorized any
state to reimpose interest rate limits by adopting, before April 1, 1983, a law
or constitutional provision that expressly rejects application of the federal
law. 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. Certain states have taken action to reimpose
interest rate limits and/or to limit discount points or other charges.
No Mortgage Loan originated in any state in which application of Title
V has been expressly rejected or a provision limiting discount points or other
charges has been adopted, will (if originated after that rejection or adoption)
be eligible for inclusion in a Trust Fund unless (i) such Mortgage Loan provides
for such interest rate, discount points and charges as are permitted in such
state or (ii) such Mortgage Loan provides that the terms thereof are to be
construed in accordance with the laws of another state under which such interest
rate, discount points and charges would not be usurious and the borrower's
counsel has rendered an opinion that such choice of law provision would be given
effect.
CERTAIN LAWS AND REGULATIONS
The Mortgaged Properties will be subject to compliance with various
federal, state and local statutes and regulations. Failure to comply (together
with an inability to remedy any such failure) could result in material
diminution in the value of a Mortgaged Property which could, together with the
possibility of limited alternative uses for a particular Mortgaged Property
(i.e., a nursing or convalescent home or hospital), result in a failure to
realize the full principal amount of the related Mortgage Loan.
AMERICANS WITH DISABILITIES ACT
Under Title III of the Americans with Disabilities Act of 1990 and
rules promulgated thereunder (collectively, the "ADA"), in order to protect
individuals with disabilities, public accommodations (such as hotels,
restaurants, shopping centers, hospitals, schools and social service center
establishments) must remove architectural and communication barriers which are
structural in nature from existing places of public accommodation to the extent
"readily achievable." In addition, under the ADA, alterations to a place of
public accommodation or a commercial facility are to be made so that, to the
maximum extent feasible, such altered portions are readily accessible to and
usable by disabled individuals. The "readily achievable" standard takes into
account, among other factors, the financial resources of the affected site,
owner, landlord or other applicable person. In addition to imposing a possible
financial burden on the borrower in its capacity as owner or landlord, the ADA
may also impose such requirements on a
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foreclosing lender who succeeds to the interest of the borrower as owner or
landlord. Furthermore, since the "readily achievable" standard may vary
depending on the financial condition of the owner or landlord, a foreclosing
lender who is financially more capable than the borrower of complying with the
requirements of the ADA may be subject to more stringent requirements than those
to which the borrower is subject.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of
1940, as amended (the "Relief Act"), a borrower who enters military service
after the origination of such borrower's mortgage loan (including a borrower who
was in reserve status and is called to active duty after origination of the
Mortgage Loan), may not be charged interest (including fees and charges) above
an annual rate of 6% during the period of such borrower's active duty status,
unless a court orders otherwise upon application of the lender. The Relief Act
applies to individuals who are members of the Army, Navy, Air Force, Marines,
National Guard, Reserves, Coast Guard and officers of the U.S. Public Health
Service assigned to duty with the military. Because the Relief Act applies to
individuals who enter military service (including reservists who are called to
active duty) after origination of the related mortgage loan, no information can
be provided as to the number of loans with individuals as borrowers that may be
affected by the Relief Act. Application of the Relief Act would adversely
affect, for an indeterminate period of time, the ability of a Master Servicer or
Special Servicer to collect full amounts of interest on certain of the Mortgage
Loans. Any shortfalls in interest collections resulting from the application of
the Relief Act would result in a reduction of the amounts distributable to the
holders of the related series of Bonds, and would not be covered by advances or,
unless otherwise specified in the related Prospectus Supplement, any form of
Credit Enhancement provided in connection with such Bonds. In addition, the
Relief Act imposes limitations that would impair the ability of the Master
Servicer or Special Servicer to foreclose on an affected Mortgage Loan during
the borrower's period of active duty status, and, under certain circumstances,
during an additional three month period thereafter.
FORFEITURES IN DRUG AND RICO PROCEEDINGS
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations ("RICO") statute can be seized by the government if the
property was used in, or purchased with the proceeds of, such crimes. Under
procedures contained in the comprehensive Crime Control Act of 1984 (the "Crime
Control Act"), the government may seize the property even before conviction. The
government must publish notice of the forfeiture proceeding and may give notice
to all parties "known to have an alleged interest in the property", including
the holders of mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that: (i) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (ii) the lender was, at the
time of execution of the mortgage, "reasonably without cause to believe" that
the property was used in, or purchased with the proceeds of, illegal drug or
RICO activities.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following general discussion of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of the Bonds
offered hereunder to the extent it relates to matter of law or legal conclusions
with respect thereto, represents the opinion of counsel to the Company with
respect to that series on the material matters associated with such
consequences, subject to any qualifications set forth herein. This discussion
has been prepared with the advice of Thacher Proffitt &
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Wood, counsel to the Company. This discussion is directed solely to Bondholders
that hold the Bonds as capital assets within the meaning of Section 1221 of the
Code and does not purport to discuss all federal income tax consequences that
may be applicable to particular categories of investors, some of which (such as
banks, insurance companies and foreign investors) may be subject to special
rules. Further, the authorities on which this discussion, and the opinion
referred to below, are based are subject to change or differing interpretations,
which could apply retroactively. Prospective investors should note that no
rulings have been or will be sought from the Internal Revenue Service ("IRS")
with respect to any of the federal income tax consequences discussed below, and
no assurance can be given the IRS will not take contrary positions. Taxpayers
and preparers of tax returns should be aware that under applicable Treasury
regulations a provider of advice on specific issues of law is not considered an
income tax return preparer unless the advice (i) is given with respect to events
that have occurred at the time the advice is rendered and is not given with
respect to the consequences of contemplated actions, and (ii) is directly
relevant to the determination of an entry on a tax return. Accordingly,
taxpayers should consult their tax advisors and tax return preparers regarding
the preparation of any item on a tax return, even where the anticipated tax
treatment has been discussed herein. In addition to the federal income tax
consequences described herein, potential investors should consider the state and
local tax consequences, if any, of the purchase, ownership and disposition of
the Bonds. See "State and Other Tax Consequences." Bondholders are advised to
consult their tax advisors concerning the federal, state, local or other tax
consequences to them of the purchase, ownership and disposition of the Bonds
offered hereunder.
Taxable mortgage pool ("TMP") rules enacted as part of the Tax Reform
Act of 1986 treat certain arrangements that securitize real estate mortgages as
taxable corporations. An entity will be characterized as a TMP if (i)
substantially all of its assets are debt obligations and more than 50 percent of
such debt obligations consist of real estate mortgages or interests therein,
(ii) the entity is the obligor under debt obligations with two or more
maturities, and (iii) payments on the debt obligations referred to in (ii) bear
a relationship to payments on the debt obligations referred to in (i).
Furthermore, a group of assets held by an entity can be treated as a separate
TMP if the assets are expected to produce significant cash flow that will
support one or more of the entity's issues of debt obligation.
It is possible that the Issuer or a portion of the Issuer relating to
the ownership of the Mortgage Loans and the issuance of the Bonds could be
treated as a TMP. The related Prospectus Supplement for each series of Bonds
will discuss whether the Issuer is anticipated to be characterized as a TMP for
federal income tax purposes. Such characterization would require that the Issuer
be treated as a "separate" corporation and not includible with any other
corporation in a consolidated return, therefore subjecting the Issuer to
corporate income tax. However, it is anticipated that for federal income tax
purposes the Issuer will be disregarded as an entity separate from the Company
(a "Wholly Owned Entity") pursuant to Treasury regulation Section
301.7701-2(c)(2) (the "Entity Classification Regulations"), because one hundred
percent of the equity of the Issuer will be owned by the Company which is a
"qualified REIT subsidiary" (as defined in Section 856(i)(2) of the Code) of
Imperial Holdings, which itself is a REIT. Characterization of the Issuer as a
TMP would result only in the shareholders of Imperial Holdings being required to
include in income, as "excess inclusion" income, some or all of their allocable
share of the Issuer's net income that would be excess inclusion income, if any,
if the Issuer were treated as a REMIC. Such characterization of the Issuer as a
Wholly Owned Entity or a "qualified REIT subsidiary" would not result in
entity-level, corporate income taxation with respect to the Issuer. If the
Issuer were to fail to qualify as a Wholly Owned Entity and fail to continue to
be treated as a "qualified REIT subsidiary" by reason of the Company's failure
to continue to qualify as a "qualified REIT subsidiary" for federal income tax
purposes, or for any other reason, the net income of the Issuer would be subject
to corporate income tax and if the Issuer were characterized as a TMP the Issuer
would not be permitted to be included on a consolidated income tax return of
another corporate entity. If the Company were to dispose of a portion of the
equity of the Issuer, the Issuer would be characterized as a partnership
pursuant to the Entity Classification Regulations, unless the Issuer was
characterized as a TMP, in which case the net income of the Issuer
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would be subject to corporate income tax and the Issuer would not be permitted
to be included on a consolidated income tax return of another corporate entity.
No assurance can be given with regard to the prospective qualification of the
Issuer as either a Wholly Owned Entity or a "qualified REIT subsidiary" or of
the Company as a "qualified REIT subsidiary" for federal income tax purposes.
Upon the issuance of the Bonds, Thacher Proffitt & Wood ("Tax
Counsel"), counsel to the Company, will deliver its opinion generally to the
effect that, for federal income tax purposes, assuming compliance with all
provisions of the Indenture and certain related documents, the Bonds will be
treated as indebtedness. The following discussion is based in part upon the
rules governing original issue discount that are set forth in Sections 1271-1273
and 1275 of the Code and in the Treasury regulations issued thereunder (the "OID
Regulations"). For purposes of this tax discussion, references to a "Bondholder"
or a "holder" are to the beneficial owner of a Bond.
STATUS AS REAL PROPERTY LOANS. (i) Bonds held by a domestic building
and loan association will not constitute "loans...secured by an interest in real
property" within the meaning of Code section 7701(a)(19)(C)(v); (ii) Bonds held
by a real estate investment trust will not constitute "real estate assets"
within the meaning of Code section 856(c)(4)(A); and (iii) interest on Bonds
will not be considered "interest on obligations secured by mortgages on real
property" within the meaning of Code section 856(c)(3)(B).
INTEREST AND ORIGINAL ISSUE DISCOUNT. The related Prospectus
Supplement for a series of Bonds will disclose whether such Bonds are
anticipated to be issued with original issue discount. Any holders of Bonds
issued with original issue discount generally will be required to include
original issue discount in income as it accrues, in accordance with the method
described below, in advance of the receipt of the cash attributable to such
income. In addition, Section 1272(a)(6) of the Code provides special rules
applicable to any class of Bonds issued with original issue discount.
Regulations have not been issued under that section.
Under the OID Regulations, a holder of a Bond issued with a de minimis
amount of original issue discount must include such de minimis discount in
income, on a pro rata basis, as principal payments are made on the Bond. Stated
interest on the Bonds will be taxable to a Bondholder as ordinary interest
income when received or accrued in accordance with such Bondholder's method of
tax accounting.
Section 1272(a)(6) of the Code requires that a prepayment assumption
(the "Prepayment Assumption") be used with respect to the collateral underlying
debt instruments in computing the accrual of original issue discount if payments
under such debt instruments may be accelerated by reason of prepayments of other
obligations securing such debt instruments, and that adjustments be made in the
amount and rate of accrual of such discount to reflect differences between the
actual prepayment rate and the Prepayment Assumption. The Prepayment Assumption
is to be determined in a manner prescribed in Treasury regulations; as noted
above, those regulations have not been issued. The Conference Committee Report
(the "Committee Report") accompanying the Tax Reform Act of 1986 indicates that
the regulations will provide that the Prepayment Assumption used with respect to
a Bond must be the same as that used in pricing the initial offering of such
Bond. The Prepayment Assumption used by the Issuer in reporting original issue
discount for each series of Bonds will be consistent with this standard and will
be disclosed in the related Prospectus Supplement. However, no representation
will be made that the Mortgage Loans will in fact prepay at a rate conforming to
the Prepayment Assumption or at any other rate.
The original issue discount, if any, on a Bond would be the excess of
its stated redemption price at maturity over its issue price. The issue price of
a particular class of Bonds will be the first cash price at which a substantial
amount of Bonds of that class is sold (excluding sales to bond houses, brokers
and underwriters). If less than a substantial amount of a particular class of
Bonds is sold for cash on or prior to the date of their initial issuance (the
"Closing Date"), the issue price for such class will be treated as the
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fair market value of such class on the Closing Date. Under the OID Regulations,
the stated redemption price of a Bond is equal to the total of all payments to
be made on such Bond other than "qualified stated interest." "Qualified stated
interest" includes interest that is unconditionally payable at least annually at
a single fixed rate, or in the case of a variable rate debt instrument, at a
"qualified floating rate," an "objective rate," a combination of a single fixed
rate and one or more "qualified floating rates" or one "qualified inverse
floating rate," or a combination of "qualified floating rates" that generally
does not operate in a manner that accelerates or defers interest payments on
such Bond.
In the case of Bonds bearing adjustable interest rates, the
determination of the total amount of original issue discount and the timing of
the inclusion thereof will vary according to the characteristics of such Bonds.
If the original issue discount rules apply to such Bonds, the related Prospectus
Supplement will describe the manner in which such rules will be applied by the
Issuer with respect to those Bonds in preparing information returns to the
Bondholders and the IRS.
Certain classes of the Bonds may provide for the first interest
payment with respect to such Bonds to be made more than one month after the date
of issuance, a period which is longer than the subsequent monthly intervals
between interest payments. Assuming the "accrual period" (as defined below) for
original issue discount is each monthly period that ends on a Distribution Date,
in some cases, as a consequence of this "long first accrual period," some or all
interest payments may be required to be included in the stated redemption price
of the Bond and accounted for as original issue discount.
In addition, if the accrued interest to be paid on the first
Distribution Date is computed with respect to a period that begins prior to the
Closing Date, a portion of the purchase price paid for a Bond will reflect such
accrued interest. In such cases, information returns to the Bondholders and the
IRS will be based on the position that the portion of the purchase price paid
for the interest accrued with respect to periods prior to the Closing Date is
treated as part of the overall purchase price of such Bond (and not as a
separate asset the purchase price of which is recovered entirely out of interest
received on the next Distribution Date) and that portion of the interest paid on
the first Distribution Date in excess of interest accrued for a number of days
corresponding to the number of days from the Closing Date to the first
Distribution Date should be included in the stated redemption price of such
Bond. However, the OID Regulations state that all or some portion of such
accrued interest may be treated as a separate asset the cost of which is
recovered entirely out of interest paid on the first Distribution Date. It is
unclear how an election to do so would be made under the OID Regulations and
whether such an election could be made unilaterally by a Bondholder.
Notwithstanding the general definition of original issue discount,
original issue discount on a Bond will be considered to be de minimis if it is
less than 0.25% of the stated redemption price of the Bond multiplied by its
weighted average maturity. For this purpose, the weighted average maturity of
the Bond is computed as the sum of the amounts determined, as to each payment
included in the stated redemption price of such Bond, by multiplying (i) the
number of complete years (rounding down for partial years) from the issue date
until such payment is expected to be made (presumably taking into account the
Prepayment Assumption) by (ii) a fraction, the numerator of which is the amount
of the payment, and the denominator of which is the stated redemption price at
maturity of such Bond. Under the OID Regulations, original issue discount of
only a de minimis amount (other than de minimis original issue discount
attributable to a so-called "teaser" interest rate or an initial interest
holiday) will be included in income as each payment of stated principal is made,
based on the product of the total amount of such de minimis original issue
discount and a fraction, the numerator of which is the amount of such principal
payment and the denominator of which is the outstanding stated principal amount
of the Bond. The OID Regulations also would permit a Bondholder to elect to
accrue de minimis original issue discount into income currently based on a
constant yield method. See "--Market Discount" for a description of such
election under the OID Regulations.
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If original issue discount on a Bond is in excess of a de minimis
amount, the holder of such Bond must include in ordinary gross income the sum of
the "daily portions" of original issue discount for each day during its taxable
year on which it held such Bond, including the purchase date but excluding the
disposition date. In the case of an original holder of a Bond, the daily
portions of original issue discount will be determined as follows.
As to each "accrual period," that is each period that ends on a date
that corresponds to a Distribution Date and begins on the first day following
the immediately preceding accrual period (or in the case of the first such
period, begins on the Closing Date), a calculation will be made of the portion
of the original issue discount that accrued during such accrual period. The
portion of original issue discount that accrues in any accrual period will equal
the excess, if any, of (i) the sum of (A) the present value, as of the end of
the accrual period, of all of the distributions remaining to be made on the
Bond, if any, in future periods and (B) the distributions made on such Bond
during the accrual period of amounts included in the stated redemption price,
over (ii) the adjusted issue price of such Bond at the beginning of the accrual
period. The present value of the remaining distributions referred to in the
preceding sentence will be calculated (1) assuming that distributions on the
Bonds will be received in future periods based on the Mortgage Loans being
prepaid at a rate equal to the Prepayment Assumption and (2) using a discount
rate equal to the original yield to maturity of the Bond. For these purposes,
the original yield to maturity of the Bond will be calculated based on its issue
price and assuming that distributions on the Bond will be made in all accrual
periods based on the Mortgage Loans being prepaid at a rate equal to the
Prepayment Assumption. The adjusted issue price of a Bond at the beginning of
any accrual period will equal the issue price of such Bond, increased by the
aggregate amount of original issue discount that accrued with respect to such
Bond in prior accrual periods, and reduced by the amount of any distributions
made on such Bond in prior accrual periods of amounts included in its stated
redemption price. The original issue discount accruing during any accrual
period, computed as described above, will be allocated ratably to each day
during the accrual period to determine the daily portion of original issue
discount for such day.
A subsequent purchaser of a Bond that purchases such Bond at a price
(excluding any portion of such price attributable to accrued qualified stated
interest) less than its remaining stated redemption price will also be required
to include in gross income the daily portions of any original issue discount
with respect to such Bond. However, each such daily portion will be reduced, if
such cost is in excess of its "adjusted issue price," in proportion to the ratio
such excess bears to the aggregate original issue discount remaining to be
accrued on such Bond. The adjusted issue price of a Bond on any given day equals
the sum of (i) the adjusted issue price (or, in the case of the first accrual
period, the issue price) of such Bond at the beginning of the accrual period
which includes such day and (ii) the daily portions of original issue discount
for all days during such accrual period prior to such day.
MARKET DISCOUNT. A Bondholder that purchases a Bond at a market
discount, that is, in the case of a Bond issued without original issue discount,
at a purchase price less than its remaining stated principal amount, or in the
case of a Bond issued with original issue discount, at a purchase price less
than its adjusted issue price will recognize gain upon receipt of each
distribution representing stated redemption price. In particular, under Section
1276 of the Code, such a Bondholder generally will be required to allocate the
portion of each such distribution representing stated redemption price first to
accrued market discount not previously included in income, and to recognize
ordinary income to that extent. A Bondholder may elect to include market
discount in income currently as it accrues rather than including it on a
deferred basis in accordance with the foregoing. If made, such election will
apply to all market discount bonds acquired by such Bondholder on or after the
first day of the first taxable year to which such election applies. In addition,
the OID Regulations permit a Bondholder to elect to accrue all interest,
discount (including de minimis market or original issue discount) and premium in
income as interest, based on a constant yield method. If such an election were
made with respect to a Bond with market discount, the Bondholder would be deemed
to have made an election to include currently market discount in income with
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respect to all other debt instruments having market discount that such
Bondholder acquires during the taxable year of the election or thereafter, and
possibly previously acquired instruments. Similarly, a Bondholder that made this
election for a Bond that is acquired at a premium would be deemed to have made
an election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such Bondholder owns or acquires. See "-Premium"
below. Each of these elections to accrue interest, discount and premium with
respect to a Bond on a constant yield method or as interest would be
irrevocable.
However, market discount with respect to a Bond will be considered to
be de minimis for purposes Section 1276 of the Code if such market discount is
less than 0.25% of the remaining stated redemption price of such Bond multiplied
by the number of complete years to maturity remaining after the date of its
purchase. In interpreting a similar rule with respect to original issue discount
on obligations payable in installments, the OID Regulations refer to the
weighted average maturity of obligations, and it is likely that the same rule
will be applied with respect to market discount, presumably taking into account
the Prepayment Assumption. If market discount is treated as de minimis under
this rule, it appears that the actual discount would be treated in a manner
similar to original issue discount of a de minimis amount. See "-Original Issue
Discount" above. Such treatment would result in discount being included in
income at a slower rate than discount would be required to be included in income
using the method described above.
Section 1276(b)(3) of the Code specifically authorizes the Treasury
Department to issue regulations providing for the method for accruing market
discount on debt instruments, the principal of which is payable in more than one
installment. Until regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. The Committee Report indicates
that in each accrual period market discount on Bonds should accrue, at the
Bondholder's option: (i) on the basis of a constant yield method, (ii) in the
case of a Bond issued without original issue discount, in an amount that bears
the same ratio to the total remaining market discount as the stated interest
paid in the accrual period bears to the total amount of stated interest
remaining to be paid on the Bonds as of the beginning of the accrual period or
(iii) in the case of a Bond issued with original issue discount, in an amount
that bears the same ratio to the total remaining market discount as the original
issue discount accrued in the accrual period bears to the total original issue
discount remaining on the Bond at the beginning of the accrual period. Moreover,
the Prepayment Assumption used in calculating the accrual of original issue
discount is also used in calculating the accrual of market discount. Because the
regulations referred to in this paragraph have not been issued, it is not
possible to predict what effect such regulations might have on the tax treatment
of a Bond purchased at a discount in the secondary market.
To the extent that Bonds provide for monthly or other periodic
distributions throughout their term, the effect of these rules may be to require
market discount to be includible in income at a rate that is not significantly
slower than the rate at which such discount would accrue if it were original
issue discount. Moreover, in any event a holder of a Bond generally will be
required to treat a portion of any gain on the sale or exchange of such Bond as
ordinary income to the extent of the market discount accrued to the date of
disposition under one of the foregoing methods, less any accrued market discount
previously reported as ordinary income.
Further, under Section 1277 of the Code, a holder of a Bond may be
required to defer a portion of its interest deductions for the taxable year
attributable to any indebtedness incurred or continued to purchase or carry a
Bond purchased with market discount. For these purposes, the de minimis rule
referred to above applies. Any such deferred interest expense would not exceed
the market discount that accrues during such taxable year and is, in general,
allowed as a deduction not later than the year in which such market discount is
includible in income. If such holder elects to include market discount in income
currently as it accrues on all market discount instruments acquired by such
holder in that taxable year or thereafter, the interest deferral rule described
above will not apply.
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PREMIUM. A Bond purchased at a cost (excluding any portion of such
cost attributable to accrued qualified stated interest) greater than its
remaining stated redemption price will be considered to be purchased at a
premium. The holder of such a Bond may elect under Section 171 of the Code to
amortize such premium under the constant yield method over the remaining term of
the Bond. If made, such an election will apply to all debt instruments having
amortizable bond premium that the holder owns or subsequently acquires.
Amortizable premium will be treated as an offset to interest income on the
related Bond, rather than as a separate interest deduction. The OID Regulations
also permit Bondholders to elect to include all interest, discount and premium
in income based on a constant yield method, further treating the Bondholder as
having made the election to amortize premium generally. See "-Market Discount"
above. The Committee Report states that the same rules that apply to accrual of
market discount (which rules may require use of a prepayment assumption in
accruing market discount with respect to Bonds without regard to whether such
Bonds have original issue discount) would also apply in amortizing bond premium
under Section 171 of the Code.
REALIZED LOSSES. Under Section 166 of the Code, both corporate holders
of the Bonds and noncorporate holders of the Bonds that acquire such Bonds in
connection with a trade or business should be allowed to deduct, as ordinary
losses, any losses sustained during a taxable year in which their Bonds become
wholly or partially worthless as the result of one or more realized losses on
the Mortgage Loans. However, it appears that a noncorporate holder that does not
acquire a Bond in connection with a trade or business will not be entitled to
deduct a loss under Section 166 of the Code until such holder's Bond becomes
wholly worthless (i.e., until its outstanding principal balance has been reduced
to zero) and that the loss will be characterized as a short-term capital loss.
Each holder of a Bond will be required to accrue interest and original
issue discount with respect to such Bond, without giving effect to any
reductions in distributions attributable to defaults or delinquencies on the
Mortgage Loans until it can be established that any such reduction ultimately
will not be recoverable. As a result, the amount of taxable income reported in
any period by the holder of a Bond could exceed the amount of economic income
actually realized by the holder in such period. Although the holder of a Bond
eventually will recognize a loss or reduction in income attributable to
previously accrued and included income that, as the result of a realized loss,
ultimately will not be realized, the law is unclear with respect to the timing
and character of such loss or reduction in income.
SALES OF BONDS. If a Bond is sold, the selling Bondholder will
recognize gain or loss equal to the difference between the amount realized on
the sale and its adjusted basis in the Bond. The adjusted basis of a Bond
generally will equal the cost of such Bond to such Bondholder, increased by
income reported by such Bondholder with respect to such Bond (including original
issue discount and market discount income) and reduced (but not below zero) by
any amortized premium and any distributions on such bond received by such
Bondholder. Except as provided in the following two paragraphs, any such gain or
loss will be capital gain or loss, provided such Bond is held as a capital asset
(generally, property held for investment) within the meaning of Section 1221 of
the Code. As a result of the enactment of the Taxpayer Relief Act of 1997 on
August 5, 1997, long-term capital gains may be taxable at different rates
depending upon when they are realized, the holding period for the assets that
produce the gain, and the investor's tax bracket.
Gain recognized on the sale of a Bond by a seller who purchased such
Bond at a market discount will be taxable as ordinary income in an amount not
exceeding the portion of such discount that accrued during the period such Bond
was held by such holder, reduced by any market discount included in income under
the rules described above under "-Market Discount" and "-Premium."
A portion of any gain from the sale of a Bond that might otherwise be
capital gain may be treated as ordinary income to the extent that such Bond is
held as part of a "conversion transaction" within the
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meaning of Section 1258 of the Code. A conversion transaction generally is one
in which the taxpayer has taken two or more positions in the same or similar
property that reduce or eliminate market risk, if substantially all of the
taxpayer's return is attributable to the time value of the taxpayer's net
investment in such transaction. The amount of gain so realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate "applicable Federal rate" (which rate is computed and
published monthly by the IRS) at the time the taxpayer enters into the
conversion transaction, subject to appropriate reduction for prior inclusion of
interest and other ordinary income items from the transaction.
Finally, a taxpayer may elect to have net capital gain taxed at
ordinary income rates rather than capital gains rates in order to include such
net capital gain in total net investment income for the taxable year, for
purposes of the rule that limits the deduction of interest on indebtedness
incurred to purchase or carry property held for investment to a taxpayer's net
investment income.
BACKUP WITHHOLDING AND INFORMATION REPORTING. Payments of interest and
principal, as well as payments of proceeds from the sale of Bonds, may be
subject to the "backup withholding tax" under Section 3406 of the Code at a rate
of 31% if recipients of such payments fail to furnish to the payor certain
information, including their taxpayer identification numbers, or otherwise fail
to establish an exemption from such tax. Any amounts deducted and withheld from
a distribution to a recipient would be allowed as a credit against such
recipient's federal income tax. Furthermore, certain penalties may be imposed by
the IRS on a recipient of payments that is required to supply information but
that does not do so in the proper manner.
The Issuer will report to the Holders and to the IRS for each calendar
year the amount of any "reportable payments" during such year and the amount of
tax withheld, if any, with respect to payments on the Bonds.
TAX TREATMENT OF FOREIGN INVESTORS. Interest paid on a Bond to a
nonresident alien individual, foreign partnership or foreign corporation that
has no connection with the United States other than holding Bonds
("Nonresidents"), such interest will normally qualify as portfolio interest
(except where (i) the recipient is a holder, directly or by attribution, of 10%
or more of the capital or profits interest in the Company, or (ii) the recipient
is a controlled foreign corporation to which the Company is a related person)
and will be exempt from federal income tax. Upon receipt of appropriate
ownership statements, the Issuer normally will be relieved of obligations to
withhold tax from such interest payments. These provisions supersede the
generally applicable provisions of United States law that would otherwise
require the issuer to withhold at a 30% rate (unless such rate were reduced or
eliminated by an applicable tax treaty) on, among other things, interest and
other fixed or determinable, annual or periodic income paid to Nonresidents. For
these purposes a Bondholder may be considered to be related to the Company by
holding a Bond or by having common ownership with any other holder of a Bond or
any affiliate thereof.
STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described in
"Federal Income Tax Consequences", potential investors should consider the state
and local tax consequences of the acquisition, ownership, and disposition of the
Bonds offered hereunder. State tax law may differ substantially from the
corresponding federal tax law, and the discussion above does not purport to
describe any aspect of the tax laws of any state or other jurisdiction.
Therefore, prospective investors should consult their own tax advisors with
respect to the various tax consequences of investments in the Bonds offered
hereunder.
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ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Code impose certain requirements on employee benefit plans
and on certain other retirement plans and arrangements, including individual
retirement accounts and annuities, Keogh plans and collective investment funds
and separate accounts (and, as applicable, insurance company general accounts)
in which such plans, accounts or arrangements are invested that are subject to
the fiduciary responsibility provisions of ERISA and Section 4975 of the Code
("Plans") and on persons who are fiduciaries with respect to such Plans in
connection with the investment of Plan assets. Certain employee benefit plans,
such as governmental plans (as defined in ERISA Section 3(32)), and, if no
election has been made under Section 410(d) of the Code, church plans (as
defined in Section 3(33) of ERISA) are not subject to ERISA requirements.
Accordingly, assets of such plans may be invested in Bonds without regard to the
ERISA considerations described below, subject to the provisions of other
applicable federal and state law. Any such plan which is qualified and exempt
from taxation under Sections 401(a) and 501(a) of the Code, however, is subject
to the prohibited transaction rules set forth in Section 503 of the Code.
ERISA generally imposes on Plan fiduciaries certain general fiduciary
requirements, including those of investment prudence and diversification and the
requirement that a Plan's investments be made in accordance with the documents
governing the Plan. In addition, Section 406 of ERISA and Section 4975 of the
Code prohibit a broad range of transactions involving assets of a Plan and
persons (parties in interest under ERISA and disqualified persons under the
Code, collectively, "Parties in Interest") who have certain specified
relationships to the Plan unless a statutory or administrative exemption is
available. Certain Parties in Interest that participate in a prohibited
transaction may be subject to an excise tax imposed pursuant to Section 4975 of
the Code or a penalty imposed pursuant to Section 502(i) of ERISA, unless a
statutory or administrative exemption is available. These prohibited
transactions generally are set forth in Section 406 of ERISA and Section 4975 of
the Code.
The Trust Fund, the Company, any underwriter, the Owner Trustee, the
Indenture Trustee, the Master Servicer, any Administrator, any Servicer, any
provider of Credit Enhancement or any of their affiliates may be considered to
be or may become Parties in Interest (or Disqualified Persons) with respect to
certain Plans. Prohibited transactions under Section 406 of ERISA and Section
4975 of the Code may arise if a Bond is acquired by a Plan with respect to which
such persons are Parties in Interest (or Disqualified Persons) unless such
transactions are subject to one or more statutory or administrative exemptions,
such as: Prohibited Transaction Class Exemption ("PTCE") 75-1, which exempts
certain transactions involving Plans and certain broker-dealers, reporting
dealers and banks; PTCE 90-1, which exempts certain transactions between
insurance company separate accounts and Parties in Interest (or Disqualified
Persons); PTCE 91-38, which exempts certain transactions between bank collective
investment funds and Parties in Interest (or Disqualified Persons); PTCE 95-60,
which exempts certain transactions between insurance company general accounts
and Parties in Interest (or Disqualified Persons); or PTCE 84-14, which exempts
certain transactions effected on behalf of a Plan by a "qualified professional
asset manager". There can be no assurance that any of these class exemptions
will apply with respect to any particular Plan investment in Bonds or, even if
it were deemed to apply, that any exemption would apply to all prohibited
transactions that may occur in connection with such investment. Accordingly,
prior to making an investment in the Bonds, investing Plans should determine
whether the Trust Fund, the Company, any underwriter, the Owner Trustee, the
Indenture Trustee, the Master Servicer, any Administrator, any Servicer, any
provider of Credit Enhancement or any of their affiliates is a Party in Interest
(or Disqualified Person) with respect to such Plan and, if so, whether such
transaction is subject to one or more statutory or administrative exemptions.
Any Plan fiduciary considering whether to invest in Bonds on behalf of
a Plan should consult with its counsel regarding the applicability of the
fiduciary responsibility and prohibited transaction
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provisions of ERISA and the Code to such investment. Each Plan fiduciary also
should determine whether, under the general fiduciary standards of investment
prudence and diversification, an investment in the Bonds is appropriate for the
Plan considering the overall investment policy of the Plan and the composition
of the Plan's investment portfolio as well as whether such investment is
permitted under the governing Plan instruments.
TAX-EXEMPT INVESTORS
A Plan that is exempt from federal income taxation pursuant to Section
501 of the Code (a "Tax-Exempt Investor") nonetheless will be subject to federal
income taxation to the extent that its income is "unrelated business taxable
income" ("UBTI") within the meaning of Section 512 of the Code.
LEGAL INVESTMENT MATTERS
Each class of Bonds offered hereby and by the related Prospectus
Supplement will be rated at the date of issuance in one of the four highest
rating categories by at least one Rating Agency. Each such class that is rated
in one of the two highest rating categories by at least one Rating Agency will
constitute "mortgage related securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 ("SMMEA"), and, as such, will be legal
investments for persons, trusts, corporations, partnerships, associations,
business trusts and business entities (including depository institutions, life
insurance companies and pension funds) created pursuant to or existing under the
laws of the United States or of any State whose authorized investments are
subject to state regulation to the same extent that, under applicable law,
obligations issued by or guaranteed as to principal and interest by the United
States or any agency or instrumentality thereof constitute legal investments for
such entities. Under SMMEA, if a State enacted legislation on or prior to
October 3, 1991 specifically limiting the legal investment authority of any such
entities with respect to "mortgage related securities," such securities will
constitute legal investments for entities subject to such legislation only to
the extent provided therein. Certain States have enacted legislation which
overrides the preemption provisions of SMMEA. SMMEA provides, however, that in
no event will the enactment of any such legislation affect the validity of any
contractual commitment to purchase, hold or invest in "mortgage related
securities," or require the sale or other disposition of such securities, so
long as such contractual commitment was made or such securities acquired prior
to the enactment of such legislation.
SMMEA also amended the legal investment authority of
federally-chartered depository institutions as follows: federal savings and loan
associations and federal savings banks may invest in, sell or otherwise deal
with "mortgage related securities" without limitation as to the percentage of
their assets represented thereby, federal credit unions may invest in such
securities, and national banks may purchase such securities for their own
account without regard to the limitations generally applicable to investment
securities set forth in 12 U.S.C. 24 (Seventh), subject in each case to such
regulations as the applicable federal regulatory authority may prescribe.
The Federal Financial Institutions Examination Council has issued a
supervisory policy statement (the "Policy Statement") applicable to all
depository institutions, setting forth guidelines for and significant
restrictions on investments in "high-risk mortgage securities." The Policy
Statement has been adopted by the Federal Reserve Board, the Office of the
Comptroller of the Currency, the FDIC and the OTS with an effective date of
February 10, 1992. The Policy Statement generally indicates that a mortgage
derivative product will be deemed to be high risk if it exhibits greater price
volatility than a standard fixed rate thirty-year mortgage security. According
to the Policy Statement, prior to purchase, a depository institution will be
required to determine whether a mortgage derivative product that it is
considering acquiring is high-risk, and if so that the proposed acquisition
would reduce the institution's overall interest rate risk. Reliance on analysis
and documentation obtained from a securities dealer or other outside party
without internal
-78-
<PAGE>
analysis by the institution would be unacceptable. There can be no assurance as
to which classes of Bonds will be treated as high-risk under the Policy
Statement.
The predecessor to the Office of Thrift Supervision ("OTS") issued a
bulletin, entitled, "Mortgage Derivative Products and Mortgage Swaps", which is
applicable to thrift institutions regulated by the OTS. The bulletin established
guidelines for the investment by savings institutions in certain "high-risk"
mortgage derivative securities and limitations on the use of such securities by
insolvent, undercapitalized or otherwise "troubled" institutions. According to
the bulletin, such "high-risk" mortgage derivative securities include securities
having certain specified characteristics, which may include certain classes of
Bonds. In addition, the National Credit Union Administration has issued
regulations governing federal credit union investments which prohibit investment
in certain specified types of securities, which may include certain classes of
Bonds. Similar policy statements have been issued by regulators having
jurisdiction over other types of depository institutions.
Certain classes of Bonds offered hereby, including any class that is
not rated in one of the two highest rating categories by at least one Rating
Agency, will not constitute "mortgage related securities" for purposes of SMMEA.
Any such class of Bonds will be identified in the related Prospectus Supplement.
Prospective investors in such classes of Bonds, in particular, should consider
the matters discussed in the following paragraph.
There may be other restrictions on the ability of certain investors
either to purchase certain classes of Bonds or to purchase any class of Bonds
representing more than a specified percentage of the investors' assets. The
Company will make no representations as to the proper characterization of any
class of Bonds for legal investment or other purposes, or as to the ability of
particular investors to purchase any class of Bonds under applicable legal
investment restrictions. These uncertainties may adversely affect the liquidity
of any class of Bonds. Accordingly, all investors whose investment activities
are subject to legal investment laws and regulations, regulatory capital
requirements or review by regulatory authorities should consult with their own
legal advisors in determining whether and to what extent the Bonds of any class
thereof constitute legal investments or are subject to investment, capital or
other restrictions, and, if applicable, whether SMMEA has been overridden in any
jurisdiction relevant to such investor.
USE OF PROCEEDS
Substantially all of the net proceeds to be received from the sale of
Bonds will be applied by the Company to finance the purchase of, or to repay
short-term loans incurred to finance the purchase of, the Mortgage Loans in the
respective Mortgage Pools, and to pay other expenses. The Company expects that
it will make additional sales of securities similar to the Bonds from time to
time, but the timing and amount of any such additional offerings will be
dependent upon a number of factors, including the volume of mortgage loans
purchased by the Company, prevailing interest rates, availability of funds and
general market conditions.
METHODS OF DISTRIBUTION
The Bonds offered hereby and by the related Prospectus Supplements
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 net proceeds to the
Company from such sale.
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<PAGE>
The Company intends that Bonds 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 the Bonds of a particular
series 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 Company with institutional investors
through dealers; and
3. By direct placements by the Company with institutional
investors.
If underwriters are used in a sale of any Bonds (other than in
connection with an underwriting on a best efforts basis), such Bonds 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. Such underwriters may be broker-dealers
affiliated with the Company whose identities and relationships to the Company
will be as set forth in the related Prospectus Supplement. The managing
underwriter or underwriters with respect to the offer and sale of the Bonds of a
particular series 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 Bonds, underwriters may receive
compensation from the Company or from purchasers of such Bonds in the form of
discounts, concessions or commissions. Underwriters and dealers participating in
the distribution of the Bonds may be deemed to be underwriters in connection
with such Bonds, and any discounts or commissions received by them from the
Company and any profit on the resale of Bonds by them may be deemed to be
underwriting discounts and commissions under the Securities Act of 1933, as
amended (the "Securities Act").
It is anticipated that the underwriting agreement pertaining to the
sale of Bonds of any series 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 Bonds if any are purchased
(other than in connection with an underwriting on a best efforts basis) and
that, in limited circumstances, the Company will indemnify the several
underwriters and the underwriters will indemnify the Company 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 Company and
purchasers of Bonds of such series.
The Company anticipates that the Bonds offered hereby will be sold
primarily to institutional investors or sophisticated non-institutional
investors. Purchasers of Bonds, 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
such Bonds. Holders of Bonds should consult with their legal advisors in this
regard prior to any such reoffer or sale.
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<PAGE>
LEGAL MATTERS
Certain legal matters, including certain federal income tax matters,
in connection with the Bonds of each series will be passed upon for the Company
by Thacher Proffitt & Wood, New York, New York.
FINANCIAL INFORMATION
A new Trust fund will be formed with respect to each series of Bonds,
and no Trust Fund will engage in any business activities or have any assets or
obligations prior to the issuance of the related series of Bonds. Accordingly,
no financial statements with respect to any Trust Fund will be included in this
Prospectus or in the related Prospectus Supplement.
RATING
It is a condition to the issuance of any class of Bonds that they
shall have been rated not lower than investment grade, that is, in one of the
four highest rating categories, by at least one Rating Agency.
Ratings on collateralized mortgage bonds address the likelihood of
receipt by the holders thereof of all collections on the underlying mortgage
assets to which such holders are entitled. These ratings address the structural,
legal and issuer-related aspects associated with such bonds, the nature of the
underlying mortgage assets and the credit quality of the guarantor, if any.
Ratings on collateralized mortgage bonds do not represent any assessment of the
likelihood of principal prepayments by borrowers or of the degree by which such
prepayments might differ from those originally anticipated. As a result,
Bondholders might suffer a lower than anticipated yield, and, in addition,
holders of stripped interest bonds in extreme cases might fail to recoup their
initial investments.
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<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
Page
1986 Act ....................................................................70
Accrual Bonds ............................................................7, 35
Accrued Bond Interest........................................................43
ADA .........................................................................68
Administrator ................................................................6
Agreements ..................................................................50
ARM Loans ...................................................................25
Available Distribution Amount................................................42
Beneficial Owner ............................................................36
Bond Register ...............................................................36
Bond Registrar ..............................................................36
Bondholder ..................................................................36
Bonds .................................................................1, 5, 35
Cash Flow Agreement..........................................................12
CERCLA ......................................................................65
Certificate Account..........................................................25
Certificates .................................................................5
Closing Date ................................................................71
Collection Account...........................................................39
Commercial Properties..................................................1, 8, 22
Commission ...................................................................4
Company ...................................................................1, 5
Cooperatives ................................................................22
CPR .........................................................................56
Credit Support ..............................................................12
Crime Control Act ...........................................................69
Debt Service Coverage Ratio..................................................23
Determination Date.......................................................42, 54
Distribution Date ...........................................................10
DTC .........................................................................36
DTC Registered Bonds.........................................................36
Due Dates ...................................................................24
Due Period ..............................................................45, 54
Entity Classification Regulations............................................70
Equity Participation.........................................................24
ERISA ...................................................................14, 77
Event of Default ............................................................50
Exchange Act .................................................................4
Funding Account .............................................................44
Garn Act ....................................................................67
Holder ......................................................................36
ICI Funding ..............................................................5, 49
ICII ........................................................................49
Imperial Holdings ............................................................5
Indenture .................................................................1, 5
Indenture Trustee ............................................................6
Insurance Proceeds...........................................................39
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<PAGE>
Interest Rate ................................................................7
Intermediaries ..............................................................36
IRS .........................................................................70
Letter of Credit Bank........................................................48
Liquidation Proceeds.........................................................39
Loan-to-Value Ratio..........................................................23
Lock-out Date ...............................................................24
Lock-out Period .............................................................24
Master Servicer ...........................................................1, 6
Mortgage ....................................................................21
Mortgage Loans ........................................................1, 6, 21
Mortgage Notes ..............................................................21
Mortgage Pool .........................................................1, 8, 21
Mortgage Rate ................................................................9
Mortgaged Properties.........................................................21
Mortgages ...................................................................59
Multifamily Properties.................................................1, 8, 21
Net Leases ..................................................................23
Net Operating Income.........................................................23
Nonrecoverable Advance.......................................................45
Nonresidents ................................................................76
OID Regulations .............................................................71
Originator ..................................................................22
OTS .........................................................................79
Owner Trust ..................................................................5
Owner Trustee ................................................................5
Participants ................................................................36
Parties in Interest..........................................................77
Percentage Interest..........................................................42
Permitted Investments........................................................39
Plan ....................................................................14, 77
Policy Statement ...........................................................78
Prepayment Interest Shortfall................................................54
Prepayment Premium...........................................................24
Prospectus Supplement.........................................................1
PTCE ........................................................................77
Rating Agency ...............................................................13
Record Date .................................................................42
REIT ........................................................................49
Related Proceeds ............................................................45
Relief Act ..................................................................69
REMIC ........................................................................1
REO Property ................................................................28
RICO ........................................................................69
Securities ................................................................1, 5
Securities Act ...........................................................4, 80
Seller ......................................................................10
Sellers ......................................................................1
Senior Bonds .............................................................7, 35
Senior Liens ................................................................22
Senior/Subordinate Series....................................................35
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<PAGE>
Servicing Default ...........................................................50
SMMEA ...................................................................14, 78
SPA .........................................................................56
Special Servicer .............................................................6
Spread .......................................................................6
Strip Bonds ..............................................................7, 35
Sub-Servicer ................................................................30
Sub-Servicing Agreement......................................................30
Subordinate Securities....................................................7, 35
Superlien ...................................................................65
Tax Counsel .................................................................71
Title V .....................................................................68
TMP .........................................................................70
Trust Agreement ...........................................................1, 5
Trust Fund ................................................................1, 6
Trust Fund Assets .........................................................1, 6
UCC .........................................................................60
Value .......................................................................23
Warranting Party ............................................................26
Wholly Owned Entity..........................................................70
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<PAGE>
-1-
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION (ITEM 14 OF FORM S-3).
The expenses expected to be incurred in connection with the issuance
and distribution of the Bonds being registered, other than underwriting
compensation, are as set forth below. All such expenses, except for the filing
fee, are estimated.
Filing Fee for Registration Statement............... $295
Legal Fees and Expenses............................. *
Accounting Fees and Expenses........................ *
Trustee's Fees and Expenses
(including counsel fees)..................... *
Printing and Engraving Fees......................... *
Rating Agency Fees.................................. *
Miscellaneous....................................... *
----------
Total ............................................. $ *
==========
* To be provided by amendment.
INDEMNIFICATION OF DIRECTORS AND OFFICERS (ITEM 15 OF FORM S-3).
The Servicing Agreements and the Trust Agreements will provide that no
director, officer, employee or agent of the Registrant is liable to the Trust
Fund or the Bondholders, 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. The Servicing Agreements and the Trust Agreements 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 Bonds other than such expenses related to particular Mortgage
Loans.
Any underwriters who execute an Underwriting Agreement in the form
filed as Exhibit 1.1 to this Registration Statement will agree to indemnify the
Registrant's directors and its officers who signed this Registration Statement
against certain liabilities which might arise under the Securities Act of 1933
from certain information furnished to the Registrant by or on behalf of such
indemnifying party.
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 VI of the Registrant's
Articles of Incorporation (Exhibit 3.1 hereto) and Article XI of the
Registrant's Bylaws (Exhibit 3.2 hereto)
<PAGE>
-2-
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 Registrant has also entered into agreements
with its directs and executive officers that would require the Registrant, among
other things, to indemnify them against certain liabilities that may arise by
reason of their status or service as directors to the fullest extent not
prohibited by law.
EXHIBITS (ITEM 16 OF FORM S-3).
<TABLE>
<CAPTION>
Exhibits--
<S> <C> <C>
1.1 -- Form of Underwriting Agreement.*
3.1 -- Amended Articles of Incorporation.*
3.2 -- By-Laws.*
4.1 -- Form of Servicing Agreement.*
4.2 -- Form of Trust Agreement.*
4.3 -- Form of Indenture.*
5.1 -- Opinion of Thacher Proffitt & Wood with respect to legality.
8.1 -- Opinion of Thacher Proffitt & Wood with respect to certain tax matters
(included with Exhibit 5.1).
23.1 -- Consent of Thacher Proffitt & Wood (included as part of Exhibit 5.1
and Exhibit 8.1).
24.1 -- Power of Attorney.*
25.1 -- Statement of Eligibility and Qualification of Trustee under the Trust
Indenture Act of 1939 for Bankers Trust Company of California,
N.A.*
</TABLE>
- -----------------
* Incorporated by reference from Registration Statement on Form S-3 (File No.
333-6637).
UNDERTAKINGS (ITEM 17 OF FORM S-3).
(a) 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 Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of this Registration Statement (or
the most recent post-effective amendment hereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in this Registration Statement; and
<PAGE>
-3-
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the registration
statement or any material change to such
information in this Registration Statement;
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in this Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 that is incorporated by reference in this Registration Statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
initial BONA FIDE offering thereof.
(h) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(j) The Registrant hereby undertakes to file an application for the purpose of
determining the eligibility of the trustee to act under subsection (a) of
Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the Trust
Indenture Act.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, IMH
Assets Corp. certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3, reasonably believes that the
security rating requirement contained in Transaction Requirement B.5 of Form S-3
will be met by the time of the sale of the securities registered hereunder, and
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Santa Ana Heights, State
of California, on the 5th day of August, 1998.
IMH ASSETS CORP.
By *
-----------------------------------------
Name: Richard Johnson
Title: Director and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
* Director and August 5, 1998
- ----------------------------------------------- President
William Ashmore (Principal Executive
Officer)
* Director, Chief Financial August 5, 1998
- ----------------------------------------------- Officer and Secretary
Richard Johnson (Principal Financial Officer
and Principal Accounting Officer)
* Director August 5, 1998
- -----------------------------------------------
Lee Bromiley
</TABLE>
*By: /s/ Richard Johnson
----------------------------
Richard Johnson
Attorney-in-fact pursuant to a power of attorney filed with Registration
Statement No. 333-6637.
Exhibits 5.1, 8.1 and 23.1
--------------------------
[LETTERHEAD OF THACHER PROFFITT & WOOD]
August 5, 1998
IMH Assets Corp.
20371 Irvine Avenue, Suite 200
Santa Ana Heights, California 92707
Re: IMH Assets Corp.
Collateralized Mortgage Bonds
Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
We have acted as special counsel to IMH Assets Corp., a
California corporation (the "Registrant") in connection with the registration
under the Securities Act of 1933, as amended (the "Act"), of Collateralized
Mortgage Bonds (the "Bonds"), and the related preparation and filing of a
Registration Statement on Form S-3 (the "Registration Statement"). The Bonds are
issuable in series under separate indentures (each such agreement, an
"Indenture"), between an issuer and an indenture trustee, each to be identified
in the prospectus supplement for such series of Bonds. Each Indenture will be
substantially in the respective form filed as an Exhibit to the Registration
Statement.
In connection with rendering this opinion letter, we have
examined the form of the Indenture contained as an Exhibit in the Registration
Statement, the Registration Statement and such records and other documents as we
have deemed necessary. As to matters of fact, we have examined and relied upon
representations or certifications of officers of the Registrant or public
officials. We have assumed the authenticity of all documents submitted to us as
originals, the
<PAGE>
IMH Assets Corp.
August 5, 1998
genuineness of all signatures, the legal capacity of natural persons and the
conformity to the originals of all documents. We have assumed that all parties,
other than the Registrant, had the corporate power and authority to enter into
and perform all obligations thereunder, and, as to such parties, we also have
assumed the due authorization by all requisite corporate action and the
enforceability of such documents.
In rendering this opinion letter, we express no opinion as to
the laws of any jurisdiction other than the laws of the State of New York and
the corporate laws of the State of Delaware, nor do we express any opinion,
either implicitly or otherwise, on any issue not expressly addressed below. In
rendering this opinion letter, we have not passed upon and do not pass upon the
application of "doing business" or the securities laws of any jurisdiction. This
opinion letter is further subject to the qualification that enforceability may
be limited by (i) bankruptcy, insolvency, liquidation, receivership, moratorium,
reorganization or other laws affecting the enforcement of the rights of
creditors generally and (ii) general principles of equity, whether enforcement
is sought in a proceeding in equity or at law.
Based on the foregoing, we are of the opinion that:
1. When an Indenture for a series of Bonds has been duly
authorized by all necessary action and duly executed and delivered by the
parties thereto, such Indenture will be a legal and valid obligation of the
applicable issuer.
2. When an Indenture for a series of Bonds has been duly
authorized by all necessary action and duly executed and delivered by the
parties thereto, and when the Bonds of such series have been duly executed and
authenticated in accordance with the provisions of that Indenture, and issued
and sold as contemplated in the Registration Statement and the prospectuses and
prospectus supplements delivered in connection therewith, such Bonds will be
legally and validly issued and outstanding, fully paid and non-assessable, and
will be binding obligations of the applicable issuer, and the holders of such
Bonds will be entitled to the benefits of that Indenture.
3. The description of federal income tax consequences
appearing under the heading "Certain Federal Income Tax Consequences" in the
prospectuses relating to the Bonds contained in the Registration Statement,
while not purporting to discuss all possible federal income tax consequences of
an investment in the Bonds, is accurate with respect to those tax consequences
which are discussed.
We hereby consent to the filing of this opinion letter as an
Exhibit to the Registration Statement, and to the use of our name in the
prospectuses and prospectus supplements relating to the Bonds included in the
Registration Statement under the heading "Legal Matters," and in the
prospectuses relating to the Bonds included in the Registration Statement under
the heading "Certain Federal Income Tax Consequences," without admitting that we
are "experts."
Very truly yours,
/s/ Thacher Proffitt & Wood
---------------------------
THACHER PROFFITT & WOOD
