Prospectus Supplement dated November 21, 2000
(To Prospectus dated February 23, 1999)
$491,608,000
[Impac logo]
IMPAC FUNDING CORPORATION
Master Servicer
IMH ASSETS CORP.
Company
IMPAC CMB TRUST SERIES 2000-2
COLLATERALIZED ASSET-BACKED BONDS, SERIES 2000-2
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YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-11 IN THIS
PROSPECTUS SUPPLEMENT AND PAGE 3 IN THE PROSPECTUS.
The Bonds will represent interests only in the trust created for Series 2000-2
and will not represent ownership interests in or obligations of IMH Assets
Corp., Impac Funding Corporation or any of their affiliates. This prospectus
supplement may be used to offer and sell the Bonds offered hereby only if
accompanied by the prospectus.
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THE TRUST
The Impac CMB Trust Series 2000-2 will consist primarily of two pools of
mortgage loans:
o the first pool will consist primarily of adjustable rate
mortgage loans, secured by first liens on the related mortgage
properties; and
o the second pool will consist primarily of fixed rate mortgage
loans, primarily secured by second liens on the related
mortgage properties.
CREDIT ENHANCEMENT
To the extent provided in this prospectus supplement, credit enhancement will be
provided to the Bonds by:
o the net monthly excess cash flow on the mortgage loans;
o overcollateralization represented by the excess of the balance
of the mortgage loans over the balance of the Bonds;
o cross-collateralization between the pools to cover losses;
o the Class B Bonds, which provide credit enhancement for the
Class A Bonds; and
o a bond insurance policy issued by Ambac Assurance Corporation
which will guaranty certain payments on the Class A Bonds.
[Ambac Logo]
In addition, fourteen cap contracts will be included in the trust to cover basis
risk shortfalls on the Class A-1 Bonds and Class B Bonds.
UNDERWRITING
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 $490,379,300 before the deduction of expenses payable by the
Company estimated to be approximately $600,000.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE OFFERED BONDS OR DETERMINED THAT
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS ACCURATE OR COMPLETE. 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.
COUNTRYWIDE SECURITIES CORPORATION
UNDERWRITER
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS
We provide information to you about the Bonds in two separate documents that
provide progressively more detail:
o the accompanying prospectus, which provides general information, some
of which may not apply to your series of Bonds; and
o this prospectus supplement, which describes the specific terms of your
series of Bonds.
IF THE DESCRIPTION OF YOUR BONDS IN THIS PROSPECTUS SUPPLEMENT DIFFERS FROM THE
RELATED DESCRIPTION IN THE ACCOMPANYING PROSPECTUS, YOU SHOULD RELY ON THE
INFORMATION IN THIS PROSPECTUS SUPPLEMENT.
You can find a listing of the pages where capitalized terms used both in the
prospectus and prospectus supplement are defined under the caption "Index of
Principal Definitions" beginning on page 80 in the accompanying prospectus.
The Company's principal offices are located at 1401 Dove Street, Newport Beach,
CA 92660 and its phone number is (949) 475-3600.
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TABLE OF CONTENTS
SECTION PAGE
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Summary ......................................................................................................................S-3
Risk Factors.................................................................................................................S-11
Introduction.................................................................................................................S-18
Description of the Mortgage Pool.............................................................................................S-18
The Issuer...................................................................................................................S-48
The Owner Trustee............................................................................................................S-48
The Indenture Trustee........................................................................................................S-48
The Bond Insurer.............................................................................................................S-49
Description of the Bonds.....................................................................................................S-50
Description of the Bond Insurance Policy.....................................................................................S-67
Certain Yield and Prepayment Considerations..................................................................................S-68
Description of the Servicing Agreement.......................................................................................S-76
The Indenture...............................................................................................................S-77
Federal Income Tax Consequences.............................................................................................S-79
Method of Distribution......................................................................................................S-79
Legal Opinions..............................................................................................................S-80
Ratings.....................................................................................................................S-80
Legal Investment............................................................................................................S-81
ERISA Considerations........................................................................................................S-81
Experts.....................................................................................................................S-82
Annex I-- Global Clearance, Settlement
and Tax Documentation Procedures............................................................................................I-1
Appendix A-- Underwriting Guidelines
for the Mortgage Loans......................................................................................................A-1
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S-2
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS A VERY GENERAL OVERVIEW OF THE BONDS AND DOES NOT
CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER IN MAKING YOUR
INVESTMENT DECISION. TO UNDERSTAND ALL OF THE TERMS OF THE BONDS, YOU SHOULD
READ CAREFULLY THIS ENTIRE DOCUMENT AND THE ACCOMPANYING PROSPECTUS.
<TABLE>
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<S> <C>
Issuer.............................. Impac CMB Trust Series 2000-2.
Title of securities................. Collateralized Asset-Backed Bonds, Series 2000-2.
Company............................. IMH Assets Corp., an affiliate of Impac Funding Corporation.
Master servicer..................... Impac Funding Corporation.
Subservicers........................ With respect to the mortgage loans in loan pool 1, Countrywide Home Loans,
Inc. and Option One Mortgage Corporation, and with respect to the mortgage
loans in loan pool 2, Wendover Funding, Inc. and Countrywide. Wendover
will initially subservice certain mortgage loans in loan pool 1.
Indenture trustee................... Bankers Trust Company of California, N.A.
Certificate registrar............... Bankers Trust Company of California, N.A.
Owner trustee....................... Wilmington Trust Company.
Bond insurer........................ Ambac Assurance Corporation.
Cap counterparties.................. Bear Stearns Financial Products, Inc., The Royal Bank of Scotland plc and
Credit Suisse First Boston International.
Loan pool 1......................... 2,805 primarily adjustable-rate mortgage loans with an aggregate principal
balance of approximately $478,934,397 as of the cut-off date, secured by
first liens on one- to four-family residential properties.
Loan pool 2......................... 494 primarily fixed-rate mortgage loans with an aggregate principal
balance of approximately $18,141,761 as of the cut-off date, primarily
secured by second liens on one- to four-family residential properties.
Loan pool 2 consists primarily of two types of mortgage loans: home equity
loans, which generally were originated with combined loan-to-value ratios
of 100% or less, and high CLTV loans, which generally were originated with
combined loan-to-value ratios of up to 125%.
Cut-off date........................ November 1, 2000 for the adjustable-rate mortgage loans and the fixed-rate
mortgage loans, except for the high CLTV loans, for which the cut-off date
will be the close of business on October 31, 2000.
Closing date........................ On or about November 27, 2000.
Payment dates....................... The 25th of each month or, if the 25th is not a business day, on the next
business day, beginning on December 26, 2000.
Final scheduled payment date........ The payment date in June 2031. The actual final payment date could be
substantially earlier.
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OFFERED BONDS
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INITIAL BOND
PASS-THROUGH PRINCIPAL INITIAL RATING
CLASS RATE BALANCE (S&P/MOODY'S)(1) DESIGNATIONS
=====================================================================================================================
<S> <C> <C> <C> <C>
A-1 Adjustable Rate(2) $ 453,782,000 AAA/Aaa Senior
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A-2 Adjustable Rate(3) $ 17,942,000 AAA/Aaa Senior
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B Adjustable Rate(4) $ 19,884,000 BBB/Baa2 Subordinate
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Total bonds: $ 491,608,000
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(1) See "Ratings" in this prospectus supplement.
(2) The lesser of (1) one-month LIBOR plus 0.26% per annum (or 0.52% per
annum beginning on the first payment date after the first possible
optional termination date) and (2) 13.75% per annum, subject to a
payment cap equal to the related available funds rate described in this
prospectus supplement.
(3) The lesser of (1) one-month LIBOR plus 0.35% per annum (or 0.70% per
annum beginning on the first payment date after the first possible
optional termination date) and (2) 13.65% per annum, subject to a
payment cap equal to the related available funds rate described in this
prospectus supplement.
(4) The lesser of (1) one-month LIBOR plus 1.90% per annum (or 2.85% per
annum beginning on the first payment date after the first possible
optional termination date) and (2) 13.75% per annum, subject to a
payment cap equal to the related available funds rate described in this
prospectus supplement.
S-4
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THE TRUST
The company will establish Impac CMB Trust Series 2000-2, a Delaware business
trust, pursuant to a trust agreement among the company, the owner trustee and
the certificate registrar. The trust will issue the Bonds pursuant to an
indenture between the issuer and the indenture trustee. On the closing date, the
company will deposit into the trust the pool of mortgage loans described below.
The trust will also include a bond insurance policy provided by Ambac Assurance
Corporation, which guarantees certain payments on the Class A Bonds.
In addition, the depositor will assign to the trust fourteen cap contracts,
which may cover basis risk shortfalls on the Class A-1 Bonds and Class B Bonds.
Distributions of interest and/or principal on the Bonds will be made from
payments received from the assets of the trust as described herein.
THE MORTGAGE POOL
The mortgage loans will be divided into two pools, loan pool 1 and loan pool 2.
LOAN POOL 1
The mortgage loans in loan pool 1 are secured by first liens on the related
mortgaged property. Approximately 99.62% and 0.38% of the mortgage loans in loan
pool 1 have adjustable rates and fixed rates, respectively. The mortgage loans
in loan pool 1 have the following characteristics as of the cut-off date:
Minimum principal balance $1,576
Maximum principal balance $646,756
Average principal balance $170,743
Range of mortgage rates 5.750% to 14.750%
Weighted average mortgage 9.826%
rate
Range of gross margins 2.000% to 8.250%
Range of remaining terms to 125 months to 361
stated maturity months
Weighted average remaining 346 months
term to stated maturity
The interest rate on the adjustable-rate mortgage loans in loan pool 1 will
adjust on each adjustment date to equal the sum of the related index and the
related gross margin on such mortgage, subject to a maximum and minimum interest
rate, as described herein.
Approximately 0.32% of the mortgage loans are negative amortization loans, which
have a feature where, under some circumstances, interest due on the mortgage
loans is added to the principal balance thereof.
Approximately 24.55% of the mortgage loans in loan pool 1 were acquired in
connection with the termination of four separate prior securitizations of
mortgage loans.
SEE "DESCRIPTION OF THE MORTGAGE POOL--THE GROUP 1 LOANS" IN THIS PROSPECTUS
SUPPLEMENT.
LOAN POOL 2
Approximately 96.02% of the mortgage loans in loan pool 2 have fixed rates and
are secured by second liens on the related mortgaged property. Approximately
3.98% the mortgage loans in loan pool 2 have adjustable rates and are secured by
first liens on the related mortgaged property. The mortgage loans in loan pool 2
have the following characteristics as of the cut-off date:
Minimum principal balance $492
Maximum principal balance $249,438
Average principal balance $36,724
Range of mortgage rates 10.000% to 17.250%
Weighted average mortgage 14.123%
rate
Range of remaining terms to 80 months to 314
stated maturity months
Weighted average remaining 181 months
term to stated maturity
The loan pool 2 consists primarily of two types of mortgage loans: home equity
loans, which generally were originated with combined loan-to-value ratios of
100% or less, and high CLTV loans, which generally were originated with combined
loan-to-value ratios of up to 125%. Approximately 54.03% and 41.99% of the
mortgage loans in loan pool 2 are home equity loans and high CLTV loans,
respectively. As a result, loan pool 2 consists primarily of mortgage loans
where the related mortgagor has little or no equity in the related mortgaged
property.
The high CLTV loans in loan pool 2 were underwritten pursuant to standards with
a limited
S-5
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expectation of recovering any amounts from the foreclosure of the related
mortgaged property.
Approximately 13.63% of the mortgage loans in loan pool 2 are balloon loans,
which require a substantial portion of the original principal amount to be paid
on the respective scheduled maturity date.
Approximately 28.60% of the mortgage loans in loan pool 2 were acquired in
connection with the termination of three separate prior securitizations of
mortgage loans.
SEE "DESCRIPTION OF THE MORTGAGE POOL--THE GROUP 2 LOANS" IN THIS PROSPECTUS
SUPPLEMENT.
THE CERTIFICATES
The trust will also issue the Certificates, which are not offered by this
prospectus supplement. The Certificates are subordinated to the Bonds, and will
receive cash flow from available funds to the extent not paid to the Bonds and
the bond insurer, and cash flow from the cap contracts to the extent not paid to
the Class A-1 Bonds and Class B Bonds.
DISTRIBUTIONS ON THE BONDS
REMITTANCES. Subservicers will collect payments of interest and principal on the
mortgage loans in each pool. Each month, the subservicers will retain their
subservicing fee and forward the remainder of such collections, together with
any advance that they make for delinquent mortgage payments, to the master
servicer. After retaining its master servicing fee, paying the fees of the
indenture trustee and the owner trustee, paying to the bond insurer the premium
with respect to the bond insurance policy, paying the fees for lender-paid
primary mortgage insurance and reimbursing the subservicer or master servicer
for reimbursable expenses and advances, the master servicer will forward all
collections on the mortgage loans, together with any advances that it makes for
delinquent mortgage payments and certain other amounts described herein, to the
indenture trustee.
The amount of such forwarded collections on each pool is the available funds for
any payment date for that pool. The available funds will not include amounts
received in respect of the cap contracts. The available funds will be determined
separately for each loan pool. See "Description of the Bonds-Available Funds" in
this prospectus supplement.
PAYMENTS FROM THE ASSETS OF THE TRUST.
The available funds in respect of loan pool 1 will be distributed generally as
follows:
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Step 1
Interest payments to the Class A-1 Bonds
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Step 2
Cross-collateralization payments to the Class A-2
Bonds in respect of any interest shortfalls and in
respect of any undercollateralization
in loan pool 2
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Step 3
Interest payments to the Class B Bonds
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Step 4
Principal payments to the Class A-1 Bonds and Class
B Bonds on a pro rata basis
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Step 5
Reimbursement to the bond insurer of payments made by the bond insurer to
the Class A Bonds and reimbursement to the bond insurer for other
amounts due under the insurance agreement
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Step 6
Principal payments of net monthly excess cash flow to the Class A-1 Bonds and
Class B Bonds on a pro rata
basis as required to create overcollateralization, until
the amount of overcollateralization
reaches the amount specified herein
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Step 7
Cross-collateralization payments to the Class A-2
Bonds in respect of unpaid losses
in loan pool 2
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Step 8
To the Class B Bonds, in reimbursement of any
realized losses previously allocated thereto
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S-6
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Step 9
To the Class A-1 Bonds in respect of any
unreimbursed basis risk shortfall to the extent not
covered by the related cap contracts
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Step 10
To the Class B Bonds in respect of any unreimbursed
basis risk shortfall to the extent not covered by the cap
contracts
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Step 11
To the Class A-1 Bonds in respect of any unpaid
interest shortfalls not covered by the bond insurance
policy
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Step 12
To the Class B Bonds in respect of any unpaid interest
shortfalls
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Step 13
Distribution of any remaining funds to the Certificates
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The available funds in respect of loan pool 2 will be distributed generally as
follows:
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Step 1
Interest payments to the Class A-2 Bonds
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Step 2
Cross-collateralization payments to the Class A-1
Bonds and Class B Bonds in respect of any
interest shortfalls and in respect of
undercollateralization in loan pool 1
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Step 3
Principal payments to the Class A-2 Bonds
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Step 4
Reimbursement to the bond insurer of payments made by the bond insurer to
the Class A Bonds and reimbursement to the bond insurer for other
amounts due under the insurance agreement
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Step 5
Principal payments of net monthly excess cash flow to the Class A-2 Bonds as
required to create overcollateralization, until the amount of
overcollateralization reaches
the amount specified herein
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Step 6
Cross-collateralization payments to the Class A-1
Bonds and Class B Bonds in respect of unpaid losses
in loan pool 1
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Step 7
To the Class A-2 Bonds in respect of any
unreimbursed basis risk shortfall
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Step 8
To the Class A-2 Bonds in respect of any unpaid
interest shortfalls not covered by the bond insurance
policy
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Step 9
Distribution of any remaining funds to the Certificates
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Amounts received from the cap contracts will be distributed as follows:
--------------------------------------------------------------------------------
Step 1
Payments in respect of any basis risk shortfall
on the Class A-1 Bonds
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Step 2
Payments in respect of any basis risk shortfall
on the Class B Bonds
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Step 3
Distribution of any remaining funds to the Certificates
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SEE "DESCRIPTION OF THE BONDS--PRIORITY OF PAYMENT" IN THIS PROSPECTUS
SUPPLEMENT.
S-7
<PAGE>
INTEREST DISTRIBUTIONS. The amount of interest owed to the Bonds on each payment
date will generally equal:
o the bond interest rate on the Bonds for the related payment date,
MULTIPLIED BY
o the bond principal balance of the Bonds immediately prior to the
related payment date,
MULTIPLIED BY
o the actual number of days in the related interest accrual period
divided by 360.
The amount of interest payable to the Bonds will be reduced by certain interest
shortfalls allocated to the Bonds, including basis risk shortfalls.
The bond interest rate on each class of Bonds will be the rate on page S-4
hereof.
SEE "DESCRIPTION OF THE BONDS--INTEREST DISTRIBUTIONS ON THE BONDS" IN THIS
PROSPECTUS SUPPLEMENT.
PRINCIPAL DISTRIBUTIONS. The principal distribution amount payable to the Bonds
will consist of the following:
o the principal portion of scheduled monthly payments on the related
mortgage loans;
o principal prepayments on the related mortgage loans; and
o the principal portion of other recoveries on the related mortgage
loans.
In addition, each class of Bonds will receive a distribution in respect of
principal, to the extent that any related net monthly excess cash flow is
available to cover realized losses on the mortgage loans in the related loan
group. Also, each class of Bonds will receive a distribution in respect of
principal, to the extent that any related net monthly excess cash flow is
available to increase the amount of related overcollateralization until the
related overcollateralization target is reached. In addition, the Class A Bonds
will receive a distribution in respect of principal from the bond insurance
policy if the aggregate bond principal balance of the Class A Bonds is greater
than the aggregate principal balance of the mortgage loans.
Any principal payments made to the Class A-1 Bonds and Class B Bonds will be
paid on a pro rata basis, based on the bond principal balances thereof.
SEE "DESCRIPTION OF THE BONDS--PRINCIPAL DISTRIBUTIONS ON THE BONDS" IN THIS
PROSPECTUS SUPPLEMENT.
CREDIT ENHANCEMENT
COVERAGE OF LOSSES. Realized losses on the mortgage loans will be covered by
excess cash flow applied as additional distributions in respect of principal,
overcollateralization, cross-collateralization and, with respect to the Class A
Bonds, the Class B Bonds and payments from the bond insurance policy as follows:
o FIRST, realized losses will be covered by a distribution of
excess cash flow from the related pool in respect of principal
to the Bonds,
o SECOND, realized losses will be covered by a distribution of
excess cash flow from the non-related pool in respect of
principal to the Bonds,
o THIRD, realized losses will result in a decrease in the level
of overcollateralization, until reduced to zero,
o FOURTH, after the amount of overcollateralization has been
reduced to zero, realized losses will be allocated to the
Class B Bonds, in reduction of the bond principal balance
thereof, until reduced to zero, and
o FIFTH, realized losses will be covered by payments from the
non-related pool after payments of interest to the Class A
Bonds in the related pool, and
o SIXTH, realized losses allocated to the Class A Bonds will be
covered by the bond insurance policy, and if so covered, will
result in a reduction of the bond principal balance of the
Class A Bonds.
Neither the Bonds nor the mortgage loans are insured or guaranteed by any
governmental agency or instrumentality or by the company, the master servicer,
the indenture trustee, the owner trustee, or any affiliate thereof.
SEE "DESCRIPTION OF THE BONDS--ALLOCATION OF REALIZED LOSSES" IN THIS PROSPECTUS
SUPPLEMENT.
THE BOND INSURANCE POLICY. Ambac Assurance Corporation will issue a bond
insurance policy as a means of providing additional credit enhancement to the
Class A Bonds. Under this policy, the bond insurer will pay to the indenture
trustee, for the benefit of the holders of the Class A Bonds, on each payment
date, as further described herein, an amount that will cover any shortfalls in
amounts available to pay accrued bond interest for the Class A Bonds on any
payment date, any overcollateralization deficit allocable to the Class A Bonds
and the bond principal balance of the Class A
S-8
<PAGE>
Bonds to the extent unpaid on the final scheduled payment date. The bond
insurance policy will not provide coverage for certain interest shortfalls,
including basis risk shortfalls.
SEE "THE BOND INSURER" AND "DESCRIPTION OF THE BOND INSURANCE POLICY" HEREIN.
THE CAP CONTRACTS
The trust will include fourteen cap contracts, which will be assigned to the
trust on the closing date. Payments under the cap contracts will be made
pursuant to the formulas described in "Description of the Bonds--The Cap
Contracts." Amounts paid under the cap contracts will be available to cover
basis risk shortfalls for the Class A-1 Bonds and Class B Bonds. Any remaining
amounts available from payments under the cap contracts for the Class A-1 Bonds
after covering basis risk shortfalls thereon will be available to cover any
basis risk shortfalls on the Class B Bonds. Any amounts received from the cap
contracts not used to cover basis risk shortfalls as described herein shall be
paid to the holder of the Certificates.
SEE "DESCRIPTION OF THE BONDS--THE CAP CONTRACTS" IN THIS PROSPECTUS SUPPLEMENT.
ADVANCES
For any month, if the master servicer receives a payment on a mortgage loan that
is less than the full scheduled payment (or if no payment is received at all),
the master servicer will advance its own funds to cover that shortfall to the
extent described herein. However, the master servicer will make such advance
only if it determines that such advance will be recoverable from future payments
or collections on that mortgage loan. Due to the limited ability of the master
servicer to recover advances from the high CLTV loans in loan pool 2 due to
their high combined loan-to-value ratios, it is unlikely that advances will be
made with respect to such loans on a regular basis, and if made, will only be
made to the extent of the interest portion of scheduled payments.
SEE "DESCRIPTION OF THE BONDS--ADVANCES" IN THIS PROSPECTUS SUPPLEMENT.
OPTIONAL TERMINATION
On the earlier of (i) any payment date on which the aggregate outstanding
principal balance of the mortgage loans as of the related due date is less than
or equal to 20% of their aggregate principal balance as of the cut-off date and
(ii) the payment date occurring in December 2010, the holder of the Certificates
may, but will not be required to, purchase from the trust all remaining mortgage
loans and thereby cause an early retirement of the Bonds.
An optional repurchase will cause the outstanding principal balance of the Bonds
to be paid in full with accrued interest, plus unpaid interest shortfalls and
basis risk shortfalls. However, there will be no reimbursement of principal
reductions or related interest that resulted from losses allocated to the Bonds.
In addition, no such purchase of the mortgage loans or Bonds will be permitted
if it would result in a draw under the bond insurance policy unless the bond
insurer consents to such termination.
SEE "DESCRIPTION OF THE SERVICING AGREEMENT-- TERMINATION" IN THIS PROSPECTUS
SUPPLEMENT AND "DESCRIPTION OF THE SERVICING AGREEMENT--TERMINATION; RETIREMENT
OF BONDS" IN THE PROSPECTUS.
RATINGS
The Bonds will receive the ratings set forth on page S-4 of this prospectus
supplement. The ratings on the Bonds address the likelihood that holders of the
Bonds will receive all distributions on the underlying mortgage loans to which
they are entitled. A security rating is not a recommendation to buy, sell or
hold a security and is subject to change or withdrawal at any time by the
assigning rating agency. The ratings also do not address the rate of principal
prepayments on the mortgage loans or the likelihood of recovery of certain
interest shortfalls on the bonds.
SEE "RATINGS" IN THIS PROSPECTUS SUPPLEMENT.
LEGAL INVESTMENT
The Bonds will not be "mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984. You should consult your legal
advisors in determining whether and to what extent the Bonds constitute legal
investments for you.
SEE "LEGAL INVESTMENT" IN THIS PROSPECTUS SUPPLEMENT FOR IMPORTANT INFORMATION
CONCERNING POSSIBLE RESTRICTIONS ON OWNERSHIP OF THE BONDS BY REGULATED
INSTITUTIONS.
TAX STATUS
For federal income tax purposes, the Bonds will be treated as indebtedness and
not as an equity interest in the issuer. In addition, for federal income tax
purposes, the issuer will not be classified as (i) an association taxable as a
corporation for federal income tax purposes, (ii) a "taxable mortgage pool," or
(iii) a "publicly traded partnership."
FOR FURTHER INFORMATION REGARDING THE FEDERAL INCOME TAX CONSEQUENCES OF
INVESTING IN THE BONDS, SEE "FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS
SUPPLEMENT AND IN THE ACCOMPANYING PROSPECTUS.
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<PAGE>
ERISA CONSIDERATIONS
The Bonds may be eligible for purchase by persons investing assets of employee
benefit plans or individual retirement accounts subject to important
considerations. A fiduciary of an employee benefit plan must determine that the
purchase of a Bond is consistent with its fiduciary duties under applicable law
and does not result in a nonexempt prohibited transaction under applicable law.
Plans should consult with their legal advisors before investing in the Bonds.
SEE "ERISA CONSIDERATIONS" IN THIS PROSPECTUS SUPPLEMENT.
S-10
<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:
THE CLASS B BONDS ARE SUBORDINATE TO THE CLASS A BONDS AND HAVE A GREATER RISK
OF LOSS
The yield to investors on the Class B Bonds will be extremely sensitive
to losses on the mortgage loans (and the timing thereof), to the extent such
losses are not covered by overcollateralization or excess cash flow or, to a
limited extent, cross-collateralization, because the entire amount of such
losses will be allocable to the Class B Bonds as described herein. Furthermore,
as described herein, the timing of receipt of principal and interest by the
Class B Bonds may be adversely affected by losses even if the Class B Bonds do
not ultimately bear such loss. In addition, to the extent losses are allocated
to the Class B Bonds, they will only be reimbursed to the extent of related net
monthly excess cash flow remaining after reimbursement of the bond insurer and
payment of interest and principal and coverage for losses on the Class A Bonds.
THE YIELD ON THE CLASS B BONDS MAY BE AFFECTED BY VARIOUS RIGHTS OF THE BOND
INSURER
The yield to investors on the Class B Bonds will be adversely affected
to the extent the Bond Insurer is entitled to reimbursement for payments made
under the bond insurance policy and any other amounts due to the bond insurer
pursuant to the insurance agreement (including interest thereon), including
certain expenses of the bond insurer, to the extent not previously paid or
reimbursed. In addition, the holders of the Class B Bonds may be affected by the
ability of the bond insurer to exercise the rights of the Class A Bonds under
the indenture, including the right to liquidate the assets of the trust
following an event of default. In addition, the bond insurer will have the sole
right to terminate the master servicer if certain loss and delinquency tests in
the servicing agreement are failed. The exercise of these rights may adversely
affect the yield on the Class B Bonds, due to their subordinate nature.
These rights may be exercised by a majority of the aggregate bond
principal balance of the Bonds. However, due to the allocation of principal
payments and losses described herein, the Class A Bonds will always have a
greater bond principal balance than the Class B Bonds, and therefore the bond
insurer, who may exercise all of the rights of the Class A Bonds (unless the
bond insurer is in default), will always have control over the exercise of these
rights.
THE UNDERWRITING STANDARDS OF THE MORTGAGE LOANS ARE NOT AS STRINGENT AS THE
UNDERWRITING STANDARDS OF FANNIE MAE AND FREDDIE MAC, WHICH MAY PRESENT A
GREATER RISK OF LOSS WITH RESPECT TO SUCH MORTGAGE LOANS
The mortgage loans were underwritten generally in accordance with
underwriting standards described in "Description of the Mortgage
Pool--Underwriting" below and Appendix A attached hereto which are primarily
intended to provide for single family "non-conforming" mortgage loans. "Non-
conforming" mortgage loans include mortgage loans which are ineligible for
purchase by Fannie Mae or Freddie Mac due to credit characteristics of the
related mortgagor or documentation standards in connection with the underwriting
of the related mortgage loan that do not meet the Fannie Mae or Freddie Mac
underwriting guidelines for "A" credit mortgagors. These credit characteristic
include mortgagors whose creditworthiness and repayment ability do not satisfy
Fannie Mae or Freddie Mac underwriting guidelines and mortgagors who may have a
record of credit charge-offs, outstanding judgments, prior bankruptcies and
other credit items that do not satisfy Fannie Mae or Freddie Mac underwriting
guidelines. These documentation standards may include mortgagors who provide
limited or no documentation in connection with the underwriting of the related
mortgage loan.
For a detailed description of the underwriting guidelines of the
mortgage loans, see "Description of the Mortgage Pool--Underwriting" herein and
Appendix A hereto.
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<PAGE>
SOME OF THE FIXED RATE LOANS WERE UNDERWRITTEN WITH A LIMITED EXPECTATION OF
RECOVERING AMOUNTS FROM THE RELATED MORTGAGED PROPERTY
Approximately 41.99% of the mortgage loans in loan pool 2 (by aggregate
outstanding principal balance of loan pool 2 as of the cut-off date) (the "High
CLTV Loans"), all of which have fixed rates and are secured by second liens on
the related mortgaged property, were originated with a limited expectation of
recovering any amounts from the foreclosure of the related mortgaged property
and were underwritten with an emphasis on the creditworthiness of the related
borrower.
In the event of a delinquency or a default on a High CLTV loan, the
master servicer will not have an obligation to advance the principal portion of
scheduled monthly payments on such mortgage loan, and will only advance interest
under the circumstances described herein.
THE MORTGAGE LOANS SECURED BY SECOND LIENS WILL BE SUBORDINATE TO THE RELATED
SENIOR LIEN, WHICH MAY PRESENT A GREATER RISK OF LOSS WITH RESPECT TO SUCH
MORTGAGE LOANS
Approximately 96.02% of the mortgage loans in loan pool 2 (by aggregate
outstanding principal balance of loan pool 2 as of the cut-off date) are secured
by second liens on the related mortgaged property. Accordingly, 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 circumstances when it is determined to be
uneconomical to foreclose on the mortgaged property, the master servicer may
charge off the entire outstanding balance of such mortgage as a bad debt. The
foregoing considerations will be particularly applicable to mortgage loans
secured by second liens that have high combined loan-to-value ratios because it
is comparatively more likely that the master servicer would determine
foreclosure to be uneconomical in the case of such mortgage loans. Any resulting
losses, to the extent such losses are not covered by credit support, will be
borne by the holders of the Bonds.
THE MORTGAGE LOANS ARE CONCENTRATED IN THE STATE OF CALIFORNIA, WHICH MAY
PRESENT A GREATER RISK OF LOSS WITH RESPECT TO THE MORTGAGE POOL
Approximately 60.35% and 41.50% of the mortgage loans (by aggregate
outstanding principal balance of the related loan pool as of the cut-off date)
in loan pool 1 and loan pool 2, respectively, are secured by mortgaged
properties located in the State of California. In the event California
experiences a decline in real estate values, losses on the mortgage pool may be
greater than otherwise would be the case. California's economic condition and
housing market may be adversely affected by a variety of events, including
natural disasters such as earthquakes and floods, and civil disturbances such as
riots. The economic impact of any such events may also be felt in areas beyond
the region immediately affected by the disaster or disturbance.
THE MORTGAGE LOANS IN LOAN POOL 1 WITH HIGH LTVS WITHOUT PRIMARY MORTGAGE
INSURANCE WILL BE MORE AFFECTED THAN THE OTHER MORTGAGE LOANS BY A DECLINE IN
VALUE OF THE RELATED MORTGAGED PROPERTY, WHICH MAY RESULT IN A GREATER RISK OF
LOSS WITH RESPECT TO SUCH MORTGAGE LOANS
Approximately 2.22% the mortgage loans in loan pool 1 (by aggregate
outstanding principal balance of loan pool 1 as of the cut-off date) had
loan-to-value ratios or combined loan-to-value ratios at origination in excess
of 80.00% but are not covered by a primary mortgage insurance policy. These
mortgage loans will be affected to a greater extent than the other mortgage
loans in the mortgage pool by any decline in the value of the related mortgaged
property. No assurance can be given that values of the mortgaged properties have
remained or will remain at their levels on the dates of origination. 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, become equal to or greater than
the value of the mortgaged properties, the actual rates of delinquencies,
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foreclosures and losses could be higher than those now generally experienced in
the mortgage lending industry. Any decrease in the value of the mortgaged
properties underlying such mortgage loans may result in the allocation of losses
to the Bonds, to the extent such losses are not covered by credit support.
THE RATE AND TIMING OF PRINCIPAL DISTRIBUTIONS ON THE BONDS WILL BE AFFECTED BY
PREPAYMENT SPEEDS
The rate and timing of distributions allocable to principal on the
Bonds will depend, in general, on the rate and timing of principal payments
(including prepayments and collections upon defaults, liquidations and
repurchases) on the mortgage loans and the allocation thereof to pay principal
on the Bonds as provided herein. As is the case with collateralized asset-backed
bonds generally, the Bonds are subject to substantial inherent cash-flow
uncertainties because the mortgage loans may be prepaid at any time. See "The
Mortgage Pool" herein.
Generally, when prevailing interest rates are increasing, prepayment
rates on mortgage loans tend to decrease; a decrease in the prepayment rates on
the mortgage loans will result in a reduced rate of return of principal to
investors in the Bonds at a time when reinvestment at such higher prevailing
rates would be desirable. Conversely, when prevailing interest rates are
declining, prepayment rates on mortgage loans tend to increase; an increase in
the prepayment rates on the mortgage loans will result in a greater rate of
return of principal to investors in the Bonds at a time when reinvestment at
comparable yields may not be possible.
For further information regarding the effect of principal prepayments
on the weighted average lives of the Bonds, see "Certain Yield and Prepayment
Considerations" herein, including the tables therein.
THE YIELD TO MATURITY ON THE BONDS WILL DEPEND ON A VARIETY OF FACTORS INCLUDING
THE EARLY TERMINATION OF THE TRUST BY THE HOLDER OF THE CERTIFICATES
The yield to maturity on the Bonds will depend, in general, on:
o the early termination of the trust by the holder of the
Certificates or following an event of default;
o the applicable bond interest rate thereon from time to time;
o the applicable purchase price paid for the Bonds; and
o the rate and timing of principal payments (including
prepayments and collections upon defaults, liquidations and
repurchases) and adjustments to the mortgage rates on the
mortgage loans, payments by the bond insurer, and the
allocation thereof to reduce the bond principal balance of
such Bonds, as well as other factors.
The yield to investors on the Bonds will be adversely affected by any
allocation thereto of interest shortfalls on the mortgage loans not covered by
credit support or the cap contracts.
In general, if the Bonds are purchased at a premium and principal
distributions thereon occur at a rate faster than anticipated at the time of
purchase, the investor's actual yield to maturity will be lower than that
assumed at the time of purchase. Conversely, if the Bonds are purchased at a
discount and principal distributions thereon occur at a rate slower than that
anticipated at the time of purchase, the investor's actual yield to maturity
will be lower than that originally assumed.
Any termination of the trust by the holder of the Certificates would
result in the concurrent retirement of the Bonds, and would decrease the average
lives thereof, perhaps significantly. The earlier that such termination occurs,
the greater the effect on the yield of the Bonds purchased at a price other than
par.
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<PAGE>
IN CERTAIN CIRCUMSTANCES, THE MORTGAGED PROPERTIES UNDERLYING THE HIGH CLTV
LOANS MAY BE REPLACED BY A NEW PROPERTY
Certain of the High CLTV loans will include provisions allowing the
related borrower to substitute the related mortgaged property subject to certain
requirements as described herein. Although the combined loan-to-value ratio of
the new lien will be less than or equal to that of the prior lien, the new
mortgage property may not provide sufficient collateral for the related mortgage
loan. See "Description of the Mortgage Pool--Portable Loans and Refinancing of
Senior Liens" herein.
SOME OF THE MORTGAGE LOANS HAVE BALLOON PAYMENTS AT MATURITY, WHICH MAY PRESENT
A GREATER RISK OF LOSS WITH RESPECT TO SUCH MORTGAGE LOANS
Approximately 0.07% and 13.63% of the mortgage loans in loan pool 1 and
loan pool 2, respectively (by aggregate outstanding principal balance of the
related loan pool as of the cut-off date), are balloon loans. Because borrowers
of balloon loans are required to make a substantial payment upon maturity, it is
possible that the default risk associated with the balloon loans is greater than
that associated with fully-amortizing loans.
SOME OF THE MORTGAGE LOANS ARE DELINQUENT, WHICH MAY INCREASE THE RISK OF LOSS
ON THE MORTGAGE LOANS
Some of the mortgage loans are currently delinquent. As of the cut-off
date, 0.66% and 2.30% of the mortgage loans in loan pool 1 and loan pool 2,
respectively (by aggregate outstanding principal balance of the related loan
pool as of the cut-off date), are 30 to 59 days delinquent in payment of
principal and interest. Mortgage loans with a history of delinquencies are more
likely to experience delinquencies in the future, even if such mortgage loans
are current as of the cut-off date. See "Description of the Mortgage
Pool--Mortgage Loan Characteristics" herein.
VIOLATION OF VARIOUS FEDERAL AND STATE LAWS MAY RESULT IN LOSSES ON THE MORTGAGE
LOANS
The mortgage loans are subject to federal laws, including:
(i) the Federal Truth in Lending Act, as amended by the Homeownership
Act (as defined below) and Regulation Z promulgated thereunder, which require
certain disclosures to the borrowers regarding the terms of the mortgage loans;
(ii) the Real Estate Settlement Procedures Act and Regulation X
promulgated thereunder, which require disclosures related to settlement services
associated with any mortgage loan and establish criminal penalties for improper
referrals and fee-splitting arrangements involving settlement service business;
(iii) the Equal Credit Opportunity Act and Regulation B promulgated
thereunder, which prohibit discrimination on the basis of age, race, color, sex,
religion, marital status, national origin, receipt of public assistance or the
exercise of any right under the Consumer Credit Protection Act, in the extension
of credit; and
(iv) the Fair Credit Reporting Act, which regulates the use and
reporting of information related to the borrower's credit experience.
Violations of certain provisions of these federal laws may limit the
ability of the master servicer or any subservicer to collect all or part of the
principal of or interest on the mortgage loans and in addition could subject the
trust fund to damages and administrative enforcement. In particular, the
originators' failure to comply with certain requirements of the Federal
Truth-in-Lending Act, as implemented by Regulation Z, could subject the trust
fund (and other assignees of the mortgage loans) to monetary penalties, and
result in the obligors' rescinding the mortgage loans against either the trust
fund or subsequent holders of the mortgage loans. In addition, certain of the
fixed rate mortgage loans,
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<PAGE>
including all of the High CLTV 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 or if
the particular mortgage includes provisions prohibited by the law. 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. If the trust fund owns mortgage loans subject to the
Homeownership Act, it will be subject to all of the claims and defenses which
the borrower could assert against the seller. Recently, lawsuits have been
brought under the Federal Truth- in-Lending Act naming as defendants
securitization trusts such as the trust.
Any federal and state law violations which would result in liability to
the trust would be a breach of the seller's representations and warranties, and
the seller would be obligated to cure, repurchase or, if permitted by the
mortgage loan sale and contribution agreement, substitute for the mortgage loan
in question. The seller will also indemnify the trust for any losses arising
from such breach. See "Certain Legal Aspects of the Mortgage Loans" in the
prospectus.
THE HIGH CLTV LOANS INCLUDE MORTGAGE LOANS THAT HAD PRIOR COMPLIANCE VIOLATIONS;
ALTHOUGH REMEDIES HAVE BEEN TAKEN, THESE MORTGAGE LOANS MIGHT BE RESCINDED,
RESULTING IN A COMPLETE LOSS
The originator of approximately 23.00% of the mortgage loans in loan
pool 2 (by aggregate outstanding principal balance of loan pool 2), all of which
are High CLTV loans, Preferred Credit Corporation ("Preferred"), was subject,
beginning in April 1997, to examination by the California Department of
Corporations (the "CDC") and the California Department of Real Estate (the
"CDRE"). On or about March 1997, the CDC received complaints from California
borrowers that Preferred was not remitting loan proceeds to such borrowers in a
timely fashion. The CDC commenced a regulatory examination on April 1, 1997 in
response to these complaints. The examination confirmed the validity of the
complaints and that Preferred had also improperly charged borrowers interest on
their mortgage loans prior to the actual disbursement of funds. Such practices
were characterized by the CDC as "widespread" and in violation of several
provisions of the California Residential Mortgage Lender Law (the "RML Law").
The examination also determined that Preferred had altered and falsified its
books and records in connection with such practices, and that its principals had
falsified and/or misrepresented information to the CDC.
On June 23, 1997, the CDC issued to Preferred an Order to Refund Excess
Interest pursuant to FC 50504, as well as commenced administrative proceedings
to revoke Preferred's license and to bar its principals from the industry.
Following the June 1997 Order, Preferred and its principals entered into a
settlement with the CDC requiring the parties, among other things, to pay a $1
million civil money penalty for RML Law violations and, to the extent that any
interest accrual period on loans funded by Preferred since March 1, 1996
commenced prior to the actual disbursement of checks to customers, Preferred is
to refund such excess interest charged plus 10 percent interest.
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<PAGE>
A compliance review of all the Preferred Mortgage Loans was performed
by independent consultants to ensure that the types of violations discovered by
the CDC and the CDRE would not give rise to claims, defenses, or liabilities
that could be asserted against an assignee of the Preferred Mortgage Loans. Such
compliance review included procedures to determine whether such loans complied
with California state laws and federal laws. Based on the results of such
compliance reviews, the Preferred Mortgage Loans include only those loans which
were either (i) not in violation of California state law and/or federal law or
(ii) had been in violation of either California state law and/or federal law,
but such violation had been fully cured prior to the closing date and hence,
would not subject the holder or subsequent assignee to monetary liability or
result in the loan being rescinded against either the holder or subsequent
assignee thereof.
The seller will make representations and warranties in connection with
the High CLTV loans and repurchase from the trust fund any such loan which had
violations of any state or federal law which were not satisfactorily cured that
materially and adversely affect the securityholders or the bond insurer. The
seller will also indemnify the trust for any losses arising from such
violations.
To the extent that the above procedures are inadequate to identify all
mortgage loans that could be subject to violations under federal or state law
that may give rise to claims, defenses, or liabilities as specified above, and
any such mortgage loans are not repurchased by the seller, such mortgage loans
may be subject to a recission right of the borrower, and expose the trust fund
holding the mortgage loans to significant monetary liability. Any such liability
may reduce the funds available to satisfy the debt on the bonds to the extent
not covered by the seller or by credit support.
THE SELLER HAS LIMITED HISTORICAL DELINQUENCY AND FORECLOSURE EXPERIENCE WITH
RESPECT TO MORTGAGE LOANS INCLUDED IN THE MORTGAGE POOL
The seller has limited historical delinquency and default experience
that may be referred to for purposes of estimating the future delinquency and
loss experience of the mortgage loans underwritten pursuant to the underwriting
standards described herein. See "Description of the Mortgage Pool--Delinquency
and Foreclosure Experience of Impac Funding" herein.
A TRANSFER OF SUBSERVICING MAY RESULT IN INCREASED DELINQUENCIES ON THE MORTGAGE
LOANS
Approximately 97.29% of the mortgage loans in loan pool 1 will
initially be subserviced by Wendover Funding, Inc. as described herein under
"The Servicing Agreement--The Subservicers." However, the master servicer has
entered into a contract to transfer the subservicing with respect to the
mortgage loans in loan pool 1 currently subserviced by Wendover Funding, Inc.,
and the adjustable-rate mortgage loans in loan pool 2, to Countrywide Home
Loans, Inc., on or about January 1, 2001. Investors should note, however, that
when the servicing of mortgage loans is transferred, there is generally a rise
in delinquencies associated with such transfer. Such increase in delinquencies
may result in losses, which, to the extent they are not covered by credit
support, will be allocated to the Bonds. In addition, any higher default rate
resulting from such transfer may result in an acceleration of prepayments on the
mortgage loans.
THE DIFFERENCE BETWEEN THE INTEREST RATES ON THE BONDS AND THE MORTGAGE LOANS
MAY RESULT IN BASIS RISK SHORTFALL WITH RESPECT TO THE BONDS
The bond interest rate with respect to the Bonds changes each month and
is based upon the value of an index (One-Month LIBOR) plus a margin, limited by
a maximum bond interest rate and an available funds rate. However, the mortgage
rate of each adjustable rate mortgage loan is based generally upon a different
index (Six-Month LIBOR or One-Year U.S. Treasury) and the related gross margin,
and generally adjusts semi-annually or annually, commencing, in many cases,
after an initial fixed-rate period. In addition, the mortgage rate of each fixed
rate mortgage loan is fixed. One-Month LIBOR and the indices on the adjustable
rate mortgage loans may respond differently to economic and
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<PAGE>
market factors, and there is not necessarily any correlation between them.
Moreover, the adjustable rate mortgage loans are subject to periodic rate caps,
maximum mortgage rates and minimum mortgage rates. Thus, it is possible, for
example, that One-Month LIBOR may rise during periods in which Six-Month LIBOR
or One-Year U.S. Treasury is stable or falling or that, even if both One-Month
LIBOR and Six- Month LIBOR or One-Year U.S. Treasury rise during the same
period, One-Month LIBOR may rise much more rapidly than Six-Month LIBOR or
One-Year U.S. Treasury. See "Description of the Bonds--Interest Distributions on
the Bonds."
Fourteen cap contracts will be assigned to the trust and will provide
some protection against any resulting basis risk shortfall on the Class A-1
Bonds and Class B Bonds. Amounts paid under the cap contracts will be available
to cover basis risk shortfalls on the Class A-1 Bonds and Class B Bonds.
However, payments under the cap contracts are based on the parameters described
herein; different parameters may result in the cap contracts providing
insufficient funds to cover such basis risk shortfalls on the Class A-1 Bonds
and Class B Bonds. In addition, payments under the cap contracts are limited to
a specified rate in effect from time to time. The Class A-2 Bonds do not receive
the benefit of any of the cap contracts.
Basis risk shortfalls are not covered by the Bond Insurance Policy and
may remain unpaid on the final scheduled payment date.
See "Risk Factors" in the prospectus for a description of certain other
risks and special considerations applicable to the Bonds.
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INTRODUCTION
The Impac CMB Trust Series 2000-2 (the "Issuer" or the "Trust") will be
formed pursuant to a Trust Agreement dated November 16, 2000 (as amended by the
Amended and Restated Trust Agreement dated November 27, 2000, the "Trust
Agreement"), among IMH Assets Corp. (the "Company"), Wilmington Trust Company
(the "Owner Trustee") and Bankers Trust Company of California, N.A., as
certificate registrar and certificate paying agent. The Bonds will be issued
pursuant to an Indenture (the "Indenture"), to be dated as of November 27, 2000
(the "Closing Date"), between the Issuer and Bankers Trust Company of
California, N.A., as indenture trustee (the "Indenture Trustee"). Pursuant to
the Trust Agreement, the Issuer will issue one class of Trust Certificates,
Series 2000-2 (the "Certificates" or the "Trust Certificates"). The Bonds and
the Certificates are collectively referred to herein as the "Securities." Only
the Bonds are offered hereby. On the Closing Date, the Company will (i) deposit
into the Trust a group of first and second lien, adjustable-rate and fixed-rate
mortgage loans (the "Mortgage Pool" and such loans, the "Mortgage Loans")
secured by one- to four-family residential properties with terms to maturity of
not more than thirty years and (ii) assign to the Trust its rights with respect
to the Cap Contracts described herein. The Mortgage Loans will be serviced
pursuant to the Servicing Agreement dated as of November 1, 2000 (the "Servicing
Agreement") among the Issuer, Impac Funding Corporation (the "Master Servicer")
and the Indenture Trustee.
DESCRIPTION OF THE MORTGAGE POOL
THE MORTGAGE LOANS
GENERAL
The Mortgage Loans had an aggregate outstanding principal balance as of
the Cut-off Date of approximately $497,076,158 (the "Cut-off Date Balance"). The
mortgage pool consists of two groups of Mortgage Loans, ("Loan Group 1" and
"Loan Group 2," and each, a "Loan Group"), designated as the "Group 1 Loans" and
the "Group 2 Loans." Mortgage Loans with adjustable rates and fixed rates are
referred to herein as "ARM Loans" and "Fixed Rate Loans," respectively.
The Company will acquire the Mortgage Loans to be included in the
Mortgage Pool from Impac Mortgage Holdings, Inc. (the "Seller") pursuant to a
Mortgage Loan Sale and Contribution Agreement dated the Closing Date (the
"Mortgage Loan Sale and Contribution Agreement"). The Seller in turn acquired
them on previous dates from Impac Funding Corporation ("Impac Funding").
The Company will convey the Mortgage Loans to the Issuer on the Closing
Date pursuant to the Trust Agreement. The Seller will make certain
representations and warranties with respect to the Mortgage Loans in the
Mortgage Loan Sale and Contribution Agreement. These representations and
warranties will be pledged to the Indenture Trustee for the benefit of the
Bondholders and the Bond Insurer. As more particularly described in the
Prospectus, the Seller will have certain repurchase or substitution obligations
in connection with a breach of any such representation or 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, if such
breach, omission or defect cannot be cured and it materially and adversely
affects the interests of holders of the Securities or the Bond Insurer. See "The
Mortgage Pools--Representations by Sellers" and "Description of the
Bonds--Assignment of Trust Fund Assets" in the Prospectus.
The Mortgage Loans will have been originated or acquired by the Seller
in accordance with the underwriting criteria described herein. See
"--Underwriting" below and Appendix A.
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The ARM Loans are generally assumable pursuant to the terms of the
related Mortgage Note. The Fixed Rate Loans generally contain due-on-sale
clauses. See "Maturity and Prepayment Considerations" in the Prospectus.
MORTGAGE RATE ADJUSTMENT
The Mortgage Rate on each ARM Loan (other than a Neg Am Loan) will
generally adjust semi- annually or annually commencing after an initial period
after origination (the "Initial Period") of generally six months, one year, two
years, three years or five years, in each case on each applicable Adjustment
Date to a rate equal to the sum, generally rounded to the nearest one-eighth of
one percentage point (12.5 basis points), of (i) the related Index plus (ii) a
fixed percentage (the "Gross Margin"). In addition, the Mortgage Rate on each
ARM Loan is subject on its first Adjustment Date following its origination to a
cap (the "Initial Periodic Rate Cap") and on each Adjustment Date thereafter to
a periodic rate cap (the "Periodic Rate Cap"). All of the ARM Loans are also
subject to maximum and minimum lifetime Mortgage Rates ("Maximum Mortgage Rates"
and "Minimum Mortgage Rates," respectively). The ARM Loans were generally
originated with an initial Mortgage Rate below the sum of the Index at
origination and the Gross Margin. Due to the application of the Initial Periodic
Rate Caps, Periodic Rate Caps, Maximum Mortgage Rates and Minimum Mortgage
Rates, the Mortgage Rate on any ARM Loan, as adjusted on any related Adjustment
Date, may not equal the sum of the Index and the Gross Margin. The Due Date for
each ARM Loan is the first day of the month.
The mortgage rate on all the ARM Loans will adjust based on an index
(the related "Index") equal to (i) Six-Month LIBOR, (ii) One-Year U.S. Treasury
or (iii) in the case of the Neg Am Loans, One-Month LIBOR. In the event that the
related Index specified in a Mortgage Note is no longer available, an index that
is based on comparable information will be selected by the Master Servicer and
the Bond Insurer, to the extent that it is permissible under the terms of the
related Mortgage and Mortgage Note.
Approximately 74.38% of the Group 1 Loans will not have reached their
first Adjustment Date as of the Closing Date. The initial Mortgage Rate is
generally lower than the rate that would have been produced if the applicable
Gross Margin had been added to the Index in effect at origination. ARM Loans
that have not reached their first Adjustment Date are subject to the Initial
Periodic Rate Cap on their first Adjustment Date.
SIX-MONTH LIBOR
The index applicable to the determination of the Mortgage Rate on
98.18% of the Group 1 Loans and 3.83% of the Group 2 Loans will be the average
of the interbank offered rates for six-month United States dollar deposits in
the London market as published by Fannie Mae or the Wall Street Journal and, in
most cases, as most recently available as of the first business day of the month
preceding such Adjustment Date ("Six-Month LIBOR").
The table below sets forth historical average rates of Six-Month LIBOR
for the months indicated as made available from Fannie Mae. The rates are
determined from information that is available as of 11:00 A.M. (London time) on
the second to last business day of each month. Such average rates may fluctuate
significantly from month to month as well as over longer periods and may not
increase or decrease in a constant pattern from period to period. There can be
no assurance that levels of Six-Month LIBOR published by Fannie Mae, or
published on a different Reference Date would have been at the same levels as
those set forth below. The following does not purport to be representative of
future levels of Six-Month LIBOR (as published by Fannie Mae). No assurance can
be given as to the level of Six-Month LIBOR on any Adjustment Date or during the
life of any ARM Loan based on Six-Month LIBOR.
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<PAGE>
<TABLE>
<CAPTION>
SIX-MONTH LIBOR
MONTH 1994 1995 1996 1997 1998 1999 2000
----- ------ ------ ------ ------ ------ ------ ----
<S> <C> <C> <C> <C> <C> <C> <C>
January.................... 3.39% 6.69% 5.34% 5.71% 5.75% 5.04% 6.23%
February................... 4.00 6.44 5.29 5.68 5.78 5.17 6.32
March...................... 4.25 6.44 5.52 5.96 5.80 5.08 6.53
April...................... 4.63 6.31 5.42 6.08 5.87 5.08 6.61
May........................ 5.00 6.06 5.64 6.01 5.81 5.19 7.06
June....................... 5.25 5.88 5.84 5.94 5.87 5.62 7.01
July....................... 5.33 5.88 5.92 5.83 5.82 5.65 6.88
August..................... 5.33 5.94 5.74 5.86 5.69 5.90 6.83
September.................. 5.69 5.99 5.75 5.85 5.36 5.96 6.76
October.................... 6.00 5.95 5.58 5.81 5.13 6.13 6.72
November................... 6.44 5.74 5.55 6.04 5.28 6.04
December................... 7.00 5.56 5.62 6.01 5.17 6.13
</TABLE>
PREPAYMENT CHARGES
The Mortgage Loans may be prepaid in full or in part at any time,
however, approximately 52.84% and 39.52% of the Group 1 Loans and Group 2 Loans,
respectively, provide for payment of a prepayment charge. As to each such
Mortgage Loan, the prepayment charge generally is the maximum amount permitted
under applicable state law.
Approximately 1.67%, 31.53%, 13.43% and 6.22% of the Group 1 Loans
provide for payment of a prepayment charge for certain partial prepayments and
full prepayments made within approximately one year, two years, three years and
five years, respectively, of the origination of such Mortgage Loan, calculated
in accordance with the terms of the related Mortgage Note.
Approximately 0.45%, 21.12% and 17.95% of the Group 2 Loans provide for
payment of a prepayment charge for certain partial prepayments and full
prepayments made within approximately two years, three years and five years,
respectively, of the origination of such Mortgage Loan, calculated in accordance
with the terms of the related Mortgage Note.
These prepayment charges may not be enforceable if the prepayment
results from the sale of the related Mortgaged Property by the related
Mortgagor. All prepayment charges received on the Mortgage Loans will be
retained by the Master Servicer or the related Subservicer.
THE GROUP 1 LOANS
GENERAL
The Group 1 Loans had an aggregate outstanding principal balance as of
the Cut-off Date of approximately $478,934,397 (the "Group 1 Cut-off Date
Balance"). Approximately 99.62% and 0.38% of the Group 1 Loans will have
adjustable rates and fixed rates, respectively. All of the Group 1 Loans will be
secured by first liens on the related Mortgage Property as described herein.
Impac Funding acquired approximately 88.90% of the Group 1 Loans
pursuant to various agreements from affiliates of Impac Funding and various
mortgage loan conduit sellers pursuant to the underwriting guidelines of Impac
Funding. Impac Funding acquired 5.01%, 7.63%, 4.53% and 7.38% of the Group 1
Loans from the termination of IMH Assets Series 1996-1, Series 1997-1, Series
1997-2 and Series 1998-3, respectively. Impac acquired 11.10% of the Group 1
Loans in bulk purchases from third- party originators.
S-20
<PAGE>
97.29%, 2.35% and 0.36% of the Group 1 Loans will initially be
subserviced by Wendover Funding, Inc. ("Wendover"), Option One Mortgage
Corporation ("Option One") and Countrywide Home Loans, Inc. ("Countrywide"),
respectively. The subservicing with respect to the Group 1 Loans initially
subserviced by Wendover will be transferred to Countrywide on or about January
1, 2001, as described herein under "The Servicing Agreement--The Subservicers."
MORTGAGE INSURANCE
Except with respect to approximately 2.22% of the Group 1 Loans (by
aggregate outstanding principal balance as of the Cut-off Date), each Group 1
Loan with a Loan-to-Value Ratio at origination in excess of 80.00% will be
insured by one of the following: (1) a Primary Insurance Policy issued by a
private mortgage insurer (other than a Radian Lender-Paid PMI Policy), (2) the
Radian PMI Pool Policy or (3) a Radian Lender-Paid PMI Policy.
A "Radian Lender-Paid PMI Policy" is a Primary Insurance Policy issued
by Radian Guaranty, Inc., formerly known as Commonwealth Mortgage Assurance
Company ("Radian"), in accordance with a May 1, 2000 letter between the Seller
and Radian. The "Radian PMI Pool Policy" is the insurance policy issued by
Radian, covering the Radian PMI Insured Loans other than those covered by a
Radian Lender- Paid PMI Policy. The "Radian PMI Insured Loans" are the Mortgage
Loans covered by the Radian PMI Pool Policy or by a Radian Lender-Paid PMI
Policy.
Each Primary Insurance Policy will insure against default under each
insured mortgage note as follows: (A) for which the outstanding principal
balance at origination of such Mortgage Loan is greater than or equal to 80.01%
and up to and including 90.00% of the lesser of the appraised value of the
related mortgaged property at the time of origination of such Mortgage Loan (the
"Appraised Value") and the sales price, such Mortgage Loan is covered by a
Primary Insurance Policy in an amount equal to at least 17.00% of the Allowable
Claim and (B) for which the outstanding principal balance at origination of such
Mortgage Loan exceeded 90.00% of the lesser of the Appraised Value and the sales
price, such Mortgage Loan is covered by a Primary Insurance Policy in an amount
equal to at least 20.00% of the Allowable Claim.
The Radian PMI Pool Policy will insure against default under each
insured mortgage note related to a covered Mortgage Loan originated pursuant to
the Seller's "Progressive Express(TM)" program (as described in Appendix A to
this prospectus supplement) and originated prior to May 1, 2000, as follows: (A)
for which the outstanding principal balance at origination of such Mortgage Loan
is at least 80.01% and up to and including 89.99% of the lesser of the Appraised
Value and the sales price, such Mortgage Loan is covered by the Radian PMI Pool
Policy in an amount equal to at least 22.00% of the Allowable Claim and (B) for
which the outstanding principal balance at origination of such Mortgage Loan is
at least 90.00% and up to and including 95.00% of the lesser of the Appraised
Value and the sales price, such Mortgage Loan is covered by the Radian PMI Pool
Policy in an amount equal to at least 30.00% of the Allowable Claim.
Each Radian Lender-Paid PMI Policy will insure against default under
each insured mortgage note as follows: (A) for which the outstanding principal
balance at origination of such Mortgage Loan is greater than or equal to 80.01%
and up to and including 89.99% of the lesser of the Appraised Value and the
sales price, such Mortgage Loan is covered by a Primary Insurance Policy in an
amount equal to at least 22.00% of the Allowable Claim, (B) for which the
outstanding principal balance at origination of such Mortgage Loan is at least
90.00% and up to and including 95.00% of the lesser of the Appraised Value and
the sales price, such Mortgage Loan is covered by a Primary Insurance Policy in
an amount equal to at least 30.00% of the Allowable Claim and (C) for which the
outstanding principal balance at origination of such Mortgage Loan is at least
95.01% and up to and including 97.00% of the lesser of the Appraised Value and
the sales price, such Mortgage Loan is covered by such Primary Insurance Policy
in an amount equal to at least 35.00% of the Allowable Claim.
S-21
<PAGE>
For any Mortgage Loan covered by a Primary Insurance Policy or a Radian
PMI Pool Policy, the "Allowable Claim" is the current principal balance of such
Mortgage Loan plus accrued interest and allowable expenses at the time of the
claim.
The Radian PMI Pool Policy will be issued with respect to approximately
5.44% of the Mortgage Loans (by aggregate outstanding principal balance as of
the Cut-off Date). The Radian PMI Pool Policy will cover Mortgage Loans
originated under the "Progressive Express(TM) Program," originated before May 1,
2000. The aggregate amount of coverage under the Radian PMI Pool Policy will not
exceed 10.00% of the aggregate Stated Principal Balance of the related Radian
PMI Insured Loans as of the Cut- off Date.
With respect to the Radian PMI Pool Policy and the Radian Lender-Paid
PMI Policies, the premium will be payable by the Master Servicer out of interest
collections on the Mortgage Loans at rate equal to the related "Radian PMI
Rate." The Radian PMI Rates range from 0.42% to 1.11% of the Stated Principal
Balance of the related Radian PMI Insured Loan. For the remainder of the
Mortgage Loans, the related mortgagor will pay for the coverage.
Each Group 1 Loan is required to be covered by a standard hazard
insurance policy (a "Primary Hazard Insurance Policy"). See "Primary Mortgage
Insurance, Hazard Insurance; Claims Thereunder-- Hazard Insurance Policies" in
the Prospectus.
NEGATIVE AMORTIZATION LOANS
Approximately 0.32% of the Group 1 Loans (the "Neg Am Loans") have a
negative amortization feature whereby interest payments on such Mortgage Loans
may be deferred and may be added to the principal balance thereof. Because the
rate at which interest accrues on a Neg Am Loan changes more frequently than
payment adjustments and because such adjustment of monthly payments on such
Mortgage Loans may be subject to limitations, the amount of interest accruing on
the remaining principal balance of such Mortgage Loan at the applicable mortgage
rate may exceed the amount of the monthly payment. To the extent that accrued
interest on any Neg Am Loan exceeds the related monthly payment, such excess
("Deferred Interest") is added to the principal balance of such Mortgage Loan on
the due date and thereafter accrues interest at the related mortgage rate.
GROUP 1 LOAN CHARACTERISTICS
The Group 1 Loans have original terms to stated maturity of between 15
and 30 years.
Except with respect to the Neg Am Loans, effective with the first
payment due on an ARM Loan after each related Adjustment Date, the Monthly
Payment will be adjusted to an amount that will fully amortize the outstanding
principal balance of the ARM Loan over its remaining term. For the Group 1 Loans
which are ARM Loans, the weighted average number of months from the Cut-off Date
to the next Adjustment Date is 18 months.
As of the Cut-off Date, each Group 1 Loan will have an unpaid principal
balance of not less than $1,576 or more than $646,756 and the average unpaid
principal balance of the Group 1 Loans will be approximately $170,743. The
latest stated maturity date of any of the Group 1 Loans will be December 1,
2030; however, the actual date on which any Group 1 Loan is paid in full may be
earlier than the stated maturity date due to unscheduled payments of principal.
The weighted average remaining term to stated maturity of the Group 1
Loans will be approximately 346 months.
The earliest month and year in which the first payment was due on any
Group 1 Loan is January 1, 1994, and the latest month and year of first payment
will be January 1, 2001.
S-22
<PAGE>
As of the Cut-off Date, 0.66% of the Group 1 Loans are 30 to 59 days
delinquent in payment of principal and interest. None of the Group 1 Loans will
be more than 59 days delinquent in payment of principal and interest as of the
Cut-off Date.
None of the Group 1 Loans are Buydown Mortgage Loans.
Set forth below is a description of certain additional characteristics
of the Group 1 Loans as of the Cut-off Date (except as otherwise indicated). All
percentages of the Group 1 Loans are approximate percentages by aggregate
outstanding principal balance of the Group 1 Loans as of the Cut-off Date
(except as otherwise indicated). Dollar amounts and percentages may not add up
to totals due to rounding.
<TABLE>
<CAPTION>
PRINCIPAL BALANCES AT ORIGINATION OF THE GROUP 1 LOANS
ORIGINAL PERCENTAGE OF
MORTGAGE LOAN NUMBER OF AGGREGATE UNPAID GROUP 1 CUT-OFF
PRINCIPAL BALANCE($) GROUP 1 LOANS PRINCIPAL BALANCE DATE BALANCE
----------------- ------------- ----------------- ------------
<S> <C> <C> <C>
0.01 - 50,000.00................... 189 $ 6,596,591 1.38%
50,000.01 - 100,000.01.................. 523 38,478,910 8.03
100,000.01 - 150,000.00.................. 616 75,280,525 15.72
150,000.01 - 200,000.00.................. 533 91,924,946 19.19
200,000.01 - 250,000.00.................. 379 84,033,331 17.55
250,000.01 - 300,000.00.................. 251 69,045,400 14.42
300,000.01 - 350,000.00.................. 155 50,059,685 10.45
350,000.01 - 400,000.00.................. 99 36,894,998 7.70
400,000.01 - 450,000.00.................. 38 16,173,341 3.38
450,000.01 - 500,000.00.................. 17 7,611,965 1.59
500,000.01 - 550,000.00.................. 2 1,054,383 0.22
550,000.01 - 600,000.00.................. 2 1,133,565 0.24
600,000.01 - 650,000.00.................. 1 646,756 0.14
----- ------------ ------
Total................................. 2,805 $478,934,397 100.00%
===== ============ ======
</TABLE>
The average principal balance of the Group 1 Loans at origination was
approximately $172,682.
S-23
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL BALANCES AT THE CUT-OFF DATE OF THE GROUP 1 LOANS
PERCENTAGE OF
MORTGAGE LOAN NUMBER OF AGGREGATE UNPAID GROUP 1 CUT-OFF
PRINCIPAL BALANCE($) GROUP 1 LOANS PRINCIPAL BALANCE DATE BALANCE
----------------- ------------- ----------------- ------------
<S> <C> <C> <C>
0.01 - 50,000.00.................. 203 $ 7,160,088 1.50%
50,000.00 - 100,000.00.................. 531 39,957,985 8.34
100,000.01 - 150,000.00.................. 614 76,050,631 15.88
150,000.01 - 200,000.00.................. 526 91,646,619 19.14
200,000.01 - 250,000.00.................. 371 82,735,623 17.27
250,000.01 - 300,000.00.................. 250 68,950,987 14.40
300,000.01 - 350,000.00.................. 154 49,854,249 10.41
350,000.01 - 400,000.00.................. 100 37,342,183 7.80
400,000.01 - 450,000.00.................. 39 16,696,323 3.49
450,000.01 - 500,000.00.................. 12 5,705,005 1.19
500,000.01 - 550,000.00.................. 2 1,054,383 0.22
550,000.01 - 600,000.00.................. 2 1,133,565 0.24
600,000.01 - 650,000.00.................. 1 646,756 0.14
----- ------------ ------
Total................................... 2,805 $478,934,397 100.00%
===== ============ ======
</TABLE>
As of the Cut-off Date, the average current principal balance of the
Group 1 Loans will be approximately $170,743.
S-24
<PAGE>
<TABLE>
<CAPTION>
MORTGAGE RATES AT ORIGINATION OF THE GROUP 1 LOANS
PERCENTAGE OF
NUMBER OF AGGREGATE UNPAID ROUP 1 CUT-OFF
MORTGAGE RATES(%) GROUP 1 LOANS PRINCIPAL BALANCE DATE BALANCE
-------------- -------------- ----------------- ------------
<S> <C> <C> <C>
4.000 - 4.499 .......... 1 $ 67,164 0.01%
4.500 - 4.999 .......... 1 111,018 0.02
5.000 - 5.499 .......... 7 1,030,507 0.22
5.500 - 5.999 .......... 11 1,911,701 0.40
6.000 - 6.499 .......... 17 2,433,242 0.51
6.500 - 6.999 .......... 45 7,731,210 1.61
7.000 - 7.499 .......... 60 9,677,566 2.02
7.500 - 7.999 .......... 144 23,062,094 4.82
8.000 - 8.499 .......... 256 50,220,875 10.49
8.500 - 8.999 .......... 613 117,000,766 24.43
9.000 - 9.499 .......... 520 98,555,308 20.58
9.500 - 9.999 .......... 571 94,588,509 19.75
10.000 - 10.499 .......... 210 31,235,634 6.52
10.500 - 10.999 .......... 186 23,950,751 5.00
11.000 - 11.499 .......... 71 9,564,499 2.00
11.500 - 11.999 .......... 51 4,875,397 1.02
12.000 - 12.499 .......... 17 1,540,197 0.32
12.500 - 12.999 .......... 14 856,222 0.18
13.000 - 13.499 .......... 4 273,757 0.06
13.500 - 13.999 .......... 3 114,989 0.02
14.000 - 14.499 .......... 3 132,993 0.03
----- ------------ ------
Total................... 2,805 $478,934,397 100.00%
===== ============ ======
</TABLE>
The weighted average Mortgage Rate of the Group 1 Loans at origination
was approximately 9.106% per annum.
S-25
<PAGE>
<TABLE>
<CAPTION>
MORTGAGE RATES AT THE CUT-OFF DATE OF THE GROUP 1 LOANS
PERCENTAGE OF
NUMBER OF AGGREGATE UNPAID GROUP 1 CUT-OFF
MORTGAGE RATES(%) GROUP 1 LOANS PRINCIPAL BALANCE DATE BALANCE
-------------- ------------- ----------------- ------------
<S> <C> <C> <C>
5.500 - 5.999 ......... 1 $ 326,267 0.07%
6.500 - 6.999 ......... 1 147,448 0.03
7.000 - 7.499 ......... 7 1,963,112 0.41
7.500 - 7.999 ......... 29 6,014,262 1.26
8.000 - 8.499 ......... 164 36,609,332 7.64
8.500 - 8.999 ......... 483 100,696,493 21.03
9.000 - 9.499 ......... 430 89,277,104 18.64
9.500 - 9.999 ......... 416 82,784,438 17.29
10.000 - 10.499 ......... 284 48,788,905 10.19
10.500 - 10.999 ......... 172 30,100,702 6.28
11.000 - 11.499 ......... 102 16,317,937 3.41
11.500 - 11.999 ......... 97 10,732,660 2.24
12.000 - 12.499 ......... 137 14,598,288 3.05
12.500 - 12.999 ......... 141 13,945,802 2.91
13.000 - 13.499 ......... 155 13,440,777 2.81
13.500 - 13.999 ......... 109 8,010,328 1.67
14.000 - 14.499 ......... 59 4,319,267 0.90
14.500 - 14.999 ......... 18 861,275 0.18
----- ------------ ------
Total................. 2,805 $478,934,397 100.00%
===== ============ ======
</TABLE>
As of the Cut-off Date, the weighted average Mortgage Rate of the Group
1 Loans will be approximately 9.826% per annum.
S-26
<PAGE>
<TABLE>
<CAPTION>
NEXT ADJUSTMENT DATE OF THE GROUP 1 LOANS
PERCENTAGE OF
NUMBER OF AGGREGATE UNPAID GROUP 1 CUT-OFF
NEXT ADJUSTMENT DATE GROUP 1 LOANS PRINCIPAL BALANCE DATE BALANCE
-------------------- ------------- ----------------- ------------
<S> <C> <C> <C>
Fixed Rate Loans (N/A).......... 11 $ 1,805,356 0.38%
December 1, 2000................ 193 21,768,452 4.55
January 1, 2001................. 219 24,283,078 5.07
February 1, 2001................ 181 20,560,581 4.29
March 1, 2001................... 157 19,230,926 4.02
April 1, 2001................... 142 18,960,575 3.96
May 1, 2001..................... 157 18,952,612 3.96
June 1, 2001.................... 1 119,205 0.02
July 1, 2001.................... 2 225,460 0.05
August 1, 2001.................. 1 41,229 0.01
September 1, 2001............... 5 681,715 0.14
October 1, 2001................. 14 1,693,240 0.35
November 1, 2001................ 8 894,365 0.19
December 1, 2001................ 3 261,025 0.05
January 1, 2002................. 8 2,057,200 0.43
February 1, 2002................ 37 6,996,097 1.46
March 1, 2002................... 44 9,348,402 1.95
April 1, 2002................... 70 13,800,381 2.88
May 1, 2002..................... 88 18,061,482 3.77
June 1, 2002.................... 164 32,336,741 6.75
July 1, 2002.................... 199 39,761,007 8.30
August 1, 2002.................. 184 37,132,837 7.75
September 1, 2002............... 239 50,660,145 10.58
October 1, 2002................. 212 45,272,307 9.45
November 1, 2002................ 143 33,230,170 6.94
December 1, 2002................ 22 4,290,189 0.90
January 1, 2003................. 7 1,223,982 0.26
February 1, 2003................ 13 1,668,492 0.35
March 1, 2003................... 3 311,110 0.06
April 1, 2003................... 7 1,177,583 0.25
May 1, 2003..................... 10 1,998,734 0.42
June 1, 2003.................... 45 8,139,423 1.70
July 1, 2003.................... 35 6,573,228 1.37
August 1, 2003.................. 29 5,114,836 1.07
September 1, 2003............... 25 4,850,593 1.01
October 1, 2003................. 26 5,522,884 1.15
November 1, 2003................ 26 4,475,440 0.93
December 1, 2003................ 7 1,441,600 0.30
December 1, 2004................ 1 314,405 0.07
January 1, 2005................. 8 1,404,059 0.29
February 1, 2005................ 11 1,689,030 0.35
March 1, 2005................... 4 584,950 0.12
April 1, 2005................... 4 928,836 0.19
May 1, 2005..................... 9 2,560,015 0.53
June 1, 2005.................... 14 2,835,584 0.59
July 1, 2005.................... 16 3,476,451 0.73
August 1, 2005.................. 1 218,383 0.05
----- ------------ ------
Total.............. 2,805 $478,934,397 100.00%
===== ============ ======
</TABLE>
As of the Cut-off Date, the weighted average remaining months to the
next Adjustment Date of the ARM Loans that are Group 1 Loans will be
approximately 18 months.
S-27
<PAGE>
<TABLE>
<CAPTION>
GROSS MARGIN OF THE GROUP 1 LOANS
PERCENTAGE OF
NUMBER OF AGGREGATE UNPAID GROUP 1 CUT-OFF
GROSS MARGINS (%) GROUP 1 LOANS PRINCIPAL BALANCE DATE BALANCE
----------------- ------------- ----------------- ------------
<S> <C> <C> <C>
Fixed Rate Loans (N/A).............. 11 $ 1,805,356 0.38%
2.000 - 2.249.................... 1 124,855 0.03
2.500 - 2.749.................... 4 559,323 0.12
2.750 - 2.999.................... 49 10,199,888 2.13
3.000 - 3.249.................... 40 8,220,612 1.72
3.250 - 3.499.................... 354 68,038,099 14.21
3.500 - 3.749.................... 247 50,035,015 10.45
3.750 - 3.999.................... 447 87,906,972 18.35
4.000 - 4.249.................... 221 40,933,803 8.55
4.250 - 4.499.................... 212 42,404,936 8.85
4.500 - 4.749.................... 160 30,633,576 6.40
4.750 - 4.999.................... 207 39,002,159 8.14
5.000 - 5.249.................... 119 21,226,578 4.43
5.250 - 5.499.................... 142 22,048,504 4.60
5.500 - 5.749.................... 76 8,587,962 1.79
5.750 - 5.999.................... 104 11,703,130 2.44
6.000 - 6.249.................... 78 7,699,547 1.61
6.250 - 6.499.................... 90 9,232,564 1.93
6.500 - 6.749.................... 57 5,126,116 1.07
6.750 - 6.999.................... 78 5,832,359 1.22
7.000 - 7.249.................... 51 3,952,662 0.83
7.250 - 7.499.................... 28 1,841,286 0.38
7.500 - 7.749.................... 17 680,535 0.14
7.750 - 7.999.................... 9 577,436 0.12
8.250 - 8.499.................... 3 561,126 0.12
----- ------------ ------
Total.............................. 2,805 $478,934,397 100.00%
===== ============ ======
</TABLE>
As of the Cut-off Date, the weighted average Gross Margin of the ARM
Loans that are Group 1 Loans will be approximately 4.262% per annum.
S-28
<PAGE>
<TABLE>
<CAPTION>
MAXIMUM MORTGAGE RATE OF THE GROUP 1 LOANS
PERCENTAGE OF
NUMBER OF AGGREGATE UNPAID GROUP 1 CUT-OFF
MAXIMUM MORTGAGE RATE (%) GROUP 1 LOANS PRINCIPAL BALANCE DATE BALANCE
------------------------- ------------- ----------------- ------------
<S> <C> <C> <C>
Fixed Rate Loans (N/A)...................... 11 $ 1,805,356 0.38%
10.500 - 10.999.............................. 2 249,006 0.05
11.000 - 11.499.............................. 3 574,207 0.12
11.500 - 11.999.............................. 6 960,031 0.20
12.000 - 12.499.............................. 13 1,495,392 0.31
12.500 - 12.999.............................. 46 8,585,139 1.79
13.000 - 13.499.............................. 54 8,796,086 1.84
13.500 - 13.999.............................. 137 23,129,185 4.83
14.000 - 14.499.............................. 250 50,014,404 10.44
14.500 - 14.999.............................. 577 114,711,727 23.95
15.000 - 15.499.............................. 513 96,755,311 20.20
15.500 - 15.999.............................. 538 90,139,825 18.82
16.000 - 16.499.............................. 246 34,907,430 7.29
16.500- 16.999.............................. 181 24,468,903 5.11
17.000- 17.499.............................. 101 10,728,024 2.24
17.500- 17.999.............................. 49 5,238,612 1.09
18.000- 18.499.............................. 30 2,515,884 0.53
18.500- 18.999.............................. 21 2,025,217 0.42
19.000- 19.499.............................. 12 981,817 0.21
19.500- 19.999.............................. 9 477,941 0.10
20.000- 20.499.............................. 2 198,457 0.04
20.500- 20.999.............................. 2 61,180 0.01
21.000- 21.499.............................. 2 115,262 0.02
----- ------------ ------
Total.................................... 2,805 $478,934,397 100.00%
===== ============ ======
</TABLE>
As of the Cut-off Date, the weighted average Maximum Mortgage Rate of
the ARM Loans that are Group 1 Loans will be approximately 15.160% per annum.
S-29
<PAGE>
<TABLE>
<CAPTION>
INITIAL FIXED-RATE PERIOD OF THE GROUP 1 LOANS
PERCENTAGE OF
NUMBER OF AGGREGATE UNPAID GROUP 1 CUT-OFF
INITIAL PERIOD GROUP 1 LOANS PRINCIPAL BALANCE DATE BALANCE
-------------- ------------- ----------------- ------------
<S> <C> <C> <C>
Fixed Rate Loans (N/A)....................... 11 $ 1,805,356 0.38%
Two Months (Neg Am Loans).................... 14 1,532,421 0.32
Six Months................................... 556 67,355,351 14.06
One Year..................................... 18 2,040,231 0.43
Two Years.................................... 1,876 346,607,351 72.37
Three Years.................................. 262 45,581,974 9.52
Five Years................................... 68 14,011,714 2.93
----- ------------ ------
Total.................................... 2,805 $478,934,397 100.00%
===== ============ ======
</TABLE>
<TABLE>
<CAPTION>
INITIAL PERIODIC RATE CAP OF THE GROUP 1 LOANS
PERCENTAGE OF
NUMBER OF AGGREGATE UNPAID GROUP 1 CUT-OFF
INITIAL PERIODIC RATE CAP (%) GROUP 1 LOANS PRINCIPAL BALANCE DATE BALANCE
----------------------------- ------------- ----------------- ------------
<S> <C> <C> <C>
Fixed Rate Loans (N/A)....................... 11 $ 1,805,356 0.38%
Neg Am Loans (N/A)........................... 14 1,532,421 0.32
1.00......................................... 417 52,578,254 10.98
1.50......................................... 221 21,170,591 4.42
2.00......................................... 18 2,028,214 0.42
3.00......................................... 2,123 399,321,232 83.38
5.00......................................... 1 498,330 0.10
----- ------------ -------
Total.................................... 2,805 $478,934,397 100.00%
===== ============ ======
</TABLE>
<TABLE>
<CAPTION>
PERIODIC RATE CAP
PERCENTAGE OF
NUMBER OF AGGREGATE UNPAID GROUP 1 CUT-OFF
PERIODIC RATE CAP (%) GROUP 1 LOANS PRINCIPAL BALANCE DATE BALANCE
--------------------- ------------- ----------------- ------------
<S> <C> <C> <C>
Fixed Rate Loans (N/A).................... 11 $ 1,805,356 0.38%
Neg Am Loans (N/A)........................ 14 1,532,421 0.32
1.00...................................... 2,385 432,232,721 90.25
1.50...................................... 348 37,988,850 7.93
2.00...................................... 47 5,375,050 1.12
----- ------------ ------
Total................................. 2,805 $478,934,397 100.00%
===== ============ ======
</TABLE>
S-30
<PAGE>
<TABLE>
<CAPTION>
LOAN-TO-VALUE RATIOS OF THE GROUP 1 LOANS(1)
PERCENTAGE OF
NUMBER OF AGGREGATE UNPAID GROUP 1 CUT-OFF
ORIGINAL LOAN-TO-VALUE RATIOS (%) GROUP 1 LOANS PRINCIPAL BALANCE DATE BALANCE
--------------------------------- ------------- ----------------- ------------
<S> <C> <C> <C>
10.01 - 15.00............. 1 $ 48,588 0.01%
20.01 - 25.00............. 3 218,370 0.05
25.01 - 30.00............. 3 152,282 0.03
30.01 - 35.00............. 3 89,711 0.02
35.01 - 40.00............. 12 972,013 0.20
40.01 - 45.00............. 11 764,066 0.16
45.01 - 50.00............. 17 2,015,589 0.42
50.01 - 55.00............. 20 1,499,613 0.31
55.01 - 60.00............. 53 4,081,837 0.85
60.01 - 65.00............. 103 9,981,021 2.08
65.01 - 70.00............. 172 18,949,687 3.96
70.01 - 75.00............. 226 29,967,808 6.26
75.01 - 80.00............. 616 112,805,179 23.55
80.01 - 85.00............. 119 17,546,348 3.66
85.01 - 90.00............. 1,064 207,397,925 43.30
90.01 - 95.00............. 342 65,385,595 13.65
95.01 - 100.00............. 40 7,058,764 1.47
----- ------------ ------
Total..................... 2,805 $478,934,397 100.00%
===== ============ ======
</TABLE>
The minimum and maximum Loan-to-Value Ratios of the Group 1 Loans were
approximately 12.05% and 97.00%, respectively, and the weighted average of the
Loan-to-Value Ratios of the Group 1 Loans was approximately 84.93%.
S-31
<PAGE>
<TABLE>
<CAPTION>
OCCUPANCY TYPES OF THE GROUP 1 LOANS
PERCENTAGE OF
NUMBER OF AGGREGATE UNPAID GROUP 1 CUT-OFF
OCCUPANCY (AS INDICATED BY BORROWER) GROUP 1 LOANS PRINCIPAL BALANCE DATE BALANCE
------------------------------------ ------------- -------------------- ------------
<S> <C> <C> <C>
Second Home................................. 59 $ 7,961,874 1.66%
Non-Owner Occupied.......................... 121 7,916,580 1.65
Primary Residence........................... 2,625 463,055,944 96.68
----- ------------- -------
Total............................... 2,805 $478,934,397 100.00%
===== ============ ======
</TABLE>
<TABLE>
<CAPTION>
MORTGAGE LOAN PROGRAM AND DOCUMENTATION TYPE OF THE GROUP 1 LOANS
PERCENTAGE OF
NUMBER OF AGGREGATE UNPAID GROUP 1 CUT-OFF
LOAN PROGRAM AND DOCUMENTATION TYPE GROUP 1 LOANS PRINCIPAL BALANCE DATE BALANCE
----------------------------------- ------------- --------------------- --------------
<S> <C> <C> <C>
Progressive Series Program (Full
Documentation)........................... 544 $ 65,297,838 13.63%
Progressive Series Program (Alternative
Documentation)........................... 55 9,170,414 1.91
Progressive Series Program (Limited
(Stated) Documentation).................. 284 29,168,589 6.09
Progressive Series Program (No Ratio
Documentation)........................... 15 2,807,589 0.59
Progressive Series Program (No
Income/No Asset Documentation)........... 11 1,245,241 0.26
Progressive Series Program
(Lite/Reduced Documentation)............. 57 4,323,474 0.90
Progressive Series Program (Full
Income/No Asset Documentation)........... 1 69,691 0.01
Progressive Express(TM)Program
(Verified Assets)........................ 687 150,403,486 31.40
Progressive Express(TM)Program (Non-
Verified Assets)......................... 1,147 215,391,306 44.97
Progressive Express(TM)Program (Self-
Employed)................................ 2 779,158 0.16
Score-It(TM)Program (No Income/No
Documentation)........................... 1 111,659 0.02
Progressive Express(TM)No Doc Program
(No Documentation)....................... 1 165,952 0.03
----- ------------ ------
Total................................ 2,805 $478,934,397 100.00%
===== ============ ======
</TABLE>
See Appendix A for a detailed description of the Seller's loan programs
and documentation requirements.
S-32
<PAGE>
<TABLE>
<CAPTION>
RISK CATEGORIES OF THE GROUP 1 LOANS
PERCENTAGE OF
NUMBER OF AGGREGATE UNPAID GROUP 1 CUT-OFF
CREDIT GRADE GROUP 1 LOANS PRINCIPAL BALANCE DATE BALANCE
------------ ------------- ----------------- ------------
<S> <C> <C> <C>
A+(1)...................................... 46 $ 5,923,508 1.24%
A(1)....................................... 228 41,259,649 8.61
A-(1)...................................... 366 39,395,960 8.23
B+(1)...................................... 4 248,202 0.05
B(1)....................................... 189 15,920,372 3.32
C+(1)...................................... 23 1,972,084 0.41
C(1)....................................... 75 5,198,631 1.09
C-(1)...................................... 6 342,604 0.07
CX(1)...................................... 23 1,375,274 0.29
D(1)....................................... 8 558,212 0.12
Progressive Express(TM)I(2).................. 859 169,211,886 35.33
Progressive Express(TM)II(2)................. 734 151,988,380 31.73
Progressive Express(TM)III(2)................ 127 24,294,034 5.07
Progressive Express(TM)IV(2)................. 80 15,279,795 3.19
Progressive Express(TM)V(2).................. 26 3,920,379 0.82
Progressive Express(TM)VI(2)................. 11 2,045,429 0.43
----- ------------ ------
Total................................ 2,805 $478,934,397 100.00%
===== ============ ======
-----------------
</TABLE>
(1) All of these Group 1 Loans were reviewed and placed into risk categories
based on the credit standards of the Progressive Series Program. Credit grades
of A+, A, A-, B, C and CX generally correspond to Progressive Series I, I and
II, III and III+, IV, V and VI, respectively. All of the Seasoned Loans have
been assigned credit grades by Impac Funding. All of the Group 1 Loans that have
been acquired by the Seller in bulk purchases have been assigned credit grades
by Impac Funding. See "-Underwriting" and Appendix A attached hereto.
(2) These Group 1 Loans were originated under Impac Funding's Progressive
Express(TM) Program. The underwriting for such Group 1 Loans is generally based
on the borrower's "FICO" score and therefore such Group 1 Loans do not
correspond to the alphabetical risk categories listed above.
S-33
<PAGE>
<TABLE>
<CAPTION>
PROPERTY TYPES OF THE GROUP 1 LOANS
PERCENTAGE OF
NUMBER OF AGGREGATE UNPAID GROUP 1 CUT-OFF
PROPERTY TYPE GROUP 1 LOANS PRINCIPAL BALANCE DATE BALANCE
------------- ------------- ----------------- ------------
<S> <C> <C> <C>
Single-Family............................... 2,324 $405,638,007 84.70%
Condominium................................. 259 38,639,434 8.07
Planned Unit Development.................... 104 17,459,912 3.65
Two- to Four-Family......................... 79 9,673,775 2.02
De Minimis PUD.............................. 25 4,839,682 1.01
Hi-Rise..................................... 11 2,292,374 0.48
Manufactured Home........................... 3 391,213 0.08
----- ------------ ------
Total.................................... 2,805 $478,934,397 100.00%
===== ============ ======
</TABLE>
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES OF THE GROUP 1 LOANS
PERCENTAGE OF
NUMBER OF AGGREGATE UNPAID GROUP 1 CUT-OFF
STATE GROUP 1 LOANS PRINCIPAL BALANCE DATE BALANCE
----- ------------- ----------------- ------------
<S> <C> <C> <C>
California................................. 1,405 $289,031,477 60.35%
Washington................................. 110 19,016,414 3.97
Florida.................................... 151 18,683,857 3.90
Colorado................................... 95 18,214,705 3.80
Texas...................................... 130 18,105,136 3.78
Other (less than 3% in any one state)...... 914 115,882,808 24.20
----- ------------ -------
Total................................... 2,805 $478,934,397 100.00%
===== ============ ======
</TABLE>
No more than approximately 0.80% of the Group 1 Loans will be
secured by Mortgaged Properties located in any one zip code.
<TABLE>
<CAPTION>
LOAN PURPOSES OF THE GROUP 1 LOANS
PERCENTAGE OF
NUMBER OF AGGREGATE UNPAID GROUP 1 CUT-OFF
LOAN PURPOSE GROUP 1 LOANS PRINCIPAL BALANCE DATE BALANCE
------------ ------------- ----------------- ------------
<S> <C> <C> <C>
Purchase................................. 1,999 $371,783,266 77.63%
Rate and Term Refinance.................. 232 33,127,064 6.92
Cash-Out Refinance....................... 570 73,405,324 15.33
Construction to Permanent................ 4 618,743 0.14
----- ------------ ------
Total................................. 2,805 $478,934,397 100.00%
===== ============ ======
</TABLE>
In general, in the case of a Group 1 Loan made for "rate and term"
refinance purposes, substantially all of the proceeds are used to pay in full
the principal balance of a previous mortgage loan of the mortgagor with respect
to a Mortgaged Property and to pay origination and closing costs associated with
such refinancing. Group 1 Loans made for "cash-out" refinance purposes may
involve the use of the proceeds to pay in full the principal balance of a
previous mortgage loan and related costs except that a portion of the proceeds
are generally retained by the mortgagor for uses unrelated to the Mortgaged
Property. The amount of such proceeds retained by the mortgagor may be
substantial.
S-34
<PAGE>
Specific information with respect to the Group 1 Loans will be
available to purchasers of the Bonds on or before the time of issuance of the
Bonds. If not included in the Prospectus Supplement, such information will be
included in the Form 8-K.
THE GROUP 2 LOANS
GENERAL
The Group 2 Loans had an aggregate outstanding principal balance as of
the Cut-off Date of approximately $18,141,761 (the "Group 2 Cut-off Date
Balance"). Approximately 96.02% of the Group 2 Loans will have fixed rates and
will be secured by second liens on the related Mortgaged Property as described
herein. Approximately 3.98% of the Group 2 Loans will have adjustable rates and
will be secured by first liens on the related Mortgage Property as described
herein.
Impac Funding acquired approximately 90.90% of the Group 2 Loans
pursuant to various agreements from affiliates of Impac Funding and various
mortgage loan conduit sellers pursuant to the underwriting guidelines of Impac
Funding. Impac Funding acquired 10.42%, 1.48% and 16.70% of the Group 2 Loans
from the termination of IMH Assets Series 1996-1, Series 1997-1 and Series
1998-3, respectively. Impac Funding acquired 9.10% of the Group 2 Loans in bulk
purchases from third-party originators.
Approximately 41.99% of the Group 2 Loans (by aggregate outstanding
principal balance as of the Cut-off Date), have fixed interest rates, are
secured by second liens, and were 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 (the "High CLTV Loans"). The Mortgage Loans that are not High CLTV
Loans are referred to herein as the "Non-High CLTV Loans." The Group 2 Loans
that are not High CLTV Loans are referred to herein as the "Closed End Seconds."
The "Cut-off Date" for the Non-High CLTV Loans is November 1, 2000 and the close
of business on October 31, 2000 for the High CLTV Loans.
The "Combined Loan-to-Value Ratio" or "CLTV" of a Group 2 Loan secured
by a second lien is equal to the ratio, expressed as a percentage, of the
principal amount of such Mortgage Loan at origination, plus the outstanding
principal balance of the related senior lien, to the appraised value of the
related Mortgaged Property at the time of origination of such Group 2 Loan.
None of the Group 2 Loans will be covered by a primary mortgage
insurance policy, the Radian PMI Pool Policy or by the Radian Lender-Paid PMI
Policies. Each Group 2 Loan other than a High CLTV Loan is required to be
covered by a Primary Hazard Insurance Policy. See "Primary Mortgage Insurance,
Hazard Insurance; Claims Thereunder--Hazard Insurance Policies" in the
Prospectus.
PORTABLE LOANS AND REFINANCING OF SENIOR LIENS
Certain of the High CLTV Loans will include provisions allowing the
related borrower to substitute the related Mortgaged Property. This substitution
will only be permitted if the following requirements are met: (i) the Combined
Loan-to-Value Ratio of the High CLTV Loan after such substitution must be less
than or equal to the Combined Loan-to-Value Ratio prior to such substitution,
(ii) the Loan-to-Value Ratio of the obligation secured by a first lien on the
new Mortgaged Property must be less than or equal to the Loan-to-Value Ratio of
the obligation secured by a first lien on the released Mortgaged Property at the
time such High CLTV Loan was originated, and (iii) both the released and the new
Mortgaged Property must be a single-family owner occupied property.
In addition, the Servicing Agreement will provide that with respect to
any High CLTV Loan the Master Servicer may allow the refinancing of a senior
lien on the related Mortgaged Property, provided that certain requirements are
met, including, except under certain limited circumstances, that the resulting
Combined Loan-to-Value Ratio of such High CLTV Loan is no higher than the
Combined Loan-to-Value
S-35
<PAGE>
prior to such refinancing and the interest rate on the refinancing senior loan
is no higher than the interest rate on the refinanced senior loan.
BALLOON LOANS
Approximately 0.07% of the Group 1 Loans and 13.63% of the Group 2
Loans require monthly payments of principal generally based on a 30-year
amortization schedule and generally have scheduled maturity dates of 15 years
from the due date of the first monthly payment (each such Group 2 Loan, a
"Balloon Loan"), in each case leaving a substantial portion of the original
principal amount due and payable on the respective scheduled maturity date (a
"Balloon Payment"). The existence of a Balloon Payment generally will require
the related Mortgagor to refinance such Mortgage Loan or to sell the Mortgaged
Property on or prior to the scheduled maturity date. The ability of a Mortgagor
to accomplish either of these goals will be affected by a number of factors,
including the level of available mortgage rates at the time of sale or
refinancing, the Mortgagor's equity in the related Mortgaged Property, the
financial condition of the Mortgagor, tax laws, prevailing general economic
conditions and the terms of any related mortgage loan secured by a senior lien.
None of the Company, the Master Servicer or the Indenture Trustee is obligated
to refinance any Balloon Loan.
GROUP 2 LOAN CHARACTERISTICS
The Group 2 Loans have original terms to stated maturity of between 10
and 30 years.
As of the Cut-off Date, each Group 2 Loan will have an unpaid principal
balance of not less than $492 or more than $249,438 and the average unpaid
principal balance of the Group 2 Loans will be approximately $36,724. The latest
stated maturity date of any of the Group 2 Loans will be January 1, 2027;
however, the actual date on which any Group 2 Loan is paid in full may be
earlier than the stated maturity date due to unscheduled payments of principal.
The weighted average remaining term to stated maturity of the Group 2
Loans will be approximately 181 months.
The earliest month and year in which the first payment was due on any
Group 2 Loan is June 1, 1995, and the latest month and year of first payment
will be November 1, 2000.
As of the Cut-off Date, 2.30% of the Group 2 Loans are 30 to 59 days
delinquent in payment of principal and interest. None of the Group 2 Loans will
be more than 59 days delinquent in payment of principal and interest as of the
Cut-off Date.
None of the Group 2 Loans are Buydown Mortgage Loans.
None of the Group 2 Loans provide for negative amortization.
Set forth below is a description of certain additional characteristics
of the Group 2 Loans as of the Cut-off Date (except as otherwise indicated). All
percentages of the Group 2 Loans are approximate percentages by aggregate
outstanding principal balance of the Group 2 Loans as of the Cut-off Date
(except as otherwise indicated). Dollar amounts and percentages may not add up
to totals due to rounding.
S-36
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL BALANCES AT ORIGINATION OF THE GROUP 2 LOANS
ORIGINAL PERCENTAGE OF
MORTGAGE LOAN NUMBER OF AGGREGATE UNPAID GROUP 2 CUT-OFF
PRINCIPAL BALANCE($) GROUP 2 LOANS PRINCIPAL BALANCE DATE BALANCE
----------------- ------------- ----------------- ------------
<S> <C> <C> <C>
0.01 - 50,000.00...................... 405 $11,805,805 65.08%
50,000.01 - 100,000.00...................... 83 5,490,389 30.26
100,000.01 - 150,000.00...................... 5 596,130 3.29
200,000.01 - 250,000.00...................... 1 249,438 1.37
--- ----------- ------
Total................................... 494 $18,141,761 100.00%
=== =========== ======
</TABLE>
The average principal balance of the Group 2 Loans at origination was
approximately $38,624.
<TABLE>
<CAPTION>
PRINCIPAL BALANCES AT THE CUT-OFF DATE OF THE GROUP 2 LOANS
PERCENTAGE OF
MORTGAGE LOAN NUMBER OF AGGREGATE UNPAID GROUP 2 CUT-OFF
PRINCIPAL BALANCE($) GROUP 2 LOANS PRINCIPAL BALANCE DATE BALANCE
----------------- ------------- ----------------- ------------
<S> <C> <C> <C>
0.01 - 50,000.00...................... 407 $11,903,051 65.61%
50,000.01 - 100,000.00...................... 82 5,492,763 30.28
100,000.01 - 150,000.00...................... 4 496,509 2.74
200,000.01 - 250,000.00...................... 1 249,438 1.37
--- ----------- ------
Total................................... 494 $18,141,761 100.00%
=== =========== ======
</TABLE>
As of the Cut-off Date, the average current principal balance of the
Group 2 Loans will be approximately $36,724.
S-37
<PAGE>
<TABLE>
<CAPTION>
MORTGAGE RATES OF THE GROUP 2 LOANS(1)
PERCENTAGE OF
NUMBER OF AGGREGATE UNPAID GROUP 2 CUT-OFF
MORTGAGE RATES(%) GROUP 2 LOANS PRINCIPAL BALANCE DATE BALANCE
-------------- ------------- ----------------- ------------
<S> <C> <C> <C>
10.000 - 10.499....................... 1 $ 249,438 1.37%
10.500 - 10.999....................... 1 74,961 0.41
11.500 - 11.999....................... 8 212,986 1.17
12.000 - 12.499....................... 11 577,355 3.18
12.500 - 12.999....................... 31 1,151,401 6.35
13.000 - 13.499....................... 35 1,564,547 8.62
13.500 - 13.999....................... 121 3,858,326 21.27
14.000 - 14.499....................... 102 3,589,527 19.79
14.500 - 14.999....................... 103 3,735,056 20.59
15.000 - 15.499....................... 36 1,591,153 8.77
15.500 - 15.999....................... 27 964,639 5.32
16.000 - 16.499....................... 9 337,975 1.86
16.500 - 16.999....................... 7 187,031 1.03
17.000 - 17.499....................... 2 47,365 0.26
--- ----------- ------
Total............................ 494 $18,141,761 100.00%
=== =========== ======
</TABLE>
-----------
(1) With respect to the ARM Loans in Loan Group 2, the Mortgage Rate as of the
Cut-off Date.
As of the Cut-off Date, the weighted average Mortgage Rate of the Group
2 Loans will be approximately 14.123% per annum.
S-38
<PAGE>
<TABLE>
<CAPTION>
COMBINED LOAN-TO-VALUE RATIOS AT ORIGINATION OF THE GROUP 2 LOANS(1)
PERCENTAGE OF
NUMBER OF AGGREGATE UNPAID GROUP 2 CUT-OFF
ORIGINAL COMBINED LOAN-TO-VALUE RATIOS (%) GROUP 2 LOANS PRINCIPAL BALANCE DATE BALANCE
------------------------------------------ ------------- ----------------- ------------
<S> <C> <C> <C>
15.01 - 20.00......................... 1 $ 13,849 0.08%
35.01 - 40.00......................... 1 492 0.00
40.01 - 45.00......................... 1 78,269 0.43
45.01 - 50.00......................... 4 403,239 2.22
50.01 - 55.00......................... 2 47,407 0.26
55.01 - 60.00......................... 1 39,071 0.22
60.01 - 65.00......................... 3 126,064 0.69
65.01 - 70.00......................... 2 136,224 0.75
70.01 - 75.00......................... 1 29,741 0.16
75.01 - 80.00......................... 4 342,882 1.89
80.01 - 85.00......................... 19 646,982 3.57
85.01 - 90.00......................... 28 1,109,519 6.12
90.01 - 95.01......................... 38 1,385,368 7.64
95.01 - 100.00......................... 191 6,545,758 36.08
100.01 - 105.00......................... 15 504,762 2.78
105.01 - 110.00......................... 19 927,749 5.11
110.01 - 115.00......................... 25 888,957 4.90
115.01 - 120.00......................... 31 1,158,582 6.39
120.01 - 125.00......................... 104 3,648,823 20.11
125.01 - 130.00......................... 1 26,404 0.15
130.01 - 135.00......................... 3 81,620 0.45
--- ----------- ------
Total................................. 494 $18,141,761 100.00%
=== =========== ======
</TABLE>
-----------
(1) With respect to the Group 2 Loans secured by first liens, the
Loan-to-Value Ratio.
The minimum and maximum Combined Loan-to-Value Ratios and Loan-to-Value
Ratios, as applicable, of the Group 2 Loans were approximately 19.33% and
133.74%, respectively, and the weighted average of the Combined Loan-to-Value
Ratios and Loan-to-Value Ratios, as applicable, of the Group 2 Loans was
approximately 102.54%.
S-39
<PAGE>
<TABLE>
<CAPTION>
OCCUPANCY TYPES OF THE GROUP 2 LOANS
PERCENTAGE OF
NUMBER OF AGGREGATE UNPAID GROUP 2 CUT-OFF
OCCUPANCY (AS INDICATED BY BORROWER) GROUP 2 LOANS PRINCIPAL BALANCE DATE BALANCE
------------------------------------ ------------- -------------------- ------------
<S> <C> <C> <C>
Non-Owner Occupied........................... 5 $ 155,807 0.86%
Primary Residence............................ 489 17,985,954 99.14
--- ----------- ------
Total................................ 494 $18,141,761 100.00%
=== =========== ======
</TABLE>
<TABLE>
<CAPTION>
DOCUMENTATION TYPE FOR THE GROUP 2 LOANS
PERCENTAGE OF
NUMBER OF AGGREGATE UNPAID GROUP 2 CUT-OFF
DOCUMENTATION TYPE GROUP 2 LOANS PRINCIPAL BALANCE DATE BALANCE
------------------ ------------- ----------------------- ------------
<S> <C> <C> <C>
Full......................................... 403 $13,837,251 76.27%
Limited (Stated)............................. 73 3,666,833 20.21
Alternative.................................. 18 637,677 3.51
--- ----------- ------
Total................................ 494 $18,141,761 100.00%
=== =========== ======
</TABLE>
See "--Underwriting" below and Appendix A attached hereto for a
description of the underwriting standards for the Group 2 Loans and the
documentation requirements.
<TABLE>
<CAPTION>
RISK CATEGORIES OF THE GROUP 2 LOANS
PERCENTAGE OF
NUMBER OF AGGREGATE UNPAID GROUP 2 CUT-OFF
CREDIT GRADE GROUP 2 LOANS PRINCIPAL BALANCE DATE BALANCE
------------ ------------- ----------------- ------------
<S> <C> <C> <C>
A+(1)...................................... 21 $ 731,034 4.03%
A(1)....................................... 231 8,930,456 49.23
A-(1)...................................... 147 5,464,563 30.12
B+(1)...................................... 28 751,682 4.14
B(1)....................................... 55 1,758,604 9.69
C(1)....................................... 4 161,375 0.89
C-(1)...................................... 2 60,412 0.33
CX(1)...................................... 6 283,634 1.56
--- ----------- ------
Total................................ 494 $18,141,761 100.00%
=== =========== ======
</TABLE>
-----------------
(1) All of these Group 2 Loans were reviewed and placed into risk categories
based on the credit standards of the Progressive Series Program. All of the
Seasoned Loans have been assigned credit grades by Impac Funding. All of the
Group 2 Loans that have been acquired by the Seller in bulk purchases have been
assigned credit grades by Impac Funding. See "-Underwriting" and Appendix A
attached hereto.
S-40
<PAGE>
<TABLE>
<CAPTION>
PROPERTY TYPES OF THE GROUP 2 LOANS
PERCENTAGE OF
NUMBER OF AGGREGATE UNPAID GROUP 2 CUT-OFF
PROPERTY TYPE GROUP 2 LOANS PRINCIPAL BALANCE DATE BALANCE
------------- ------------- ----------------- ------------
<S> <C> <C> <C>
Single-Family............................... 446 $16,485,891 90.87%
Condominium................................. 22 628,091 3.46
Two- to Four-Family......................... 14 575,065 3.17
Planned Unit Development.................... 10 374,793 2.07
Hi-Rise..................................... 2 77,921 0.43
--- ----------- ------
Total.................................... 494 $18,141,761 100.00%
=== =========== ======
</TABLE>
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES OF THE GROUP 2 LOANS
PERCENTAGE OF
NUMBER OF AGGREGATE UNPAID GROUP 2 CUT-OFF
STATE GROUP 2 LOANS PRINCIPAL BALANCE DATE BALANCE
----- ------------- ----------------- ------------
<S> <C> <C> <C>
California................................. 190 $7,528,082 41.50%
Florida.................................... 44 1,368,284 7.54
Georgia.................................... 37 1,314,801 7.25
Washington................................. 18 692,976 3.82
New York................................... 6 573,685 3.16
Other (less than 3% in any one state)...... 199 6,663,933 36.73
--- ----------- ------
Total................................... 494 $18,141,761 100.00%
=== =========== ======
</TABLE>
No more than approximately 1.37% of the Group 2 Loans will be
secured by Mortgaged Properties located in any one zip code.
<TABLE>
<CAPTION>
LOAN PURPOSES OF THE GROUP 2 LOANS
PERCENTAGE OF
NUMBER OF AGGREGATE UNPAID GROUP 2 CUT-OFF
LOAN PURPOSE GROUP 2 LOANS PRINCIPAL BALANCE DATE BALANCE
------------ ------------- ----------------- ------------
<S> <C> <C> <C>
Purchase................................. 86 $3,195,200 17.61%
Rate and Term Refinance.................. 21 804,930 4.44
Cash-Out Refinance....................... 191 7,036,330 38.79
Debt Consolidation....................... 190 6,875,050 37.90
Home Improvement......................... 6 230,251 1.27
--- ----------- ------
Total................................. 494 $18,141,761 100.00%
=== =========== ======
</TABLE>
In general, in the case of a Group 2 Loan made for "rate and term"
refinance purposes, substantially all of the proceeds are used to pay in full
the principal balance of a previous mortgage loan of the mortgagor with respect
to a Mortgaged Property and to pay origination and closing costs associated with
such refinancing. Group 2 Loans made for "cash-out" refinance purposes may
involve the use of the proceeds to pay in full the principal balance of a
previous mortgage loan and related costs except that a portion of the proceeds
are generally retained by the mortgagor for uses unrelated to the Mortgaged
Property. The amount of such proceeds retained by the mortgagor may be
substantial.
Specific information with respect to the Mortgage Loans will be
available to purchasers of the Bonds on or before the time of issuance of the
Bonds. If not included in the Prospectus Supplement, such information will be
included in the Form 8-K.
S-41
<PAGE>
UNDERWRITING
The Group 1 Loans were originated or acquired by Impac Funding.
Approximately 24.55% of the Group 1 Loans (the "Seasoned Group 1 Loans," and the
other Group 1 Loans, the "Non-Seasoned Group 1 Loans") were acquired in
connection with the termination of four prior securitizations of mortgage loans
originated or acquired by Impac Funding. Approximately 75.45% of the Group 1
Loans are Non-Seasoned Group 1 Loans. Approximately 6.69% of the Group 1 Loans,
all of which are Non- Seasoned Group 1 Loans, were underwritten pursuant to
Impac Funding's Progressive Series Program as described in Appendix A attached
hereto. Approximately 68.76% of the Group 1 Loans, all of which are Non-Seasoned
Group 1 Loans, were underwritten pursuant to Impac Funding's Progressive Express
ProgramTM as described in Appendix A attached hereto.
Approximately 13.45% of the Group 1 Loans, all of which are Seasoned
Group 1 Loans, were underwritten in accordance with the underwriting standards
of ICI Funding, the predecessor of Impac Funding, in 1996, early 1997, late 1997
and 1998, and were not acquired in bulk purchases.
Approximately 11.10% of the Group 1 Loans, all of which are Seasoned
Group 1 Loans, were acquired in bulk purchases from third-party originators.
Such Mortgage Loans were underwritten pursuant to the standards of such
originators. Due diligence and compliance review of such Mortgage Loans were
made by the Seller and, if necessary, independent consultants.
The Group 2 Loans were originated or acquired by Impac Funding.
Approximately 59.06% of the Group 2 Loans (the "Seasoned Group 2 Loans," and the
other Group 2 Loans, the "Non-Seasoned Group 2 Loans") were originated or
acquired on or before November 1998. Approximately 40.94% of the Group 2 Loans,
all of which are Seasoned Group 2 Loans, were acquired in connection with the
termination of three prior securitizations of mortgage loans or was originated
or acquired by Impac Funding in 1996, 1997 and 1998. Approximately 40.94% of the
Group 2 Loans, all of which are Closed End Seconds, are Non-Seasoned Group 2
Loans. Approximately 13.09% of the Group 2 Loans, all of which are Seasoned
Group 2 Loans, are Closed End Seconds. Approximately 41.99% of the Group 2
Loans, all of which are Seasoned Group 2 Loans, are High CLTV Loans.
Approximately 3.98% of the Group 2 Loans, all of which are Seasoned Group 2
Loans, are ARM Loans.
Approximately 23.00% of the Group 2 Loans, all of which are Seasoned
Group 2 Loans and High CLTV Loans, were underwritten in accordance with the
underwriting standards of Preferred as described in Exhibit A hereto.
Approximately 8.37% of the Group 2 Loans, all of which are Seasoned Group 2
Loans and High CLTV Loans, were acquired from, and underwritten in accordance
with the standards of, EMB Mortgage. Approximately 8.04% of the Group 2 Loans,
all of which are Seasoned Group 2 Loans and High CLTV Loans, were acquired from,
and underwritten in accordance with the standards of, Stuart-Wright Mortgage
Inc. Approximately 2.58% of the Group 2 Loans, all of which are Seasoned Group 2
Loans and High CLTV Loans, were acquired from, and underwritten in accordance
with the standards of, Oxymoco, formerly known as Occidental Mortgage
Corporation.
All of the Closed End Seconds which are Non-Seasoned Group 2 Loans were
underwritten pursuant to Impac Funding's Progressive Series Program in effect in
2000 as described in Appendix A attached hereto. All of the ARM Loans that are
Seasoned Group 2 Loans were acquired in bulk purchases from third-party
originators.
All of the Mortgage Loans were generally underwritten in accordance
with the description in the Prospectus. All of the Mortgage Loans were reviewed
for completeness of documentation. See "The Mortgage Pools-Underwriting
Standards" in the Prospectus.
S-42
<PAGE>
DELINQUENCY AND FORECLOSURE EXPERIENCE OF IMPAC FUNDING
Based solely upon information provided by Impac Funding, the following
tables summarize, for the respective dates indicated, the delinquency,
foreclosure, bankruptcy and REO property status with respect to all mortgage
loans originated or acquired by Impac Funding which were being master serviced
by Impac Funding at the dates 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. A mortgage loan is considered "30 days" delinquent if a payment
due on the first of the month is not received by the second day of the following
month, and so forth.
A substantial majority of mortgage loan sales by Impac Funding during
1999 were made on a servicing-released basis. The following information does not
include statistical information on such mortgage loans. As a result, the
aggregate principal balance of non-delinquent mortgage loans serviced by Impac
Funding is not as high as it would otherwise be, resulting in increased
delinquency percentages for the total portfolio of mortgage loans serviced as of
December 31, 1999.
S-43
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1996 At December 31, 1997 At December 31, 1998
---------------------------- --------------------------- ----------------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL
OF LOANS AMOUNT OF LOANS AMOUNT OF LOANS AMOUNT
-------- ------ -------- ------ -------- ------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total Loans Outstanding.... 11,996 $1,550,121 28,494 $3,028,554 33,414 $3,713,986
DELINQUENCY 1 2
Period of Delinquency:
30-59 Days........... 587 $66,272 1,167 $136,427 1,677 $172,723
60-89 Days........... 118 15,089 282 33,203 506 46,719
90 Days or More...... 3 95 69 6,454 799 51,454
------ ------- ------- -------- ------- --------
Total Delinquencies...... 708 $81,456 1,518 $176,084 2,982 $270,896
====== ======= ======= ======== ======= ========
Delinquencies as a
Percentage of Total
Loans Outstanding.......... 5.90% 5.25% 5.33% 5.81% 8.92% 7.29%
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1999 At September 30, 2000
---------------------------- ----------------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL
OF LOANS AMOUNT OF LOANS AMOUNT
-------- ------ -------- ------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Total Loans Outstanding.... 26,002 $2,878,701 29,862 $3,625,230
DELINQUENCY 1 2
Period of Delinquency:
30-59 Days........... 1,103 $124,875 1,570 $187,358
60-89 Days........... 286 27,997 372 43,494
90 Days or More...... 369 21,113 285 24,270
----- -------- ----- --------
Total Delinquencies...... 1,758 $173,985 2,227 $255,122
===== ======== ===== ========
Delinquencies as a
Percentage of Total
Loans Outstanding.......... 6.76% 6.04% 7.46% 7.04%
</TABLE>
--------
1 The delinquency balances, percentages and numbers set forth under this
heading exclude (a) delinquent mortgage loans that were in foreclosure at
the respective dates indicated ("Foreclosure Loans"), (b) delinquent
mortgage loans as to which the related mortgagor was in bankruptcy
proceedings at the respective dates indicated ("Bankruptcy Loans") and (c)
REO properties that have been purchased upon foreclosure of the related
mortgage loans. All Foreclosure Loans, Bankruptcy Loans and REO properties
have been segregated into the sections of the table entitled "Foreclosures
Pending," "Bankruptcies Pending" and "REO Properties," respectively, and are
not included in the "30-59 Days," "60-89 Days," "90 Days or More" and "Total
Delinquencies" sections of the table. See the section of the table entitled
"Total Delinquencies plus Foreclosures Pending and Bankruptcies Pending" for
total delinquency balances, percentages and numbers which include
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 A substantial majority of mortgage loan sales by Impac Funding during 1999
were made on a servicing-released basis. The information on this table does
not include statistical information on such mortgage loans. As a result, the
aggregate principal balance of non-delinquent mortgage loans serviced by
Impac Funding is not as high as it would otherwise be, resulting in
increased delinquency percentages for the total portfolio of mortgage loans
serviced as of December 31, 1999.
S-44
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1996 At December 31, 1997 At December 31, 1998
---------------------------- ---------------------------- ----------------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL
OF LOANS AMOUNT OF LOANS AMOUNT OF LOANS AMOUNT
-------- ------ -------- ------ -------- ------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
FORECLOSURES PENDING 3........... 180 $ 25,697 378 $ 41,792 459 $ 54,678
Foreclosures Pending as a
Percentage of Total Loans
Outstanding...................... 1.50% 1.66% 1.33% 1.38% 1.37% 1.47%
BANKRUPTCIES PENDING 4........... 55 $ 6,315 140 $ 15,517 362 $ 25,973
Bankruptcies Pending as a
Percentage of Total Loans
Outstanding...................... 0.46% 0.41% 0.49% 0.51% 1.08% 0.70%
Total Delinquencies plus
Foreclosures Pending and
Bankruptcies Pending............. 943 $113,468 2,036 $233,393 3,803 $351,547
Total Delinquencies plus
Foreclosures Pending and
Bankruptcies Pending as a
Percentage of Total Loans
Outstanding...................... 7.86% 7.32% 7.15% 7.71% 11.38% 9.47%
REO PROPERTIES 5................. 2 $ 429 80 $ 9,276 116 $ 13,958
REO Properties as a Percentage
of Total Loans Outstanding....... 0.02% 0.03% 0.28% 0.31% 0.35% 0.38%
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1999 At September 30, 2000
--------------------------- ----------------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL
OF LOANS AMOUNT OF LOANS AMOUNT
-------- ------ -------- ------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
FORECLOSURES PENDING 3........... 334 $46,969 349 $47,855
Foreclosures Pending as a
Percentage of Total Loans
Outstanding...................... 1.28% 1.63% 1.17% 1.32%
BANKRUPTCIES PENDING 4........... 419 $33,188 262 $24,679
Bankruptcies Pending as a
Percentage of Total Loans
Outstanding...................... 1.61% 1.15% 0.88% 0.68%
Total Delinquencies plus
Foreclosures Pending and
Bankruptcies Pending............. 2,511 $254,142 2,838 $327,656
Total Delinquencies plus
Foreclosures Pending and
Bankruptcies Pending as a
Percentage of Total Loans
Outstanding...................... 9.66% 8.83% 9.50% 9.04%
REO PROPERTIES 5................. 119 $13,882 98 $13,283
REO Properties as a Percentage
of Total Loans Outstanding....... 0.46% 0.48% 0.33% 0.37%
</TABLE>
--------
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 Impac Funding, to commence foreclosure proceedings when a
mortgage loan is 60 days or more delinquent. However, the Master Servicer
may delay the foreclosure process as a result of loss mitigation efforts.
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 Impac
Funding after the respective dates indicated.
S-45
<PAGE>
The above data on delinquency, foreclosure, bankruptcy and REO property
status as of December 31, 1999, include mortgage loans which were sold
servicing-released by Impac Funding, but for which the servicing had not yet
been transferred as of such date.
A substantial majority of mortgage loan sales by Impac Funding during
1999 were made on a servicing-released basis. The following information does not
include statistical information on such mortgage loans. As a result, the
aggregate principal balance of non-delinquent mortgage loans serviced by Impac
Funding is not as high as it would otherwise be, resulting in increased loss
percentages for the total portfolio of mortgage loans serviced as of December
31, 1999.
Based solely on information provided by Impac Funding, the following
table presents the changes in Impac Funding's charge-offs and recoveries for the
periods indicated.
S-46
<PAGE>
<TABLE>
<CAPTION>
TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1999 SEPTEMBER 30, 2000
----------------------- ----------------------- ------------------------ ------------------------
(DOLLARS IN (DOLLARS IN (DOLLARS IN (DOLLARS IN
THOUSANDS) THOUSANDS) THOUSANDS) THOUSANDS)
<S> <C> <C> <C> <C>
Charge-offs:
Mortgage Loan Properties.. $ 291 $ 2,684 $ 7,026 $ 10,486
REO Properties............ 4,862 (153) 2,165 3,469
Recoveries:
Mortgage Loan Properties.. 62 0 713 306
REO Properties............ 18 0 0 0
Net charge-offs:............... 5,073 2,531* 8,477 13,649
Ratio of net charge-offs to
average loans outstanding
during the indicated
period***...................... 0.22%** 0.08%** 0.34%** 0.58%**
</TABLE>
---------------
* Does not include losses of $358,354 from the sale of delinquent loans
recorded by Impac Funding during the twelve months ended December 31,
1998.
** The ratio of net charge-offs was based upon annualized charge-offs for
the indicated periods. The average loans outstanding was computed using
monthly balances for the indicated periods.
*** The information on this table does not include statistical information
on mortgage loans which have recently been sold on a servicing-released
basis by Impac Funding to third parties. In addition, it does not
include statistical information for mortgage loans for which the
servicing rights were sold by Impac Funding in 1999. As a result, the
aggregate principal balance of non-delinquent mortgage loans serviced
has decreased, resulting in increased loss percentages for mortgage
loans serviced as of December 31, 1998 and December 31, 1999.
From November 1995 through December 1996, Impac Funding experienced no
charge-offs and no recoveries.
The above data on charge-offs and recoveries are calculated on the
basis of the total mortgage loans originated or acquired by Impac Funding.
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
charge-offs. In the absence of such mortgage loans, the charge-off 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
charge-off percentages with 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 Impac
Funding has been provided by Impac Funding.
S-47
<PAGE>
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Mortgage Pool and
the Mortgaged Properties is based upon the Mortgage Loans in the Mortgage Pool
as of the close of business on the Cut-off Date, in the case of the Non-High
CLTV Loans, as adjusted for the scheduled principal payments due on or before
such date. 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
The Issuer is a business trust formed under the laws of the State of
Delaware pursuant to the Trust Agreement 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 and holding the Mortgage Loans and the other assets of the Trust and
proceeds therefrom, (ii) issuing the Bonds and 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, the Cap
Contracts, the Bond Insurance Policy and certain related assets.
THE OWNER TRUSTEE
Wilmington Trust Company is the Owner Trustee under the Trust
Agreement. The Owner Trustee is a Delaware banking corporation and its principal
offices are located in Wilmington, Delaware. The Owner Trustee will receive a
fee on each Payment Date at a rate equal to 0.0017% per annum (the "Owner
Trustee Fee Rate") on the aggregate Principal Balance of the Mortgage Loans.
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 under
the Trust Agreement under any circumstances, except for the Owner Trustee's own
misconduct, gross negligence, bad faith or grossly negligent failure to act or
in the case of the inaccuracy of certain representations made by the Owner
Trustee in 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
Bankers Trust Company of California, N.A., will be the Indenture
Trustee under the Indenture. The Indenture Trustee has designated its offices
located at 123 Washington Street, New York, New York 10006 for purposes of the
presentment and surrender of the Offered Certificates for the final distribution
thereon. For all other purposes, the Indenture Trustee's "Corporate Trust
Office" is located at 1761 East
S-48
<PAGE>
St. Andrew Place, Santa Ana, California 92705, Attention: IMH Assets Corp.,
Series 2000-2 [IM 0002], or such other address as the Indenture Trustee may
designate from time to time by notice to the Bondholders, the Depositor and the
Master Servicer.
The Indenture Trustee shall be entitled to compensation for its
services each month at a rate (the "Indenture Trustee Fee Rate") equal to
0.0050% per annum of the aggregate Principal Balance of the Mortgage Loans.
THE BOND INSURER
Ambac Assurance Corporation (the "Bond Insurer") is a
Wisconsin-domiciled stock insurance corporation regulated by the Office of the
Commissioner of Insurance of the State of Wisconsin and licensed to do business
in 50 states, the District of Columbia, the Commonwealth of Puerto Rico and the
Territory of Guam. The Bond Insurer primarily insures newly issued municipal and
structured finance obligations. The Bond Insurer is a wholly-owned subsidiary of
Ambac Financial Group, Inc. (formerly, AMBAC, Inc.), a 100% publicly-held
company. Moody's, Standard & Poor's and Fitch, Inc. have each assigned a
triple-A financial strength rating to the Bond Insurer.
The consolidated financial statements of the Bond Insurer and
subsidiaries as of December 31, 1999 and December 31, 1998, and for each of the
years in the three-year period ended December 31, 1999, prepared in accordance
with generally accepted accounting principles, included in the Annual Report on
Form 10-K of Ambac Financial Group, Inc. (which was filed with the Commission on
March 30, 2000; Commission File Number 1-10777) and the unaudited consolidated
financial statements of the Bond Insurer and subsidiaries as of September 30,
2000 and for the periods ending September 30, 2000 and September 30, 1999
included in the Quarterly Report on Form 10-Q of Ambac Financial Group, Inc. for
the period ended September 30, 2000 (which was filed with the Commission on
November 13, 2000), are hereby incorporated by reference into this Prospectus
Supplement and shall be deemed to be a part hereof. Any statement contained in a
document incorporated herein by reference shall be modified or superseded for
the purposes of this Prospectus Supplement to the extent that a statement
contained herein by reference herein also modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus Supplement.
All financial statements of the Bond Insurer and subsidiaries included
in documents filed by Ambac Financial Group, Inc. with the Commission pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended, subsequent to the date of this Prospectus Supplement and prior to the
termination of the offering of the Bonds shall be deemed to be incorporated by
reference into this Prospectus Supplement and to be a part hereof from the
respective dates of filing such documents.
The following table sets forth the Bond Insurer's capitalization as of
December 31, 1998, December 31, 1999 and September 30, 2000, respectively, in
conformity with generally accepted accounting principles.
S-49
<PAGE>
<TABLE>
<CAPTION>
AMBAC ASSURANCE CORPORATION
CAPITALIZATION TABLE
(DOLLARS IN MILLIONS)
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1998 1999 2000
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Unearned premiums........................ $ 1,303 $ 1,442 $ 1,508
Other liabilities........................ 548 524 479
------- ------- -------
Total liabilities................... 1,851 1,966 1,987
======= ======= =======
Stockholder's equity:
Common Stock........................ 82 82 82
Additional paid-in capital.......... 541 752 757
Accumulated other comprehensive
income (loss)............. 138 (92) (17)
Retained earnings................... 1,405 1,674 1,915
------- ------- -------
Total stockholder's equity............... 2,166 2,416 2,737
------- ------- -------
Total liabilities and stockholder's
equity................................... $ 4,017 $ 4,382 $ 4,724
======= ======= =======
</TABLE>
For additional financial information concerning the Bond insurer, see
the audited financial statements of the Bond insurer incorporated by reference
herein. Copies of the financial statements of the Bond Insurer incorporated
herein by reference and copies of the Bond Insurer's annual statement for the
year ended December 31, 1999 prepared in accordance with statutory accounting
standards are available, without charge, from the Bond Insurer. The address of
the Bond Insurer's administrative offices and its telephone number are One State
Street Plaza, 19th Floor, New York, New York 10004 and (212) 668-0340.
In the event that the Bond Insurer were to become insolvent, any claims
arising under the Bond Insurance Policy would be excluded from coverage by the
California Insurance Guaranty Association, established pursuant to the laws of
the State of California
The Bond Insurer makes no representation regarding the bonds or the
advisability of investing in the bonds and makes no representation regarding,
nor has it participated in the preparation of, this Prospectus Supplement other
than the information supplied by the bond insurer and presented under the
headings "The Bond Insurer" and "Description of the Bond Insurance Policy" and
in the financial statements incorporated herein by reference.
DESCRIPTION OF THE BONDS
GENERAL
The Series 2000-2 Collateralized Asset-Backed Bonds (the "Bonds") will
represent obligations of Impac CMB Trust Series 2000-2 (the "Issuer"), which was
formed pursuant to the Trust Agreement. The Bonds will be issued pursuant to an
Indenture to be dated as of November 27, 2000, between the Issuer and Bankers
Trust Company of California, N.A., the Indenture Trustee.
The Bonds will be secured by the pledge by the Issuer of its assets to
the Indenture Trustee pursuant to the Indenture which will consist of the
following (such assets, collectively, the "Trust Fund"): (i) the Mortgage Loans;
(ii) collections in respect of principal and interest on the Mortgage Loans
received after the Cut-off Date (other than, with respect to the Non-High CLTV
Loans, payments due on or before the Cut-off Date); (iii) the amounts on deposit
in any Collection Account (as defined in the Prospectus), including the account
in which amounts are deposited prior to payment to the Bondholders (the "Payment
Account"); (iv) certain insurance policies maintained by the related Mortgagors
or by or on behalf of the Master Servicer or related subservicer in respect of
the Mortgage
S-50
<PAGE>
Loans; (v) an assignment of the Company's rights under the Mortgage Loan Sale
and Contribution Agreement (as defined herein) and the Cap Contracts; (vi) the
Radian PMI Pool Policy; (vii) the Bond Insurance Policy and (viii) proceeds of
the foregoing.
The Bonds will be issued in denominations of $25,000 and integral
multiples of $1 in excess thereof. See "--Book-Entry Bonds" below.
BOOK-ENTRY BONDS
GENERAL. The Bonds will initially be issued as Book-Entry Bonds.
Persons acquiring beneficial ownership interests in the Bonds may elect to hold
their Bonds through the DTC in the United States, or Clearstream Banking,
societe anonyme ("Clearstream"), formerly known as Cedelbank SA, or Euroclear,
in Europe if they are Participants of such systems, or indirectly through
organizations which are Participants in such systems. Beneficial Owners 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.
Clearstream and Euroclear will hold omnibus positions on behalf of their
Participants through customers' securities accounts in Clearstream'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. 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. Payments with respect to Bonds
held through Clearstream or Euroclear will be credited to the cash accounts of
Clearstream 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. 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 & Co. ("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. Clearstream or the
Euroclear Operator, as the case may be, will take any other action permitted to
be taken by Bondholders under the Indenture on behalf of a Clearstream
Participant or Euroclear Participant only in accordance with its relevant rules
and procedures and subject to the ability of the Relevant Depositary to effect
such actions on its behalf through DTC.
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-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 Bonds
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 Subservicers, the Owner
Trustee 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.
S-51
<PAGE>
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 shall 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 Bonds
representing the Book-Entry Bonds and upon receipt of written 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 25th day of each month or, if such day is not a Business
Day, then the next succeeding Business Day, commencing in December 2000.
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 Bonds, on the Record Date. See "Description
of the Bonds--Payments" in the Prospectus. Payments will be made by wire
transfer to the address of the person entitled thereto (which, in the case of
Book-Entry Bonds, will be DTC or its nominee) as it appears on the Security
Register in amounts calculated as described herein as of 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 New York City, Delaware, California or in the city in
which the corporate trust offices of the Indenture Trustee are located, are
required or authorized by law to be closed.
AVAILABLE FUNDS
The "Group 1 Available Funds" for any Payment Date will equal the
amount received by the Indenture Trustee and available in the Payment Account on
each Payment Date with respect to the Group 1 Loans. The Group 1 Available Funds
will generally be equal to the sum of (i) the aggregate amount of scheduled
payments on the Group 1 Loans received or Advanced during the related Due
Period, and (ii) any unscheduled payments and receipts, including Mortgagor
prepayments on the Group 1 Loans and payments under the Radian PMI Pool Policy,
received during the related Prepayment Period, in each case net of amounts
reimbursable therefrom to the Master Servicer and any Subservicer and reduced by
Servicing Fees, the fees of the Indenture Trustee and the Owner Trustee, the
premium with respect to the Bond Insurance Policy for the Class A-1 Bonds and
any amounts in respect of the premium payable to Radian under the Radian PMI
Pool Policy or the Radian Lender-Paid PMI Policies.
The "Group 2 Available Funds" for any Payment Date will equal the
amount received by the Indenture Trustee and available in the Payment Account on
each Payment Date with respect to the Group 2 Loans. The Group 2 Available Funds
will generally be equal to the sum of (i) the aggregate amount of scheduled
payments on the Group 2 Loans received or Advanced during the related Due
Period, and (ii) any unscheduled payments and receipts, including Mortgagor
prepayments on the Group 2 Loans, received during the related Prepayment Period,
in each case net of amounts reimbursable therefrom to the Master Servicer and
any Subservicer and reduced by Servicing Fees, the fees of the Indenture Trustee
and the Owner Trustee, and the premium with respect to the Bond Insurance Policy
for the Class A-2 Bonds.
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With respect to any Payment Date and the Mortgage Loans other than the
High CLTV Loans, the "Due Period" is the period commencing on the second day of
the month preceding the month of such Payment Date (or, with respect to the
first Due Period, the day following the Cut-off Date) and ending on the Due Date
of the month of such Payment Date. With respect to any Payment Date and the
Mortgage Loans other than the High CLTV Loans, the "Prepayment Period" is the
calendar month preceding the month of such Payment Date. With respect to any
Payment Date and the High CLTV Loans, the "Due Period" and the "Prepayment
Period" are the calendar month preceding the month of such Payment Date.
INTEREST PAYMENTS ON THE BONDS
On each Payment Date, holders of each Class of Bonds will be entitled
to receive an amount (the "Accrued Bond Interest") equal to interest accrued
during the related Accrual Period (as defined herein) on the Bond Principal
Balance thereof at the then-applicable Bond Interest Rate (as defined below),
subject to the limitations described below. The "Bond Interest Rate" for each
class of Bonds on each Payment Date will be a floating rate equal to the least
of (i) One-Month LIBOR (as defined herein) plus the related Bond Margin, (ii)
the related Maximum Bond Interest Rate and (iii) the related Available Funds
Rate.
The "Bond Margin" with respect to the Class A-1 Bonds will equal 0.26%
per annum prior to the Step-Up Date and 0.52% per annum thereafter. The "Bond
Margin" with respect to the Class A-2 Bonds will equal 0.35% per annum prior to
the Step-Up Date and 0.70% per annum thereafter. The "Bond Margin" with respect
to the Class B Bonds will equal 1.90% per annum prior to the Step-Up Date and
2.85% per annum thereafter. The "Maximum Bond Interest Rate" is 13.75% per annum
for the Class A-1 Bonds and Class B Bonds and 13.65% per annum for the Class A-2
Bonds. The "Step-Up Date" is the first Payment Date following the Payment Date
on which the holder of the Certificates can cause the redemption of the Bonds as
described in "--Optional Redemption" below.
On any Payment Date, the "Available Funds Rate" for the Class A-1 Bonds
and Class B Bonds will be the per annum rate equal to (i)(a) the weighted
average of the Mortgage Rates on the Group 1 Loans minus, in each case, the sum
of the related Servicing Fee Rate, Indenture Trustee Fee Rate, Owner Trustee Fee
Rate, Minimum Spread Rate, and, if applicable, the related Radian PMI Rate,
weighted on the basis of the Principal Balances thereof as of the end of the
prior Due Period, times a fraction equal to (1) the aggregate Principal Balance
of the Group 1 Loans as of the end of the prior Due Period over (2) the
aggregate Bond Principal Balance of the Class A-1 Bonds and Class B Bonds
immediately prior to such Payment Date, minus (b) the Policy Premium Rate times
a fraction equal to (x) the Bond Principal Balance of the Class A-1 Bonds
immediately prior to such Payment Date divided by (y) the aggregate Bond
Principal Balance of the Class A-1 Bonds and Class B Bonds immediately prior to
such Payment Date, times (ii) a fraction equal to (x) 30 divided by (y) the
number of days in the related Accrual Period.
On any Payment Date, the "Available Funds Rate" for the Class A-2 Bonds
will be the per annum rate equal to (i)(a) the weighted average of the Mortgage
Rates on the Group 2 Loans minus, in each case, the sum of the related Servicing
Fee Rate, Indenture Trustee Fee Rate, Owner Trustee Fee Rate and the Minimum
Spread Rate, weighted on the basis of the Principal Balances thereof as of the
end of the prior Due Period, times a fraction equal to (1) the aggregate
Principal Balance of the Group 2 Loans as of the end of the prior Due Period
over (2) the aggregate Bond Principal Balance of the Class A-2 Bonds immediately
prior to such Payment Date, minus (b) the Policy Premium Rate times (ii) a
fraction equal to (x) 30 divided by (y) the number of days in the related
Accrual Period.
The "Minimum Spread Rate" is 0.00% per annum for the first twelve
Payment Dates, and 0.50% per annum thereafter. The "Policy Premium Rate" is the
rate per annum set forth in the Insurance Agreement.
Interest on the Bonds in respect of any Payment Date will accrue (such
period, an "Accrual Period") from the preceding Payment Date (or in the case of
the first Payment Date, from the Closing
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Date) through the day preceding such Payment Date on the basis of the actual
number of days in the Accrual Period and a 360-day year.
If on any Payment Date the Available Funds are insufficient to pay
Accrued Bond Interest on the related Class A Bonds, the shortfall will be
covered by the Bond Insurance Policy; provided, that to the extent such
shortfalls are caused by Deferred Interest, Prepayment Interest Shortfalls,
Relief Act Shortfalls or Basis Risk Shortfalls, they will not be covered by the
Bond Insurance Policy. Such covered shortfalls could occur, for example, if
delinquencies on the Mortgage Loans were exceptionally high, were not covered by
Advances and were concentrated in a particular month.
Any such shortfalls in respect of Prepayment Interest Shortfalls that
are not covered by Compensating Interest and Relief Act Shortfalls will be
carried forward and will bear interest at the related Bond Interest Rate (such
amount, together with interest thereon, the "Unpaid Interest Shortfall") and be
payable on future Payment Dates from the Net Monthly Excess Cash Flow to the
extent of funds available therefor as described below in "--Priority of
Payment."
The "Prepayment Interest Shortfall" for any Payment Date, as determined
separately for each Loan Group, is equal to the aggregate shortfall, if any, in
collections of interest (less the related Servicing Fees) resulting from
Mortgagor prepayments on the Mortgage Loans during the related Prepayment
Period. Such shortfalls will result because interest on prepayments in full is
paid only to the date of prepayment, and because no interest is paid on
prepayments in part, as such prepayments in part are applied to reduce the
outstanding principal balance of the Mortgage Loans as of the Due Date in the
month of prepayment. However, with respect to any Payment Date, any Prepayment
Interest Shortfalls resulting from prepayments in full during the preceding
calendar month will be offset by the Master Servicer (such offset, "Compensating
Interest"), but only to the extent such Prepayment Interest Shortfalls do not
exceed an amount equal to the lesser of (a) one-twelfth of 0.125% of the
aggregate Principal Balance of the Mortgage Loans for the related Loan Group
immediately preceding such Payment Date and (b) the Servicing Fee for such
Payment Date. Prepayment Interest Shortfalls resulting from partial prepayments
will not be offset by the Master Servicer from the Servicing Fees or otherwise.
No assurance can be given that Compensating Interest available to cover
Prepayment Interest Shortfalls will be sufficient therefor.
With respect to any of the Class A-1, Class A-2 or Class B Bonds, on
each Payment Date where clause (iii) of the definition of "Bond Interest Rate"
is less than clauses (i) or (ii) of the definition, the "Basis Risk Shortfall"
for each class will be equal to the excess, if any, of (x) the aggregate Accrued
Bond Interest thereon for such Payment Date calculated pursuant to the lesser of
clause (i) or (ii) of the definition of Bond Interest Rate over (y) interest
accrued on the Mortgage Loans at the Available Funds Rate. The "Basis Risk
Shortfall Carry-Forward Amount" is equal to the aggregate amount of Basis Risk
Shortfall for that class of Bonds on such Payment Date, plus any unpaid Basis
Risk Shortfall from prior Payment Dates, plus interest thereon to the extent
previously unreimbursed by Net Monthly Excess Cash Flow, or in the case of the
Class A-1 Bonds and Class B Bonds, the Cap Contracts. Basis Risk Shortfalls are
not covered by the Bond Insurance Policy and may remain unpaid on the Final
Scheduled Payment Date.
As described herein, Accrued Bond Interest on the Bonds is based on the
Bond Principal Balances thereof immediately prior to the related Payment Date.
The "Bond Principal Balance" of the Bonds means the initial Bond Principal
Balance thereof as reduced by all amounts distributed to the holders of such
Bonds on all prior Payment Dates on account of principal.
The "Principal Balance" of any Mortgage Loan as of any date of
determination is equal to the principal balance thereof as of the Cut-off Date,
increased by any Deferred Interest allocated thereto, and reduced by all amounts
allocable to principal that have been distributed to the Bondholders or to the
Certificateholders with respect to such mortgage loan, and as further reduced to
the extent of any Realized Loss thereon on or before the date of determination;
provided that a 180-day Delinquent High
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CLTV Loan will have a principal balance of zero.
A "180-day Delinquent High CLTV Loan" is a High CLTV Loan which has
been delinquent for 180 days or more.
CALCULATION OF ONE-MONTH LIBOR FOR THE BONDS
On the second business day preceding the Closing Date, and on the
second business day preceding each Payment Date after the first Payment Date
(each such date, an "Interest Determination Date"), the Indenture Trustee will
determine the London interbank offered rate for one-month United States dollar
deposits ("One-Month LIBOR") for the next Interest Accrual Period for the Bonds
on the basis of the offered rates of the Reference Banks for one-month United
States dollar deposits, as such rate appears on the Telerate Screen Page 3750,
as of 11:00 a.m. (London time) on such Interest Determination Date. As used in
this section, "business day" means a day on which banks are open for dealing in
foreign currency and exchange in London and New York City; "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); and "Reference Banks"
means leading banks selected by the Indenture Trustee and engaged in
transactions in Eurodollar deposits in the international Eurocurrency market (i)
with an established place of business in London, (ii) whose quotations appear on
the Telerate Screen Page 3750 on the Interest Determination Date in question,
(iii) which have been designated as such by the Indenture Trustee and (iv) not
controlling, controlled by, or under common control with, the Company or the
Seller.
On each Interest Determination Date, if the rate does not appear or is
not available on Telerate Screen Page 3750, One-Month LIBOR for the related
Accrual Period for the Bonds will be established by the Indenture Trustee as
follows:
(a) If on such Interest Determination Date two or more Reference
Banks provide such offered quotations, One-Month LIBOR for the related
Accrual Period shall be the arithmetic mean of such offered quotations
(rounded upwards if necessary to the nearest whole multiple of 0.0625%).
(b) If on such Interest Determination Date fewer than two Reference
Banks provide such offered quotations, One-Month LIBOR for the related
Accrual Period shall be the higher of (x) One- Month LIBOR as determined on
the previous Interest Determination Date and (y) the Reserve Interest Rate.
The "Reserve Interest Rate" shall be the rate per annum that the Indenture
Trustee determines to be either (i) the arithmetic mean (rounded upwards if
necessary to the nearest whole multiple of 0.0625%) of the one-month United
States dollar lending rates which New York City banks selected by the
Indenture Trustee are quoting on the relevant Interest Determination Date
to the principal London offices of leading banks in the London interbank
market or (ii) in the event that the Indenture Trustee can determine no
such arithmetic mean, the lowest one-month United States dollar lending
rate which New York City banks selected by the Indenture Trustee are
quoting on such Interest Determination Date to leading European banks.
The establishment of One-Month LIBOR on each Interest Determination
Date by the Indenture Trustee and the Indenture Trustee's calculation of the
rate of interest applicable to the Bonds for the related Accrual Period shall
(in the absence of manifest error) be final and binding.
PRINCIPAL DISTRIBUTIONS ON THE BONDS
The "Group 1 Principal Payment Amount" for any Payment Date will be
equal to the lesser of (a) the sum of the Group 1 Available Funds remaining
after distributions pursuant to clause (iv) of "--Priority of Payment--Group 1
Available Funds" below and any portion of any Insured Amount for such Payment
Date representing an Overcollateralization Deficit allocable to the Class A-1
Bonds and (b) the sum of:
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(i) the principal portion of all scheduled monthly payments on the
Group 1 Loans received or Advanced (as defined herein) on such Mortgage
Loans with respect to the related Due Date;
(ii) the principal portion of all proceeds of the repurchase of a
Group 1 Loan (or, in the case of a substitution, certain amounts
representing a principal adjustment) pursuant to the Servicing Agreement
during the preceding calendar month;
(iii) the principal portion of all other unscheduled collections
received on the Group 1 Loans during the related Prepayment Period (or
deemed to be received during the related Prepayment Period (including,
without limitation, full and partial Principal Prepayments made by the
respective Mortgagors, Liquidation Proceeds and Insurance Proceeds
(excluding proceeds paid in respect of the Bond Insurance Policy)), to the
extent not distributed in the preceding month; and
(iv) an amount, payable from the Group 1 Net Monthly Excess Cash
Flow, equal to the principal portion of any Realized Losses incurred (or
deemed to have been incurred) on any Group 1 Loans in the calendar month
preceding such Payment Date; and
(v) any Insured Amount paid with respect to any
Overcollateralization Deficit allocable to the Class A-1 Bonds;
MINUS
(vi) the amount of any Group 1 Overcollateralization Reduction
Amount for such Payment Date.
In no event will the Group 1 Principal Payment Amount with respect to
any Payment Date be (x) less than zero or (y) greater than the then outstanding
Bond Principal Balance of the Class A-1 Bonds and Class B Bonds.
On any Payment Date, the "Overcollateralization Deficit" is the amount
by which the aggregate Bond Principal Balance of the Bonds exceeds the aggregate
Principal Balance of the Mortgage Loans immediately following such Payment Date.
The "Group 2 Principal Payment Amount" for any Payment Date will be
equal to the lesser of (a) the sum of the Group 2 Available Funds remaining
after distributions pursuant to clause (iii) of "--Priority of Payment--Group 2
Available Funds" below and any portion of any Insured Amount for such Payment
Date representing an Overcollateralization Deficit allocable to the Class A-2
Bonds and (b) the sum of:
(i) the principal portion of all scheduled monthly payments on the
Group 2 Loans received or Advanced (as defined herein) on such Mortgage
Loans with respect to the related Due Date;
(ii) the principal portion of all proceeds of the repurchase of a
Group 2 Loan (or, in the case of a substitution, certain amounts
representing a principal adjustment) pursuant to the Servicing Agreement
during the preceding calendar month;
(iii) the principal portion of all other unscheduled collections
received on the Group 2 Loans during the related Prepayment Period (or
deemed to be received during the related Prepayment Period (including,
without limitation, full and partial Principal Prepayments made by the
respective Mortgagors, Liquidation Proceeds and Insurance Proceeds
(excluding proceeds paid in respect of the Bond Insurance Policy)), to the
extent not distributed in the preceding month; and
(iv) an amount, payable from the Group 2 Net Monthly Excess Cash
Flow, equal to the
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principal portion of any Realized Losses incurred (or deemed to have been
incurred) on any Group 2 Loans in the calendar month preceding such Payment
Date; and
(v) any Insured Amount paid with respect to any
Overcollateralization Deficit allocable to the Class A-2 Bonds;
MINUS
(vi) the amount of any Group 2 Overcollateralization Reduction
Amount for such Payment Date.
In no event will the Group 2 Principal Payment Amount with respect to
any Payment Date be (x) less than zero or (y) greater than the then outstanding
Bond Principal Balance of the Class A-2 Bonds.
CROSS-COLLATERALIZATION
As described in "--Priority of Payment" below, the Group 1 Available
Funds may be used to make payments on the Class A-2 Bonds, and the Group 2
Available Funds may be used to make payments on the Class A-1 Bonds and Class B
Bonds, to the extent of any Cross-Collateralized Losses on the Mortgage Loans in
the other Loan Group. A "Cross-Collateralized Loss" on any Mortgage Loan is one
of the following:
(i) a Realized Loss on that Mortgage Loan;
(ii) with respect to any Mortgage Loan for which the Master
Servicer has determined that any Advance would be a
non-recoverable advance, the amount of the non-recoverable
advance; or
(iii) with respect to any Mortgage Loan for which the Master
Servicer or the Indenture Trustee fails to make a required
Advance, the amount of that Advance.
PRIORITY OF PAYMENT
GROUP 1 AVAILABLE FUNDS
On each Payment Date, the Group 1 Available Funds and, with respect to the
Class A-1 Bonds, any Group 1 Insured Amount with respect to such Payment Date,
will be allocated to the Securities in the following order of priority, in each
case to the extent of amounts remaining:
(i) to the Class A-1 Bonds, the Accrued Bond Interest with respect to
such Payment Date;
(ii) to the Class A-2 Bonds, the Accrued Bond Interest with respect
to such Payment Date, to the extent not covered by payments from the Group
2 Available Funds on such Payment Date or any prior Payment Date;
(iii) to the Class A-2 Bonds, in reduction of the Bond Principal
Balance thereof, until such balance has been reduced to zero, an amount
equal to the lesser of (a) the Cross-Collateralized Losses on the Group 2
Loans on such Payment Date, plus any Cross-Collateralized Losses on the
Group 2 Loans remaining unreimbursed from any prior Payment Date (less any
payments on such Payment Date or any prior Payment Date pursuant to clause
(ii) above), to the extent not covered by payments from the Group 2
Available Funds on such Payment Date or any prior Payment Date, and (b) the
excess of (x) the Note Principal Balance of the Class A-2 Notes over (y)
the aggregate Principal Balance of the Group 2 Loans, in each case
following distributions of the Group 2 Available Funds to be made on such
Payment Date;
(iv) to the Class B Bonds, the Accrued Bond Interest with respect to
such Payment Date;
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(v) to the Class A-1 and Class B Bondholders, on a pro rata basis,
based on the Bond Principal Balances thereof, the Group 1 Principal Payment
Amount with respect to such Payment Date, in reduction of the Bond
Principal Balances thereof, until such balances have been reduced to zero;
(vi) to the Bond Insurer, the aggregate of all payments, if any, made
by the Bond Insurer under the Bond Insurance Policy with respect to the
Class A-1 Bonds and any other amounts due to the Bond Insurer pursuant to
the Insurance Agreement, to the extent not previously paid or reimbursed;
(vii) to the Bond Insurer, the aggregate of all payments, if any,
made by the Bond Insurer under the Bond Insurance Policy with respect to
the Class A-2 Bonds and any other amounts due to the Bond Insurer pursuant
to the Insurance Agreement, to the extent not previously paid or reimbursed
(including any payments from the Group 2 Available Funds on that
distribution date);
(viii) to the Class A-1 and Class B Bondholders, on a pro rata basis,
based on the Bond Principal Balances thereof, the Group 1
Overcollateralization Increase Amount (as defined in
"--Overcollateralization Provisions" below), in reduction of the Bond
Principal Balances thereof, until the Bond Principal Balances has been
reduced to zero;
(ix) to the Class A-2 Bonds, in reduction of the Bond Principal
Balance thereof, until such balance has been reduced to zero, an amount
equal to the lesser of (a) the Cross-Collateralized Losses on the Group 2
Loans on such Payment Date, plus any Cross-Collateralized Losses on the
Group 2 Loans remaining unreimbursed from any prior Payment Date (less any
payments on such Payment Date or any prior Payment Date pursuant to clause
(ii) or (iii) above), to the extent not covered by payments from the Group
2 Available Funds on such Payment Date or any prior Payment Date, and (b)
the excess of (x) the Group 2 Required Overcollateralization Amount over
(y) the Group 2 Overcollateralization Amount, in each case following
distributions of the Group 2 Available Funds to be made on such Payment
Date;
(x) to the Class B Bonds, in reimbursement of any Realized Losses to
be allocated thereto on such Payment Date, or any Realized Losses
previously allocated thereto and unreimbursed on any prior Payment Date,
until the amount of such losses have been fully reimbursed;
(xi) to the Class A-1 Bondholders, any Basis Risk Shortfall
Carry-Forward Amount for such Payment Date to the extent not covered by a
payment of the Cap Contract Payment Amount;
(xii) to the Class B Bondholders, any Basis Risk Shortfall
Carry-Forward Amount for such Payment Date to the extent not covered by a
payment of the Cap Contract Payment Amount;
(xiii) to the Class A-1 Bondholders, any related Unpaid Interest
Shortfall for such Payment Date;
(xiv) to the Class B Bondholders, any related Unpaid Interest
Shortfall for such Payment Date;
(xv) to the Indenture Trustee, for amounts owing to the Indenture
Trustee other than its Trustee's Fees; and
(xvi) any remaining amounts to the holders of the Trust Certificates.
GROUP 2 AVAILABLE FUNDS
On each Payment Date, the Group 2 Available Funds and, with respect to the
Class A-2 Bonds, any Group 2 Insured Amount with respect to such Payment Date,
will be allocated to the Securities in the following order of priority, in each
case to the extent of amounts remaining:
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(i) to the Class A-2 Bonds, the Accrued Bond Interest with respect to
such Payment Date;
(ii) to the Class A-1 Bonds and Class B Bonds, in that order, the
Accrued Bond Interest on the Class A-1 Bonds and Class B Bonds with respect
to such Payment Date, to the extent not covered by payments from the Group
1 Available Funds on such Payment Date or any prior Payment Date;
(iii) to the Class A-1 Bonds and Class B Bonds on a pro rata basis,
based on the Bond Principal Balances thereof, in reduction of the Bond
Principal Balances thereof, until such balances have been reduced to zero,
an amount equal to the lesser of (a) the Cross-Collateralized Losses on the
Group 1 Loans on such Payment Date, plus any Cross-Collateralized Losses on
the Group 1 Loans remaining unreimbursed from any prior Payment Date (less
any payments on such Payment Date or any prior Payment Date pursuant to
clause (ii) above), to the extent not covered by payments from the Group 1
Available Funds on such Payment Date or any prior Payment Date, and (b) the
excess of (x) the Note Principal Balance of the Class A-1 Bonds over (y)
the aggregate Principal Balance of the Group 1 Loans, in each case
following distributions of the Group 1 Available Funds to be made on such
Payment Date;
(iv) to the Class A-2 Bondholders, the Group 2 Principal Payment
Amount with respect to such Payment Date, in reduction of the Bond
Principal Balance thereof, until such balance has been reduced to zero;
(v) to the Bond Insurer, the aggregate of all payments, if any, made
by the Bond Insurer under the Bond Insurance Policy with respect to the
Class A-2 Bonds and any other amounts due to the Bond Insurer pursuant to
the Insurance Agreement, to the extent not previously paid or reimbursed;
(vi) to the Bond Insurer, the aggregate of all payments, if any, made
by the Bond Insurer under the Bond Insurance Policy with respect to the
Class A-1 Bonds and any other amounts due to the Bond Insurer pursuant to
the Insurance Agreement, to the extent not previously paid or reimbursed
(including any payments from the Group 1 Available Funds on that
distribution date);
(vii) to the Class A-2 Bondholders, the Group 2 Overcollateralization
Increase Amount (as defined in "--Overcollateralization Provisions" below),
in reduction of the Bond Principal Balance thereof, until the Bond
Principal Balance has been reduced to zero;
(viii) to the Class A-1 Bonds and Class B Bonds on a pro rata basis,
based on the Bond Principal Balances thereof, in reduction of the Bond
Principal Balances thereof, until such balances have been reduced to zero,
an amount equal to the lesser of (a) the Cross-Collateralized Losses on the
Group 1 Loans on such Payment Date, plus any Cross-Collateralized Losses on
the Group 1 Loans remaining unreimbursed from any prior Payment Date (less
any payments on such Payment Date or any prior Payment Date pursuant to
clauses (ii) and (iii) above), to the extent not covered by payments from
the Group 1 Available Funds on such Payment Date or any prior Payment Date,
and (b) the excess of (x) the Group 1 Required Overcollateralization Amount
over (y) the Group 1 Overcollateralization Amount, in each case following
distributions of the Group 1 Available Funds to be made on such Payment
Date;
(ix) to the Class A-2 Bondholders, any Basis Risk Shortfall
Carry-Forward Amount for such Payment Date;
(x) to the Class A-2 Bondholders, any related Unpaid Interest
Shortfall for such Payment Date;
(xi) to the Indenture Trustee, for amounts owing to the Indenture
Trustee other than its Trustee's Fees; and
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(xii) any remaining amounts to the holders of the Trust Certificates.
On each Payment Date, the Cap Contract Payment Amount with respect to such
Payment Date will be allocated to the Class A-1 Bonds, Class B Bonds and the
Trust Certificates in the following order of priority, in each case to the
extent of amounts remaining:
(i) to the Class A-1 Bondholders, any Basis Risk Shortfall
Carry-Forward Amount for such Payment Date;
(ii) to the Class B Bondholders, any Basis Risk Shortfall
Carry-Forward Amount for such Payment Date; and
(iii) any remaining amounts to the holders of the Trust Certificates.
OVERCOLLATERALIZATION PROVISIONS
Initially, the aggregate Principal Balance of the Mortgage Loans as of
the Cut-off Date will exceed the aggregate Bond Principal Balance of the Bonds
as of the Closing Date by approximately 1.10% of the Cut-off Date Balance. The
"Required Overcollateralization Amount" means, as of any Payment Date (i) prior
to the Step-Down Date, 1.10% of the Cut-off Date Balance and (ii) on or after
the Step-Down Date, the greatest of (a) 2.20% of the then current aggregate
Principal Balance of the Mortgage Loans as of the end of the related Due Period,
(b) the aggregate Principal Balance of the three largest Mortgage Loans and (c)
two times the excess of (1) 50% of the aggregate Principal Balance of the
Mortgage Loans 90 or more days delinquent over (2) three times the sum of the
Group 1 Net Monthly Excess Cash Flow and Group 2 Net Monthly Excess Cash Flow
for such Payment Date.
The "Stepdown Date" means the later of (i) the first Payment Date
occurring on or after December 2003 and (ii) the first Payment Date on which the
aggregate Principal Balance of the Mortgage Loans is equal to or less than 50%
of the Cut-off Date Balance.
The "Group 1 Required Overcollateralization Amount" and "Group 2
Required Overcollateralization Amount" for any Payment Date and the Group 1
Loans and Group 2 Loans, respectively, is equal to the greater of (a) the
Required Overcollateralization Amount for that Payment Date times a fraction
equal (x) to the aggregate Principal Balance of the Group 1 Loans or Group 2
Loans, respectively, divided by (y) the aggregate Principal Balance of the
Mortgage Loans, and (b) 0.50% of the Group 1 Cut-off Date Balance and Group 2
Cut-off Date Balance, respectively. The "Group 1 Overcollateralization Amount"
as of any Payment Date is the excess of (x) the aggregate Principal Balance of
the Group 1 Loans over (y) the aggregate Bond Principal Balance of the Class A-1
Bonds and Class B Bonds as of such Payment Date. The "Group 2
Overcollateralization Amount" as of any Payment Date is the excess of (x) the
aggregate Principal Balance of the Group 2 Loans over (y) the Bond Principal
Balance of the Class A-2 Bonds as of such Payment Date.
The Indenture requires that the Group 1 Net Monthly Excess Cash Flow,
to the extent available therefor as described above, will be applied as an
accelerated payment of principal on the Class A-1 Bonds and Class B Bonds to the
extent that the Group 1 Required Overcollateralization Amount exceeds the Group
1 Overcollateralization Amount as of such Payment Date (such excess, the "Group
1 Overcollateralization Increase Amount"). The "Group 1 Net Monthly Excess Cash
Flow" means, the amount remaining to be distributed on each Payment Date
following clause (vii) of the distributions in "--Priority of Payment--Group 1
Available Funds" above.
The Indenture requires that the Group 2 Net Monthly Excess Cash Flow,
to the extent available therefor as described above, will be applied as an
accelerated payment of principal on the Class A-2 Bonds to the extent that the
Group 2 Required Overcollateralization Amount exceeds the Group 2
Overcollateralization Amount as of such Payment Date (such excess, the "Group 2
Overcollateralization Increase Amount"). The "Group 2 Net Monthly Excess Cash
Flow" means, the amount remaining to be
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distributed on each Payment Date following clause (vi) of the distributions in
"--Priority of Payment--Group 2 Available Funds" above.
In the event that the Required Overcollateralization Amount is
permitted to decrease or "step down" on a Payment Date in the future, a portion
of the principal which would otherwise be distributed to the holders of the
Bonds on such Payment Date shall not be distributed to the holders of such Bonds
on such Payment Date. This has the effect of decelerating the amortization of
the Bonds relative to the amortization of the Mortgage Loans, and of reducing
the Group 1 and Group 2 Overcollateralization Amount. With respect to any
Payment Date, the excess, if any, of (a) the Group 1 or Group 2
Overcollateralization Amount, as applicable, on such Payment Date over (b) the
Group 1 or Group 2 Required Overcollateralization Amount, as applicable, is the
"Group 1 Excess Overcollateralization Amount" or "Group 2 Excess
Overcollateralization Amount," as applicable, with respect to such Payment Date.
If, on any Payment Date, the Group 1 or Group 2 Excess Overcollateralization
Amount is, or, after taking into account all other distributions to be made on
such Payment Date would be, greater than zero (I.E., the Group 1 or Group 2
Overcollateralization Amount is or would be greater than the Group 1 or Group 2
Required Overcollateralization Amount, respectively), then any amounts relating
to principal which would otherwise be distributed to the holders of the Bonds on
such Payment Date shall instead be distributed as excess cash flow to the Bonds
and the Trust Certificates as described under "--Priority of Payment" herein;
such amount being the "Group 1 Overcollateralization Reduction Amount" or "Group
2 Overcollateralization Reduction Amount," as applicable, for such Payment Date.
THE CAP CONTRACTS
On the Closing Date, the Depositor will assign to the Issuer the
Depositor's rights under fourteen cap contracts (the "Cap Contracts") for the
benefit of the Class A-1 Bonds and Class B Bonds. The counterparties with
respect to the Cap Contracts are Bear Stearns Financial Products, Inc., The
Royal Bank of Scotland plc and Credit Suisse First Boston International
(collectively, the "Cap Contract Counterparties").
With respect to any Payment Date and the Cap Contracts, the "Cap
Contract Payment Amount" will equal the aggregate amount payable from the Cap
Contracts on that Payment Date. Each Cap Contract will pay interest accrued
during the related Accrual Period at a rate equal to the excess of (x) One-Month
LIBOR (as determined by the related Cap Counterparty generally in accordance
with the provisions of "--Determination of One-Month LIBOR" above) over (y) the
related Strike Price, on an amount equal to the related Projected Principal
Balance for such Accrual Period.
The Strike Prices and Projected Principal Balances of the fourteen Cap
Contracts effectively pay in accordance with the four representative cap
contracts (the "Effective Cap Contracts") described below.
The "Strike Price" and "Projected Principal Balance" for the first Effective Cap
Contract are as described in the following table:
Month of Payment Date Projected Principal Balance Strike Price
--------------------- --------------------------- ------------
December 2000 $56,843,767 6.47875%
January 2001 56,311,223 6.47875
February 2001 55,832,452 6.47875
March 2001 54,908,993 6.47875
April 2001 54,141,311 6.47875
May 2001 53,384,413 6.47875
June 2001 52,637,885 6.47875
July 2001 51,801,499 6.47875
August 2001 51,175,208 6.47875
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September 2001 50,458,840 6.47875
October 2001 49,752,266 6.47875
November 2001 49,055,362 6.47875
December 2001 48,367,968 6.47875
January 2002 47,689,983 6.47875
February 2002 47,021,270 6.47875
March 2002 46,381,708 6.47875
April 2002 45,715,873 6.47875
After the Payment Date in April 2002, the first Effective Cap Contract
will terminate.
The "Strike Price" and "Projected Principal Balance" for the second
Effective Cap Contract are as described in the following table:
Month of Payment Date Projected Principal Balance Strike Price
--------------------- --------------------------- ------------
December 2000 $77,948,378 6.61923%
January 2001 77,456,001 6.61923
February 2001 76,897,396 6.61923
March 2001 76,273,296 6.61922
April 2001 75,584,611 6.61922
May 2001 74,832,420 6.61922
June 2001 74,017,977 6.61922
July 2001 73,142,701 6.61922
August 2001 72,208,180 6.61922
September 2001 71,242,356 6.61922
October 2001 70,263,713 6.61922
November 2001 69,277,164 6.61922
December 2001 68,304,134 6.61922
January 2002 67,344,442 6.61922
February 2002 66,397,904 6.61922
March 2002 65,464,344 6.61922
April 2002 64,543,586 6.61922
May 2002 63,635,454 6.61922
June 2002 62,739,779 6.61922
July 2002 61,856,390 6.61922
August 2002 60,985,122 6.61922
September 2002 37,703,100 6.61951
October 2002 29,725,903 6.61922
November 2002 29,307,660 6.61922
December 2002 17,673,919 6.61952
January 2003 17,424,735 6.61952
February 2003 17,178,970 6.61952
March 2003 16,936,579 6.61952
April 2003 16,697,516 6.61952
May 2003 16,461,735 6.61952
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June 2003 16,229,192 6.61952
July 2003 15,999,844 6.61952
August 2003 15,773,645 6.61952
September 2003 15,550,555 6.61952
October 2003 9,029,515 6.61919
November 2003 5,752,919 6.61875
After the Payment Date in November 2003, the second Effective Cap
Contract will terminate.
The "Strike Price" and "Projected Principal Balance" for the third
Effective Cap Contract are as described in the following table:
Month of Payment Date Projected Principal Balance Strike Price
--------------------- --------------------------- ------------
December 2000 $14,614,319 6.97875%
January 2001 14,437,844 6.97875
February 2001 14,249,701 6.97875
March 2001 14,050,243 6.97875
April 2001 13,853,514 6.97875
May 2001 13,659,475 6.97875
June 2001 13,468,091 6.97875
July 2001 13,279,325 6.97875
August 2001 13,093,142 6.97875
September 2001 12,909,507 6.97875
October 2001 12,728,385 6.97875
November 2001 12,549,742 6.97875
December 2001 12,373,546 6.97875
January 2002 12,199,762 6.97875
February 2002 12,028,358 6.97875
March 2002 11,859,301 6.97875
April 2002 11,692,560 6.97875
May 2002 11,528,104 6.97875
June 2002 11,365,901 6.97875
July 2002 11,205,922 6.97875
August 2002 11,048,135 6.97875
September 2002 10,892,510 6.97875
October 2002 10,739,020 6.97875
November 2002 10,587,635 6.97875
December 2002 10,438,325 6.97875
January 2003 10,291,064 6.97875
February 2003 10,145,823 6.97875
March 2003 10,002,575 6.97875
April 2003 4,765,630 6.97875
May 2003 4,698,107 6.97875
June 2003 4,631,513 6.97875
July 2003 4,565,836 6.97875
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August 2003 4,501,062 6.97875
September 2003 4,437,180 6.97875
October 2003 4,374,176 6.97875
November 2003 4,312,041 6.97875
December 2003 4,250,760 6.97875
January 2004 4,190,324 6.97875
February 2004 4,130,720 6.97875
March 2004 4,071,938 6.97875
April 2004 4,013,965 6.97875
May 2004 3,956,791 6.97875
June 2004 3,900,406 6.97875
July 2004 3,844,798 6.97875
August 2004 3,789,956 6.97875
September 2004 3,735,871 6.97875
October 2004 3,682,533 6.97875
November 2004 3,629,930 6.97875
December 2004 3,578,053 6.97875
January 2005 3,526,892 6.97875
February 2005 3,476,438 6.97875
March 2005 3,426,680 6.97875
After the Payment Date in March 2005, the third Effective Cap Contract
will terminate.
The "Strike Price" and "Projected Principal Balance" for the fourth
Effective Cap Contract are as described in the following table:
Month of Payment Date Projected Principal Balance Strike Price
--------------------- --------------------------- ------------
December 2000 $17,401,248 7.139446%
January 2001 17,245,784 7.139446
February 2001 17,075,792 7.139446
March 2001 16,891,552 7.139447
April 2001 16,693,384 7.139447
May 2001 16,481,646 7.139447
June 2001 16,256,735 7.139447
July 2001 16,029,565 7.139447
August 2001 15,805,497 7.139447
September 2001 15,584,491 7.139447
October 2001 15,366,504 7.139447
November 2001 15,151,496 7.139447
December 2001 14,939,426 7.139447
January 2002 14,730,254 7.139447
February 2002 14,523,942 7.139447
March 2002 14,320,450 7.139447
April 2002 14,119,741 7.139447
May 2002 13,921,776 7.139447
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June 2002 13,726,519 7.139447
July 2002 13,533,932 7.139447
August 2002 13,343,981 7.139447
September 2002 13,156,628 7.139447
October 2002 12,971,839 7.139447
November 2002 12,789,578 7.139447
December 2002 12,609,813 7.139447
January 2003 12,432,509 7.139447
February 2003 12,257,632 7.139447
March 2003 12,085,150 7.139447
April 2003 11,915,226 7.139447
May 2003 11,747,241 7.139447
June 2003 11,581,750 7.139447
July 2003 5,103,349 7.14031
August 2003 3,137,802 7.146531
September 2003 3,093,517 7.146531
October 2003 3,049,839 7.146531
November 2003 3,006,761 7.146531
December 2003 2,964,274 7.146531
January 2004 2,922,369 7.146531
February 2004 2,881,040 7.146532
March 2004 2,840,278 7.146532
April 2004 2,800,075 7.146532
May 2004 2,760,425 7.146532
June 2004 2,721,319 7.146532
July 2004 2,682,750 7.146532
August 2004 2,644,711 7.146532
September 2004 2,607,195 7.146532
October 2004 2,570,194 7.146532
November 2004 2,533,701 7.146532
December 2004 2,497,711 7.146532
January 2005 2,462,215 7.146532
February 2005 2,427,208 7.146532
March 2005 2,392,681 7.146532
April 2005 2,358,630 7.146532
May 2005 2,325,048 7.146532
June 2005 2,291,927 7.146532
July 2005 1,363,954 7.15
After the Payment Date in July 2005, the fourth Effective Cap Contract
will terminate.
THE CAP CONTRACT COUNTERPARTIES
The Cap Contract Counterparties are Bear Stearns Financial Products,
Inc. ("BSFP"), The Royal Bank of Scotland plc ("RBS") and Credit Suisse First
Boston International ("CSFB").
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BSFP is a party to eight of the fourteen Cap Contracts. BSFP is
currently rated "AAA" by Standard & Poor's and "Aaa" by Moody's. RBS is a party
to five of the fourteen Cap Contracts. RBS is currently rated "A+" by Standard &
Poor's and "Aa3" by Moody's. CSFB is a party to one of the fourteen Cap
Contracts. CSFB is currently rated "AA" by Standard & Poor's and "A1" by
Moody's.
ALLOCATION OF REALIZED LOSSES
With respect to any defaulted Mortgage Loan that is finally liquidated,
through foreclosure sale, disposition of the related Mortgaged Property if
acquired on behalf of the Bondholders by deed in lieu of foreclosure, or
otherwise, the amount of loss realized, if any, will equal the portion of the
Principal Balance remaining, if any, plus interest thereon through the last day
of the month in which such Mortgage Loan was finally liquidated, after
application of all amounts recovered (net of amounts reimbursable to the Master
Servicer or the Subservicer for expenses, including attorneys' fees) towards
interest and principal owing on the Mortgage Loan. Such amount of loss realized
as "Realized Losses."
On each Payment Date, Realized Losses on the Mortgage Loans will be
covered as follows:
FIRST, any Realized Losses will result in cross-collateralization
payments to the extent of any shortfall in Accrued Certificate Interest or an
Overcollateralization Deficit;
SECOND, any Realized Losses will result in an increase in the Group 1
or Group 2 Principal Payment Amount payable on the Bonds from the Group 1 Net
Monthly Excess Cash Flow or Group 2 Net Monthly Excess Cash Flow as described in
clause (iv) of the definitions thereof; and
THIRD, any Realized Losses will result in cross-collateralization
payments to the extent the Overcollateralization Amount for either Loan Group is
less than the respective Required Overcollateralization Amount;
FOURTH, to the extent following payments to be made on any Payment Date
an Overcollateralization Deficit exists, the amount of such deficit shall be
allocated first, to the Class B Bonds, in reduction of the Bond Principal
Balance thereof, until reduced to zero; and
FIFTH, shall result in a draw on the Bond Insurance Policy.
Realized Losses shall not result in a reduction of the Bond Principal
Balance of the Class A Bonds, except to the extent described in clauses FIRST,
SECOND and THIRD above.
ADVANCES
Prior to each Payment Date, the Master Servicer is required under the
Servicing Agreement to make Advances (out of its own funds, advances made by a
Subservicer, or funds held in the Collection Account (as described in the
Prospectus) for future payment or withdrawal) with respect to any payments of
interest and principal (net of the related Servicing Fees) which were due on the
Non-High CLTV Loans on the immediately preceding Due Date and which are
delinquent on the business day next preceding the related Determination Date. In
addition, the Master Servicer is required to make such Advances with respect to
the High CLTV Loans, but only with respect to the interest portion of the
related monthly payment. With respect to a delinquent Balloon Payment, the
Master Servicer is not required to make an Advance of such delinquent Balloon
Payment. The Master Servicer will, however, make monthly Advances with respect
to Balloon Loans with delinquent Balloon Payments, in each case in an amount
equal to the assumed monthly principal and interest payment (net of the related
Servicing Fees) that would have been due on the related Due Date based on the
original principal amortization schedule for such Balloon Loan. The
"Determination Date" is the 15th day of the same month as the related Payment
Date, or if such 15th day is not a Business Day, the immediately preceding
Business Day.
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Such Advances are required to be made only to the extent they are
deemed by the Master Servicer to be recoverable from related late collections,
Insurance Proceeds, or Liquidation Proceeds with respect to the related Mortgage
Loan. The purpose of making such Advances is to maintain a regular cash flow to
the Bondholders, rather than to guarantee or insure against losses. Any failure
by the Master Servicer to make an Advance as required under the Servicing
Agreement will constitute a Servicing Default thereunder, in which case the
Indenture Trustee, as successor Master Servicer, will be obligated to make any
such Advance, in accordance with the terms of the Servicing Agreement.
All Advances will be reimbursable to the Master Servicer on a first
priority basis from late collections, Insurance Proceeds or Liquidation Proceeds
from the Mortgage Loan as to which such unreimbursed Advance was made. In
addition, any Advances previously made which are deemed by the Master Servicer
to be nonrecoverable from related late collections, Insurance Proceeds and
Liquidation Proceeds may be reimbursed to the Master Servicer out of any funds
in the Collection Account prior to payments on the Bonds.
THE PAYING AGENT
The Paying Agent shall initially be the Indenture Trustee. The Paying
Agent shall have the revocable power to withdraw funds from the Payment Account
for the purpose of making payments to the Bondholders.
OPTIONAL REDEMPTION
The Bonds may be redeemed in whole, but not in part, by the holder of
the Certificates on any Payment Date on or after the earlier of (i) the Payment
Date on which the sum of the aggregate Principal Balance of the Mortgage Loans
as of the end of the prior Due Period is less than or equal to 20% of the
Cut-off Date Balance and (ii) the Payment Date occurring in December 2010. The
purchase price will be equal to 100% of the aggregate outstanding Bond Principal
Balance and accrued and unpaid interest thereon (including any Unpaid Interest
Shortfalls and Basis Risk Shortfall Carry-Forward Amount) at the Bond Interest
Rate through the date on which the Bonds are redeemed in full together with all
amounts due and owing to the Indenture Trustee. The "Final Scheduled Payment
Date" with respect to the Bonds is the Payment Date occurring in June 2031.
DESCRIPTION OF THE BOND INSURANCE POLICY
On the Closing Date, the Bond Insurer will issue the Bond Insurance
Policy in favor of the Indenture Trustee on behalf of the Class A Bondholders.
The Bond Insurance Policy will unconditionally and irrevocably guarantee certain
payments on the Class A Bonds. Draws will be made on the Bond Insurance Policy
(any such draw, an "Insured Amount") to cover related Deficiency Amounts and
Preference Amounts. A "Deficiency Amount" means (A) with respect to each Payment
Date prior to the Final Scheduled Payment Date, an amount equal to the sum of
(i) the excess, if any, of the aggregate amount of Accrued Bond Interest on the
Class A Bonds over the sum of the Group 1 Available Funds and Group 2 Available
Funds for such Payment Date and (ii) any Overcollateralization Deficit with
respect to the Class A Bonds; (B) with respect to the Final Scheduled Payment
Date, an amount equal to the sum of (i) the excess, if any, of the aggregate
amount of Accrued Bond Interest on the Class A Bonds over the sum of the Group 1
Available Funds and Group 2 Available Funds for such Payment Date and (ii) the
excess, if any, of the Bond Principal Balance of all outstanding Class A Bonds
due on such Final Scheduled Payment Date over the Group 1 Available Funds and
Group 2 Available Funds not used to pay the Accrued Bond Interest on the Class A
Bonds and Class B Bonds for such Final Scheduled Payment Date; and (C) for any
date on which the acceleration of the Bonds has been directed or consented to by
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the Bond Insurer pursuant to Section 5.02 of the Indenture, the amount required
to pay the Bond Principal Balance of the Class A Bonds in full, together with
accrued and unpaid interest thereon through the date of payment of such
accelerated Bonds. 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 available for
distribution on such Payment Date. A "Preference Amount" means any amount
previously distributed to a Class A Bondholder that is recoverable and sought to
be recovered as a voidable preference by a trustee in bankruptcy pursuant to the
United States Bankruptcy Code (11 U.S.C.), as amended from time to time, in
accordance with a final nonappealable order of a court having competent
jurisdiction. Deferred Interest, Prepayment Interest Shortfalls, Relief Act
Shortfalls and any Basis Risk Shortfalls will not be covered by the Bond
Insurance Policy. Pursuant to the terms of the Indenture, draws under the Bond
Insurance Policy in respect of any Overcollateralization Deficit with respect to
the Class A Bonds will be paid to the Class A Bondholders by the Paying Agent as
principal. In the absence of payments under the Bond Insurance Policy, Class A
Bondholders will directly bear the credit risks associated with their investment
to the extent such risks are not covered by the Group 1 or Group 2
Overcollateralization Amount or otherwise.
CERTAIN YIELD AND PREPAYMENT 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. Such yield may be adversely affected by a higher or
lower than anticipated rate of principal payments on the Mortgage Loans in the
Trust Fund. The rate of principal payments on such Mortgage Loans will in turn
be affected by the amortization schedules of the Mortgage Loans, the rate and
timing of principal prepayments thereon by the Mortgagors and liquidations of
defaulted Mortgage Loans and purchases of Mortgage Loans due to certain breaches
of representations and warranties. The timing of changes in the rate of
prepayments, liquidations and repurchases may, and the timing of losses will,
significantly affect the yield to an investor, even if the average rate of
principal payments experienced over time is consistent with an investor's
expectation. Since the rate and timing of principal payments on the Mortgage
Loans will depend on future events and on a variety of factors (as described
more fully herein and in the Prospectus under "Yield Considerations" and
"Maturity and Prepayment Considerations"), no assurance can be given as to such
rate or the timing of principal payments on the Bonds.
Payments on the Class A-1 Bonds and Class B Bonds will primarily be
affected by payments on the Group 1 Loans, and payments on the Class A-2 Bonds
will primarily be affected by payments on the Group 2 Loans. However, payments
from the non-related Mortgage Loans may be made in respect of
Cross-Collateralized Losses on the Mortgage Loans to the extent described
herein.
The Mortgage Loans may be prepaid in full or in part at any time,
although approximately 52.84% and 39.52% of the Group 1 Loans and Group 2 Loans,
respectively, provide for payment of a prepayment charge. The Fixed Rate Loans
contain due-on-sale clauses. The ARM Loans generally are assumable under certain
circumstances if, in the sole judgment of the Master Servicer or Subservicer,
the prospective purchaser of a Mortgaged Property is creditworthy and the
security for such Mortgage Loan is not impaired by the assumption. In the event
the Master Servicer or any Subservicer does not approve an assumption, the
related Mortgage Loan will be due on sale. The Master Servicer shall enforce any
due-on-sale clause contained in any Mortgage Note or Mortgage, to the extent
permitted under applicable law and governmental regulations; provided, however,
if the Master Servicer determines that it is reasonably likely that any
Mortgagor will bring, or if any Mortgagor does bring, legal action to declare
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invalid or otherwise avoid enforcement of a due-on-sale clause contained in any
Mortgage Note or Mortgage, the Master Servicer shall not be required to enforce
the due-on-sale clause or to contest such action. The extent to which the
Mortgage Loans are assumed by purchasers of the Mortgaged Properties rather than
prepaid by the related Mortgagors in connection with the sales of the Mortgaged
Properties will affect the weighted average life of the Bonds and may result in
a prepayment experience on the Mortgage Loans that differs from that on other
mortgage loans. See "Maturity and Prepayment Considerations" in the Prospectus.
Prepayments, liquidations and purchases of the Mortgage Loans will result in
payments to holders of the Bonds of principal amounts which would otherwise be
distributed over the remaining terms of the Mortgage Loans. Factors affecting
prepayment (including defaults and liquidations) of mortgage loans include
changes in mortgagors' housing needs, job transfers, unemployment, mortgagors'
net equity in the mortgaged properties, changes in the value of the mortgaged
properties, mortgage market interest rates and servicing decisions.
The yield to investors on the Class B Bonds will be extremely sensitive
to losses on the Mortgage Loans (and the timing thereof), to the extent such
losses are not covered by the Group 1 or Group 2 Overcollateralization Amount or
the Group 1 or Group 2 Net Monthly Excess Cash Flow, because the entire amount
of such losses will be allocable to the Class B Bonds as described herein.
Furthermore, as described herein, the timing of receipt of principal and
interest by the Class B Bonds may be adversely affected by losses even if the
Class B Bonds do not ultimately bear such loss. In addition, to the extent
losses are allocated to the Class B Bonds, they will only be reimbursed to the
extent of related net monthly excess cash flow remaining after reimbursement of
the bond insurer and payment of interest and principal and coverage for losses
on the Class A Bonds.
Increases in the monthly payments of the ARM Loans to an amount in
excess of the monthly payment required at the time of origination may result in
a default rate higher than that on level payment mortgage loans, particularly
since the Mortgagor under each ARM Loan was qualified on the basis of the
Mortgage Rate in effect at origination. The repayment of such ARM Loans will be
dependent on the ability of the Mortgagor to make larger monthly payments as the
Mortgage Rate increases.
The rate of default on Mortgage Loans which are refinance or limited
documentation mortgage loans, and on Mortgage Loans with high Loan-to-Value
Ratios (or Combined 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. In addition, because some of the borrowers of the Fixed Rate Loans have
Balloon Loans requiring a relatively large single payment upon maturity, it is
possible that the default risk associated with Balloon Loans is greater than
that associated with fully-amortizing mortgage loans. See "Maturity and
Prepayment Considerations" in the Prospectus.
Negative amortization may increase the risk of default. The outstanding
principal balance of a Neg Am Loan increases by the amount of interest which is
deferred as described in this prospectus supplement. During periods in which the
outstanding principal balance of a Neg Am Loan is increasing due to the addition
of Deferred Interest thereto, the increasing principal balance of the Neg Am
Loan may approach or exceed the value of the related mortgaged property, thus
increasing the likelihood of defaults as well as the amount of any loss
experienced with respect to any such Neg Am Loan that is required to be
liquidated. Furthermore, each Neg Am Loan provides for the payment of any
remaining unamortized principal balance of the Neg Am Loan (due to the addition
of Deferred Interest, if any, to the principal balance of the Neg Am Loan) in a
single payment at the maturity of the Neg Am Loan. Because the
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mortgagors may be so required to make a larger single payment upon maturity, it
is possible that the default risk associated with the Neg Am Loans is greater
than that associated with fully amortizing mortgage loans.
The amount of interest otherwise payable to holders of the Bonds will
be reduced by any interest shortfalls to the extent not covered by the Master
Servicer as described herein. See "Yield Considerations" in the Prospectus and
"Description of the Bonds--Interest Payments on the Bonds" herein for a
discussion of the effect of principal prepayments on the Mortgage Loans on the
yield to maturity of the Bonds and certain possible shortfalls in the collection
of interest.
In addition, the yield to maturity of the Bonds will depend on, among
other things, the price paid by the holders of the Bonds and the then applicable
Bond Interest Rate. The extent to which the yield to maturity of a Bond is
sensitive to prepayments will depend, in part, upon the degree to which it is
purchased at a discount or premium. In general, if a Bond is purchased at a
premium and principal payments thereon occur at a rate faster than anticipated
at the time of purchase, the investor'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 and principal payments thereon occur at a rate slower than that
assumed at the time of purchase, the investor's actual yield to maturity will be
lower than that assumed at the time of purchase. For additional considerations
relating to the yield on the Bonds, see "Yield Considerations" and "Maturity and
Prepayment Considerations" in the Prospectus.
In addition, the yield to maturity on the Bonds may be affected by
shortfalls with respect to interest in the event that the interest accrued on
the Bonds at the Bond Interest Rate is greater than the Available Funds Rate. In
such event, the resulting shortfall will only be payable to the extent funds are
available therefor as described in "Description of the Bonds-Priority of
Payment."
The bond interest rate with respect to each class of Bonds changes each
month and is based upon One-Month LIBOR plus the related Bond Margin, limited by
the Maximum Bond Interest Rate and the Available Funds Rate. However, the
Mortgage Rate of each ARM Loan is based generally upon a different index,
Six-Month LIBOR or One-Year U.S. Treasury, and the related Gross Margin, and
generally adjusts semi-annually or annually, commencing, in many cases, after an
initial fixed-rate period. In addition, the Mortgage Rate of each Fixed Rate
Loan is fixed. One-Month LIBOR and the indices on the ARM loans may respond
differently to economic and market factors, and there is not necessarily any
correlation between them. Moreover, the ARM Loans are subject to Initial Period
Rate Caps, Periodic Rate Caps, Maximum Mortgage Rates and Minimum Mortgage
Rates. Thus, it is possible, for example, that One-Month LIBOR may rise during
periods in which Six-Month LIBOR or One-Year U.S. Treasury is stable or falling
or that, even if both One-Month LIBOR and Six-Month LIBOR or One- Year U.S.
Treasury rise during the same period, One-Month LIBOR may rise much more rapidly
than Six-Month LIBOR or One-Year U.S. Treasury. See "Description of the
Bonds--Interest Distributions on the Bonds."
The Cap Contracts will be assigned to the Trust and will provide some
protection against any resulting Basis Risk Shortfall on the Class A-1 Bonds and
Class B Bonds. However, payments under the Cap Contracts are based on notional
balances and not on the actual balances of the Mortgage Loans. Therefore, the
Cap Contracts may not provide sufficient funds to cover such Basis Risk
Shortfalls on the Class A-1 Bonds and Class B Bonds. In addition, payments under
the Cap Contracts are limited to a specified rate in effect from time to time.
Basis Risk Shortfalls are not covered by the Bond Insurance Policy and may
remain unpaid on the Final Scheduled Payment Date.
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 payment to the
investor of each dollar distributed in reduction of
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<PAGE>
principal of such security (assuming no losses). The weighted average life of
the Bonds will be influenced by, among other things, the rate at which principal
of the Mortgage Loans is paid, which may be in the form of scheduled
amortization, prepayments or liquidations. Because the amortization schedule of
each ARM Loan will generally be recalculated semi-annually or annually after the
initial Adjustment Date for such Mortgage Loan, any partial prepayments thereof
will not reduce the term to maturity of such ARM Loan. In addition, an increase
in the Mortgage Rate on an ARM 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 ARM 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.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The prepayment model used in this Prospectus
Supplement with respect to the Mortgage Loans, CPR, represents an assumed
constant rate of prepayment each month relative to the then outstanding
principal balance of a pool of mortgage loans. To assume a 23% CPR or any other
CPR percentage is to assume that the stated percentage of the outstanding
principal balance of the related pool is prepaid over the course of a year. No
representation is made that the Mortgage Loans will prepay at these or any other
rates.
The tables set forth below have been prepared on the basis of certain
assumptions as described below regarding the weighted average characteristics of
the Mortgage Loans that are expected to be included in the Trust Fund as
described under "Description of the Mortgage Pool" herein and the performance
thereof. The tables assume, among other things, that: (i) the Mortgage Loans
consist of twelve hypothetical mortgage loans with the following
characteristics:
<TABLE>
<CAPTION>
Remaining
Term to
Loan Net Mortgage Age (in Maturity (in
Number Principal Balance Mortgage Rate Rate Months Months) Index
------ ----------------- ------------- ---- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C>
1 8,938,174 9.003412% 8.464740% 5 355 6 Mth Libor
2 1,046,629 9.044535 8.548442 5 355 1 Yr CMT
3 293,511,626 9.219422 8.547239 3 357 6 Mth Libor
4 42,558,667 9.414704 8.813891 4 356 6 Mth Libor
5 13,513,383 9.202598 8.649229 6 354 6 Mth Libor
6 1,805,356 10.879106 10.258219 7 317 N/A
7 113,232,141 11.599692 11.187992 43 316 6 Mth Libor
8 4,328,421 12.017256 11.605556 51 309 1 Yr CMT
9 722,272 15.596578 15.184878 55 305 6 Mth Libor
10 7,329,272 14.100302 13.563602 18 161 N/A
11 2,472,240 13.448407 12.911707 21 159 N/A
12 7,617,978 14.225092 13.688392 36 191 N/A
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Months
Months to Between
Next Rate Rate Initial Subsequent Maximum Minimum
Loan Adjustment Adjustment Periodic Periodic Mortgage Mortgage
Number Gross Margin Date Dates Rate Cap Rate Cap Rate Rate
------ ------------ ---- ----- -------- -------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
1 3.735% 3 6 1.089% 1.089% 14.948% 4.732%
2 2.938 40 12 3.636 2.000 14.568 2.938
3 4.061 21 6 3.000 1.009 15.231 4.304
4 4.242 33 6 3.000 1.008 15.384 4.910
5 4.368 54 6 3.000 1.000 15.203 4.847
6 N/A N/A N/A N/A N/A N/A N/A
7 4.762 3 6 1.901 1.121 14.893 6.935
8 6.072 8 12 2.608 2.000 15.543 9.386
9 8.867 4 6 1.682 1.392 18.477 12.096
10 N/A N/A N/A N/A N/A N/A N/A
11 N/A N/A N/A N/A N/A N/A N/A
12 N/A N/A N/A N/A N/A N/A N/A
</TABLE>
(ii) the hypothetical mortgage loan numbers 1 through 8 above represent the
Group 1 Loans; (iii) the hypothetical mortgage loan numbers 9 through 12 above
represent the Group 2 Loans; (iv) the hypothetical Mortgage Loans with an Index
indicated as "6 Mth LIBOR" all have an Index of Six-Month LIBOR, which remains
constant at 6.70% per annum; (v) the hypothetical Mortgage Loans with an Index
indicated as "1 Yr CMT" all have an Index of One-Year U.S. Treasury, which
remains constant at 5.91% per annum; (vi) One-Month LIBOR remains constant at
6.62% per annum; (vii) hypothetical mortgage loan number 11 is a balloon loan,
with a remaining amortization term of 339 months; (viii) payments on the Bonds
are based upon the actual number of days in the month and a 360-day year, and
are received, in cash, on the 25th day of each month, commencing in December
2000; (ix) there are no delinquencies or losses on the Mortgage Loans and
principal payments on the Mortgage Loans are timely received together with
prepayments, if any, at the respective percentages of the CPR set forth in the
following table; (x) there are no repurchases of the Mortgage Loans; (xi) all of
the hypothetical mortgage loans are fully-amortizing; (xii) there is no
Prepayment Interest Shortfall, Basis Risk Shortfall or any other interest
shortfall in any month; (xiii) the scheduled monthly payment for the Mortgage
Loan is calculated based on its principal balance, Mortgage Rate and remaining
term to maturity such that such Mortgage Loan will amortize in amounts
sufficient to repay the remaining principal balance of such Mortgage Loan by its
remaining term to maturity; (xiv) with respect to each ARM Loan, the Index
remains constant at the rate set forth above and the Mortgage Rate on each ARM
Loan is adjusted on the next Adjustment Date (and on subsequent Adjustment
Dates, as necessary) to equal the Index plus the applicable Gross Margin,
subject to the Maximum Mortgage Rates, Minimum Mortgage Rates and Periodic Rate
Caps listed above; (xv) none of the Mortgage Loans provide for negative
amortization; (xvi) the monthly payment on each ARM Loan is adjusted on the Due
Date immediately following the next related Adjustment Date (and on subsequent
Adjustment Dates, as necessary) to equal a fully amortizing payment as described
in clause (xiii) above; (xvii) payments on the Mortgage Loans earn no
reinvestment return; (xviii) the sum of the Owner Trustee Fee Rate, the
Indenture Trustee Fee Rate and the Policy Premium Rate is 0.1867% per annum;
(xix) there are no additional ongoing Trust Fund expenses payable out of the
Trust Fund; (xx) the Issuer exercises its option to redeem the Bonds on the
first Payment Date on which it would be permitted to do so as described in
"Description of the Bonds--Optional Redemption" herein; and (xxi) the Bonds will
be purchased on November 27, 2000.
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<PAGE>
The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in constructing the table set forth below,
which is hypothetical in nature and is provided only to give a general sense of
how the principal cash flows might behave under varying prepayment scenarios.
For example, it is very unlikely that the Mortgage Loans will prepay at a
constant rate until maturity or that all of the Mortgage Loans will prepay at
the same level of CPR. Moreover, the diverse remaining terms to stated maturity
of the Mortgage Loans could produce slower or faster principal payments than
indicated in the table at the various constant prepayment speeds specified, even
if the weighted average remaining term to stated maturity of the Mortgage Loans
is as assumed. Any difference between such assumptions and the actual
characteristics and performance of the Mortgage Loans, or actual prepayment
experience, will affect the percentages of initial Bond Principal Balance
outstanding over time and the weighted average life of the Bonds. Subject to the
foregoing discussion and assumptions, the following table indicates the weighted
average life of the Bonds, and sets forth the percentages of the initial Bond
Principal Balance of the Bonds that would be outstanding after each of the dates
shown at various percentages of CPR.
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<PAGE>
<TABLE>
<CAPTION>
PERCENT OF INITIAL BOND PRINCIPAL BALANCE OUTSTANDING AT THE
FOLLOWING PERCENTAGES OF CPR
CLASS A-1 BONDS AND CLASS B BONDS
---------------------------------
CPR 0% 10% 20% 23% 30% 40% 50%
--- -- --- --- --- --- --- ---
PAYMENT DATE
------------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage........................... 100% 100% 100% 100% 100% 100% 100%
November 25, 2001............................ 99 89 79 76 69 59 49
November 25, 2002............................ 99 80 63 58 48 35 24
November 25, 2003............................ 98 71 50 44 33 20 0
November 25, 2004............................ 97 63 39 34 23 0 0
November 25, 2005............................ 96 56 31 26 0 0 0
November 25, 2006............................ 95 50 25 0 0 0 0
November 25, 2007............................ 94 45 0 0 0 0 0
November 25, 2008............................ 93 40 0 0 0 0 0
November 25, 2009............................ 92 35 0 0 0 0 0
November 25, 2010............................ 91 31 0 0 0 0 0
December 25, 2010 and thereafter............. 0 0 0 0 0 0 0
Weighted Average Life
in years (to Call)*..................... 9.68 6.00 3.48 2.99 2.21 1.57 1.17
</TABLE>
-----------------
(*) The weighted average life of a Bond is determined by (i) multiplying
the net reduction, if any, of Bond Principal Balance by the number of
years from the date of issuance of the Bond to the related Payment
Date, (ii) adding the results, and (iii) dividing the sum by the
aggregate of the net reductions of the Bond Principal Balance described
in (i) above.
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<PAGE>
<TABLE>
<CAPTION>
PERCENT OF INITIAL BOND PRINCIPAL BALANCE OUTSTANDING AT THE
FOLLOWING PERCENTAGES OF CPR
CLASS A-2 BONDS
---------------
CPR 0% 10% 20% 23% 30% 40% 50%
--- -- --- --- --- --- --- ---
PAYMENT DATE
------------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage.............................. 100% 100% 100% 100% 100% 100% 100%
November 25, 2001............................... 98 88 78 75 68 58 49
November 25, 2002............................... 96 77 61 56 46 34 23
November 25, 2003............................... 93 68 47 42 31 19 0
November 25, 2004............................... 90 59 37 31 21 0 0
November 25, 2005............................... 87 51 28 23 0 0 0
November 25, 2006............................... 83 44 22 0 0 0 0
November 25, 2007............................... 79 37 0 0 0 0 0
November 25, 2008............................... 74 31 0 0 0 0 0
November 25, 2009............................... 68 26 0 0 0 0 0
November 25, 2010............................... 61 21 0 0 0 0 0
December 25, 2010 and thereafter................ 0 0 0 0 0 0 0
Weighted Average Life
in Years (to Call)*.................... 8.56 5.46 3.32 2.88 2.16 1.54 1.15
</TABLE>
----------------
(*) The weighted average life of a Bond is determined by (i) multiplying
the net reduction, if any, of Bond Principal Balance by the number of
years from the date of issuance of the Bond to the related Payment
Date, (ii) adding the results, and (iii) dividing the sum by the
aggregate of the net reductions of the Bond Principal Balance described
in (i) above.
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<PAGE>
DESCRIPTION OF THE SERVICING AGREEMENT
THE MASTER SERVICER
Impac Funding (in its capacity as master servicer, the "Master
Servicer") will act as master servicer for the Mortgage Loans pursuant to the
Servicing Agreement. See "Impac Funding" in the Prospectus. Impac Funding has
entered into subservicing arrangement with Wendover and Option One. Wendover
intends to transfer all of its subservicing for the Mortgage Loans to
Countrywide as described herein. Notwithstanding these agreements, Impac Funding
will remain primarily liable for servicing the Mortgage Loans.
In addition to the Servicing Defaults described in the Prospectus, the
Bond Insurer will have the right to terminate Impac Funding as Master Servicer
with respect to the Group 1 Loans or Group 2 Loans if certain loss and
delinquency tests in the Servicing Agreement are failed. In the event of a
Servicing Default or a failure of the loss and delinquency tests in the
Servicing Agreement and the replacement of the Master Servicer, any subservicing
arrangements with the current subservicers shall remain in place.
THE SUBSERVICERS
97.29%, 2.35% and 0.36% of the Group 1 Loans will initially be
subserviced by Wendover, Option One and Countrywide, respectively. All of the
Group 2 Loans will initially be subserviced by Wendover. However, the master
servicer has entered into a contract to transfer the subservicing with respect
to the Group 1 Loans currently subserviced by Wendover and the ARM Loans in Loan
Group 2 to Countrywide on or about January 1, 2001.
Wendover is a subservicer of residential, consumer and commercial
mortgage loans in 50 states. Wendover provides origination and servicing for
Federal Housing Administration home equity conversion mortgages, specialized
asset management and default servicing for non-performing product, and special
servicing activities for government entities. Wendover is located in Greensboro,
North Carolina. Wendover is an approved servicer in good standing with Freddie
Mac.
Countrywide, a New York corporation and a subsidiary of Countrywide
Credit Industries, Inc., is engaged primarily in the mortgage banking business,
and originates, buys, sells and services mortgage loans. Countrywide originates
mortgage loans nationwide, using a retail branch system and mortgage loan
brokers and correspondents. Countrywide's mortgage loans are mostly first-lien,
fixed or adjustable rate mortgage loans secured by single-family residences.
Countrywide is an approved servicer for Fannie Mae and Freddie Mac in good
standing. The principal executive offices of Countrywide are located at 4500
Park Granada, Calabasas, California 91302.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The Servicing Fee for each Mortgage Loan is payable out of the interest
payments on such Mortgage Loan. The "Servicing Fee Rate" in respect of each ARM
Loan and each Fixed Rate Loan will be equal to 0.405% per annum and 0.530% per
annum, respectively, of the outstanding principal balance of such Mortgage Loan.
The Servicing Fee consists of (a) servicing compensation payable to the Master
Servicer in respect of its master servicing responsibilities in an amount equal
to 0.030% per annum and (b) subservicing and other related compensation payable
to the Subservicer or to the Master Servicer if the Master Servicer is directly
servicing the loan, equal to the related Servicing Fee Rate minus 0.030% per
annum. The Master Servicer or the related Subservicer will be entitled to any
late charges, prepayment penalties and other additional similar servicing
compensation, to the extent received by the Master Servicer or the related
Subservicer.
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<PAGE>
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 Trust Agreement and 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.
EVENTS OF DEFAULT
An "Event of Default" with respect to the Bonds is defined in the
Indenture as follows: (a) the failure to pay (i) Accrued Bond Interest on any
Class of Bonds or the Principal Distribution Amount with respect to a Payment
Date on such Payment Date, or (ii) any Unpaid Interest Shortfall with respect to
a Payment Date, but in the case of clause (ii) only to the extent funds are
available to make such payment as described under "Description of the
Bonds--Priority of Payment"; (b) a default by the Issuer in the observance of
certain negative covenants in the Indenture; (c) a default by the Issuer in the
observance of any other covenant of the Indenture, and the continuation of any
such default for a period of thirty days after notice to the Issuer by the
Indenture Trustee, by the Bond Insurer or by the Holders of at least 25% of the
aggregate Bond Principal Balance of the Bonds, as applicable; (d) any
representation or warranty made by the Issuer in the Indenture or in any Bond or
other writing delivered pursuant thereto having been incorrect in a material
respect as of the time made, and the circumstance in respect of which such
representation or warranty is incorrect not having been cured within thirty days
after notice thereof is given to the Issuer by the Indenture Trustee, by the
Bond Insurer or by the Holders of at least 25% of the aggregate Bond Principal
Balance of the Bonds, as applicable; (e) certain events of bankruptcy,
insolvency, receivership or reorganization of the Issuer; or (f) the failure on
the Final Scheduled Payment Date to reduce the Bond Principal Balances of the
Bonds to zero.
RIGHTS UPON EVENT OF DEFAULT
In case an Event of Default should occur and be continuing with respect
to the Bonds, then and in every such case the Indenture Trustee at the written
direction of Bondholders representing more than 50% of the aggregate Bond
Principal Balance of the Bonds then outstanding, shall declare the principal of
the Bonds, together with accrued and unpaid interest thereon through the date of
acceleration, to be due and payable. Such declaration may under certain
circumstances be rescinded by Bondholders representing more than 50% of the
aggregate Bond Principal Balance of the Bonds.
If, following an Event of Default, the Bonds have been declared to be
due and payable, the Indenture Trustee may (provided that the Bondholders
representing more than 50% of the aggregate Bond Principal Balance of the Bonds
have not directed the Indenture Trustee to sell the assets included in the Trust
Estate) refrain from selling such assets and continue to apply all amounts
received on such assets to payments due on the Bonds in accordance with their
terms, notwithstanding the acceleration of the maturity of such Bonds. The
Indenture Trustee, however, must sell or cause to be sold the assets included in
the Trust Estate if collections in respect of such assets are determined to be
insufficient to pay certain expenses payable under the Indenture and to make all
scheduled payments on the Bonds, in which case payments will be made on the
Bonds in the same manner as described in the next sentence with regard to
instances in which such assets are sold. In addition, upon an Event of Default
the Indenture Trustee may sell or cause to be sold the assets included in the
Trust Estate, in which event the collections on, or the proceeds from the sale
of, such assets will be applied as provided below: (i) to amounts owed to the
Indenture Trustee which have not been previously paid; (ii) to the Bond Insurer
in respect of any unpaid premium on the Bond Insurance Policy; (iii) to the
Bondholders, the amount of interest then due and unpaid on the Bonds (including
Unpaid Interest Shortfalls but not including any
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<PAGE>
Basis Risk Shortfall Carry-Forward Amount), first to the Class A Bondholders,
and second to the Class B Bondholders; (iv) to the Bondholders, the amount of
principal then due and unpaid on the Bonds, pro rata, without preference or
priority of any kind; (v) to the Bond Insurer for any unreimbursed Insured
Amount or any other funds owing to it under the Insurance Agreement; (vi) to the
Bondholders, first to the Class A Bonds, and second to the Class B Bonds, the
amount of any related Basis Risk Shortfall Carry-Forward Amount not previously
paid; and (vii) to the Issuer.
Subject to the provisions of the Indenture relating to the duties of
the Indenture Trustee, in case an Event of Default shall occur and be
continuing, the Indenture Trustee shall be under no obligation to exercise any
of the rights and powers under the Indenture at the request or direction of any
of the Bondholders, unless such Bondholders shall have offered to the Indenture
Trustee security or indemnity satisfactory to it against the costs, expenses and
liabilities which might be incurred by it in compliance with such request or
direction. Subject to such provisions for indemnification and certain
limitations contained in the Indenture, Bondholders representing more than 50%
of the aggregate Bond Principal Balance of the Bonds shall have the right to
direct the time, method, and place of conducting any proceeding or any remedy
available to the Indenture Trustee or exercising any trust or power conferred on
the Indenture Trustee with respect to such Bonds; and Bondholders representing
more than 50% of the aggregate Bond Principal Balance of the Bonds may, in
certain cases, waive any default with respect thereto, except a default in the
payment of principal or interest or a default in respect of a covenant or
provision of the Indenture that cannot be modified without the waiver or consent
of the holder of each outstanding Bond affected thereby. So long as the Bond
Insurer is not in default, the Bond Insurer has, and may exercise without the
consent of the Class A Bondholders, all of the rights of the Class A Bondholders
under the Indenture.
LIMITATION ON SUITS
No Bondholder will have any right to institute any proceedings with
respect to the Indenture unless (1) such Bondholder has previously given written
notice to the Indenture Trustee of a continuing Event of Default; (2)
Bondholders representing not less than 25% of the aggregate Bond Principal
Balance of the Bonds have made written request to the Indenture Trustee to
institute proceedings in respect of such Event of Default in its own name as
Indenture Trustee; (3) such Bondholders have offered to the Indenture Trustee
indemnity satisfactory to it against the costs, expenses and liabilities to be
incurred in compliance with such request; (4) for 60 days after its receipt of
such notice, request and offer of indemnity the Indenture Trustee has failed to
institute any such proceedings; and (5) no direction inconsistent with such
written request has been given to the Indenture Trustee during such 60-day
period by the Bondholders representing more than 50% of the aggregate Bond
Principal Balance of the Bonds.
THE INDENTURE TRUSTEE
The Indenture Trustee may resign at any time, or in the event there is
a conflict of interest with respect to either class of Bonds, as Indenture
Trustee with respect to one or both classes of Bonds, in which event the Issuer
will be obligated to appoint a successor Indenture Trustee for the Bonds or such
class of Bonds within the period specified in the Indenture. The Indenture
Trustee also may be removed at any time by the Bond Insurer or Bondholders
representing more than 50% of the aggregate Bond Principal Balance of the Bonds
if the Indenture Trustee ceases to be eligible to continue as such under the
Indenture or if the Indenture Trustee becomes incapable of acting, bankrupt,
insolvent or if a receiver or public officer takes charge of the Indenture
Trustee or its property. 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.
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<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, the Bonds will be characterized as
indebtedness and not as representing an ownership interest in the Trust Fund or
an equity interest in the Issuer or the Company. In addition, for federal income
tax purposes, the Issuer will not be (i) classified as an association taxable as
a corporation for federal income tax purposes, (ii) a taxable mortgage pool as
defined in Section 7701(i) of the Code, or (iii) a "publicly traded partnership"
as defined in Treasury Regulation Section 1.7704-1. The Bonds will not be
treated as having been issued with "original issue discount" (as defined in the
Prospectus). The prepayment assumption that will be used in determining the rate
of amortization of market discount and premium, if any, for federal income tax
purposes will be based on the assumption that, subsequent to the date of any
determination the Mortgage Loans will prepay at rates equal to 23% CPR. No
representation is made that the Mortgage Loans will prepay at those rates or at
any other rate. See "Federal Income Tax Consequences" in the Prospectus.
The Bonds will not be treated as assets described in Section
7701(a)(19)(C) of the Code or "real estate assets" under Section 856(c)(4)(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.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in an Underwriting
Agreement, dated November 21, 2000 (the "Underwriting Agreement"), among
Countrywide Securities Corporation (the "Underwriter"), the Company, Impac
Funding and Impac Holdings, the Underwriter has agreed to purchase from the
Company and the Company has agreed to sell to the Underwriter the Bonds. It is
expected that delivery of the Bonds will be made only in book-entry form through
the Same Day Funds Settlement System of DTC on or about November 27, 2000,
against payment therefor in immediately available funds.
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 $490,379,300, before the deduction of expenses payable by the
Company estimated to be approximately $600,000. 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 Underwriting Agreement provides that the Company, Impac Funding and
Impac Holdings will jointly and severally indemnify the Underwriter, and that
under limited circumstances the Underwriter will indemnify the Company, Impac
Funding and Impac Holdings against certain civil
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<PAGE>
liabilities under the Securities Act of 1933, or contribute to payments required
to be made in respect thereof.
There can be no assurance that a secondary market for the Bonds will
develop or, if it does develop, that it will continue or provide the Bondholders
with sufficient liquidity of investment. The primary source of information
available to investors concerning the Bonds will be the monthly statements
discussed in the Prospectus under "Description of the Bonds--Reports to
Bondholders," which will include information as to the outstanding principal
balance of the Bonds. There can be no assurance that any additional information
regarding the Bonds will be available through any other source. In addition, the
Company is not aware of any source through which price information about the
Bonds will be generally available on an ongoing basis. The limited nature of
such information regarding the Bonds may adversely affect the liquidity of the
Bonds, even if a secondary market for the Bonds becomes available.
The Underwriter is an affiliate of Countrywide, which is expected to
act as subservicer with respect to the Group 1 Loans. See "The Servicing
Agreement--The Subservicers" herein.
LEGAL OPINIONS
Certain legal matters relating to the Bonds will be passed upon for the
Company by Thacher Proffitt & Wood, New York, New York and for the Underwriter
by Brown & Wood LLP, New York, New York. Brown & Wood LLP represents Impac
Holdings on certain matters from time to time.
RATINGS
It is a condition of the issuance of the Class A Bonds that they be
rated "AAA" by Standard & Poor's, a division of The McGraw-Hill Companies, Inc.
("Standard & Poor's") and "Aaa" by Moody's Investors Service, Inc. ("Moody's").
It is a condition of the issuance of the Class B Bonds that they be rated no
lower than "BBB" by Standard & Poor's and "Baa2" by Moody's.
Standard & Poor's ratings on mortgage pass-through securities address
the likelihood of the receipt by Bondholders of payments required under the
Indenture. Standard & Poor's ratings take into consideration the credit quality
of the mortgage pool, structural and legal aspects associated with the Bonds,
and the extent to which the payment stream in the mortgage pool is adequate to
make payments required under the Bonds. Standard & Poor's rating on the Bonds
does not, however, constitute a statement regarding frequency of prepayments on
the mortgages. See "Certain Yield and Prepayment Considerations" herein. The
ratings issued by Standard & Poor's on payment of principal and interest do not
cover the payment of the Basis Risk Shortfall Carry-Forward Amount.
The rating process of Moody's addresses the structural and legal
aspects associated with the Bonds, including the nature of the underlying
mortgage loans. The ratings assigned to the Bonds do not represent any
assessment of the likelihood or rate of principal prepayments. The ratings do
not address the possibility that Bondholders might suffer a lower than
anticipated yield. The ratings do not address the likelihood that Bondholders
will be paid any Prepayment Interest Shortfalls, Relief Act Shortfalls or the
Basis Risk Shortfall Carry-Forward Amount.
The Company has not requested a rating on the Bonds by any rating
agency other than Standard & Poor's and Moody's. 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 Standard & Poor's and Moody's.
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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. Each security rating should be evaluated
independently of any other security rating. In the event that the ratings
initially assigned to the Bonds are subsequently lowered for any reason, no
person or entity is obligated to provide any additional support or credit
enhancement with respect to the Bonds.
LEGAL INVESTMENT
The Bonds will not constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA")
because the Mortgage Pool will include Mortgage Loans secured by junior liens.
See "Legal Investment" in the Prospectus.
The Company makes no representations as to the proper characterization
of the Bonds for legal investment or other purposes, or as to the ability of
particular investors to purchase the Bonds under applicable legal investment
restrictions. These uncertainties may adversely affect the liquidity of the
Bonds. Accordingly, all institutions whose investment activities are subject to
legal investment laws and regulations, regulatory capital requirements or review
by regulatory authorities should consult with their legal advisors in
determining whether and to what extent the Bonds constitute a legal investment
or are subject to investment, capital or other restrictions.
See "Legal Investment Matters" in the Prospectus.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and Section 4975 of the Code impose certain requirements on employee
benefit plans and certain other retirement plans and arrangements (including,
but not limited to, individual retirement accounts and annuities), as well as on
collective investment funds and certain separate and general accounts of
insurance companies in which such plans or arrangements are invested (all of
which are hereinafter referred to as a "Plan") and on persons who are
fiduciaries with respect to such Plans. Any Plan fiduciary which proposes to
cause a Plan to acquire any of the Bonds would be required to determine whether
such an investment is permitted under the governing Plan instruments and is
prudent and appropriate for the Plan in view of its overall investment policy
and the composition and diversification of its portfolio. The U.S. Department of
Labor (the "DOL") has promulgated regulations at 29 C.F.R. Section 2510.3-101
(the "DOL Regulations") defining the term "Plan Assets" for purposes of applying
the general fiduciary responsibility provisions of ERISA and the prohibited
transaction provisions of ERISA and Section 4975 of the Code. Under the DOL
Regulations, generally, when a Plan acquires an "equity interest" in another
entity (such as the Trust), the underlying assets of that entity may be
considered to be Plan Assets. The DOL Regulations provide that the term "equity
interest" means any interest in an entity other than an instrument which is
treated as indebtedness under applicable local law and which has no "substantial
equity features." In evaluating these consequences, the ratings of the Bonds
should be considered in connection with the status of the Bonds as debt with no
"substantial equity features." There can be no assurance given that the Bonds
are or will be treated as debt and not "equity interests" under the DOL
Regulations. Because of the factual nature of certain of the above-described
provisions of ERISA, the Code and the DOL Regulations, Plans or persons
investing Plan Assets should carefully consider whether such an investment might
constitute or give rise to a prohibited transaction under ERISA or the Code. Any
Plan fiduciary which proposes to cause a Plan to acquire any of the Bonds should
consult with its counsel with respect to the potential consequences under ERISA
and the Code of the Plan's acquisition and ownership of such Bonds.
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In addition, ERISA and the Code prohibit certain transactions involving
the assets of a Plan and "disqualified persons" (within the meaning of the Code;
"Disqualified Persons") and "parties in interest" (within the meaning of ERISA;
"Parties in Interest") who have certain specified relationships to the Plan.
Accordingly, even if the Bonds are treated as indebtedness under the DOL
Regulations, prior to making an investment in the Bonds, investing Plans should
determine whether the Issuer, the Seller, the Company, the Underwriter, the
Owner Trustee, the Indenture Trustee, the Master Servicer, any other servicer,
any administrator, any provider of credit support, including the Cap
Counterparties and the Bond Insurer, 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, regulatory or
administrative exemptions. Additionally, an investment of the assets of a Plan
in certain securities may cause the assets of the issuer of those securities to
be deemed "Plan Assets" of such Plan, and any person with certain specified
relationships to such issuer to be deemed a Party in Interest or Disqualified
Person with respect to the investing Plan.
By acquiring a Bond, each purchaser will be deemed to represent that
either (1) it is not acquiring the Bond with the assets of a Plan; or (2) the
acquisition and holding of the Bond will not give rise to a nonexempt prohibited
transaction under Section 406 of ERISA or Section 4975 of the Code as a result
of the Issuer, the Seller, the Company, the Underwriter, the Owner Trustee, the
Indenture Trustee, the Master Servicer, any other servicer, any administrator,
any provider of credit support, including the Insurer and the Cap
Counterparties, or any of their affiliates being a Party in Interest or
Disqualified Person with respect to such purchaser that is a Plan.
EXPERTS
The consolidated financial statements of Ambac Assurance Corporation
and subsidiaries, as of December 31, 1999 and 1998 and for each of the years in
the three-year period ended December 31, 1999 are incorporated by reference
herein and in the registration statement in reliance upon the report of KPMG
LLP, independent certified public accountants, incorporated by reference herein,
and upon the authority of said firm as experts in accounting and auditing.
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ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Impac CMB
Trust Series 2000-2 Collateralized Asset-Backed Bonds, Class A and Class B (the
"Global Securities") will be available only in book-entry form. Investors in the
Global Securities may hold interests in such Global Securities through any of
DTC, Clearstream or Euroclear. Initial settlement and all secondary trades will
settle in same day funds. Capitalized terms used but not defined in this Annex I
have the meanings assigned to them in the Prospectus Supplement and the
Prospectus.
Secondary market trading between investors holding interests in Global
Securities through Clearstream and Euroclear will be conducted in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice. Secondary market trading between investors
holding interests in Global Securities through DTC will be conducted according
to the rules and procedures applicable to U.S. corporate debt obligations.
Secondary cross-market trading between investors holding interests in
Global Securities through Clearstream or Euroclear and investors holding
interests in Global Securities through DTC Participants will be effected on a
delivery-against-payment basis through the respective depositories of
Clearstream and Euroclear (in such capacity) and other DTC Participants.
Although DTC, Euroclear and Clearstream are expected to follow the
procedures described below in order to facilitate transfers of interests in the
Global Securities among participants of DTC, Euroclear and Clearstream, they are
under no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. Neither the Issuer nor the Indenture
Trustee will have any responsibility for the performance by DTC, Euroclear and
Clearstream or their respective participants or indirect participants of their
respective obligations under the rules and procedures governing their
obligations.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
INITIAL SETTLEMENT
The Global Securities will be registered in the name of Cede & Co. as
nominee of DTC. Investors' interests in the Global Securities will be
represented through financial institutions acting on their behalf as direct and
indirect Participants in DTC. Clearstream and Euroclear will hold positions on
behalf of their participants through their respective depositories, which in
turn will hold such positions in accounts as DTC Participants.
Investors electing to hold interests in Global Securities through DTC
Participants, rather than through Clearstream or Euroclear accounts, will be
subject to the settlement practices applicable to similar issues of pass-through
certificates. Investors' securities custody accounts will be credited with their
holdings against payment in same-day funds on the settlement date.
Investors electing to hold interests in Global Securities through
Clearstream or Euroclear accounts will follow the settlement procedures
applicable to conventional eurobonds, except that there will be no temporary
global security and no "lock-up" or restricted period. Interests in Global
Securities will be credited to the securities custody accounts on the settlement
date against payment in same-day funds.
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SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
TRANSFERS BETWEEN DTC PARTICIPANTS. Secondary market trading between
DTC Participants will be settled using the DTC procedures applicable to similar
issues of pass-through certificates in same-day funds.
TRANSFERS BETWEEN CLEARSTREAM AND/OR EUROCLEAR PARTICIPANTS. Secondary
market trading between Clearstream Participants or Euroclear Participants and/or
investors holding interests in Global Securities through them will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
TRANSFERS BETWEEN DTC SELLER AND CLEARSTREAM OR EUROCLEAR PURCHASER.
When interests in Global Securities are to be transferred on behalf of a seller
from the account of a DTC Participant to the account of a Clearstream
Participant or a Euroclear Participant for a purchaser, the purchaser will send
instructions to Clearstream or Euroclear through a Clearstream Participant or
Euroclear Participant at least one business day prior to settlement. Clearstream
or the Euroclear Operator will instruct its respective depository to receive an
interest in the Global Securities against payment. Payment will include interest
accrued on the Global Securities from and including the last distribution date
to but excluding the settlement date. Payment will then be made by the
respective depository to the DTC Participant's account against delivery of an
interest in the Global Securities. After such settlement has been completed,
such interest will be credited to the respective clearing system, and by the
clearing system, in accordance with its usual procedures, to the Clearstream
Participant's or Euroclear Participant's account. The credit of such interest
will appear on the next business day and the cash debit will be back-valued to,
and the interest on the Global Securities will accrue from, the value date
(which would be the preceding day when settlement occurred in New York). If
settlement is not completed through DTC on the intended value date (i.e., the
trade fails), the Clearstream or Euroclear cash debit will be valued instead as
of the actual settlement date.
Clearstream Participants and Euroclear Participants will need to make
available to the respective clearing system the funds necessary to process
same-day funds settlement. The most direct means of doing so is to pre-position
funds for settlement from cash on hand, in which case such Clearstream
Participants or Euroclear Participants will take on credit exposure to
Clearstream or the Euroclear Operator until interests in the Global Securities
are credited to their accounts one day later.
As an alternative, if Clearstream or the Euroclear Operator has
extended a line of credit to them, Clearstream Participants or Euroclear
Participants can elect not to pre-position funds and allow that credit line to
be drawn upon. Under this procedure, Clearstream Participants or Euroclear
Participants receiving interests in Global Securities for purchasers would incur
overdraft charges for one day, to the extent they cleared the overdraft when
interests in the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
the investment income on the interest in the Global Securities earned during
that one-day period would tend to offset the amount of such overdraft charges,
although this result will depend on each Clearstream Participant's or Euroclear
Participant's particular cost of funds.
Since the settlement through DTC will take place during New York
business hours, DTC Participants are subject to DTC procedures for transferring
interests in Global Securities to the respective depository of Clearstream or
Euroclear for the benefit of Clearstream Participants or Euroclear
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Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the seller settling the sale through a DTC
Participant, a cross-market transaction will settle no differently than a sale
to a purchaser settling through a DTC Participant.
Finally, intra-day traders that use Clearstream Participants or
Euroclear Participants to purchase interests in Global Securities from DTC
Participants or sellers settling through them for delivery to Clearstream
Participants or Euroclear Participants should note that these trades will
automatically fail on the sale side unless affirmative action is taken. At least
three techniques should be available to eliminate this potential condition:
(a) borrowing interests in Global Securities through
Clearstream or Euroclear for one day (until the purchase side of the
intra-day trade is reflected in the relevant Clearstream or Euroclear
accounts) in accordance with the clearing system's customary
procedures;
(b) borrowing interests in Global Securities in the United
States from a DTC Participant no later than one day prior to
settlement, which would give sufficient time for such interests to be
reflected in the relevant Clearstream or Euroclear accounts in order to
settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of
the trade so that the value date for the purchase from the DTC
Participant is at least one day prior to the value date for the sale to
the Clearstream Participant or Euroclear Participant.
TRANSFERS BETWEEN CLEARSTREAM OR EUROCLEAR SELLER AND DTC PURCHASER.
Due to time zone differences in their favor, Clearstream Participants and
Euroclear Participants may employ their customary procedures for transactions in
which interests in Global Securities are to be transferred by the respective
clearing system, through the respective depository, to a DTC Participant. The
seller will send instructions to Clearstream or the Euroclear Operator through a
Clearstream Participant or Euroclear Participant at least one business day prior
to settlement. Clearstream or Euroclear will instruct its respective depository,
to credit an interest in the Global Securities to the DTC Participant's account
against payment. Payment will include interest accrued on the Global Securities
from and including the last distribution date to but excluding the settlement
date. The payment will then be reflected in the account of the Clearstream
Participant or Euroclear Participant the following business day, and receipt of
the cash proceeds in the Clearstream Participant's or Euroclear Participant's
account would be back-valued to the value date (which would be the preceding
day, when settlement occurred through DTC in New York). If settlement is not
completed on the intended value date (i.e., the trade fails), receipt of the
cash proceeds in the Clearstream Participant's or Euroclear Participant's
account would instead be valued as of the actual settlement date.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through
Clearstream or Euroclear (or through DTC if the holder has an address outside
the U.S.) will be subject to the 30% U.S. withholding tax that generally applies
to payments of interest (including original issue discount) on registered debt
issued by U.S. Persons (as defined below), unless (i) each clearing system, bank
or other financial institution that holds customers' securities in the ordinary
course of its trade or business in the chain of intermediaries between such
beneficial owner and the U.S. entity required to withhold tax complies with
applicable certification requirements and (ii) such beneficial owner takes one
of the following steps to obtain an exemption or reduced tax rate: Exemption for
Non-U.S. Persons (Form W-8 or Form W- 8BEN). Beneficial Holders of Global
Securities that are Non-U.S. Persons (as defined below) can obtain a complete
exemption from the withholding tax by filing a signed Form W-8 (Certificate of
Foreign
I-3
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Status) or Form W-8BEN (Certificate of Foreign Status of Beneficial Owner for
United States Tax Withholding). If the information shown on Form W-8 or Form
W-8BEN changes, a new Form W-8 or Form W-8BEN must be filed within 30 days of
such change. After December 31, 2000, only Form W- 8BEN will be acceptable.
EXEMPTION FOR NON-U.S. PERSONS WITH EFFECTIVELY CONNECTED INCOME (FORM
4224 OR FORM W- 8ECI). A Non-U.S. Person (as defined below), including a
non-U.S. corporation or bank with a U.S. branch, for which the interest income
is effectively connected with its conduct of a trade or business in the United
States, can obtain an exemption from the withholding tax by filing Form 4224
(Exemption from Withholding of Tax on Income Effectively Connected with the
Conduct of a Trade or Business in the United States) or Form W-8ECI (Certificate
of Foreign Person's Claim for Exemption from Withholding on Income Effectively
Connected with the Conduct of a Trade or Business in the United States).
EXEMPTION OR REDUCED RATE FOR NON-U.S. PERSONS RESIDENT IN TREATY
COUNTRIES (FORM 1001 OR FORM W-8BEN). Non-U.S. Persons residing in a country
that has a tax treaty with the United States can obtain an exemption or reduced
tax rate (depending on the treaty terms) by filing Form 1001 (Holdership,
Exemption or Reduced Rate Certificate) or Form W-8BEN (Certificate of Foreign
Status of Beneficial Owner for United States Tax Withholding). Form 1001 or Form
W-8BEN may be filed by Bond Holders or their agent. After December 31, 2000,
only Form W-8BEN will be acceptable.
EXEMPTION FOR U.S. PERSONS (FORM W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's Request
for Taxpayer Identification Number and Certification).
U.S. FEDERAL INCOME TAX REPORTING PROCEDURE. The Holder of a Global
Security or, in the case of a Form 1001 or a Form 4224 filer, his agent, files
by submitting the appropriate form to the person through whom it holds the
security (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W-8, Form 1001 and Form 4224 are effective
until December 31, 2000. Form W-8BEN and Form W-8ECI are effective until the
third succeeding calendar year from the date the form is signed. The term "U.S.
Person" means (i) a citizen or resident of the United States, (ii) a
corporation, partnership or other entity treated as a corporation or a
partnership for United States federal income tax purposes, organized in or under
the laws of the United States or any state thereof, including for this purpose
the District of Columbia (unless, in the case of a partnership, future Treasury
regulations provide otherwise), (iii) an estate that is subject to U.S. federal
income tax regardless of the source of its income, or (iv) a trust if a court
within the United States is able to exercise primary supervision of the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust. Certain trusts not
described in clause (iv) above in existence on August 20, 1996 that elect to be
treated as a United States Person will also be a U.S. Person. The term "Non-U.S.
Person" means any person who is not a U.S. Person. This summary does not deal
with all aspects of U.S. Federal income tax withholding that may be relevant to
foreign holders of the Global Securities. Investors are advised to consult their
own tax advisors for specific tax advice concerning their holding and disposing
of the Global Securities.
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<PAGE>
Prospectus
IMH ASSETS CORP.
Company
COLLATERALIZED MORTGAGE BONDS
--------------------------------------------------------------------------------
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 3 IN THIS
PROSPECTUS.
The Offered Bonds will represent interests only in the trust created for the
Offered Bonds and will not represent ownership interests in or obligations of
IMH Assets Corp., Impac Mortgage Holdings, Inc. or any of their affiliates.
This prospectus may be used to offer and sell the bonds offered hereby only if
accompanied by the prospectus supplement for the Offered Bonds.
--------------------------------------------------------------------------------
THE OFFERED BONDS
The Company proposes to establish one or more trusts to issue and sell from time
to time one or more classes of Offered Bonds, which shall be Collateralized
Mortgage Bonds. Each series of Bonds will be secured by the assets of a trust.
Each series of Offered Bonds will be paid ONLY by the assets of such trust.
THE TRUST FUND
Each series of Bonds will be secured by a trust fund consisting primarily of a
segregated pool of one- to four-family residential mortgage loans, including:
o mortgage loans secured by first and junior liens on the
related mortgage property;
o home equity revolving lines of credit;
o mortgage loans where the borrower has little or no
equity in the related mortgaged property; and
o manufactured housing conditional sales contracts and
installment loan agreements or interests therein;
in each case acquired by the Company from one or more affiliated or unaffiliated
institutions.
CREDIT ENHANCEMENT
If so specified in the related prospectus supplement, the trust 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, and currency or interest rate
exchange agreements. In addition to or in lieu of the foregoing, credit
enhancement may be provided by means of subordination of one or more classes of
securities or by overcollateralization.
The Offered Bonds may be offered to public through different methods as
described in "Methods of Distribution" in this prospectus.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES OFFERED HEREBY OR
DETERMINED THAT THIS PROSPECTUS OR THE PROSPECTUS SUPPLEMENT IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is February 23, 1999.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Caption Page
------- ----
<S> <C>
RISK FACTORS.....................................................................................................3
INTRODUCTION....................................................................................................10
THE MORTGAGE POOLS..............................................................................................11
General ..............................................................................................11
The Mortgage Loans.....................................................................................12
Allocation of Revolving Credit Loan Balances...........................................................17
Underwriting Standards.................................................................................17
Qualifications of Originators and Sellers..............................................................19
Representations by Sellers.............................................................................19
SERVICING OF MORTGAGE LOANS.....................................................................................21
General ..............................................................................................21
The Master Servicer....................................................................................21
Collection and Other Servicing Procedures; Mortgage Loan
Modifications.................................................................................21
Subservicers...........................................................................................23
Special Servicers......................................................................................23
Realization Upon or Sale of Defaulted Mortgage Loans...................................................23
Servicing and Other Compensation and Payment of Expenses;
Spread........................................................................................24
Evidence as to Compliance..............................................................................25
DESCRIPTION OF THE BONDS........................................................................................26
General ..............................................................................................26
Form of Bonds..........................................................................................27
Assignment of Trust Fund Assets........................................................................28
Collection Account.....................................................................................30
Distributions..........................................................................................33
Distributions of Interest and Principal on the Bonds...................................................33
Funding Account........................................................................................34
Distributions on the Bonds in Respect of Prepayment
Premiums......................................................................................35
Allocation of Losses and Shortfalls....................................................................35
Advances ..............................................................................................35
Reports to Bondholders.................................................................................36
DESCRIPTION OF CREDIT ENHANCEMENT...............................................................................37
General ..............................................................................................37
Financial Guaranty Insurance Policy....................................................................38
Subordinate Bonds......................................................................................38
Letter of Credit.......................................................................................39
Mortgage Pool Insurance Policies.......................................................................39
Special Hazard Insurance Policies......................................................................40
Bankruptcy Bonds.......................................................................................41
Overcollateralization..................................................................................41
Reserve Funds..........................................................................................42
Maintenance of Credit Enhancement......................................................................42
Reduction or Substitution of Credit Enhancement........................................................44
PURCHASE OBLIGATIONS............................................................................................45
PRIMARY MORTGAGE INSURANCE, HAZARD INSURANCE;
CLAIMS THEREUNDER......................................................................................45
General ..............................................................................................45
Primary Mortgage Insurance Policies....................................................................45
Hazard Insurance Policies..............................................................................46
FHA Insurance..........................................................................................47
THE COMPANY.....................................................................................................48
IMPAC FUNDING CORPORATION.......................................................................................48
THE AGREEMENTS..................................................................................................48
Events of Default; Rights Upon Event of Default........................................................48
Amendment..............................................................................................50
Termination; Redemption of Bonds.......................................................................51
The Owner Trustee......................................................................................51
The Indenture Trustee..................................................................................51
YIELD CONSIDERATIONS............................................................................................52
MATURITY AND PREPAYMENT CONSIDERATIONS..........................................................................55
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS.........................................................................56
Mortgage Loans.........................................................................................56
Contracts..............................................................................................56
Foreclosure on Mortgages...............................................................................58
Repossession with respect to Contracts.................................................................59
Rights of Redemption...................................................................................60
Anti-Deficiency Legislation and Other Limitations on Lenders...........................................61
Junior Mortgages.......................................................................................62
Consumer Protection Laws with respect to Contracts.....................................................63
Environmental Legislation..............................................................................63
Enforceability of Certain Provisions...................................................................64
Subordinate Financing..................................................................................64
Applicability of Usury Laws............................................................................65
Alternative Mortgage Instruments.......................................................................65
Formaldehyde Litigation with respect to Contracts......................................................65
Soldiers' and Sailors' Civil Relief Act of 1940........................................................66
FEDERAL INCOME TAX CONSEQUENCES.................................................................................66
General ..............................................................................................66
STATE AND OTHER TAX CONSEQUENCES................................................................................72
ERISA CONSIDERATIONS............................................................................................72
Tax-Exempt Investors...................................................................................73
LEGAL INVESTMENT MATTERS........................................................................................73
USE OF PROCEEDS.................................................................................................74
METHODS OF DISTRIBUTION.........................................................................................74
LEGAL MATTERS...................................................................................................75
FINANCIAL INFORMATION...........................................................................................75
RATING .......................................................................................................75
AVAILABLE INFORMATION...........................................................................................76
REPORTS TO BONDHOLDERS..........................................................................................76
INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE..............................................................................................76
INDEX OF PRINCIPAL DEFINITIONS..................................................................................77
</TABLE>
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RISK FACTORS
The Offered Bonds are not suitable investments for all investors. In
particular, you should not purchase the Offered Bonds unless you understand and
are able to bear the prepayment, credit, liquidity and market risks associated
with such securities.
The Offered Bonds are complex securities. You should possess, either
alone or together with an investment advisor, the expertise necessary to
evaluate the information contained in this prospectus and the accompanying
prospectus supplement in the context of your financial situation.
You should carefully consider, among other things, the following
factors in connection with the purchase of the Offered Bonds:
THE OFFERED BONDS WILL HAVE LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Offered Bonds
of any series will develop or, if it does develop, that it will provide Offered
Bondholders with liquidity of investment or that it will continue for the life
of the Offered Bonds of any series. The prospectus supplement for any series of
Offered Bonds may indicate that an underwriter specified therein intends to
establish a secondary market in such Offered Bonds, however no underwriter will
be obligated to do so. As a result, any resale prices that may be available for
any Offered Bond in any market that may develop may be at a discount from the
initial offering price or the fair market value thereof.
The Offered Bonds will not be listed on any securities exchange.
THE OFFERED BONDS WILL BE LIMITED OBLIGATIONS SOLELY OF THE TRUST FUND AND NOT
OF ANY OTHER PARTY
The Offered Bonds will evidence an obligation of the related Issuer to
remit certain payments to the registered holder thereof. The Offered 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 Offered 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 Offered 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 Offered Bonds (including the mortgage loans and any form of
credit enhancement) will be the sole source of payments on the Offered 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 Offered Bonds.
ANY CREDIT ENHANCEMENT WILL BE LIMITED; THE FAILURE OF CREDIT ENHANCEMENT TO
COVER LOSSES ON THE TRUST FUND ASSETS MAY RESULT IN LOSSES ALLOCATED TO THE
OFFERED BONDS
With respect to each series of Offered 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; a
cash flow agreement; 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
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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 Offered 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 Offered 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 Offered 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 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 Offered Bonds. See
"Description of Credit Enhancement--Reduction of Credit Enhancement."
THE RATINGS ON THE OFFERED BONDS ARE NOT A RECOMMENDATION TO BUY, SELL OR HOLD
THE OFFERED BONDS AND ARE SUBJECT TO WITHDRAWAL AT ANY TIME
It is a condition to the issuance of the Offered Bonds that each class
of Offered 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
Offered Bond, and, accordingly, there can be no assurance that the ratings
assigned to any Offered Bond on the date on which such Offered 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 Offered Bonds may be adversely affected. See
"Rating" herein.
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 Offered Bonds. See "Certain
Legal Aspects of Mortgage Loans--Foreclosure on Mortgage Loans."
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 Offered Bonds.
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CERTAIN OF THE MORTGAGE LOANS MAY BE UNDERWRITTEN TO STANDARDS WHICH DO NOT
CONFORM TO THE STANDARDS OF FANNIE MAE OR FREDDIE MAC
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 Fannie Mae or Freddie Mac due
to credit characteristics that do not meet the Fannie Mae or Freddie Mac
underwriting guidelines, including mortgagors whose creditworthiness and
repayment ability do not satisfy such Fannie Mae or Freddie Mac 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 Fannie Mae or Freddie Mac 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 Fannie Mae or Freddie Mac
underwriting guidelines. Any such losses, to the extent not covered by credit
enhancement, may affect the yield to maturity of the Offered Bonds.
CERTAIN OF THE MORTGAGE LOANS MAY HAVE VARIABLE PAYMENTS, WHICH MAY RESULT IN A
GREATER RISK OF LOSS WITH RESPECT TO SUCH MORTGAGE LOANS
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 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 Offered
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 Offered 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 Offered Bonds to the extent losses
caused by such risks which are not covered by credit enhancement are allocated
to the Offered Bonds.
CERTAIN OF THE MORTGAGE LOANS MAY BE SECURED BY JUNIOR LIENS, WHICH MAY RESULT
IN A GREATER RISK OF LOSS WITH RESPECT TO SUCH MORTGAGE LOANS
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
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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 Offered 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.
CERTAIN OF THE MORTGAGE LOANS MAY BE CONCENTRATED IN A PARTICULAR AREA, WHICH
MAY RESULT IN A GREATER RISK OF LOSS WITH RESPECT TO SUCH MORTGAGE LOANS
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 Offered 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 Offered Bonds to the
extent losses caused by such risks which are not covered by credit enhancement
are allocated to the Offered Bonds.
CERTAIN OF THE MORTGAGE LOANS MAY PROVIDE FOR BALLOON PAYMENTS AT MATURITY,
WHICH MAY RESULT IN A GREATER RISK OF LOSS WITH RESPECT TO SUCH MORTGAGE LOANS
Certain of the mortgage loans included in a trust fund 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. Any risks associated with the balloon loans may affect the
yield to maturity of the Offered Bonds to the extent losses caused by such risks
which are not covered by credit enhancement are allocated to the Offered Bonds.
CERTAIN OF THE MORTGAGE LOANS MAY HAVE LIMITED RECOURSE TO THE RELATED BORROWER,
WHICH MAY RESULT IN A GREATER RISK OF LOSS WITH RESPECT TO SUCH 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 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 Offered Bonds to the extent losses
caused by such risks which are not covered by credit enhancement are allocated
to the Offered Bonds.
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CERTAIN OF THE MORTGAGE LOANS MAY HAVE HIGH COMBINED LOAN-TO-VALUE RATIOS, SUCH
THAT THE RELATED BORROWER HAS LITTLE OR NO EQUITY IN THE RELATED MORTGAGED
PROPERTY, WHICH MAY RESULT IN A GREATER RISK OF LOSS WITH RESPECT TO SUCH
MORTGAGE LOANS
Some or all of the mortgage loans included in any trust fund may be
high loan-to-value loans, with combined loan-to-value ratios in excess of 100%.
Such mortgage loans 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 Offered
Bonds.
CERTAIN OF THE MORTGAGE LOANS MAY PROVIDE FOR REVOLVING LINES OF CREDIT, WHICH
MAY RESULT IN A GREATER RISK OF LOSS WITH RESPECT TO SUCH MORTGAGE 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 ability of the mortgagor 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.
CERTAIN OF THE MORTGAGE LOANS MAY HAVE BEEN UNDERWRITTEN BY SELLERS WHO ARE NOT
AFFILIATED WITH THE COMPANY, WHICH MAY RESULT IN A GREATER RISK OF LOSS WITH
RESPECT TO SUCH MORTGAGE LOANS
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 Offered Bonds.
VIOLATION OF VARIOUS FEDERAL AND STATE LAWS MAY RESULT IN LOSSES ON THE MORTGAGE
LOANS
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 Offered Bonds, to the extent not
covered by credit enhancement, may be affected.
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THE RATE OF PREPAYMENTS ON THE TRUST FUND ASSETS AND THE PURCHASE PRICE YOU PAID
FOR THE OFFERED BONDS MAY CAUSE YOUR YIELD TO BE LOWER THAN ANTICIPATED
The yield to maturity of the Offered 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
adjustable rate 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 Offered 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
interest only Offered 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 Offered Bonds,
including Offered Bonds with an accrual feature, Offered Bonds with an interest
rate which fluctuates based on an index or inversely with an index or certain
other classes in a series including more than one class of Offered Bonds, may be
relatively more sensitive to the rate of prepayment (or draws if applicable) on
the related mortgage loans than other classes of Offered Bonds. In addition, to
the extent amounts in any funding account have not been used to purchase
additional mortgage loans, holders of the Offered 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 Offered 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, Offered 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 Offered 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 Offered Bonds. For a series of Offered 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 Offered Bonds. See "Description of the Mortgage Pools--Allocation of
Revolving Credit Balances" herein.
CERTAIN OF THE MORTGAGE LOANS MAY HAVE ENVIRONMENTAL RISKS, WHICH MAY RESULT IN
A GREATER RISK OF LOSS WITH RESPECT TO SUCH MORTGAGE LOANS
To the extent the master servicer for a mortgage loan acquires title to
any related mortgaged property with contaminated with or affected by hazardous
wastes or hazardous substances, such 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 Offered Bonds, to the extent not covered by credit
enhancement, may be affected.
ERISA RESTRICTIONS MAY APPLY TO THE OFFERED BONDS, WHICH BY RESTRICTING THE
MARKET, MAY AFFECT THE LIQUIDITY OF THE OFFERED BONDS
Generally, the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") applies to investments made by employee benefit plans and
transactions involving the assets of such plans. Due to the
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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 Offered Bonds of
any series. See "ERISA Considerations".
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INTRODUCTION
Each series of offered bonds (the "Offered Bonds"; and together with
any bonds of the same series not offered by the related prospectus supplement,
the "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 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, and currency
or interest rate exchange agreements. 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.
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.
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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.
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 Mortgage 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, which in each case may
be owner-occupied or may be a vacation, second or non-owner-occupied home. In
addition, certain Mortgage Loans included in the Trust Fund may be made to the
same borrower, which Mortgage Loans may be cross-collateralized with each other.
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 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."
If so specified in the related Prospectus Supplement, some Mortgage
Loans may be delinquent up to, but not including, 90 days, as of the Cut-off
Date. Such Mortgage Loans will be limited to 20% (by principal balance) of any
Trust Fund. No non-performing Mortgage Loan will be included in any Trust Fund.
A Mortgage Loan is "non-performing" if it is 90 days or more delinquent as of
the related Cut-off Date.
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.
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(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 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
--------
* 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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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 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 Mortgaged Properties 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").
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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 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
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 Mortgage 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 Mortgage 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 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
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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 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
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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 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
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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, 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.
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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 Mortgage 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 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.
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.
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. 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. 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 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 ("Fannie Mae") and/or the Federal Home
Loan Mortgage Corporation ("Freddie Mac").
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. 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.
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).
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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.
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. 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 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
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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 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. A
Master Servicer may, among other things, grant a period of
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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.
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. In any case in which property subject to a
Mortgage 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
Mortgage 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 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 Mortgage 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 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."
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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 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).
The Master Servicer will not be obligated to foreclose upon or
otherwise convert the ownership of any Mortgaged 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
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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.
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."
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
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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
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 Freddie Mac,
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
Freddie Mac 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 Freddie Mac
(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
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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; (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
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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.
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 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 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
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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 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";
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(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 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;
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(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 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 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";
(vii) if and to the extent described in the related Prospectus
Supplement, to pay the fees of the Owner Trustee and the Indenture
Trustee;
(viii) 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";
(ix) 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;
(x) 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;
(xi) 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;
(xii) to pay for the cost of various opinions of counsel
obtained pursuant to the related Indenture for the benefit of the
related Bondholders;
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(xiii) 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;
(xiv) to make any other withdrawals permitted by the related
Servicing Agreement and described in the related Prospectus Supplement;
and
(xv) 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 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
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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 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
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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 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.
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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;
(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;
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(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.
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
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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. 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.
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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 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 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,
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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.
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
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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
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.
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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 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.
CASH FLOW AGREEMENTS
If so provided in the related Prospectus Supplement, the Trust Fund may
include 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. The Trust Fund may also include certain other agreements, such
as interest rate exchange agreements, interest rate cap or floor agreements,
currency exchange agreements or similar agreements designed to reduce the
effects of interest rate or currency exchange rate fluctuations on the Trust
Fund Assets on one or more classes of Securities. The principal terms of any
such guaranteed investment contract or other agreement (any such agreement a
"Cash Flow Agreement"), and the identity of the Cash Flow Agreement obligor,
will be described in the Prospectus Supplement for a series of Bonds.
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.
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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 Freddie Mac, Fannie Mae 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 Freddie Mac, Fannie Mae 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 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.
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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 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 Mortgage 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 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.
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
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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 Mortgage 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 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
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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 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.
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.
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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.
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 respect to such series of Securities
which continues unremedied for 30 days after the giving
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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 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).
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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. 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
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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
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
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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 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
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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 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 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
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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 Mortgage Loans are expected to occur with greater
frequency in their early years. However, there is a risk 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. The rate of
default on Mortgage Loans which are refinance or limited documentation mortgage
loans, and on Mortgage 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 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.
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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, 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 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."
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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."
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.
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, 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.
CONTRACTS
Under the laws of most states, manufactured housing constitutes
personal property and is subject 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
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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 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
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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 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
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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 Mortgage 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 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.
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(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 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
The purposes of a foreclosure action in respect of a Mortgaged 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 has
expired.
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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
MORTGAGE 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 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
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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.
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.
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.
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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
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.
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ENFORCEABILITY OF CERTAIN PROVISIONS
TRANSFER OF MORTGAGED PROPERTIES. Unless the related Prospectus
Supplement indicates otherwise, the Mortgage 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 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 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
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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
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
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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 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
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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
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
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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 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
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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.
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
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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 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
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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 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
71
<PAGE>
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 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
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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 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
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
73
<PAGE>
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 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;
74
<PAGE>
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.
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.
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<PAGE>
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.
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.
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<TABLE>
<CAPTION>
INDEX OF PRINCIPAL DEFINITIONS
Page
<S> <C>
1986 Act ...............................................................................................67
Account Balance ...............................................................................................15
Accrual Bonds ...............................................................................................26
Accrued Bond Interest............................................................................................34
Additional Balance...............................................................................................15
Additional Charges...............................................................................................15
Affiliated Sellers...............................................................................................12
Agreements ...............................................................................................48
ARM Loans ...............................................................................................12
Available Distribution Amount....................................................................................33
Balloon Loans ...............................................................................................13
Balloon Payment ...........................................................................................13, 15
Bankruptcy Code ...............................................................................................61
Bankruptcy Loss ...............................................................................................37
Beneficial Owner ...............................................................................................27
Bond Register ...............................................................................................27
Bond Registrar ...............................................................................................27
Bondholder ...............................................................................................27
Bonds ...........................................................................................10, 27
Buydown Account ...............................................................................................15
Buydown Agreement ...............................................................................................31
Buydown Funds ...............................................................................................15
Buydown Mortgage Loans...........................................................................................15
Buydown Period ...............................................................................................15
Cash Flow Agreement..............................................................................................42
Closing Date ...............................................................................................68
Code ...............................................................................................62
Collection Account...............................................................................................30
Commission ...............................................................................................76
Company ...............................................................................................10
Contracts ...............................................................................................11
Convertible Mortgage Loan........................................................................................14
Credit Line Agreements...........................................................................................15
Credit Utilization Rate..........................................................................................14
Debt Service Reduction...........................................................................................41
Defaulted Mortgage Loss..........................................................................................37
Deferred Interest ...............................................................................................13
Deficient Valuation..............................................................................................41
Deleted Mortgage Loan............................................................................................20
Designated Seller Transaction....................................................................................12
Determination Date...............................................................................................33
Draw ...............................................................................................15
Draw Period ...............................................................................................15
DTC ...............................................................................................27
DTC Registered Bonds.............................................................................................27
Due Period ...............................................................................................35
Entity Classification Regulations................................................................................67
ERISA ............................................................................................8, 72
Event of Default ...............................................................................................49
Excess Interest ...............................................................................................41
Exchange Act ...............................................................................................76
Excluded Balance ...............................................................................................17
Extraordinary Losses.............................................................................................37
77
<PAGE>
Fannie Mae ...............................................................................................18
FDIC ...............................................................................................11
FHA ...............................................................................................11
FHA Loans ...............................................................................................11
Finance Charge ...............................................................................................15
Financial Guaranty Insurance Policy..............................................................................38
FIRREA ...............................................................................................18
Fraud Loss ...............................................................................................37
Freddie Mac ...............................................................................................18
FTC Rule ...............................................................................................63
Funding Account ...............................................................................................34
Garn-St Germain Act..............................................................................................64
High Cost Loans ...............................................................................................62
High LTV Loans ...............................................................................................14
Holder ...............................................................................................27
Homeownership Act ...............................................................................................62
Housing Act ...............................................................................................19
ICII ...............................................................................................48
Impac Funding ...............................................................................................48
Impac Holdings ...............................................................................................48
Indenture ...............................................................................................10
Index ...............................................................................................12
Insurance Proceeds...............................................................................................30
Insurer ...............................................................................................38
Intermediaries ...............................................................................................27
IRS ...............................................................................................66
Letter of Credit ...............................................................................................39
Letter of Credit Bank............................................................................................39
Liquidated Mortgage Loan.........................................................................................24
Liquidation Proceeds.............................................................................................30
Loan-to-Value Ratio..............................................................................................14
Lock-out Expiration Date.........................................................................................13
Lock-out Period ...............................................................................................13
Loss ...............................................................................................45
Manufactured Homes...............................................................................................11
Manufacturer's Invoice Price.....................................................................................14
Master Servicer ...........................................................................................10, 21
Mortgage Loans ...............................................................................................10
Mortgage Notes ...............................................................................................11
Mortgage Pool ...............................................................................................10
Mortgage Rate ...............................................................................................12
Mortgages ...............................................................................................11
Net Mortgage Rate ...............................................................................................52
Non-conforming credit.............................................................................................5
Nonrecoverable Advance...........................................................................................35
Nonresidents ...............................................................................................72
Note Margin ...............................................................................................12
Offered Bonds ...............................................................................................10
OID Regulations ...............................................................................................67
OTS ...............................................................................................74
Overcollateralization............................................................................................41
Participants ...............................................................................................27
Parties in Interest..............................................................................................72
Percentage Interest..............................................................................................33
Permitted Investments............................................................................................30
Plan ...............................................................................................72
Policy Statement ...............................................................................................73
78
<PAGE>
Pool Insurer ...............................................................................................31
Prepayment Interest Shortfall....................................................................................53
Prepayment Penalty...............................................................................................13
Primary Insurance Policy.........................................................................................45
Primary Insurer ...............................................................................................45
PTCE ...............................................................................................73
Purchase Obligation..............................................................................................45
Purchase Price ...............................................................................................20
Qualified Substitute Mortgage Loan...............................................................................20
Realized Losses ...............................................................................................37
Record Date ...............................................................................................33
REIT ...............................................................................................48
Related Proceeds ...............................................................................................35
Relief Act ...............................................................................................66
REMIC ...............................................................................................10
REO Mortgage Loan ...............................................................................................24
REO Property ...............................................................................................22
Reserve Fund ...............................................................................................42
Revolving Credit Loans.......................................................................................10, 15
RTC ...............................................................................................11
Securities ...............................................................................................10
Securities Act ...........................................................................................75, 76
Securityholders ...............................................................................................16
Sellers ........................................................................................1, 10, 12
Senior Bonds ...............................................................................................26
Senior Liens ...............................................................................................13
Senior/Subordinate Series........................................................................................26
Servicing Default ...............................................................................................48
Servicing Standard...............................................................................................21
SMMEA ...............................................................................................73
Special Hazard Instrument........................................................................................37
Special Hazard Insurance Policy..................................................................................40
Special Hazard Insurer...........................................................................................41
Special Hazard Loss..............................................................................................37
Special Hazard Losses............................................................................................40
Special Servicer ...............................................................................................23
Strip Bonds ...............................................................................................26
Subordinate Securities...........................................................................................26
Subservicer ...............................................................................................23
Subservicers ...............................................................................................16
Tax Counsel ...............................................................................................67
Title V ...............................................................................................65
Title VIII ...............................................................................................65
TMP ...............................................................................................67
Trust Agreement ...............................................................................................10
Trust Balance ...............................................................................................17
Trust Fund ...............................................................................................10
Trust Fund Assets ...............................................................................................10
Unaffiliated Sellers.............................................................................................11
Value ...............................................................................................14
Wholly Owned Entity..............................................................................................67
</TABLE>
79
<PAGE>
IMH ASSETS CORP.
$491,608,000
COLLATERALIZED ASSET-BACKED BONDS
SERIES 2000-2
PROSPECTUS SUPPLEMENT
COUNTRYWIDE SECURITIES CORPORATION
UNDERWRITER
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT INFORMATION.
WE ARE NOT OFFERING THE BONDS OFFERED HEREBY IN ANY
STATE WHERE THE OFFER IS NOT PERMITTED.
WE REPRESENT THE ACCURACY OF THE INFORMATION IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS ONLY AS OF THE DATES ON THEIR RESPECTIVE COVERS.
Dealers will be required to deliver a prospectus supplement and prospectus
when acting as underwriters of the bonds offered hereby and with respect to
their unsold allotments or subscriptions. In addition, all
dealers selling the bonds, whether or not participating in this
offering, may be required to deliver a prospectus
supplement and prospectus until 90 days after the date hereof.
