PROSPECTUS SUPPLEMENT
(To Prospectus dated June 26, 1996)
$17,737,800
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
FARMER MAC
GUARANTEED AGRICULTURAL MORTGAGE-BACKED SECURITIES
The Guaranteed Agricultural Mortgage-Backed Securities offered hereby (the
"AMBS" or "Certificates") evidence beneficial ownership interests in a trust
fund (the "Trust Fund") consisting primarily of one or more pools (each, a
"Pool") of fixed-rate agricultural real estate mortgage loans ("Qualified
Loans") having the characteristics set forth in ANNEX I hereto. As described
herein, timely payment of interest on and principal of the Certificates is
guaranteed by the Federal Agricultural Mortgage Corporation, a federally
chartered instrumentality of the United States ("Farmer Mac"), pursuant to
Title VIII of the Farm Credit Act of 1971, as amended. See "FARMER MAC
GUARANTEE" herein. (Continued on
next page)
THE OBLIGATIONS OF FARMER MAC UNDER ITS GUARANTEE ARE OBLIGATIONS SOLELY OF
FARMER MAC AND ARE NOT OBLIGATIONS OF, AND ARE NOT GUARANTEED BY, THE FARM
CREDIT ADMINISTRATION, THE UNITED STATES OR ANY AGENCY OR INSTRUMENTALITY OF
THE UNITED STATES (OTHER THAN FARMER MAC), AND ARE NOT BACKED BY THE FULL
FAITH AND CREDIT OF THE UNITED STATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospective investors in the Certificates should consider the factors
discussed under "Risk Factors" in this Prospectus Supplement on Page S-6 and
in the Prospectus on Page 14.
<TABLE>
<CAPTION>
Original Pass- Initial Final Distribution
Class Principal CUSIP Through Payment Distribution Date (4)
Designation (1) Amount(2) Number Rate Frequency Date
<S> <C> <C> <C> <C> <C> <C> <C>
Pool AA1005 $ 3,467,000 31316A AE 1 (3) Annual January 25, 1998 January 25, 2012
Pool AS1006 6,352,400 31316E AF 0 (3) Semi-annual July 25, 1997 January 25, 2012
Pool CA1004(5) 2,618,000 31316Q AD 8 (3) Annual January 25, 1998 January 25, 2002
Pool CS1004 5,300,400 31316R AD 6 (3) Semi-annual July 25, 1997 January 25, 2002
</TABLE>
(1) Each Class of Certificates will separately evidence the Pool of
Qualified Loans having the corresponding alpha-numerical designation. As
described herein, each Class of Certificates will be entitled to all payments
of interest and principal on the Qualified Loans included in the related
Pool.
(2) Approximate, subject to a permitted variance of plus or minus 5% with
respect to each Pool.
(3) On each applicable Distribution Date, the Pass-Through Rate for each
Class of Certificates will be a rate per annum equal to the weighted average
of the Net Mortgage Rates (as defined herein) for the Qualified Loans in the
related Pool. It is expected that the Pass-Through Rates for the initial
Interest Accrual Period for each Class of Certificates will be approximately
as follows: Pool AA1005, 7.807%; Pool AS1006, 7.488%; Pool CA1004, 7.429%; and
Pool CS1004, 7.123%, per annum. See "DESCRIPTION OF THE CERTIFICATES
Distributions- Interest" herein.
(4) The Final Distribution Date for each Class of Certificates has been set
to coincide with the latest maturing Qualified Loan in the related Pool.
(5) Pool CA1004 is comprised of the two Qualified Loans (having a principal
balance as of the Cut-off Date of $1,170,000) that were initially included in
Pool CA1002 (originally issued in November 1996) and eight additional
Qualified Loans.
The Certificates will be purchased from Farmer Mac Mortgage Securities
Corporation (the "Depositor") by Bear, Stearns & Co. Inc. (the "Underwriter")
and are being offered by the Underwriter from time to time in negotiated
transactions, at varying prices to be determined at the time of sale.
Proceeds to the Depositor from the sale of the Certificates will be
approximately 101.30% of the aggregate initial Certificate Balances, plus
accrued interest thereon from January 1, 1997 (the "Cut-off Date"), before
deducting expenses payable by the Depositor. See "METHOD OF DISTRIBUTION"
herein.
The Certificates are offered subject to receipt and acceptance by the
Underwriter, to prior sale and to the Underwriter's right to reject any order
in whole or in part and to withdraw, cancel or modify the offer without
notice. It is expected that the Certificates will be available through the
book-entry system of the Federal Reserve Banks on or about January 29, 1997
(the "Closing Date").
BEAR, STEARNS & CO. INC.
The date of this Prospectus Supplement is January 24, 1997.
Each Class of Certificates will be issued in an original Class
Certificate Balance equal to the original principal amount of the related
Pool. The initial Class Certificate Balance of each Class of Certificates
is subject to the permitted variance set forth on the cover hereof with
respect to the related Pool.
Each Class of Certificates will relate to a separate Pool. Interest
will accrue on each Class of Certificates at the respective rate per annum
(each, a "Pass-Through Rate") set forth on the cover page hereof and will
be distributable on each Distribution Date for such Class, commencing on
the date specified on the cover hereof. On each applicable Distribution
Date, the amount of interest distributable on each Certificate will equal
interest accrued for the related Interest Accrual Period at the applicable
Pass-Through Rate on the Certificate Balance thereof immediately prior to
such Distribution Date.
Principal in respect of each Pool will be distributable to the
related Class of Certificates on each Distribution Date for such Class to
the extent and in the manner described herein.
The yield to maturity on the Certificates of each Class will be
affected by the rate and timing of principal payments (including voluntary
prepayments and prepayments resulting from Liquidated Qualified Loans (as
defined herein)) on the Qualified Loans in the related Pool, which may be
prepaid under the circumstances described herein. Investors in the
Certificates offered hereby should consider, in the case of any
Certificates purchased at a discount, the risk that a slower than
anticipated rate of principal payments on the related Qualified Loans
could result in actual yields that are lower than anticipated yields and,
in the case of any Certificates purchased at a premium, the risk that a
faster than anticipated rate of principal payments on the related
Qualified Loans could result in actual yields that are lower than
anticipated yields.
On any Distribution Date when the aggregate principal balance of the
Qualified Loans in the Trust Fund is less than one percent thereof as of
the Cut-off Date (the "Termination Percentage"), the Master Servicer may
purchase from the Trust Fund all remaining Qualified Loans and thereby
effect an early retirement of the Certificates outstanding at such time.
See "DESCRIPTION OF THE CERTIFICATES- Optional Termination" herein and in
the Prospectus.
The Qualified Loans will be directly serviced by Equitable
Agri-Business, Inc. (the "Central Servicer") which will act on behalf of
Farmer Mac as described herein. See "DESCRIPTION OF THE AGREEMENTS"
herein.
The Certificates offered hereby constitute Guaranteed Agricultural
Mortgage-Backed Securities offered from time to time pursuant to a
Prospectus dated June 26, 1996 of which this Prospectus Supplement is a
part. This Prospectus Supplement does not contain complete information
about the offering of the Certificates. Additional information is
contained in the Prospectus and purchasers are urged to read both this
Prospectus Supplement and the Prospectus in full. Sales of the
Certificates may not be consummated unless the purchaser has received both
this Prospectus Supplement and the Prospectus.
___________________________
There is currently no secondary market for the Certificates of any
Class. The Underwriter intends to make a market in the Certificates but
is not obligated to do so. There can be no assurance that any such market
for the Certificates will develop or, if developed, will continue or will
provide investors with sufficient liquidity of investment.
___________________________
Until 90 days after the date of this Prospectus Supplement, all
dealers effecting transactions in the Certificates, whether or not
participating in this distribution, may be required to deliver a
Prospectus Supplement and the Prospectus to which it relates. This is in
addition to the obligation of dealers to deliver a Prospectus and
Prospectus Supplement when acting as underwriters and with respect to
their unsold allotments or subscriptions.
___________________________
The consolidated financial statements of Farmer Mac for the year
ended December 31, 1995 included as an exhibit to its Annual Report on
Form 10-K for the year ended December 31, 1995, and the unaudited
financial statements of Farmer Mac for the nine-month period ended
September 30, 1996 included as an exhibit to its Quarterly Report on Form
10-Q for the period ended September 30, 1996, each of which has been filed
with the Commission by Farmer Mac, are hereby incorporated by reference in
this Prospectus Supplement. All financial statements of Farmer Mac
included in documents filed by Farmer Mac pursuant to Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 subsequent to
the date of this Prospectus Supplement and prior to the termination of the
offering of the Certificates shall be deemed to be incorporated by
reference into this Prospectus Supplement and to be a part hereof.
The consolidated balance sheets of Farmer Mac as of December 31, 1995
and 1994 and related consolidated statements of operations and cash flows
for each of the years in the three-year period ended December 31, 1995,
have been incorporated by reference herein and in the Registration
Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing. The report of KPMG Peat Marwick LLP covering the December 31,
1995 financial statements contains an explanatory paragraph regarding
regulatory capital as described in Note 3 to such financial statements.
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by the detailed
information appearing elsewhere in this Prospectus Supplement and the
Prospectus. Capitalized terms used herein and not otherwise defined have
the meanings assigned in the Prospectus.
<TABLE>
<CAPTION>
<S> <C>
Securities Offered . . . . . Guaranteed Agricultural Mortgage-Backed
Securities (the "Certificates").
The Certificates will be issued in one or
more Classes, as set forth on the cover
page hereof. Each Class of Certificates
will separately evidence the right to
receive distributions in respect of the
Pool of Qualified Loans having the
corresponding alpha-numerical designation
and will be issued in an original Class
Certificate Balance equal to the original
principal amount of such Pool. The initial
Class Certificate Balance of each Class of
Certificates is subject to a permitted
variance as provided on the cover hereof.
See "ANNEX I: DESCRIPTION OF THE QUALIFIED
LOAN POOLS" for detailed information on the
Qualified Loans in each Pool.
The Guarantor . . . . . . . . The Federal Agricultural Mortgage
Corporation ("Farmer Mac") is a federally
chartered instrumentality of the United
States established by Title VIII of the
Farm Credit Act of 1971, as amended (the
"Farmer Mac Charter"). See "FEDERAL
AGRICULTURAL MORTGAGE CORPORATION" in the
Prospectus.
The Depositor . . . . . . . . Farmer Mac Mortgage Securities Corporation,
a Delaware corporation and wholly owned
subsidiary of Farmer Mac, will act as
depositor (the "Depositor") under the Trust
Agreement. See "THE DEPOSITOR" herein.
The Guarantee . . . . . . . . As described herein, the timely payment to
Certificateholders of interest on and
principal (including any balloon payments)
of the Certificates is guaranteed by Farmer
Mac. See "FARMER MAC GUARANTEE" herein.
Not an Obligation of Farmer Mac's obligations under the Farmer
the United States Mac Guarantee are not backed by the full
faith and credit of the United States.
The Master Servicer . . . . . Farmer Mac will act as Master Servicer (the
"Master Servicer") of the Qualified Loans.
The Qualified Loans will be directly
serviced by the Central Servicer which
will act on behalf of Farmer Mac pursuant
to a Servicing Contract (as supplemented)
between such parties. See "DESCRIPTION OF
THE AGREEMENTS" herein.
The Trustee . . . . . . . . . First Trust National Association, a
national banking association, will act as
trustee (the "Trustee") pursuant to a Trust
Agreement as supplemented by an Issue
Supplement (collectively, the "Trust
Agreement", each among Farmer Mac, the
Depositor and the Trustee.
Cut-off Date . . . . . . . . As set forth on the cover page hereof.
Closing Date . . . . . . . . As set forth on the cover page hereof.
Distribution Dates . . . . . Distributions to Holders of the
Certificates of each Class will be made on
an annual, semi-annual or quarterly basis
as specified on the cover page hereof.
Such annual, semi-annual, or quarterly
Distribution Dates will occur on the 25th
day of each January, April, July and
October, as applicable (unless such 25th
day is not a Business Day, whereupon such
distribution will be made on the next
following Business Day), commencing on the
Initial Distribution Date for such Class
set forth on the cover page hereof.
Distributions on the Interest. Interest will accrue on the
Certificates . . . . . . . . Certificates of each Class at the
respective Pass-Through Rate described
herein during each related Interest Accrual
Period. On each applicable Distribution
Date, interest will be distributable on
each Class of Certificates in an aggregate
amount equal to the interest accrued at the
applicable Pass-Through Rate during the
related Interest Accrual Period on the
Class Certificate Balance of such Class
immediately prior to such Distribution Date
(as to each Class, the "Accrued Certificate
Interest"). As to each Class and related
Distribution Date, the "Interest Accrual
Period" will be the period from the first
day of the month of the preceding
Distribution Date (or, in the case of the
first Distribution Date for each Class,
from the Cut-off Date) through the last day
of the month preceding the month of such
current Distribution Date. See "DESCRIPTION
OF THE CERTIFICATES--Distributions --
Interest" herein.
Principal. Principal in respect of each
Pool will be distributed to the related
Class of Certificates on each applicable
Distribution Date in an aggregate amount
equal to the Principal Distribution Amount
for such Distribution Date and Pool. The
"Principal Distribution Amount" for each
Pool as of each applicable Distribution
Date will equal the sum of (i) the
principal portion of all scheduled payments
(including any balloon payments) on the
Qualified Loans in such Pool due during the
preceding Due Period (as defined herein),
(ii) the scheduled principal balance of
each Qualified Loan included in such Pool
which was purchased or became a Liquidated
Qualified Loan during the preceding Due
Period, and (iii) all full or partial
principal prepayments received during the
preceding Due Period. See "DESCRIPTION OF
THE CERTIFICATES--Distributions --Principal"
herein.
Yield Maintenance Charges. Each Qualified
Loan provides for the payment by the
Borrower of a Yield Maintenance Charge (as
defined herein) in connection with any
prepayments, in whole or in part. The
amount of any Yield Maintenance Charge in
respect of the related Qualified Loan, to
the extent collected by the Central
Servicer, will be distributed to the
Holders of the related Class of
Certificates on each Distribution Date in
the manner and to the extent described
herein. Farmer Mac will not guarantee to
Holders of the related Class of
Certificates the collection of any Yield
Maintenance Charge payable in connection
with a principal prepayment on a Qualified
Loan. See "DESCRIPTION OF THE
CERTIFICATES --Distributions--Yield
Maintenance Charges" herein.
Record Date . . . . . . . . . The Record Date for each Distribution Date
and Class of Certificates will be the close
of business on the last Business Day of the
month immediately preceding the month in
which such Distribution Date occurs.
The Trust Fund . . . . . . . The Trust Fund corpus consists of: (i) one
. . . . . . . . . . . . . . . . or more Pools of fixed-rate agricultural
real estate mortgage loans (collectively,
the "Qualified Loans"), (ii) the Farmer Mac
Guarantee and (iii) the Collection Account
and Certificate Account (each as defined in
the Prospectus). See "DESCRIPTION OF THE
QUALIFIED LOANS" herein.
Optional Termination . . . . On any Distribution Date for any Class of
Certificates, when the aggregate principal
balance of the Qualified Loans in all of
the Pools in the Trust Fund is less than
the Termination Percentage as of the
Cut-off Date, the Master Servicer may
purchase from the Trust Fund all remaining
Qualified Loans and thereby effect an early
retirement of the Certificates outstanding
at such time. See "DESCRIPTION OF THE
CERTIFICATES--Optional Termination" herein
and in the Prospectus.
Certain Federal Income Tax
Consequences . . . . . . . The Trust Fund will be treated as a grantor
trust for federal income tax purposes and
no election will be made to treat the Trust
Fund as a real estate mortgage investment
conduit for federal income tax purposes.
See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES" herein and in the Prospectus.
ERISA Considerations . . . . The acquisition of a Certificate by a plan
subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"),
or any individual retirement account
("IRA") or any other plan subject to Code
Section 4975 could, in some instances,
result in a prohibited transaction or other
violations of the fiduciary responsibility
provisions of ERISA and Code Section 4975.
Prospective plan investors should consult
with their legal advisors concerning the
impact of ERISA and the Code, and the
availability of any exemptions thereunder,
prior to making an investment in the
Certificates. See "ERISA CONSIDERATIONS"
herein and in the Prospectus.
Legal Investment . . . . . . The Certificates will constitute securities
guaranteed by Farmer Mac for purposes of
the Farmer Mac Charter and, as such, will,
by statute, be legal investments for
certain types of institutional investors to
the extent that those investors are
authorized under any applicable law to
purchase, hold, or invest in obligations
issued by or guaranteed as to principal and
interest by the United States or any agency
or instrumentality of the United States.
Investors whose investment authority is
subject to legal restrictions should
consult their own legal advisors to
determine whether and the extent to which
Certificates constitute legal investments
for them. See "LEGAL INVESTMENT" herein and
</TABLE>
in the Prospectus.
<PAGE>
RISK FACTORS
Prospective investors in the Certificates should consider the
following factors (together with the factors set forth in "RISK FACTORS"
in the Prospectus) in connection with the purchase of such Certificates.
Collection of Yield Maintenance Charges. Farmer Mac will not
guarantee to Holders of the related Class of Certificates the collection
of any yield maintenance charge ("Yield Maintenance Charge") payable in
connection with a principal prepayment on a Qualified Loan. The amount
of any Yield Maintenance Charge in respect of the related Qualified
Loan, to the extent collected by the Central Servicer, will be
distributed to Holders of the related Class of Certificates on the
related Distribution Date in the manner and to the extent described
herein.
Under the Servicing Contract, the Central Servicer may not waive
the collection of any Yield Maintenance Charge without the consent of
Farmer Mac, as Master Servicer. It is Farmer Mac's policy generally not
to consent to the waiver of the collection of a Yield Maintenance Charge
unless the amount of such charge is unduly large relative to the unpaid
principal balance of the related Qualified Loan. In such cases, and
other circumstances that raise similar equitable concerns, Farmer Mac's
policy is to require Central Servicers to attempt to collect a portion
of such Yield Maintenance Charge in connection with any prepayment of
principal; however, there may be situations in which Farmer Mac may
consider it appropriate to waive any collection of a Yield Maintenance
Charge. Generally, a principal prepayment resulting from the
condemnation of, or casualty on, the related Mortgaged Property (as
defined herein) will not be accompanied by a Yield Maintenance Charge.
Because Farmer Mac does not guarantee the collection of such charges,
the expected yield to investors in the Certificates may be sensitive to
the extent such amounts are not collected. See "FARMER MAC GUARANTEE"
herein.
Relative Loan Sizes. As of the Cut-off Date, Pool AS1006 and Pool
CA1004 each includes a single Qualified Loan which constitutes
approximately 27% and 29% (by principal balance), respectively, of the
aggregate principal balance of such Pool. As a result, principal
payments (including voluntary prepayments and prepayments due to
defaults, liquidations and Guarantee Payments) on such Qualified Loans
will have a disproportionate effect on the Pass-Through Rates and yields
of the related Classes of Certificates. To the extent any such Qualified
Loan bears interest at a Net Mortgage Rate in excess of the then
applicable Pass-Through Rate for such Pool, principal payments on such
loan will subsequently result in a lower Pass-Through Rate for such
Pool. See "ANNEX I: DESCRIPTION OF THE QUALIFIED LOAN POOLS" at the end
of this Prospectus Supplement for detailed information regarding such
high balance loans.
Limited Number of Loans. As of the Cut-off Date, Pool AA1005,
Pool AS1006, Pool CA1004 and Pool CS1004 include 13, 19, 10 and 17
Qualified Loans respectively. As is the case with Qualified Loans
having higher principal balances as described above, the payment
experience of one or more Qualified Loans in any such Pool may have a
disproportionate effect on the Pass-Through Rates and yields of the
related Classes of Certificates. Due to the relative lack of geographic
diversity, a natural disaster or local economic conditions may have a
greater impact on any such Pool than would be the case if such Pool were
more geographically diverse. As a result, Holders may receive
distributions of principal due to liquidation, condemnation or casualty
of the related Mortgaged Property earlier than anticipated. Any such
early receipt of principal may affect Holders' yields adversely. In
addition, the Pass-Through Rate and yield on the related Class of
Certificates may be materially and adversely affected by any default or
voluntary prepayment of the related Qualified Loans. See "ANNEX I:
DESCRIPTION OF THE QUALIFIED LOAN POOLS" and "YIELD, PREPAYMENT AND
MATURITY CONSIDERATIONS" herein.
<PAGE>
DESCRIPTION OF THE QUALIFIED LOANS
The Trust Fund will consist primarily of one or more Pools of
Qualified Loans which will be assigned to the Trust Fund by the
Depositor. For a detailed description of certain characteristics of the
Qualified Loans in each Pool, see "ANNEX I: DESCRIPTION OF THE QUALIFIED
LOAN POOLS" at the end of this Prospectus Supplement. The aggregate
outstanding principal balance of the Qualified Loans in each Pool is
subject to the permitted variance described on the cover page hereof.
Each Qualified Loan is secured by a first-lien on Agricultural Real
Estate (the "Mortgaged Properties"). The principal amount of any
Qualified Loan in any Pool cannot exceed $3,420,400. "Agricultural Real
Estate" is a parcel or parcels of land, which may be improved by
buildings and machinery, fixtures and equipment or other structures
permanently affixed to the parcel or parcels, that (a) are used for the
production of one or more agricultural commodities and (b) consist of a
minimum of five acres or are used in producing minimum annual receipts
of $5,000.
The Qualified Loans have current loan-to-value ratios of not more
than 70%. All of the Qualified Loans meet Farmer Mac's Underwriting and
Appraisal Standards (the "Underwriting Standards") with respect to newly
originated loans. As used herein, a "current" loan-to-value ratio is
based on an appraisal performed within one year prior to the acquisition
of the related Qualified Loan by the Depositor. See "DESCRIPTION OF THE
TRUST FUNDS--Qualified Loans--General" in the Prospectus.
The description of the Qualified Loans and the related Mortgaged
Properties is based upon each Pool as constituted at the close of
business on the Cut-off Date, as adjusted for any scheduled principal
payments due on or before such date. Prior to the issuance of the
Certificates, Qualified Loans may be removed from a Pool as a result of
incomplete documentation or otherwise, if the Depositor deems such
removal necessary or appropriate, or as a result of prepayments in full.
A limited number of other Qualified Loans may be added to any Pool prior
to the issuance of the Certificates unless including such Qualified
Loans would materially alter the characteristics of such Pool as
described herein. The Depositor believes that the information set forth
in "ANNEX I: DESCRIPTION OF THE QUALIFIED LOAN POOLS" will be
representative of the characteristics of each Pool as it will be
constituted at the time the Certificates are issued although the range
of Mortgage Interest Rates and maturities and certain other
characteristics of the Qualified Loans in such Pool may vary. Pursuant
to the Sale Agreement, the Seller (as defined herein) has made certain
representations and warranties with respect to the Qualified Loans and
their origination in accordance with the Underwriting Standards. See
"DESCRIPTION OF THE AGREEMENTS--Representations and Warranties;
Repurchases" in the Prospectus.
The information in ANNEX I with respect to the Qualified Loans will
be revised to reflect any adjustments in the composition of the Trust
Fund and will be included in a Form 8-K to be filed with the Commission
within 15 days after the Closing Date. Such information will be
available to Holders of Certificates promptly thereafter through the
facilities of the Commission as described under "AVAILABLE INFORMATION"
in the Prospectus.
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued pursuant to a Trust Agreement dated
as of June 1, 1996 as supplemented by an Issue Supplement dated as of
the Cut-off Date (collectively, the "Trust Agreement"), each among
Farmer Mac, the Depositor and the Trustee. Reference is made to the
Prospectus for important additional information regarding the terms and
conditions of the Trust Agreement and the Certificates. See "DESCRIPTION
OF THE CERTIFICATES" and "DESCRIPTION OF THE AGREEMENTS" in the
Prospectus. The Certificates are issued as a separate series under the
Trust Agreement with a series designation corresponding to the Closing
Date. Each Class of Certificates will be issued in an initial Class
Certificate Balance equal to the original principal amount of the
related Pool.
The Certificates will evidence beneficial ownership interests in a
trust fund (the "Trust Fund") consisting primarily of (i) one or more
Pools of Qualified Loans described in ANNEX I hereto; (ii) the Farmer
Mac Guarantee; and (iii) the Collection Account and Certificate Account.
Each Pool of Qualified Loans is evidenced by a single Class of
Certificates bearing the same alpha-numerical designation as the
underlying Pool. Distributions of interest and principal on each Class
of Certificates will be calculated with reference to the Qualified Loans
in the related Pool.
Farmer Mac has established a six-digit alpha-numerical pool
numbering system to identify certain characteristics of the Qualified
Loans in each Pool and to facilitate Certificateholders' access to the
factor and other loan information to be published periodically by Farmer
Mac with respect thereto. The first three digits are "loan identifiers."
The first digit denotes the maximum original term to maturity of the
Qualified Loans in the Pool; the second digit denotes the scheduled
payment frequency with respect to the Qualified Loans in the Pool; the
third digit denotes the first month in a calendar year in which a
Distribution Date for such Pool occurs. The last three digits
sequentially designate Pools with the same three loan identifiers. The
table below summarizes Farmer Mac's pool numbering system:
<TABLE>
<CAPTION>
<S> <C> <C>
1st Digit 2nd Digit 3rd Digit
A=15 year A=Annual 1=January
B=7 year S=Semi-annual 2=April
C=5 year Q=Quarterly 3=July
4=October
</TABLE>
Book-Entry Certificates
The Certificates will be issued in book-entry form, and beneficial
interests therein will be held by investors through the book-entry
system of the Federal Reserve Banks (the "Fed book-entry system"), in
minimum denominations in Certificate Balances of $1,000 and integral
multiples of $1 in excess thereof.
The Certificates will be maintained on the Fed book-entry system in
a manner that permits separate trading and ownership. Each Class of
Certificates has been assigned a CUSIP number and will be tradable
separately under such CUSIP number. The CUSIP number for each Class is
specified on the cover hereof.
In accordance with the procedures established for the Fed
book-entry system, the Federal Reserve Banks will maintain book-entry
accounts with respect to the Certificates and make distributions on the
Certificates on behalf of the Master Servicer on the applicable
Distribution Dates by crediting Holders' accounts at the Federal Reserve
Banks.
Such entities whose names appear on the book-entry records of a
Federal Reserve Bank as the entities for whose accounts such
Certificates have been deposited are herein referred to as
"Certificateholders" or "Holders." A Holder is not necessarily the
beneficial owner of a Certificate. Beneficial owners will ordinarily
hold Certificates through one or more financial intermediaries, such as
banks, brokerage firms and securities clearing organizations. See
"DESCRIPTION OF THE CERTIFICATES--The Fed System" in the Prospectus.
Issuance of the Certificates in book-entry form may reduce the
liquidity of such Certificates in the secondary market since certain
investors may be unwilling to purchase Certificates for which they
cannot obtain physical certificates. See "RISK FACTORS-Limited
Liquidity" in the Prospectus.
<PAGE>
Distributions
General. Distributions of principal and interest on the
Certificates will be made on an annual, semi-annual or quarterly basis
as specified for each Class on the cover page hereof. Such annual,
semi-annual or quarterly Distribution Dates will occur on the 25th day
of each January, April, July or October, as applicable, commencing on
the date for each Class set forth on the cover page hereof (each, a
"Distribution Date"). If any such day is not a Business Day (that is, a
day other than Saturday, Sunday or a day on which the Federal Reserve
Bank of New York authorizes banking institutions in the Second Federal
Reserve District to be closed, or banking institutions in New York are
authorized or obligated by law to be closed or Farmer Mac is closed),
distributions will be made on the next succeeding Business Day to
persons in whose names the Certificates are registered on the applicable
Record Date. The "Record Date" for any Class and related Distribution
Date will be the close of business on the last Business Day of the month
preceding the month in which such Distribution Date occurs.
Interest. Interest on the Certificates of each Class will be
distributed on each Distribution Date for such Class in an aggregate
amount equal to the Accrued Certificate Interest for such Distribution
Date and Class. "Accrued Certificate Interest" for each Distribution
Date and Class will equal the amount of interest accrued during the
related Interest Accrual Period at the applicable Pass-Through Rate on
the Class Certificate Balance of such Class immediately prior to such
Distribution Date. Interest on the Certificates will be calculated on
the basis of a 360-day year consisting of twelve 30-day months. As of
any date of determination, the "Class Certificate Balance" of any Class
of Certificates will equal the sum of the Certificate Balances of all
Certificates of the same Class and the "Certificate Balance" of any
Certificate as of any date of determination will equal the original
Certificate Balance thereof less all amounts distributed thereon in
respect of principal on preceding Distribution Dates.
The Interest Accrual Periods for each Class will depend on the
payment frequency of such Class. As to any Class and related
Distribution Date, the "Interest Accrual Period" will be the period from
the first day of the month of the month of the preceding Distribution
Date (or, in the case of the first Distribution Date for each Class,
from the Cut-off Date) through the last day of the month preceding the
month of such current Distribution Date.
Interest will accrue on the Certificates of each Class at a
variable rate per annum (the "Pass-Through Rate") equal to the weighted
average of the Net Mortgage Rates of the Qualified Loans included in the
related Pool. For purposes hereof, the "Net Mortgage Rate" for each
Qualified Loan will equal the interest rate thereon (the "Mortgage
Interest Rate") less a rate representing the combined fees of the
Central Servicer, Master Servicer, Field Servicer and Farmer Mac as
guarantor (such amount, the "Administrative Fee Rate"). The weighted
average Administrative Fee Rate as of the Cut-off Date for each Pool is
set forth in ANNEX I hereto. The Pass-Through Rate for each Pool and
Distribution Date is calculated by (1) multiplying the outstanding
balance of each Qualified Loan in such Pool by its Net Mortgage Rate to
derive such Qualified Loan's weighted interest amount ("Weighted
Interest Amount"); (2) dividing the sum of all such Pool's Weighted
Interest Amounts by the Class Certificate Balance of the related Class
of Certificates, before giving effect to the distribution of principal
on the related Distribution Date; and (3) truncating such interest rate
to three decimal places.
Principal. Principal in respect of each Class will be distributed
on each applicable Distribution Date in an aggregate amount equal to the
Principal Distribution Amount for the related Pool on such Distribution
Date. On each Distribution Date, the "Principal Distribution Amount" for
each Pool as of each applicable Distribution Date will equal the sum of
(i) the principal portion of all scheduled payments (including any
balloon payments) on the Qualified Loans in such Pool due during the
preceding Due Period, (ii) the scheduled principal balance of each
Qualified Loan included in such Pool which was repurchased or became a
Liquidated Qualified Loan during the preceding Due Period, and (iii) all
full or partial principal prepayments received during the preceding Due
Period. The "Due Period" for each Pool and Distribution Date will
commence on the second day of the month of the preceding Distribution
Date (or, in the case of the first Distribution Date for each Class, on
the day following the Cut-off Date) and will end on the first day of the
month of such current Distribution Date. A "Liquidated Qualified Loan"
is generally any defaulted Qualified Loan as to which it has been
determined that all amounts to be received thereon have been recovered.
Certificate Pool Factors. As soon as practicable following the
fifth Business Day of each month of a Distribution Date, Farmer Mac will
publish or otherwise make available for each applicable Pool of
Qualified Loans, among other things, the factor (carried to eight
decimal places) which, when multiplied by the original Certificate
Balance of a Certificate evidencing an interest in such Pool, will equal
the remaining principal balance of such Certificate after giving effect
to the distribution of principal to be made on the Distribution Date in
such month.
Yield Maintenance Charges. In the event a Borrower is required to
pay a Yield Maintenance Charge, to the extent such payment is collected
by the Central Servicer, the Master Servicer will distribute such
amount, adjusted to the related Net Mortgage Rate as described below, to
Holders of the related Class of Certificates. Each Yield Maintenance
Charge has been designed to mitigate reinvestment losses to the
noteholder on the prepaid amount of any Qualified Loan. Generally, such
charge represents the excess of reinvestment earnings at the related
Mortgage Interest Rate (net of the related servicing fee rates) on such
prepaid amount (i.e., the amount that would have been received by the
related noteholder in the absence of the prepayment) over earnings
calculated at a prevailing interest rate (a specified Treasury yield) on
such prepaid amount. Amounts, if any, passed through to
Certificateholders in respect of Yield Maintenance Charges will be
calculated on the basis of the related Net Mortgage Rate rather than the
Mortgage Interest Rate. The distribution of any Yield Maintenance
Charge to Certificateholders will not reduce the Certificate Balance of
the related Certificates. Farmer Mac will not guarantee to Holders of
the related Class of Certificates the collection of any Yield
Maintenance Charge payable in connection with a principal payment on a
Qualified Loan. See "FARMER MAC GUARANTEE" herein.
Advances
The Central Servicer will not be required to advance its own funds
with respect to delinquent Qualified Loans. Because Farmer Mac
guarantees timely distributions to Holders of interest on the
Certificates and the full Principal Distribution Amount (including any
balloon payments), the fact that the Central Servicer is not required to
make any such advance will not affect distributions of interest and
principal to such Holders.
FARMER MAC GUARANTEE
Pursuant to the Trust Agreement, Farmer Mac will guarantee (the
"Farmer Mac Guarantee") the timely distribution of interest accrued on
the Certificates and the distribution of the full Principal Distribution
Amount (including any balloon payments) for the related Pool and
Distribution Date. In addition, Farmer Mac is obligated to distribute on
a timely basis the outstanding Class Certificate Balance of each Class
of Certificates in full no later than the related Final Distribution
Date (as set forth on the cover hereof), whether or not sufficient funds
are available in the Certificate Account. The Farmer Mac Guarantee will
not cover the distribution to Holders of the related Class of
Certificates of any uncollected Yield Maintenance Charge. See "RISK
FACTORS" herein.
Farmer Mac's obligations under the Farmer Mac Guarantee are
obligations solely of Farmer Mac and are not backed by the full faith
and credit of the United States. Furthermore, Farmer Mac anticipates
that its future contingent liabilities in respect of guarantees of
outstanding securities backed by agricultural mortgage loans will
greatly exceed its resources, including its limited ability to borrow
from the United States Treasury. See "OUTSTANDING GUARANTEES" herein and
"FEDERAL AGRICULTURAL MORTGAGE CORPORATION" in the Prospectus.
OUTSTANDING GUARANTEES
As of the Cut-off Date, Farmer Mac had outstanding guarantees on
approximately $420.3 million aggregate principal amount of securities
(including approximately $211.0 of securities evidencing assets which
are guaranteed by the Secretary of the United States Department of
Agriculture). Farmer Mac is authorized to borrow up to $1,500,000,000
from the Secretary of the Treasury, subject to certain conditions, to
enable Farmer Mac to fulfill its guarantee obligations. See "FEDERAL
AGRICULTURAL MORTGAGE CORPORATION" in the Prospectus. As of the Cut-off
Date, Farmer Mac had not borrowed any amounts from the Secretary of the
Treasury to fund guarantee payments.
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
The rate of payment of principal on each Class of Certificates and
the yield to maturity thereof will correspond directly to the rate of
payments of principal on the Qualified Loans in the related Pool. The
rate of payments of principal of the Qualified Loans will in turn be
affected by the rate of principal prepayments thereon by Borrowers, by
liquidations of defaulted Qualified Loans, by repurchases as a result of
defective documentation and breaches of representations and warranties
or for certain other reasons. There is little or no historical data
available to provide assistance in estimating the rate of prepayments
and defaults on loans secured by Agricultural Real Estate generally or
the Qualified Loans particularly.
In the case of Qualified Loans, social, economic, political, trade,
geographic, climatic, demographic, legal and other factors may influence
prepayments and defaults, including the age of the Qualified Loans, the
geographic distribution of the related Mortgaged Properties, the payment
terms of the Qualified Loans, the characteristics of the borrowers,
weather, economic conditions generally and in the geographic area in
which the Mortgaged Properties are located, enforceability of
due-on-sale clauses, servicing decisions, the availability of mortgage
funds, the extent of the borrowers' net equity in the Mortgaged
Properties, mortgage market interest rates in relation to the effective
interest rates on the Qualified Loans and other unforeseeable variables,
both domestic and international, affecting particular commodity groups
and the farming industry in general. Generally, if prevailing interest
rates fall significantly below the interest rates on the Qualified
Loans, the Qualified Loans are likely to be subject to higher
prepayments than if prevailing rates remain at or above the interest
rates on such Qualified Loans. Conversely, if prevailing interest rates
rise above the interest rates on the Qualified Loans, the rate of
prepayment would be expected to decrease. There can be no certainty as
to the rate or prepayments on the Qualified Loans during any period or
over the lives of the Certificates. The rate of default on the Qualified
Loans will also affect the rate of payment of principal on the Qualified
Loans. Prepayments, liquidations and repurchases of the Qualified Loans
will result in distributions to Holders of the related Class of
Certificates of amounts which would otherwise be distributed over the
remaining terms of the Qualified Loans.
All of the Qualified Loans impose Yield Maintenance Charges that,
if enforced by the Central Servicer, could be a deterrent to
prepayments. Under the Servicing Contract (as defined herein), the
Central Servicer may not waive the collection of any Yield Maintenance
Charge without the consent of Farmer Mac, as Master Servicer. It is
Farmer Mac's policy generally not to consent to the waiver of the
collection of a Yield Maintenance Charge unless the amount of such
charge is unduly large relative to the unpaid principal balance of the
related Qualified Loan. In such cases, and other circumstances that
raise similar equitable concerns, Farmer Mac's policy is to require
Central Servicers to attempt to collect a portion of such Yield
Maintenance Charge in connection with any prepayment of principal;
however, there may be situations in which Farmer Mac may consider it
appropriate to waive any collection of a Yield Maintenance Charge. With
respect to each Qualified Loan, any Yield Maintenance Charge payable in
connection with a prepayment thereon, whether in whole or in part, will
be calculated with reference to United States Treasury securities in a
manner designed to mitigate reinvestment losses, if any, that would
otherwise be incurred by the noteholder in connection with such
prepayment.
Because Farmer Mac does not guarantee the collection of any Yield
Maintenance Charge, the expected yield to investors in the Certificates
may be sensitive in varying degrees to the extent such amounts are not
collected.
The required payment of any Yield Maintenance Charge may not be a
sufficient disincentive to prevent the voluntary prepayment of the
related Qualified Loan and, even if collected, may be insufficient to
offset fully the adverse effects on the anticipated yield thereon
arising out of the corresponding principal payment.
In addition, all of the Qualified Loans include "due-on-sale"
clauses; however, it is generally the policy of the Central Servicer not
to enforce such clauses unless the transferor of the related Mortgaged
Property does not meet the Underwriting Standards of Farmer Mac. The
Servicing Contract does not require any such enforcement. In addition,
at the request of the Borrower, the Central Servicer may allow the
partial release of a Mortgaged Property provided the collateral property
is reappraised and a partial prepayment is made such that the resulting
loan-to-value ratio is no greater than 70% and the cash flows from the
remaining property are sufficient to service the remaining debt. Such
partial release may result in a prepayment in part (together with any
required Yield Maintenance Charge, calculated as described herein) on
the related Qualified Loan and a corresponding reamortization of the
unpaid principal balance of such Qualified Loan to the maturity date for
such loan. Any Qualified Loan as to which a partial release occurs will
remain in the Trust Fund.
The yield to investors in the Certificates of a Class will be
sensitive to the rate and timing of principal payments (including
prepayments) of the Qualified Loans in the related Pool, which generally
can be prepaid at any time, subject to the restrictions and prepayment
penalties described above. In addition, the yield to maturity on a
Certificate may vary depending on the extent to which such Certificate
is purchased at a discount or premium. Holders of the Certificates
should consider, in the case of any Certificates purchased at a
discount, the risk that a slower than anticipated rate of principal
payments on the related Qualified Loans could result in an actual yield
that is lower than the anticipated yield and, in the case of any
Certificates purchased at a premium, the risk that a faster than
anticipated rate of principal payments on the related Qualified Loans
could result in an actual yield that is lower than the anticipated
yield, particularly if any Yield Maintenance Charge is not distributed
to such Holders.
The timing of changes in the rate of prepayments on the Qualified
Loans may significantly affect an investor's actual yield to maturity,
even if the average rate of principal payments is consistent with an
investor's expectation. In general, the earlier a prepayment of
principal of the related Qualified Loans, the greater the effect on an
investor's yield to maturity. The effect on an investor's yield of
principal payments occurring at a rate higher (or lower) than the rate
anticipated by the investor during the period immediately following the
issuance of the Certificates may not be offset by a subsequent like
decrease (or increase) in the rate of principal payments. An investor
must make an independent decision as to the appropriate prepayment
scenario to be used in deciding whether to purchase the Certificates.
Investors should consider the risk that rapid rates of prepayments
on the Qualified Loans, and therefore of principal payments on the
related Class of Certificates, may coincide with periods of low
prevailing interest rates. During such periods, the effective interest
rates on securities in which an investor may choose to reinvest amounts
received as principal payments on such investor's Certificate may be
lower than the applicable Pass-Through Rate. Conversely, slow rates of
prepayments on the Qualified Loans, and therefore of principal payments
on the related Class of Certificates, may coincide with periods of high
prevailing interest rates. During such periods, the amount of principal
payments available to an investor for reinvestment at such high
prevailing interest rates may be relatively low.
The Pass-Through Rate for each Class of Certificates will equal the
weighted average of the Net Mortgage Rates of the Qualified Loans in the
related Pool. Prepayments of Qualified Loans with relatively higher
Mortgage Interest Rates, particularly if such Qualified Loans have
larger unpaid principal balances, will reduce the Pass-Through Rate for
the related Class of Certificates from that which would have existed in
the absence of such prepayments. In addition, the Qualified Loans in a
Pool will not prepay at the same rate or at the same time. Qualified
Loans with relatively higher Mortgage Interest Rates may prepay at
faster rates than Qualified Loans with relatively lower Mortgage
Interest Rates in response to a given change in market interest rates.
If such differential prepayments were to occur, the yield on the related
Class of Certificates would be adversely affected.
The effective yield to the holders of the Certificates will be
lower than the yield otherwise produced by the applicable purchase price
and Pass-Through Rate because the distributions of principal, if any,
and interest will not be payable to such holders until at least the 25th
day of the month following the period in which interest accrues (without
any additional distribution of interest or earnings thereon in respect
of such delay).
<PAGE>
DESCRIPTION OF THE AGREEMENTS
The Certificates will be issued pursuant to the Trust Agreement.
Farmer Mac will act as Master Servicer of the Qualified Loans. The
Qualified Loans will be directly serviced by the Central Servicer acting
on behalf of Farmer Mac pursuant to a Master Central Servicing Contract
(as supplemented) between it and Farmer Mac (the "Servicing Contract").
See "DESCRIPTION OF THE AGREEMENTS" in the Prospectus. The Central
Servicer may subcontract the performance of certain of its servicing
duties to a subservicer. In addition, each of the sellers (the
"Sellers") of the Qualified Loans has transferred and assigned its
respective Qualified Loans to the Depositor pursuant to a separate
Selling and Servicing Agreement (a "Sale Agreement"). The Sale Agreement
includes certain representations and warranties of the related Seller
respecting the related Qualified Loans which representations and
warranties and the remedies for their breach will be assigned by Farmer
Mac to the Trustee for the benefit of Certificateholders pursuant to the
Trust Agreement. See "DESCRIPTION OF THE AGREEMENTS-Representations and
Warranties; Repurchases" in the Prospectus.
Trustee
The Trustee for the Certificates will be First Trust National
Association, a national banking association organized and existing under
the federal laws of the United States with an office at 180 East Fifth
Street, St. Paul, Minnesota 55101.
Servicing and Other Compensation And Payment of Expenses
The Central Servicer will be paid a servicing fee calculated on a
loan-by-loan basis. Additional servicing compensation in the form of
assumption fees or similar fees (other than late payment charges) will
be retained by the Central Servicer. The Depositor, the Master Servicer
and the Central Servicer are obligated to pay all expenses incurred in
connection with their respective responsibilities under the Trust
Agreement and the Servicing Contract (subject to reimbursement for
liquidation expenses), including the fees of the Trustee, and also
including, without limitation, the various other items of expense
enumerated in the Prospectus. See "DESCRIPTION OF THE CERTIFICATES" in
the Prospectus.
Optional Termination
The Master Servicer may effect an early termination of the Trust
Fund on any Distribution Date when the aggregate principal balance of
Qualified Loans in all of the Pools in the Trust Fund is reduced to less
than the Termination Percentage thereof as of the Cut-off Date by
repurchasing all the Qualified Loans at a price equal to 100% of the
principal balance of the Qualified Loans plus accrued interest thereon
at the applicable Mortgage Interest Rate, determined as provided in the
Trust Agreement. The Master Servicer will distribute the proceeds
thereof to Holders of the then outstanding Classes of Certificates on
the next succeeding Distribution Date for any Class whether or not such
Distribution Date is a Distribution Date for all such Classes of
Certificates. See "DESCRIPTION OF CERTIFICATES--Termination" in the
Prospectus.
Repurchases of Qualified Loans
Under the Trust Agreement, Farmer Mac, as Master Servicer, will
have the right (without obligation and in its discretion) to repurchase
from the Trust Fund, upon payment of the purchase price provided in the
Trust Agreement, any Qualified Loan at any time after such loan becomes
and remains delinquent as to any scheduled payment for a period of
ninety days. Farmer Mac will also have a similar right to purchase from
the Trust Fund any property acquired by the Trust Fund upon foreclosure
or comparable conversion of any Qualified Loan. See also "DESCRIPTION OF
THE AGREEMENTS--Representations and Warranties; Repurchases" in the
Prospectus.
<PAGE>
THE DEPOSITOR
Farmer Mac Mortgage Securities Corporation, the Depositor, is a
wholly owned subsidiary of Farmer Mac and was incorporated in the State
of Delaware in May 1992. The principal executive offices of the
Depositor are located at 919 18th Street, N.W., Washington, D.C. 20006.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
No election will be made to treat the Trust Fund as a "real estate
mortgage conduit" ("REMIC") for federal income tax purposes. In the
opinion of Brown & Wood LLP, counsel for the Depositor, (i) the Trust
Fund will be treated as a grantor trust for federal income tax purposes;
(ii) a Certificate owned by a real estate investment trust representing
an interest in Qualified Loans will be considered to represent "real
estate assets" within the meaning of Code Section 856(c)(5)(A), and
interest income on the Qualified Loans will be considered "interest on
obligations secured by mortgages on real property" within the meaning of
Code Section 856(c)(3)(B), to the extent that the Qualified Loans
represented by that Certificate are of a type described in such Code
section; and (iii) a Certificate owned by a REMIC will represent
"obligation[s] ... which [are] principally secured by an interest in
real property" within the meaning of Code Section 860G(a)(3) to the
extent that the Qualified Loans represented by that Certificate are of a
type described in such Code section. The Trust Fund intends to account
for all servicing fees as reasonable servicing fees. However, if any
servicing fees, determined on a Qualified Loan by Qualified Loan basis,
were determined to exceed reasonable servicing fees, the Certificates
would be treated as representing an interest in one or more "stripped
bonds." See "Certain Federal Income Tax Consequences--Grantor Trust
Funds--Multiple Classes of Grantor Trust Certificates. The Holders of
the Certificates will be treated as owners of their pro rata interest in
the assets of the Trust Fund with respect to the related Pool. If the
value of the real property securing a Qualified Loan is lower than the
amount of such Qualified Loan, any such Qualified Loan may not qualify
in its entirety under the foregoing Code sections. See "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES" in the Prospectus. Investors should consult
their tax advisors before acquiring the Certificates.
ERISA CONSIDERATIONS
The acquisition of Certificates by a plan subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or any
individual retirement account ("IRA") or any other plan subject to Code
Section 4975 could, in some instances, result in a prohibited
transaction or other violations of the fiduciary responsibility
provisions of ERISA and Code Section 4975.
As discussed under the caption "ERISA CONSIDERATIONS" in the
Prospectus, applicable regulations provide a broad ERISA plan asset
exception for a Plan's (as defined in the Prospectus) purchase and
holding of "government guaranteed mortgage pool certificates." The term
"guaranteed governmental mortgage pool certificate" is defined as a
certificate backed by, or evidencing an interest in, specified mortgages
or participation interests therein, and with respect to which interest
and principal payable pursuant to the certificate is guaranteed by the
United States or an agency or instrumentality thereof. Representatives
of the United States Department of Labor (the "DOL") have stated
informally that the governmental mortgage pool provision was not
intended to cover securities guaranteed by entities other than the three
entities mentioned in the exemption (which do not include Farmer Mac)
and that they do not interpret this provision to include securities
guaranteed by Farmer Mac. Nevertheless, Brown & Wood LLP, counsel to
Farmer Mac, has advised Farmer Mac that the Certificates satisfy the
conditions set forth in the Final Regulations (as defined in the
Prospectus) and thus will qualify as "guaranteed governmental mortgage
pool certificates" as defined therein.
If the government guaranteed mortgage pool exception does not
apply, one of five other prohibited transaction class exemptions issued
by the DOL, which are based on the status of the Plan fiduciary making
the decision to acquire the Certificates and the circumstances under
which such decision is made, might provide a prohibited transaction
exemption for a particular Plan desiring to invest in the Certificates,
i.e., PTCE 84-14 (Class Exemption for Plan Asset Transactions Determined
by Independent Qualified Professional Asset Managers), PTCE 96-23 (Class
Exemption for Plan Asset Transactions Determined by In-House Asset
Managers), PTCE 91-38 (Class Exemption for Certain Transactions
Involving Bank Collective Investment Funds), PTCE 90-1 (Class Exemption
for Certain Transactions Involving Insurance Company Pooled Separate
Accounts) or PTCE 95-60 (Class Exemption for Certain Transactions
Involving Insurance Company General Accounts). There can be no assurance
that any of these class exemptions will apply with respect to any
particular Plan desiring to invest in the Certificates or, even if it
were to apply, that the exemption would apply to all transactions
involving the Trust Fund.
Before purchasing a Certificate in reliance on either the
government guaranteed mortgage pool exception or any of the above
referenced class exemptions, a fiduciary of a Plan should itself confirm
that the requirements set forth in such exception and/or class
exemptions would be satisfied.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, and the potential
consequences in their specific circumstances, prior to making an
investment in the Certificates. Moreover, each Plan fiduciary should
determine whether under the general fiduciary standards of investment
prudence and diversification, an investment in the Certificates is
appropriate for the Plan, taking into account the overall investment
policy of the Plan and the composition of the Plan's investment
portfolio. See "ERISA CONSIDERATIONS" in the Prospectus.
LEGAL INVESTMENT
The Certificates will constitute securities guaranteed by Farmer
Mac for purposes of the Farmer Mac Charter and, as such, will, by
statute, be legal investments for certain types of institutional
investors to the extent that those investors are authorized under any
applicable law to purchase, hold, or invest in obligations issued by or
guaranteed as to principal and interest by the United States or any
agency or instrumentality of the United States. Investors whose
investment authority is subject to legal restrictions should consult
their own legal advisors to determine whether and the extent to which
specific Classes of the Certificates constitute legal investments for
them.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement among Farmer Mac, the Depositor and each Underwriter
identified on the cover page hereof, the Certificates offered hereby are
being purchased from the Depositor by each such Underwriter upon
issuance. Distribution of the Certificates will be made by each such
Underwriter from time to time in negotiated transactions or otherwise at
varying prices to be determined at the time of sale. Proceeds to the
Depositor from the sale of the Certificates is set forth on the cover
page hereof. To the extent provided in the Underwriting Agreement, if
proceeds to the Underwriter or Underwriters from the offering of the
Certificates exceed certain levels, the purchase price for the
Certificates payable to the Depositor by each such Underwriter will be
increased. Any such increase to the proceeds to the Depositor will be
included on a Form 8-K to be filed with the Commission within 15 days
after the Closing Date and be available to Holders of Certificates
promptly thereafter through the facilities of the Commission as
described under "AVAILABLE INFORMATION" in the Prospectus. In
connection with the purchase and sale of the Certificates offered
hereby, each Underwriter may be deemed to have received compensation
from the Depositor in the form of underwriting discounts.
In addition to purchasing the Certificates pursuant to the
Underwriting Agreement, each Underwriter named on the cover page hereof
and their affiliates may be engaged in several ongoing business
relationships with Farmer Mac. Michael C. Nolan, a Managing Director of
Bear, Stearns & Co. Inc., is a director of Farmer Mac.
The Underwriting Agreement provides that Farmer Mac and the
Depositor will indemnify each Underwriter named on the cover page hereof
against certain civil liabilities under the Securities Act of 1933 or
contribute to payments each such Underwriter may be required to make in
respect thereof.
<PAGE>
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed
upon for the Depositor by the General Counsel of Farmer Mac and by Brown
& Wood LLP, Washington, D.C. and for the Underwriter by Stroock &
Stroock & Lavan, New York, New York. Brown & Wood LLP has also acted as
special tax counsel to the Trust Fund.
<PAGE>
INDEX OF PRINCIPAL TERMS
Unless the context indicates otherwise, the following terms
shall have the meanings set forth on the pages indicated below:
<TABLE>
<CAPTION>
<S> <C>
Accrued CertificateInterest................................. S-10
Administrative Fee Rate..................................... S-10
Agricultural Real Estate.................................... S-8
AMBS........................................................ cover
Balloon Payment............................................. A-1
Central Servicer............................................ S-3
Certificate Balance......................................... S-10
Certificateholders.......................................... S-9
Certificates................................................ cover
Class Certificate Balance................................... S-10
Closing .................................................... cover
Cut-off Date................................................ cover
Dealer...................................................... cover
Depositor................................................... S-3
Distribution Dates.......................................... S-4
DOL......................................................... S-16
Due Period.................................................. S-11
ERISA....................................................... cover
Farmer Mac.................................................. cover
Farmer Mac Charter.......................................... S-3
Farmer Mac Guarantee........................................ S-11
Fed book-entry system....................................... S-9
Holders..................................................... S-9
Interest Accrual Period..................................... S-4
loan identifiers............................................ S-9
IRA......................................................... S-6
Liquidated Qualified Loan................................... S-11
Master Servicer............................................. S-3
Mortgage Interest Rate...................................... S-10
Mortgaged Properties........................................ S-8
Net Mortgage Rate........................................... S-10
Pass-Through Rate........................................... S-10
Principal Distribution Amount............................... S-4
Pool........................................................ cover
Qualified Balloon Loan...................................... A-1
Qualified Loan.............................................. cover
Record Date................................................. S-5
REMIC....................................................... S-15
Sale Agreement.............................................. S-14
Sellers..................................................... S-14
Servicing Contract.......................................... S-15
Termination Percentage...................................... S-2
Trust Agreement............................................. S-4
Trust Fund.................................................. cover
Trustee..................................................... S-4
Underwriter................................................. cover
Underwriting Standards...................................... S-8
Weighted Interest Amount.................................... S-10
Yield Maintenance Charge.................................... S-7
</TABLE>
<PAGE>
ANNEX I: DESCRIPTION OF QUALIFIED LOAN POOLS
The description of the Qualified Loans and the related
Mortgaged Properties set forth below is based upon each Pool as
constituted at the close of business on the Cut-off Date, as
adjusted for the scheduled principal payments due before such
date. Prior to the issuance of the Certificates, Qualified Loans
may be removed from each Pool as a result of incomplete
documentation or otherwise, if the Depositor deems such removal
necessary or appropriate, or as a result of prepayments in full.
A limited number of other Qualified Loans may be added to each
Pool prior to the issuance of the Certificates unless including
such Qualified Loans would materially alter the characteristics
of such Pool as described herein. The Depositor believes that the
information set forth herein will be representative of the
characteristics of the related Pool as it will be constituted at
the time the Certificates are issued although the range of
Mortgage Interest Rates and maturities and certain other
characteristics of the Qualified Loans in such Pool may vary.
The composition of each Qualified Loan Pool is subject to
adjustment, with the amount of such variance restricted to no
more than 5% of the aggregate principal balance of the Qualified
Loans in such Pool, as stated herein. The information set forth
as to the Qualified Loans will be revised to reflect such
adjustments and included on a Form 8-K to be filed with the
Commission within 15 days after the Closing Date. Such
information will be available to Holders of Certificates promptly
thereafter through the facilities of the Commission as described
under "AVAILABLE INFORMATION" in the Prospectus.
Percentages in the following tables have been rounded and,
therefore, the total of the percentages in any given column may
not add to 100%.
DESCRIPTION OF POOL AA1005
The Qualified Loans in Pool AA1005 will have had individual
principal balances as of the Cut-off Date of not less than
$80,000 and not more than $595,000. None of the Qualified Loans
in Pool AA1005 will have been originated prior to September 1,
1996 and all have a scheduled maturity of January 1, 2012. The
Qualified Loans in Pool AA1005 will have a weighted average
Administrative Fee Rate as of the Cut-off Date of approximately
1.173%.
All of the Qualified Loans in Pool AA1005 require the payment
of a Yield Maintenance Charge in connection with any principal
prepayment, in whole or in part, made prior to the maturity date
of each such Qualified Loan.
Seven of the Qualified Loans in Pool AA1005 (approximately 46%
by aggregate outstanding principal balance as of the Cut-off
Date) provide for the annual payment of principal and interest on
a level basis to fully amortize each such Qualified Loan over its
stated term. All of the remaining Qualified Loans in Pool AA1005
are balloon loans which provide for regular annual payments of
principal and interest computed on the basis of an amortization
term that is longer than the related term to stated maturity,
with a "balloon" payment (each, a "Balloon Payment") due at
stated maturity that will be significantly larger than the annual
payments (each, a "Qualified Balloon Loan").
The following tables set forth additional information with
respect to the Qualified Loans included in Pool AA1005, in each
case as of the Cut-off Date. Percentages are based on the
aggregate principal balance of Qualified Loans in Pool AA1005.
<PAGE>
<TABLE>
<CAPTION>
Pool - AA1005
Distribution by Cut-off Date Principal Balance
- -------------------------------------------------------------------------
Aggregate Percentage of
Number Principal Aggregate
Cut-off Date Principal Balance of Balance As of Principal
Loans Cut-off Date Balance As of
Cut-off Date
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 1 $ 100,000 ...... 1 $ 80,000 2%
100,001 to 200,000 ...... 5 697,000 20 20
200,001 to 300,000 ...... 1 250,000 7
300,001 to 400,000 ...... 4 1,345,000 39
400,001 to 500,000 ..... 1 500,000 14
500,001 to 600,000 ...... 1 595,000 17 17
- -------------------------------------------------------------------------
Total 13 $3,467,000 100%
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Average Loan Amount $ 266,692
Minimum Amount $ 80,000
Maximum Amount $ 595,000
</TABLE>
<TABLE>
<CAPTION>
Pool - AA1005
Distribution by Mortgage Interest Rate
- --------------------------------------------------------------------------
Aggregate Percentage of
Number Principal Aggregate
Mortgage Interest Rate of Loans Balance As Principal
of Cut-off Balance As of
Date Cut-off Date
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
8.501 % to 8.750 % .......... 1 $ 500,000 14%
8.751 to 9.000 .......... 7 1,835,000 53
9.000 to 9.250 .......... 3 850,000 25
9.251 to 9.500 .......... 1 152,000 4
9.501 to 9.750 .......... 1 130,000 4
- --------------------------------------------------------------------------
Total 13 $ 3,467,000 100%
- --------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Weighted Average Mortgage Interest Rate 8.980%
Minimum Mortgage Interest Rate 8.650%
Maximum Mortgage Interest Rate 9.750%
</TABLE>
<TABLE>
<CAPTION>
Pool - AA1005
Distribution by Net Mortgage Rate
- -------------------------------------------------------------------------
Aggregate Percentage of
Number Principal Aggregate
Net Mortgage Rate of Balance As Principal Balance
Loans of Cut-off As of Cut-off Date
Date
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
7.251 % to 7.500 % ....... 1 $ 500,000 14%
7.501 to 7.750 ....... 2 600,000 17
7.751 to 8.000 ....... 6 1,655,000 48
8.001 to 8.250 ....... 4 712,000 21
- -------------------------------------------------------------------------
Total 13 $ 3,467,000 100%
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Weighted Average Net Mortgage Rate 7.807%
Minimum Net Mortgage Rate 7.370%
Maximum Net Mortgage Rate 8.080%
</TABLE>
<TABLE>
<CAPTION>
Pool - AA1005
Distribution by Remaining Amortization Term
- -------------------------------------------------------------------------
Aggregate Percentage of
Principal Aggregate
Remaining Amortization Term Number Balance As Principal Balance
(months) of of Cut-off As of Cut-off Date
Loans Date
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
168 to 180 ....... 7 $ 1,582,000 46%
288 to 300 ....... 6 1,885,000 54
- -------------------------------------------------------------------------
Total 13 $ 3,467,000 100%
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Weighted Average Remaining Amortization Term 245 months
Minimum Remaining Amortization Term 180 months
Maximum Remaining Amortization Term 300 months
</TABLE>
<TABLE>
<CAPTION>
Pool - AA1005
Distribution by Amortization Type
- -------------------------------------------------------------------------
Aggregate Percentage Weighted Weighted
Principal of Average Average
Year Number Balance Aggregate Cut-off Balloon-to
of of As of Principal Date Value(1)
Maturity Loans Cut-off Balance As Loan-to-
Date Cut-off Value Ratio
Date
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fully Amortizing 2012 .... 7 $ 1,582,000 46% 65% --
Balloon Loans 2012 .... 6 1,885,000 54 50 35%
- -------------------------------------------------------------------------
Total 13 $ 3,467,000 100%
- -------------------------------------------------------------------------
</TABLE>
(1)The Weighted Average Balloon-to-Value Ratio represents
the percentage of the weighted average of the Balloon
Payments of the Qualified Balloon Loans in the Pool to the
weighted average appraised value of the related Mortgaged
Properties
<TABLE>
<CAPTION>
Pool - AA1005
Distribution by Cut-off Date Loan-to-Value Ratio
- --------------------------------------------------------------------------
Aggregate Percentage Cumulative
Principal of Percentage
Loan-to-Value Ratio Number Balance Aggregate
of As of Principal
Loans Cut-off Balance As
Date of Cut-off
Date
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
25.01% to 30.00%.............1 $ 500,000 14% 14%
35.01 to 40.00 .............1 140,000 4 18
40.01 to 45.00 .............2 330,000 10 28
50.01 to 55.00 .............1 150,000 4 32
55.01 to 60.00 .............2 480,000 14 46
65.01 to 70.00 .............6 1,867,000 54 100
- --------------------------------------------------------------------------
Total 13 $3,467,000 100%
- --------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Weighted Average Loan-to-Value Ratio 57%
Minimum Loan-to-Value Ratio 29%
Maximum Loan-to-Value Ratio 70%
</TABLE>
<TABLE>
<CAPTION>
Pool - AA1005
Distribution by Total Debt Coverage Ratio (1)
- --------------------------------------------------------------------------
Aggregate Percentage of Cumulative
Number Principal Aggregate Percentage
Debt Coverage Ratio of Balance Principal
Loans As of Balance As of
Cut-off Cut-off Date
Date
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1.26 to 1.50 ....... 5 $ 1,380,000 40% 40%
1.51 to 1.75 ....... 3 417,000 12 52
1.76 to 2.00 ....... 3 985,000 28 80
2.26 to 2.50 ....... 1 335,000 10 90
2.51 to 2.75 ....... 1 350,000 10 100
- --------------------------------------------------------------------------
Total 13 $ 3,467.000 100%
- --------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Weighted Average Total Debt Coverage Ratio 1.76
Minimum Total Debt Coverage Ratio 1.27
Maximum Total Debt Coverage Ratio 2.73
</TABLE>
(1) The Weighted Average Balloon-to-Value Ratio is the percentage of the
Balloon Payment of each Qualified Balloon Loan in the Pool to the
appraised value of the related Mortgaged Property weighted by the
percentage of the Principal Balance of such Qualified Loan to the
aggregate Principal Balance of all of the Qualified Balloon Loans
in the Pool, each as of the Cut-off Date.
<TABLE>
<CAPTION>
Pool - AA1005
Distribution by Commodity Group (1)
- --------------------------------------------------------------------------
Aggregate Percentage of
Number Principal Aggregate
Commodity Group of Balance As of Principal Balance
Loans Cut-off Date As of Cut-off Date
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Cattle and Calves 4 $ 910,000 26%
Feed Grains 7 357,410 10
Food Grains 2 137,750 4
Hogs 1 54,720 2
Oilseeds 3 149,080 4
Permanent Plantings 4 1,680,000 48
Sheep, Lambs and Other Livestock 1 175,000 5
Sugarbeets, Cane and Other Crops 1 3,040 0
- --------------------------------------------------------------------------
Total 23 $3,467,000 100%
- --------------------------------------------------------------------------
</TABLE>
(1) The number of loans in each commodity group will not
equal the total number of loans because a Mortgaged
Property may be used to produce multiple commodities and
thus the related Qualified Loan may be allocated to more
than one commodity group. As to any Qualified Loan
allocated to more than one commodity group, the principal
balance thereof is allocated among commodity groups based
on the proportion of the Mortgaged Property used for the
production of each commodity.
<TABLE>
<CAPTION>
Pool - AA1005
Distribution by States
- --------------------------------------------------------------------------
Aggregate Percentage of
Number Principal Aggregate
State of Balance As of Principal Balance
Loans Cut-off Date As of Cut-off Date
- --------------------------------------------------------------------------
<S> <C> <C> <C>
California 2 $ 930,000 27%
Iowa 1 80,000 2
Minnesota 2 282,000 8
Montana 1 350,000 10
Nevada 1 350,000 10
North Dakota 1 140,000 4
Utah 3 585,000 17
Washington 2 750,000 22
- --------------------------------------------------------------------------
Total 13 $3,467,000 100%
- --------------------------------------------------------------------------
</TABLE>
<PAGE>
DESCRIPTION OF POOL AS1006
The Qualified Loans in Pool AS1006 will have had individual
principal balances as of the Cut-off Date of not less than
$75,000 and not more than $1,700,000. None of the Qualified Loans
in Pool AS1006 will have been originated prior to September 1,
1996 and all have a scheduled maturity of January 1, 2012. The
Qualified Loans in Pool AS1006 will have a weighted average
Administrative Fee Rate as of the Cut-off Date of approximately
1.329%.
All of the Qualified Loans in Pool AS1006 require the payment
of a Yield Maintenance Charge in connection with any principal
prepayment, in whole or in part, made prior to the maturity date
of each such Qualified Loan.
Seven of the Qualified Loans in Pool AS1006 (approximately 25%
by aggregate outstanding principal balance as of the Cut-off
Date) provide for the semi-annual payment of principal and
interest on a level basis to fully amortize each such Qualified
Loan over its stated term. All of the remaining Qualified Loans
in Pool AS1006 are balloon loans which provide for regular
semi-annual payments of principal and interest computed on the
basis of an amortization term that is longer than the related
term to stated maturity, with a "balloon" payment (each, a
"Balloon Payment") due at stated maturity that will be
significantly larger than the semi-annual payments (each, a
"Qualified Balloon Loan").
One Qualified Loan included in Pool AS1006 constitutes
27% (by principal balance as of the Cut-off Date) of the
aggregate principal amount of such Pool. Such Qualified Loan
has the following additional characteristics (in each case,
as of the Cut-off Date):
<TABLE>
<CAPTION>
<S> <C>
Principal Balance............. $1,700,000
Mortgage Interest Rate........ 8.75%
Net Mortgage Rate............. 7.53%
Year of Maturity.............. 2012
Loan-to-Value Ratio........... 54%
Original term to Maturity..... 15 years
</TABLE>
The Mortgaged Property securing such Qualified Loan is
located in the State of California; the primary commodity
produced on such property is grapes. The loan is a Qualified
Balloon Loan, with an amortization schedule of 25 years. The
total debt service coverage ratio (which ratio gives effect
to all sources of income) for such loan is 1.25. See "RISK
FACTORS-"Relative Loan Sizes."
The following tables set forth additional information with
respect to the Qualified Loans included in Pool AS1006, in each
case as of the Cut-off Date. Percentages are based on the
aggregate principal balance of Qualified Loans in Pool AS1006.
<TABLE>
<CAPTION>
Pool - AS1006
Distribution by Cut-off Date Principal Balance
- ------------------------------------------------------------------------
Aggregate Percentage
Number Principal of
Cut-off Date Principal Balance of Loans Balance As Aggregate
of Cut-off Principal
Date Balance
As of
Cut-off
Date
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 1 to $ 100,000............. 2 $ 167,000 3%
100,001 to 200,000 ............. 5 782,000 12
200,001 to 300,000 ............. 5 1,270,400 20
300,001 to 400,000 ............. 3 1,025,000 16
400,001 to 500,000 ............. 3 1,408,000 22
1,600,001 to 1,700,00.............. 1 1,700,000 27
- ------------------------------------------------------------------------
Total 19 $6,352,400 100%
- ------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Average Loan Amount $ 334,337
Minimum Amount $ 75,000
Maximum Amount $1,700,000
</TABLE>
<TABLE>
<CAPTION>
Pool - AS1006
Distribution by Mortgage Interest Rate
- -------------------------------------------------------------------------
Aggregate Percentage
Number Principal of
Mortgage Interest Rate of Loans Balance As of Aggregate
Cut-off Date Principal
Balance As
of Cut-off
Date
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
8.251% to 8.500 % ............. 3 $ 688,000 11%
8.501 to 8.750 ............. 5 3,045,000 48
8.751 to 9.000 ............. 7 1,762,000 28
9.001 to 9.250 ............. 2 432,000 7
9.251 to 9.500 ............. 2 425,400 7
- -------------------------------------------------------------------------
Total 19 $ 6,352,400 100%
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Weighted Average Mortgage Interest Rate 8.817%
Minimum Mortgage Interest Rate 8.450%
Maximum Mortgage Interest Rate 9.290%
</TABLE>
<TABLE>
<CAPTION>
Pool - AS1006
Distribution by Net Mortgage Rate
- -------------------------------------------------------------------------
Aggregate Percentage
Number Principal of
Net Mortgage Rate of Loans Balance As of Aggregate
Cut-off Date Principal
Balance
As of
Cut-off
Date
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
7.001% to 7.250 % 3 $ 660,000 10%
7.251 to 7.500 8 1,869,000 29
7.501 to 7.750 7 3,573,400 56
7.751 to 8.000 1 250,000 4
- -------------------------------------------------------------------------
Total 19 $6,352,400 100%
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Weighted Average Net Mortgage Rate 7.488%
Minimum Net Mortgage Rate 7.150%
Maximum Net Mortgage Rate 7.880%
</TABLE>
<TABLE>
<CAPTION>
Pool - AS1006
Distribution by Remaining Amortization Term
- -------------------------------------------------------------------------
Aggregate
Principal
Remaining Amortization Term Number Balance As
(months) of Loans of Cut-off
Date
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
168 to 180 7 $1,592,000 25%
288 to 300 12 4,760,400 75
- -------------------------------------------------------------------------
Total 19 $6,352,400
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Weighted Average Remaining Amortization Term 270 months
Minimum Remaining Amortization Term 180 months
Maximum Remaining Amortization Term 300 months
</TABLE>
<TABLE>
<CAPTION>
Pool - AS1006
Distribution by Amortization Type
- --------------------------------------------------------------------------
Aggregate Percentage Weighted Weighted
Principal of Average Average
Year Number Balance Aggregate Cut-off Balloon-to
of of As of Principal Date Value
Maturity Loans Cut-off Balance Loan-to- Ratio (1)
Date As of Ratio
Cut-off
Date
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fully Amortizing 2012 7 $1,592,000 25% 49% --
Balloon Loans 2012 12 4,760,400 75 56 38%
- -------------------------------------------------------------------------
Total 19 $6,352,400 100%
- -------------------------------------------------------------------------
</TABLE>
(1) The Weighted Average Balloon-to-Value Ratio is the percentage of the
Balloon Payment of each Qualified Balloon Loan in the Pool to the
appraised value of the related Mortgaged Property weighted by the
percentage of the Principal Balance of such Qualified Loan to the
aggregate Principal Balance of all of the Qualified Balloon Loans
in the Pool, each as of the Cut-off Date.
<TABLE>
<CAPTION>
Pool - AS1006
Distribution by Cut-off Date Loan-to-Value Ratio
- -------------------------------------------------------------------------
Aggregate Percentage Cumulative
Principal of Percentage
Loan-to-Value Ratio Number Balance As Aggregate
of Loans of Cut-off Principal
Date Balance
As of
Cut-off
Date
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------
30.01% 35.00% 1 $ 140,000 2% 2%
35.01 to 40.00 2 505,000 8 10
40.01 to 45.00 3 740,400 12 22
45.01 to 50.00 2 442,000 7 29
50.01 to 55.00 2 1,775,000 28 57
55.01 to 60.00 3 1,165,000 18 75
60.01 to 65.00 3 735,000 12 87
65.01 to 70.00 3 850,000 16 100
- -------------------------------------------------------------------------
Total 19 $6,352,400 100%
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Weighted Average Loan-to-Value Ratio 54%
Minimum Loan-to-Value Ratio 33%
Maximum Loan-to-Value Ratio 70%
</TABLE>
<TABLE>
<CAPTION>
Pool - AS1006
Distribution by Total Debt Coverage Ratio (1)
- -------------------------------------------------------------------------
Aggregate Percentage Cumulative
Number Principal of Percentage
Debt Coverage Ratio of Loans Balance As Aggregate
of Cut-off Principal
Date Balance
As of
Cut-off
Date
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1.01 to 1.25 1 $1,170,000 27% 27%
1.26 to 1.50 9 2,389,000 38 64
1.51 to 1.75 6 1,643,000 26 90
2.01 to 2.25 1 75,000 1 91
2.51 to 2.75 1 270,400 4 96
3.01 to 3.25 1 275,000 4 100
- -------------------------------------------------------------------------
Total 19 $6,352,400 100%
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Weighted Average Total Debt Coverage Ratio 1.53
Minimum Total Debt Coverage Ratio 1.25
Maximum Total Debt Coverage Ratio 3.11
</TABLE>
(1) Total Debt Coverage Ratio is the ratio determined by
dividing the borrower's total annual net income
(net of living expenses and taxes) from all sources by
the borrower's total annual debt service obligations
(including capital lease payments).
<TABLE>
<CAPTION>
Pool - AS1006
Distribution by Commodity Group (1)
- --------------------------------------------------------------------------
Aggregate Percentage of
Number Principal Aggregate
Commodity Group of Balance As of Principal Balance
Loans Cut-off Date As of Cut-off Date
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Cattle and Calves 4 $1,022,400 16%
Feed Grains 11 1,272,200 20
Food Grains 5 679,500 11
Oilseeds 6 493,850 8
Permanent Plantings 3 2,368,000 37
Sugarbeets, Cane and Other 4 516,450 8
- --------------------------------------------------------------------------
Total 33 $6,352,400 100%
- --------------------------------------------------------------------------
</TABLE>
(1) The number of loans in each commodity group will not
equal the total number of loans because a Mortgaged
Property may be used to produce multiple commodities and
thus the related Qualified Loan may be allocated to more
than one commodity group. As to any Qualified Loan
allocated to more than one commodity group, the principal
balance thereof is allocated among commodity groups based
on the proportion of the Mortgaged Property used for the
production of each commodity.
<TABLE>
<CAPTION>
Pool - AS1006
Distribution by States
- --------------------------------------------------------------------------
Aggregate Percentage of
Number Principal Aggregate
State of Balance As of Principal Balance
Loans Cut-off Date As of Cut-off Date
- --------------------------------------------------------------------------
<S> <C> <C> <C>
California 3 $ 2,383,400 38%
Idaho 1 500,000 8
Indiana 1 140,000 2
Kansas 1 182,000 3
Michigan 1 275,000 4
Minnesota 4 692,000 11
Oregon 2 600,000 9
South Dakota 2 665,000 10
Texas 1 155,000 2
Washington 3 760,000 12
- --------------------------------------------------------------------------
Total 19 $ 6,352,400
- --------------------------------------------------------------------------
</TABLE>
<PAGE>
DESCRIPTION OF POOL CA1004
The Qualified Loans in Pool CA1004 will have had individual
principal balances as of the Cut-off Date of not less than
$88,000 and not more than $770,000. None of the Qualified Loans
in Pool CA1004 will have been originated prior to September 1,
1996 and all have a scheduled maturity of January 1, 2002. The
Qualified Loans in Pool CA1004 will have a weighted average
Administrative Fee Rate as of the Cut-off Date of approximately
1.241%.
Two of the Qualified Loans in Pool CA1004 (constituting 45%
by principal balance of Pool CA1004 by principal balance as of
the Cut-off Date) initially comprised Pool CA1002, with respect
to which a Class of Certificates was issued on November 26, 1996.
All of the Qualified Loans in Pool CA1004 require the payment
of a Yield Maintenance Charge in connection with any principal
prepayment, in whole or in part, made prior to the maturity date
of each such Qualified Loan.
All of the Qualified Loans in Pool CA1004 are balloon loans
which provide for regular annual payments of principal and
interest computed on the basis of an amortization term that is
longer than the related term to stated maturity, with a "balloon"
payment (each, a "Balloon Payment") due at stated maturity that
will be significantly larger than the annual payments (each, a
"Qualified Balloon Loan").
One Qualified Loan included in Pool CA1004 constitutes
29% (by principal balance as of the Cut-off Date) of the
aggregate principal amount of such Pool. Such Qualified Loan
has the following additional characteristics (in each case,
as of the Cut-off Date):
<TABLE>
<CAPTION>
<S> <C>
Principal Balance....................... $770,000
Mortgage Interest Rate.................. 9.00%
Net Mortgage Rate....................... 7.66%
Year of Maturity........................ 2002
Loan-to-Value Ratio..................... 70%
Original term to 5 years Maturity....... 5 years
</TABLE>
The Mortgaged Property securing such Qualified Loan is
located in the State of Idaho; the primary commodity
produced on such property is hay. The loan is a Qualified
Balloon Loan, with an amortization schedule of 15 years. The
total debt service coverage ratio (which ratio gives effect
to all sources of income) for such loan is 1.40. See "RISK
FACTORS--"Relative Loan Sizes."
The following tables set forth additional information with
respect to the Qualified Loans included in Pool CA1004, in each
case as of the Cut-off Date. Percentages are based on the
aggregate principal balance of Qualified Loans in Pool CA1004.
<TABLE>
<CAPTION>
Pool - CA1004
Distribution by Cut-off Date Principal Balance
- -------------------------------------------------------------------------
Aggregate Percentage
Number Principal of
Cut-off Date Principal Balance of Loans Balance As Aggregate
of Cut-off Principal
Date Balance
As of
Cut-off
Date
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 1 to 100,000 3 $ 283,000 11%
100,001 to 200,000 3 480,000 18
200,001 to 300,000 1 275,000 11
300,001 to 400,000 1 400,000 15 15
400,001 to 500,000 1 410,000 16
700,001 to 800,000 1 770,000 29
- -------------------------------------------------------------------------
Total 10 $2,618,000 100%
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Average Loan Amount $ 261,800
Minimum Amount $ 88,000
Maximum Amount $ 770,000
</TABLE>
<TABLE>
<CAPTION>
Pool - CA1004
Distribution by Mortgage Interest Rate
- -------------------------------------------------------------------------
Aggregate Percentage
Number of Principal of
Mortgage Interest Rate Loans Balance As Aggregate
of Cut-off Principal
Date Balance
As of
Cut-off
Date
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
7.751% to 8.000% 1 $ 182,000 7%
8.001 to 8.250 2 188,000 7
8.251 to 8.500 2 283,000 11
8.501 to 8.750 3 920,000 35
8.751 to 9.000 1 770,000 29
9.001 to 9.250 1 275,000 11
- -------------------------------------------------------------------------
Total 10 $2,618,0001 100%
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Weighted Average Mortgage Interest Rate 8.670%
Minimum Mortgage Interest Rate 7.900%
Maximum Mortgage Interest Rate 9.100%
</TABLE>
<TABLE>
<CAPTION>
Pool - CA1004
Distribution by Net Mortgage Rate
- --------------------------------------------------------------------------
Aggregate Percentage
Number Principal of
Net Mortgage Rate of Loans Balance As of Aggregate
Cut-off Date Principal
Balance
As of
Cut-off
Date
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6.751% to 7.000% 2 $ 270,000 10%
7.001 to 7.250 1 275,000 11
7.251 to 7.500 4 783,000 30
7.501 to 7.750 3 1,290,000 49
- --------------------------------------------------------------------------
Total 10 $ 2,618,000 100%
- --------------------------------------------------------------------------
</TABLE>
Weighted Average Net Mortgage Rate 7.429%
Minimum Net Mortgage Rate 6.950%
Maximum Net Mortgage Rate 7.660%
<TABLE>
<CAPTION>
Pool - CA1004
Distribution by Remaining Amortization Term
- -------------------------------------------------------------------------
Aggregate Percentage of
Principal Aggregate
Remaining Amortization Term Number of Balance As Principal
(in months) Loans of Cut-off Balance As of
Date Cut-off Date
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
168 to 180 7 $ 2,235,000 85%
288 to 300 3 383,000 15
- -------------------------------------------------------------------------
Total 10 $ 2,618,000 100%
- -------------------------------------------------------------------------
</TABLE>
Weighted Average Remaining Amortization Term 198 months
Minimum Remaining Amortization Term 180 months
Maximum Remaining Amortization Term 300 months
<TABLE>
<CAPTION>
Pool - CA1004
Distribution by Amortization Type
- -------------------------------------------------------------------------
Aggregate Percentage Weighted Weighted
Principal of Average Average
Year Number Balance Aggregate Cut-off Balloon-to
of of As of Principal Date Value
Maturity Loans Cut-off Balance Loan-to-Value Ratio (1)
Date As of Ratio
Cut-off
Date
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------
Balloon Loans 2002 10 $ 2,618,000 100% 61% 52%
- --------------------------------------------------------------------------
Total 10 $ 2,618,000 100%
- --------------------------------------------------------------------------
</TABLE>
(1) The Weighted Average Balloon-to-Value Ratio is the percentage of the
Balloon Payment of each Qualified Balloon Loan in the Pool to the
appraised value of the related Mortgaged Property weighted by the
percentage of the Principal Balance of such Qualified Loan to the
aggregate Principal Balance of all of the Qualified Balloon Loans
in the Pool, each as of the Cut-off Date.
<TABLE>
<CAPTION>
Pool - CA1004
Distribution by Cut-off Date Loan-to-Value Ratio
- -------------------------------------------------------------------------
Aggregate Percentage Cumulative
Principal of Percentage
Loan-to-Value Ratio Number Balance As Aggregate
of of Cut-off Principal
Loans Date Balance As
of Cut-off
Date
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
30.01% to 35.00% 1 $ 188,000 7% 7%
40.01 to 45.00 2 375,000 14 22
45.01 to 50.00 1 95,000 4 25
60.01 to 65.00 1 400,000 15 40
65.01 to 70.00 5 1,560,000 60 100
- -------------------------------------------------------------------------
Total 10 $2,618,000 100%
- -------------------------------------------------------------------------
</TABLE>
Weighted Average Loan-to-Value Ratio 61%
Minimum Loan-to-Value Ratio 31%
Maximum Loan-to-Value Ratio 70%
<TABLE>
<CAPTION>
Pool - CA1004
Distribution by Total Debt Coverage Ratio (1)
- -------------------------------------------------------------------------
Aggregate Percentage Cumulative
Number Principal of Percentage
Debt Coverage Ratio of Balance As of Aggregate
Loans Cut-off Date Principal
Balance As
of Cut-off
Date
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1.26 to 1.50 6 $1,815,000 69% 69%
1.51 to 1.75 1 410,000 16 85
2.26 to 2.50 1 95,000 4 89
3.01 to 3.25 1 110,000 4 93
4.76 to 5.00 1 188,000 7 100
- -------------------------------------------------------------------------
Total 10 $2,618,000 100%
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Weighted Average Total Debt Coverage Ratio 1.80
Minimum Total Debt Coverage Ratio 1.29
Maximum Total Debt Coverage Ratio 4.79
</TABLE>
(1) Total Debt Coverage Ratio is the ratio determined by
dividing the borrower's total annual net income
(net of living expenses and taxes) from all sources by
the borrower's total annual debt service obligations
(including capital lease payments).
<TABLE>
<CAPTION>
Pool - CA1004
Distribution by Commodity Group (1)
- --------------------------------------------------------------------------
Aggregate Percentage of
Number Principal Aggregate
Commodity Group of Balance As of Principal Balance
Loans Cut-off Date As of Cut-off Date
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Feed Grains 3 $ 1,089,000 42%
Oilseeds 1 44,000 2
Permanent Plantings 8 1,485,000 57
- --------------------------------------------------------------------------
Total 12 $ 2,618,000 100%
- --------------------------------------------------------------------------
</TABLE>
(1) The number of loans in each commodity group will not
equal the total number of loans because a Mortgaged
Property may be used to produce multiple commodities and
thus the related Qualified Loan may be allocated to more
than one commodity group. As to any Qualified Loan
allocated to more than one commodity group, the principal
balance thereof is allocated among commodity groups based
on the proportion of the Mortgaged Property used for the
production of each commodity.
<TABLE>
<CAPTION>
Pool - CA1004
Distribution by States
- --------------------------------------------------------------------------
Aggregate Percentage of
Number Principal Aggregate
State of Balance As of Principal Balance
Loans Cut-off Date As of Cut-off Date
- --------------------------------------------------------------------------
<S> <C> <C> <C>
California 5 $ 897,000 34%
Idaho 1 770,000 29
Illinois 1 275,000 11
Indiana 1 88,000 3
Washington 2 588,000 22
- --------------------------------------------------------------------------
Total 10 $2,618,000 100%
- --------------------------------------------------------------------------
</TABLE>
<PAGE>
DESCRIPTION OF POOL CS1004
The Qualified Loans in Pool CS1004 will have had
individual principal balances as of the Cut-off Date of not
less than $82,600 and not more than $800,000. None of the
Qualified Loans in Pool CS1004 will have been originated
prior to September 1, 1996 and all have a scheduled maturity
of January 1, 2002. The Qualified Loans in Pool CS1004 will
have a weighted average Administrative Fee Rate as of the
Cut-off Date of approximately 1.221%.
All of the Qualified Loans in Pool CS1004 require the
payment of a Yield Maintenance Charge in connection with any
principal prepayment, in whole or in part, made prior to the
maturity date of each such Qualified Loan.
All of the Qualified Loans in Pool CS1004 are balloon
loans which provide for regular semi-annual payments of
principal and interest computed on the basis of an
amortization term that is longer than the related term to
stated maturity, with a "balloon" payment (each, a "Balloon
Payment") due at stated maturity that will be significantly
larger than the semi-annual payments (each, a "Qualified
Balloon Loan").
The following tables set forth additional information
with respect to the Qualified Loans included in Pool CS1004,
in each case as of the Cut-off Date. Percentages are based
on the aggregate principal balance of Qualified Loans in
Pool CS1004.
<TABLE>
<CAPTION>
Pool - CS1004
Distribution by Cut-off Date Principal Balance
- --------------------------------------------------------------------------
Aggregate Percentage
Number of Principal of
Cut-off Date Principal Balance Loans Balance As Aggregate
of Cut-off Principal
Date Balance
As of
Cut-off
Date
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 1 to $100,000 1 $ 82,600 2%
100,001 to 200,000 6 1,048,000 20
200,001 to 300,000 4 1,073,788 20
300,001 to 400,000 1 385,000 7
400,001 to 500,000 3 1,404,048 26
500,001 to 600,000 1 506,964 10
700,001 to 800,000 1 800,000 15
- --------------------------------------------------------------------------
Total 17 $5,300,400 100%
- --------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Average Loan Amount $ 311,788
Minimum Amount $ 82,600
Maximum Amount $ 800,000
</TABLE>
<TABLE>
<CAPTION>
Pool - CS1004
Distribution by Mortgage Interest Rate
- --------------------------------------------------------------------------
Aggregate Percentage
Number of Principal of
Mortgage Interest Rate Loans Balance As Aggregate
of Cut-off Principal
Date Balance
As of
Cut-off
Date
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
8.001 % to 8.250 % 7 $2,202,800 42%
8.251 to 8.500 7 2,227,600 42
8.501 to 8.750 2 710,000 13
8.751 to 9.000 1 160,000 3
- --------------------------------------------------------------------------
Total 17 $5,300,400 100%
- --------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Weighted Average Mortgage Interest Rate 8.344%
Minimum Mortgage Interest Rate 8.010%
Maximum Mortgage Interest Rate 8.950%
</TABLE>
<TABLE>
<CAPTION>
Pool - CS1004
Distribution by Net Mortgage Rate
- -------------------------------------------------------------------------
Aggregate Percentage
Number Principal of
Net Mortgage Rate of Loans Balance As Aggregate
of Cut-off Principal
Date Balance
As of
Cut-off
Date
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
6.501% to 6.750% 3 $ 442,600 8%
6.751 to 7.000 2 1,185,000 22
7.001 to 7.250 7 1,662,800 31
7.251 to 7.500 5 2,010,000 38
- -------------------------------------------------------------------------
Total 17 $5,300,400 100%
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Weighted Average Net Mortgage Rate 7.123%
Minimum Net Mortgage Rate 6.650%
Maximum Net Mortgage Rate 7.370%
</TABLE>
<TABLE>
<CAPTION>
Pool - CS1004
Distribution by Remaining Amortization Term
- --------------------------------------------------------------------------
Aggregate Percentage
Principal of
Remaining Amortization Term Number of Balance As Aggregate
(months) Loans of Cut-off Principal
Date Balance As
of Cut-off
Date
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
168 to 180 6 $1,260,600 24%
288 to 300 11 4,039,800 76
- --------------------------------------------------------------------------
Total 17 $5,300,400 100%
- --------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Weighted Average Remaining Amortization Term 271 months
Minimum Remaining Amortization Term 180 months
Maximum Remaining Amortization Term 300 months
</TABLE>
<TABLE>
<CAPTION>
Pool - CS1004
Distribution by Amortization Type
- -------------------------------------------------------------------------
Aggregate Percentage Weighted Weighted
Principal of Average Average
Year Number Balance Aggregate Cut-off Balloon-to
of of As of Principal Date Value
Maturity Loans Cut-off Balance Loan-to-Value Ratio
Date As of Ratio (1)
Cut-off
Date
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balloon Loans 2002 17 $5,300,400 100% 53 % 48%
- -------------------------------------------------------------------------
Total 17 $5,300,400 100%
- -------------------------------------------------------------------------
</TABLE>
(1) The Weighted Average Balloon-to-Value Ratio is the percentage of the
Balloon Payment of each Qualified Balloon Loan in the Pool to the
appraised value of the related Mortgaged Property weighted by the
percentage of the Principal Balance of such Qualified Loan to the
aggregate Principal Balance of all of the Qualified Balloon Loans
in the Pool, each as of the Cut-off Date.
<TABLE>
<CAPTION>
Pool - CS1004
Distribution by Cut-off Date Loan-to-Value Ratio
- -------------------------------------------------------------------------
Aggregate Percentage Cumulative
Principal of Percentage
Loan-to-Value Ratio Number Balance As Aggregate
of of Cut-off Principal
Loans Date Balance As
of Cut-off
Date
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
20.01% to 25.00% 1 $ 800,000 33% 33%
30.01 to 35.00 1 176,000 3 18
45.01 to 50.00 1 160,000 3 21
50.01 to 55.00 3 795,000 15 36
55.01 to 60.00 6 2,230,000 42 79
60.01 to 65.00 1 224,800 4 83
65.01 to 70.00 4 914,600 17 100
- -------------------------------------------------------------------------
Total 17 $5,300,400 100%
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Weighted Average Loan-to-Value Ratio 53%
Minimum Loan-to-Value Ratio 23%
Maximum Loan-to-Value Ratio 70%
</TABLE>
<TABLE>
<CAPTION>
Pool - CS1004
Distribution by Total Debt Coverage Ratio (1)
- --------------------------------------------------------------------------
Aggregate Percentage Cumulative
Number of Principal of Percentage
Debt Coverage Ratio Loans Balance As Aggregate
of Cut-off Principal
Date Balance
As of
Cut-off
Date
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1.01 to 1.25 4 $1,760,000 33% 33%
1.25 to 1.50 6 1,575,000 30 63
1.76 to 2.00 2 500,000 9 72
2.01 to 2.25 1 182,000 3 76
2.76 to 3.00 1 82,600 2 77
3.76 to 4.00 1 800,000 15 92
4.01 to 4.25 1 224,800 4 97
7.51 to 7.75 1 176,000 3 100
- --------------------------------------------------------------------------
Total 17 $5,300,400 100%
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Weighted Average Total Debt Coverage Ratio 2.15
Minimum Total Debt Coverage Ratio 1.25
Maximum Total Debt Coverage Ratio 7.61
</TABLE>
(1) Total Debt Coverage Ratio is the ratio determined by
dividing the borrower's total annual net income
(net of living expenses and taxes) from all sources by
the borrowe's total annual debt service obligations
(including capital lease payments).
<TABLE>
<CAPTION>
Pool - CS1004
Distribution by Commodity Group (1)
- --------------------------------------------------------------------------
Aggregate Percentage of
Number Principal Aggregate
Commodity Group of Balance As of Principal Balance
Loans Cut-off Date As of Cut-off Date
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Cattle and Calves 3 $ 360,589 7%
Dairy 2 458,988 9
Feed Grains 4 1,118,300 21
Food Grains 2 501,500 9
Greenhouse/Nursery 2 620,000 12
Oilseeds 3 224,300 4
Permanent Plantings 8 1,661,848 31
Sugarbeets, Cane and Other 1 354,875 7
- --------------------------------------------------------------------------
Total 25 $ 5,300,400 100%
- --------------------------------------------------------------------------
</TABLE>
(1) The number of loans in each commodity group will not
equal the total number of loans because a Mortgaged
Property may be used to produce multiple commodities and
thus the related Qualified Loan may be allocated to more
than one commodity group. As to any Qualified Loan
allocated to more than one commodity group, the principal
balance thereof is allocated among commodity groups based
on the proportion of the Mortgaged Property used for the
production of each commodity.
<TABLE>
<CAPTION>
Pool - CS1004
Distribution by States
- --------------------------------------------------------------------------
Aggregate Percentage of
Number Principal Aggregate
State of Balance As of Principal Balance
Loans Cut-off Date As of Cut-off Date
- --------------------------------------------------------------------------
<S> <C> <C> <C>
California 6 $ 2,500,800 47%
Minnesota 2 320,000 6
Ohio 1 82,600 2
Oregon 2 620,000 12
South Dakota 2 550,000 10
Washington 3 767,000 14
Wyoming 1 460,000 9
- --------------------------------------------------------------------------
Total 17 $ 5,300,400 100%
- --------------------------------------------------------------------------
</TABLE>
<PAGE>
PROSPECTUS
GUARANTEED AGRICULTURAL MORTGAGE-BACKED SECURITIES ("AMBS")
(Issuable in Series)
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
Guarantor
FARMER MAC MORTGAGE SECURITIES CORPORATION
Depositor
The securities offered hereby and by Supplements to this
Prospectus (the "AMBS" or "Certificates") will be offered from
time to time in one or more series (each, a "Series"). Each
Series of Certificates will represent in the
aggregate the entire beneficial ownership interest in a trust
fund (with respect to any Series, the "Trust Fund") consisting of
one or more segregated pools (each, a "Pool") of various types of
agricultural real estate mortgage
loans ("Qualified Loans"), the portions of loans guaranteed by
the United States Secretary of Agriculture ("Guaranteed
Portions"), Trust Fund AMBS (as defined herein), mortgage
pass-through certificates or other mortgage-backed securities
evidencing interests in or secured by Qualified Loans or
Guaranteed Portions or any combination thereof (with respect to
any Series, collectively, the "Qualified Assets").
Each Certificate will be covered by a guarantee (the "Farmer Mac
Guarantee") of the timely payment of required distributions of
interest and principal of the Federal Agricultural Mortgage
Corporation ("Farmer Mac"), a federally chartered instrumentality
of the United States, as described herein and in the related
Prospectus Supplement. See "FEDERAL AGRICULTURAL MORTGAGE
CORPORATION" herein.
THE OBLIGATIONS OF FARMER MAC UNDER ITS GUARANTEE ARE OBLIGATIONS
SOLELY OF FARMER MAC AND ARE NOT OBLIGATIONS OF, AND ARE NOT
GUARANTEED BY, THE FARM CREDIT ADMINISTRATION, THE UNITED STATES
OR ANY AGENCY OR INSTRUMENTALITY OF THE UNITED STATES (OTHER THAN
FARMER MAC), AND ARE NOT BACKED BY THE FULL FAITH AND CREDIT OF
THE UNITED STATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS OR THE RELATED PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospective investors should review the information appearing on
page 14 herein under the caption "RISK FACTORS" and such
information as may be set forth under the caption "RISK FACTORS"
in the related Prospectus Supplement before purchasing any
Certificate.
Prior to issuance there will have been no market for the
Certificates of any Series and there can be no assurance that a
secondary market for any Certificates will develop or that, if it
does develop, it will continue. This Prospectus may not be used
to consummate sales of the Certificates of any Series unless
accompanied by the Prospectus Supplement for such Series.
Farmer Mac will publish and regularly update information
regarding the Pools and related Qualified Loans. See "AVAILABLE
INFORMATION" herein.
Offers of the Certificates may be made through one or more
different methods, including offerings through underwriters, as
more fully described under "METHOD OF DISTRIBUTION" herein and in
the related Prospectus Supplement.
June 26, 1996
<PAGE>
Each Series of Certificates will consist of one or more classes
of Certificates (each, a "Class") that may (i) provide for the
accrual of interest thereon based on fixed, variable or floating
rates; (ii) be entitled to principal distributions, with
disproportionately low, nominal or no interest distributions; (iii)
be entitled to interest distributions, with disproportionately low,
nominal or no principal distributions; (iv) provide for
distributions of accrued interest thereon commencing only following
the occurrence of certain events, such as the retirement of one or
more other Classes of Certificates of such Series; (v) provide for
distributions of principal sequentially, based on specified payment
schedules or other methodologies; (vi) provide for distributions
based on a combination of two or more components thereof with one or
more of the characteristics described in this paragraph, to the
extent of available funds; and/or (vii) be entitled to distributions
of any Prepayment Premium and Yield Maintenance Charge (each as
defined herein), to the extent collected, in each case as described
in the related Prospectus Supplement. See "DESCRIPTION OF THE
CERTIFICATES" herein and in the related Prospectus Supplement.
Principal and interest with respect to Certificates will be
distributable quarterly, semi-annually or annually or at such other
intervals and on the dates specified in the related Prospectus
Supplement. Distributions on the Certificates of any Series will be
made only from the assets of the related Trust Fund, including,
without limitation, the related Farmer Mac Guarantee.
The Certificates of each Series will not represent an obligation
of or interest in the Depositor, any Originator, any Seller, any
Central Servicer or any of their respective affiliates, except to
the limited extent described herein and in the related Prospectus
Supplement. Other than the Farmer Mac Guarantee, neither the
Certificates nor any assets in the related Trust Fund (other than
Guaranteed Portions) will be guaranteed or insured by any
governmental agency or instrumentality or by any other person. The
Qualified Assets in each Trust Fund will be held in trust for the
benefit of the holders of the related Series of Certificates
pursuant to a Trust Agreement, as more fully described herein. See
"DESCRIPTION OF THE AGREEMENTS" herein.
The yield on each Class of Certificates of a Series will be
affected by, among other things, the rate of payment of principal
(including prepayments, repurchases and defaults) on the Qualified
Assets in the related Trust Fund and the timing of receipt of such
payments as described under the caption "YIELD CONSIDERATIONS"
herein and "YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS" in the
related Prospectus Supplement. A Trust Fund may be subject to early
termination under the circumstances described herein and in the
related Prospectus Supplement.
If so provided in the related Prospectus Supplement, one or more
elections may be made to treat the related Trust Fund or a
designated portion thereof as a real estate mortgage investment
conduit or "REMIC" for federal income tax purposes. See "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES" herein and in the related
Prospectus Supplement.
Until 90 days after the date of each Prospectus Supplement, all
dealers effecting transactions in the Certificates covered by such
Prospectus Supplement, whether or not participating in the
distribution thereof, may be required to deliver such Prospectus
Supplement and this Prospectus. This is in addition to the
obligation of dealers to deliver a Prospectus and Prospectus
Supplement when acting as underwriters and with respect to their
unsold allotments or subscriptions.
PROSPECTUS SUPPLEMENT
As more particularly described herein, the Prospectus Supplement
relating to the Certificates of each Series will, among other
things, set forth with respect to such Certificates, as appropriate:
(i) a description of the Class or Classes of Certificates, the
payment provisions with respect to each such Class and the
Pass-Through Rate or method of determining the Pass-Through Rate
with respect to each such Class; (ii) the aggregate principal amount
and distribution dates relating to such Series and, if applicable,
the initial and final scheduled distribution dates for each Class;
(iii) information as to the Qualified Assets comprising the Trust
Fund, including the general characteristics of such assets (with
respect to the Certificates of any Series, the "Trust Assets"); (iv)
the circumstances, if any, under which the Trust Fund may be subject
to early termination; (v) additional information with respect to the
method of distribution of such Certificates; (vi) whether one or
more REMIC elections will be made and designation of the regular
interests and residual interests; (vii) information as to the terms
of the Farmer Mac Guarantee of the Certificates; (viii) whether such
Certificates will be initially issued in definitive or book-entry
form; and (ix) to what extent, if any, the Farmer Mac Guarantee will
cover the timely payment of the related Balloon Payment on any
Qualified Balloon Loan.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement (of which
this Prospectus forms a part) under the Securities Act of 1933, as
amended, with respect to the Certificates. The Depositor intends to
establish a trust and cause it to issue a Series of Certificates as
soon as practicable after the Registration Statement is declared
effective. This Prospectus and the Prospectus Supplement relating to
each Series of Certificates contain summaries of the material terms
of the documents referred to herein and therein, but do not contain
all of the information set forth in the Registration Statement
pursuant to the rules and regulations of the Commission. For further
information, reference is made to such Registration Statement and
the exhibits thereto. Such Registration Statement and exhibits can
be inspected and copied at prescribed rates at the public reference
facilities maintained by the Commission at its Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549, and at its
Regional Offices located as follows: Chicago Regional Office,
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661;
and New York Regional Office, Seven World Trade Center, New York,
New York 10048.
The Depositor will mail or cause to be mailed to holders of
Definitive Certificates (as defined herein) of each Series periodic
unaudited reports concerning the related Trust Fund. Unless and
until Definitive Certificates are issued such reports will be sent
on behalf of the related Trust Fund to the office identified for
such purpose in the related Prospectus Supplement. Such reports may
be available to Beneficial Owners (as defined herein) of the
Certificates upon request to their respective Direct Participants or
Indirect Participants (as defined herein). See "DESCRIPTION OF THE
CERTIFICATES -- Reports to Certificateholders; Publication of
Certificate Factors" and "DESCRIPTION OF THE AGREEMENTS" herein.
The Depositor will file or cause to be filed with the Commission
such periodic reports with respect to each Trust Fund as are
required under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission
thereunder. The Depositor intends to make a written request to the
staff of the Commission that the staff either (i) issue an order
pursuant to Section 12(h) of the Exchange Act exempting the
Depositor from certain reporting requirements under the Exchange Act
with respect to each Trust Fund or (ii) state that the staff will
not recommend that the Commission take enforcement action if the
Depositor fulfills its reporting obligations as described in its
written request. If such request is granted, the Depositor will file
or cause to be filed with the Commission as to each Trust Fund the
periodic unaudited reports to holders of the Certificates referenced
in the preceding paragraph. In addition, because of the limited
number of Certificateholders expected for each Series, the Depositor
anticipates that a significant portion of such reporting
requirements will be permanently suspended following the first
fiscal year for the related Trust Fund.
No person has been authorized to give any information or to make
any representations other than those contained in this Prospectus
and any Prospectus Supplement with respect hereto and, if given or
made, such information or representations must not be relied upon.
This Prospectus and any Prospectus Supplement with respect hereto do
not constitute an offer to sell or a solicitation of an offer to buy
any securities other than the Certificates or an offer of the
Certificates to any person in any state or other jurisdiction in
which such offer would be unlawful. The delivery of this Prospectus
at any time does not imply that information herein is correct as of
any time subsequent to its date; however, if any material change
occurs while this Prospectus is required by law to be delivered,
this Prospectus will be amended or supplemented accordingly.
Farmer Mac will publish and regularly update for the benefit of
AMBS investors information about the Certificates and Pools
underlying such Certificates ("AMBS Information"). Generally, Farmer
Mac will provide AMBS Information on a periodic scheduled basis
after the date on which the related Pool is formed. The information
will be available from various sources, including several
information vendors that provide securities information. Investors
can obtain the names of those vendors disseminating AMBS Information
by writing Farmer Mac at 919 18th Street, N.W. Washington, D.C.
20006 or calling Farmer Mac's Investor Inquiry Department at
1-800-TRY-FARM (879-3276).
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
All documents and reports filed or caused to be filed by the
Depositor 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
an offering of Certificates evidencing interests therein shall be
deemed to be incorporated by reference in this Prospectus and to be
a part hereof. In addition, Farmer Mac's Annual Report on Form 10-K
for the year ended December 31, 1995 and Farmer Mac's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996 each filed
with the Commission pursuant to the Exchange Act shall also be
deemed to be
incorporated by reference in this Prospectus and to be a part
hereof. All documents filed by Farmer Mac pursuant to the Exchange
Act subsequent to the date of this Prospectus and prior to the
termination of any offering made by this Prospectus will likewise be
deemed to be incorporated by reference herein. Upon request, the
Depositor 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 Certificates, a copy of any
or all documents or reports incorporated herein by reference, in
each case to the extent such documents or reports relate to one or
more of such Classes of such Certificates, other than the exhibits
to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Requests to the
Depositor should be directed in writing to Farmer Mac Mortgage
Securities Corporation, 919 18th Street, N.W., Suite 200,
Washington, D.C. 20006, Attention: Corporate Secretary. The
Depositor has determined that its financial statements are not
material to the offering of any Certificates.
<PAGE>
SUMMARY
The following summary of certain pertinent information is
qualified in its entirety by reference to the more detailed
information appearing elsewhere in this Prospectus and by
reference to the information with respect to each Series of
Certificates contained in the Prospectus Supplement to be
prepared and delivered in connection with the offering of such
Series. An Index of Principal Definitions is included at the end
of this Prospectus.
<TABLE>
<S> <C>
Title of Guaranteed Agricultural Mortgage-Backed
Certificates...........Securities ("AMBS") issuable in Series
(the "Certificates").
Guarantor..............Federal Agricultural Mortgage
Corporation ("Farmer Mac"), a federally
chartered instrumentality of the United
States, established by Title VIII of
the Farm Credit Act of 1971, as amended
(the "Farmer Mac Charter").
The 1996 The Farm Credit System Reform Act of
Amendment..............1996, Pub. L. 104-105 (the "1996
Amendment"), signed into law by the
President of the United States on
February 10, 1996, modified the Farmer
Mac Charter as it theretofore existed
in several major respects, by, among
other things (i) authorizing Farmer Mac
to purchase Qualified Loans and to
include such purchased Qualified Loans
in Trust Funds serving as the basis for
securities guaranteed by Farmer Mac,
(ii) extending from December 1996 to
December 1999 the statutory deadline
for the full imposition of certain
regulatory capital requirements
applicable to Farmer Mac, and (iii)
eliminating statutory requirements for
credit support features aggregating not
less than ten percent of the initial
principal balances of Qualified Loans
in a Trust Fund. The 1996 Amendment
also made various statutory changes
intended to further streamline program
operations and clarify certain
ambiguous statutory provisions. See
"FEDERAL AGRICULTURAL MORTGAGE
CORPORATION" and "RISK FACTORS- Recent
Developments Affecting Farmer Mac"
herein.
Depositor..............Farmer Mac Mortgage Securities
Corporation, a wholly-owned subsidiary
of Farmer Mac. See "THE DEPOSITOR"
herein.
The Master Farmer Mac will act as the Master
Servicer...............Servicer of the Qualified Loans
included in or underlying each Trust
Fund (in such capacity, the "Master
Servicer"). Although Farmer Mac will be
legally and contractually responsible
for all servicing, it will conduct its
servicing responsibilities for each
Trust Fund
through one or more Central Servicers
(each, a "Central Servicer") which will
be identified in the related Prospectus
Supplement.
Trustee................The trustee (the "Trustee") for each
Series of Certificates will be named in
the related Prospectus Supplement. See
"DESCRIPTION OF THE AGREEMENTS -- The
Trustee."
Each Series of Certificates will
The Trust represent in the aggregate the entire
Assets.................beneficial ownership interest in a
Trust Fund consisting primarily of:
(a) Qualified The Qualified Assets with respect to
Assets................ each Series of Certificates will
consist of (i) agricultural real estate
mortgage loans (collectively, the
"Qualified Loans"), (ii) portions of
loans guaranteed by the United States
Secretary of Agriculture pursuant to
the Consolidated Farm and Rural
Development Act (7 U.S.C.
Sections 1921 et seq.)
("Guaranteed Portions"), (iii) Farmer
Mac Guaranteed Agricultural
Mortgage-Backed Securities ("Trust Fund
AMBS"), mortgage pass-through
certificates or other mortgage-backed
securities evidencing interests in or
secured by Qualified Loans or
Guaranteed Portions (collectively, the
"QMBS") or (iv) a combination of
Guaranteed Portions and QMBS. AMBS and
Trust Fund AMBS refer to Certificates
issued and offered pursuant to this
Registration Statement. The Qualified
Loans will not be guaranteed or insured
by Farmer Mac or any of its affiliates
or by any governmental agency or
instrumentality or other person. As
more specifically described herein, the
Qualified Loans will be secured by a
fee simple mortgage or a minimum
50-year leasehold mortgage, with status
as a first lien on Agricultural Real
Estate (as defined below) that is
located within the United States (the
"Mortgaged Properties"). A Qualified
Loan must be an obligation of (i) a
citizen or national of the United
States or an alien lawfully admitted
for permanent residence in the United
States; or (ii) a private corporation
or partnership whose members,
stockholders or partners holding a
majority interest in the corporation or
partnership are individuals described
in clause (i). A Qualified Loan must
also be an obligation of a person,
corporation or partnership having
farming experience or other training
sufficient to ensure a reasonable
likelihood of repayment of the loan
according to its terms. A Qualified
Loan may be an existing or newly
originated mortgage loan that conforms
to the requirements set forth in the
Farmer Mac program documents (the
"Guides").
Qualified Loans are secured by
Agricultural Real Estate. "Agricultural
Real Estate" is defined as a parcel or
parcels of land, which may be improved
by buildings or other structures
permanently affixed to the parcel or
parcels, that (a) are used for the
production of one or more agricultural
commodities and (b) consist of a
minimum of five acres or are used in
producing minimum annual receipts of at
least $5,000. The principal amount of a
Qualified Loan secured by Agricultural
Real Estate may not exceed $3,500,000,
as adjusted for inflation as of
December 31, 1995.
Each Qualified Loan may provide for
accrual of interest thereon at an
interest rate (a " Mortgage Interest
Rate") that is fixed over its term or
that adjusts from time to time, or is
partially fixed and partially floating
or that may be converted from a
floating to a fixed Mortgage Interest
Rate, or from a fixed to a floating
Mortgage Interest Rate, from time to
time at the Mortgagor's election, in
each case as described in the related
Prospectus Supplement. The floating
Mortgage Interest Rates on the
Qualified Loans in a Trust Fund may be
based on one or more indices. Each
Qualified Loan may provide for
scheduled payments to maturity,
payments that adjust from time to time
to accommodate changes in the Mortgage
Interest Rate or to reflect the
occurrence of certain
events, and may provide for accelerated
amortization, in each case as described
in the related Prospectus Supplement.
Each Qualified Loan may be fully
amortizing or require a balloon payment
(each such payment, a "Balloon
Payment") due on its stated maturity
date, in each case as described in the
related Prospectus Supplement. Each
Qualified Loan may contain prohibitions
on prepayment or require payment of a
Prepayment Premium or a Yield
Maintenance Charge (each term as
defined herein) in connection with a
prepayment, in each case as described
in the related Prospectus Supplement.
The Qualified Loans may provide for
payments of principal, interest or
both, on due dates that occur
quarterly, semi-annually, annually or
at such other interval as is specified
in the related Prospectus Supplement.
See "DESCRIPTION OF THE TRUST FUNDS
-- Qualified Loans."
(b) Farmer Mac The Certificates of each Series will be
Guarantee.... covered by a Farmer Mac Guarantee.
Because the Farmer Mac Guarantee runs
directly to Holders, it does not
directly cover payments on the related
Qualified Loans included in or
underlying the related Trust Fund. Each
Farmer Mac Guarantee will provide for
the payment by Farmer Mac to Holders of
any and all amounts necessary to assure
the timely payment of all required
distributions of interest and principal
on the Certificates to the extent set
forth in the related Prospectus
Supplement. The related Prospectus
Supplement will specify the extent of
Farmer Mac's guarantee obligation, if
any, with respect to any Qualified Loan
in default as to its Balloon Payment
and will discuss any resulting impact
on the expected yield of the related
Certificates. See "YIELD, PREPAYMENT
AND MATURITY CONSIDERATIONS" in the
related Prospectus Supplement. In
addition, Farmer Mac guarantees the
distribution to Holders of the
principal balance of each Class of
Certificates in full no later than the
related Final Distribution Date,
whether or not sufficient
funds are available in the Certificate Account.
Farmer Mac's obligations under each
Farmer Mac Guarantee are obligations
solely of Farmer Mac and are not backed
by the full faith and credit of the
United States. Farmer Mac will not
guarantee the collection from any
borrower of any yield maintenance
charge ("Yield Maintenance Charge") or
any other premium ("Prepayment
Premiums") payable in connection with a
principal prepayment on a Qualified
Loan, and in the event the related
Trust Agreement entitles the related
Holders to receive distributions of
such Yield Maintenance Charges or
Prepayment Premiums, such Holders will
receive such amounts only to the extent
actually collected. Under the Farmer
Mac Charter, Farmer Mac is required to
establish a segregated account into
which it will deposit a portion of the
guarantee fees it receives for its
guarantee obligations. Farmer Mac
expects that its future contingent
liabilities in respect of guarantees of
outstanding securities backed by
agricultural mortgage loans will
substantially exceed any amounts on
deposit in such reserve account. The
amount on deposit in such reserve
account as of the end of any calendar
quarter is set forth (as an allowance
for losses) in Farmer Mac's
consolidated balance sheets filed with
the Commission and incorporated by
reference herein. See "INCORPORATION OF
CERTAIN INFORMATION BY REFERENCE"
herein. If this reserve account so
established, together with any
remaining general Farmer Mac assets, is
insufficient to enable Farmer Mac to
make a required payment under any
Farmer Mac Guarantee, Farmer Mac will
issue obligations to the Secretary of
the Treasury in an amount at any time
outstanding not to exceed
$1,500,000,000. The Secretary of the
Treasury is required to purchase
obligations issued by Farmer Mac not
later than ten business days after
receipt by the Secretary of the
Treasury of a certification by Farmer
Mac in accordance with the requirements
of the Farmer Mac Charter. The Trust
Agreement will contain various timing
mechanisms designed to assure that
Farmer Mac will have sufficient advance
notice of any obligation under a Farmer
Mac Guarantee in order, to the extent
required, to make timely demand upon
the Secretary of the Treasury. If for
any reason beyond the control of any
Holder, such Holder fails to receive on
any Distribution Date such Holder's
portion of any payment required
pursuant to the Farmer Mac Guarantee,
such Holder may, through the related
Trustee, enforce such obligation
against Farmer Mac to the extent of
such Holder's portion. Farmer Mac
anticipates that its future contingent
liabilities in respect of guarantees of
outstanding securities backed by
agricultural mortgage loans will
greatly exceed its resources, including
its limited ability to borrow from the
United States Treasury. See "FEDERAL
AGRICULTURAL MORTGAGE CORPORATION"
herein.
(c) Collection Each Trust Fund will include one or
Account; more accounts (each, a "Collection
Certificate Account") established and maintained on
Account..... behalf of the Certificateholders into
which the Central Servicer designated
in the related Prospectus Supplement
will, to the extent described herein
and in such Prospectus Supplement,
deposit all payments and collections
received or advanced with respect to
the Qualified Assets in the Trust Fund.
Such an account may be maintained as an
interest bearing or a non-interest
bearing account, and funds held therein
may be held as cash or invested in
certain short-term obligations. Prior
to each Distribution Date, the Central
Servicer will remit to Farmer Mac, as
Master Servicer, for deposit into the
Certificate Account maintained by it
funds then held in the Collection
Account that are applicable to the
distribution on such following
Distribution Date. See "DESCRIPTION OF
THE AGREEMENTS -- Accounts" herein.
Description of
Certificates....... Each Series of Certificates evidencing
an interest in a Trust Fund will be
issued pursuant to a Trust Agreement.
If Qualified Loans are included in a
Trust Fund, they will be master
serviced by Farmer Mac pursuant to the
related Trust Agreement. Farmer Mac's
servicing responsibilities under the
Trust Agreement will be performed on
its behalf by one or more Central
Servicers pursuant to Servicing
Contracts with Farmer Mac. Qualified
Assets deposited into a Trust Fund by
the Depositor will have been sold to it
by Originators or other holders of
Qualified Loans (collectively,
"Sellers") pursuant to a Master Loan
Sale Agreement (each a "Sale
Agreement"). The Trust Agreements,
Servicing Contracts and Sale Agreements
for a particular Trust Fund are
referred to herein as the "Agreements."
See "DESCRIPTION OF THE TRUST FUNDS"
herein and "DESCRIPTION OF THE
QUALIFIED LOANS" in the Prospectus
Supplement. Each Series of Certificates
will include one or more Classes. Each
Series of Certificates will represent
in the aggregate the entire beneficial
ownership interest in the related Trust
Fund. Each Class of Certificates (other
than certain Stripped Interest
Certificates, as defined below) will
have a stated principal amount (a
"Certificate Balance") and (other than
certain Stripped Principal
Certificates, as defined below), will
accrue interest thereon based on a
fixed, variable or floating interest
rate (a "Pass-Through Rate"). The
related Prospectus Supplement will
specify the Certificate Balance, if
any, and the Pass-Through Rate, if any,
for each Class of Certificates or, in
the case of a variable or floating
Pass-Through Rate, the method for
determining the Pass-Through Rate. See
"DESCRIPTION OF THE CERTIFICATES"
herein and in the related Prospectus
Supplement.
Distributions on
Certificates....... Each Series of Certificates will
consist of one or more Classes of
Certificates that may (i) provide for
the accrual of interest thereon based
on fixed, variable or floating rates;
(ii) be entitled to principal
distributions with disproportionately
low, nominal or no interest
distributions (collectively, "Stripped
Principal Certificates"); (iii) be
entitled to interest distributions with
disproportionately low, nominal or no
principal distributions (collectively,
"Stripped Interest Certificates"); (iv)
provide for distributions of accrued
interest thereon commencing only
following the occurrence of certain
events, such as the retirement of one
or more other classes of Certificates
of such Series (collectively, "Accrual
Certificates"); (v) provide for
distributions of principal
sequentially, based on specified
payment schedules or other
methodologies; (vi) provide for
distributions based on a combination of
two or more components thereof with one
or more of the characteristics
described in this paragraph, including
a Stripped Principal Certificate
component and a Stripped Interest
Certificate component, to the extent of
available funds; and/or (vii) to the
extent the Trust Agreement so provides,
be entitled to distributions of any
Prepayment Premiums and Yield
Maintenance Charges to the extent
collected, in each case as described in
the related Prospectus Supplement. With
respect to Certificates with two or
more components, references herein to
Certificate Balance, notional amount
and Pass-Through Rate refr to the
principal balance, if any, notional
amount, if any, and the Pass-Through
Rate, if any, for any such component.
(a)Interest....... Interest on each Class of Certificates
(other than. Stripped Principal
Certificates and certain Classes of
Stripped Interest Certificates) of each
Series will accrue at the applicable
Pass-Through Rate on the outstanding
Certificate Balance thereof and will be
distributed to Certificateholders as
provided in the related Prospectus
Supplement (each of the specified dates
on
which distributions are to be made, a
"Distribution Date"). Distributions
with respect to interest on Stripped
Interest Certificates may be made on
each Distribution Date on the basis of
a notional amount as described in the
related Prospectus Supplement. Stripped
Principal Certificates with no stated
Pass-Through Rate will not accrue
interest. See "YIELD CONSIDERATIONS"
and "DESCRIPTION OF THE CERTIFICATES -
Distributions of Interest on the
Certificates" herein.
(b)Principal..... The Certificates of each Series will
have an aggregate Certificate Balance
no greater than the outstanding
principal balance of the Qualified
Assets as of the close of business on
the first day of formation of the
related Trust Fund (the "Cut-off
Date"), after application of scheduled
payments due on or
before such date, whether or not
received. The Certificate Balance of a
Certificate outstanding from time to
time represents the maximum amount that
the holder thereof is then entitled to
receive in respect of principal from
future cash flows on the assets in the
related Trust Fund. Distributions of
principal will be made on each
Distribution Date to the Class or
Classes of Certificates entitled
thereto until the Certificate Balances
of such Certificates have been reduced
to zero. Distributions of principal of
any Class of Certificates will be made
on a pro rata basis among all of the
Certificates of such Class or by random
selection, as described in the related
Prospectus Supplement. Stripped
Interest Certificates with no
Certificate Balance will not receive
distributions in respect of principal.
See "DESCRIPTION OF THE CERTIFICATES-
Distributions of Principal of the
Certificates" herein.
The Qualified Loans in a Trust Fund may
Qualified Loan be divided, to the extent set forth in
Groups............. the related Prospectus Supplement, into
two or more Qualified Loan Groups
comprised of Qualified Loans having, in
some cases, similar Due Dates for
scheduled payments and/or in other
cases generally similar Mortgage
Interest Rates or methods of
calculating such rates and scheduled
final maturities. The related
Prospectus Supplement will specify
whether a Qualified Loan Group will,
for Farmer Mac designation and
reporting purposes, constitute a Pool
and will specify the numerical
designation for each Pool comprising
the related Series. Payments of
interest and principal on the Qualified
Loans in a Qualified Loan Group, will
be applied first to required
distributions on the related Class or
Classes of Certificates. Thus, each
Qualified Loan Group and each related
Class or Classes of Certificates will
be separate and distinct from every
other Qualified Loan Group and its
related Class or Classes of
Certificates, except with respect to
Certificates evidencing an ownership
interest only in interest payments or
residual payments from Qualified Loans
in two or more Qualified Loan Groups.
Information with respect to any
Qualified Loan Group will be set forth
in the related Prospectus Supplement.
If the Qualified Loans included in a
Trust Fund are divided into Qualified
Loan Groups, references herein to the
Qualified Loans in such Trust Fund will
refer, to the extent required by the
context, to such Qualified Loan Groups.
Advances...............Each Central Servicer will be obligated
as part of its sub-servicing
responsibilities to make certain
advances with respect to delinquent
scheduled payments on the Qualified
Loans in such Trust Fund deemed to be
recoverable ("Advances"). Neither the
Depositor nor any of its affiliates
will have any responsibility to make
such Advances, although the failure to
advance may trigger Farmer Mac's
obligations under the Farmer Mac
Guarantee. Advances are reimbursable
generally from subsequent recoveries in
respect of such Qualified Loans and
otherwise to the extent described
herein and in the related Prospectus
Supplement. The Prospectus Supplement
for any Series of Certificates
evidencing an interest in a Trust Fund
that includes QMBS will describe any
corresponding advancing obligation of
any person in connection with such
QMBS. See "DESCRIPTION OF THE
CERTIFICATES Advances in Respect of
Delinquencies" herein.
If so specified in the related
Termination............Prospectus...Supplement, a Series of
Certificates may be subject to optional
early termination through the
repurchase of the Qualified Assets in
the related Trust Fund by the party
specified therein, under the
circumstances and in the manner set
forth therein. If so provided in the
related Prospectus Supplement, upon the
reduction of the Certificate Balance of
a specified Class or Classes of
Certificates by a specified percentage
or amount or on and after a date
specified in such Prospectus
Supplement, the party specified therein
will solicit bids for the purchase of
all of the Qualified Assets of the
Trust Fund, or of a sufficient portion
of such Qualified Assets to retire such
Class or Classes, or purchase such
Qualified Assets at a price set forth
in the related Prospectus Supplement.
In addition, if so provided in the
related Prospectus Supplement, certain
Classes of Certificates may be
purchased subject to similar
conditions. See "DESCRIPTION OF THE
CERTIFICATES - Termination" herein.
Tax Status of the
Certificates....... The Certificates of each Series will
constitute either (i) "regular
interests" ("REMIC Regular
Certificates") or "residual interests"
("REMIC Residual Certificates") in a
Trust Fund treated as a real estate
mortgage investment conduit ("REMIC")
under Sections 860A through 860G of the
Internal Revenue Code of 1986, as
amended (the "Code"), or (ii) interests
("Grantor Trust Certificates") in a
Trust Fund treated as a grantor trust
within the meaning under subpart E,
Part I of subchapter J of the Code.
(a) REMIC........ REMIC Regular Certificates generally
will be created as debt obligations of
the applicable REMIC for federal income
tax purposes. Certain REMIC Regular
Certificates may be issued with
original issue discount for federal
income tax purposes. See "CERTAIN
FEDERAL INCOME TAX CON-SEQUENCES" in
the related Prospectus Supplement. The
Certificates will be treated as (i)
"qualifying real property loans" within
the meaning of section 593(d)(1) of the
Code, and (ii) "real estate assets"
within the meaning of section
856(c)(5)(A) of the Code, in each case
to the extent described
herein and in the related Prospectus
Supplement. See "CERTAIN FEDERAL INCOME
TAX CONSEQUENCES" herein and in the
related Prospectus Supplement.
(b) Grantor If no election is made to treat the
Trust..... Trust Fund relating to a Series of
Certificates as a REMIC, the Trust Fund
will be classified as a grantor trust
and not as an association taxable as a
corporation for federal income tax
purposes, and therefore holders of
Certificates will be treated as the
owners of undivided pro rata interests
in the related Trust Assets. Investors
are advised to consult their tax
advisors and to review "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES" herein and in
the related Prospectus Supplement.
ERISA............. The acquisition of a Certificate by a
plan subject to the Employee Retirement
Income Security Act of 1974, as amended
("ERISA") or any other plan subject to
Code Section 4975 could, in some
instances, result in a prohibited
transaction or other violations of the
fiduciary responsibility provisions of
ERISA and Code Section 4975. Certain
exemptions from the prohibited
transaction rules could, however, be
applicable. See "ERISA CONSIDERATIONS"
herein and in the related Prospectus
Supplement.
Legal The Certificates will constitute
Investment.............securities guaranteed by Farmer Mac for
purposes of the Farmer Mac Charter and,
as such, will, by statute, be legal
investments for certain types of
institutional investors to the extent
that those investors are authorized
under any applicable law to purchase,
hold, or invest in obligations issued
by or guaranteed as to principal and
interest by the United States or any
agency or instrumentality of the United
States. Investors whose investment
authority is subject to legal
restrictions should consult their own
legal advisors to determine whether and
to what extent specific Classes of the
Certificates (particularly Classes of
Stripped Interest or Stripped Principal
Certificates) constitute legal
investments for them. See "LEGAL
INVESTMENT" herein and in the related
Prospectus Supplement.
</TABLE>
<PAGE>
RISK FACTORS
Investors should consider, in connection with the purchase of
Certificates, among other things, the following factors and certain
other factors as may be set forth in "RISK FACTORS" in the related
Prospectus Supplement.
Recent Developments affecting Farmer Mac
The Farm Credit System Reform Act of 1996 (the "1996 Amendment")
modified the Farmer Mac Charter (as defined herein) by, among other
things, requiring Farmer Mac to increase its capital to at least $25
million by February 1998 (or sooner if business volume increases
substantially). The failure to raise capital to the required level
in accordance with the 1996 Amendment would result in the suspension
of Farmer Mac's ability to purchase new Qualified Loans or issue or
guarantee new securities and could adversely affect the liquidity of
any outstanding Certificates of any Class or Series. As of March 31,
1996, Farmer Mac's capital as reported on its unaudited financial
statements for the three month period ended March 31, 1996 included
as an exhibit to its Quarterly Report on Form 10-Q was $11.373
million. Since that date, Farmer Mac issued additional stock, which
generated $2.56 million in capital. See Farmer Mac's Annual Report
on Form 10-K for the year ended December 31, 1995 and Quarterly
Report on Form 10-Q for the three month period ended March 31, 1996,
each filed with the Commission pursuant to the Exchange Act and
incorporated by reference in this Prospectus, "INCORPORATION OF
CERTAIN INFORMATION BY REFERENCE" and "FEDERAL AGRICULTURAL MORTGAGE
CORPORATION" herein.
Limited Liquidity
There can be no assurance that a secondary market for the
Certificates of any Series will develop or, if it does develop, that
it will provide holders with liquidity of investment or will
continue while Certificates of such Series remain outstanding. Any
such secondary market may provide less liquidity to investors than
any comparable market for securities evidencing interests in single
family mortgage loans. The market value of Certificates will
fluctuate with changes in prevailing rates of interest.
Consequently, sale of Certificates by a holder in any secondary
market that may develop may be at a discount from 100% of their
original Certificate Balance or from their purchase price. Except to
the extent described herein and in the related Prospectus
Supplement, Certificateholders will have no redemption rights and
the Certificates are subject to early retirement only under certain
specified circumstances described herein and in the related
Prospectus Supplement. See "DESCRIPTION OF THE CERTIFICATES
Termination" herein.
Farmer Mac Guarantee
Farmer Mac's obligations under each Farmer Mac Guarantee are
obligations solely of Farmer Mac and are not backed by the full
faith and credit of the United States. Sources of funding for the
payment of claims, if any, under any Farmer Mac Guarantees will be
(i) the fees Farmer Mac charges for providing its guarantee and (ii)
Farmer Mac's general assets, which are insignificant in relation to
its potential exposure to any meaningful level of possible claims
under Farmer Mac Guarantees. A portion of the guarantee fees
received is required to be set aside by Farmer Mac in a segregated
account as a reserve against losses from its guarantee activities.
Farmer Mac expects that its future contingent liabilities in respect
of guarantees of outstanding securities backed by agricultural
mortgage loans will substantially exceed any amounts on deposit in
such reserve account. This reserve account must be exhausted before
Farmer Mac issues obligations to the Secretary of the Treasury
against the $1,500,000,000 Farmer Mac is authorized to borrow from
the Secretary of the Treasury pursuant to the Farmer Mac Charter.
The Secretary of the Treasury is required under the Farmer Mac
Charter to purchase obligations issued by Farmer Mac not later than
ten business days after receipt by the Secretary of the Treasury of
a certification by Farmer Mac in the form prescribed by the Farmer
Mac Charter. The Trust Agreement will contain various timing
mechanisms designed to assure that Farmer Mac will have sufficient
advance notice of any obligation under a Farmer Mac Guarantee in
order, to the extent required, to make timely demand upon the
Secretary of the Treasury. If for any reason beyond the control of
any Holder, such Holder fails to receive on any Distribution Date
such Holder's portion of any payment required pursuant to the Farmer
Mac Guarantee, such Holder may, through the related Trustee, enforce
such obligation against Farmer Mac to the extent of such Holder's
portion. Farmer Mac anticipates that its future contingent
liabilities in respect of guarantees of outstanding securities will
greatly exceed its resources, including its limited ability to
borrow from the United States Treasury referred to above. See
"FEDERAL AGRICULTURAL MORTGAGE CORPORATION" herein.
Farmer Mac will not guarantee the collection from any borrower of
any yield maintenance charge ("Yield Maintenance Charge") or any
other premium (collectively, "Prepayment Premiums") payable in
connection with a principal prepayment on a Qualified Loan, and in
the event the related Trust Agreement entitles the related Holders
to receive distributions of such Yield Maintenance Charges or
Prepayment Premiums, such Holder will receive such amounts only to
the extent actually collected.
Yield, Prepayment and Maturity Considerations
Agricultural lending is generally viewed as exposing lenders to a
greater risk of loss than single-family residential lending.
Agricultural lending typically involves larger loans to single
borrowers than does lending on single-family residences. Repayment
of agricultural loans is typically dependent upon the success of the
related farming operation, which is, in turn, dependent upon many
variables and factors over which farmers may have little or no
control, such as weather conditions, economic conditions (both
domestically and internationally) and even political conditions. If
the cash flow from a farming operation is diminished (for example,
adverse weather conditions destroy a crop or prevent the planting or
harvesting of a crop), the borrower's ability to repay the loan may
be impaired. Agricultural lending is perhaps more affected by
circumstances beyond the control of the borrower than any other area
of real estate lending. Under the Farmer Mac Guarantee, Holders will
continue to receive required interest and principal distributions on
each Distribution Date regardless of whether sufficient funds have
been collected from borrowers. In addition, principal prepayments
resulting from liquidations of Qualified Loans due to defaults or
other calamities affecting Qualified Loans, or repurchases of
Qualified Loans due to breaches of representations and warranties
may significantly affect the yield to investors.
The rates of prepayment and default on the Qualified Loans in a
particular Trust Fund will affect the anticipated maturities and
yields to maturity of the related Certificates. Little or no
historical data is available to provide meaningful assistance in
estimating the rate of prepayments and defaults on loans secured by
Agricultural Real Estate.
The yield to investors in each Class of a Series of Certificates
will be sensitive in varying degrees to the rate and timing of
principal payments (including prepayments) of the underlying
Qualified Assets, which, in the case of each Trust Fund, will be
prepayable to the extent described in the related Prospectus
Supplement. In addition, the yield to maturity on a Class of
Certificates may vary depending on the extent to which such Class is
purchased at a discount or premium. Holders of Certificates should
consider, in the case of any Certificates purchased at a discount,
the risk that a slower than anticipated rate of principal payments
could result in an actual yield that is lower than the anticipated
yield and, in the case of any Certificates purchased at a premium,
the risk that a faster than anticipated rate of principal payments
could result in an actual yield that is lower than the anticipated
yield.
The yield to maturity on each Class of Certificates will be
extremely sensitive to the rate and timing of principal payments
(including prepayments) of the underlying Qualifying Loans, which
may fluctuate significantly from time to time. Investors should
fully consider the associated risks, including the risk that an
extremely rapid rate of principal payments on the Qualified Loans
could result in the failure of investors in any Class of Stripped
Interest Certificates to recoup their initial investments. See
"YIELD CONSIDERATIONS -- Payments of Principal; Prepayments" herein.
Most loans secured by Agricultural Real Estate contain lock-out
periods in which prepayments are completely prohibited or set forth
maximum amounts that may be prepaid in any year, contain
restrictions on the source of prepayments, or impose prepayment
penalties or charges and/or other restrictions on prepayments
including Yield Maintenance Charges. Because Farmer Mac does not
guarantee the collection of any Yield Maintenance Charges or
Prepayment Premiums on the underlying Qualified Loans, the expected
yield to investors in the Certificates may be sensitive in varying
degrees to the extent such amounts are not collected. In addition,
the required payment of Prepayment Premiums or Yield Maintenance
Charges may not be a sufficient disincentive to prevent the
voluntary prepayment of the Qualified Loans and, even if collected,
allocation thereof to any Class may be insufficient to offset fully
the adverse effects on the anticipated yield thereon arising out of
the corresponding principal payment. Each Prospectus Supplement will
describe the extent to which any restrictions on prepayments are
applicable to the underlying Qualified Loans and the standard or
standards, if any, applicable to the enforcement by the related
Central Servicer of any such restrictions.
Each Prospectus Supplement will also set forth the extent to
which the underlying Qualified Loans include "due on sale" clauses
which permit the mortgagee to demand payment of the entire Qualified
Loan in connection with the sale or certain transfers of the related
mortgaged property. Standards applicable to the enforcement or
waiver by the related Central Servicer of any such "due on sale"
clauses will also be described in the related Prospectus Supplement.
Book-Entry Registration
If so provided in the Prospectus Supplement, one or more Classes
of the Certificates will be issued and maintained and may be
transferred only on the book-entry system of the Federal Reserve
Banks and/or will be initially represented by one or more
certificates registered in the name of the nominee for the central
depository identified therein, and will not be registered in the
names of the Beneficial Owners or their nominees. Because of this,
unless and until Definitive Certificates are issued, Beneficial
Owners will not be recognized by the Trustee as "Certificateholders"
(as that term is to be used in the Trust Agreement). Hence, until
such time, Beneficial Owners will be able to exercise the rights of
Certificateholders only indirectly through the Federal Reserve Banks
and their participating financial institutions or through such
central depository and its participating organizations. See
"DESCRIPTION OF THE CERTIFICATES -- Book-Entry Registration and
Definitive Certificates" herein.
DESCRIPTION OF THE TRUST FUNDS
Assets
The primary assets of each Trust Fund are set forth above under
"Summary -- The Trust Assets". The Certificates of any Series will be
entitled to payment only from the assets of the related Trust Fund
and will not be entitled to payments in respect of the assets of any
other trust fund established by the Depositor. If specified in the
related Prospectus Supplement, the assets of a Trust Fund will
consist of certificates representing beneficial ownership interests
in another trust fund that contains Qualified Assets.
<PAGE>
Qualified Loans
General
The general characteristics of and eligibility standards for
Qualified Loans are set forth above under "Summary The Trust
Assets (a) Qualified Assets." In addition to these general
statutory standards, Farmer Mac has established supplemental
standards described below in an effort to reduce the risk of loss
from defaults by borrowers and to provide guidance to a participant
in its guarantee program concerning management, administration and
conduct of appraisals.
Farmer Mac's Underwriting and Appraisal Standards (the
"Underwriting Standards" and the "Appraisal Standards") are based on
industry norms for mortgage loans qualified to be sold in the
secondary market, and are designed to assess the creditworthiness of
the borrower as well as the value of the Mortgaged Properties
relative to the amount of the Qualified Loan. Farmer Mac generally
relies on representations and warranties made by the Seller to
ensure that the Qualified Loans contained in the Trust Fund conform
to such Underwriting Standards and other requirements of the Guides.
The Underwriting Standards require, among other things, that the
loan-to-value ratio for any Qualified Loan cannot exceed 70%. In the
case of newly originated Qualified Loans secured by Agricultural
Real Estate, borrowers must also meet certain credit ratios,
including: (i) a pro forma (after closing the new loan)
debt-to-asset ratio of 50% or less; (ii) a pro forma cash flow debt
service coverage ratio of not less than 1:1 on the subject property;
(iii) a total debt service coverage ratio, computed on a pro forma
basis, of not less than 1.25:1, including farm and off-farm income;
and (iv) a ratio of current assets to current liabilities, computed
on a pro forma basis, of not less than 1:1.
In the case of existing loans, sustained loan performance is
considered by Farmer Mac to be a reliable alternative indicator of a
borrower's ability to pay the loan according to its terms. An
existing loan generally will be eligible for pooling and inclusion
in a Trust Fund if it is at least three years old, has a
loan-to-value ratio (based on an updated appraisal) of 70% or less
if the loan is at least five years old (60% if the loan is less than
five years old), and there have been no payments more than 60 days
past due during the three years prior to pooling and no
material restructurings or modifications for credit reasons during
the five years prior to pooling.
The Mortgaged Property securing a Qualified Loan must be covered
by a hazard insurance policy. The coverage of such policy is
required to be in an amount not less than the maximum insurable
value of the Mortgaged Property securing the related Qualified Loan
from time to time or the principal balance outstanding on the
related Qualified Loan, whichever is less. Each such hazard
insurance policy covers physical damage to or destruction of the
improvements of the property by fire, lightning, explosion, smoke,
windstorm and hail, riot, strike and civil commotion, subject to the
conditions and exclusions specified in each policy. To the extent
the Mortgaged Property is located in an area designated as a flood
plain by the Federal government, a flood insurance policy must be
maintained for such Mortgaged Property.
The Underwriting Standards provide that Farmer Mac may purchase
or guarantee securities backed by loans that do not conform to one
or more of the Underwriting Standards when: (a) those loans exceed
one or more of the Underwriting Standards to which they do conform
to a degree that compensates for noncompliance with one or more
other Underwriting Standards and (b) those loans are made to
producers of particular agricultural commodities in a segment of
agriculture in which such non-conformance and compensating strengths
are typical of the financial condition of sound borrowers. The
acceptance by Farmer Mac of loans that do not conform to one or more
of the Underwriting Standards is not intended to provide a basis for
waiving or lessening in any way the requirement that loans be of
high quality in order to be included in a Trust Fund. The entity
that requests the acceptance by Farmer Mac of such loans bears the
burden of convincing Farmer Mac that the loans meet both tests as
set forth in clauses (a) and (b) above, and that the inclusion of
such loans in a Trust Fund, will strengthen, not weaken, the overall
performance of the Trust Fund. For those reasons, Farmer Mac does
not believe that the inclusion of such loans in a particular Trust
Fund creates any additional risk.
The Appraisal Standards for newly originated loans require, among
other things, that the appraisal function be performed independently
of the credit decision making process. The Appraisal Standards
require the appraisal function to be conducted or administered by an
individual meeting certain qualification criteria who (a) is not
associated, except by the engagement for the appraisal, with the
credit underwriters who make the loan decision, though both the
appraiser and the credit underwriter may be directly or indirectly
employed by a common employer; (b) receives no financial or
professional benefit of any kind relative to the report content,
valuation or credit decision made or based on the appraisal product;
and (c) has no present or contemplated future direct or indirect
interest in the appraised property. The Appraisal Standards also
require uniform reporting of reliable and accurate estimates of the
market value, market rent and net property income characteristics of
the Mortgaged Property and the market forces relative thereto.
Qualified Loan Information in Prospectus Supplements
Each Prospectus Supplement will contain information, as of the
date of such Prospectus Supplement, with respect to the Qualified
Loans, generally including (i) the aggregate outstanding principal
balance and the largest, smallest and average outstanding principal
balance of the Qualified Loans as of the applicable Cut-off Date,
(ii) the percentage (by principal balance) of Qualified Loans
secured by Mortgaged Properties upon which specified commodity
groups are produced (i.e. (a) food grains, (b) feed crops, (c)
cotton/tobacco, (d) oilseeds, (e) potatoes, tomatoes and other
vegetables, (f) permanent plantings, (g) sugarbeets, cane and other
crops, (h) timber, (i) dairy, (j) cattle and calves and (k) sheep,
lamb and other livestock), (iii) the weighted average (by principal
balance) of the original and remaining terms to maturity of the
Qualified Loans, (iv) the earliest and latest origination date and
maturity date of the Qualified Loans, (v) the loan-to-value ratios
and the weighted average (by principal balance) of the current
loan-to-value ratios of the Qualified Loans, (vi) the Mortgage
Interest Rates or range of Mortgage Interest Rates and the weighted
average Mortgage Interest Rate borne by the Qualified Loans, (vii)
the geographic distribution of Qualified Loans secured by Mortgaged
Properties, (viii) information with respect to the amortization
provisions and provisions relating to prepayment, including any
Prepayment Premiums, Yield Maintenance Charges or lock-outs, if any,
of the Qualified Loans, (ix) with respect to Qualified Loans with
floating Mortgage Interest Rates ("ARM Loans"), the index, the
frequency of the adjustment dates, the highest, lowest and weighted
average note margin and pass-through margin, and the
maximum Mortgage Interest Rate or monthly payment variation at the
time of any adjustment thereof and over the life of the ARM Loan and
the frequency of such monthly payment adjustments, (x) information
regarding the payment characteristics of the Qualified Loans,
including without limitation, Balloon Payments. If specific
information respecting the Qualified Loans is not known at the time
Certificates are initially offered, more general information of the
nature described above will be provided in the Prospectus
Supplement, and specific information will be set forth in a report
which will be available to purchasers of the related Certificates at
or before the initial issuance thereof and will be filed as part of
a Current Report on Form 8-K with the Commission within fifteen days
after such initial issuance.
<PAGE>
QMBS
Any QMBS will have been issued pursuant to a participation and
servicing agreement, a pooling and servicing agreement, a trust
agreement, an indenture or similar agreement (a "QMBS Agreement"). A
seller (the "QMBS Issuer") and/or servicer (the "QMBS Servicer") of
the underlying Qualified Loans (or
Underlying QMBS) will have entered into the QMBS Agreement with a
trustee or a custodian under the QMBS Agreement (the "QMBS
Trustee"), if any, or with the original purchaser of the interest in
the underlying Qualified Loans or QMBS evidenced by the QMBS.
Distributions of any principal or interest, as applicable, will
be made on QMBS on the dates specified in the related Prospectus
Supplement. The QMBS may be issued in one or more Classes with
characteristics similar to the Classes of Certificates described in
this Prospectus. Any principal or interest distributions will be
made on the QMBS by the QMBS Trustee or the QMBS Servicer. The QMBS
Issuer or the QMBS Servicer or another person specified in the
related Prospectus Supplement may have the right or
obligation to repurchase or substitute assets underlying the QMBS
for the breach of certain representations and warranties contained
in the QMBS Agreement or under other circumstances specified in the
related Prospectus Supplement.
The Prospectus Supplement for a Series of Certificates evidencing
interests in Qualified Assets that include QMBS generally will
specify (i) the aggregate approximate initial and outstanding
principal amount or notional amount, as applicable, and type of the
QMBS to be included in the related Trust Fund, (ii) the original and
remaining term to stated maturity of the QMBS, if applicable, (iii)
whether such QMBS is entitled only to interest payments, only to
principal payments or to both, (iv) the pass-through or bond rate of
the QMBS or formula for determining such rates, if any, (v) the
applicable payment provisions for the QMBS, including, but not
limited to, any priorities, payment schedules and subordination
features, (vi) the QMBS Issuer, QMBS Servicer and QMBS Trustee, as
applicable, (vii) certain characteristics of the credit support, if
any, such as guarantees, subordination, reserve funds, insurance
policies or letters of credit or relating to the related underlying
Qualified Loans, the underlying QMBS or directly to such QMBS,
(viii) the terms on which the related underlying Qualified Loans or
underlying QMBS for such QMBS or the QMBS may, or are required to,
be purchased prior to their maturity, (ix) the terms on which
Qualified Loans or underlying QMBS may be substituted for those
originally underlying the QMBS, (x) the servicing fees payable under
the QMBS Agreement, (xi) the type of information in respect of the
underlying Qualified Loans described under "--Qualified Loans--
Qualified Loan Information in Prospectus Supplements" above, and the
type of information in respect of the underlying QMBS described in
this paragraph, (xii) the characteristics of any cash flow
agreements that are included as part of the trust fund evidenced or
secured by the QMBS and (xiii) whether the QMBS is in certificated
form, book-entry form or held through a depository such as The
Depository Trust Company or the Participants Trust Company.
Guaranteed Portions
The participation in a loan guaranteed (each such participation
in the related whole loan (the "Guaranteed Loan") being referred to
herein as a "Guaranteed Portion" and the related guarantee being
referred to herein as a "Secretary's Guarantee") by the Secretary of
Agriculture pursuant to the Consolidated Farm and Rural Development
Act (7 U.S.C. Sections 1921 et seq.) is statutorily included in the
definition of loans eligible as "Qualified Loans" for Farmer Mac
secondary market programs. Guaranteed Portions are exempt from all
underwriting, appraisal and repayment standards otherwise applicable
to Qualified Loans.
The maximum loss covered by a Secretary's Guarantee can never
exceed the lesser of (1) 90% of principal and interest indebtedness
on the Guaranteed Loan, any loan subsidy due, and 90% of principal
and interest indebtedness on secured authorized protective advances
for protection and preservation of the related mortgaged property;
and (2) 90% of the principal advanced to or assured by the borrower
under the Guaranteed Loan and any interest due (including a loan
subsidy).
The Secretary's Guarantee is a full faith and credit obligation
of the United States. Any Guaranteed Portion is the portion of the
loan that is fully guaranteed as to principal and interest due on
such loan as described below. The Secretary's Guarantee is activated
if a Lender fails to repurchase the Guaranteed Portion from the
owner thereof (the "Owner") within thirty (30) days of written
demand from the Owner when (a) the borrower under the Guaranteed
Loan (the "Borrower") is in default not less than sixty (60) days in
the payment of any principal or interest due on the Guaranteed
Portion, or (b) the Lender has failed to remit to the Owner the
payment made by the Borrower on the Guaranteed Portion or any
related loan subsidy within thirty (30) days of the Lender's receipt
thereof.
If the Lender does not repurchase the Guaranteed Portion as
provided above, the Secretary is required to purchase the unpaid
principal balance of the Guaranteed Portion together with accrued
interest (including any loan subsidy) to the date of purchase, less
the servicing fee, within thirty (30) days of written demand from
the Owner. While the Secretary's Guarantee will not cover the note
interest on Guaranteed Portions accruing after ninety (90) days from
the date of the original demand letter to the Lender requesting
repurchase, procedures will be set forth in the related Trust
Agreement to require tendering of Guaranteed Portions in a timely
manner so as not to exceed the 90-day period.
If in the opinion of the Lender (with the concurrence of the
Secretary) or in the opinion of the Secretary, repurchase of the
Guaranteed Portion is necessary to service adequately the related
Guaranteed Loan, the Owner will sell the Guaranteed Portion to the
Lender or the Secretary for an amount equal to the unpaid principal
balance and accrued interest (including any loan subsidy) on such
Guaranteed Portion less the Lender's servicing fee. Regulations
prohibit the Lender from repurchasing Guaranteed Portions for
arbitrage purposes.
All Guaranteed Loans must be originated and serviced by eligible
Lenders. Under regulations, all eligible Lenders must be subject to
credit examination and supervision by either an agency of the United
States or a state, must be in good standing with their licensing
authorities and have met any licensing, loan making, loan servicing
and other applicable requirements of the state in which the
collateral for a Guaranteed Loan will be located. The Lender on
each Guaranteed Loan is required to retain the unguaranteed portion
of the Guaranteed Loan (the "Unguaranteed Portion"), to service the
entire underlying Guaranteed Loan, including the Guaranteed Portion
and to remain mortgagee and/or secured party of record. The
Guaranteed Portion and the Unguaranteed Portion of the underlying
Guaranteed Loan are to be secured by the same security with equal
lien priority. The Guaranteed Portion cannot be paid later than or
in any way be subordinated to the related Unguaranteed Portion.
The Farmer Mac Guarantee of Certificates evidencing interests in
a Trust Fund containing Guaranteed Portions will cover the timely
payment of interest on and principal of such Certificates
(regardless of whether payment has been made under the Secretary's
Guarantee).
USE OF PROCEEDS
The net proceeds to be received from the sale of a Series of
Certificates by the Depositor will be applied by the Depositor to
the purchase of Trust Assets from Sellers and to pay for certain
expenses incurred in connection with such purchase of Trust Assets
and sale of Certificates. The Depositor expects to sell Certificates
from time to time, but the timing and amount of offerings of
Certificates will depend on a number of factors, including the
volume of Qualified Assets acquired by the Depositor, prevailing
interest rates, availability of funds and general market conditions.
Rather than sell Certificates directly itself, the Depositor
expects that Certificates comprising a substantial number of Series
will be exchanged by the Depositor for Qualified Assets being
swapped to it by Sellers.
YIELD CONSIDERATIONS
General
The yield on any Certificate will depend on the price paid by the
Certificateholder, the Pass-Through Rate of the Certificate, the
receipt and timing of receipt of distributions on the Certificate
and the weighted average lives of the Qualified Assets in the
related Trust Fund, which may be affected by prepayments, defaults,
liquidations or repurchases. See "RISK FACTORS" herein and in the
related Prospectus Supplement.
Pass-Through Rate
Certificates of any Class within a Series may have fixed,
variable or floating Pass-Through Rates, which may or may not be
based upon the interest rates borne by the Qualified Assets in the
related Trust Fund. The Prospectus Supplement with respect to any
Series of Certificates will specify the Pass-Through Rate for each
Class of such Certificates or, in the case of a variable or floating
Pass-Through Rate, the method of determining the Pass-Through Rate;
and the effect, if any, of the prepayment of any Qualified Asset on
the Pass-Through Rate of one or more Classes of Certificates.
If the Interest Accrual Period for a Class ends prior to a
Distribution Date for the related Series of Certificates, the
effective yield to maturity to each holder of Certificates entitled
to payments of interest will be below that otherwise produced by the
applicable Pass-Through Rate and purchase price of such Certificate
because, while interest will accrue on each such Certificate during
such Interest Accrual Period, the distribution of such interest will
be made on a day which may be several days, weeks or months
following the period of accrual.
Timing of Payment of Interest
Each payment of interest on the Certificates (or addition to the
Certificate Balance of a Class of Accrual Certificates) on a
Distribution Date will include interest accrued during the Interest
Accrual Period for such Distribution Date. As indicated above under
"Pass-Through Rate," if the Interest Accrual Period ends on a date
other than a Distribution Date for the related Series, the yield
realized by the holders of such Certificates may be lower than the
yield that would result if the Interest Accrual Period ended on such
Distribution Date. The Interest Accrual Period for any Class of
Certificates will be described in the related Prospectus Supplement.
Payments of Principal; Prepayments
The yield to maturity on the Certificates will be affected by the
rate of principal payments on the Qualified Assets (including
principal prepayments on Qualified Loans resulting from voluntary
prepayments by the Mortgagors, insurance proceeds, condemnations and
involuntary liquidations). A number of social, economic, geographic,
climatic, demographic, tax, legal and other factors may influence
the rate at which principal prepayments and defaults occur on the
Qualified Loans including, without limitation, the age of the
Qualified Loans, the payment terms of the Qualified Loans, the
availability of mortgage credit, enforceability of due-on-sale
clauses, servicing decisions, the extent of the borrower's net
equity in the related Mortgaged Property, the characteristics of the
borrowers, mortgage market interest rates in relation to the
effective interest rates on the Qualified Loans and other
unforeseeable variables, both domestic and international, affecting
particular commodity groups and the farming industry in general.
Generally, however, if prevailing interest rates fall significantly
below the Mortgage Interest Rates on the Qualified Loans comprising
or underlying the Qualified Assets in a particular Trust Fund, such
Qualified Loans are likely to be the subject of higher principal
prepayments than if prevailing rates remain at or above the rates
borne by such Qualified Loans. In this regard, it should be noted
that certain Qualified Assets may consist of Qualified Loans with
different Mortgage Interest Rates and the stated pass-through or
pay-through interest rate of certain QMBS may be a number of
percentage points higher or lower than certain of the underlying
Qualified Loans. The rate of principal
payments on some or all of the Classes of Certificates of a Series
will correspond to the rate of principal payments on the Qualified
Assets in the related Trust Fund and is likely to be affected by the
existence of lock-out periods and prepayment premium provisions of
the Qualified Loans underlying or comprising such Qualified Assets,
and by the extent to which the servicer of any such Qualified Loan
is able to enforce such provisions. Qualified Loans with a lock-out
period or a prepayment premium provision, to the extent enforceable,
generally would be expected to experience a lower rate of principal
prepayments than otherwise identical Qualified Loans without such
provisions, with shorter lock-out periods or with lower prepayment
premiums.
If the purchaser of a Certificate offered at a discount
calculates its anticipated yield to maturity based on an assumed
rate of distributions of principal that is faster than that actually
experienced on the Certificate, the actual yield to maturity will be
lower than that so calculated. Conversely, if the purchaser of a
Certificate offered at a premium calculates its anticipated yield to
maturity based on an assumed rate of distributions of principal that
is slower than that actually experiencd on the Certificate, the
actual yield to maturity will be lower than that so calculated. In
either case, if so provided in the Prospectus Supplement for a
Series of Certificates, the effect on yield on one or more Classes
of the Certificates of such Series of prepayments of the Qualified
Assets in the related Trust Fund may be mitigated or exacerbated by
any provisions for sequential or selective distribution of principal
to such Classes.
A prepayment of principal, whether full or partial, is applied so
as to reduce the outstanding principal balance of the related
Qualified Loan as of the Due Date next succeeding the date on which
such prepayment is received. As a result, a prepayment on a
Qualified Loan will not reduce the amount of interest passed through
to holders of Certificates for each related Interest Accrual Period.
The timing of changes in the rate of principal payments on the
Qualified Assets may significantly affect an investor's actual yield
to maturity, even if the average rate of distributions of principal
is consistent with an investor's expectation. In general, the
earlier a principal payment is received on the Qualified Assets and
distributed on a Certificate, the greater the effect on such
investor's yield to maturity. The effect on an investor's yield of
principal payments occurring at a rate higher (or lower) than the
rate anticipated by the investor during a given period may not be
offset by a subsequent like decrease (or increase) in the rate of
principal payments.
Prepayments, Maturity and Weighted Average Lives
The rates at which principal payments are received on the
Qualified Assets included in or comprising a Trust Fund for the
related Series of Certificates may affect the ultimate maturity and
the weighted average life of each Class of such Series. Prepayments
on the Qualified Loans comprising or underlying the Qualified Assets
in a particular Trust Fund will generally accelerate the rate at
which principal is paid on some or all of the Classes of the
Certificates of the related Series.
As described in the related Prospectus Supplement for a Series of
Certificates, each Class of Certificates will have a final scheduled
Distribution Date, which is the date on or prior to which the
Certificate Balance thereof is required to be reduced to zero,
calculated on the basis of the assumptions applicable to such Series
set forth therein. Payment of the entire Certificate Balance of each
such Class no later than such final Distribution Date will be
covered by the related Farmer Mac Guarantee.
Weighted average life refers to the average amount of time that
will elapse from the date of issue of a security until each dollar
of principal of such security will be repaid to the investor. The
weighted average life of a Class of Certificates of a Series will be
influenced by the rate at which principal on the Qualified Loans
comprising or underlying the Qualified Assets is paid to such Class,
which may be in the form of scheduled amortization or prepayments
(for this purpose, the term "prepayment" includes prepayments, in
whole or in part, and liquidations due to default).
In addition, the weighted average lives of the Certificates may
be affected by the varying maturities of the Qualified Loans
comprising or underlying the Qualified Assets. If any Qualified
Loans comprising or underlying the Qualified Assets in a particular
Trust Fund have actual terms to maturity of less than those assumed
in calculating final scheduled Distribution Dates for the Classes of
Certificates of the related Series, one or more Classes of such
Certificates may be fully paid prior to their respective final scheduled
Distribution Dates, even in the absence of prepayments.
Accordingly, the prepayment experience of the Qualified Assets will,
to some extent, be a function of the mix of Mortgage Interest Rates
and maturities of the Qualified Loans comprising or underlying
such Qualified Assets. See "DESCRIPTION OF THE TRUST FUNDS" herein.
Prepayments on loans are also commonly measured relative to a
prepayment standard or model, such as the Constant Prepayment Rate
("CPR") prepayment model. CPR represents a constant assumed rate of
prepayment each month relative to the then outstanding principal
balance of a pool of loans for the life of such loans. Neither CPR
nor any other prepayment model or assumption purports to be an
historical description of prepayment experience or a prediction of
the anticipated rate of prepayment of any pool of loans, including
the Qualified Loans underlying or comprising the Qualified Assets.
Moreover, CPR was developed based upon historical prepayment
experience for single family residential mortgage loans. Thus, it is
likely that prepayment of any Qualified Loans comprising or
underlying the Qualified Assets for any Series will not conform to
any particular level of CPR.
The Depositor is not aware of any meaningful prepayment
statistics for Qualified Loans secured by Agricultural Real Estate.
The Prospectus Supplement with respect to each Series of Certificates may
contain tables, if applicable, setting forth the projected weighted average life
of each Class of Certificates of such Series and the percentage of the initial
Certificate Balance of each such Class that would be outstanding on specified
Distribution Dates based on the assumptions stated in such Prospectus
Supplement, including assumptions that prepayments on the Qualified Loans
comprising or underlying the related Qualified Assets are made at rates
corresponding to various percentages of CPR or at such other rates specified in
such Prospectus Supplement. Such tables and assumptions are intended to
illustrate the sensitivity of weighted average lives of the Certificates to
various prepayment rates and will not be intended to predict or to provide
information that will enable investors to predict the actual weighted average
lives of the Certificates. It is unlikely that prepayment of any Qualified Loans
comprising or underlying the Qualified Assets for any Series will conform to any
particular level of CPR or any other rate specified in the related Prospectus
Supplement.
<PAGE>
THE DEPOSITOR
Farmer Mac Mortgage Securities Corporation, the Depositor, is a
wholly-owned subsidiary of Farmer Mac and was incorporated in the
State of Delaware in May 1992. The principal executive offices of
the Depositor are located at 919 18th Street, N.W., Washington, D.C.
20006.
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
The Federal Agricultural Mortgage Corporation ("Farmer Mac") is a
federally chartered instrumentality of the United States established
by Title VIII of the Farm Credit Act of 1971, as amended (12 U.S.C.
SS - 2279aa et seq.) (the "Farmer Mac Charter"). Farmer Mac was
established primarily to attract new capital for the financing of
agricultural real estate and rural housing loans and to provide
liquidity to agricultural real estate and rural housing lenders.
Farmer Mac is intended to aid the development of a secondary market
for agricultural real estate and rural housing loans made by
participating originators (each, an "Originator"), secured by first
liens on agricultural real estate, including rural housing, by
guaranteeing the timely payment of interest and principal on
obligations backed by such loans and securities representing
interests in such loans or in Guaranteed Portions.
Section 503 of the Food, Agriculture, Conservation, and Trade Act
Amendments of 1991 (the "1991 Act") provided for the creation of an
Office of Secondary Market Oversight within the Farm Credit
Administration ("FCA") that is managed by a full-time director
selected by and reporting to the FCA Board. Through this office, the
FCA has general regulatory and enforcement authority over Farmer
Mac, including the authority to promulgate rules and regulations
governing the activities of Farmer Mac and to apply its general
enforcement powers to Farmer Mac and its activities. The 1991 Act
also established certain minimum and critical capital levels for
Farmer Mac.
The 1996 Amendment signed into law by the President of the United
States on February 10, 1996, modified the Farmer Mac Charter as it
theretofore existed in several major respects, by, among other
things (i) authorizing Farmer Mac to purchase Qualified Loans and to
include such purchased Qualified Loans in Trust Funds serving as the
basis for securities guaranteed by Farmer Mac, (ii) extending from
December 1996 to December 1999 the statutory deadline for the full
imposition of certain regulatory capital requirements applicable to
Farmer Mac, and (iii) eliminating statutory requirements for credit
support features aggregating not less than ten percent of the
initial principal balances of Qualified Loans in a Trust Fund. The
1996 Amendment also made various statutory changes intended to
further streamline program operations and clarify certain ambiguous
statutory provisions.
The 1996 Amendment also imposed certain additional capital
requirements upon Farmer Mac and timing limitations therefor,
including a requirement that Farmer Mac increase its core capital to
at least $25 million. The 1996 amendment limits Farmer Mac's
authority to conduct new business if the $25-million capital level
is not reached within two years after the enactment of the 1996
Amendment.
The Farmer Mac Charter authorizes Farmer Mac to borrow up to $1,500,000,000
from the Secretary of the Treasury, subject to certain conditions, to enable
Farmer Mac to fulfill its guarantee obligations. The debt created by such
borrowing will bear interest at a rate determined by the Secretary of the
Treasury taking into consideration the average rate on outstanding marketable
obligations of the United States as of the last day of the calendar month ending
before the date of the purchase of such obligations. The debt must be repaid
within a reasonable time.
Public offerings of securities guaranteed by Farmer Mac must be
registered with the Commission pursuant to the Securities Act of
1933, as amended (the "1933 Act"). Farmer Mac is also subject to the
periodic reporting requirements of the Exchange Act and,
accordingly, files reports with the Commission pursuant thereto.
Pursuant to existing FCA regulations, Farmer Mac is required to file
quarterly reports of condition with the FCA, as well as copies of
all documents filed with the Commission under the 1933 and Exchange
Acts.
The Farmer Mac Charter requires the Comptroller General to
perform a financial audit of Farmer Mac on whatever basis the
Comptroller General determines to be necessary.
Although Farmer Mac is an institution of the Farm Credit System,
it is not liable for any debt or obligation of any other institution
of the Farm Credit System (a "System Institution"). Neither the Farm
Credit System nor any other individual System Institution is liable
for any debt or obligation of Farmer Mac. For more information about
Farmer Mac, see the documents incorporated by reference herein and
referred to in "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE"
herein.
Farmer Mac maintains its principal executive offices at 919 18th
Street, N.W., Washington, D.C. 20006. Its telephone number is (202)
872-7700.
<PAGE>
DESCRIPTION OF THE CERTIFICATES
General
The Certificates of each Series (including any Class of
Certificates not offered hereby) will represent the entire
beneficial ownership interest in the Trust Fund created pursuant to
the related Agreement. Each Series of Certificates will consist of
one or more Classes of Certificates that may (i) provide for the
accrual of interest thereon based on fixed, variable or floating
rates; (ii) be entitled to principal distributions, with
disproportionately low, nominal or no interest distributions
(collectively, "Stripped Principal Certificates"); (iii) be entitled
to interest distributions, with disproportionately low, nominal or
no principal distributions (collectively, "Stripped Interest
Certificates"); (iv) provide for distributions of accrued interest
thereon commencing only following the occurrence of certain events,
such as the retirement of one or more other Classes of Certificates
of such Series (collectively, "Accrual Certificates"); (v) provide
for payments of principal sequentially, based on specified payment
schedules, from only a portion of the Trust Assets in such Trust
Fund or based on specified calculations, to the extent of available
funds, in each case as described in the related Prospectus
Supplement; (vi) provide for distributions based on a combination of
two or more components thereof with one or more of the
characteristics described in this paragraph including a Stripped
Principal Certificate component and a Stripped Interest Certificate
component; and/or (vii) be entitled to distributions of any
Prepayment Premium and Yield Maintenance Charge (each term as
defined herein), to the extent collected, in each case as described
in the related Prospectus Supplement.
Each Class of Certificates of a Series will be issued in minimum
denominations corresponding to the Certificate Balances or, in case of Stripped
Interest Certificates, notional amounts or percentage interests specified in the
related Prospectus Supplement. The transfer of any Certificates may be
registered and such Certificates may be exchanged without the payment of any
service charge payable in connection with such registration of transfer or
exchange, but the Depositor or the Trustee or any agent thereof may require
payment of a sum sufficient to cover any tax or other governmental charge. One
or more Classes of Certificates of a Series may be issued in definitive form
("Definitive Certificates") or in book-entry form ("Book-Entry Certificates"),
as provided in the related Prospectus Supplement. See "- Book-Entry
Registration" and "RISK FACTORS Book-Entry Registration" herein. Definitive
Certificates will be exchangeable for other Certificates of the same Class and
Series of a like aggregate Certificate Balance, notional amount or percentage
interest but of different authorized denominations.
Distributions
Distributions on the Certificates of each Series will be made by
or on behalf of Farmer Mac on each Distribution Date as specified in
the related Prospectus Supplement. Distributions (other than the
final distribution) will be made to the persons in whose names the
Certificates are registered at the close of business on the last
business day of the month preceding the month in which the
Distribution Date occurs (the "Record Date"), and the amount of each
distribution will be determined as of the close of business on the
date specified in the Trust Agreement (the "Determination Date").
All distributions with respect to each Class of Certificates on each
Distribution Date will be allocated pro rata among the outstanding
Certificates in such Class or by random selection, as described in
the related Prospectus Supplement or otherwise established by Farmer
Mac. Payments will be made either by wire transfer in immediately
available funds to the account of a Certificateholder at a bank or
other entity having appropriate facilities
therefor, if such Certificateholder has so notified the Trustee or
other person required to make such payments no later than the date
specified in the related Prospectus Supplement (and, if so provided
in the related Prospectus Supplement, holds Certificates in the
requisite amount specified therein), or by check mailed to the
address of the person entitled thereto as it appears on the
Certificate Register; provided, however, that the final distribution
in retirement of Definitive Certificates will be made only upon
presentation and surrender of the Certificates at the location
specified in the notice to Certificateholders of such final
distribution.
All distributions on the Certificates of each Series on each
Distribution Date will be made from the amount on deposit in the
related Certificate Account on such Distribution Date as
supplemented, to the extent necessary, by any amount paid by Farmer
Mac under its guarantee. As described below, the entire amount on
deposit in the Certificate Account will be distributed among the
related Certificates or otherwise released from the Trust Fund on
each Distribution Date, and accordingly will not be available for
any future distributions.
Distribution of Interest on the Certificates
Each Class of Certificates (other than classes of Stripped
Principal Certificates that have no Pass-Through Rate) may have a
different Pass-Through Rate, which will be a fixed, variable or
floating rate at which interest will accrue on such Class or a
component thereof (the "Pass-Through Rate"). The related Prospectus
Supplement will specify the Pass-Through Rate for each Class or
component or, in the case of a variable or floating Pass-Through
Rate, the method for determining the Pass-Through Rate.
Distributions of interest in respect of the Certificates of any
Class will be made on each Distribution Date (other than any Class
of Accrual Certificates, which will be entitled to distributions of
accrued interest commencing only on the Distribution Date, or under
the circumstances, specified in the related Prospectus Supplement,
and any Class of Stripped Principal Certificates that are not
entitled to any distributions of interest) based on the Accrued
Certificate Interest (as defined herein) for such Class and such
Distribution Date. Prior to the time interest is distributable on
any Class of Accrual Certificates, the amount of Accrued Certificate
Interest otherwise distributable on such Class will be added to the
Certificate Balance thereof on each Distribution Date. With respect
to each Class of Certificates and each Distribution Date (other than
certain Classes of Stripped Interest Certificates), "Accrued
Certificate Interest" will be equal to interest accrued for a
specified period on the outstanding Certificate Balance thereof
immediately prior to the Distribution Date, at the applicable
Pass-Through Rate. Accrued Certificate Interest on Stripped Interest
Certificates will be equal to interest accrued for a specified
period on the outstanding notional amount thereof immediately prior
to each Distribution Date, at the applicable Pass-Through Rate. The
method of determining the notional amount for any Class of Stripped
Interest Certificates will be described in the related Prospectus
Supplement. Reference to a notional amount is solely for convenience
in certain calculations and does not represent the right to receive
any distributions of principal.
Distributions of Principal of the Certificates
The Certificates of each Series, other than certain Classes of
Stripped Interest Certificates, will have a "Certificate Balance"
which, at any time, will equal the then maximum amount that the
holder will be entitled to receive in respect of principal out of
the future cash flow on the Qualified Assets and other assets
included in the related Trust Fund. The outstanding Certificate
Balance of a Certificate will be reduced to the extent of
distributions of principal thereon from time to time and, in the
case of Accrual Certificates prior to the Distribution Date on which
distributions of interest are required to commence, will be
increased by any related Accrued Certificate Interest. The initial
aggregate Certificate Balance of all Classes of Certificates of a
Series will not be greater than the outstanding aggregate principal
balance of the related Qualified Assets as of the applicable Cut-off
Date. The initial aggregate Certificate Balance of a Series and each
Class thereof will be specified in the related Prospectus
Supplement. Distributions of principal will be made on each
Distribution Date to the Class or Classes of Certificates entitled
thereto in accordance with the provisions described in such
Prospectus Supplement until the Certificate Balance of such Class
has been reduced to zero. Stripped Interest Certificates with no
Certificate Balance are not entitled to any distributions of
principal.
Distributions on the Certificates of Prepayment Premiums and Yield
Maintenance Charges
If so provided in the related Prospectus Supplement, Prepayment
Premiums or Yield Maintenance Charges that are collected on the
Qualified Assets in the related Trust Fund may be distributed on
each Distribution Date to the Class or Classes of Certificates
entitled thereto in accordance with the provisions described in such
Prospectus Supplement.
Advances in Respect of Delinquencies
With respect to any Series of Certificates evidencing an interest
in a Trust Fund, the Central Servicer or another entity described in
the related Prospectus Supplement will be required as part of its
sub-servicing
responsibilities to advance on or before each Certificate Account
Deposit Date (generally a date ten days prior to the related
Distribution Date) its own funds in an amount equal to the aggregate
of payments of principal and interest (net of the related Central
Servicer fee) that were due on the Qualified Loans in such Trust
Fund and were delinquent on such Certificate Account Deposit Date,
subject to such Central Servicer's (or another entity's) good faith
determination that such advances (each, an "Advance") will be
reimbursable from recoveries on the Qualified Loans respecting which
such Advances were made (as to any Qualified Loan, "Related
Proceeds").
Because Farmer Mac guarantees timely distributions of interest
and principal on the Certificates to Holders, the failure of the
Central Servicer to make any required Advance will not affect
distributions of interest and principal to such Holders.
The Prospectus Supplement for any Series of Certificates
evidencing an interest in a Trust Fund that includes QMBS will
describe any corresponding advancing obligation of any person in
connection with such QMBS.
Reports to Certificateholders; Publication of Certificate Principal
Factors
With each distribution to Holders of any Class of Certificates of
a Series, the Master Servicer will forward or cause to be forwarded
to each such holder, to the Trustee, the Depositor and to such other
parties as may be specified in the related Agreement, a statement
setting forth, in each case to the extent applicable and available:
(i) the amount of such distribution to holders of Certificates of
such Class allocable to principal, separately identifying the
aggregate amount of any principal prepayments and, if so specified
in the related Prospectus Supplement, any Prepayment Premiums or
Yield Maintenance Charges included therein;
(ii) the amount of such distribution to holders of Certificates
of such Class allocable to Accrued Certificate Interest;
(iii) the Certificate Principal Factor for each Class of
Certificates (i.e., the percentage carried to eight places which,
when multiplied by the denomination of a Certificate of such Class,
will produce the Certificate Balance of such Certificate or, in the
case of an Interest Only Certificate, the notional amount of such
Certificate immediately following such Distribution Date);
(iv) in the case of Certificates with a variable Pass-Through
Rate, the Pass-Through Rate applicable to such Distribution Date,
and, if available, the immediately succeeding Distribution Date, as
calculated in accordance with the method specified in the related
Prospectus Supplement; and
(v) any other information required to be distributed to such
parties as specified in the related Prospectus Supplement or
Agreement.
As soon as practicable following the fifth Business Day of each
month during which a Distribution Date for a Class of Certificates
occurs, Farmer Mac will calculate the certificate distribution
amount for such Distribution Date and will publish or otherwise make
available for such Class of Certificates comprising such Series the
Certificate Principal Factor therefor described in clause (iii)
above.
In the case of information furnished pursuant to subclauses (i)
and (ii) above, the amounts shall be expressed as a dollar amount
per minimum denomination of Certificates or for such other specified
portion thereof. The Master Servicer or the Trustee, as specified in
the related Prospectus Supplement, will forward or cause to be
forwarded to each holder, to the Depositor and to such other parties
as may be specified in the Agreements, a copy of any statements or
reports received by the Master Servicer or the Trustee, as
applicable, with respect to any QMBS. The Prospectus Supplement for
each Series of Certificates will describe any additional information
to be included in reports to the holders of such Certificates.
Within a reasonable period of time after the end of each calendar
year, the Master Servicer, shall furnish to each person who at any
time during the calendar year was a holder of a Certificate a
statement containing the information set forth in subclauses (i) and
(ii) above, aggregated for such calendar year or the applicable
portion thereof during which such person was a Certificateholder.
Such obligation of the Master Servicer shall be deemed to have been
satisfied to the extent that substantially comparable information
shall be provided by the Master Servicer pursuant to any
requirements of the Code as are from time to time in force.
Unless and until Definitive Certificates are issued, or unless
otherwise provided in the related Prospectus Supplement, such
statements or reports will be forwarded by the Master Servicer to
the Federal Reserve Bank of New York or the nominee for the private
depository, as applicable. Such statements or reports may be
available to Beneficial Owners who request a copy and certify to the
Trustee or the Master Servicer, as applicable, that it is the
Beneficial Owner of a Certificate. See "DESCRIPTION OF THE
CERTIFICATES Book-Entry Registration" herein. Communication among
Beneficial Owners may be conducted through the facilities of the
related depository or financial intermediary.
Termination
The obligations created by the Trust Agreement for each Series of
Certificates will terminate upon the payment to Certificateholders
of that Series of all amounts required to be paid to them pursuant
to such Trust Agreement following the earlier of (i) the final
payment or other liquidation of the last Qualified Asset subject
thereto, (ii) the purchase of all of the assets of the Trust Fund by
the party entitled to effect such termination, under the
circumstances and in the manner set forth in the related Prospectus
Supplement and (iii) distribution by Farmer Mac pursuant to the
Farmer Mac Guarantee on the Final Distribution Date of the latest
maturing Class of such Series an amount sufficient to reduce the
Certificate Balance thereof to zero. In no event, however, will any
trust created by the Trust Agreement continue beyond a date which is
21 years subsequent to the death of the survivor of the descendants
of Joseph P. Kennedy, the late ambassador of the United States to
the Court of St. James's, living on the Cut-off Date for the related
Series. Written notice of termination of the Agreements will be
given to each Certificateholder and the final distribution will be
made only upon, in the case of any Definitive Certificate,
presentation and surrender of such Definitive Certificate at the
location to be specified in the notice of termination.
If so specified in the related Prospectus Supplement, a Series of
Certificates may be subject to optional early termination through
the repurchase of the assets in the related Trust Fund by the party
specified therein, under the circumstances and in the manner set
forth therein. If so provided in the related Prospectus Supplement,
upon the reduction of the Certificate Balance of a specified Class
or Classes of Certificates by a specified percentage or amount, the
party specified therein will solicit bids for the purchase of all
assets of the Trust Fund, or of a sufficient portion of such assets
to retire such Class or Classes or purchase such Class or Classes at
a price set forth in the related Prospectus Supplement, in each
case, under the circumstances and in the manner set forth therein.
Book-Entry Registration
If so provided in the related Prospectus Supplement, one or more
Classes of the Certificates of any Series will be issued as
Book-Entry Certificates, and each such Class will either (i) be
issued and maintained only on the book-entry system of the Federal
Reserve Banks (the "Fed System") or (ii) be represented by one or
more single Certificates registered in the name of a nominee for the
depository identified in the Prospectus Supplement (the
"Depository").
The Fed System
Book-entry Certificates issued and maintained under the Fed
System may be held of record only by entities eligible to maintain
book-entry accounts with the Federal Reserve Banks. Such entities
whose names appear on the book-entry records of the Federal Reserve
Banks as the entities for whose accounts the Certificates have been
deposited are herein referred to as "Holders" or
"Certificateholders". A Holder is not necessarily the Beneficial
Owner of a Book-Entry Certificate. Beneficial Owners (as defined
below) will ordinarily hold Book-Entry Certificates through one or
more financial intermediaries, such as banks, brokerage firms and
securities clearing organizations. A Holder that is not the
Beneficial Owner of a Certificate, and each other financial
intermediary in the chain to the Beneficial Owner, will have the
responsibility of establishing and maintaining accounts for their
respective customers. The rights of the Beneficial Owner of a
Book-Entry Certificate with respect to the applicable Trust Fund and
the Federal Reserve Banks may be exercised only through the Holder
of such Certificate. The Trustee, the Master Servicer and the
Federal Reserve Banks will have no direct obligations to a
Beneficial Owner of a Book-Entry Certificate that is not also the
Holder of the Certificate. The Federal Reserve Banks will act only
upon the instructions of the Holder in recording transfers of a
Book-Entry Certificate.
A Fiscal Agency Agreement between Farmer Mac and the Federal
Reserve Bank of New York makes generally applicable to the
Book-Entry Certificates (i) regulations governing Farmer Mac's use
of the book-entry system and (ii) such procedures, insofar as
applicable, as may from time to time be established by regulations
of the United States Department of the Treasury governing United
States securities, as now set forth in Treasury Department Circular
Number 300, 31 C.F.R. Part 306 (other than Subpart O). The
Book-Entry Certificates are also governed by applicable operating
circulars and letters of the Federal Reserve Banks.
A Depository System
Any Depository will be a limited-purpose trust company organized
under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code ("UCC") and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. The
Depository will have been created to hold securities for its
participating organizations ("Participants") and facilitate the
clearance and settlement of securities transactions between
Participants through electronic book-entry changes in their
accounts, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers,
banks, trust companies and clearing corporations and may include
certain other organizations. Indirect access to a Depository system
also is available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly
("Indirect Participants").
Generally, investors that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer
ownership of, or other interests in, Book-Entry Certificates may do
so only through Participants and Indirect Participants. In addition,
such investors ("Beneficial Owners") will receive all distributions
on the Book-Entry Certificates through the Depository and its
Participants. Under a book-entry format, Beneficial Owners will
receive payments after the related Distribution Date because, while
payments are required to be forwarded to the nominee, as nominee for
the Depository, on each such date, the Depository will forward such
payments to its Participants which thereafter will be required to
forward them to Indirect Participants or Beneficial Owners. So long
as a Certificate is in book-entry form, the only "Certificateholder"
(as such term is used in the Agreement) will be the nominee for the
Depository, and the Beneficial Owners will not be recognized by the
Trustee as Certificateholders under the Agreements. Beneficial
Owners will be permitted to exercise the rights of
Certificateholders under the related Agreements only indirectly
through the Participants who in turn will exercise their rights
through the Depository.
Under the rules, regulations and procedures creating and
affecting the Depository and its operations, the Depository is
required to make book-entry transfers among Participants on whose
behalf it acts with respect to the Book-Entry Certificates and is
required to receive and transmit distributions of principal of and
interest on the Book-Entry Certificates. Participants and Indirect
Participants with which Beneficial Owners have accounts with respect
to the Book-Entry Certificates similarly are required to make
book-entry transfers and receive and transmit such payments on
behalf of their respective Beneficial Owners.
Because the Depository can act only on behalf of Participants,
who in turn act on behalf of Indirect Participants and certain
banks, the ability of a Beneficial Owner to pledge its interest in
the Book-Entry Certificates to persons or entities that do not
participate in the Depository system, or otherwise take actions in
respect of its interest in the Book-Entry Certificates, may be
limited due to the lack of a physical certificate evidencing such
interest.
The Depository has advised the Depositor that it will take any
action permitted to be taken by a Certificateholder under an
Agreement only at the direction of one or more Participants to whose
account with the Depository interests in the Book-Entry Certificates
are credited. Under the Depository's procedures, the Depository will
take actions permitted to be taken by Holders of any class of
Book-Entry Certificates only at the direction of one or more
Participants to whose account interests in the Book-Entry
Certificates are credited and whose aggregate holdings represent no
less than any minimum amount of Voting Rights required therefor.
Therefore, Beneficial Owners will only be able to exercise their
Voting Rights to the extent permitted, and subject to the procedures
established, by their Participant and/or Indirect Participant, as
applicable. The Depository may take conflicting actions with respect
to any action of Certificateholders of any Class to the extent that
Participants authorize such actions. Neither the Master Servicer,
the Depositor, the Trustee nor 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 Book-Entry Certificates, or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
Certificates initially issued in book-entry form will be issued
in fully registered, certificated form to Beneficial Owners or their
nominees ("Definitive Certificates"), rather than to the Depository
or its nominee only if (i) the Depositor advises the Trustee in
writing that the Depository is no longer willing or able to properly
discharge its responsibilities as depository with respect to the
Certificates and the Depositor is unable to locate a qualified
successor or (ii) the Depositor, at its option, elects to terminate
the book-entry system through the Depository.
Upon the occurrence of either of the events described in the
immediately preceding paragraph, the Depository is required to
notify all Participants of the availability through the Depository
of Definitive Certificates for the Beneficial Owners. Upon surrender
by the Depository of the certificate or certificates representing
the Book-Entry Certificates, together with instructions for
re-registration, the Trustee will issue (or cause to be issued) to
the Beneficial Owners identified in such instructions the Definitive
Certificates to which they are entitled, and thereafter the Trustee
will recognize the holders of such Definitive Certificates as
Certificateholders under the Trust Agreement.
DESCRIPTION OF THE AGREEMENTS
The Certificates of each Series evidencing interests in a Trust
Fund will be issued pursuant to a Trust Agreement among the
Depositor, Farmer Mac and the Trustee. If Qualified Loans are
included in a Trust Fund, Farmer Mac will be responsible for the
servicing of such Qualified Loans through one or more Central
Servicers acting pursuant to a Servicing Contract (as supplemented)
between the Central Servicer and Farmer Mac. In addition, each
Seller of Qualified Assets to the Depositor will transfer and assign
such Qualified Assets to the Depositor pursuant to a separate Sale
Agreement between the Depositor, Farmer Mac and such Seller. Each
such Sale Agreement will include certain representations and
warranties of the Seller respecting the related Qualified Assets
which representations and warranties and the remedies for their
breach will be assigned to the Trustee for the benefit of
Certificateholders pursuant to the Trust Agreement for the related
Series of Certificates. The Trust Agreement, each Servicing Contract
and each Sale Agreement relating to a particular Series of
Certificate are herein collectively referred to as the "Agreements".
The provisions of each Agreement will vary depending upon the nature
of the Certificates to be issued thereunder and the nature of the
related Trust Fund. Forms of a Trust Agreement, a Servicing Contract
and a Sale Agreement have been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The
following summaries describe certain provisions that may appear in
each Agreement. The Prospectus Supplement for a Series of
Certificates will describe any provision of the Agreements relating
to such Series that materially differs from the description thereof
contained in this Prospectus. 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 description of such provisions in the related
Prospectus Supplement. As used herein with respect to any Series,
the term "Certificate" refers to all of the Certificates of that
Series, whether or not offered hereby and by the related Prospectus
Supplement, unless the context otherwise requires. The Depositor
will provide a copy of the Agreements (without exhibits) relating to
any Series of Certificates without charge upon written request of a
holder of a Certificate of such Series addressed to the Trustee
identified in the related Prospectus Supplement.
Assignment of Assets; Repurchases
At the time of issuance of any Series of Certificates, the
Depositor will assign (or cause to be assigned) to the designated
Trustee the Trust Assets to be included in the related Trust Fund,
together with all principal and interest to be received on or with
respect to such Trust Assets after the Cut-off Date, other than
principal and interest due on or before the Cut-off Date. The
Trustee will, concurrently with such assignment, deliver the
Certificates to the Depositor in exchange for the Trust Assets and
the other assets comprising the Trust Fund for such Series. Each
Qualified Asset will be identified in a schedule appearing as an
exhibit to the related Agreement. Such schedule will include
detailed information (i) in respect of each Qualified Loan included
in the related Trust Fund, including without limitation, the address
of the related Mortgaged Property and type of such property, the
Mortgage Interest Rate and, if applicable, the applicable index,
margin, adjustment date and any rate cap information, the original
and remaining term to maturity and the original and outstanding
principal balance, and (ii) in respect of each QMBS included in the
related Trust Fund, including without limitation, the QMBS Issuer,
QMBS Servicer and QMBS Trustee, the pass-through or bond rate or
formula for determining such rate, the issue date and original and
remaining term to maturity, if applicable, the original and
outstanding principal amount and payment provisions, if applicable.
With respect to each Qualified Loan, the Depositor will deliver
or cause to be delivered to the Trustee (or to the custodian
hereinafter referred to) certain loan documents, which will (unless
the Qualified Loan is evidenced by a participation certificate)
include the original Mortgage Note endorsed, without recourse, in
blank or to the order of the Trustee, the original Mortgage (or a
certified copy thereof) with evidence of recording indicated thereon
and an assignment of the Mortgage to the Trustee in recordable form.
The related Agreements will require that the Depositor or another
party specified therein promptly cause each such assignment of
Mortgage to be recorded in the appropriate public office for real
property records.
The Trustee (or a custodian) will review such Qualified Loan
documents within a specified period of days after receipt thereof,
and the Trustee (or a custodian) will hold such documents in trust
for the benefit of the Certificateholders. If any such document is
found to be missing or defective in any material respect, the
Trustee (or such custodian) shall immediately notify Farmer Mac and
the Seller. If the Seller cannot cure the omission or defect within
a specified number of days after receipt of such notice, then the
Seller will be obligated, within a specified number of days of
receipt of such notice, to repurchase the related Qualified Loan
from the Trustee at the Purchase Price (as defined below) or
substitute for such Qualified Loan.
With respect to each QMBS in certificated form, the Depositor
will deliver or cause to be delivered to the Trustee (or the
custodian) the original certificate or other definitive evidence of
such QMBS together with bond power or other instruments,
certifications or documents required to transfer fully such QMBS to
the Trustee for the benefit of the Certificateholders. With respect
to each QMBS in uncertificated or book-entry form or held through a
"clearing corporation" within the meaning of the UCC, the Depositor
and the Trustee will cause such QMBS to be registered directly or on
the books of such clearing corporation or of a financial
intermediary in the name of the Trustee for the benefit of the
Certificateholders. The related Agreement will require that either
the Depositor or the Trustee promptly cause any QMBS in certificated
form not registered in the name of the Trustee to be re-registered,
with the applicable persons, in the name of the Trustee.
Representations and Warranties; Repurchases
There will be assigned to the Trustee pursuant to each Trust
Agreement the representations and warranties of the Seller in the
related Sale Agreement, as of a specified date covering, by way of
example, the following types of matters: (i) the accuracy of the
information set forth for each Qualified Loan on the schedule of
Qualified Assets appearing as an exhibit to such Trust Agreement;
(ii) the existence of title insurance insuring (or a title opinion
assuring) the lien priority of the Qualified Loan; (iii) the
authority of the Seller to sell the Qualified Loan; (iv) the payment
status of the Qualified Loan and the status of payments of taxes,
assessments and other charges affecting the related Mortgaged
Property; (v) the status of such Qualified Loan as a "Qualified
Loan" under the Farmer Mac Charter and its conformity in all
material respects with the Guides and (vi) the existence of
customary provisions in the related Mortgage Note and Mortgage to
permit realization against the Mortgaged Property of the benefit of
the security of the Mortgage.
Unless otherwise specified in the related Sale Agreement, in the
event of a material breach of any such representation or warranty,
the related Seller will be obligated either to cure such breach or
repurchase or replace the affected Qualified Loan as described
below. Since the representations and warranties will not usually
address events that may occur following the date as of which they
were made, the Seller will have a cure, repurchase or substitution
obligation in connection with a breach of such a representation and
warranty only if the relevant event that causes such breach occurs
prior to such date. Such party would have no such obligations if the
relevant event that causes such breach occurs after such date.
The Agreements will provide that the Master Servicer and/or
Trustee will be required to notify promptly the relevant Seller of
any breach of any representation or warranty made by it in respect
of a Qualified Loan that materially and adversely affects the value
of such Qualified Loan or the interests therein of the
Certificateholders. If such Seller cannot cure such breach within a
specified period following the date on which it was notified of such
breach, then such Seller will be obligated to repurchase such
Qualified Loan from the Trustee within a specified period from the
date on which the Seller was notified of such breach, at the
Purchase Price therefor. As to any Qualified Loan, the "Purchase
Price" is equal to the sum of the unpaid principal balance thereof,
plus unpaid accrued interest thereon at the Mortgage Interest Rate
from the date as to which interest was last paid to the due date in
the Due Period in which the relevant purchase is to occur, plus
certain servicing expenses that are reimbursable to the Master
Servicer and Central Servicer. A Seller's repurchase of a Qualified
Loan may also include payment of a Prepayment Premium or Yield
Maintenance Charge to the extent described in the related Prospectus
Supplement. A Seller, rather than repurchase a Qualified Loan as to
which a breach has occurred, will have the option if so specified in
the related Prospectus Supplement, within two years after initial
issuance of the related Series of Certificates, to cause the removal
of such Qualified Loan from the Trust Fund and substitute in its
place one or more other Qualified Loans, in accordance with
standards established by Farmer Mac to assure that any such
substitution will not materially alter the characteristics of the
related Trust Fund.
Neither the Depositor nor Farmer Mac will be obligated to
purchase or substitute for a Qualified Loan if a Seller defaults on
its obligation to do so, and no assurance can be given that Sellers
will carry out such obligations with respect to Qualified Loans. Any
resultant loss to a Trust Fund which would result in a deficiency in
any required distribution to Certificateholders will be covered by
the Farmer Mac Guarantee. Therefore, Certificateholders will suffer
no loss by reason of any such Seller default.
The Seller will, with respect to a Trust Fund that includes QMBS,
make certain representations or warranties, as of a specified date,
with respect to such QMBS, covering (i) the accuracy of the
information set forth therefor on the schedule of Qualified Assets
appearing as an exhibit to the related Agreement and (ii) the
authority of the Seller to sell such Qualified Assets.
Accounts
General
In each Servicing Contract, Farmer Mac will require the related
Central Servicer to establish and maintain one or more separate
accounts in the name of the Trustee for the collection of payments
on the related Qualified Assets (collectively, the "Collection
Account"), which must be an account or accounts with the Trustee or
with any other depository institution or trust company approved by
Farmer Mac incorporated under the laws of the United States or any
state thereof and subject to supervision and examination by federal
or state banking authorities (an "Eligible Depository"). Each
Collection Account may be maintained as an interest bearing or a
non-interest bearing account and the funds held therein may be
invested pending each succeeding Certificate Account Deposit Date in
certain short-term direct obligations of, and obligations fully
guaranteed by, the United States, Farmer Mac or any other agency or
instrumentality of the United States or any other obligation or
security approved by Farmer Mac ("Eligible Investments"). Any
interest or other income earned on funds in a Collection Account
will be paid to Farmer Mac or the related Central Servicer or its
designee as additional servicing compensation, as specified in the
related Servicing Contract, and the risk of loss of funds in a
Collection Account resulting from such investments will be borne by
Farmer Mac or such Central Servicer, as the case may be. The amount
of such loss will be required to be deposited by Farmer Mac or such
Central Servicer in the related Collection Account immediately as
realized.
Deposits
The Central Servicer will deposit or cause to be deposited in a
Collection Account the following payments and collections received,
or Advances made, by it:
(i) all payments on account of principal, including principal
prepayments, on the Qualified Assets;
(ii) all payments on account of interest on the Qualified Assets,
including any default interest collected, in each case net of any
portion thereof permitted to be retained by a Central Servicer as
servicing compensation;
(iii) all proceeds of any insurance policies ("Insurance Proceeds")
to be maintained in respect of each Mortgaged Property securing a
Qualified Loan in the Trust Fund (to the extent such proceeds are
not applied to the restoration of the property or released to the
Mortgagor in accordance with the normal servicing procedures of a
Central Servicer, subject to the terms and conditions of the related
Mortgage and Mortgage Note) and all other amounts received and
retained in connection with the liquidation of defaulted Qualified
Loans in the Trust Fund, by foreclosure, condemnation or otherwise
("Liquidation Proceeds");
(iv) any Advances made as described under "DESCRIPTION OF THE
CERTIFICATES Advances in Respect of Delinquencies";
(v) to the extent required to be distributed to
Certificateholders, any amounts representing Prepayment Premiums and
Yield Maintenance Charges; and
(vi) proceeds from the operation of foreclosed Mortgaged Properties
held in the Trust Fund ("REO Proceeds").
Withdrawals
All such deposits in a Collection Account will, unless otherwise
specified in the Prospectus Supplement, be net of the following
amounts to be retained by the Central Servicer:
(i) amounts to reimburse the Central Servicer for unreimbursed
amounts advanced as described under "DESCRIPTION OF THE CERTIFICATES
Advances in Respect of Delinquencies" such reimbursement to be
made out of amounts received which were identified and applied by
such Central Servicer as late collections of interest on and
principal of the particular Qualified Loans with respect to which
the Advances were made;
(ii) amounts to reimburse the Central Servicer for unpaid servicing
fees earned and certain unreimbursed servicing expenses incurred
with respect to Qualified Loans 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 Qualified Loans and properties, and REO Proceeds
collected on the particular properties, with respect to which such
fees were earned or such expenses were incurred;
(iii) amounts to reimburse the Central Servicer for any Advances
described in clause (i) above and any servicing expenses described
in clause (ii) above which, in the Central Servicer's good faith
judgment, will not be recoverable from the amounts described in
clauses (i) and (ii), respectively, such reimbursement to be made
from amounts collected on other Trust Assets; and
(iv) to make any other withdrawals permitted by the related
Agreement and described in the related Prospectus Supplement.
On or before the issuance of a Series of Certificates, Farmer Mac
is required to either (i) open with an Eligible Depository one or
more trust accounts in the name of the Trustee applicable to the
related Trust Fund (collectively, the "Certificate Account") or (ii)
in lieu of maintaining any such account or accounts, maintain the
Certificate Account for the related Trust Fund by means of
appropriate entries on Farmer Mac's books and records designating
all amounts credited thereto in respect of the related Qualified
Assets as being held by it for the related Holders of Certificates
evidencing beneficial ownership of such Trust Fund. To the extent
that the Certificate Account for any Trust Fund is maintained by
Farmer Mac in the manner provided in (ii) above, all references
herein to deposits and withdrawals from the Certificate Account
shall be deemed to refer to credits and debits to the related books
of Farmer Mac.
On or before a date (the "Certificate Account Deposit Date")
which, for each Trust Fund, will be approximately ten days before
each Distribution Date, the related Central Servicer will be
required to withdraw from the applicable Collection Account and
remit to Farmer Mac for deposit in the Certificate Account all funds
held therein (other than amounts relating to future Distribution
Dates). In the event that the amount so remitted on or before a
Certificate Account Deposit Date is less than the Certificate
Distribution Amount for the related Distribution Date previously
calculated by Farmer Mac, Farmer Mac is required by the Trust
Agreement to provide to the Trustee an Officer's Certificate stating
(i) the amount of such insufficiency, (ii) whether Farmer Mac has
determined that funds will be available to it on such Distribution
Date in an amount sufficient to cure such insufficiency pursuant to
its guarantee of the related Certificates without the necessity of
borrowing from the United States Treasury and (iii) in the event the
response to (ii) above is in the negative, attaching to such
Officer's Certificate a copy of the certification furnished to the
Secretary of the Treasury requesting that funds in the necessary
amount be made available to Farmer Mac on or before such
Distribution Date for purposes of satisfying its guarantee
obligations.
Amounts on deposit in the Certificate Account on a Distribution
Date for a Series will be withdrawn by Farmer Mac in the amount
required, to the extent funds are available therefor for application
as follows:
(i) towards the distribution to Certificateholders in federal
funds of the Certificate Distribution Amount for such Distribution
Date;
(ii) to the reimbursement to Farmer Mac of any amount previously
paid by it in respect of such Series pursuant to its guarantee of
the related Certificates;
(iii) to the payment of any portion of the Guarantee Fee for such
Distribution Date or any prior Distribution Date which has not
otherwise been paid; and
(iv) to the payment to Farmer Mac of any amounts remaining in the
Certificate Account after the withdrawals referred to in clauses (i)
through (iii) above, any such amounts being deemed to be payable to
Farmer Mac as compensation for its master servicing activities and
to the reimbursement of expenses incurred by it in connection
therewith.
Collection and Other Servicing Procedures
Collection Procedures
Each Servicing Contract will provide that the Central Servicer
will, consistent with the Guides, make reasonable efforts to collect
all payments called for under the terms and provisions of the
Qualified Loans. Consistent with the above, the Central Servicer may
in its discretion waive, postpone, reschedule, modify or otherwise
compromise the terms of payment of any Qualified Loan so long as any
such waiver, postponement, rescheduling, modification or compromise
is not inconsistent with the then current policies of Farmer Mac or
customary practices in the agricultural real estate mortgage
servicing industry. Any required adjustment to the payment schedule
of any Qualified Loan as a result of the foregoing will not affect
the computation of the amount due on the Certificates under the
formula applicable thereto, subject to any exceptions set forth in
the related Prospectus Supplement.
As part of its servicing activities, the Central Servicer may,
but is not required to, enforce any due-on-sale or
due-on-encumbrance clause contained in any Mortgage Note or
Mortgage, in accordance with the provisions of such Mortgage Note or
Mortgage and in the best interests of the Certificateholders. In
cases in which the Mortgaged Property is to be conveyed to a person
by a borrower and such person enters into an assumption agreement or
a substitution agreement, pursuant to which a new borrower is
substituted for the existing borrower, the Central Servicer is
obligated to take reasonable steps (in conformity with applicable
law and Farmer Mac's requirements) to assure that (i) the Qualified
Loan will continue to be secured by a first mortgage lien pursuant
to the terms of the Mortgage, (ii) no material term including, but
not limited to, the Mortgage Interest Rate and any term affecting
the amount or timing of payment will be altered, nor will the term
of the Qualified Loan be increased, and (iii) if the
seller/transferor of the Mortgaged Property is to be released from
liability on the Qualified Loan, such release will not adversely
affect the collectability of the Qualified Loan.
Realization Upon Defaulted Qualified Loans
Subject to the conditions set forth in the Servicing Contract,
the Central Servicer is required to foreclose upon or otherwise
comparably convert the ownership of properties securing such of the
Qualified Loans as come into and continue in default and as to which
no arrangements consistent with the Guides have been made for
collection of delinquent payments.
Borrowers who do not wish to proceed through foreclosure may
assign the deed of their Mortgaged Property to the Trust Fund with
the consent of the Central Servicer. The Central Servicer will then
take the appropriate steps to liquidate the property and pay off the
Qualified Loan.
In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or
certificate of sale will be issued to the Trustee or to its nominee
on behalf of Certificateholders. Notwithstanding any such
acquisition of title and cancellation of the related Qualified Loan,
such Qualified Loan will be considered for purposes of calculation
of amounts due on the Certificates under any formula applicable
thereto to be an outstanding Qualified Loan held in the Trust Fund
until such time as the Mortgaged Property is sold and such Qualified
Loan becomes a liquidated Qualified Loan. The Central Servicer is
required to dispose of any Mortgaged Property in accordance with
applicable local and environmental laws to the extent applicable,
consistent with the status of the Trust as a REMIC.
Compensation and Payment of Expenses
The Central Servicer will receive a fee (the "Central Servicing
Fee") payable out of the interest payments received on each
Qualified Loan. The Trustee will receive a fee for services rendered
in its capacity as Trustee, payable by Farmer Mac. The amount of
such compensation with respect to the Certificates may decrease as
the Qualified Loans amortize, and will be affected by principal
prepayments on the Qualified Loans. In addition, Farmer Mac, as
Master Servicer, may be entitled to compensation for its master
servicing duties.
The Central Servicer will be entitled to retain all assumption
fees, late payment charges and other charges (other than, to the
extent required to be distributed to Certificateholders, Prepayment
Premiums or Yield Maintenance Charges), to the extent collected from
borrowers and as described in the Servicing Contract, and may be
entitled to retain any earnings on the investment of funds held by
it pending remittance to Farmer Mac for deposit in the Certificate
Account to the extent provided in the related Servicing Contract.
The Central Servicer will also be entitled to reimbursement for
certain expenses incurred by it in connection with the liquidation
of defaulted Qualified Loans including, under certain circumstances,
reimbursement of expenditures incurred in connection with the
preservation of the related Mortgaged Properties.
Certain Matters Regarding Farmer Mac
The Trust Agreement provides that Farmer Mac may not resign from
its obligations and duties thereunder.
The Trust Agreement will also provide that neither Farmer Mac nor
the Depositor nor any of their respective directors, officers,
employees or agents will be under any liability for any action taken
or for refraining from the taking of any action in good faith
pursuant to the Trust Agreement, or for errors in judgment;
provided, however, that neither Farmer Mac nor the Depositor will be
protected against any liability which would otherwise be imposed by
reason of willful misfeasance, bad faith or gross negligence in the
performance of duties or by reason of willful disregard of
obligations and duties thereunder. In addition, the Trust Agreement
will provide that neither Farmer Mac nor the Depositor will be under
any obligation to appear in, prosecute or defend any legal action
which is not incidental to their responsibilities under the Trust
Agreement and which in their opinion may involve them in any expense
or liability. Farmer Mac and the Depositor may, however, in their
discretion undertake any such action which they may deem necessary
or desirable with respect to the Trust Agreement and the rights and
duties of the parties thereto and the interests of the
Certificateholders thereunder.
Events of Default
Events of Default under the Trust Agreement will consist of (i)
any failure by Farmer Mac to distribute to Holders of Certificates
of any Class in the related Trust Fund any distribution required to
be made under the terms of the related Trust Agreement (including,
for this purpose, pursuant to the Farmer Mac Guarantee) which
continues unremedied for a period of five days after the date upon
which written notice of such failure, requiring the same to be
remedied, shall have been given to Farmer Mac by the Trustee or to
Farmer Mac and the Trustee by the Holders of Certificates of such
Class having Certificate Balances or Notional Balances aggregating
not less than 5% of the aggregate of the Certificate Balances or
Notional Balances of all of the Certificates of such Class, (ii)
failure on the part of Farmer Mac duly to observe or perform in any
material respect any other of the covenants or agreements on the
part of Farmer Mac in the Trust Agreement which continues unremedied
for a period of 60 days after the date on which written notice of
such failure, requiring the same to be remedied, shall have been
given to Farmer Mac and the Trustee by the Holders of Certificates
of any Class in the related Trust Fund having Certificate Balances
or Notional Balances aggregating not less than 25% of the aggregate
of the Certificate Balances or Notional Balances of all of the
Certificates of such Class, and (iii) certain events of insolvency,
readjustment of debt, marshalling of assets and liabilities or
similar proceedings regarding Farmer Mac indicating its insolvency
or inability to pay its obligations.
Rights Upon Event o Default
So long as an Event of Default remains unremedied, the Trustee or
the Holders of Certificates of any Class in the related Trust Fund
having Certificate Balances or Notional Balances aggregating not
less than 25% of the aggregate of the Certificate Balances or
notional amounts of such Class may (a) terminate all obligations and
duties imposed upon Farmer Mac (other than its obligations under the
Farmer Mac Guarantee) under the Trust Agreement, and (b) name and
appoint a successor or successors to succeed to and assume all of
such obligations and duties. Such actions shall be effected by
notice in writing to Farmer Mac and shall become effective upon
receipt of such notice by Farmer Mac and the acceptance of such
appointment by such successor or successors. Because the Trustee is
required to give notice to Farmer Mac of any failure to make a
required distribution, the Holders' failure to give such notice will
not result in a waiver of the remedies available upon default.
Amendment
The Trust Agreement may be amended by the respective parties
thereto without the consent of any of the Holders of Certificates
(i) to cure any ambiguity, (ii) to correct or supplement any
provision therein which may be defective or inconsistent with any
other provision therein or (iii) to make any other provisions with
respect to matters or questions arising under the Trust Agreement
which are not materially inconsistent with the provisions thereof,
provided that any such amendment described in this clause (iii) will
not adversely affect in any material respect the interests of any
Certificateholder.
With the consent of the Holders of Certificates of each Class in
the related Trust Fund having Certificate Balances and Notional
Balances aggregating not less than 66% of the aggregate of the
Certificate Balances or Notional Balances, as applicable, of all of
the Certificates of such Class (i)compliance by Farmer Mac with any
of the terms of the related Trust Agreement may be waived or (ii)
Farmer Mac may enter into any supplemental agreement for the purpose
of adding any provisions to or changing in any manner or eliminating
any of the provisions of such Trust Agreement or of modifying in any
manner the rights of the Holders of the Certificates issued under
such Trust Agreement; provided that no such waiver or supplemental
agreement shall:
(a) without the consent of all Certificateholders affected thereby
reduce in any manner the amount of, or delay the timing of,
distributions which are required to be made on any Certificate; or
(b) without the consent of all Certificateholders (i) terminate or
modify the Farmer Mac Guarantee with respect to the Certificates of
such Series, or (ii) reduce the aforesaid percentages of
Certificates, the Holders of which are required to consent to any
waiver or any supplemental agreement.
Notwithstanding the foregoing, the Trustee will not be entitled to
consent to any such amendment without having first received an
Opinion of Counsel, to the extent applicable, to the effect that
such amendment will not cause the Trust Fund to fail to qualify as a
REMIC.
The Trustee
The Trustee under each Trust Agreement will be named in the
related Prospectus Supplement. The commercial bank, national banking
association, banking corporation or trust company serving as Trustee
may have a banking relationship with Farmer Mac and its affiliates
and with any Central Servicer and its affiliates.
Duties of the Trustee
The Trustee will make no representations as to the validity or
sufficiency of any Agreement, the Certificates or any Trust Asset or
related document and is not accountable for the use or application
by or on behalf of any Central Servicer or Farmer Mac of any funds
paid to such Central Servicer or Farmer Mac in respect of the
Certificates or the Trust Assets, or deposited into or withdrawn
from any Account or any other account by or on behalf of any Central
Servicer or Farmer Mac. If no Event of Default has occurred and is
continuing, the Trustee is required to perform only those duties
specifically required under the related Agreement. However, upon
receipt of the various certificates, reports or other instruments
required to be furnished to it, the Trustee is required to examine
such documents and to determine whether they conform to the
requirements of the Agreement.
Certain Matters Regarding the Trustee
The Trustee and any director, officer, employee or agent of the
Trustee shall be entitled to indemnification out of the Trust Fund
for any loss or liability incurred without negligence or bad faith
in connection with the Trustee's acceptance or administration of the
trusts created by the related Trust Agreement.
Resignation and Removal of the Trustee
The Trustee may at any time resign from its obligations and
duties under an Agreement by giving written notice thereof to Farmer
Mac. Upon receiving such notice of resignation, Farmer Mac is
required promptly to appoint a successor trustee. If no successor
trustee shall have been so appointed and have accepted appointment
within 90 days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction
for the appointment of a successor trustee.
If at any time the Trustee shall cease to be eligible to continue
as such under the related Agreement, or if at any time the Trustee
shall become incapable of acting, or shall be adjudged bankrupt or
insolvent, or a receiver of the Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation, then Farmer Mac may
remove the Trustee and appoint a successor trustee.
Any resignation or removal of the Trustee and appointment of a
successor trustee shall not become effective until acceptance of
appointment by the successor trustee.
CERTAIN LEGAL ASPECTS OF QUALIFIED LOANS AND OTHER MATTERS
The following discussion contains summaries of certain legal
aspects of mortgage loans, including the Qualified 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 Qualified Loans. Because Farmer Mac
guarantees the timely payment of principal and interest on the
Certificates to Holders, the impact of any adverse effects described
in the summaries of certain legal aspects of the Qualified Loans
below will not affect the Farmer Mac Guarantee or distributions to
Holders.
General
The Qualified Loans will be evidenced by promissory notes,
collectively referred to as "Mortgage Notes," and secured by either
deeds of trust or mortgages, depending upon the prevailing practice
in the state in which the property subject to a Qualified Loan is
located. A mortgage creates a lien upon the real property encumbered
by the mortgage. Foreclosure of a mortgage is generally accomplished
by judicial action. 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 to a third party upon any default by the borrower under
the terms of the note or deed of trust. 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 from the foreclosure sale. The
effect of a statutory right of redemption is to diminish the ability
of the lender to sell the foreclosed property in a timely manner.
Certain states have imposed statutory prohibitions which limit the
remedies of a beneficiary under a deed of trust or a mortgagee under
a mortgage. In some states, statutes limit the right of the
beneficiary or mortgagee to obtain a deficiency judgment against the
borrower following foreclosure or sale under a deed of trust.
In addition to laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including the federal
bankruptcy laws and state laws affording relief to debtors, may
interfere with or affect the ability of the secured mortgage lender
to realize upon collateral or enforce a deficiency judgment. Courts
with federal bankruptcy jurisdiction have also indicated that the
terms of a mortgage loan secured by property of the debtor may be
modified. These courts have suggested that such modifications may
include reducing the amount of each monthly payment, changing the
rate of interest, altering the repayment schedule, and reducing the
lender's security interest to the value of the residence, thus
leaving the lender a general unsecured creditor for the difference
between the value of the residence and the outstanding balance of
the loan. The federal bankruptcy code also includes provisions under
which a "family farmer with regular annual income" is permitted to
file and obtain confirmation of a plan on an expedited basis, and
protections for such debtors that are not available to other types
of debtors. Federal bankruptcy laws and applicable state laws may
also limit the ability to enforce any assignment by a borrower of
rents and leases related to a Mortgaged Property.
The Code provides priority to certain tax liens over the lien of
a mortgage. In addition, substantive requirements are imposed upon
mortgage lenders in connection with the origination and servicing of
mortgage loans by numerous federal and some state consumer
protection laws. These laws include the federal Truth-in-Lending
Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity
Act, Fair Credit Billing Act, Fair Credit Reporting Act and related
statutes. These federal laws impose specific statutory liabilities
upon lenders who originate mortgage loans and who fail to comply
with the provisions of the law. In some cases, this liability may
affect assignees of the mortgage loans.
Borrower's Rights Laws Applicable to Agricultural Mortgage Loans
Farm Credit Act
In general, borrowers with loans, including mortgage loans, from
lenders which are institutions of the Farm Credit System, are
entitled to certain rights under Sections 4.14, 4.14A, 4.14B, 4.14C
and 4.37 of the Farm Credit Act of 1971, as amended (12 U.S.C.
SectionSection 2001 et seq.) (the "Farm Credit Act"). These rights
include restructuring and favorable treatment of certain borrower
money held by the lender in case of the liquidation of the lender.
Section 8.9 of the Farm Credit Act provides that the rights as
conferred under such Sections 4.14, 4.14A, 4.14B, 4.14C and 4.37 are
not applicable to any Qualified Loan.
Certain State Laws
Certain states have enacted legislation granting certain rights
to borrowers under agricultural mortgage loans. These rights may
include, among others, restructuring of loans, mediation prior to
foreclosure, moratoria on foreclosures or payments, access by a
dispossessed borrower to previously planted crops, redemption
provisions that are more favorable to farm borrowers than to other
commercial borrowers and restrictions on disposition of agricultural
property acquired through foreclosure. Section 8.6(b)(5) of
the Farmer Mac Charter specifically provides that such rights apply
to Qualified Loans. Section 8.6(b)(5) allows a Seller or Farmer Mac
to require discounts or charge fees reasonably related to costs and
expenses arising from such borrowers' rights provisions but
prohibits a Seller or Farmer Mac from refusing to purchase such
Qualified Loans.
Sellers will represent and warrant in Sale Agreements that each
Qualified Loan was originated in compliance with applicable state
laws in all material respects and that no homestead exemption is
available to the borrower unless the value of the portion of the
Mortgaged Property not subject to a homestead exemption would result
in a current loan-to-value ratio of not more than 70%.
Enivronmental Legislation
Under the federal Comprehensive Environmental Response
Compensation and Liability Act, as amended, and under state law in
certain states, a secured party which takes a deed in lieu of
foreclosure, purchases a mortgaged property at a foreclosure sale or
is deemed to have participated in the management or operation of a
mortgaged property may become liable in certain circumstances for
the costs of remedial action ("Cleanup Costs") if hazardous wastes
or hazardous substances have been released or disposed of on the
property. Such Cleanup Costs may be substantial. It is possible that
such Cleanup Costs could become a liability of the Trust Fund and
reduce the amounts otherwise distributable to the Certificateholders
if a Mortgaged Property securing a Qualified Loan became the
property of the Trust Fund in certain circumstances or if the Trust
Fund is deemed to have participated in the management or operation
of such property and if such Cleanup Costs were incurred. Moreover,
certain states by statute impose a lien for any Cleanup Costs
incurred by such state on the property that is the subject of such
Cleanup Costs (a "State Environmental Lien"). All subsequent liens
on such property are subordinated to such State Environmental Lien
and, in some states, even prior recorded liens are subordinated to
such State Environmental Liens. In the latter states, the security
interest of the Trustee in a property that is subject to such a
State Environmental Lien could be adversely affected. The Servicing
Contract provides that title to a Mortgaged Property securing a
defaulted Qualified Loan shall not be taken by the Trust Fund if the
Central Servicer determines that Cleanup Costs would exceed the
potential recovery upon liquidation of such Qualified Loan.
Enforceability of Certain Provisions
General
Upon foreclosure, courts have imposed general equitable
principles. These equitable principles are generally designed to
relieve the borrower from the legal effect of his defaults under the
loan documents. Examples of judicial remedies that have been
fashioned include 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 the lender to
foreclose if the default under the mortgage instrument is not
monetary, such as the borrower failing to adequately maintain the
property or the borrower executing a second mortgage or deed of
trust affecting the property. Finally, some courts have been faced
with the issue of whether or not federal or state constitutional
provisions reflecting due process concerns for adequate notice
require that borrowers under deeds of trust or mortgages receive
notices in addition to the statutorily prescribed minimum. For the
most part, these cases have upheld the notice provisions as being
reasonable or have found that the sale by a trustee under a deed of
trust, or under a mortgage having a power of sale, does not involve
sufficient state action to afford constitutional protection to the
borrower.
Due-on-Sale Clauses
Some or all of the Qualified Loans in a Trust Fund, as set forth
in the related Prospectus Supplement, may 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. Federal
legislation that overrides state laws restricting the enforceability
of due-on-sale clauses applies only to mortgage loans secured by a
residence occupied by the borrower. Similar state laws may restrict
the enforceability of any due-on-encumbrance provisions contained in
the Qualified Loans.
Any inability to enforce a due-on-sale clause may result in a
Qualified Loan bearing an interest rate below the current market
rate being assumed by a new purchaser of the Mortgaged Property
rather than being paid off, which may have an impact upon the
average life of the Qualified Loans and the number of Qualified
Loans which may be outstanding until maturity.
Applicablility of Usury Laws
Section 8.12(d) of the Farmer Mac Charter expressly excludes all
Qualified Loans purchased by the Depositor within 180 days of such
Qualified Loan's date of origination from any provision of the
constitution or law of any state which expressly limits the rate or
amount of interest, discount points, financial charges, or other
charges, including Yield Maintenance Charges and Prepayment
Premiums, that may be charged, taken, received, or reserved.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of the anticipated material federal income
tax consequences of the purchase, ownership and disposition of
Certificates is based on the advice of Brown & Wood, counsel to the
Depositor. This summary is based on laws, regulations, including the
REMIC regulations promulgated by the Treasury Department (the "REMIC
Regulations"), rulings and decisions now in effect or (with respect
to regulations) proposed, all of which are subject to change either
prospectively or retroactively. Brown & Wood will deliver an opinion
to the Depositor that the information set forth under this caption,
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES," to the extent that it
constitutes matters of law or legal conclusions, is correct in all
material respects. This summary does not address the federal income
tax consequences of an investment in Certificates applicable to all
categories of investors, some of which (for example, banks and
insurance companies) may be subject to special rules. Prospective
investors should consult their tax advisors regarding the federal,
state, local and any other tax consequences to them of the purchase,
ownership and disposition of Certificates.
General
The federal income tax consequences to Certificateholders will
vary depending on whether an election is made to treat the Trust
Fund relating to a particular Series of Certificates as a REMIC
under the Code. The Prospectus Supplement for each Series of
Certificates will specify whether a REMIC election will be made.
Grantor Trust Funds
If a REMIC election is not made, Brown & Wood will deliver its
opinion that the Trust Fund will not be classified as an association
taxable as a corporation and that each such Trust Fund will be
classified as a grantor trust under subpart E, Part I of subchapter
J of the Internal Revenue Code of 1986, as amended (the "Code"). In
this case, owners of Certificates will be treated for federal income
tax purposes as owners of a portion of the Trust Fund's assets as
described below.
a. Single Class of Grantor Trust Certificates
Characterization. The Trust Fund may be created with one class of
Grantor Trust Certificates. In this case, each Grantor Trust
Certificateholder will be treated as the owner of a pro rata
undivided interest in the interest and principal portions of the
Trust Fund represented by the Grantor Trust Certificates and will be
considered the equitable owner of a pro rata undivided interest in
each of the Qualified Assets in the Pool. Any amounts received by a
Grantor Trust Certificateholder in lieu of amounts due with respect
to any Qualified Asset because of a default or delinquency in
payment will be treated for federal income tax purposes as having
the same character as the payments they replace.
Each Grantor Trust Certificateholder will be required to report
on its federal income tax return in accordance with such Grantor
Trust Certificateholder's method of accounting its pro rata share of
the entire income from the Qualified Loans in the Trust Fund
represented by Grantor Trust Certificates, including interest,
original issue discount ("OID"), if any, prepayment fees, assumption
fees, any gain recognized upon an assumption and late payment
charges received by the Central Servicer. Under Code Sections 162 or
212 each Grantor Trust Certificateholder will be entitled to deduct
its pro rata share of servicing fees, prepayment fees, assumption
fees, any loss recognized upon an assumption and late payment
charges retained by the Central Servicer, provided that such amounts
are reasonable compensation for services rendered to the Trust Fund.
Grantor Trust Certificateholders that are individuals, estates or
trusts will be entitled to deduct their share of expenses as
itemized deductions only to the extent such expenses plus all other
Code Section 212 expenses exceed two percent of its adjusted gross
income. In addition, the amount of itemized deductions otherwise
allowable for the taxable year for an individual whose adjusted
gross income exceeds the applicable amount (which amount will be
adjusted for inflation) will be reduced by the lesser of (i) 3% of
the excess of adjusted gross income over the applicable amount or
(ii) 80% of the amount of itemized deductions otherwise allowable
for such taxable year. A Grantor Trust Certificateholder using the
cash method of accounting must take into account its pro rata share
of income and deductions as and when collected by or paid to the
Central Servicer. A Grantor Trust Certificateholder using an accrual
method of accounting must take into account its pro rata share of
income and deductions as they become due or are paid to the Central
Servicer, whichever is earlier. If the servicing fees paid to the
Central Servicer are deemed to exceed reasonable servicing
compensation, the amount of such excess could be considered as an
ownership interest retained by the Central Servicer (or any person
to whom the Central Servicer assigned for value all or a portion of
the servicing fees) in a portion of the interest payments on the
Qualified Assets. The Qualified Assets would then be subject to the
"coupon stripping" rules of the Code discussed below.
As to each Series of Certificates Brown & Wood will have advised
the Depositor that:
(i) a Grantor Trust Certificate owned by a financial institution
described in Code Section 593(a) representing principal and interest
payments on Qualified Assets will be considered to represent
"qualifying real property loans" within the meaning of Code Section
593(d) and the Treasury regulations under Code Section 593, oo the
extent that the Qualified Assets represented by that Grantor Trust
Certificate are of a type described in such Code section;
(ii) a Grantor Trust Certificate owned by a real estate
investment trust representing an interest in Qualified Assets will
be considered to represent "real estate assets" within the meaning
of Code Section 856(c)(5)(A), and interest income on the Qualified
Assets will be considered "interest on obligations secured by
mortgages on real property" within the meaning of Code Section
856(c)(3)(B), to the extent that the Qualified Assets represented by
that Grantor Trust Certificate are of a type described in such Code
section; and
(iii) a Grantor Trust Certificate owned by a REMIC will represent
"obligation[s] ... which [are] principally secured by an interest in
real property" within the meaning of Code Section 860G(a)(3).
Stripped Bonds and Coupons. Certain Trust Funds may consist of
Farmer Mac Guaranteed Securities which constitute "stripped bonds"
or "stripped coupons" as those terms are defined in section 1286 of
the Code, and, as a result, such assets would be subject to the
stripped bond provisions of the Code. Under these rules, such
Government Securities are treated as having original issue discount
based on the purchase price and the stated redemption price at
maturity of each Security. As such, Grantor Trust Certificateholders
would be required to include in income their pro rata share of the
original issue discount on each Government Security recognized in
any given year on an economic accrual basis even if the Grantor
Trust Certificateholder is a cash method taxpayer. Accordingly, the
sum of the income includible to the Grantor Trust Certificateholder
in any taxable year may exceed amounts actually received during such
year.
Premium. The price paid for a Grantor Trust Certificate by a
holder will be allocated to such holder's undivided interest in each
Qualified Asset based on each Qualified Asset's relative fair market
value, so that such holder's undivided interest in each Qualified
Asset will have its own tax basis. A Grantor Trust Certificateholder
that acquires an interest in Qualified Assets at a premium may elect
to amortize such premium under a constant interest method, provided
that the underlying mortgage loans with respect to such Qualified
Assets were originated after September 27, 1985. Premium allocable
to mortgage loans originated on or before September 27, 1985 should
be allocated among the principal payments on such mortgage loans and
allowed as an ordinary deduction as principal payments are made.
Amortizable bond premium will be treated as an offset to interest
income on such Grantor Trust Certificate. The basis for such Grantor
Trust Certificate will be reduced to the extent that amortizable
premium is applied to offset interest payments. It is not clear
whether a reasonable prepayment assumption should be used in
computing amortization of premium allowable under Code Section
171. A Certificateholder that makes this election for a Certificate
that is acquired at a premium will be deemed to have made an election
to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such Certificateholder acquires during
the year of the election or thereafter.
If a premium is not subject to amortization using a reasonable
prepayment assumption, the holder of a Grantor Trust Certificate
acquired at a premium should recognize a loss if a Qualified Loan
(or an underlying mortgage loan with respect to a Qualified Asset)
prepays in full, equal to the difference between the portion of the
prepaid principal amount of such Qualified Loan (or underlying
mortgage loan) that is allocable to the Certificate and the portion
of the adjusted basis of the Certificate that is allocable to such
Qualified Loan (or underlying mortgage loan). If a reasonable
prepayment assumption is used to amortize such premium, it appears
that such a loss would be available, if at all, only if prepayments
have occurred at a rate faster than the reasonable assumed
prepayment rate. It is not clear whether any other adjustments would
be required to reflect differences between an assumed prepayment
rate and the actual rate of prepayments.
Original Issue Discount. The Internal Revenue Service (the "IRS")
has stated in published rulings that, in circumstances similar to
those described herein, the special rules of the Code relating to
OID (currently Code Sections 1271 through 1273 and 1275) and
Treasury regulations issued on January 27, 1994, under such Sections
(the "OID Regulations"), will be applicable to a Grantor Trust
Certificateholder's interest in those Qualified Assets meeting the
conditions necessary for these sections to apply. Rules regarding
periodic inclusion of OID income are applicable to mortgages of
corporations originated after May 27, 1969, mortgages of
noncorporate Mortgagors (other than individuals) originated after
July 1, 1982, and mortgages of individuals originated after March 2,
1984. Such OID could arise by the financing of points or other
charges by the originator of the mortgages in an amount greater than
a statutory de minimis exception to the extent that the points are
not currently deductible under applicable Code provisions or are not
for services provided by the lender. OID generally must be reported
as ordinary gross income as it accrues under a constant interest
method. See " Multiple Classes of Grantor Trust Certificates -
Accrual of Original Issue Discount" below.
Market Discount. A Grantor Trust Certificateholder that acquires
an undivided interest in Qualified Assets may be subject to the
market discount rules of Code Sections 1276 through 1278 to the
extent an undivided interest in a Qualified Asset is considered to
have been purchased at a "market discount." Generally, the amount of
market discount is equal to the excess of the portion of the
principal amount of such Qualified Asset allocable to such holder's
undivided interest over such holder's tax basis in such interest.
Market discount with respect to a Grantor Trust Certificate will be
considered to be zero if the amount allocable to the Grantor Trust
Certificate is less than 0.25% of the Grantor Trust Certificate's
stated redemption price at maturity multiplied by the weighted
average maturity remaining after the date of purchase. Treasury
regulations implementing the market discount rules have not yet been
issued; therefore, investors should consult their own tax advisors
regarding the application of these rules and the advisability of
making any of the elections allowed under Code Sections 1276 through
1278.
The Code provides that any principal payment (whether a scheduled
payment or a prepayment) or any gain on disposition of a market
discount bond acquired by the taxpayer after October 22, 1986 shall
be treated as ordinary income to the extent that it does not exceed
the accrued market discount at the time of such payment. The amount
of accrued market discount for purposes of determining the tax
treatment of subsequent principal payments or dispositions of the
market discount bond is to be reduced by the amount so treated as
ordinary income.
The Code also grants the Treasury Department authority to issue
regulations providing for the computation of accrued market discount
on debt instruments, the principal of which is payable in more than
one installment. While the Treasury Department has not yet issued
regulations, rules described in the relevant legislative history
will apply. Under those rules, the holder of a market discount bond
may elect to accrue market discount either on the basis of a
constant interest rate or according to one of the following methods.
If a Grantor Trust Certificate is issued with OID, the amount of
market discount that accrues during any accrual period would be
equal to the product of (i) the total remaining market discount and
(ii) a fraction, the numerator of which is the OID accruing during
the period and the denominator of which is the total remaining OID
at the beginning of the accrual period. For Grantor Trust
Certificates issued without OID, the amount of market discount that
accrues during a period is equal to the product of (i) the total
remaining market discount and (ii) a fraction, the numerator of
which is the amount of stated interest paid during the accrual
period and the denominator of which is the total amount of stated
interest remaining to be paid at the beginning of the accrual
period. For purposes of calculating market discount under any of the
above methods in the case of instruments (such as the Grantor Trust
Certificates) that provide for payments that may be accelerated by
reason of prepayments of other obligations securing such
instruments, the same prepayment assumption applicable to
calculating the accrual of OID will apply. Because the regulations
described above have not been issued, it is impossible to predict
what effect those regulations might have on the tax treatment of a
Grantor Trust Certificate purchased at a discount or premium in the
secondary market.
A holder who acquired a Grantor Trust Certificate at a market
discount also 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 such Grantor Trust
Certificate purchased with market discount. For these purposes, the
de minimis rule referred 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.
Election to Treat All Interest as OID. The OID Regulations permit
a Certificateholder 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 for
Certificates acquired on or after April 4, 1994. If such an election
were to be made with respect to a Grantor Trust Certificate with
market discount, the Certificateholder would be deemed to have made
an election to include in income currently market discount with
respect to all other debt instruments having market discount that
such Certificateholder acquires during the year of the election or
thereafter. Similarly, a Certificateholder that makes this election
for a Certificate that is acquired at a premium will be deemed to
have made an election to amortize bond premium with respect to all
debt instruments having amortizable bond premium that such
Certificateholder owns or acquires. See " Regular Certificates --
Premium" herein. The election to accrue interest, discount and
premium on a constant yield method with respect to a Certificate is
irrevocable.
Prepayment Premiums and Yield Maintenance Charges. The portion of
any Prepayment Premium or Yield Maintenance Charge received by any
Holder in excess of the Holder's basis allocable to the Qualified
Loan which is being prepaid may be treated as short-term or
long-term capital gain. Generally,
prepayment premiums, to the extent passed through as distributions,
are treated as producing capital gain rather than ordinary income
for investors that hold a debt security as a capital asset. The
holding period for long-term capital gain is one year for the
Certificates. Holders should consult their tax advisors regarding
the taxable status of such Prepayment Premiums or Yield Maintenance
Charges.
b. Multiple Classes of Grantor Trust Certificates
1. Stripped Bonds and Stripped Coupons
Pursuant to Code Section 1286, the separation of ownership of the
right to receive some or all of the interest payments on an
obligation from ownership of the right to receive some or all of the
principal payments results in the reation of "stripped bonds" with
respect to principal payments and "stripped coupons" with respect to
interest payments. For purposes of Code Sections 1271 through 1288,
Code Section 1286 treats a stripped bond or a stripped coupon as an
obligation issued on the date that such stripped interest is
created. If a Trust Fund is created with two classes of Grantor
Trust Certificates, one class of Grantor Trust Certificates may
represent the right to principal and interest, or principal only, on
all or a portion of the Qualified Assets (the "Stripped Bond
Certificates"), while the second class of Grantor Trust Certificates
may represent the right to some or all of the interest on such
portion (the "Stripped Coupon Certificates").
Servicing fees in excess of reasonable servicing fees ("excess
servicing") will be treated under the stripped bond rules. If the
excess servicing fee is less than 100 basis points (i.e., 1%
interest on the Qualified Asset principal balance) or the
Certificates are initially sold with a de minimis discount (assuming
no prepayment assumption is required), any non-de minimis discount
arising from a subsequent transfer of the Certificates should be
treated as market discount. The IRS appears to require that
reasonable servicing fees be calculated on a Qualified Asset by
Qualified Asset basis, which could result in some Qualified Assets
being treated as having more than 100 basis points of interest
stripped off. See "Non-REMIC Certificates" and "Multiple Classes
of Grantor Trust Certificates Stripped Bonds and Stripped Coupons"
herein.
Although not entirely clear, a Stripped Bond Certificate
generally should be treated as an interest in Qualified Assets
issued on the day such Certificate is purchased for purposes of
calculating any OID. Generally, if the discount on a Qualified Asset
is larger than a de minimis amount (as calculated for purposes of
the OID rules) a purchaser of such a Certificate will be required to
accrue the discount under the OID rules of the Code. See "
Non-REMIC Certificates" and "Single Class of Grantor Trust
Certificates Original Issue Discount" herein. However, a purchaser
of a Stripped Bond Certificate will be required to account for any
discount on the Qualified Assets as market discount rather than OID
if either (i) the amount of OID with respect to the Qualified Assets
is treated as zero under the OID de minimis rule when the
Certificate was stripped or (ii) no more than 100 basis points
(including any amount of servicing fees in excess of reasonable
servicing fees) is stripped off of the Trust Fund's Qualified
Assets. Pursuant to Revenue Procedure 91-49, issued on August 8,
1991, purchasers of Stripped Bond Certificates using an inconsistent
method of accounting must change their method of accounting and
request the consent of the IRS to the change in their accounting
method on a statement attached to their first timely tax return
filed after August 8, 1991.
The precise tax treatment of Stripped Coupon Certificates is
substantially uncertain. The Code could be read literally to require
that OID computations be made for each payment from each Qualified
Asset. However, based on the recent IRS guidance, it appears that
all payments from a Qualified Asset underlying a Stripped Coupon
Certificate should be treated as a single installment obligation
subject to the OID rules of the Code, in which case, all payments
from such Qualified Asset would be included in the Qualified Asset's
stated redemption price at maturity for purposes of calculating
income on such certificate under the OID rules of the Code.
It is unclear under what circumstances, if any, the prepayment of
Qualified Assets will give rise to a loss to the holder of a
Stripped Bond Certificate purchased at a premium or a Stripped
Coupon Certificate. If such Certificate is treated as a single
instrument (rather than an interest in discrete mortgage loans) and
the effect of prepayments is taken into account in computing yield
with respect to such Grantor Trust Certificate, it appears that no
loss will be available as a result of any particular prepayment
unless prepayments occur at a rate faster than the assumed
prepayment rate. However, if such Certificate is treated as an
interest in discrete Qualified Assets, or if no prepayment
assumption is used, then when a Qualified Asset is prepaid, the
holder of such Certificate should be able to recognize a loss equal
to the portion of the adjusted issue price of such Certificate that
is allocable to such Qualified Asset.
Holders of Stripped Bond Certificates and Stripped Coupon
Certificates are urged to consult with their own tax advisors
regarding the proper treatment of these Certificates for federal
income tax purposes.
Treatment of Certain Owners. Several Code sections provide
beneficial treatment to certain taxpayers that invest in Qualified
Assets of the type that make up the Trust Fund. With respect to
these Code sections, no specific legal authority exists regarding
whether the character of the Grantor Trust Certificates, for federal
income tax purposes, will be the same as that of the underlying
Qualified Assets. While Code Section 1286 treats a stripped
obligation as a separate obligation for purposes of the Code
provisions addressing OID, it is not clear whether such
characterization would apply with regard to these other Code
sections. Although the issue is not free from doubt, based on policy
considerations, each class of Grantor Trust Certificates, should be
considered to represent "qualifying real property loans" within the
meaning of Code Section 593(d), and "real estate assets" within the
meaning of Code Section 856(c)(5)(A), and interest income
attributable to Grantor Trust Certificates should be considered to
represent "interest on obligations secured by mortgages on real
property" within the meaning of Code Section 856(c)(3)(B), provided
that in each case the underlying Qualified Assets and interest on
such Qualified Assets qualify for such treatment. Prospective
purchasers to which such characterization of an investment in
Certificates is material should consult their own tax advisors
regarding the characterization of the Grantor Trust Certificates and
the income therefrom. Grantor Trust Certificates will be
"obligation[s] ... which [are] principally secured, directly or
indirectly, by an interest in real property" within the meaning of
Code Section 860G(a)(3).
2. Grantor Trust Certificates Representing Interests in Loans
Other Than ARM Loans
The original issue discount rules of Code Sections 1271 through
1275 will be applicable to a Certificateholder's interest in those
Qualified Assets as to which the conditions for the application of
those sections are met. Rules regarding periodic inclusion of
original issue discount in income are applicable to mortgages of
corporations originated after May 27, 1969, mortgages of
noncorporate Mortgagors (other than individuals) originated after
July 1, 1982, and mortgages of individuals originated after March 2,
1984. Under the OID Regulations, such original issue discount could
arise by the charging of points by the originator of the mortgage in
an amount greater than the statutory de minimis exception, including
a payment of points that is currently deductible by the borrower
under applicable Code provisions, or under certain circumstances, by
the presence of "teaser" rates on the Qualified Assets. OID on each
Grantor Trust Certificate must be included in the owner's ordinary
income for federal income tax purposes as it accrues, in accordance
with a constant interest method that takes into account the
compounding of interest, in advance of receipt of the cash
attributable to such income. The amount of OID required to be
included in an owner's income in any taxable year with respect to a
Grantor Trust Certificate representing an interest in Qualified
Assets other than Qualified Assets with interest rates that adjust
periodically ("ARM Loans") likely will be computed as described
below under " Accrual of Original Issue Discount." The following
discussion is based in part on the OID Regulations and in part on
the provisions of the Tax Reform Act of 1986 (the "1986 Act"). The
OID Regulations generally are effective for debt instruments issued
on or after April 4, 1994, but may be relied upon as authority with
respect to debt instruments, such as the Grantor Trust Certificates,
issued after December 21, 1992. The holder of a Certificate should
be aware, however, that the OID Regulations do not adequately
address certain issues relevant to prepayable securities.
Under the Code, the Qualified Assets underlying the Grantor Trust
Certificate will be treated as having been issued on the date they
were originated with an amount of OID equal to the excess of such
Qualified Asset's stated redemption price at maturity over its issue
price. The issue price of a Qualified Asset is generally the amount
lent to the mortgagee, which may be adjusted to take into account
certain loan origination fees. The stated redemption price at
maturity of a Qualified Asset is the sum of all payments to be made
on such Qualified Asset other than payments that are treated as
qualified stated interest payments. The accrual of this OID, as
described below under "Accrual of Original Issue Discount," will
utilize the original yield to maturity of the Grantor Trust
Certificate calculated based on a reasonable assumed prepayment rate
for the mortgage loans underlying the Grantor Trust Certificates
(the "Prepayment Assumption"), and will take into account events
that occur during the calculation period. The Prepayment Assumption
will be determined in the manner prescribed by regulations that have
not yet been issued. The legislative history of the 1986 Act (the
"Legislative History") provides, however, that the regulations will
require that the Prepayment Assumption be the prepayment assumption
that is used in determining the offering price of such Certificate.
No representation is made that any Certificate will prepay at the
Prepayment Assumption or at any other rate. The prepayment
assumption contained in the Code literally only applies to debt
instruments collateralized by other debt instruments that are
subject to prepayment rather than direct ownership interests in such
debt instruments, such as the Certificates represent. However, no
other legal authority provides guidance with regard to the proper
method for accruing OID on obligations that are subject to
prepayment, and, until further guidance is issued, the Master
Servicer intends to calculate and report OID under the method
described below.
Accrual of Original Issue Discount. Generally, the owner of a
Grantor Trust Certificate must include in gross income the sum of
the "daily portions," as defined below, of the OID on such Grantor
Trust Certificate for each day on which it owns such Certificate,
including the date of purchase but excluding the date of
disposition. In the case of an original owner, the daily portions of
OID with respect to each component generally will be determined as
set forth under the OID Regulations. A calculation will be made by
the Master Servicer or such other entity specified in the related
Prospectus Supplement of the portion of OID that accrues during each
successive accrual period (or shorter period from the date of
original issue) that ends on the day in the calendar year
corresponding to each of the Distribution Dates on the Grantor Trust
Certificates (or the day prior to each such date). This will be
done, in the case of each full accrual period, by (i) adding (a) the
present value at the end of the accrual period (determined by using
as a discount factor the original yield to maturity of the
respective component under the Prepayment Assumption) of all
remaining payments to be received under the Prepayment Assumption on
the respective component and (b) any payments included in the state
redemption price at maturity received during such accrual period,
and (ii) subtracting from that total the "adjusted issue price" of
the respective component at the beginning of such accrual period.
The adjusted issue price of a Grantor Trust Certificate at the
beginning of the first accrual period is its issue price; the
adjusted issue price of a Grantor Trust Certificate at the beginning
of a subsequent accrual period is the adjusted issue price at the
beginning of the immediately preceding accrual period plus the
amount of OID allocable to that accrual period reduced by the amount
of any payment other than a payment of qualified stated interest
made at the end of or during that accrual period. The OID accruing
during such accrual period will then be divided by the number of
days in the period to determine the daily portion of OID for each
day in the period. With respect to an initial accrual period shorter
than a full accrual period, the daily portions of OID must be
determined according to an appropriate allocation under any
reasonable method.
Original issue discount generally must be reported as ordinary
gross income as it accrues under a constant interest method that
takes into account the compounding of interest as it accrues rather
than when received. However, the amount of original issue discount
includible in the income of a holder of an obligation is reduced
when the obligation is acquired after its initial issuance at a
price greater than the sum of the original issue price and the
previously accrued original issue discount, less prior payments of
principal. Accordingly, if such Qualified Assets acquired by a
Certificateholder are purchased at a price equal to the then unpaid
principal amount of such Qualified Asset, no original issue discount
attributable to the difference between the issue price and the
original principal amount of such Qualified Asset (i.e. points) will
be includible by such holder. Other original issue discount on the
Qualified Assets (e.g., that arising from a "teaser" rate) would
still need to be accrued.
3. Grantor Trust Certificates Representing Interests in ARM Loans
The OID Regulations do not address the treatment of instruments,
such as the Grantor Trust Certificates, which represent interests in
ARM Loans. Additionally, the IRS has not issued guidance under the
Code's coupon stripping rules with respect to such instruments. In
the absence of any authority, the Master Servicer will report OID on
Grantor Trust Certificates attributable to ARM Loans ("Stripped ARM
Obligations") to holders in a manner it believes is consistent with
the rules described above under the heading "Grantor Trust
Certificates Representing Interests in Loans Other Than ARM Loans"
and with the OID Regulations. In general, application of these rules
may require inclusion of income on a Stripped ARM Obligation in
advance of the receipt of cash attributable to such income. Further,
the addition of interest deferred by reason of negative amortization
("Deferred Interest") to the principal balance of an ARM Loan may
require the inclusion of such amount in the income of the Grantor
Trust Certificateholder when such amount accrues. Furthermore, the
addition of Deferred Interest to the Grantor Trust Certificate's
principal balance will result in additional income (including
possibly OID income) to the Grantor Trust Certificateholder over the
remaining life of such Grantor Trust Certificates.
Because the treatment of Stripped ARM Obligations is uncertain,
investors are urged to consult their tax advisors regarding how
income will be includible with respect to such Certificates.
c. Sale or Exchange of a Grantor Trust Certificate
Sale or exchange of a Grantor Trust Certificate prior to its
maturity will result in gain or loss equal to the difference, if
any, between the amount received and the owner's adjusted basis in
the Grantor Trust Certificate. Such adjusted basis generally will
equal the seller's purchase price for the Grantor Trust Certificate,
increased by the OID included in the seller's gross income with
respect to the Grantor Trust Certificate, and reduced by principal
payments on the Grantor Trust Certificate previously received by the
seller. Such gain or loss will be capital gain or loss to an owner
for which a Grantor Trust Certificate is a "capital asset" within
the meaning of Code Section 1221, and will be long-term or
short-term depending on whether the Grantor Trust Certificate has
been owned for the long-term capital gain holding period (currently
more than one year).
Grantor Trust Certificates will be "evidences of indebtedness"
within the meaning of Code Section 582(c)(1), so that gain or loss
recognized from the sale of a Grantor Trust Certificate by a bank or
a thrift institution to which such section applies will be treated
as ordinary income or loss.
d. Non-U.S. Persons
Generally, to the extent that a Grantor Trust Certificate
evidences ownership in underlying Qualified Assets that were issued
on or before July 18, 1984, interest or OID paid by the person
required to withhold tax under Code Section 1441 or 1442 to (i) an
owner that is not a U.S. Person (as defined below) or (ii) a Grantor
Trust Certificateholder holding on behalf of an owner that is not a
U.S. Person will be subject to federal income tax, collected by
withholding, at a rate of 30% or such lower rate as may be provided
for interest by an applicable tax treaty. Accrued OID recognized by
the owner on the sale or exchange of such a Grantor Trust
Certificate also will be subject to federal income tax at the same
rate. Generally, such payments would not be subject to withholding
to the extent that a Grantor Trust Certificate evidences ownership
in Qualified Assets issued after July 18, 1984, by natural persons
if such Grantor Trust Certificateholder complies with certain
identification requirements (including delivery of a statement,
signed by the Grantor Trust Certificateholder under penalties of
perjury, certifying that such Grantor Trust Certificateholder is not
a U.S. Person and providing the name and address of such Grantor
Trust Certificateholder). Additional restrictions apply to Qualified
Assets of where the Mortgagor is not a natural person in order to
qualify for the exemption from withholding.
As used herein, a "U.S. Person" means a citizen or resident of
the United States, a corporation or a partnership organized in or
under the laws of the United States or any political subdivision
thereof or an estate or trust, the income of which from sources
outside the United States is includible in gross income for federal
income tax purposes regardless of its connection with the conduct of
a trade or business within the United States.
e. Information Reporting and Backup Withholding
The Master Servicer will furnish or make available, within a
reasonable time after the end of each calendar year, to each person
who was a Certificateholder at any time during such year, such
information as may be deemed necessary or desirable to assist
Certificateholders in preparing their federal income tax returns, or
to enable holders to make such information available to beneficial
owners or financial intermediaries that hold such Certificates as
nominees on behalf of beneficial owners. If a holder, beneficial
owner, financial intermediary or other recipient of a payment on
behalf of a beneficial owner fails to supply a certified taxpayer
identification number or if the Secretary of the Treasury determines
that such person has not reported all interest and dividend income
required to be shown on its federal income tax return, 31% backup
withholding may be required with respect to any payments. Any
amounts deducted and withheld from a distribution to a recipient
would be allowed as a credit against such recipient's federal income
tax liability.
REMICs
The Trust Fund relating to a Series of Certificates may elect to
be treated as a REMIC. Qualification as a REMIC requires ongoing
compliance with certain conditions. Although a REMIC is not
generally subject to federal income tax (see, however "- Taxation of
Owners of REMIC Residual Certificates" and "- Prohibited
Transactions" below), if a Trust Fund with respect to which a REMIC
election is made fails to comply with one or more of the ongoing
requirements of the Code for REMIC status during any taxable year,
including the implementation of restrictions on the purchase and
transfer of the residual interests in a REMIC as described below
under "Taxation of Owners of REMIC Residual Certificates," the Code
provides that a Trust Fund will not be treated as a REMIC for such
year and thereafter. In that event, such entity may be taxable as a
separate corporation, and the related Certificates (the "REMIC
Certificates") may not be accorded the status or given the tax
treatment described below. While the Code authorizes the Treasury
Department to issue regulations providing relief in the event of an
inadvertent termination of the status of a Trust Fund as a REMIC, no
such regulations have been issued. Any such relief, moreover, may be
accompanied by sanctions, such as the imposition of a corporate tax
on all or a portion of the REMIC's income for the period in which
the requirements for such status are not satisfied. With respect to
each Trust Fund that elects REMIC status, Brown & Wood will deliver
its opinion generally to the effect that, under then existing law
and assuming compliance with all provisions of the related Trust
Agreement, such Trust Fund will qualify as a REMIC, and the related
Certificates will be considered to be regular interests ("REMIC
Regular Certificates") or a sale class of residual interests ("REMIC
Residual Certificates") in the REMIC. The related Prospectus
Supplement for each Series of Certificates will indicate whether the
Trust Fund will make a REMIC election and whether a class of
Certificates will be treated as a regular or residual interest in
the REMIC.
A "qualified mortgage" for REMIC purposes is any obligation
(including certificates of participation in such an obligation) that
is principally secured by an interest in real property and that is
transferred to the REMIC within a prescribed time period in exchange
for regular or residual interests in the REMIC.
In general, with respect to each Series of Certificates for which
a REMIC election is made, (i) Certificates held by a thrift
institution taxed as a "mutual savings bank" or "domestic building
and loan association" will represent interests in "qualifying real
property loans" within the meaning of Code Section 593(d)(1); (ii)
Certificates held by a real estate investment trust will constitute
"real estate assets" within the meaning of Code Section
856(c)(5)(A); and (iii) interest on Certificates held by a real
estate investment trust will be considered "interest on obligations
secured by mortgages on real property" within the meaning of Code
Section 856(c)(3)(B). If less than 95% of the REMIC's assets are
assets qualifying under any of the foregoing Code sections, the
Certificates will be qualifying assets only to the extent that the
REMIC's assets are qualifying assets. In addition, payments on
Qualified Assets held pending distribution on the REMIC Certificates
will be considered to be qualifying real property loans for purposes
of Code Section 593(d)(1) and real estate assets for purposes of
Code Section 856(c).
Tiered REMIC Structures. For certain Series of Certificates, two
separate elections may be made to treat designated portions of the
related Trust Fund as REMICs (respectively, the "Subsidiary REMIC"
and the "Master REMIC") for federal income tax purposes. Upon the
issuance of any such Series of Certificates, Brown & Wood, will
deliver its opinion generally to the effect that, assuming
compliance with all provisions of the related Trust Agreement, the
Master REMIC as well as any Subsidiary REMIC will each qualify as a
REMIC, and the REMIC Certificates issued by the Master REMIC and the
Subsidiary REMIC, respectively, will be considered to evidence
ownership of REMIC Regular Certificates or REMIC Residual
Certificates in the related REMIC within the meaning of the REMIC
provisions.
Only REMIC Certificates issued by the Master REMIC and the
residual interest in the Subsidiary REMIC will be offered hereunder.
The Subsidiary REMIC and the Master REMIC will be treated as one
REMIC solely for purposes of determining whether the REMIC
Certificates will be (i) "qualifying real property loans" under
Section 593(d) of the Code; (ii) "real estate assets" within the
meaning of Section 856(c)(5)(A) of the Code; and (iii) whether the
income on such Certificates is interest described in Section
856(c)(3)(B) of the Code.
a. Taxation of REMIC Regular Certificates
General. Except as otherwise stated in this discussion, REMIC
Regular Certificates will be treated for federal income tax purposes
as debt instruments issued by the REMIC and not as ownership
interests in the REMIC or its assets. Moreover, holders of REMIC
Regular Certificates that otherwise report income under a cash
method of accounting will be required to report income with respect
to REMIC Regular Certificates under an accrual method.
Original Issue Discount and Premium. The REMIC Regular
Certificates may be issued with OID. Generally, such OID, if any,
will equal the difference between the "stated redemption price at
maturity" of a REMIC Regular Certificate and its "issue price."
Holders of any class of Certificates issued with OID will be
required to include such OID in gross income for federal income tax
purposes as it accrues, in accordance with a constant interest
method based on the compounding of interest as it accrues rather
than in accordance with receipt of the interest payments. The
following discussion is based in part on the OID Regulations and in
part on the provisions of the 1986 Act. Holders of REMIC Regular
Certificates (the "REMIC Regular Certificateholders") should be
aware, however, that the OID Regulations do not adequately address
certain issues relevant to prepayable securities, such as the REMIC
Regular Certificates.
Rules governing OID are set forth in Code Sections 1271 through
1273 and 1275. These rules require that the amount and rate of
accrual of OID be calculated based on the Prepayment Assumption and
the anticipated reinvestment rate, if any, relating to the REMIC
Regular Certificates and prescribe a method for adjusting the amount
and rate of accrual of such discount where the actual prepayment
rate differs from the Prepayment Assumption. Under the Code, the
Prepayment Assumption must be determined in the manner prescribed by
regulations, which regulations have not yet been issued. The
Legislative History provides, however, that Congress intended the
regulations to require that the Prepayment Assumption be the
prepayment assumption that is used in determining the initial
offering price of such REMIC Regular Certificates. The Prospectus
Supplement for each Series of REMIC Regular Certificates will
specify the Prepayment Assumption to be used for the purpose of
determining the amount and rate of accrual of OID. No representation
is made that the REMIC Regular Certificates will prepay at the
Prepayment Assumption or at any other rate.
In general, each REMIC Regular Certificate will be treated as a
single installment obligation issued with an amount of OID equal to
the excess of its "stated redemption price at maturity" over its
"issue price." The issue price of a REMIC Regular Certificate is the
first price at which a substantial amount of REMIC Regular
Certificates of that class are first sold to the public (excluding
bond houses, brokers, underwriters or wholesalers). If less than a
substantial amount of a particular class of REMIC Regular
Certificates 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. The issue price of a REMIC Regular Certificate also
includes the amount paid by an initial Certificateholder for accrued
interest that relates to a period prior to the issue date of the
REMIC Regular Certificate. The stated redemption price at maturity
of a REMIC Regular Certificate includes the original principal
amount of the REMIC Regular Certificate, but generally will not
include distributions of interest if such distributions constitute
"qualified stated interest." Qualified stated interest generally
means interest payable at a single fixed rate or qualified variable
rate (as described below) provided that such interest payments are
unconditionally payable at intervals of one year or less during the
entire term of the REMIC Regular Certificate. Interest is payable at
a single fixed rate only if the rate appropriately takes into
account the length of the interval between payments. Distributions
of interest on REMIC Regular Certificates with respect to which
Deferred Interest will accrue will not constitute qualified stated
interest payments, and the stated redemption price at maturity of
such REMIC Regular Certificates includes all distributions of
interest as well as principal thereon.
Where the interval between the issue date and the first
Distribution Date on a REMIC Regular Certificate is longer than the
interval between subsequent Distribution Dates, the greater of any
original issue discount (disregarding the rate in the first period)
and any interest foregone during the first period is treated as the
amount by which the stated redemption price at maturity of the
Certificate exceeds its issue price for purposes of the de minimis
rule described below. The OID Regulations suggest that all interest
on a long first period REMIC Regular Certificate that is issued with
non-de minimis OID, as determined under the foregoing rule, will be
treated as OID. Where the interval between the issue date and the
first Distribution Date on a REMIC Regular Certificate is shorter
than the interval between subsequent Distribution Dates, interest
due on the first Distribution Date in excess of the amount that
accrued during the first period would be added to the Certificates
stated redemption price at maturity. REMIC Regular
Certificateholders should consult their own tax advisors to
determine the issue price and stated redemption price at maturity of
a REMIC Regular Certificate.
Under the de minimis rule, OID on a REMIC Regular Certificate
will be considered to be zero if such OID is less than 0.25% of the
stated redemption price at maturity of the REMIC Regular Certificate
multiplied by the weighted average maturity of the REMIC Regular
Certificate. For this purpose, the weighted average maturity of the
REMIC Regular Certificate is computed as the sum of the amounts
determined by multiplying the number of full years (i.e., rounding
down partial years) from the issue date until each distribution in
reduction of stated redemption price at maturity is scheduled to be
made by a fraction, the numerator of which is the amount of each
distribution included in the stated redemption price at maturity of
the REMIC Regular Certificate and the denominator of which is the
stated redemption price at maturity of the REMIC Regular
Certificate. Although currently unclear, it appears that the
schedule of such distributions should be determined in accordance
with the Prepayment Assumption. The Prepayment Assumption with
respect to a Series of REMIC Regular Certificates will be set forth
in the related Prospectus Supplement. Holders generally must report
de minimis OID pro rata as principal payments are received, and such
income will be capital gain if the REMIC Regular Certificate is held
as a capital asset. However, accrual method holders may elect to
accrue all de minimis OID as well as market discount under a
constant interest method.
The Prospectus Supplement with respect to a Trust Fund may
provide for certain REMIC Regular Certificates to be issued at
prices significantly exceeding their principal amounts or based on
notional principal balances (the "Super-Premium Certificates"). The
income tax treatment of such REMIC Regular Certificates is not
entirely certain. For information reporting purposes, the Trust Fund
intends to take the position that the stated redemption price at
maturity of such REMIC Regular Certificates is the sum of all
payments to be made on such REMIC Regular Certificates determined
under the Prepayment Assumption, with the result that such REMIC
Regular Certificates would be issued with OID. The calculation of
income in this manner could result in negative original issue
discount (which delays future
accruals of OID rather than being immediately deductible) when
prepayments on the Qualified Assets exceed those estimated under the
Prepayment Assumption. The IRS might contend, however, that certain
contingent payment rules contained in regulations proposed on April
8, 1986, with respect to original issue discount should apply to
such Certificates. Under those rules, a Super-Premium Certificate
would not be required to report income on the basis of a yield based
on the Prepayment Assumption, but rather would use a yield equal to
the applicable Federal rate (which is an average yield on Treasury
obligations), until the initial price of the respective
Super-Premium Certificate is fully recovered. The IRS recently
proposed and then withdrew a revised set of proposed contingent
payment regulations which differed substantially from the contingent
payment regulations proposed in 1986. The proposed regulations
regarding contingent interest have not been adopted in final form
and may not currently be relied upon. If the Super Premium
Certificates were treated as contingent payment obligations, it is
unclear how holders of those Certificates would report income or
recover their basis. In the alternative, the IRS could assert that
the stated redemption price at maturity of such REMIC Regular
Certificates should be limited to their principal amount (subject to
the discussion below under "Accrued Interest Certificates"), so
that such REMIC Regular Certificates would be considered for federal
income tax purposes to be issued at a premium. If such a position
were to prevail, the rules described below under "Taxation of
Owners of REMIC Regular Certificates -- Premium" would apply. It is
unclear when a loss may be claimed for any unrecovered basis for a
Super-Premium Certificate. It is possible that a holder of a
Super-Premium Certificate may only claim a loss when its remaining
basis exceeds the maximum amount of future payments, assuming no
further prepayments or when the final payment is received with
respect to such Super-Premium Certificate.
Under the REMIC Regulations, if the issue price of a REMIC
Regular Certificate (other than any REMIC Regular Certificate based
on a notional amount) does not exceed 125% of its actual principal
amount, the interest rate is not considered disproportionately high.
Accordingly, such REMIC Regular Certificate generally should not be
treated as a Super-Premium Certificate and the rules described below
under "REMIC Regular Certificates Premium" should apply.
However, it is possible that holders of REMIC Regular Certificates
issued at a premium, even if the premium is less than 25% of such
Certificate's actual principal balance, will be required to amortize
the premium under an original issue discount method or contingent
interest method even though no election under Code Section 171 is
made to amortize such premium.
Generally, a REMIC Regular Certificateholder must include in
gross income the "daily portions," as determined below, of the OID
that accrues on a REMIC Regular Certificate for each day a
Certificateholder holds the REMIC Regular Certificate, including the
purchase date but excluding the disposition date. In the case of an
original holder of a REMIC Regular Certificate, a calculation will
be made of the portion of the OID that accrues during each
successive period ("an accrual period") that ends on the day in the
calendar year corresponding to a Distribution Date (or if
Distribution Dates are on the first day or first business day of the
immediately preceding month, interest may be treated as payable on
the last day of the immediately preceding month) and begins on the
day after the end of the immediately preceding accrual period (or on
the issue date in the case of the first accrual period). This will
be done, in the case of each full accrual period, by (i) adding (a)
the present value at the end of the accrual period (determined by
using as a discount factor the original yield to maturity of the
REMIC Regular Certificates as calculated under the Prepayment
Assumption) of all remaining payments to be received on the REMIC
Regular Certificates under the Prepayment Assumption and (b) any
payments included in the stated redemption price at maturity
received during such accrual period, and (ii) subtracting from that
total the adjusted issue price of the REMIC Regular Certificates at
the beginning of such accrual period. be adjusted issue price of a
REMIC Regular Certificate at the beginning of the first accrual
period is its issue price; the adjusted issue price of a REMIC
Regular Certificate at the beginning of a subsequent accrual period
is the adjusted issue price at the beginning of the immediately
preceding accrual period plus the amount of OID allocable to that
accrual period and reduced by the amount of any payment other than a
payment of qualified stated interest made at the end of or during
that accrual period. The OID accrued during an accrual period will
then be divided by the number of days in the period to determine the
daily portion of OID for each day in the accrual period. The
calculation of OID under the method described above will cause the
accrual of OID to either increase or decrease (but never below zero)
in a given accrual period to reflect the fact that prepayments are
occurring faster or slower than under the Prepayment Assumption.
With respect to an initial accrual period shorter than a full
accrual period, the daily portions of OID may be determined
according to an appropriate allocation under any reasonable method.
A subsequent purchaser of a REMIC Regular Certificate issued with
OID who purchases the REMIC Regular Certificate at a cost less than
the remaining stated redemption price at maturity will also be
required to include in gross income the sum of the daily portions of
OID on that REMIC Regular Certificate. In computing the daily
portions of OID for such a purchaser (as well as an initial
purchaser that purchases at a price higher than the adjusted issue
price but less than the stated redemption price at maturity),
however, the daily portion is reduced by the amount that would be
the daily portion for such day (computed in accordance with the
rules set forth above) multiplied by a fraction, the numerator of
which is the amount, if any, by which the price paid by such holder
for that REMIC Regular Certificate exceeds the following amount: (a)
the sum of the issue price plus the aggregate amount of OID that
would have been includible in the gross income of an original REMIC
Regular Certificateholder (who purchased the REMIC Regular
Certificate at its issue price), less (b) any prior payments
included in the stated redemption price at maturity, and the
denominator of which is the sum of the daily portions for that REMIC
Regular Certificate for all days beginning on the date after the
purchase date and ending on the maturity date computed under the
Prepayment Assumption. A holder who pays an acquisition premium
instead may elect to accrue OID by treating the purchase as a
purchase at original issue.
Variable Rate REMIC Regular Certificates. REMIC Regular
Certificates may provide for interest based on a variable rate. Some
interest based on a variable rate may constitute contingent
interest. Interest based on a variable rate will constitute
qualified stated interest and not contingent interest if, generally,
(i) such interest is unconditionally payable at least annually, (ii)
the issue price of the debt instrument does not exceed the total
noncontingent principal payments and (iii) interest is based on a
"qualified floating rate," an "objective rate," a combination of a
single fixed rate and one or more "qualified floating rates," one
"qualified inverse floating rate," or a combination of "qualified
floating rates " that do not operate in a manner that significantly
accelerates or defers interest payments on such REMIC Regular
Certificate. The amount of OID with respect to a REMIC Regular
Certificate bearing a variable rate of interest will accrue in the
manner described above under "Original Issue Discount and Premium"
by assuming generally that the index used for the variable rate will
remain fixed throughout the term of the Certificate. Appropriate
adjustments are made for the actual variable rate.
The IRS recently issued final regulations (the "Contingent
Regulations") governing the calculation of OID on instruments having
contingent interest payments. The Contingent Regulations
specifically do not apply for purposes of calculating OID on debt
instruments subject to Code Section 1272(a)(6), such as REMIC
Regular Certificates. Additionally, the OID Regulations do not
contain provisions specifically interpreting Code Section
1272(a)(6).
Although unclear at present, the Depositor intends to treat
interest on a REMIC Regular Certificate that is a weighted average
of the net interest rates on Qualified Loans as qualified stated
interest. In such case, the weighted average rate used to compute
the initial pass-through rate on the REMIC Regular Certificates will
be deemed to be the index in effect through the life of the REMIC
Regular Certificates. It is possible, however, that the IRS may
treat some or all of the interest on REMIC Regular Certificates with
a weighted average rate as taxable under the rules relating to
obligations providing for contingent payments. Such treatment may
effect the timing of income accruals on such REMIC Regular
Certificates. As stated above, the Contingent Regulations do not
apply to debt instruments such as the REMIC Regular Certificates.
Election to Treat All Interest as OID. The OID Regulations permit
a Certificateholder 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 to be made with respect to a REMIC Regular Certificate
with market discount, the Certificateholder would be deemed to have
made an election to include in income currently market discount with
respect to all other debt instruments having market discount that
such Certificateholder acquires during the year of the election or
thereafter. Similarly, a Certificateholder that makes this election
for a Certificate that is acquired at a premium will be deemed to
have made an election to amortize bond premium with respect to all
debt instruments having amortizable bond premium that such
Certificateholder owns or acquires. See "REMIC Regular
Certificates Premium" herein. The election to accrue interest,
discount and premium on a constant yield method with respect to a
Certificate is irrevocable.
Market Discount. A purchaser of a REMIC Regular Certificate may
also be subject to the market discount provisions of Code Sections
1276 through 1278. Under these provisions and the OID Regulations,
"market discount" equals the excess, if any, of (i) the REMIC
Regular Certificate's stated principal amount or, in the case of a
REMIC Regular Certificate with OID, the adjusted issue price
(determined for this purpose as if the purchaser had purchased such
REMIC Regular Certificate from an original holder) over (ii) the
price for such REMIC Regular Certificate paid by the purchaser. A
Certificateholder that purchases a REMIC Regular Certificate at a
market discount will recognize income upon receipt of each
distribution representing amounts included in such certificate's
stated redemption price at maturity. In particular, under Section
1276 of the Code such a holder generally will be required to
allocate each such distribution first to accrued market discount not
previously included in income, and to recognize ordinary income to
that extent. A Certificateholder 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
Certificateholder on or after the first day of the first taxable
year to which such election applies.
Market discount with respect to a REMIC Regular Certificate will
be considered to be zero if the amount allocable to the REMIC
Regular Certificate is less than 0.25% of such REMIC Regular
Certificate's stated redemption price at maturity multiplied by such
REMIC Regular Certificate's weighted average maturity remaining
after the date of purchase. If market discount on a REMIC Regular
Certificate is considered to be zero under this rule, the actual
amount of market discount must be allocated to the remaining
principal payments on the REMIC Regular Certificate, and gain equal
to such
allocated amount will be recognized when the corresponding principal
payment is made. Treasury regulations implementing the market
discount rules have not yet been issued; therefore, investors should
consult their own tax advisors regarding the application of these
rules and the advisability of making any
of the elections allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled
payment or a prepayment) or any gain on disposition of a market
discount bond acquired by the taxpayer after October 22, 1986, shall
be treated as ordinary income to the extent that it does not exceed
the accrued market discount at the time of such payment. The amount
of accrued market discount for purposes of determining the tax
treatment of subsequent principal payments or dispositions of the
market discount bond is to be reduced by the amount so treated as
ordinary income.
The Code also grants authority to the Treasury Department to
issue regulations providing for the computation of accrued market
discount on debt instruments, the principal of which is payable in
more than one installment. Until such time as regulations are issued
by the Treasury, rules described in the Legislative History will
apply. Under those rules, the holder of a market discount bond may
elect to accrue market discount either on the basis of a constant
interest method rate or according to one of the following methods.
For REMIC Regular Certificates issued with OID, the amount of market
discount that accrues during a period is equal to the product of (i)
the total remaining market discount and (ii) a fraction, the
numerator of which is the OID accruing during the period and the
denominator of which is the total remaining OID at the beginning of
the period. For REMIC Regular Certificates issued without OID, the
amount of market discount that accrues during a period is equal to
the product of (a) the total remaining market discount and (b) a
fraction, the numerator of which is the amount of stated interest
paid during the accrual period and the denominator of which is the
total amount of stated interest remaining to be paid at the
beginning of the period. For purposes of calculating market discount
under any of the above methods in the case of instruments (such as
the REMIC Regular Certificates) that provide for payments that may
be accelerated by reason of prepayments of other obligations
securing such instruments, the same Prepayment Assumption applicable
to calculating the accrual of OID will apply.
A holder who acquired a REMIC Regular Certificate at a market
discount also 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 such Certificate
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 purchaser of a REMIC Regular Certificate that
purchases the REMIC Regular Certificate at a cost (not including
accrued qualified stated interest) greater than its remaining stated
redemption price at maturity will be considered to have purchased
the REMIC Regular Certificate at a premium and may elect to amortize
such premium under a constant yield method. A Certificateholder that
makes this election for a Certificate that is acquired at a premium
will be deemed to have made an election to amortize bond premium
with respect to all debt instruments having amortizable bond premium
that such Certificateholder acquires during the year of the election
or thereafter. It is not clear whether the Prepayment Assumption
would be taken into account in determining the life of the REMIC
Regular Certificate for this purpose. However, the Legislative
History states that the same rules that apply to accrual of market
discount (which rules require use of a Prepayment Assumption in
accruing market discount with respect to REMIC Regular Certificates
without regard to whether such Certificates have OID) will also
apply in amortizing bond premium under Code Section 171. The Code
provides that amortizable bond premium will be allocated among the
interest payments on such REMIC Regular Certificates and will be
applied as an offset against such interest payment.
Deferred Interest. Certain classes of REMIC Regular Certificates
may provide for the accrual of Deferred Interest with respect to one
or more ARM Loans. Any Deferred Interest that accrues with respect
to a class of REMIC Regular Certificates will constitute income to
the holders of such Certificates prior to the time distributions of
cash with respect to such Deferred Interest are made. It is unclear,
under the OID Regulations, whether any of the interest on such
Certificates will constitute qualified stated interest or whether
all or a portion of the interest payable on such Certificates must
be included in the stated redemption price at maturity of the
Certificates and accounted for as OID (which could accelerate such
inclusion). Interest on REMIC Regular Certificates must in any event
be accounted for under an accrual method by the holders of such
Certificates and, therefore, applying the latter analysis may result
only in a slight difference in the timing of the inclusion in income
of interest on such REMIC Regular Certificates.
Sale, Exchange or Redemption. If a REMIC Regular Certificate is
sold, exchanged, redeemed or retired, the seller will recognize gain
or loss equal to the difference between the amount realized on the
sale, exchange, redemption, or retirement and the seller's adjusted
basis in the REMIC Regular Certificate. Such adjusted basis
generally will equal the cost of the REMIC Regular Certificate to
the seller, increased by any OID and market discount included in the
seller's gross income with respect to the REMIC Regular Certificate,
and reduced (but not below zero) by payments included in the stated
redemption price at maturity previously received by the seller and
by any amortized premium. Similarly, a holder who receives a payment
that is part of the stated redemption price at maturity of a REMIC
Regular Certificate will recognize gain equal to the excess, if any,
of the amount of the payment over the holder's adjusted basis in the
REMIC Regular Certificate. A REMIC Regular Certificateholder who
receives a final payment that is less than the holder's adjusted
basis in the REMIC Regular Certificate will generally recognize a
loss. Except as provided in the following paragraph and as provided
under "-Market Discount" above, any such gain or loss will be
capital gain or loss, provided that the REMIC Regular Certificate is
held as a "capital asset" (generally, property held for investment)
within the meaning of Code Section 1221.
Gain from the sale or other disposition of a REMIC Regular
Certificate that might otherwise be capital gain will be treated as
ordinary income to the extent that such gain does not exceed the
excess, if any, of (i) the amount that would have been includible in
such holder's income with respect to the REMIC Regular Certificate
had income accrued thereon at a rate equal to 110% of the AFR as
defined in Code Section 1274(d) determined as of the date of
purchase of such REMIC Regular Certificate, over (ii) the amount
actually includible in such holder's income.
The Certificates will be "evidences of indebtedness" within the
meaning of Code Section 582(c)(1), so that gain or loss recognized
from the sale of a REMIC Regular Certificate by a bank or a thrift
institution to which such section applies will be ordinary income or
loss.
The REMIC Regular Certificate information reports will include a
statement of the adjusted issue price of the REMIC Regular
Certificate at the beginning of each accrual period. In addition,
the reports will include information necessary to compute the
accrual of any market discount that may arise upon secondary trading
of REMIC Regular Certificates. Because exact computation of the
accrual of market discount on a constant yield method would require
information relating to the holder's purchase price which the REMIC
may not have, it appears that the information reports will only
require information
pertaining to the appropriate proportionate method of accruing
market discount.
Accrued Interest Certificates. Certain of the REMIC Regular
Certificates ("Payment Lag Certificates") may provide for payments
of interest based on a period that corresponds to the interval
between Distribution Dates but that ends prior to each such
Distribution Date. The period between the Closing Date for Payment
Lag Certificates and their first Distribution Date may or may not
exceed such interval. Purchasers of Payment Lag Certificates for
which the period between the Closing Date and the first Distribution
Date does not exceed such interval could pay upon purchase of the
REMIC Regular Certificates accrued interest in excess of the accrued
interest that would be paid if the interest paid on the Distribution
Date were interest accrued from Distribution Date to Distribution
Date. If a portion of the initial purchase price of a REMIC Regular
Certificate is allocable to interest that has accrued prior to the
issue date ("pre-issuance accrued interest") and the REMIC Regular
Certificate provides for a payment of stated interest on the first
payment date (and the first payment date is within one year of the
issue date) that equals or exceeds the amount of the pre-issuance
accrued interest, then the REMIC Regular Certificates' issue price
may be computed by subtracting from the issue price the amount of
pre-issuance accrued interest, rather than as an amount payable on
the REMIC Regular Certificate. However, it is unclear under this
method how the OID Regulations treat interest on Payment Lag
Certificates. Therefore, in the case of a Payment Lag Certificate,
the Trust Fund intends to include accrued interest in the issue
price and report interest payments made on the first Distribution
Date as interest to the extent such payments represent interest for
the number of days that the Certificateholder has held such Payment
Lag Certificate during the first accrual period.
Investors should consult their own tax advisors concerning the
treatment for federal income tax purposes of Payment Lag
Certificates.
Non-Interest Expenses of the REMIC. Under temporary Treasury
regulations, if the REMIC is considered to be a "single-class
REMIC," a portion of the REMIC's servicing, administrative and other
non-interest expenses will be allocated as a separate item to those
REMIC Regular Certificateholders that
are "pass-through interest holders." Certificateholders that are
pass-through interest holders should consult their own tax advisors
about the impact of these rules on an investment in the REMIC
Regular Certificates. See "Pass-Through of Non-Interest Expenses of
the REMIC" under "Taxation of Owners of REMIC Residual Certificates"
below.
Prepayment Premiums and Yield Maintenance Charges. The portion of
any Prepayment Premium or Yield Maintenance Charge received by any
Holder in excess of the Holder's basis allocable to the Qualified
Loan which is being prepaid may be treated as short-term or
long-term capital gain. Generally,
premiums or charges to the extent passed through as distributions,
are treated as producing capital gain rather than ordinary income
for investors that hold a debt security as a capital asset. It is
unclear under the REMIC Regulations whether such portion will be
treated as capital gain or additional interest. The holding period
for long-term capital gain is one year for the Certificates. Holders
should consult their tax advisors regarding the taxable status of
such Prepayment Premiums or Yield Maintenance Charges.
Non-U.S. Persons. Generally, payments of interest (including any
payment with respect to accrued OID) on the REMIC Regular
Certificates to a REMIC Regular Certificateholder who is not a U.S.
Person and is not engaged in a trade or business within the United
States will not be subject to federal withholding tax if (i) such
REMIC Regular Certificateholder does not actually or constructively
own 10 percent or more of the combined voting power of all classes
of equity in the Issuer; (ii) such REMIC Regular Certificateholder
is not a controlled foreign corporation (within the meaning of Code
Section 957) related to the Issuer; and (iii) such REMIC Regular
Certificateholder complies with certain identification requirements
(including delivery of a statement, signed by the REMIC Regular
Certificateholder under penalties of perjury, certifying that such
REMIC Regular Certificateholder is a foreign person and providing
the name and address of such REMIC Regular Certificateholder). If a
REMIC Regular Certificateholder is not exempt from withholding,
distributions of interest to such holder, including distributions in
respect of accrued OID, may be subject to a 30% withholding tax,
subject to reduction under any applicable tax treaty.
Further, a REMIC Regular Certificate will not be included in the
estate of a non-resident alien individual and will not be subject to
United States estate taxes. However, Certificateholders who are
non-resident alien individuals should consult their tax advisors
concerning this question.
REMIC Regular Certificateholders who are not U.S. Persons and
persons related to such holders should not acquire any REMIC
Residual Certificates, and holders of REMIC Residual Certificates
(the "REMIC Residual Certificateholder") and persons related to
REMIC Residual Certificateholders should not acquire any REMIC
Regular Certificates without consulting their tax advisors as to the
possible adverse tax consequences of doing so.
Information Reporting and Backup Withholding. The Master Servicer
will furnish or make available, within a reasonable time after the
end of each calendar year, to each person who was a REMIC Regular
Certificateholder at any time during such year, such information as
may be deemed necessary or desirable to assist REMIC Regular
Certificateholders in preparing their federal income tax returns, or
to enable holders to make such information available to beneficial
owners or financial intermediaries that hold such REMIC Regular
Certificates on behalf of beneficial owners. If a holder, beneficial
owner, financial intermediary or other recipient of a payment on
behalf of a beneficial owner fails to supply a certified taxpayer
identification number or if the Secretary of the Treasury determines
that such person has not reported all interest and dividend income
required to be shown on its federal income tax return, 31% backup
withholding may be required with respect to any payments. Any
amounts deducted and withheld from a distribution to a recipient
would be allowed as a credit against such recipient's federal income
tax liability.
b. Taxation of Owners of REMIC Residual Certificates
Allocation of the Income of the REMIC to the REMIC Residual
Certificates. The REMIC will not be subject to federal income tax
except with respect to income from prohibited transactions and
certain other transactions. See "Prohibited Transactions and Other
Taxes" below. Instead, each original holder of a REMIC Residual
Certificate will report on its federal income tax return, as
ordinary income, its share of the taxable income of the REMIC for
each day during the taxable year on which such holder owns any REMIC
Residual Certificates. The taxable income of the REMIC for each day
will be determined by allocating the taxable income of the REMIC for
each calendar quarter ratably to each day in the quarter. Such a
holder's share of the taxable income of the REMIC for each day will
be based on the portion of the outstanding REMIC Residual
Certificates that such holder owns on that day. The taxable income
of the REMIC will be determined under an accrual method and will be
taxable to the holders of REMIC Residual Certificates without regard
to the timing or amounts of cash distributions by the REMIC.
Ordinary income derived from REMIC Residual Certificates will be
"portfolio income" for purposes of the taxation of taxpayers subject
to the limitations on the deductibility of "passive losses." As
residual interests, the REMIC Residual Certificates will be subject
to tax rules, described below, that differ from those that would
apply if the REMIC Residual Certificates were treated for federal
income tax purposes as direct ownership interests in the
Certificates or as debt instruments issued by the REMIC.
A REMIC Residual Certificateholder may be required to include
taxable income from the REMIC Residual Certificate in excess of the
cash distributed. For example, a structure where principal
distributions are made serially on regular interests (that is, a
fast-pay, slow-pay structure) may generate such a mismatching of
income and cash distributions (that is, "phantom income"). This
mismatching may be caused by the use of certain required tax
accounting methods by the REMIC, variations in the prepayment rate
of the underlying Qualified Assets and certain other factors.
Depending upon the structure of a particular transaction, the
aforementioned factors may significantly reduce the after-tax yield
of a REMIC Residual Certificate to a REMIC Residual
Certificateholder. Investors should consult their own tax advisors
concerning the federal income tax treatment of a REMIC Residual
Certificate and the impact of such tax treatment on the after-tax
yield of a REMIC Residual Certificate.
A subsequent REMIC Residual Certificateholder also will report on
its federal income tax return amounts representing a daily share of
the taxable income of the REMIC for each day that such REMIC
Residual Certificateholder owns such REMIC Residual Certificate.
Those daily amounts generally would
equal the amounts that would have been reported for the same days by
an original REMIC Residual Certificateholder, as described above.
The Legislative History indicates that certain adjustments may be
appropriate to reduce (or increase) the income of a subsequent
holder of a REMIC Residual Certificate that purchased such REMIC
Residual Certificate at a price greater than (or less than) the
adjusted basis such REMIC Residual Certificate would have in the
hands of an original REMIC Residual Certificateholder. See "Sale
or Exchange of REMIC Residual Certificates" below. It is not clear,
however, whether such adjustments will in fact be permitted or
required and, if so, how they would be made. The REMIC Regulations
do not provide for any such adjustments.
Taxable Income of the REMIC Attributable to Residual Interests.
The taxable income of the REMIC will reflect a netting of (i) the
income from the Qualified Assets and the REMIC's other assets and
(ii) the deductions allowed to the REMIC for interest and OID on the
REMIC Regular Certificates and, except as described above under
"Taxation of Owners of REMIC Regular Certificates - Non-Interest
Expenses of the REMIC," other expenses. REMIC taxable income is
generally determined in the same manner as the taxable income of an
individual using the accrual method of accounting, except that (i)
the limitations on deductibility of investment interest expense and
expenses for the production of income do not apply, (ii) all bad
loans will be deductible as business bad debts, and (iii) the
limitation on the deductibility of interest and expenses related to
tax-exempt income will apply. The REMIC's gross income includes
interest, original issue discount income, and market discount
income, if any, on the Qualified Loans, reduced by amortization of
any premium on the Qualified Loans, plus income on reinvestment of
cash flows and reserve assets, plus any cancellation of indebtedness
income upon allocation of realized losses to the REMIC Regular
Certificates. Note that the timing of cancellation of indebtedness
income recognized by REMIC Residual Certificateholders resulting
from defaults and delinquencies on Qualified Assets may differ from
the time of the actual loss on the Qualified Asset. The REMIC's
deductions include interest and original issue discount expense on
the REMIC Regular Certificates, servicing fees on the Qualified
Loans, other administrative expenses of the REMIC and realized
losses on the Qualified Loans. The requirement that REMIC Residual
Certificateholders report their pro rata share of taxable income or
net loss of the REMIC will continue until there are no Certificates
of any class of the related Series outstanding.
For purposes of determining its taxable income, the REMIC will
have an initial aggregate tax basis in its assets equal to the sum
of the issue prices of the REMIC Regular Certificates and the REMIC
Residual Certificates (or, if a class of Certificates is not sold
initially, its fair market value). Such aggregate basis will be
allocated among the Qualified Assets and other assets of the REMIC
in proportion to their respective fair market value. A Qualified
Asset will be deemed to have been acquired with discount or premium
to the extent that the REMIC's basis therein is less than or greater
than its principal balance, respectively. Any such discount (whether
market discount or OID) will be includible in the income of the
REMIC as it accrues, in advance of receipt of the cash attributable
to such income, under a method similar to the method described above
for accruing OID on the REMIC Regular Certificates. The REMIC
expects to elect under Code Section 171 to amortize any premium on
the Qualified Assets. Premium on any Qualified Asset to which such
election applies would be amortized under a constant yield method.
It is not clear whether the yield of a Qualified Asset would be
calculated for this purpose based on scheduled payments or taking
account of the Prepayment Assumption. Additionally, such an election
would not apply to the yield with respect to any underlying mortgage
loan originated on or before September 27, 1985. Instead, premium
with respect to such a mortgage loan would be allocated among the
principal payments thereon and would be deductible by the REMIC as
those payments become due.
The REMIC will be allowed a deduction for interest and OID on the
REMIC Regular Certificates. The amount and method of accrual of OID
will be calculated for this purpose in the same manner as described
above with respect to REMIC Regular Certificates except that the
0.25% per annum de minimis rule and adjustments for subsequent
holders described therein will not apply.
A REMIC Residual Certificateholder will not be permitted to
amortize the cost of the REMIC Residual Certificate as an offset to
its share of the REMIC's taxable income. However, REMIC taxable
income will not include cash received by the REMIC that represents a
recovery of the REMIC's basis in its assets, and, as described
above, the issue price of the REMIC Residual Certificates will be
added to the issue price of the REMIC Regular Certificates in
determining the REMIC's initial basis in its assets. See "Sale or
Exchange of REMIC Residual Certificates" below. For a discussion of
possible adjustments to income of a subsequent holder of a REMIC
Residual Certificate to reflect any difference between the actual
cost of such REMIC Residual Certificate to such holder and the
adjusted basis such REMIC Residual Certificate would have in the
hands of an original REMIC Residual Certificateholder, see
"Allocation of the Income of the REMIC to the REMIC Residual
Certificates" above.
Net Losses of the REMIC. The REMIC will have a net loss for any
calendar quarter in which its deductions exceed its gross income.
Such net loss would be allocated among the REMIC Residual
Certificateholders in the same manner as the REMIC's taxable income.
The net loss allocable to any REMIC Residual Certificate will not be
deductible by the holder to the extent that such net loss exceeds
such holder's adjusted basis in such REMIC Residual Certificate. Any
net loss that is not currently deductible by reason of this
limitation may only be used by such REMIC Residual Certificateholder
to offset its share of the REMIC's taxable income in future periods
(but not otherwise). The ability of REMIC Residual
Certificateholders that are individuals or closely held corporations
to deduct net losses may be subject to additional limitations under
the Code.
Mark to Market Rules. Prospective purchasers of a REMIC Residual
Certificate should be aware that the IRS recently released proposed
regulations (the "Proposed Mark-to-Market Regulations") which
provide that a REMIC Residual Certificate acquired after January 3,
1995 cannot be marked-to-market. The Proposed Mark-to-Market
Regulations change the temporary regulations which allowed a
Residual Certificate to be marked-to-market provided that it was not
a "negative value" residual interest and did not have the same
economic effect as a "negative value" residual interest.
Pass-Through of Non-Interest Expenses of the REMIC. As a general
rule, all of the fees and expenses of a REMIC will be taken into
account by holders of the REMIC Residual Certificates. In the case
of a single class REMIC, however, the expenses and a matching amount
of additional income will be allocated, under temporary Treasury
regulations, among the REMIC Regular Certificateholders and the
REMIC Residual Certificateholders on a daily basis in proportion to
the relative amounts of income accruing to each Certificateholder on
that day. In general terms, a single class REMIC is one that either
(i) would qualify, under existing Treasury regulations, as a grantor
trust if it were not a REMIC (treating all interests as ownership
interests, even if they would be classified as debt for federal
income tax purposes) or (ii) is similar to such a trust and is
structured with the principal purpose of avoiding the single class
REMIC rules. The expenses of the REMIC will be allocated to holders
of the related REMIC Residual Certificates in their entirety and not
to holders of the related REMIC Regular Certificates.
In the case of individuals (or trusts, estates or other persons
that compute their income in the same manner as individuals) who own
an interest in a REMIC Regular Certificate or a REMIC Residual
Certificate directly or through a pass-through interest holder that
is required to pass miscellaneous itemized deductions through to its
owners or beneficiaries (e.g. a partnership, an S corporation or a
grantor trust), such expenses will be deductible under Code Section
67 only to the extent that such expenses, plus other "miscellaneous
itemized deductions" of the individual, exceed 2% of such
individual's adjusted gross income. In addition, Code Section 68
provides that the amount of itemized deductions otherwise allowable
for an ndividual whose adjusted gross income exceeds a certain
amount (the "Applicable Amount") will be reduced by the lesser of
(i) 3% of the excess of the individual's adjusted gross income over
the Applicable Amount or (ii) 80% of the amount of itemized
deductions otherwise allowable for the taxable year. The amount of
additional taxable income recognized by REMIC Residual
Certificateholders who are subject to the limitations of either Code
Section 67 or Code Section 68 may be substantial. Further, holders
(other than corporations) subject to the alternative minimum tax may
not deduct miscellaneous itemized deductions in determining such
holders' alternative
minimum taxable income. The REMIC is required to report to each
pass-through interest holder and to the IRS such holder's alocable
share, if any, of the REMIC's non-interest expenses. The term
"pass-through interest holder" generally refers to individuals,
entities taxed as individuals and certain pass-through entities, but
does not include real estate investment trusts. REMIC Residual
Certificateholders that are pass-through interest holders should
consult their own tax advisors about the impact of these rules on an
investment in the REMIC Residual Certificates.
Excess Inclusions. A portion of the income on a REMIC Residual
Certificate (referred to in the Code as an "excess inclusion") for
any calendar quarter will, with an exception discussed below for
certain thrift institutions, be subject to federal income tax in all
events. Thus, for example, an excess inclusion (i) may not, except
as described below, be offset by any unrelated losses, deductions or
loss carryovers of a REMIC Residual Certificateholder; (ii) will be
treated as "unrelated business taxable income" within the meaning of
Code Section 512 if the REMIC Residual Certificateholder is a
pension fund or any other organization that is subject to tax only
on its unrelated business taxable income (see " Tax-Exempt
Investors" below); and (iii) is not eligible for any reduction in
the rate of withholding tax in the case of a REMIC Residual
Certificateholder that is a foreign investor. See "Non-U.S.
Persons" below. The exception for thrift institutions is available
only to the institution holding the REMIC Residual Certificate and
not to any affiliate of the institution, unless the affiliate is a
subsidiary all the stock of which, and substantially all the
indebtedness of which, is held by the institution, and which is
organized and operated exclusively in connection with the
organization and operation of one or more REMICs.
Except as discussed in the following paragraph, with respect to
any REMIC Residual Certificateholder, the excess inclusions for any
calendar quarter is the excess, if any, of (i) the income of such
REMIC Residual Certificateholder for that calendar quarter from its
REMIC Residual Certificate over (ii) the sum of the "daily accruals"
(as defined below) for all days during the calendar quarter on which
the REMIC Residual Certificateholder holds such REMIC Residual
Certificate. For this purpose, the daily accruals with respect to a
REMIC Residual Certificate are determined by allocating to each day
in the calendar quarter its ratable portion of the product of the
"adjusted issue price" (as defined below) of the REMIC Residual
Certificate at the beginning of the calendar quarter and 120 percent
of the "Federal long-term rate" in effect at the time the REMIC
Residual Certificate is issued. For this purpose, the "adjusted
issue price" of a REMIC Residual Certificate at the beginning of any
calendar quarter equals the issue price of the REMIC Residual
Certificate, increased by the amount of daily accruals for all prior
quarters, and decreased (but not below zero) by the aggregate amount
of payments made on the REMIC Residual Certificate before the
beginning of such quarter. The "federal long-term rate" is an
average of current yields on Treasury securities with a remaining
term of greater than nine years, computed and published monthly by
the IRS.
As an exception to the general rule described above, the Treasury
Department has authority to issue regulations that would treat the
entire amount of income accruing on a REMIC Residual Certificate as
excess inclusions if the REMIC Residual Certificates in the
aggregate are considered not to have "significant value." Under the
REMIC Regulations, REMIC Residual Certificateholders that are thrift
institutions described in Code Section 593 can offset excess
inclusions with unrelated deductions, losses and loss carryovers
provided the REMIC Residual Certificates have "significant value".
For purposes of applying this rule, thrift institutions that are
members of an affiliated group filing a consolidated return,
together with their subsidiaries formed to issue REMICs, are treated
as separate corporations. REMIC Residual Certificates have
"significant value" if: (i) the REMIC Residual Certificates have an
aggregate issue price that is at least equal to 2% of the aggregate
issue price of all REMIC Residual Certificates and REMIC Regular
Certificates with respect to the REMIC and (ii) the anticipated
weighted average life of the REMIC Residual Certificates is at least
20% of the anticipated weighted average life of the REMIC based on
the anticipated principal payments to be received with respect
thereto (using the Prepayment Assumption and any required or
permitted clean up calls or required liquidation provided for in the
REMIC's organizational documents), except that all anticipated
distributions are to be used to calculate the weighted average life
of REMIC Regular Certificates that are not entitled to any principal
payments or are entitled to a disproportionately small principal
amount relative to interest payments thereon and all anticipated
distributions are to be used to calculate the weighted average life
of the REMIC Residual Certificates. The principal amount will be
considered disproportionately small if the issue price of the REMIC
Residual Certificates exceeds 125% of their initial principal
amount. Finally, an ordering rule under the REMIC Regulations
provides that a thrift institution may only offset its excess
inclusion income with deductions after it has first applied its
deductions against income that is not excess inclusion income.
In the case of any REMIC Residual Certificates held by a real
estate investment trust, the aggregate excess inclusions with
respect to such REMIC Residual Certificates, reduced (but not below
zero) by the real estate investment trust taxable income (within the
meaning of Code Section 857(b)(2), excluding any net capital gain),
will be allocated among the shareholders of such trust in proportion
to the dividends received by such shareholders from such trust, and
any amount so allocated will be treated as an excess inclusion with
respect to a REMIC Residual Certificate as if held directly by such
shareholder. Regulated investment companies, common trust funds and
certain cooperatives are subject to similar rules.
Payments. Any distribution made on a REMIC Residual Certificate
to a REMIC Residual Certificateholder will be treated as a
non-taxable return of capital to the extent it does not exceed the
REMIC Residual Certificateholder's adjusted basis in such REMIC
Residual Certificate. To the extent a distribution exceeds such
adjusted basis, it will be treated as gain from the sale of the
REMIC Residual Certificate.
Sale or Exchange of REMIC Residual Certificates. If a REMIC
Residual Certificate is sold or exchanged, the seller will generally
recognize gain or loss equal to the difference between the amount
realized on the sale or exchange and its adjusted basis in the REMIC
Residual Certificate (except that the recognition of loss may be
limited under the "wash sale" rules described below). A holder's
adjusted basis in a REMIC Residual Certificate generally equals the
cost of such REMIC Residual Certificate to such REMIC Residual
Certificateholder, increased by the taxable income of the REMIC that
was included in the income of such REMIC Residual Certificateholder
with respect to such REMIC Residual Certificate, and decreased (but
not below zero) by the net losses that have been allowed as
deductions to such REMIC Residual Certificateholder with respect to
such REMIC Residual Certificate and by the distributions received
thereon by such REMIC Residual Certificateholder. In general, any
such gain or loss will be capital gain or loss provided the REMIC
Residual Certificate is held as a capital asset. However, REMIC
Residual Certificates will be "evidences of indebtedness" within the
meaning of Code Section 582(c)(1), so that gain or loss recognized
from sale of a REMIC Residual Certificate by a bank or thrift
institution to which such section applies would be ordinary income
or loss.
Except as provided in Treasury regulations yet to be issued, if
the seller of a REMIC Residual Certificate reacquires such REMIC
Residual Certificate, or acquires any other REMIC Residual
Certificate, any residual interest in another REMIC or similar
interest in a "taxable mortgage pool" (as defined in Code Section
7701(i)) during the period beginning six months before, and ending
six months after, the date of such sale, such sale will be subject
to the "wash sale" rules of Code Section 1091. In that event, any
loss realized by the REMIC Residual Certificateholder on the sale
will not be deductible, but, instead, will increase such REMIC
Residual Certificateholder's adjusted basis in the newly acquired
asset.
Prohibited Transactions and Other Taxes
The Code imposes a tax on REMICs equal to 100% of the net income
derived from "prohibited transactions" (the "Prohibited Transactions
Tax"). In general, subject to certain specified exceptions, a
prohibited transaction means the disposition of a Qualified Asset,
the receipt of income from a source other than a Qualified Asset or
certain other permitted investments, the receipt of compensation for
services, or gain from the disposition of an asset purchased with
the payments on the Qualified Assets for temporary investment
pending distribution on the Certificates. It is not anticipated that
the Trust Fund for any Series of Certificates will engage in any
prohibited transactions in which it would recognize a material
amount of net income.
In addition, certain contributions to a Trust Fund as to which an
election has been made to treat such Trust Fund as a REMIC made
after the day on which such Trust Fund issues all of its interests
could result in the imposition of a tax on the Trust Fund equal to
100% of the value of the contributed property (the "Contributions
Tax"). No Trust Fund for any Series of Certificates will accept
contributions that would subject it to such tax.
In addition, a Trust Fund as to which an election has been made
to treat such Trust Fund as a REMIC may also be subject to federal
income tax at the highest corporate rate on "net income from
foreclosure property," determined by reference to the rules
applicable to real estate investment trusts. "Net income from
foreclosure property" generally means income from foreclosure
property other than qualifying income for a real estate investment
trust.
Where any Prohibited Transactions Tax, Contributions Tax, tax on
net income from foreclosure property or state or local income or
franchise tax that may be imposed on a REMIC relating to any Series
of Certificates arises out of or results from (i) a breach of the
related Master Servicer's, Central Servicer's, Trustee's or Seller's
obligations, as the case may be, under the related Agreement for
such Series, such tax will be borne by such Master Servicer, Central
Servicer, Trustee or Seller, as the case may be, out of its own
funds or (ii) the Seller's obligation to repurchase a Qualified
Loan, such tax will be borne by the Seller. In the event that such
Master Servicer, Central Servicer, Trustee or Seller, as the case
may be, fails to pay or is not required to pay any such tax as
provided above, such tax will be payable out of the Trust Fund for
such Series and will be covered under the Farmer Mac Guarantee.
Liquidation and Termination
If the REMIC adopts a plan of complete liquidation, within the
meaning of Code Section 860F(a)(4)(A)(i), which may be accomplished
by designating in the REMIC's final tax return a date on which such
adoption is deemed to occur, and sells all of its assets (other than
cash) within a 90-day period beginning on such date, the REMIC will
not be subject to any Prohibited Transaction Tax, provided that the
REMIC credits or distributes in liquidation all of the sale proceeds
plus its cash (other than the amounts retained to meet claims) to
holders of Regular and REMIC Residual Certificates within the 90-day
period.
The REMIC will terminate shortly following the retirement of the
REMIC Regular Certificates. If a REMIC Residual Certificateholder's
adjusted basis in the REMIC Residual Certificate exceeds the amount
of cash distributed to such REMIC Residual Certificateholder in
final liquidation of its interest, then it would appear that the
REMIC Residual Certificateholder would be entitled to a loss equal
to the amount of such excess. It is unclear whether such a loss, if
allowed, will be a capital loss or an ordinary loss.
Administrative Matters
Solely for the purpose of the administrative provisions of the
Code, the REMIC generally will be treated as a partnership and the
REMIC Residual Certificateholders will be treated as the partners.
Certain information will be furnished quarterly to each REMIC
Residual Certificateholder who held a REMIC Residual Certificate on
any day in the previous calendar quarter.
Each REMIC Residual Certificateholder is required to treat items
on its return consistently with their treatment on the REMIC's
return, unless the REMIC Residual Certificateholder either files a
statement identifying the inconsistency or establishes that the
inconsistency resulted from incorrect information received from the
REMIC. The IRS may assert a deficiency resulting from a failure to
comply with the consistency requirement without instituting an
administrative proceeding at the REMIC level. The REMIC does not
intend to register as a tax shelter pursuant to Code Section 6111
because it is not anticipated that the REMIC will have a net loss
for any of the first five taxable years of its existence. Any person
that holds a REMIC Residual Certificate as a nominee for another
person may be required to
furnish the REMIC, in a manner to be provided in Treasury
regulations, with the name and address of such person and other
information.
Tax-Exempt Investors
Any REMIC Residual Certificateholder that is a pension fund or
other entity that is subject to federal income taxation only on its
"unrelated business taxable income" within the meaning of Code
Section 512 will be subject to such tax on that portion of the
distributions received on a REMIC Residual Certificate that is
considered an excess inclusion. See "Taxation of Owners of REMIC
Residual Certificates Excess Inclusions" above.
Residual Certificate Payments -- Non-U.S. Persons
Amounts paid to REMIC Residual Certificateholders who are not
U.S. Persons (see "Taxation of Owners of REMIC Regular
Certificates Non-U.S. Persons" above) are treated as interest for
purposes of the 30% (or lower treaty rate) United States withholding
tax. Amounts distributed to holders of REMIC Residual Certificates
should qualify as "portfolio interest," subject to the conditions
described in "Taxation of Owners of REMIC Regular Certificates"
above, but only to the extent that the underlying mortgage loans
were originated after July 18, 1984. Furthermore, the rate of
withholding on any income on a REMIC Residual Certificate that is
excess inclusion income will not be subject to reduction under any
applicable tax treaties. See "Taxation of Owners of REMIC Residual
Certificates Excess Inclusions" above. If the portfolio interest
exemption is unavailable, such amount will be subject to United
States withholding tax when paid or otherwise distributed (or when
the REMIC Residual Certificate is disposed of) under rules similar
to those for withholding upon disposition of debt instruments that
have OID. The Code, however, grants the Treasury Department
authority to issue regulations requiring that those amounts be taken
into account earlier than otherwise provided where necessary to
prevent avoidance of tax (for example, where the REMIC Residual
Certificates do not have significant value). See "Taxation of
Owners of REMIC Residual Certificates Excess Inclusions" above. If
the amounts paid to REMIC Residual Certificateholders that are not
U.S. persons are effectively connected with their conduct of a trade
or business within the United States, the 30% (or lower treaty rate)
withholding will not apply. Instead, the amounts paid to such
non-U.S. Person will be subject to U.S. federal income taxation at
regular graduated rates. For special restrictions on the transfer of
REMIC Residual Certificates, see " Tax-Related Restrictions on
Transfers of REMIC Residual Certificates" below.
REMIC Regular Certificateholders and persons related to such
holders should not acquire any REMIC Residual Certificates, and
REMIC Residual Certificateholders and persons related to REMIC
Residual Certificateholders should not acquire any REMIC Regular
Certificates, without consulting their tax advisors as to the
possible adverse tax consequences of such acquisition.
Tax-Related Restrictions on Transfers of REMIC Residual Certificates
Disqualified Organizations. An entity may not qualify as a REMIC
unless there are reasonable arrangements designed to ensure that
residual interests in such entity are not held by "disqualified
organizations" (as defined below). Further, a tax is imposed on the
transfer of a residual interest in a REMIC to a "disqualified
organization." The amount of the tax equals the product of (A) an
amount (as determined under the REMIC Regulations) equal to the
present value of the total anticipated "excess inclusions" with
respect to such interest for periods after the transfer and (ii) the
highest marginal federal income tax rate applicable to corporations.
The tax is imposed on the transferor unless the transfer is through
an agent (including a broker or other middleman) for a disqualified
organization, in which event the tax is imposed on the agent. The
person otherwise liable for the tax shall be relieved of liability
for the tax if the transferee furnished to such person an affidavit
that the transferee is not a disqualified organization and, at the
time of the transfer, such person does not have actual knowledge
that the affidavit is false. A "disqualified organization" means (A)
the United States, any State, possession or political subdivision
thereof, any foreign government, any international organization or
any agency or instrumentality of any of the foregoing (provided that
such term does not include an instrumentality if all its activities
are subject to tax and, except for FHLMC, a majority of its board of
directors is not selected by any such governmental agency), (B) any
organization (other than certain farmers' cooperatives) generally
exempt from federal income taxes unless such organization is subject
to the tax on "unrelated business taxable income" and (C) a rural
electric or telephone cooperative.
A tax is imposed on a "pass-through entity" (as defined below)
holding a residual interest in a REMIC if at any time during the
taxable year of the pass-through entity a disqualified organization
is the record holder of an interest in such entity. The amount of
the tax is equal to the product of (A) the amount of excess
inclusions for the taxable year allocable to the interest held by
the disqualified organization and (B) the highest marginal federal
income tax rate applicable to corporations. The pass-through entity
otherwise liable for the tax, for any period during which the
disqualified organization is the record holder of an interest in
such entity, will be relieved of liability for the tax if such
record holder furnishes to such
entity an affidavit that such record holder is not a disqualified
organization and, for such period, the pass-through entity does not
have actual knowledge that the affidavit is false. For this purpose,
a "pass-through entity" means (i) a regulated investment company,
real estate investment trust or common trust fund, (ii) a
partnership, trust or estate and (iii) certain cooperatives. Except
as may be provided in Treasury regulations not yet issued, any
person holding an interest in a pass-through entity as a nominee for
another will, with respect to such interest, be treated as a
pass-through entity. The tax on pass-through entities is generally
effective for periods after March 31, 1988, except that in the case
of regulated investment companies, real estate investment trusts,
common trust funds and publicly-traded partnerships the tax shall
apply only to taxable years of such entities beginning after
December 31, 1988. Under proposed legislation, large partnerships
(generally with 250 or more partners) will be taxable on excess
inclusion income as if all partners were disqualified organizations.
In order to comply with these rules, the Agreement will provide
that no record or beneficial ownership interest in a REMIC Residual
Certificate may be purchased, transferred or sold, directly or
indirectly, without the express written consent of the Master
Servicer. The Master Servicer will grant such consent to a proposed
transfer only if it receives the following: (i) an affidavit from
the proposed transferee to the effect that it is not a disqualified
organization and is not acquiring the REMIC Residual Certificate as
a nominee or agent for a disqualified organization and (ii) a
covenant by the proposed transferee to the effect that the proposed
transferee agrees to be bound by and to abide by the transfer
restrictions applicable to the REMIC Residual Certificate.
Noneconomic REMIC Residual Certificates. The REMIC Regulations
disregard, for federal income tax purposes, any transfer of a
Noneconomic REMIC Residual Certificate to a "U.S. Person," as
defined above, unless no significant purpose of the transfer is to
enable the transferor to impede the assessment or collection of tax.
A Noneconomic REMIC Residual Certificate is any REMIC Residual
Certificate (including a REMIC Residual Certificate with a positive
value at issuance) unless, at the time of transfer, taking into
account the Prepayment Assumption and any required or permitted
clean up calls or required liquidation provided for in the REMIC's
organizational documents, (i) the present value of the expected
future distributions on the REMIC Residual Certificate at least
equals the product of the present value of the anticipated excess
inclusions and the highest corporate income tax rate in effect for
the year in which the transfer occurs and (ii) the transferor
reasonably expects that the transferee will receive distributions
from the REMIC at or after the time at which taxes accrue on the
anticipated excess inclusions in an amount sufficient to satisfy the
accrued taxes. A significant purpose to impede the assessment or
collection of tax exists if the transferor, at the time of the
transfer, either knew or should have known that the transferee would
be unwilling or unable to pay taxes due on its share of the taxable
income of the REMIC. A transferor is presumed not to have such
knowledge if (i) the transferor conducted a reasonable
investigation of the transferee and (ii) the transferee acknowledges
to the transferor that the residual interest may generate tax
liabilities in excess of the cash flow and the transferee represents
that it intends to pay such taxes associated with the residual
interest as they become due. If a transfer of a Noneconomic REMIC
Residual Certificate is disregarded, the transferor would continue
to be treated as the owner of the REMIC Residual Certificate and
would continue to be subject to tax on its allocable portion of the
net income of the REMIC.
Foreign Investors. The REMIC Regulations provide that the
transfer of a REMIC Residual Certificate that has a "tax avoidance
potential" to a "foreign person" will be disregarded for federal
income tax purposes. This rule appears to apply to a transferee who
is not a U.S. Person unless such transferee's income in respect of
the REMIC Residual Certificate is effectively connected with the
conduct of a United Sates trade or business. A REMIC Residual
Certificate is deemed to have a tax avoidance potential unless, at
the time of transfer, the transferor reasonably expect that the
REMIC will distribute to the transferee amounts that will equal at
least 30 percent of each excess inclusion, and that such amounts
will be distributed at or after the time the excess inclusion
accrues and not later than the end of the calendar year following
the year of accrual. If the non-U.S. Person transfers the REMIC
Residual Certificate to a U.S. Person, the transfer will be
disregarded, and the foreign transferor will continue to be treated
as the owner, if the transfer has the effect of allowing the
transferor to avoid tax on accrued excess inclusions. The provisions
in the REMIC Regulations regarding transfers of REMIC Residual
Certificates that have tax avoidance potential to foreign persons
are effective for all transfers after June 30, 1992. The Agreement
will provide that no record or beneficial ownership interest in a
REMIC Residual Certificate may be transferred, directly or
indirectly, to a non-U.S. Person unless such person provides the
Trustee with a duly completed IRS Form 4224 and the Trustee consents
to such transfer in writing.
Any attempted transfer or pledge in violation of the transfer
restrictions shall be absolutely null and void and shall vest no
rights in any purported transferee. Investors in REMIC Residual
Certificates are advised to consult their own tax advisors with
respect to transfers of the REMIC Residual Certificates and, in
addition, pass-through entities are advised to consult their own tax
advisors with respect to any tax which may be imposed on a
pass-through entity.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES," potential investors
should consider the state income tax consequences of the
acquisition, ownership, and disposition of the Certificates. State
income tax law may differ substantially from the corresponding
federal law, and this discussion does not purport to describe any
aspect of the income tax laws of any state. Therefore, potential
investors should consult their own tax advisors with respect to the
various tax consequences of investments in the Certificates.
ERISA CONSIDERATIONS
General
The Employee Retirement Income Security Act of 1974, as amended
("ERISA") imposes certain restrictions on employee benefit plans and
certain other retirement arrangements subject to ERISA ("Plans") and
on persons who are parties in interest or disqualified persons
("parties in interest") with respect to such Plans. Certain employee
benefit plans, such as governmental plans and church plans (if no
election has been made under Code Section 410(d)), are not subject
to the requirements of ERISA, and assets of such plans may be
invested in Certificates without regard to the ERISA considerations
described below, subject to the provisions of other applicable
federal and state law. If the assets of a Trust Fund were deemed to
be plan assets, (i) the prudence standards and other provisions of
Title I of ERISA applicable to investments by Plans and their
fiduciaries would extend (as to all fiduciaries) to all assets of
the Trust Fund and (ii) transactions involving the assets of the
Trust Fund and parties in interest or disqualified persons with
respect to such plans might be prohibited under ERISA Section 406
and Code Section 4975 unless an exemption is applicable. Under
ERISA, parties in interest include, among others, fiduciaries,
service providers and employers whose employees are covered by a
Plan.
A fiduciary with respect to a Plan is a person who (i) exercises
any discretionary authority or discretionary control respecting
management of a Plan or exercises any authority or control
respecting management or disposition of its assets, (ii) renders
investment advice for a fee or other compensation, direct or
indirect, with respect to any monies or other property of such Plan,
or has any authority or responsibility to do so, or (iii) has any
discretionary authority or discretionary responsibility in the
administration of such Plan.
In considering an investment in the Certificates, a fiduciary
should consider (i) whether the investment is prudent and in
accordance with the documents and instruments governing the Plan and
is appropriate for the Plan in light of the Plan's investment
portfolio taken as a whole, (ii) whether the investment satisfies
the diversification requirements of Section 404(a)(1)(C) of Title I
of ERISA, and (iii) in the case of a Plan described in Code Section
401(a) ("Qualified Plan") or an individual retirement account
("IRA") whether the investment will result in unrelated business
taxable income to the Qualified Plan or IRA.
Plan Assets
ERISA standards of conduct are imposed on parties, such as
fiduciaries, who have authority to deal with "plan assets." Final
regulations defining plan assets in the context of plan investments
in other entities have been issued by the Department of Labor
("Final Regulations"). The Final Regulations set forth the general
rule that, when a Plan (which term shall include for purposes of
this discussion Qualified Plans, IRAs and any other plan described
in Code Section 4975 (a "Code Section 4975 Plan") invests in another
entity, the Plan's assets include its investment, but do not, solely
by reason of such investment, include any of the underlying assets
of the entity. The general rule does not apply, however, if a Plan
acquires an equity interest in an entity that is neither a
publicly-offered security nor a security issued by an investment
company registered under the Investment Company Act of 1940. If the
general rule does not apply, a Plan's assets include both the equity
interest and an undivided interest in each of the underlying assets
of the entity, unless it is established that (i) the entity is an
operating company or (ii) equity participation in the entity by
benefit plan investors is not significant. Equity participation in
the Trust would be considered significant if immediately after the
most recent acquisition of any equity interest, 25% or more of the
value of any class of equity interests in the Trust is held by Plan
investors.
In addition, the Final Regulations provide that where a Plan
acquires a guaranteed government mortgage pool certificate, the
Plan's assets include the certificate and all of its rights with
respect to such certificate under applicable law, but do not, solely
by reason of the Plan's holding of such certificate, include any of
the mortgages underlying such certificate. The term "guaranteed
governmental mortgage pool certificate" is defined as a certificate
backed by, or evidencing an interest in, specified mortgages or
participation interests therein, and with respect to which interest
and principal payable pursuant to the certificate is guaranteed by
the United States or an agency or instrumentality thereof. Although
the Certificates may satisfy the governmental mortgage pool
exemption set forth in the Final Regulations, no assurance can be
given that the Department of Labor or any other authority would
concur with such analysis.
A "publicly-offered security" is one that is freely transferable,
part of a class of securities that is widely held and is either (i)
part of a class of securities registered under section 12(b) or
12(g) of the Exchange Act or (ii) sold as part of an offering of
securities to the public pursuant to an effective registration
statement under the 1933 Act and the class of securities of which
such security is a part is registered under the Exchange Act within
120 days (or a later time as permitted by the Securities and
Exchange Commission) after the end of the fiscal year of the issuer
during which the offering of such securities to the public occurred.
A class of securities is widely held only if it is a class of
securities that is owned by 100 or more investors independent of the
issuer and one another. It is unlikely that the Certificates offered
hereby will be considered to be publicly-offered securities.
Prohibited Transactions
A broad range of transactions between parties-in-interest and
Plans are prohibited by ERISA. The acquisition of a Certificate by a
Plan subject to ERISA or Code Section 4975 could result in
prohibited transactions or other violations of the fiduciary
responsibility provisions of ERISA and Code Section 4975. Certain
exemptions from the prohibited transaction rules could be
applicable, depending in part upon the type and circumstances of the
Plan fiduciary making the decision to acquire a Certificate.
Prohibited Transaction Class Exemption 83-1 ("PTCE 83-1")
generally exempts from the application of the prohibited transaction
rules transactions relating to the operation of a "mortgage pool"
and the purchase, sale, and holding of "mortgage pool pass-through
certificates," provided that certain conditions set forth in PTCE
83-1 are satisfied. The term "mortgage pool pass-through
certificate" is defined in PTCE 83-1 as "a certificate representing
a beneficial undivided fractional interest in a mortgage pool and
entitling the holder of such a certificate to pass-through payments
of principal and interest from the pooled mortgage loans, less any
fees retained by the pool sponsor." The term "mortgage pool" is
defined as an investment pool the corpus of which is held in trust
and consists solely of (i) interest bearing obligations secured by
either first or second mortgages or deeds of trust on single-family
residential property, (ii) property which had secured such
obligations and which had been acquired by foreclosure, and (iii)
undistributed cash. Single-family, residential property is non-farm
property comprising one to four dwelling units, including
condominiums. It appears that, for purposes of PTCE 83-1, the term
"mortgage pool pass-through certificate" would not include
Certificates.
If for this or any other reasons PTCE 83-1 does not provide an
exemption for a particular Plan desiring to invest in the
Certificates, one of five other prohibited transaction class
exemptions issued by the Department of Labor might apply, i.e., PTCE
84-14 (Class Exemption for Plan Asset Transactions Determined by
Independent Qualified Professional Asset Managers), PTCE 96-23
(Class Exemption for Plan Asset Transactions Determined by In-House
Asset Managers), PTCE 91-38 (Class Exemption for Certain
Transactions Involving Bank Collective Investment Funds), PTCE 90-1
(Class Exemption for Certain Transactions Involving Insurance
Company Pooled Separate Accounts) or PTCE 95-60 (Class Exemption for
Certain Transactions Involving Insurance Company General Accounts).
There can be no assurance that any of these class exemptions will
apply with respect to any particular Plan desiring to invest in the
Certificates or, even if it were to apply, that the exemption would
apply to all transactions involving the Pool.
Before purchasing any Certificates, a Plan fiduciary should
determine whether any ERISA prohibited transaction exemption is
applicable.
Special caution should be exercised before the assets of a Plan
are used to purchase a Certificate in circumstances where an
affiliate of the Seller, the Originator, the Central Servicer, or
the Trustee either: (a) has investment discretion with respect to
the investment of such assets of such Plan or (b) has authority or
responsibility to give, or regularly gives investment advice with
respect to such assets for a fee and pursuant to an agreement or
understanding that such advice will serve as a primary basis for
investment decisions with respect to such assets and that such
advice will be based on the particular investment needs of the Plan.
Any Plan fiduciary considering whether to purchase any
Certificates 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 Certificates is appropriate
for the Plan taking into consideration the overall investment policy
of the Plan and the composition of the Plan's investment portfolio.
METHOD OF DISTRIBUTION
The Certificates offered by the related Prospectus Supplements
may be (i) issued to Sellers or Originators in exchange for
Qualified Loans or (ii) sold either directly or to underwriters for
immediate resale in a public offering. The Prospectus Supplement for
each Series of Certificates will set forth the method of
distribution, and, in the case of any sale to underwriters, will
additionally set forth the terms of the offering of the Certificates
of such Series offered thereby, including the name or names of the
underwriters, the purchase price of such Certificates, the proceeds
from such sale, and, in the case of an underwritten fixed price
offering, the initial public offering price, the discounts and
commissions to the underwriters and any discounts or concessions
allowed or reallowed to certain dealers.
The Certificates of a Series may be acquired by underwriters for
their own account and may be resold from time to time in one or more
transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale.
The obligations of any underwriters will be subject to certain
conditions precedent and such underwriters will be severally
obligated to purchase all of the Certificates of a Series offered by
the Prospectus Supplement for such Series if any are purchased. If
the Certificates of a Series are offered other than through
underwriters, the Prospectus Supplement for such Series will contain
information regarding the nature of such offering and any agreements
to be entered into with respect to the purchase of such
Certificates.
The place and time of delivery for the Certificates of a Series
in respect of which this Prospectus is delivered will be set forth
in the Prospectus Supplement for such Series.
LEGAL INVESTMENT
The Certificates will constitute securities guaranteed by Farmer
Mac for purposes of the Farmer Mac Charter and, as such, will, by
statute, be legal investments for any 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 (except as indicated below) of any State (including
the District of Columbia and Puerto Rico) 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 the Farmer Mac Charter, if a State enacted
legislation prior to January 6, 1996 specifically limiting the legal
investment authority of any state-chartered entities with respect to
Farmer Mac guaranteed securities, such securities will constitute
legal investments for entities subject to such legislation only to
the extent provided therein. Farmer Mac is unaware of any state that
has enacted such legislation prior to the deadline therefor in the
Farmer Mac Charter.
The Farmer Mac Charter thus allows federal savings and loan
associations and federal savings banks to invest in Farmer Mac
guaranteed securities without limitation as to the percentage of
their assets represented thereby; federal credit unions to invest in
Farmer Mac guaranteed securities without limitation as to percentage
of capital and surplus; and allows national banks to purchase Farmer
Mac guaranteed securities for their own account without regard to
the limitation generally applicable to investment securities set
forth in 12 U.S.C. Section24 (Seventh), subject in each case to such
regulations as the applicable federal regulatory authority may
prescribe. In addition, on July 9, 1990, the Comptroller of the
Currency issued an interpretation that Farmer Mac guaranteed
securities of the type offered hereby are eligible for dealing in
and underwriting by national banks.
Relevant regulatory authorities may impose administrative
restrictions on investment in Certificates with special
characteristics, such as interest only and principal only
certificates.
Investors should consult their own legal advisors in determining
whether and to what extent the Certificates constitute legal
investments for such investors.
<PAGE>
INDEX OF PRINCIPAL TERMS
Unless the context indicates otherwise, the following capitalized
terms shall have the meanings set forth on the pages indicated
below:
<TABLE>
<CAPTION>
Page
<S> <C>
1933 Act........................................ 24
1986 Act........................................ 49
1991 Act........................................ 24
1996 Amendment.................................. 5
Accrual Certificates............................ 10,25
Accrual Period.................................. 55
Accrued Certificate Interest.................... 26
Adjusted Issue Price............................ 49
Advance......................................... 11,17
Agreements...................................... 31
Agricultural Real Estate........................ 6
AMBS............................................ 1,5
AMBS Information................................ 4
Applicable Amount............................... 63
Appraisal Standards............................. 17
ARM Loans....................................... 18,49
Balloon Payments................................ 7
Beneficial Owners............................... 30
Book-Entry Certificates......................... 25
Borrower....................................... 20
Central Servicer................................ 5
Central Servicing Fee........................... 37
Certificate Account............................. 35
Certificate Account Deposit Date................ 35
Certificate Balance............................. 9,27
Certificateholders.............................. 6,29
Certificates.................................... 1,5
Class........................................... 2
Cleanup Costs................................... 41
Closing Date.................................... 53
Code............................................ 12
Code Section 4975 Plan........................ 70
Collection Account.............................. 34
Commission..................................... 3
Contingent Regulations........................... 56
Contributions Tax................................ 65
CPR.............................................. 23
Cut-off Date.................................... 11
Deferred Interest................................ 50
Definitive Certificates......................... 25,31
Depository....................................... 29
Determination Date................................ 26
Disqualified Organizations...................... 67
Distribution Date................................ 10
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
Eligible Depository.............................. 34
Eligible Investment.............................. 34
ERISA............................................ 13,69
Excessinclusion.................................. 63
Excess servicing................................. 47
Exchange Act..................................... 3
Farmer Mac....................................... 1,5,24
Farmer Mac Charter.............................. 5,24
Farmer Mac Guarantee............................ 1
FCA................................................... 24
Fed System........................................... 29
Final Regulations................................... 70
Grantor Trust Certificates........................... 12
Guaranteed Governmental Mortgage PoolCertificate........ 70
Guaranteed Portion................................. 1,6,19
Guides.................................................. 6
Holders................................................ 29
Indirect Participants................................... 30
Insurance Proceeds...................................... 34
IRA.................................................... 70
IRS.................................................... 45
Legislative History..................................... 49
Liquidation Proceeds................................... 34
Master REMIC............................................ 52
Master Servicer......................................... 5
Mortgage Interest Rate................................... 7
Mortgage Notes........................................ 40
Mortgage Pool........................................... 71
Mortgage Pool Pass-Through Certificates .............. 71
Mortgaged Properties..................................... 6
OID..................................................... 43
OID Regulations.......................................... 45
Originator............................................... 24
Owner.................................................. 20
Participants........................................... 30
Parties interest...................................... 69
Pass-Through entity.................................... 68
Pass-Through Rate....................................... 9,26
Payment Lag Certificates........................... 59
phantom income...........................................61
Plans................................................... 69
Pool.................................................... 1
pre-issuance accrued interest........................... 59
Prepayment .............................................. 23
Prepayment Assumption.................................. 49
Prohibited Transactions Tax.............................. 65
Proposed Mark-to-Market Regulations................... 62
PTCE 83-1............................................... 71
Publicly-Offered Security................................70
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
Purchase Price..................................... 33
QMBS................................................. 6
QMBS Agreement........................................ 19
QMBS Issuer........................................... 19
QMBS Servicer.......................................... 19
QMBS Trustee........................................... 19
Qualified Assets........................................ 1
Qualified Loan Group.................................... 11
Qualified Loans......................................... 1,6
Qualified Mortgage..................................... 52
Qualified Plan.......................................... 70
Record Date.............................................. 26
Related Proceeds.......................................... 27
REMIC.................................................... 12
REMIC Certificates................................. 51
REMIC Regular Certificateholders.................. 53
REMIC Regular Certificates........................... 12,52
REMIC Regulations................................... 43
REMIC Residual Certificateholder...................... 60
REMIC Residual Certificates.......................... 12,52
REO Proceeds.......................................... 35
Sale Agreement......................................... 9
Secretary's Guarantee.................................. 19
Sellers................................................. 9
Series................................................... 1
State Environmental Lien............................... 42
Stripped ARMObligations................................. 50
Stripped Bond Certificates.............................. 47
Stripped Coupon Certificates........................... 47
Stripped Interest Certificates..................... 10,25
Stripped Principal Certificates...................... 10,25
Subsidiary REMIC...................................... 52
Super-Premium Certificates............................. 54
System Institution.................................... 25
Trust Assets............................................. 3
Trust Fund........................................... 1
Trust AMBS............................................. 6
Trustee................................................ 5
UCC................................................... 30
Underwriting Standards............................... 17
Unguaranteed Portion............................... 20
U.S. Person............................................. 51
Yield Maintenance Charge.............................. 8,15
</TABLE>
<PAGE>
=========================================================================
No person has been
authorized to give any
information or to make any $ 17,737,800
representations other than those
contained in this Prospectus
Supplement or the Prospectus
and, if given or made, such
information or representations Farmer Mac
must not be relied upon as
having been authorized by the
Depositor or by any
Underwriter. This Prospectus Guaranteed Agricultural
Supplement and the Prospectus do Mortgage-Backed
not constitute an offer to sell, Securities
or a solicitation of an offer to
buy, the securities offered
hereby by anyone in any
jurisdiction in which such an
offer or solicitation is not Federal Agricultural
authorized or in which the Mortgage Corporation
person making such offer or
solicitation is not qualified to
do so or to anyone to whom it is
unlawful to make any such offer
or solicitation. Neither the
delivery of this Prospectus ______________________
Supplement and the Prospectus
nor any sale made hereunder PROSPECTUS SUPPLEMENT
shall, under any circumstances, _______________________
create an implication that
information herein or therein is
correct as of any time since the Bear, Stearns & Co. Inc.
date of this Prospectus
Supplement or the Prospectus.
______________ January 24, 1997
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Page
<S> <C>
Summary of Terms S-3
Risk Factors S-6
Description of
the Qualified Loans S-7
Description of the
Certificates S-7
Farmer Mac Guarantee S-10
Outstanding
Guarantees S-10
Yield, Prepayment
and Maturity
Considerations S-11
Description of the
Agreements S-13
The Depositor S-14
Certain Federal
Income Tax
Consequences S-14
ERISA Considerations S-14
Legal Investment S-15
Method of
Distribution S-15
Legal Matters S-16
Index of Principal
Terms S-17
Annex I: Description
of the Qualified
Loan Pools A-1
PROSPECTUS
Prospectus Supplement 2
Available Information 3
Incorporation of Certain
Documents by Reference 4
Summary of Prospectus 5
Risk Factors 14
Description of
the Trust Funds 16
Use of Proceeds 20
Yield Considerations 21
The Depositor 24
Federal Agricultura
Mortgage
Corporation 24
Description of the
Certificates 25
Description of the
Agreements 31
Certain Legal Aspects of
Qualified Loans and Other
Matters 40
Certain Federal Income Tax
Consequences 43
State Tax Considerations 69
ERISA Considerations 69
Method of Distribution 72
Legal Investment 72
Index of Principal Terms 74
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Until 90 days after the
date of this Prospectus
Supplement, all dealers
effecting transactions in the
Certificates offered hereby,
whether or not participating in
this distribution, may be
required to deliver a Prospectus
Supplement and Prospectus to
which it relates. This is in
addition to the obligation of
dealers to deliver a Prospectus
Supplement and Prospectus when
acting as underwriters and with
respect to their unsold
allotments or subscriptions.
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