<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 16, 1996
REGISTRATION STATEMENT NO. 333-07837
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
PRE-EFFECTIVE AMENDMENT NO. 2
ON FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
ACCESS FINANCIAL LENDING CORP.
(Exact name of registrant as specified in charter)
400 HIGHWAY 169 SOUTH, SUITE 400
POST OFFICE BOX 26365
ST. LOUIS PARK, MINNESOTA 55426-0365
(Address, including zip code, and telephone number,
including area code, of agent for service)
Delaware 41-1768416
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
JAMES G. RAY
400 HIGHWAY 169 SOUTH, SUITE 400
POST OFFICE BOX 26365
ST. LOUIS PARK, MINNESOTA 55426-0365
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPY TO:
CHRIS DIANGELO, ESQ.
DEWEY BALLANTINE
1301 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box.|_|
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box.|X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering.|_|
If this Form is filed as a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, please check the following box and list the
Securities Act registration number of the earlier effective registration
statement for the same offering.|_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==================================================================================================================================
Proposed
Amount Proposed maximum maximum Amount of
to be aggregate price aggregate registration
Title of each class of securities to be registered registered per unit(1) offering price(1) fee(2)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Asset Backed Certificates
Asset Backed Notes
Asset Backed Securities $1,000,000 100% $1,000,000 $345
==================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) In accordance with Rule 429 under the Securities Act of 1933, the
Prospectus included herein is a combined prospectus which also relates to
the Registration Statement on Form S-3, File No. 33-96500 (the "Prior
Registration Statement"). The amount of securities eligible to be sold
under the Prior Registration Statement ($174,000,000 as of June 1, 1996)
shall be carried forward to this Registration Statement. A filing fee in
the amount of $344,827.59 was paid with the Prior Registration Statement.
__________________________
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
CROSS REFERENCE SHEET
TO FORM S-3
CAPTION OR LOCATION
ITEM AND CAPTION IN FORM S-3 IN PROSPECTUS
- ---------------------------- -------------
<S> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus....................................................Forepart of Registration Statement;
Outside Front Cover Page**
2. Inside Front and Outside Back Cover Pages of
Prospectus.............................................................Inside Front Cover Page**;
Outside Back Cover Page**
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges.............................................Summary of Prospectus**;
Risk Factors**;*
4. Use of Proceeds.....................................................................Use of Proceeds
5. Determination of Offering Price.............................................. *
6. Dilution..................................................................... *
7. Selling Security Holders..................................................... *
8. Plan of Distribution......................................................... Methods of
Distribution**
9. Description of Securities to be Registered..............................Outside Front Cover Page**;
Summary of Prospectus**;
Description of the Securities**;
Federal Income Tax Consequences**
10. Interests of Named Experts and Counsel....................................... *
11. Material Changes............................................................. *
12. Incorporation of Certain Information by Reference........................Inside Front Cover Page**;
Incorporation of Certain Documents by Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities.....................................See page II-3
</TABLE>
- ------------
* Not applicable or answer is negative.
** To be completed from time to time by Prospectus Supplement.
<PAGE>
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED AUGUST 16, 1996
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
Asset Backed Securities, issuable in Series
Access Financial Lending Corp.
Company
This Prospectus describes certain Asset Backed Securities (the " Securities")
that may be issued from time to time in series and certain classes of which may
be offered hereby from time to time as described in the related Prospectus
Supplement. Each series of Securities will be issued by a separate trust (each,
a "Trust"). The primary assets of each Trust will consist of a segregated pool
(a "Loan Pool") of (A) (i) conventional one- to four-family residential mortgage
loans, (ii) multi-family residential mortgage loans, (iii) mortgage loans
secured by mortgages on small properties used primarily for residential purposes
but also commercial purposes (the "Mixed Use Loans"), (iv) cooperative apartment
loans secured by security interests in shares issued by a cooperative housing
corporation or (v) home improvement loans each of which is secured by a
"dwelling or mixed residential and commercial structure" within the meaning of
Section 3(a)(41)(A)(i) of the Securities Exchange Act of 1934, as amended
(collectively, the "Mortgage Loans") or (B) contracts for manufactured homes
(the "Contracts") (the Mortgage Loans and the Contracts together, the "Loans"),
to be acquired by such Trust from Access Financial Lending Corp. ("AFL") or one
or more subsidiaries or other affiliated institutions of AFL (together, the
"Company"). The Company will originate the Loans or acquire the Loans from one
or more affiliated or unaffiliated dealers, brokers, or other financial
institutions (the " Originators"). See "The Loan Pools."
The Loans in each Loan Pool and certain other assets described herein and in the
related Prospectus Supplement (collectively with respect to each Trust, the
"Trust Estate") will be held by the related Trust for the benefit of the holders
of the related series of Securities (the " Securityholders") pursuant to a
Pooling and Servicing Agreement to the extent and as more fully described herein
and in the related Prospectus Supplement. Each Loan Pool will consist of one
or more of the various types of Loans described under "The Loan Pools."
Each series of Securities will include one or more classes. The Securities of
any particular class may represent beneficial ownership interests in the related
Loans held by the related Trust, or may represent debt secured by such Loans, as
described herein and in the related Prospectus Supplement. A series may include
one or more classes of Securities entitled to principal distributions, with
disproportionate, nominal or no interest distributions, or to interest
distributions, with disproportionate, nominal or no principal distributions. The
rights of one or more classes of Securities of any series may be senior or
subordinate to the rights of one or more of the other classes of Securities. A
series may include two or more classes of Securities which differ as to the
timing, sequential order, priority of payment, interest rate or amount of
distributions of principal or interest or both. Information regarding each class
of Securities of a series, and certain characteristics of the Loans to be
evidenced by such Securities, will be set forth in the related Prospectus
Supplement.
(cover continued on next page)
_____________
THE ASSETS OF THE TRUST ARE THE SOLE SOURCE OF PAYMENTS ON THE RELATED
SECURITIES. THE SECURITIES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE
COMPANY, THE SERVICER OR ANY OF THEIR AFFILIATES, EXCEPT AS SET FORTH HEREIN AND
IN THE RELATED PROSPECTUS SUPPLEMENT. NEITHER THE SECURITIES NOR THE UNDERLYING
LOANS WILL BE GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR BY THE COMPANY, THE SERVICER OR ANY OF THEIR AFFILIATES,
EXCEPT AS SET FORTH IN THE RELATED PROSPECTUS SUPPLEMENT. SEE ALSO "RISK
FACTORS" ON PAGE 15 HEREOF.
_____________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
_____________
Retain this Prospectus for future reference. This Prospectus may not be used to
consummate sales of securities offered hereby unless accompanied by a Prospectus
Supplement.
The date of this Prospectus is August ___, 1996.
<PAGE>
<PAGE>
(continued from previous page)
The Company's only obligations with respect to a series of Securities will be
pursuant to certain representations and warranties made by the Company, except
as otherwise described in the related Prospectus Supplement. The Prospectus
Supplement for each series of Securities will name one or more servicers (the
"Servicer(s)") which will act directly or through one or more sub-servicers (the
"Sub-Servicer(s)"). The principal obligations of the Servicer will be pursuant
to its contractual servicing obligations (which may include a limited obligation
to make certain advances in the event of delinquencies in payments on the Loans
and interest shortfalls due to prepayment of Loans). See "Description of the
Securities."
If so specified in the related Prospectus Supplement, the Trust Estate for a
series of Securities may include any combination of a mortgage pool insurance
policy, letter of credit, financial guaranty insurance policy, bankruptcy bond,
special hazard insurance policy, reserve fund or other form of credit
enhancement (collectively, "Credit Enhancement"). In addition to or in lieu of
the foregoing, Credit Enhancement with respect to certain classes of Securities
of any series may be provided by means of subordination, cross-support among
Loans or over-collateralization. See "Description of Credit Enhancement."
The rate of payment of principal of each class of Securities entitled to
principal payments will depend on the priority of payment of such class and the
rate of payment (including prepayments, defaults, liquidations and repurchases
of Loans) of the related Loans. A rate of principal payment lower or higher than
that anticipated may affect the yield on each class of Securities in the manner
described herein and in the related Prospectus Supplement. The various types of
Securities, the different classes of such Securities and certain types of Loans
in a given Loan Pool may have different prepayment risks and credit risks. The
Prospectus Supplement for a series of Securities or the related Current Report
on Form 8-K will contain information as to (i) types, maturities and certain
statistical information relating to credit risks of the Loans in the related
Loan Pool, (ii) the effect of certain rates of prepayment, based upon certain
specified assumptions for a series of Securities and (iii) priority of payment
and maturity dates of the Securities. An investor should carefully review the
information in the related Prospectus Supplement concerning the different
consequences of the risks associated with the different types and classes of
Securities. See "Yield Considerations." A Trust may be subject to early
termination under the circumstances described herein and in the related
Prospectus Supplement.
One or more separate elections may be made to treat a Trust, or one or more
segregated pools of assets held by such Trust, as a real estate mortgage
investment conduit ("REMIC") for federal income tax purposes. If applicable, the
Prospectus Supplement for a series of Securities will specify which class or
classes of the related series of Securities will be considered to be regular
interests in a REMIC and which classes of Securities or other interests will be
designated as the residual interest in a REMIC. Alternatively, a Trust may be
treated as a grantor trust or as a partnership for federal income tax purposes,
or may be treated for federal income tax purposes as a mere security device
which constitutes a collateral arrangement for the issuance of secured debt. See
" Federal Income Tax Considerations".
Offers of the Securities may be made through one or more different methods,
including offerings through underwriters, as more fully described under "Methods
of Distribution" and in the related Prospectus Supplement. There will be no
secondary market for any series of Securities prior to the offering thereof.
There can be no assurance that a secondary market for any of the Securities will
develop or, if it does develop, that it will offer sufficient liquidity of
investment or will continue.
2
<PAGE>
<PAGE>
No dealer, salesman, or any other person has been authorized to give any
information, or to make any representations, other than those contained in this
Prospectus or the related Prospectus Supplement, and, if given or made, such
information must not be relied upon as having been authorized by the Company or
any dealer, salesman, or any other person. Neither the delivery of this
Prospectus or the related Prospectus Supplement nor any sale made hereunder or
thereunder shall under any circumstances create an implication that there has
been no change in the information herein or therein since the date hereof. This
Prospectus and the related Prospectus Supplement are not an offer to sell or a
solicitation of an offer to buy any security in any jurisdiction in which it is
unlawful to make such offer or solicitation.
TABLE OF CONTENTS
Caption Page
- ------- ----
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE............................................................... 5
SUMMARY OF PROSPECTUS...................................................... 6
RISK FACTORS............................................................... 15
Risks Associated with the Securities.................................... 15
Risks associated with the Loans......................................... 16
Risks associated with the Mortgage Loans................................ 16
Risks Associated with the Contracts..................................... 18
Legal Considerations.................................................... 19
THE TRUSTS................................................................. 21
THE LOAN POOLS............................................................. 27
General................................................................. 27
The Loan Pools.......................................................... 28
UNDERWRITING PROGRAM..................................................... 30
General............................................................... 30
Mortgage Loan Program................................................. 31
Manufactured Housing Contract Program................................... 32
DESCRIPTION OF THE SECURITIES.............................................. 33
General................................................................. 33
Form of Securities...................................................... 35
Assignment of Loans..................................................... 37
Forward Commitments; Pre-Funding........................................ 38
Payments on Loans; Deposits to Distribution Account..................... 39
Withdrawals from the Principal and Interest Account..................... 42
Distributions......................................................... 43
Principal and Interest on the Securities................................ 43
Advances................................................................ 44
Reports to Securityholders.............................................. 45
Collection and Other Servicing Procedures............................... 46
Realization Upon Defaulted Loans...................................... 48
Master Servicer......................................................... 48
Sub-Servicing......................................................... 49
SUBORDINATION.............................................................. 50
DESCRIPTION OF CREDIT ENHANCEMENT.......................................... 51
HAZARD INSURANCE; CLAIMS THEREUNDER........................................ 56
Hazard Insurance Policies............................................... 56
THE COMPANY................................................................ 57
THE SERVICER............................................................... 57
Caption Page
- ------- ----
THE POOLING AND SERVICING AGREEMENT........................................ 57
Servicing and Other Compensation and
Payment of Expenses............................................... 58
Evidence as to Compliance............................................... 58
Removal and Resignation of the Servicer............................... 59
Resignation of the Master Servicer.................................... 60
Amendments............................................................ 60
Termination; Retirement of Securities................................... 60
THE TRUSTEE.............................................................. 61
YIELD CONSIDERATIONS....................................................... 63
MATURITY AND PREPAYMENT
CONSIDERATIONS.......................................................... 65
CERTAIN LEGAL ASPECTS OF THE LOANS
AND RELATED MATTERS................................................... 67
Mortgage Loans........................................................ 67
Manufactured Housing Contracts.......................................... 74
FEDERAL INCOME TAX CONSIDERATIONS...................................... 80
General............................................................... 80
Grantor Trust Securities.............................................. 80
REMIC Securities...................................................... 82
Debt Securities....................................................... 88
Discount and Premium.................................................. 89
Backup Withholding.................................................... 92
Foreign Investors..................................................... 92
Taxation of the Securities Classified as
Partnership Interests.............................................. 93
STATE TAX CONSIDERATIONS................................................. 93
ERISA CONSIDERATIONS..................................................... 93
LEGAL INVESTMENT MATTERS................................................. 96
USE OF PROCEEDS.......................................................... 97
METHODS OF DISTRIBUTION.................................................. 97
LEGAL MATTERS............................................................ 98
ADDITIONAL INFORMATION................................................... 98
INDEX OF PRINCIPAL DEFINITIONS........................................... 99
3
<PAGE>
<PAGE>
Until 90 days after the date of each Prospectus Supplement, all dealers
effecting transactions in the related Securities, whether or not participating
in the distribution thereof, may be required to deliver this Prospectus and the
related Prospectus Supplement. This delivery requirement is in addition to the
obligation of dealers to deliver a Prospectus Supplement and Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
4
<PAGE>
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by each respective Trust pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus
and prior to the termination of the offering of the Securities of such Trust
offered hereby shall be deemed to be incorporated by reference into this
Prospectus when delivered with respect to such Trust. Any statement contained in
a document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
Any person receiving a copy of this Prospectus may obtain, without charge,
upon written or oral request, a copy of any of the documents incorporated by
reference herein, except for the exhibits to such documents (other than the
documents expressly incorporated therein by reference). Requests should be
directed to Access Financial Lending Corp., 400 Highway 169 South, Suite 400,
Post Office Box 26365, St. Louis Park, Minnesota 55426-0365, Attention:
Corporate Compliance (telephone number 612-542-6500).
5
<PAGE>
<PAGE>
SUMMARY OF PROSPECTUS
The following summary of certain pertinent information is qualified in its
entirety by reference to the detailed information appearing elsewhere in this
Prospectus and by reference to the information with respect to each series of
Securities contained in the Prospectus Supplement to be prepared and delivered
in connection with the offering of such series. Capitalized terms used in this
summary that are not otherwise defined shall have the meanings ascribed thereto
in this Prospectus. An index indicating where certain terms used herein are
defined appears at the end of this Prospectus.
Securities Offered....... Asset Backed Securities (the " Securities").
Company.................. Access Financial Lending Corp., together with one or
more subsidiaries and affiliated institutions from
which any Trust may acquire Loans.
Servicer................. One or more servicers for each series of Securities
will be specified in the related Prospectus
Supplement. The Company may act as Servicer.
Master Servicer.......... A master servicer (the "Master Servicer") may be
specified in the related Prospectus Supplement for
the related series of Securities. The Company may
act as Master Servicer. See "Loan Program -- Master
Servicer."
Sub-Servicers............ The Servicer may service the Loans directly or through
one or more sub-servicers (each, a "Sub-Servicer")
(any servicer, Sub-Servicer and Master Servicer,
collectively the "Servicer") pursuant to one or more
sub-servicing agreements. See "Loan
Program--Sub-Servicers."
Trustee.................. The trustee (the "Trustee") for each series of
Securities will be specified in the related
Prospectus Supplement.
The Securities........... Issuance of Securities. Each series of Securities will
be issued at the direction of the Company by a
separate Trust (each, a "Trust"). The primary assets
of each Trust will consist of a segregated pool
(each, a "Loan Pool") of (A) (i) conventional one-
to four-family residential mortgage loans, (ii)
multi-family residential mortgage loans, (iii) mixed
use mortgage loans, (iv) cooperative apartment loans
secured by security interests in shares issued by a
cooperative housing corporation, or (v) home
improvement loans (collectively, the "Mortgage
Loans"), (B) installment loan contracts and
installment loan agreements for manufactured homes
(the "Contracts") or (C) certificates of interest or
participation therein (the Mortgage Loans and the
Contracts together, the "Loans") or certificates of
interest or participation therein, acquired by such
Trust from the Company. The Company will originate
the Loans or acquire the Loans from one or more
originators. The Securities issued by any Trust may
represent beneficial ownership interests in the
related Loans held by the related Trust, or may
represent debt secured by such Loans, as described
herein and in the related Prospectus Supplement.
Securities which represent beneficial ownership
interests in the related Trust will be referred to
as "Certificates" in the related Prospectus
Supplement; Securities which represent debt issued
by the related Trust will be referred to as "Notes"
in the related Prospectus Supplement.
Each Trust will be established pursuant to an
agreement (each, a "Trust Agreement") by and between
the Company and the Trustee named
6
<PAGE>
<PAGE>
therein. Each Trust Agreement will describe the
related pool of assets to be held in trust (each
such asset pool, the "Trust Estate"), which will
include the related Loans and, if so specified in
the related Prospectus Supplement, may include any
combination of a mortgage pool insurance policy,
letter of credit, financial guaranty insurance
policy, special hazard policy, reserve fund or other
form of Credit Enhancement.
The Loans held by each Trust will be serviced by the
Servicer pursuant to a servicing agreement (each, a
"Servicing Agreement") by and among the Company, the
related Servicer and the related Trustee.
With respect to Securities that represent debt
issued by the related Trust, the related Trust will
enter into an indenture (each, an "Indenture") by
and between such Trust and the trustee named on such
Indenture (the "Indenture Trustee"), as set forth in
the related Prospectus Supplement. Securities that
represent beneficial ownership interests in the
related Trust will be issued pursuant to the related
Trust Agreement.
In the case of any individual Trust, the contractual
arrangements relating to the establishment of the
Trust, the servicing of the related Loans and the
issuance of the related Securities may be contained
in a single agreement, or in several agreements
which combine certain aspects of the Trust
Agreement, the Servicing Agreement and the Indenture
described above (for example, a pooling and
servicing agreement, or a servicing and collateral
management agreement). For purposes of this
Prospectus, the term "Pooling and Servicing
Agreement" as used with respect to a Trust means,
collectively, and except as otherwise specified, any
and all agreements relating to the establishment of
the related Trust, the servicing of the related
Loans and the issuance of the related Securities.
Securities Will Be Recourse to the Assets of the
Related Trust Only. The sole source of payment for
any series of Securities will be the assets of the
related Trust (i.e., the related Trust Estate). The
Securities will not be obligations, either recourse
or non-recourse (except for certain non-recourse
debt described under " Federal Income Tax
Considerations"), of the Company, the Servicer, any
Sub-Servicer or any Person other than the related
Trust. In the case of Securities that represent
beneficial ownership interest in the related Trust
Estate, such Securities will represent the ownership
of such Trust Estate; with respect to Securities
that represent debt issued by the related Trust,
such Securities will be secured by the related Trust
Estate. Notwithstanding the foregoing, and as to be
described in the related Prospectus Supplement,
certain types of Credit Enhancement, such as a
financial guaranty insurance policy or a letter of
credit, may constitute a full recourse obligation of
the issuer of such Credit Enhancement.
General Nature of the Securities as Investments. The
Securities will consist of two basic types: (i)
Securities of the fixed-income type (" Fixed-Income
Securities") and (ii) Securities of the equity
participation type ("Equity Securities"). No Class
of Equity Securities will be offered pursuant to
this Prospectus or any Prospectus Supplement related
hereto. Fixed-Income Securities will generally be
styled as debt instruments, having a principal
balance and a specified interest rate ("Interest
Rate"). Fixed-Income Securities may be either
beneficial ownership interests in the related Loans
held by the related Trust, or may represent debt
7
<PAGE>
<PAGE>
secured by such Loans. Each series or class of
Fixed-Income Securities may have a different
Interest Rate, which may be a fixed or adjustable
Interest Rate. The related Prospectus Supplement
will specify the Interest Rate for each series or
class of Fixed-Income Securities, or the initial
Interest Rate and the method for determining
subsequent changes to the Interest Rate.
A series may include one or more classes of
Fixed-Income Securities ("Strip Securities")
entitled (i) to principal distributions, with
disproportionate, nominal or no interest
distributions, or (ii) to interest distributions,
with disproportionate, nominal or no principal
distributions. In addition, a series may include two
or more classes of Fixed-Income Securities that
differ as to timing, sequential order, priority of
payment, Interest Rate or amount of distributions of
principal or interest or both, or as to which
distributions of principal or interest or both on
any class may be made upon the occurrence of
specified events, in accordance with a schedule or
formula, or on the basis of collections from
designated portions of the related Loan Pool, which
series may include one or more classes of
Fixed-Income Securities ("Accrual Securities"), as
to which certain accrued interest will not be
distributed but rather will be added to the
principal balance (or nominal principal balance, in
the case of Accrual Securities which are also Strip
Securities) thereof on each Payment Date, as
hereinafter defined and in the manner described in
the related Prospectus Supplement.
If so provided in the related Prospectus Supplement,
a series of Securities may include one or more other
classes of Fixed-Income Securities (collectively,
the "Senior Securities") that are senior to one or
more other classes of Fixed-Income Securities
(collectively, the "Subordinate Securities") in
respect of certain distributions of principal and
interest and allocations of losses on Loans. In
addition, certain classes of Senior (or Subordinate)
Securities may be senior to other classes of Senior
(or Subordinate) Securities in respect of such
distributions or losses.
Equity Securities will represent the right to
receive the proceeds of the related Trust Estate
after all required payments have been made to the
Securityholders of the related Fixed-Income
Securities (both Senior Securities and Subordinate
Securities), and following any required deposits to
any reserve account which may be established for the
benefit of the Fixed-Income Securities. Equity
Securities may constitute what are commonly referred
to as the "residual interest", "seller's interest"
or the "general partnership interest", depending
upon the treatment of the related Trust for federal
income tax purposes. As distinguished from the
Fixed-Income Securities, the Equity Securities will
not be styled as having principal and interest
components. Any losses suffered by the related Trust
will first be absorbed by the related class of
Equity Securities, as described herein and in the
related Prospectus Supplement.
No Class of Equity Securities will be offered
pursuant to this Prospectus or any Prospectus
Supplement related hereto. Equity Securities may be
offered on a private placement basis or pursuant to
a separate Registration Statement to be filed by the
Company. In addition, the Company may initially or
permanently hold any Equity Securities issued by any
Trust.
8
<PAGE>
<PAGE>
General Payment Terms of Securities. As provided in
the related Pooling and Servicing Agreement and as
described in the related Prospectus Supplement,
Securityholders will be entitled to receive payments
on their Securities on specified dates (each, a
"Payment Date"). Payment Dates with respect to
Fixed-Income Securities will occur monthly,
quarterly or semi-annually, as described in the
related Prospectus Supplement; Payment Dates with
respect to Equity Securities will occur as described
in the related Prospectus Supplement.
The related Prospectus Supplement will describe a
date (the "Record Date") preceding such Payment
Date, as of which the Trustee or its paying agent
will fix the identity of the Securityholders for the
purpose of receiving payments on the next succeeding
Payment Date.
Each Pooling and Servicing Agreement will describe a
period (each, a " Remittance Period") antecedent to
each Payment Date (for example, in the case of
monthly-pay Securities, the calendar month preceding
the month in which a Payment Date occurs or such
other specified period). Collections received on
or with respect to the related Loans during a
Remittance Period will be required to be
remitted by the Servicer to the related Trustee
prior to the related Payment Date and will be used
to fund payments to Securityholders on such Payment
Date. As may be described in the related Prospectus
Supplement, the related Pooling and Servicing
Agreement may provide that all or a portion of the
principal collected on or with respect to the
related Loans may be applied by the related Trustee
to the acquisition of additional Loans during a
specified period (rather than be used to fund
payments of principal to Securityholders during such
period) with the result that the related securities
will possess an interest-only period, also commonly
referred to as a revolving period, which will be
followed by an amortization period. Any such
interest-only or revolving period may, upon the
occurrence of certain events to be described in the
related Prospectus Supplement, terminate prior to
the end of the specified period and result in the
earlier than expected amortization of the related
Securities.
In addition, and as may be described in the related
Prospectus Supplement, the related Pooling and
Servicing Agreement may provide that all or a
portion of such collected principal may be retained
by the Trustee (and held in certain temporary
investments, including Loans) for a specified period
prior to being used to fund payments of principal to
Securityholders.
The result of such retention and temporary
investment by the Trustee of such principal would be
to slow the amortization rate of the related
Securities relative to the amortization rate of the
related Loans, or to attempt to match the
amortization rate of the related Securities to an
amortization schedule established at the time such
Securities are issued. Any such feature applicable
to any Securities may terminate upon the occurrence
of events to be described in the related Prospectus
Supplement, resulting in the current distribution of
principal payments to the specified Securityholders
and an acceleration of the amortization of such
Securities.
Neither the Securities nor the underlying Loans
will be guaranteed or insured by any governmental
agency or instrumentality or the Company,
9
<PAGE>
<PAGE>
the Servicer, any Master Servicer, any Sub-Servicer
or any of their affiliates.
No Investment Companies.. Neither the Company nor any Trust will register as
an "investment company" under the Investment Company
Act of 1940, as amended (the "Investment Company
Act").
Cross-Collateralization.. The source of payment for Securities of each
series will be the assets of the related Trust
Estate only. However, as may be described in the
related Prospectus Supplement, a Trust Estate may
include the right to receive moneys from a common
pool of Credit Enhancement which may be available
for more than one series of Securities, such as a
master reserve account or a master insurance policy.
Notwithstanding the foregoing, no collections on
any Loans held by any Trust may be applied to the
payment of Securities issued by any other Trust
(except to the limited extent that certain
collections in excess of amounts needed to pay the
related Securities may be deposited in a common,
master reserve account that provides Credit
Enhancement for more than one series of Securities).
The Loan Pools........... Each Trust Estate will consist primarily of Loans
secured by liens on one-to four-family residential
properties, multi-family residential properties,
mixed use properties, cooperative apartments or
installment loan contracts and installment loan
agreements for manufactured homes (such liens, the
"Mortgages", and such property, the "Property"),
located in any one of the fifty states, the District
of Columbia, Puerto Rico or any other Territories of
the United States. All Loans will have been acquired
by the related Trust from the Company or at the
Company's direction from one or more originators.
All Loans will have been originated either by (i)
one or more institutions affiliated with the
Company, (ii) one or more institutions unaffiliated
with the Company or (iii) the Company. In addition,
the Loans may be purchased by the Company as bulk
acquisitions ("Bulk Acquisitions") or on a "spot" or
negotiated basis ("Negotiated Transactions"). The
Loans generally will have been originated pursuant
to the Company's underwriting guidelines in effect
as of the date on which the Loan was submitted to
the Company pursuant to the Company's Loan Program
(as defined herein). See "Loan Program." For a
description of the types of Loans that may be
included in the Loan Pools, see "The Loan Pools--The
Loans."
If specified in the related Prospectus Supplement,
Loans that are converted from an adjustable rate to
a fixed rate will be repurchased by the Company or
purchased by the applicable Sub-Servicer, Servicer
or another party, or a designated remarketing agent
will use its best efforts to arrange the sale
thereof as further described herein.
A Current Report on Form 8-K will be available to
purchasers or underwriters of the related series of
Securities and will generally be filed, together
with the related Pooling and Servicing Agreement,
with the Securities and Exchange Commission within
fifteen days after the initial issuance of such
series.
10
<PAGE>
<PAGE>
Forward Commitments;
Pre-Funding............ A Trust may enter into an agreement (each, a
"Forward Purchase Agreement") with the Company
whereby the Company will agree to transfer
additional Loans (the " Subsequent Loans") to such
Trust from time to time during the time period
specified in the related Prospectus Supplement
(the "Funding Period"). Any Forward Purchase
Agreement will require that any Loans so transferred
to a Trust conform to the requirements specified in
such Forward Purchase Agreement, this Prospectus and
the related Prospectus Supplement. In addition, the
Forward Purchase Agreement will state that the
Company shall only transfer the Subsequent Loans
upon the satisfaction of certain conditions,
including that the Company shall have delivered
opinions of counsel (including bankruptcy, corporate
and tax opinions) with respect to the transfer of
the Subsequent Loans to the Certificate Insurer, the
Rating Agencies and the Trustee. If a Forward
Purchase Agreement is to be utilized, the related
Trustee will be required to deposit in a segregated
account (each, a "Pre-Funding Account") a portion
of the proceeds received by the Trustee in
connection with the sale of one or more classes of
Securities of the related series (such amount, the
"Pre-Funded Amount"). Prior to the investment of the
Pre-Funded Amount in additional Loans, such
Pre-Funded Amount will be invested in one or more
Eligible Investments. Any Eligible Investment must
mature no later than the Business Day prior to the
next Distribution Date.
During any Funding Period, the Company will be
obligated (subject only to the availability thereof)
to transfer to the related Trust Fund, additional
Loans from time to time during such Funding
Period. Such additional Loans will be required to
satisfy certain eligibility criteria more fully set
forth in the related Prospectus Supplement which
eligibility criteria will be consistent with the
eligibility criteria of the Loans included in the
Trust Fund as of the Closing Date subject to such
exceptions as are expressly stated in such
Prospectus Supplement.
Although the specific parameters of the Pre-Funding
Account with respect to any issuance of Securities
will be specified in the related Prospectus
Supplement, it is anticipated that: (a) the Funding
Period will not exceed 120 days from the related
Closing Date, (b) that the additional Loans to be
acquired during the Funding Period will be subject
to the same representations and warranties as the
Loans included in the related Trust Fund on the
Closing Date (although additional criteria may also
be required to be satisfied, as described in the
related Prospectus Supplement) and (c) that the
Pre-Funded Amount will not exceed 25% of the
principal amount of the Securities issued pursuant
to a particular offering .
Credit Enhancement....... If so specified in the Prospectus Supplement, the
Trust Estate with respect to any series of
Securities may include any one or any combination of
a letter of credit, mortgage pool insurance policy,
special hazard insurance policy, bankruptcy bond,
financial guaranty insurance policy, reserve fund or
other type of Credit Enhancement to provide full or
partial coverage for certain defaults and losses
relating to the Loans. Credit support also may be
provided in the form of the related class of Equity
Securities, and/or by subordination of one or more
classes of
11
<PAGE>
<PAGE>
Fixed-Income Securities in a series under which
losses in excess of those absorbed by any related
class of Equity Securities are first allocated to
any Subordinate Securities up to a specified limit,
cross-support among groups of Loans or
overcollateralization. Any mortgage pool insurance
policy will have certain exclusions from coverage
thereunder, which will be described in the related
Prospectus Supplement, which may be accompanied by
one or more separate Credit Enhancements that may be
obtained to cover certain of such exclusions. To the
extent not set forth herein, the amount and types of
coverage, the identification of any entity providing
the coverage, the terms of any subordination and
related information will be set forth in the
Prospectus Supplement relating to a series of
Securities. See "Description of Credit Enhancement"
and "Subordination."
Advances................. As to be described in the related Prospectus
Supplement, the Servicer may be obligated to make
certain advances with respect to payments of
delinquent scheduled interest and/or principal on
the Loans, but only to the extent that the Servicer
believes that such amounts will be recoverable by
it. Any such advance made by the Servicer with
respect to a Loan is recoverable by it as provided
herein under "Description of the
Securities--Advances" either from recoveries on the
specific Loan or, with respect to any such advance
subsequently determined to be nonrecoverable, out of
funds otherwise distributable to the holders of the
related series of Securities, which may include the
holders of any Senior Securities of such series.
As to be described in the related Prospectus
Supplement, the Servicer may be required to advance
Compensating Interest as defined hereafter under
"Description of the Securities--Advances."
In addition, the Servicer will be required to pay
all "out of pocket" costs and expenses incurred in
the performance of its servicing obligations, but
only to the extent that the Servicer reasonably
believes that such amounts will increase Net
Liquidation Proceeds on the related Loan. See
"Description of the Securities--Advances."
Optional Termination..... The Servicer, the Company, or, if specified in the
related Prospectus Supplement, the holders of the
related class of Equity Securities or the Credit
Enhancer may at their respective option effect early
retirement of a series of Securities through the
purchase of the Loans and other assets in the
related Trust Estate under the circumstances and in
the manner set forth herein under "The Pooling and
Servicing Agreement--Termination; Retirement of
Securities" and in the related Prospectus
Supplement. Generally such parties will have the
repurchase option only after the aggregate Pool
principal balance has declined to ten percent or a
percentage to be set forth in the related Prospectus
Supplement of the initial Pool principal balance.
Mandatory Termination;
Auction Sale........... The Trustee, the Servicer or certain other entities
specified in the related Prospectus Supplement may
be required to effect early retirement of a series
of Securities by soliciting competitive bids for the
purchase of the related Trust Estate or otherwise,
under other circumstances and in the manner
specified in "The Pooling and Servicing
12
<PAGE>
<PAGE>
Agreement--Termination; Retirement of Securities"
and in the related Prospectus Supplement.
If set forth in the related Prospectus Supplement,
the mandatory termination may take the form of an
auction sale. Within a certain period following the
first Remittance Date as of which the aggregate Pool
principal balance is less than 10% or a
percentage set forth in the related Prospectus
Supplement of the initial aggregate
Pool principal balance, if the optional
termination right has not been exercised by the
parties having such right by such date, the Trustee
shall solicit bids for the purchase of all Loans
remaining in the Trust. In the event that
satisfactory bids are received as described in the
related Pooling and Servicing Agreement, the net
sale proceeds will be distributed to
Certificateholders, in the same order of priority as
collections received in respect of the Loans. If
satisfactory bids are not received, the Trustee
shall decline to sell the Loans and shall not be
under any obligation to solicit any further bids or
otherwise negotiate any further sale of the Loans.
Such sale and consequent termination of the Trust
must constitute a "qualified liquidation" of each
REMIC established by the Trust under Section 860F of
the Internal Revenue Code of 1986, as amended,
including, without limitation, the requirement that
the qualified liquidation takes place over a period
not to exceed 90 days.
Legal Investment......... Not all of the Loans in a particular Loan Pool may
represent first liens. Accordingly, as disclosed in
the related Prospectus Supplement, certain classes
of Securities offered hereby and by the related
Prospectus Supplement may not constitute "mortgage
related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 ("SMMEA")
and, if so, will not be legal investments for
certain types of institutional investors under
SMMEA.
Institutions whose investment activities are subject
to legal investment laws and regulations or to
review by certain regulatory authorities may be
subject to additional restrictions on investment in
certain classes of Securities. Any such institution
should consult its own legal advisors in determining
whether and to what extent a class of Securities
constitutes legal investments for such investors.
See "Legal Investment" herein.
ERISA Considerations..... A fiduciary of an employee benefit plan and certain
other retirement plans and arrangements, including
individual retirement accounts and annuities, Keogh
plans, and collective investment funds and separate
accounts in which such plans, accounts, annuities or
arrangements are invested, that is subject to the
Employee Retirement Income Security Act of 1974, as
amended (" ERISA"), or Section 4975 of the Code
(each such entity, a "Plan") should carefully review
with its legal advisors whether the purchase or
holding of Securities could give rise to a
transaction that is prohibited or is not otherwise
permissible either under ERISA or Section 4975 of
the Code. Investors are advised to consult their
counsel and to review "ERISA Considerations" herein
and in the Prospectus Supplement.
13
<PAGE>
<PAGE>
Federal Income Tax
Considerations......... Securities of each series offered hereby will, for
federal income tax purposes, constitute either (i)
interests ("Grantor Trust Securities") in a Trust
treated as a grantor trust under applicable
provisions of the Code, (ii) "regular interests"
("REMIC Regular Securities") or "residual interests"
("REMIC Residual Securities") in a Trust treated as
a REMIC (or, in certain instances, containing one or
more REMIC's) under Sections 860A through 860G of
the Code, (iii) debt issued by a Trust ("Debt
Securities") or (iv) interests in a Trust which is
treated as a partnership (" Partnership Interests").
The Securities offered hereby generally will be
treated as debt instruments in the hands of the
Securityholders, regardless of which technical type
of securities are being offered.
Investors are advised to consult their tax advisors
and to review " Federal Income Tax Considerations"
herein and in the related Prospectus Supplement.
Registration of
Securities............. Securities may be represented by global securities
registered in the name of Cede & Co. ("Cede"), as
nominee of The Depository Trust Company ("DTC"), or
another nominee as specified in the related
Prospectus Supplement. In such case, Securityholders
will not be entitled to receive definitive
securities representing such Securityholders'
interests, except in certain circumstances described
in the related Prospectus Supplement. See
"Description of the Securities--Form of Securities"
herein.
Ratings.................. Each class of Fixed-Income Securities offered
pursuant to the related Prospectus Supplement will
be rated in one of the four highest rating
categories by one or more "national statistical
rating organizations", as defined in the Securities
Exchange Act of 1934, as amended (the "Exchange
Act"), and commonly referred to as "Rating
Agencies". Such ratings will address, in the opinion
of such Rating Agencies, the likelihood that the
related Trust will be able to make timely payment of
all amounts due on the related Fixed-Income
Securities in accordance with the terms thereof.
Such ratings will neither address any prepayment or
yield considerations applicable to any Securities
nor constitute a recommendation to buy, sell or hold
any Securities.
Equity Securities generally will not be rated, but
if such Securities are rated, they likely will be
rated below investment grade.
The ratings expected to be received with respect to
any Securities will be set forth in the related
Prospectus Supplement.
Risk Factors............. For a discussion of certain factors that should be
considered by prospective investors in the
Securities, see "Risk Factors" herein and in the
related Prospectus Supplement.
14
<PAGE>
<PAGE>
RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of the Securities.
Risks Associated with the Securities
The assets of the Trust Fund, as well as any applicable Credit
Enhancement, will be limited and, if such assets and/or Credit Enhancement
becomes insufficient to service the related Securities, losses may result . The
Securities will not represent an interest in or obligation, either recourse or
non-recourse (except for certain non-recourse debt described under " Federal
Income Tax Considerations"), of the Company, the Servicer, the Master Servicer,
if any, or any person other than the related Trust. The only obligations of the
foregoing entities with respect to the Securities or the Loans will be the
obligations (if any) of the Company, the Servicer and the Master Servicer, if
any, pursuant to certain limited representations and warranties made with
respect to the Loans, the Servicer's servicing obligations under the related
Pooling and Servicing Agreement (including its limited obligation, if any, to
make certain advances in the event of delinquencies on the Loans, but only to
the extent deemed recoverable) and, if and to the extent expressly described in
the related Prospectus Supplement, certain limited obligations of the Company,
Servicer, applicable Sub-Servicer, or another party in connection with a
purchase obligation ("Purchase Obligation") or an agreement to purchase or act
as remarketing agent with respect to a Convertible Loan (as defined herein) upon
conversion to a fixed rate. Notwithstanding the foregoing, and as to be
described in the related Prospectus Supplement, certain types of Credit
Enhancement, such as a financial guaranty insurance policy or a letter of
credit, may constitute a full recourse obligation of the issuer of such Credit
Enhancement. Except as described in the related Prospectus Supplement, neither
the Securities nor the underlying Loans will be guaranteed or insured by any
governmental agency or instrumentality, or by the Company, the Trustee, the
Servicer, the Master Servicer, if any, any Sub-Servicer or any of their
affiliates. Proceeds of the assets included in the related Trust Estate for each
series of Securities (including the Loans and any form of Credit Enhancement)
will be the sole source of payments on the Securities, and there will be no
recourse to the Company or any other entity in the event that such proceeds are
insufficient or otherwise unavailable to make all payments provided for under
the Securities.
An investment in any Security may be an Illiquid Investment, which may
result in the Securityholder holding such investment to maturity. There can be
no assurance that a secondary market for the Securities of any series or class
will develop or, if it does develop, that it will provide Securityholders with
liquidity of investment or that it will continue for the life of the Securities
of any series. The Prospectus Supplement for any series of Securities may
indicate that an underwriter specified therein intends to establish a secondary
market in such Securities; however, no underwriter will be obligated to do so.
The Securities will not be listed on any securities exchange.
Credit Enhancement will be limited in amount and scope of coverage and may
not be sufficient to cover losses. With respect to each series of Securities,
Credit Enhancement will be provided in limited amounts to cover certain types of
losses on the underlying Loans. Credit Enhancement will be provided in one or
more of the forms referred to herein, including, but not limited to: a letter of
credit; a Purchase Obligation; a mortgage pool insurance policy; a special
hazard insurance policy; a bankruptcy bond; a reserve fund; a financial guaranty
insurance policy or other type of Credit Enhancement to provide partial coverage
for certain defaults and losses relating to the Loans. Credit Enhancement also
may be provided in the form of the related class of Equity Securities,
subordination of one or more classes of Fixed-Income Securities in a series
under which losses in excess of those absorbed by any related class of Equity
Securities are first allocated to any Subordinate Securities up to a specified
limit, cross-support among groups of Loans and/or overcollateralization. In
addition, Credit Enhancement may take the form of a master reserve account, into
which certain collections in excess of amounts needed to pay the related
Securities may be deposited, which provides support for more than one series of
Securities. See "Subordination" and "Description of Credit Enhancement" herein.
Regardless of the form of Credit Enhancement provided, the coverage will be
limited in amount and in most cases will be subject to periodic reduction in
accordance with a schedule or formula. Furthermore, such Credit Enhancements may
provide only very limited coverage as to certain types of losses, and may
provide no coverage as to certain other
15
<PAGE>
<PAGE>
types of losses. Generally, Credit Enhancements do not directly or indirectly
guarantee to the investors any specified rate of prepayments. To the extent not
set forth herein, the amount and types of coverage, the identification of any
entity providing the coverage, the terms of any subordination and related
information will be set forth in the Prospectus Supplement relating to a series
of Securities. See "Description of Credit Enhancement" and "Subordination."
Risks associated with the Loans
Bankruptcy of Obligors may cause losses. General economic conditions have
an impact on the ability of an obligor of a Loan (an "Obligor") to repay the
Loan. Loss of earnings, illness and other similar factors also may lead to an
increase in delinquencies and bankruptcy filings by Obligors. In the event of
personal bankruptcy of an Obligor, it is possible that a Trust could experience
a loss with respect to such Obligor's Loan. In conjunction with an Obligor's
bankruptcy, a bankruptcy court may suspend or reduce the payments of principal
and interest to be paid with respect to such Loan or permanently reduce the
principal balance of such Loan thereby either delaying or permanently limiting
the amount received by the Trust with respect to such Loan. Moreover, in the
event a bankruptcy court prevents the transfer of the related Property to a
Trust, any remaining balance on such Loan may not be recoverable.
Certain Loans may be originated or structured in "non-traditional"
ways, which could increase risk. The Company's underwriting standards consider,
among other things, an obligor's credit history, repayment ability and debt
service-to-income ratio, as well as the value of the property; however, the
Company's Loan Program (as hereinafter defined) generally provides for the
origination of Loans relating to non-conforming credits. Certain of the types of
loans that may be included in the Loan Pools may involve additional
uncertainties not present in traditional types of loans. For example, certain of
the Loans may provide for escalating or variable payments by the borrower under
the Loan, as to which the Obligor is generally qualified on the basis of the
initial payment amount. In some instances the Obligors' income may not be
sufficient to enable them to continue to make their loan payments as such
payments increase and thus the likelihood of default will increase. For a more
detailed discussion, see "Loan Program."
Certain risks relating to differing underwriting criteria. The Loans used
in a particular Trust Fund may have been purchased by the Company from one or
more originators, and may, to the extent described in the related Prospectus
Supplement, have been originated using underwriting criteria different from that
of the Company. However, the Loans included in a particular Trust Fund will
satisfy the criteria set forth in the related Prospectus Supplement.
Risks associated with the Mortgage Loans
Junior Liens may experience higher rates of delinquencies and losses.
Certain of the Mortgage Loans will be secured by junior liens subordinate to the
rights of the mortgagee or beneficiary under each related senior mortgage or
deed of trust. As a result, the proceeds from any liquidation, insurance or
condemnation proceedings will be available to satisfy the principal balance of a
mortgage loan only to the extent that the claims, if any, of each such senior
mortgagee or beneficiary are satisfied in full, including any related
foreclosure costs. In addition, a mortgagee secured by a junior lien may not
foreclose on the related mortgaged property unless it forecloses subject to the
related senior mortgage or mortgages, in which case it must either pay the
entire amount of each senior mortgage to the applicable mortgagee at or prior to
the foreclosure sale or undertake the obligation to make payments on each senior
mortgage in the event of default thereunder. In servicing junior lien loans, a
Servicer generally would satisfy each such senior mortgage at or prior to the
foreclosure sale only to the extent that it determines any amounts so paid will
be recoverable from future payments and collections on such junior lien loans or
otherwise. The Trusts will not have any source of funds to satisfy any such
senior mortgage or make payments due to any senior mortgagee. See "Certain Legal
Aspects of the Loans and Related Matters--Foreclosure."
Property values may decline, leading to higher losses . An investment in
securities such as the Securities that generally represent beneficial ownership
interests in the Mortgage Loans or debt secured by
16
<PAGE>
<PAGE>
such Mortgage Loans may be affected by, among other things, a decline in real
estate values and changes in the borrowers' financial condition. No assurance
can be given that values of the Properties have remained or will remain at their
levels on the dates of origination of the related Mortgage Loans. If the
residential real estate market should experience an overall decline in property
values such that the outstanding balances of any senior liens, the Mortgage
Loans and any secondary financing on the Properties in a particular Loan Pool
become equal to or greater than the value of the Properties, the actual rates of
delinquencies, foreclosures and losses could be higher than those now generally
experienced in the nonconforming credit mortgage lending industry. Such a
decline could extinguish the interest of the related Trust in the Properties
before having any effect on the interest of the related senior mortgagee. In
addition, in the case of Mortgage Loans that are subject to negative
amortization, due to the addition to principal balance of deferred interest
("Deferred Interest"), the principal balances of such Mortgage Loans could be
increased to an amount equal to or in excess of the value of the underlying
Properties, thereby increasing the likelihood of default. To the extent that
such losses are not covered by the applicable Credit Enhancement, holders of
Securities of the series evidencing interests in the related Loan Pool will bear
all risk of loss resulting from default by Obligors and will have to look
primarily to the value of the Properties for recovery of the outstanding
principal and unpaid interest on the defaulted Mortgage Loans.
Balloon Loans may experience higher rates of delinquencies and losses.
Certain of the Mortgage Loans may constitute " Balloon Loans." Balloon Loans are
originated with a stated maturity of less than the period of time of the
corresponding amortization schedule. Consequently, upon the maturity of a
Balloon Loan, the Obligor will be required to make a "balloon" payment that will
be significantly larger than such Obligor's previous monthly payments. The
ability of such a Obligor to repay a Balloon Loan at maturity frequently will
depend on such Obligor's ability to refinance the Mortgage Loan. The ability of
a Obligor to refinance such a Mortgage Loan will be affected by a number of
factors, including the level of available mortgage rates at the time, the value
of the related Property, the Obligor's equity in the related Property, the
financial condition of the Obligor, the tax laws and general economic conditions
at the time.
Although a low interest rate environment may facilitate the refinancing of
a balloon payment, the receipt and reinvestment by Securityholders of the
proceeds in such an environment may produce a lower return than that previously
received in respect of the related Mortgage Loan. Conversely, a high interest
rate environment may make it more difficult for the Obligor to accomplish a
refinancing and may result in delinquencies or defaults. None of the Company,
the Servicer, the Master Servicer, if any, any Sub-Servicer or the Trustee will
be obligated to provide funds to refinance any Mortgage Loan, including Balloon
Loans.
Foreclosure of Properties may be subject to substantial delay, resulting
in longer maturity securities as well as higher losses. Even assuming that the
Properties provide adequate security for the Mortgage Loans, substantial delays
could be encountered in connection with the liquidation of defaulted Mortgage
Loans and corresponding delays in the receipt of related proceeds by the
Securityholders could occur. An action to foreclose on a Property securing a
Mortgage Loan is regulated by state statutes, rules and judicial decisions and
is subject to many of the delays and expenses of other lawsuits if defenses or
counterclaims are interposed, sometimes requiring several years to complete.
Furthermore, in some states an action to obtain a deficiency judgment is not
permitted following a nonjudicial sale of a Property. In the event of a default
by a Obligor, these restrictions, among other things, may impede the ability of
the Servicer to foreclose on or sell the Property or to obtain liquidation
proceeds (net of expenses) ("Liquidation Proceeds") sufficient to repay all
amounts due on the related Mortgage Loan. The Servicer will be entitled to
deduct from Liquidation Proceeds all expenses reasonably incurred in attempting
to recover amounts due on the related liquidated Mortgage Loan (" Liquidated
Mortgage Loan") and not yet repaid, including payments to prior lienholders,
accrued Servicing Fees, legal fees and costs of legal action, real estate taxes,
and maintenance and preservation expenses. In the event that any Properties fail
to provide adequate security for the related Mortgage Loans and insufficient
funds are available from any applicable Credit Enhancement, Securityholders
could experience a loss on their investment.
Liquidation expenses with respect to defaulted Mortgage Loans do not vary
directly with the outstanding principal balance of the Mortgage Loan at the time
of default. Therefore, assuming that a servicer takes the same steps in
realizing upon a defaulted Mortgage Loan having a small remaining principal
balance as it would in the case of a defaulted Mortgage Loan having a larger
principal balance, the amount realized after expenses of
17
<PAGE>
<PAGE>
liquidation would be less as a percentage of the outstanding principal balance
of the smaller principal balance Mortgage Loan than would be the case with a
larger principal balance Mortgage Loan.
Under environmental legislation and judicial decisions applicable in
various states, a secured party that takes a deed in lieu of foreclosure, or
acquires at a foreclosure sale a Property that, prior to foreclosure, has been
involved in decisions or actions which may lead to contamination of a Property,
may be liable for the costs of cleaning up the purportedly contaminated site.
Although such costs could be substantial, it is unclear whether they would be
imposed on a holder of a mortgage Note (such as a Trust) which, under the terms
of the Pooling and Servicing Agreement, is not required to take an active role
in operating the Properties. See "Certain Legal Aspects of Loans and Related
Matters--Environmental Legislation."
Certain of the Properties relating to Mortgage Loans may not be owner
occupied. It is possible that the rate of delinquencies, foreclosures and losses
on Mortgage Loans secured by non-owner occupied properties could be higher than
for loans secured by the primary residence of the Obligor.
Geographic Concentration of Properties may result in higher losses, if
particular regions experience downturns. Certain geographic regions from time to
time will experience weaker regional economic conditions and housing markets
than will other regions, and, consequently, will experience higher rates of loss
and delinquency on mortgage loans generally. The Mortgage Loans underlying
certain series of Securities may be concentrated in such regions, and such
concentrations may present risk considerations in addition to those generally
present for similar mortgage loan asset-backed securities without such
concentrations. Information with respect to geographic concentration of
Properties will be specified in the related Prospectus Supplement or related
Current Report on Form 8-K.
Risks Associated with the Contracts
Security Interests in the Manufactured Homes may not be perfected and the
Trust may not realize upon the full amount due under the related Contract. Each
Contract is secured by a security interest in a Manufactured Home together with,
in the case of land secured contracts, the real estate on which the related
Manufactured home is located (such Contracts, the "Land Secured Contracts").
Perfection of security interests in the Manufactured Homes and enforcement of
rights to realize upon the value of the Manufactured Homes as collateral for the
Contracts are subject to a number of federal and state laws, including the
Uniform Commercial Code (the "UCC") as adopted in the states in which the
Manufactured Homes are located and such states' certificate of title statutes,
but generally not their real estate laws. Under such federal and state laws, a
number of factors may limit the ability of a holder of a perfected security
interest in Manufactured Homes to realize upon such Manufactured Homes or may
limit the amount realized to less than the amount due under the related
Contract. See "Certain Legal Aspects of the Loans -- Contracts."
In addition, because of the expense and administrative inconvenience
involved, the Company will not amend any certificates of title related to any
Manufactured Home to change the lienholder specified therein to the Trustee, and
will not execute any transfer instrument (including, among other instruments,
UCC-3 assignments) relating to any Manufactured Home in favor of the Trustee or
note thereon the Trustee's interest. Such amendment would require, consistent
with the law of the related State, filings at the state or county level for each
Contract. The Company believes it is industry practice not to make such
amendments, and does not do so for its own benefit. As a result, the Company
will remain the lienholder on the certificate of title relating to the
Manufactured Home. In some states, in the absence of such an amendment,
execution or notation, the assignment to the Trustee of the security interest in
the Manufactured Homes located therein may not be effective or such security
interest may not be perfected. If any otherwise effectively assigned security
interest in favor of the Trustee is not perfected, such assignment of the
security interest to the Trustee may not be effective against creditors of the
Company to the extent it continues to be specified as lienholder on any
certificate of title or as secured party on any UCC filing, or against a trustee
in bankruptcy of the Company.
Each Contract (other than a Land Secured Contract) will be "chattel paper"
as defined in the UCC in effect in Minnesota (where the Company's executive
office is currently located), and the jurisdiction in which
18
<PAGE>
<PAGE>
the related Manufactured Home was located at origination. Under the UCC as in
effect in each such jurisdiction, the sale of chattel paper is treated in a
manner similar to perfection of a security interest in chattel paper. Under the
Pooling and Servicing Agreement, the Trustee will have possession of the
Contracts. In addition, the Company will make appropriate filings of UCC-1
financing statements in the office of the Secretary of State of the state where
its principal place of business is located to give notice of the Trustee's
ownership of the Contracts. The Trustee's interest in the Contracts could,
through the fraud or negligence of the Trustee, be defeated if a subsequent
purchaser were able to take physical possession of the Contracts without notice
of such assignment.
Further, because of the expenses and administrative inconvenience involved,
the assignment of mortgages or deeds of trust to the Trustee will not be
recorded with respect to the mortgages or deeds of trust (each, a "Mortgage")
securing each Land Secured Contract. Recordation of such assignments would
require the Company to retain counsel in the respective state, and make the
appropriate filing at the local level. The Company believes the industry
practice not to make such filings, and does not do so for its own benefit. The
failure to record the assignments to the Trustee of the Mortgage securing Land
Secured Contracts may result in the sale of such Contracts or the Trustee's
rights in the land secured by the Mortgage being ineffective against creditors
of the Company or against a trustee in bankruptcy of the Company or against a
subsequent purchaser of such Contracts from the Company, without notice of the
sale to the Trustee. See "The Loan Pool" herein for a description of the
programs under which Contracts are originated or purchased by the Company.
Legal Considerations
Bankruptcy of the Company could prevent timely payment of amounts due
to the Trust. In the event of the bankruptcy of the Company at a time when it
holds an Equity Security, a trustee in bankruptcy of the Company, or its
creditors could attempt to recharacterize the sale of the Loans to the related
Trust as a borrowing by the Company, with the result, if such recharacterization
is upheld, that the Securityholders would be deemed creditors of the Company,
secured by a pledge of the Loans. In such a case, a bankruptcy court may suspend
or reduce the payment of principal and interest to the Securityholders or
permanently reduce the principal balance of the Securities, thereby delaying or
permanently limiting the amounts received by the Securityholders. In addition,
if the Company is the Servicer, a bankruptcy of the Company may disrupt
servicing of the Loans, causing losses or a delay in timely payment of amounts
due the Securityholders. The Pooling and Servicing Agreement will provide that
bankruptcy of the Servicer is an event of default and the Back-up Servicer may
take over servicing in such a case. However, a bankruptcy court may hold that
such provision is unenforceable as an executory contract triggered only by the
bankruptcy of the contracting party.
Prepayments and repurchases may adversely affect the yield to maturity of
the Securities. The yield to maturity of the Securities of each series will
depend on the rate of payment of principal (including prepayments, liquidations
due to defaults, and repurchases due to conversion of adjustable-rate mortgage
loans ("ARM Loans") to fixed-rate loans or breaches of representations and
warranties) on the Loans and the price paid by Securityholders. Such yield may
be adversely affected by a higher or lower than anticipated rate of prepayments
on the related Loans. The yield to maturity on Strip Securities or Securities
purchased at premiums or discounted to par will be extremely sensitive to the
rate of prepayments on the related Loans. In addition, the yield to maturity on
certain other types of classes of Securities, including Accrual Securities or
certain other classes in a series including more than one class of Securities,
may be relatively more sensitive to the rate of prepayment on the related Loans
than other classes of Securities.
The Loans may be prepaid in full or in part at any time; however, a
prepayment penalty or premium may be imposed in connection therewith. Such
penalties will not be property of the related Trust. The rate of prepayments of
the Loans cannot be predicted and is influenced by a wide variety of economic,
social, and other factors, including prevailing mortgage market interest rates,
the availability of alternative financing, local and regional economic
conditions and homeowner mobility. Therefore, no assurance can be given as to
the level of prepayments that a Trust will experience.
19
<PAGE>
<PAGE>
Prepayments may result from mandatory prepayments relating to unused moneys
held in Pre-Funding Accounts, if any, voluntary early payments by Obligors
(including payments in connection with refinancings of the related senior Loan
or Loans), sales of Properties subject to "due-on-sale" provisions and
liquidations due to default, as well as the receipt of proceeds from physical
damage, credit life and disability insurance policies. In addition, repurchases
or purchases from a Trust of Loans or substitution adjustments required to be
made under the Pooling and Servicing Agreement will have the same effect on the
Securityholders as a prepayment of such Loans. All of the Loans contain
"due-on-sale" provisions, and the Servicer will be required to enforce such
provisions unless (i) the "due-on-sale" clause, in the reasonable belief of the
Servicer, is not enforceable under applicable law or (ii) the Servicer
reasonably believes that to permit an assumption of the Loan would not
materially and adversely affect the interests of the Securityholders or of the
related Credit Enhancer, if any. See "The Pooling and Servicing Agreement" in
the related Prospectus Supplement.
Collections on the Loans may vary due to the level of incidence of
delinquent payments and of prepayments. Collections on the Loans may also vary
due to seasonal purchasing and payment habits of Obligors.
Co-mingling of collections with the Servicer's general funds could cause
losses to the Trust. To the extent that the ratings, if any, then assigned to
the unsecured debt of the Servicer or of the Servicer's corporate parent are
satisfactory to the Rating Agencies, the Servicer may be permitted to co-mingle
Loan payments and collections with the Servicer's general funds rather than be
required to deposit such amounts in a segregated Principal and Interest Account.
In the event of fraud or mistake, the Servicer may utilize amounts due the Trust
for its own purposes, resulting in a delay in payment or losses to the
Securityholders.
State Credit Protection Laws May Limit Collection of Principal and Interest
on the Loans. Applicable state laws generally regulate interest rates and other
charges, require certain disclosures, and require licensing of the originators,
the Trustee, the Servicer and Sub-Servicers. In addition, most states have other
laws, public policy and general principles of equity relating to the protection
of consumers, unfair and deceptive practices and practices that may apply to the
origination, servicing and collection of the Loans. Depending on the provisions
of the applicable law and the specific facts and circumstances involved,
violations of these laws, policies and principles may limit the ability of the
Servicer to collect all or part of the principal of or interest on the Loans,
may entitle the Obligor to a refund of amounts previously paid and, in addition,
could subject the Servicer to damages and administrative sanctions. See "Certain
Legal Aspects of Loans and Related Matters."
Federal Credit Protection Laws May Limit Collection of Principal and
Interest on the Loans. The Loans may also be subject to federal laws, including:
(i) the Federal Truth-in-Lending Act and Regulation Z promulgated thereunder and
the Real Estate Settlement Procedures Act and Regulation X promulgated
thereunder, which require certain disclosures to the borrowers regarding the
terms of the Loans; (ii) the Equal Credit Opportunity Act and Regulation B
promulgated thereunder, which prohibit discrimination on the basis of age, race,
color, sex, religion, marital status, national origin, receipt of public
assistance or the exercise of any right under the Consumer Credit Protection
Act, in the extension of credit; and (iii) the Fair Credit Reporting Act, which
regulates the use and reporting of information related to the Obligor's credit
experience. Depending on the provisions of the applicable law and the specific
facts and circumstances involved, violations of these laws, policies and general
principles of equity may limit the ability of the Servicer to collect all or
part of the principal of or interest on the Loans, may entitle the Obligor to
rescind the loan or to a refund of amounts previously paid and, in addition,
could subject the Servicer to damages and administrative sanctions. If the
Servicer is unable to collect all or part of the principal or interest on the
Loans because of a violation of the aforementioned laws, public policies or
general principles of equity then the Trust may be delayed or unable to repay
all amounts owed to the Securityholders. Furthermore, depending upon whether
damages and sanctions are assessed against the Servicer or the Company, such
violations may materially impact the financial ability of the Servicer to
continue to act as Servicer or the ability of the Company to repurchase or
replace Loans if such violation breaches a representation or warranty contained
in a Pooling and Servicing Agreement.
20
<PAGE>
<PAGE>
Certain additional provisions under the Federal Truth-in-Lending Act become
effective on October 1, 1995. These provisions apply to certain types of
mortgage loans, generally as a result of such loan's coupon rate being 10% or
more greater than the yield on United States Treasury Securities of comparable
maturity, or if the "total points and fees" payable by the obligor exceed a
specified level. If the requirements are triggered, certain additional
disclosures are required to be made to the obligor and certain other
restrictions on the loan and its terms apply (e.g., restrictions relating to
prepayment penalties and balloon maturities.)
These provisions further require persons who sell or assign mortgages which
are subject to these requirements to furnish a notice to such effect to the
purchaser or assignee. Such purchasers or assignees may under certain
circumstances be liable for the failure of the originating lender to provide the
required disclosures or for the inclusion in the loan of any prohibited terms.
Book-Entry registration may limit the liquidity of the Securities, the
ability of Securityholders to pledge the Securities, and may delay
Securityholders' receipt of distributions. Issuance of the Securities in
book-entry form may reduce the liquidity of such Securities in the secondary
trading market since investors may be unwilling to purchase Securities for which
they cannot obtain definitive physical securities representing such
Securityholders' interests, except in certain circumstances described in the
related Prospectus Supplement.
Since transactions in Securities will, in most cases, be able to be
effected only through DTC, direct or indirect participants in DTC's book-entry
system ("Direct or Indirect Participants") and certain banks, the ability of a
Securityholder to pledge a Security to persons or entities that do not
participate in the DTC system, or otherwise to take actions in respect of such
Securities, may be limited due to lack of a physical security representing the
Securities.
Securityholders may experience some delay in their receipt of distributions
of interest on and principal of the Securities since distributions may be
required to be forwarded by the Trustee to DTC and, in such a case, DTC will be
required to credit such distributions to the accounts of its Participants which
thereafter will be required to credit them to the accounts of the applicable
class of Securityholders either directly or indirectly through Indirect
Participants. See "Description of the Securities--Form of Securities."
The Soldiers' and Sailors' Civil Relief Act of 1940 could limit or delay
collection of amounts due under certain Loans . Generally, under the terms of
the Soldiers' and Sailors' Civil Relief Act of 1940, as amended (the "Relief
Act"), or similar state legislation, an Obligor who enters military service
after the origination of the related Loan (including an Obligor who is a member
of the National Guard or is in reserve status at the time of the origination of
the Loan and is later called to active duty) may not be charged interest
(including fees and charges) above an annual rate of 6% during the period of
such Obligor's active duty status, unless a court orders otherwise upon
application of the lender. It is possible that such action could have an effect,
for an indeterminate period of time, on the ability of the Servicer to collect
full amounts of interest on certain of the Loans. In addition, the Relief Act
imposes limitations that would impair the ability of the Servicer to foreclose
on an affected Loan during the Obligor's period of active duty status. Thus, in
the event that such a Loan goes into default, there may be delays and losses
occasioned by the inability of the Servicer to realize upon the Property in a
timely fashion.
Reduction in the rating of any credit enhancer would likely cause the
reduction in the rating of the Securities. The rating of Securities credit
enhanced through external Credit Enhancement such as a letter of credit,
financial guaranty insurance policy or mortgage pool insurance will depend
primarily on the creditworthiness of the issuer of such external Credit
Enhancement device (a "Credit Enhancer"). Any reduction in the rating assigned
to the claims-paying ability of the related Credit Enhancer below the rating
initially given to the Securities would likely result in a reduction in the
rating of the Securities. See "Ratings" in the Prospectus Supplement.
21
<PAGE>
<PAGE>
THE TRUSTS
A Trust for any series of Securities will consist of a segregated pool (a
"Loan Pool") comprised of (A) (i) conventional one-to-four-family residential
mortgage loans (" Single Family Loans"), (ii) multi-family residential mortgage
loans ("Multi-family Loans"), (iii) mortgage loans secured by mortgages on
small properties used primarily for residential purposes but also used for
commercial purposes (the "Mixed Use Loans"), (iv) cooperative apartment loans
secured by security interests in shares issued by a cooperative housing
corporation ("Cooperative Loans") or (v) home improvement loans ("Home
Improvement Loans") each of which is secured by a mortgage on a "dwelling or
mixed residential and commercial structure" within the meaning of Section
3(a)(41)(A)(i) of the Securities Exchange Act of 1934, as amended (collectively,
the "Mortgage Loans") or (B) contracts for manufactured homes ("Contracts") ,
in each case, as specified in the related Prospectus Supplement (the Mortgage
Loans and the Contracts together, the "Loans"), together with payments with
respect to the Loans and certain other accounts, obligations or agreements, in
each case, as specified in the related Prospectus Supplement.
The Securities will be entitled to payment only from the assets of the
related Trust (i.e. the related Trust Estate) and will not be entitled to
payments in respect of the assets of any other related Trust Estate established
by the Company. If specified in the related Prospectus Supplement, certain
Securities will evidence the entire fractional undivided ownership interest in
the related Loans held by the related Trust or may represent debt secured by the
related Loans.
The following is a brief description of the Loans expected to be included
in the related Trusts. If specific information respecting the Loans is not known
at the time the related series of Securities initially is offered, information
of the nature described below will be provided in the Prospectus Supplement, and
specific information will be set forth in a report on Form 8-K to be filed with
the Commission within fifteen days after the initial issuance of such Securities
(the "Detailed Description"). A copy of the Pooling and Servicing Agreement with
respect to each Series of Securities will be attached to the Form 8-K and will
be available for inspection at the corporate trust office of the Trustee
specified in the related Prospectus Supplement. A schedule of the Loans relating
to such Series (the "Loan Schedule") will be attached to the Pooling and
Servicing Agreement delivered to the Trustee upon delivery of the Securities.
The Loans--General
The real properties, interests in a Cooperative (as defined herein) and
Manufactured Homes (as defined herein), as the case may be, that secure
repayment of the Loans (the "Properties") may be located in any one of the fifty
states, the District of Columbia, Puerto Rico or any other Territories of the
United States. The Mortgage Loans will be "Conventional Loans" (i.e., loans
that are not insured or guaranteed by any governmental agency). Loans will not
be covered wholly or partially by primary mortgage insurance policies. All of
the Loans will be covered by standard hazard insurance policies providing for
fire and extended coverage with a generally acceptable carrier (which may be in
the form of a blanket or forced placed hazard insurance policy) generally in an
amount not less than the lesser of (i) the outstanding principal loan balance,
(ii) the minimum amount required to compensate for losses on a replacement cost
basis and (iii) the insurable value of the Property. The existence, extent and
duration of any such coverage will be described in the applicable Prospectus
Supplement. The Loans will not be guaranteed or insured by any government
agency or other insurer.
All of the Loans in a Loan Pool will provide for payments to be made
monthly ("monthly pay") or bi-weekly. The payment terms of the Loans to be
included in a Trust will be described in the related Prospectus Supplement and
may include any of the following features or combination thereof or other
features described in the related Prospectus Supplement:
(a) Interest may be payable at a Fixed Rate, or an Adjustable Rate
(i.e., a rate that is adjustable from time to time in relation to an index,
a rate that is fixed for period of time and under certain circumstances is
followed by an adjustable rate, a rate that otherwise varies from time to
time,
22
<PAGE>
<PAGE>
or a rate that is convertible from an adjustable rate to a fixed rate). The
specified rate of interest on a Loan is its "Loan Rate." Changes to an
Adjustable Rate may be subject to periodic limitations, maximum rates,
minimum rates or a combination of such limitations. Accrued interest may be
deferred and added to the principal of a Loan for such periods and under
such circumstances as may be specified in the related Prospectus
Supplement. If provided for in the Prospectus Supplement, certain Loans may
be subject to temporary buydown plans (" Buydown Loans") pursuant to which
the monthly payments made by the Obligor during the early years of the Loan
(the " Buydown Period") will be less than the scheduled monthly payments on
the Loan, and the amount of any difference may be contributed from (i) an
amount (such amount, exclusive of investment earnings thereon, being
hereinafter referred to as "Buydown Funds") funded by the originator of the
Loan or another source (including the Servicer or the builder of the
Property) and placed in a custodial account (the "Buydown Account") and
(ii) if the Buydown Funds are contributed on a present value basis,
investment earnings on such Buydown Funds.
(b) Principal may be payable on a level debt service basis to fully
amortize the Loan over its term, may be calculated on the basis of an
assumed amortization schedule that is significantly longer than the
original term to maturity or on an interest rate that is different from the
Loan Rate, or may not be amortized during all or a portion of the original
term. Payment of all or a substantial portion of the principal may be due
on maturity ("balloon" payments). Principal may include interest that has
been deferred and added to the principal balance of the Loan.
(c) Monthly payments of principal and interest may be fixed for the
life of the Loan, may increase over a specified period of time ("graduated
payments") or may change from period to period. Loans may include limits on
periodic increases or decreases in the amount of monthly payments and may
include maximum or minimum amounts of monthly payments. Loans having
graduated payment provisions may provide for deferred payment of a portion
of the interest due monthly during a specified period, and recoup the
deferred interest through negative amortization during such period whereby
the difference between the interest paid during such period and interest
accrued during such period is added monthly to the outstanding principal
balance. Other Loans sometimes referred to as "growing equity" loans may
provide for periodic scheduled payment increases for a specified period
with the full amount of such increases being applied to principal.
(d) Prepayments of principal may be subject to a prepayment fee, if
allowed by state or applicable law, which may be fixed for the life of the
Loan or may decline over time, and may be prohibited for the life of the
Loan or for certain periods ("lockout periods"). Certain Loans may permit
prepayments after expiration of the applicable lockout period and may
require the payment of a prepayment fee in connection therewith. Other
Loans may permit prepayments without payment of a fee unless the prepayment
occurs during specified time periods. The Loans may include due-on-sale
clauses which permit the mortgagee to demand payment of the entire Loan in
connection with the sale or certain transfers of the related Property.
Other Loans may be assumable by persons meeting the then applicable
underwriting standards of the Servicer and/or the Company.
Except as otherwise described in the related Prospectus Supplement or in
the related Current Report on Form 8-K, interest will be calculated on each Loan
pursuant to one of three methods:
Date of Payment Loans. Date of Payment Loans provide that interest is
charged to the Obligor at the applicable Loan Rate on the outstanding principal
balance of such Note and calculated based on the number of days elapsed between
receipt of the Obligor's last payment through receipt of the Obligor's most
current payment. Such interest is deducted from the Obligor's payment amount and
the remainder, if any, of the payment is applied as a reduction to the
outstanding principal balance of such Note. Although the Obligor is required to
remit equal monthly payments on a specified monthly payment date that would
reduce the outstanding principal balance of such Note to zero at such Note's
maturity date, payments that are made by the Obligor after the due date therefor
would cause the outstanding principal balance of such Note not to be reduced to
zero. In such a case, the Obligor would be required to make an additional
principal payment at the maturity date for such Note. On the other hand, if an
Obligor makes a payment (other than a prepayment) before the due date therefor,
the reduction in the
23
<PAGE>
<PAGE>
outstanding principal balance of such Note would occur over a shorter period of
time than it would have occurred had it been based on the original amortization
schedule of such Note.
Actuarial Loans. Actuarial Loans provide that interest is charged to the
Obligor thereunder, and payments are due from such Obligor, as of a scheduled
day of each month which is fixed at the time of origination. Scheduled monthly
payments made by the Obligors on the Actuarial Loans either earlier or later
than the scheduled due dates thereof will not affect the amortization schedule
or the relative application of such payments to principal and interest.
Rule of 78's Loans. A Rule of 78's Loan provides for the payment by the
related Obligor of a specified total amount of payments, payable in equal
monthly installments on each due date, which total represents the principal
amount financed and add-on interest in an amount calculated on the basis of the
stated Loan Rate for the term of the Loan. The rate at which such amount of
add-on interest is earned and, correspondingly, the amount of each fixed monthly
payment allocated to reduction of the outstanding principal are calculated in
accordance with the "Rule of 78's". Under a Rule of 78's Loan, the amount of a
payment allocable to interest is determined by multiplying the total amount of
add-on interest payable over the term of the loan by a fraction derived as
described below.
The fraction used in the calculation of add-on interest earned each month
under a Rule of 78's Loan has as it denominator a number equal to the sum of a
series of numbers. The series of numbers begins with one and ends with the
number of monthly payments due under the loan. For example, with a loan
providing for 12 payments, the denominator of each month's fraction will be 78,
the sum of the series of numbers from 1 to 12. The numerator of the fraction for
a given month is the number of original payments to stated maturity less the
number of payments made up to but not including the current month. Accordingly,
in the example of a twelve-month loan, the fraction for the first payment is
12/78, for the second payment 11/78, for the third party 10/78, and so on
through the final payment, for which the fraction is 1/78. The applicable
fraction is then multiplied by the total add-on interest payable over the entire
term of the loan, and the resulting amount is the amount of add-on interest
"earned" that month. The difference between the amount of the monthly payment by
the obligor and the amount of earned add-on interest calculated for the month is
applied to principal reduction. Rule of 78's Loans are non-level yield
instruments. The yield in the initial months of a Rule of 78's Loans is somewhat
higher than the stated Loan Rate (computed on an actuarial basis) and the yield
in the later months of the loan is somewhat less than such stated Loan Rate.
The Prospectus Supplement for each series of Securities or the Current
Report on Form 8-K will contain certain information with respect to the Loans
(or a sample thereof) contained in the related Loan Pool; such information,
insofar as it may relate to statistical information relating to such Loans will
be presented as of a date certain (the "Statistic Calculation Date") which may
also be the related cut-off date (the "Cut-Off Date"). Such information will
include to the extent applicable to the particular Loan Pool (in all cases as of
the Cut-Off Date) (i) the aggregate outstanding principal balance and the
average outstanding principal balance of the Loans, (ii) the largest principal
balance and the smallest principal balance of any of the Loans, (iii) the types
of Property securing the Loans (e.g., one- to four-family houses, vacation and
second homes, Manufactured Homes, multifamily apartments or other real
property), (iv) the original terms to stated maturity of the Loans, (v) the
weighted average remaining term to maturity of the Loans and the range of the
remaining terms to maturity; (vi) the earliest origination date and latest
maturity date of any of the Loans, (vii) the weighted average CLTV and the range
of CLTV's of the Loans at origination, (viii) the weighted average Loan Rate or
annual percentage rate (as determined under Regulation Z) (the "APR") and ranges
of Loan Rates or APRs borne by the Loans, (ix) in the case of Loans having
adjustable rates, the weighted average of the adjustable rates and indices, if
any; (x) the aggregate outstanding principal balance, if any, of Buy-Down Loans
and Loans having graduated payment provisions; (xi) the amount of any mortgage
pool insurance policy, special hazard insurance policy or bankruptcy bond to be
maintained with respect to such Loan Pool; (xii) a description of any standard
hazard insurance required to be maintained with respect to each Loan; (xiii) a
description of any Credit Enhancement to be provided with respect to all or any
Loans or the Loan Pool; and (xiv) the geographical distribution of the Loans on
a state-by-state basis. In addition, preliminary or more general information of
the nature described above may be provided in the Prospectus Supplement, and
specific or final information may be set forth in a Current Report
24
<PAGE>
<PAGE>
on Form 8-K, together with the related Pooling and Servicing Agreement, which
will be filed with the Securities and Exchange Commission and will be made
available to holders of the related series of Securities within fifteen days
after the initial issuance of such Securities.
The loan-to-value ratio (the "LTV") of a Loan is equal to the ratio
(expressed as a percentage) of the original principal balance of such Loan to
appraised value of the related Property (less the amount, if any, of the
premium for any credit life insurance) at the time of origination of the Loan
or, in the case where the Loan represents a purchase money instrument, the
lesser of (a) the appraised value or (b) the purchase price. The combined
loan-to-value ratio (the "CLTV") of a Loan at any given time is the ratio,
expressed as a percentage, determined by dividing (x) the sum of the original
principal balance of such Loan (less the amount,if any, of the premium for any
credit life insurance) plus the then-current principal balance of all mortgage
loans (each, a "Senior Lien") secured by liens on the related Property having
priorities senior to that of the lien which secures such Loan, by (y) the value
of the related Property, based upon the appraisal or valuation (which may in
certain instances include estimated increases in value as a result of certain
home improvements to be financed with the proceeds of such Loan) made at the
time of origination of the Loan. If the related Obligor will use the proceeds of
the Loan to refinance an existing Loan which is being serviced directly or
indirectly by the Servicer, the requirement of an appraisal or other valuation
at the time the new Loan is made may be waived. For purposes of calculating
the CLTV of a Contract relating to a new Manufactured Home, the value of such
Manufactured Home will be no greater than the sum of a fixed percentage of the
list price of the unit actually billed by the manufacturer to the dealer
(exclusive of freight to the dealer site) including "accessories" identified in
the invoice (the " Manufacturer's Invoice Price"), plus the actual cost of any
accessories purchased from the dealer, a delivery and set-up allowance,
depending on the size of the unit, and the cost of state and local taxes, filing
fees and up to three years prepaid hazard insurance premiums. The value of a
used Manufactured Home will be the least of the sales price, appraised value,
and National Automobile Dealer's Association book value plus prepaid taxes and
hazard insurance premiums. The appraised value of a Manufactured Home will be
based upon the age and condition of the manufactured housing unit and the
quality and condition of the mobile home park in which it is situated, if
applicable.
No assurance can be given that values of the Properties have remained or
will remain at their levels on the dates of origination of the related Mortgage
Loans. If the residential real estate market should experience an overall
decline in property values such that the outstanding principal balances of the
Mortgage Loans (plus any additional financing by other lenders on the same
Properties) in a particular Pool become equal to or greater than the value of
such Properties, the actual rates of delinquencies, foreclosures and losses
could be higher than those now generally experienced in the non-conforming
credit mortgage lending industry. An overall decline in the market value of
residential real estate, the general condition of a Property, or other factors,
could adversely affect the values of the Properties such that the outstanding
balances of the Mortgage Loans, together with any additional liens on the
Properties, equal or exceed the value of the Properties. Under such
circumstances, the actual rates of delinquencies, foreclosures and losses could
be higher than those now generally experienced in the non-conforming credit
mortgage lending industry.
Certain Loans may be secured by junior liens ("Junior Lien Loans")
subordinate to the rights of the obligee under any related Senior Liens. The
proceeds from any liquidation, insurance or condemnation of Properties relating
to Junior Lien Loans in a Loan Pool will be available to satisfy the principal
balance of such Junior Lien Loans only to the extent that the claims, if any, of
all related senior obligees, including any related foreclosure costs, are
satisfied in full. In addition, the Servicer may not foreclose on a Property
relating to a Junior Lien Loan unless it forecloses subject to the related
senior lien or liens, in which case it must either pay the entire amount of each
senior lien to the applicable obligee at or prior to the foreclosure sale or
undertake the obligation to make payments on each Senior Lien in the event of
default thereunder. Generally, in servicing Junior Lien Loans, it is standard
practice for a Servicer to satisfy each Senior Lien at or prior to a foreclosure
sale only to the extent that it determines any amounts so paid will be
recoverable from future payments and collections on the Loans or otherwise. The
Trusts will not have any source of funds to satisfy any such senior lien or make
payments due to any senior obligee. See "Certain Legal Aspects of Loans and
Related Matters--Foreclosure."
25
<PAGE>
<PAGE>
Other factors affecting obligors' ability to repay Loans include excessive
building resulting in an oversupply of housing stock or a decrease in employment
reducing the demand for units in an area; federal, state or local regulations
and controls affecting rents; prices of goods and energy; environmental
restrictions; increasing labor and material costs; and the relative
attractiveness of the Properties. To the extent that losses on the Loans are not
covered by Credit Enhancements, such losses will be borne, at least in part, by
the Securityholders of the related series.
The Company will cause the Loans comprising each Loan Pool to be assigned
to the Trustee named in the related Prospectus Supplement for the benefit of the
Securityholders of the related series. The Servicer will service the Loans,
either directly or through Sub-Servicers, pursuant to the Pooling and Servicing
Agreement and will receive a fee for such services. See "Loan Program" and "The
Pooling and Servicing Agreement." With respect to Loans serviced through a
Sub-Servicer, the Servicer will remain liable for its servicing obligations
under the related Pooling and Servicing Agreement as if the Servicer alone were
servicing such Loans.
The only obligations of the Company with respect to a series of
Securities will be to provide (or, where the Company acquired a Loan from
another originator, obtain from such originator) certain representations and
warranties concerning the Loans and to assign to the Trustee for such series of
Securities such Company's rights with respect to such representations and
warranties. See "The Pooling and Servicing Agreement." The obligations of the
Servicer with respect to the Loans will consist principally of its contractual
servicing obligations under the related Pooling and Servicing Agreement and its
obligation, as described in the related Prospectus Supplement, to make certain
cash advances in the event of delinquencies in payments on, or prepayments
received with respect to, the Loans in the amounts described herein under
"Description of the Securities--Advances." The obligations of a Servicer to make
advances may be subject to limitations, to the extent provided herein and in the
related Prospectus Supplement.
Single Family and Mixed Use Loans
Single Family Loans will consist of mortgage loans, deeds of trust or
participation or other beneficial interests therein, secured by first or junior
liens on one-to four-family properties. The Properties relating to Single Family
Loans will consist of detached or semi-detached one-family dwelling units, two-
to four-family dwelling units, townhouses, rowhouses, individual condominium
units in condominium developments, individual units in planned unit
developments, and certain other dwelling units. Such Mortgage Properties may
include owner-occupied (which includes vacation and second homes) and non-owner
occupied investment properties.
If so specified, the Single Family Loans may include loans or
participations therein secured by mortgages or deeds of trust on condominium
units in low- or high-rise condominium developments together with such
condominium units' appurtenant interests in the common elements of such
condominium developments.
Mixed Use Loans will consist of mortgage loans, deeds of trust or
participation or other beneficial interests therein, secured by first or junior
mortgages on small properties used primarily for residential purposes but also
for commercial purposes.
Multi-family and Cooperative Loans
Multi-family Loans will consist of mortgage loans, deeds of trust or
participation or other beneficial interests therein, secured by first or junior
liens on rental apartment buildings or projects containing five or more
residential units.
Cooperative Loans will be secured by security interests in or similar
liens on stock, shares or membership certificates issued by private cooperative
housing corporations (" Cooperative") in the related proprietary leases or
occupancy agreements granting exclusive rights to occupy specific dwelling units
in such Cooperatives' buildings.
Properties that secure Multi-family Loans may include high-rise, mid-rise
and garden apartments. Certain of the Multi-family Loans may be secured by
apartment buildings owned by Cooperatives. In such cases,
26
<PAGE>
<PAGE>
the Cooperative owns all the apartment units in the building and all common
areas. The Cooperative is owned by tenant-stockholders who, through ownership of
stock, shares or membership certificates in the corporation, receive proprietary
leases or occupancy agreements that confer exclusive rights to occupy specific
apartments or units. Generally, a tenant-stockholder of a Cooperative must make
a monthly payment to the Cooperative representing such tenant-stockholder's pro
rata share of the Cooperative's payments for its mortgage loan, real property
taxes, maintenance expenses and other capital or ordinary expenses. Those
payments are in addition to any payments of principal and interest the
tenant-stockholder must make on any loans to the tenant-stockholder secured by
its shares in the Cooperative. The Cooperative will be directly responsible for
building management and, in most cases, payment of real estate taxes and hazard
and liability insurance. A Cooperative's ability to meet debt service
obligations on a Multi-family Loan, as well as all other operating expenses,
will be dependent in large part on the receipt of maintenance payments from the
tenant-stockholders, as well as any rental income from units or commercial areas
the Cooperative might control. Unanticipated expenditures may in some cases have
to be paid by special assessments on the tenant-stockholders.
Home Improvement Loans
Home Improvement Loans may be secured by first or junior liens on
conventional one-to four-family residential properties and multi-family
residential properties. Home Improvement Loans generally will be conventional,
or if specified in the related Prospectus Supplement, may be partially insured
by the Federal Housing Administration ("FHA") or another federal or state
agency. The loan proceeds from such Home Improvement Loans are typically
disbursed to an escrow agent which, according to the Company's Guidelines,
Approved Guidelines or Bulk Guidelines, releases such proceeds to the contractor
upon completion of the improvements or in draws as the work on the improvements
progresses. Costs incurred by the Obligor for loan origination including
origination points and appraisal, legal and title fees, are often included in
the amount financed. In addition, Home Improvement Loans generally provide
additional security to a first or junior mortgage loan because home improvements
typically retain or increase the value of a property.
Contracts
Contracts will consist of manufactured housing conditional sales contracts
and installment sales or loan agreements each secured by a Manufactured Home.
Contracts may be conventional, insured partially by the FHA or partially
guaranteed by the Veterans Administration, as specified in the related
Prospectus Supplement. Each Contract will be fully amortizing and will bear
interest at its APR.
The "Manufactured Homes" securing the Contracts will consist of
manufactured homes within the meaning of 42 United States Code, Section 5402(6),
which defines a "manufactured home" as "a structure, transportable in one or
more sections, which in the traveling mode, is eight body feet or more in width
or forty body feet or more in length, or, when erected on site, is three hundred
twenty or more square feet, and which is built on a permanent chassis and
designed to be used as a dwelling with or without a permanent foundation when
connected to the required utilities, and includes the plumbing, heating, air
conditioning, and electrical systems contained therein; except that such term
shall include any structure which meets all the requirements of [this] paragraph
except the size requirements and with respect to which the manufacturer
voluntarily files a certification required by the Secretary of Housing and Urban
Development and complies with the standards established under [this] chapter."
The related Prospectus Supplement will specify for the Contracts contained
in the related Trust, among other things, the date of origination of the
Contracts; the APRs on the Contracts; the Contract Loan-to-Value Ratios; the
minimum and maximum outstanding principal balances as of the Cut-Off Date and
the average outstanding principal balance; the outstanding principal balances of
the Contracts included in the related Trust; and the original maturities of the
Contracts and the last maturity date of any Contract.
27
<PAGE>
<PAGE>
THE LOAN POOLS
General
Each Loan Pool will consist primarily of (i) Loans, minus any other
interest retained by the Company evidenced by promissory notes (the "Notes")
secured by mortgages or deeds of trust or other similar security instruments
creating a lien on, or security interest in, (a) one- to four-family residential
properties, (b) multi-family residential properties, (c) mixed use properties,
(d) apartment units in a Cooperative or (e) Manufactured Homes or (ii)
certificates of interest or participations in such Mortgage Notes. The
Properties will consist primarily of attached or detached one-family dwelling
units, two- to four-family dwelling units, condominiums, townhouses, row houses,
individual units in planned-unit developments, mixed use properties and certain
other dwelling units, and the fee, leasehold or other interests in the
underlying real property. The Properties may also consist of apartment units in
Cooperatives and Manufactured Homes. The Properties may be owner-occupied (which
includes second and vacation homes) and non-owner occupied investment
properties. If specified in the related Prospectus Supplement relating to a
series of Securities, a Loan Pool may contain Cooperative Loans evidenced by
promissory notes ("Cooperative Notes") secured by security interests in shares
issued by Cooperatives and in the related proprietary leases or occupancy
agreements granting exclusive rights to occupy specific dwelling units in the
related buildings. As used herein, unless the context indicates otherwise,
"Loans" include Cooperative Loans, "Properties" include shares in the related
cooperative and the related proprietary leases or occupancy agreements securing
Cooperative Notes, "Notes" include Cooperative Notes and "Loans" include
security agreements with respect to Cooperative Notes.
Each Loan will be selected by the Company for inclusion in a Loan Pool from
among loans originated by the Company or one or more originators, including
banks, savings and loan associations, mortgage bankers, mortgage brokers,
investment banking firms, the FDIC and other mortgage loan originators or
purchasers not affiliated with the Company, all as described below under "Loan
Program." The characteristics of the Loans will be described in the related
Prospectus Supplement. Other loans available for acquisition by a Trust may have
characteristics that would make them eligible for inclusion in a Loan Pool but
may not be selected by the Company for inclusion in such Loan Pool.
Each Security will evidence an interest in only the related Loan Pool and
corresponding Trust Estate, and not in any other Loan Pool or any other Trust
Estate (except in those situations whereby certain collections on any Loans in
a related Loan Pool in excess of amounts needed to pay the related securities
may be deposited in a common, master reserve account that provides Credit
Enhancement for more than one series of Securities).
The Loan Pools
All of the Loans in a Loan Pool will (i) have payments that are due
monthly or bi-weekly, (ii) be secured by Properties located in any of the fifty
states, the District of Columbia, Puerto Rico or any other Territories of the
United States and (iii) consist of one or more of the following types of loans:
(1) Fixed-rate, fully-amortizing loans (which may include loans
converted from adjustable-rate loans or otherwise modified) providing for
level monthly payments of principal and interest and terms at origination
or modification of generally not more than 30 years;
(2) ARM Loans having original or modified terms to maturity of
generally not more than 30 years with a related Loan Rate that adjusts
periodically, at the intervals described in the related Prospectus
Supplement (which may have adjustments in the amount of monthly payments at
periodic intervals) over the term of the loan to equal the sum of a fixed
percentage set forth in the related Mortgage Note (the "Note Margin") and
an index (the "Index") to be specified in the related Prospectus
Supplement, such as, by way of example: (i) U.S. Treasury securities of a
specified constant maturity, (ii) weekly auction average investment yield
of U.S. Treasury bills of specified maturities, (iii) the daily Bank Prime
Loan rate made available by the Federal Reserve Board or as quoted by one
or more specified lending institutions, (iv) the cost of funds of member
institutions for the Federal Home Loan
28
<PAGE>
<PAGE>
Bank of San Francisco, or (v) the interbank offered rates for U.S. dollar
deposits in the London Markets, each calculated as of a date prior to each
scheduled interest rate adjustment date that will be specified in the
related Prospectus Supplement. The related Prospectus Supplement will set
forth the relevant Index, and the related Prospectus Supplement or the
related Current Report on Form 8-K will indicate the highest, lowest and
weighted-average Note Margin with respect to the ARM Loans in the related
Loan Pool. If specified in the related Prospectus Supplement, an ARM Loan
may include a provision that allows the Obligor to convert the adjustable
Loan Rate to a fixed rate at some point during the term of such ARM Loan
subsequent to the initial payment date;
(3) Fixed-rate, graduated payment loans having original or modified
terms to maturity of generally not more than 30 years with monthly payments
during the first year calculated on the basis of an assumed interest rate
that will be lower than the Loan Rate applicable to such loan in subsequent
years. Deferred Interest, if any, will be added to the principal balance of
such loans;
(4) Balloon loans ("Balloon Loans"), which are loans having original
or modified terms to maturity of generally 5 to 15 years as described in
the related Prospectus Supplement, which may have level monthly payments of
principal and interest based generally on a 10- to 30-year amortization
schedule. The amount of the monthly payment may remain constant until the
maturity date, upon which date the full outstanding principal balance on
such Balloon Loan will be due and payable (such amount, the "Balloon
Amount"); or
(5) Modified loans ("Modified Loans"), which are fixed or
adjustable-rate loans providing for terms at the time of modification of
generally not more than 30 years. Modified Loans may be loans which have
been consolidated and/or have had various terms changed, loans which have
been converted from adjustable rate loans to fixed rate loans, or
construction loans which have been converted to permanent loans.
If provided for in the related Prospectus Supplement, a Loan Pool may
contain ARM Loans which allow the Obligors to convert the adjustable rates on
such Loans to a fixed rate at some point during the life of such Loans (each
such Loan, a " Convertible Loan"). If specified in the related Prospectus
Supplement, upon any conversion, the Company will repurchase or the Servicer,
the applicable Sub-Servicer, or a third party will purchase the converted Loan
as and to the extent set forth in the related Prospectus Supplement.
Alternatively, if specified in the related Prospectus Supplement, the Company or
the Servicer (or another party specified therein) may agree to act as
remarketing agent with respect to such converted Loans and, in such capacity, to
use its best efforts to arrange for the sale of converted Loans under specific
conditions. Upon the failure of any party so obligated to purchase any such
converted Loan, the inability of any remarketing agent to so arrange for the
sale of the converted Loan and the unwillingness of the remarketing agent to
exercise any election to purchase the converted Loan for its own account, the
related Loan Pool will thereafter include both fixed rate and adjustable rate
Loans.
If provided for in the related Prospectus Supplement, certain of the Loans
may be Buydown Loans pursuant to which the monthly payments made by the Obligor
during the Buydown Period will be less than the scheduled monthly payments on
the Loan, the resulting difference to be made up from (i) Buydown Funds funded
by the originator of the Loan or another source (including the Servicer, the
Company or the related originator) and placed in the Buydown Account and (ii) if
the Buydown Funds are contributed on a present value basis, investment earnings
on such Buydown Funds. See "Description of the Securities--Payments on Loans;
Deposits to Distribution Account." The terms of the Buydown Loans, if such loans
are included in a Trust, will be as set forth in the related Prospectus
Supplement.
The Company will cause the Loans constituting each Loan Pool to be assigned
to the Trustee named in the related Prospectus Supplement, for the benefit of
the holders of all of the Securities of a series and such Trustee will receive a
fee for its services. The Servicer named in the related Prospectus Supplement
will service the Loans, either directly or through other mortgage servicing
institutions (Sub-Servicers), pursuant to a Pooling and Servicing Agreement and
will receive a fee for such services. See "Loan Program" and "Description of the
29
<PAGE>
<PAGE>
Securities." With respect to those Loans serviced by the Servicer through a
Sub-Servicer, the Servicer will remain liable for its servicing obligations
under the related Pooling and Servicing Agreement as if the Servicer alone were
servicing such Loans.
As described in the related Prospectus Supplement, the Company may make
certain representations and warranties regarding the Loans, but the assignment
of the Loans to the Trustee will be without recourse. See "Description of the
Securities--Assignment of Loans." The Servicer's obligations with respect to the
Loans will consist principally of its contractual servicing obligations under
the related Pooling and Servicing Agreement (including its obligation to enforce
certain purchase and other obligations of the Company, as more fully described
herein under "Loan Program--Representations" and "Description of the
Securities--Assignment of Loans," and its obligation, if any, to make certain
cash advances in the event of delinquencies in payments on or with respect to
the Loans and interest shortfalls due to prepayment of Loans, in amounts
described herein under "Description of the Securities--Advances"). Generally,
the obligation of the Servicer to make delinquency advances will be limited to
amounts which the Servicer believes ultimately would be reimbursable out of the
proceeds of liquidation of the Loans. See "Description of the
Securities--Advances."
UNDERWRITING PROGRAM
General
The Company's finance programs consist of a Mortgage Loan Program and a
Manufactured Housing Program, each of which is described below.
Loans originated or purchased by originators and acquired by the Company
generally will have been originated in accordance with the Company's guidelines
(the "Guidelines"). Management permits deviations from the specific criteria of
the Company's Guidelines to reflect local economic trends, real estate
valuations, and credit factors specific to each Loan. The Company generally will
review or cause to be reviewed all of the Loans in any delivery of Loans from
originators for conformity with the Company's Guidelines.
The Company will make representations and warranties with respect to the
Loans sold to the Trust pursuant to the Pooling and Servicing Agreement. The
Company may be obligated to repurchase the Loans in respect of which a breach of
representation or warranty has occurred.
Representations. The Company will make representations and warranties in
respect of the Loans sold by the Company to the Trust and evidenced by a series
of Securities. Such representations and warranties generally include, among
other things, that at the time of the sale to the Trust of each Loan: (i) the
information with respect to each Loan set forth in the Schedule of Loans is true
and correct; (ii) all real estate appraisals have been performed in accordance
with industry standards; (iii) no Loan is in violation of any applicable state
or federal law or regulation; (iv) each Loan had, at the time of origination,
either an attorney's certification of title or a title search or title policy;
(v) as of the related settlement date, each Loan is secured by a valid and
subsisting lien of record on the Property having the priority indicated in the
related Loan file subject in all cases to exceptions to title set forth in the
title insurance policy, if any, with respect to the related Loan; (vi) the
Company held good and indefeasible title to, and was the sole owner of, each
Loan conveyed by it; and (vii) each Loan was originated in accordance with law
and is the valid, legal and binding obligation of the related Obligor.
If the Company cannot cure a breach of any representation or warranty made
by it in respect of a Loan that materially and adversely affects the interests
of the Securityholders in such Loan within a time period specified in the
related Pooling and Servicing Agreement, the Company will be obligated to
purchase from the related Trust such Loan at a price (the "Loan Purchase Price")
set forth in the related Pooling and Servicing Agreement which Loan Purchase
Price will be equal to the principal balance thereof as of the date of purchase
plus one month's interest at the Loan Rate less the amount, expressed as a
percentage per annum, payable in respect of servicing compensation, Trustee
compensation and REMIC reporting compensation, as applicable, together with,
without duplication, the aggregate amount of all delinquent interest, if any.
30
<PAGE>
<PAGE>
As to any such Loan required to be purchased by the Company, as provided
above, rather than repurchase the Loan, the Servicer may, at its sole option,
remove such Loan (a " Deleted Loan") from the related Trust and cause the
Company to substitute in its place another Loan of like kind (a "Qualified
Replacement Loan" as such term is defined in the related Pooling and Servicing
Agreement). With respect to a Trust for which a REMIC election is to be made,
except as otherwise provided in the Prospectus Supplement relating to a series
of Securities, such substitution of a defective Loan must be effected within two
years of the date of the initial issuance of the Securities, and may not be made
if such substitution would cause the Trust to not qualify as a REMIC or result
in a prohibited transaction tax under the Code. The Company generally will
have no option to substitute for a Loan that it is obligated to repurchase in
connection with a breach of a representation and warranty.
The Servicer will be required under the applicable Pooling and Servicing
Agreement to enforce such purchase or substitution obligations for the benefit
of the Trustee and the Securityholders, following the practices it would employ
in its good faith business judgment if it were the owner of such Mortgage Loan;
provided, however, that this purchase or substitution obligation will in no
event become an obligation of the Servicer in the event the Company fails to
honor such obligation. The foregoing will constitute the sole remedy available
to Securityholders or the Trustee for a breach of representation by the Company.
Mortgage Loan Program
The Mortgage Loans will be originated by the Company or acquired by the
Company from originators. All of the Mortgage Loans will be originated or
acquired by originators generally in accordance with underwriting criteria
satisfactory to the Company.
As more fully described below and as may also be described in greater
detail in the related Prospectus Supplement, under the Company's Loan Program,
the Company will originate Loans or purchase Loans from originators: (1) in
accordance with its loan program (the "Company's Loan Program") described in the
Company's Seller's Guide, as modified from time to time (the " Company's
Seller's Guide"), (2) on a "spot" or negotiated basis ("Negotiated
Transactions"), and (3) as bulk acquisitions ("Bulk Acquisitions"). The
Company's Loan Program, Negotiated Transactions, Bulk Acquisitions and the
respective underwriting guidelines relating thereto are described below.
The Company's Guidelines provide that each borrower is required to provide,
and any originator is generally required to verify, personal financial
information. The borrower's total monthly obligations (including principal and
interest on each mortgage, tax assessments, other loans, charge accounts and all
other scheduled indebtedness) should not exceed 60% of the borrower's monthly
income. Borrowers who are salaried employees must provide current employment
information, in addition to recent employment history. The Originator verifies
this information for salaried borrowers based on a current pay stub and either
(i) a written verification of income signed by their employer or (ii) two years'
W-2 forms. A self-employed applicant is generally required to be successfully
self-employed in the same field for a minimum of two years. A self-employed
borrower is generally required to provide financial statements and signed copies
of federal income tax returns (including schedules) filed for the most recent
two years. The borrower's debt-to-income ratio is calculated based on income as
generally verified by the Originator and must be reasonable.
The Mortgage Loans will be underwritten pursuant to the Company's "Full
Documentation Program," "Alternative Income Documentation Program" and "Stated
Income Program," as set forth in the Company's Guidelines. Under each of the
programs, the originator reviews the loan applicant's source of income,
calculates the amount of income from sources indicated on the loan application
or similar documentation, reviews the credit history of the applicant,
calculates the debt service-to-income ratio to determine the applicant's ability
to repay the loan, reviews the type and use of the property being financed and
reviews the property for compliance with its standards. In determining the
ability of the applicant to repay an adjustable rate Mortgage Loan, the
originators use a rate (the "Qualifying Rate") that generally is a rate equal to
the fully-indexed Mortgage interest rate for such adjustable rate Mortgage Loan.
The Company's Guidelines are applied in a standardized procedure that complies
with applicable federal and state laws and regulations.
31
<PAGE>
<PAGE>
Under the Full Documentation Program, the income of each applicant and the
source of funds (if any) required to be deposited by an applicant into a bank
account will be verified by the Originators. Applicants are generally required
to submit a current pay stub and either (i) a written verification of income
signed by their employer or (ii) two years' W-2 forms. Under the Alternative
Income Documentation Program, a self-employed applicant is required to provide
the applicant's business' profit and loss statement, and bank account statements
supporting such statement for the prior calendar year and any completed calendar
quarter of the current year and a current copy of a business license. Both the
Alternative Income Program and the Stated Income Program generally require (i)
that the applicant's income be reasonable for its business/profession, (ii) that
the business has been in existence for three years or more and (iii) that the
loan-to-value ratio be reduced. In addition, the Mortgage Loan will generally
improve the applicant's cash flow. Verification of the source of funds (if any)
required to be deposited by the applicant into a bank account is generally
required under all documentation programs in the form of a standard verification
of deposit or two months' consecutive bank statements or other acceptable
documentation. Twelve months' mortgage payment or rental history is generally
required to be verified by the applicant's current lender or landlord. If
appropriate compensating factors exist, the originators and the Company may
waive certain documentation requirements for individual applicants.
Negotiated Transactions. The Company may acquire or may cause a Trust to
acquire Mortgage Loans from originators on a "spot" basis or in Negotiated
Transactions, and such Negotiated Transactions may be governed by agreements
("Master Commitments") relating to ongoing acquisitions of Mortgage Loans by the
Company, from originators who will represent that the Mortgage Loans have been
originated in accordance with underwriting guidelines agreed to by the Company.
Certain other Mortgage Loans will be acquired from originators that will
represent that the Mortgage Loans were originated pursuant to underwriting
guidelines determined by a mortgage insurance company acceptable to the Company.
The Company will accept a certification from such insurance company as to a
Mortgage Loan's insurability in a Loan Pool as of the date of certification as
evidence of a Mortgage Loan conforming to applicable underwriting standards.
Such certifications likely will have been issued before the purchase of the
Mortgage Loan by the Company. The Company only will perform random quality
assurance reviews on Mortgage Loans delivered with such certifications.
The underwriting standards utilized in Negotiated Transactions and the
underwriting standards of insurance companies may vary substantially from the
Company's Guidelines described herein. All of the underwriting guidelines will
provide an underwriter with information to evaluate either the security for the
related Mortgage Loan, which security consists primarily of the borrower's
repayment ability or the adequacy of the Property as collateral, or a
combination of both. Due to the variety of underwriting guidelines and review
procedures that may be applicable to the Mortgage Loans included in any Loan
Pool, the related Prospectus Supplement will not distinguish among the various
underwriting guidelines applicable to the Mortgage Loans nor describe any review
for compliance with applicable underwriting guidelines performed by the Company.
Moreover, there can be no assurance that every Mortgage Loan was originated in
conformity with the underwriting guidelines related thereto in all material
respects, or that the quality or performance of Mortgage Loans underwritten
pursuant to varying guidelines as described above will be equivalent under all
circumstances.
Bulk Acquisitions. Bulk portfolios of Mortgage Loans may be originated by a
variety of originators under several different underwriting guidelines. Mortgage
Loans that conform to the related underwriting guidelines of the originator of
the portfolio of such Mortgage Loans acquired by the Company in a Bulk
Acquisition may not conform to the requirements of the Company's Guidelines.
Bulk Acquisition portfolios may be purchased servicing released or retained. If
servicing is retained, the Company may require the Originator to meet certain
minimum requirements with respect to the servicing of such Mortgage Loans. The
Company generally will cause the Mortgage Loans acquired in a Bulk Acquisition
to be re-underwritten on a sample basis. Such re-underwriting may be performed
by the Company or by a third party acting at the direction of the Company.
32
<PAGE>
<PAGE>
Manufactured Housing Contract Program
General. All manufactured housing contracts that are purchased by the
Company from dealers or originated by the Company through a broker are written
on forms provided by the Company and are purchased or underwritten, as the case
may be, on an individually approved basis. With respect to each retail
manufactured housing contract to be purchased from a dealer or submitted by a
broker and underwritten, as the case be, the Company's general practice is to
have the dealer or broker submit the customer's credit application,
manufacturer's invoice (if the contract is for a new home) and certain other
information relating to the contract to the applicable regional office of the
Company. Personnel at the regional office make an analysis of the
creditworthiness of the obligor and of other aspects of the proposed
transaction. If the credit worthiness of the obligor and other aspects of the
transaction are approved by the regional office, the Company purchases the
contract after the manufactured home is delivered and set up.
Because manufactured homes generally depreciate in value, the Company's
management believes that the creditworthiness of a potential obligor under a
manufactured housing contract should be the most important criterion in
determining whether to approve the purchase or origination of such manufactured
housing contract. In this regard, the Company uses an underwriting guideline
matrix based upon each applicant's credit history, residence history, employment
history, debt-to-income ratio and down payment percentage. Although, with
respect to certain of these criteria, the Company has minimum requirements, the
Company management does not believe that these minimum requirements are
themselves generally sufficient to warrant a credit approval of an applicant.
Thus, there were and are no requirements on the basis of which, if they are met,
credit is routinely approved, and if they are not met, credit is routinely
denied. Rather, if an applicant has a low rating with respect to one of the
criteria mentioned above, there generally must be a compensating higher rating
with respect to other items in order for such applicant to be approved. In
addition, in certain cases, credit applications are approved even if certain of
the minimum criteria are not met. The ultimate decision to approve or reject a
credit application is thus the result of a judgment made by either regional
management or the Company's senior management.
The Company's policy is to approve or reject each credit application within
72 hours of receipt. Thus, there is generally less time for credit investigation
than is the case, for instance, with loans for site-built homes. Although the
Company's management believes that the 72 hour period for approval or rejection
of each credit application is in line with industry practice, no assurance can
be given that any credit application that was approved in 72 hours would have
been approved if a longer period had been provided for credit investigation.
The qualifications of all regional office personnel authorized to approve
or reject credit applications are reviewed by the President and/or the Chief
Executive Office of the Company. All such personnel have certain lending limits
applicable to their approval authority. The Company has no set qualifications
for any employees to whom authority to approve or reject credit applications may
be delegated.
The credit review and approval practices of each regional office are
subject to internal reviews and audits that, through sampling, examine the
nature of the verification of credit histories, residence histories, employment
histories and debt-to-income ratios of the applicants and evaluate the credit
risks associated with the contracts purchased through such regional office by
rating the obligors on such contracts according to their credit histories,
residence histories, employment histories, debt-to-income ratios and down
payment percentages. Selection of underwriting files for review is generally
made by the personnel performing the examination, without prior knowledge on the
part of the regional office personnel of the files to be selected for review.
However, the Company has no requirement that any specific random selection
procedures be followed, and no assurance can be given that the files reviewed in
any examination process are representative of the contract originations in the
related regional office. In addition, no statistical analysis is performed on
the results of any such examination of underwriting files.
Underwriting policies for the Company's origination or purchase on an
individual basis of manufactured housing contracts are established by the
Company's senior management and are applicable to all regional offices in the
Company's manufactured housing regional office system.
33
<PAGE>
<PAGE>
DESCRIPTION OF THE SECURITIES
General
The Securities will be issued in series. Each series of Securities (or, in
certain instances, two or more series of Securities) will be issued pursuant to
a Pooling and Servicing Agreement. The following (together with additional
summaries under "The Pooling and Servicing Agreement" below) describes all
material terms and provisions relating to the Securities common to each Pooling
and Servicing Agreement. The following does not purport to be complete and are
subject to, and is qualified in their entirety by reference to, all of the
provisions of the Pooling and Servicing Agreement for the related Trust and the
related Prospectus Supplement.
The Securities will consist of two basic types: (i) Securities of the
fixed-income type ("Fixed-Income Securities") and (ii) Securities of the equity
participation type ("Equity Securities"). No Class of Equity Securities will be
offered pursuant to this Prospectus or any Prospectus Supplement related hereto.
Fixed-Income Securities generally will be styled as debt instruments, having a
principal balance and a specified interest rate ("Interest Rate"). Fixed-Income
Securities may be either beneficial ownership interests in the related Loans
held by the related Trust, or may represent debt secured by such Loans. Each
series or class of Fixed-Income Securities may have a different Interest Rate,
which may be a fixed, variable or adjustable Interest Rate. The related
Prospectus Supplement will specify the Interest Rate for each series or class of
Fixed-Income Securities, or the initial Interest Rate and the method for
determining subsequent changes to the Interest Rate.
A series may include one or more classes of Fixed-Income Securities ("Strip
Securities") entitled to (i) principal distributions, with disproportionate,
nominal or no interest distributions, or (ii) interest distributions, with
disproportionate, nominal or no principal distributions. In addition, a series
may include two or more classes of Fixed-Income Securities that differ as to
timing, sequential order, priority of payment, Interest Rate or amount of
distributions of principal or interest or both, or as to which distributions of
principal or interest or both on any class may be made upon the occurrence of
specified events, in accordance with a schedule or formula, or on the basis of
collections from designated portions of the related Loan Pool, which series may
include one or more classes of Fixed-Income Securities ("Accrual Securities"),
as to which certain accrued interest will not be distributed but rather will be
added to the principal balance (or nominal principal balance in the case of
Accrual Securities which are also Strip Securities) thereof on each Payment
Date, as hereinafter defined and in the manner described in the related
Prospectus Supplement.
If so provided in the related Prospectus Supplement, a series of Securities
may include one or more classes of Fixed-Income Securities (collectively, the
"Senior Securities") that are senior to one or more classes of Fixed-Income
Securities (collectively, the "Subordinate Securities") in respect of certain
distributions of principal and interest and allocations of losses on Loans. In
addition, certain classes of Senior (or Subordinate) Securities may be senior to
other classes of Senior (or Subordinate) Securities in respect of such
distributions or losses.
Equity Securities will represent the right to receive the proceeds of the
related Trust Estate after all required payments have been made to the
Securityholders of the related Fixed-Income Securities (both Senior Securities
and Subordinate Securities), and following any required deposits to any reserve
account that may be established for the benefit of the Fixed-Income Securities.
Equity Securities may constitute what are commonly referred to as the "residual
interest", "seller's interest" or the "general partnership interest", depending
upon the treatment of the related Trust for federal income tax purposes. As
distinguished from the Fixed-Income Securities, the Equity Securities will not
be styled as having principal and interest components. Any losses suffered by
the related Trust first will be absorbed by the related class of Equity
Securities, as described herein and in the related Prospectus Supplement.
No Class of Equity Securities will be offered pursuant to this Prospectus
or any Prospectus Supplement related hereto. Equity Securities may be offered on
a private placement basis or pursuant to a separate
34
<PAGE>
<PAGE>
Registration Statement to be filed by the Company. In addition, the Company and
its affiliates may initially or permanently hold any Equity Securities issued by
any Trust.
General Payment Terms of Securities. As provided in the related Pooling and
Servicing Agreement and as described in the related Prospectus Supplement,
Securityholders will be entitled to receive payments on their Securities on
specified dates ("Payment Dates"). Payment Dates with respect to Fixed-Income
Securities will occur monthly, quarterly or semi-annually, as described in the
related Prospectus Supplement; Payment Dates with respect to Equity Securities
will occur as described in the related Prospectus Supplement.
The related Prospectus Supplement will describe a date (the "Record Date")
preceding such Payment Date, as of which the Trustee or its paying agent will
fix the identity of the Securityholders for the purpose of receiving payments on
the next succeeding Payment Date.
The related Prospectus Supplement and the Pooling and Servicing Agreement
will describe a period (a "Remittance Period") antecedent to each Payment Date
(for example, in the case of monthly-pay Securities, the calendar month
preceding the month in which a Payment Date occurs or such other specified
period). Collections received on or with respect to the related Loans during a
Remittance Period will be required to be remitted by the Servicer to the related
Trustee prior to the related Payment Date and will be used to distribute
payments to Securityholders on such Payment Date. As may be described in the
related Prospectus Supplement, the related Pooling and Servicing Agreement may
provide that all or a portion of the principal collected on or with respect to
the related Loans may be applied by the related Trustee to the acquisition of
additional Loans during a specified period (rather than used to distribute
payments of principal to Securityholders during such period) with the result
that the related Securities possess an interest-only period, also commonly
referred to as a revolving period, which will be followed by an amortization
period. Any such interest-only or revolving period may, upon the occurrence of
certain events to be described in the related Prospectus Supplement, terminate
prior to the end of the specified period and result in the earlier than expected
amortization of the related Securities.
In addition, and as may be described in the related Prospectus Supplement,
the related Pooling and Servicing Agreement may provide that all or a portion of
such collected principal may be retained by the Trustee (and held in certain
temporary investments, including Loans) for a specified period prior to being
used to distribute payments of principal to Securityholders.
The result of such retention and temporary investment by the Trustee of
such principal would be to slow the amortization rate of the related Securities
relative to the amortization rate of the related Loans, or to attempt to match
the amortization rate of the related Securities to an amortization schedule
established at the time such Securities are issued. Any such feature applicable
to any Securities may terminate upon the occurrence of events to be described in
the related Prospectus Supplement, resulting in the current funding of principal
payments to the related Securityholders and an acceleration of the amortization
of such Securities.
Neither the Securities nor the underlying Loans will be guaranteed or
insured by any governmental agency or instrumentality or the Company, the
Servicer, the Master Servicer, if any, any Sub-Servicer, any Originator or any
of their affiliates.
Securities of each series covered by a particular Pooling and Servicing
Agreement will evidence specified beneficial ownership interest in a separate
Trust Estate created pursuant to such Pooling and Servicing Agreement. A Trust
Estate will consist of, to the extent provided in the Pooling and Servicing
Agreement: (i) a pool of Loans (and the related Loan documents) or certificates
of interest or participations therein underlying a particular series of
Securities as from time to time are subject to the Pooling and Servicing
Agreement, exclusive of, if specified in the related Prospectus Supplement, any
interest retained by the related Originator, the Company or any of their
affiliates with respect to each such Loan; (ii) payments and collections in
respect of the Loans due, accrued or received, as described in the related
Prospectus Supplement, on and after the related Cut-Off Date, as from time to
time are identified as deposited in respect thereof in the Principal and
Interest Account and in the related Distribution Account; (iii) property
acquired by foreclosure of the Loans or deed in lieu of foreclosure; (iv) hazard
and flood insurance policies and primary mortgage insurance policies, if any,
and
35
<PAGE>
<PAGE>
certain proceeds thereof; and (v) any combination, as specified in the related
Prospectus Supplement, of a letter of credit, financial guaranty insurance
policy, purchase obligation, mortgage pool insurance policy, special hazard
insurance policy, bankruptcy bond, reserve fund or other type of Credit
Enhancement as described under "Description of Credit Enhancement." To the
extent that any Trust Estate includes certificates of interest or participations
in Loans, the related Prospectus Supplement will describe the material terms and
conditions of such certificates or participations.
Form of Securities
The Securities of each series will be issued as physical certificates
("Physical Certificates") in fully registered form only in the denominations
specified in the related Prospectus Supplement, and will be transferable and
exchangeable at the corporate trust office of the registrar of the Securities
(the "Security Registrar") named in the related Prospectus Supplement. No
service charge will be made for any registration of exchange or transfer of
Securities, but the Trustee may require payment of a sum sufficient to cover any
tax or other governmental charge.
If so specified in the related Prospectus Supplement, specified classes of
a series of Securities will be issued in uncertificated book-entry form
("Book-Entry Securities"), and will be registered in the name of Cede, the
nominee of DTC. DTC is a limited purpose trust company organized under the laws
of the State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code ("UCC") and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. DTC was 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 the DTC system also is available
to others such as brokers, dealers, banks and trust companies that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participant").
Under a book-entry format, Securityholders that are not Participants or
Indirect Participants but desire to purchase, sell or otherwise transfer
ownership of Securities registered in the name of Cede, as nominee of DTC, may
do so only through Participants and Indirect Participants. In addition, such
Securityholders will receive all distributions of principal of and interest on
the Securities from the Trustee through DTC and its Participants. Under a
book-entry format, Securityholders will receive payments after the related
Payment Date because, while payments are required to be forwarded to Cede, as
nominee for DTC, on each such date, DTC will forward such payments to its
Participants, which thereafter will be required to forward such payments to
Indirect Participants or Securityholders. Unless and until Physical Securities
are issued, it is anticipated that the only Securityholder will be Cede, as
nominee of DTC, and that the beneficial holders of Securities will not be
recognized by the Trustee as Securityholders under the Pooling and Servicing
Agreement. The beneficial holders of such Securities will only be permitted to
exercise the rights of Securityholders under the Pooling and Servicing Agreement
indirectly through DTC and its Participants who in turn will exercise their
rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among Participants
on whose behalf it acts with respect to the Securities and is required to
receive and transmit payments of principal of and interest on the Securities.
Participants and Indirect Participants with which Securityholders have accounts
with respect to their Securities similarly are required to make book-entry
transfers and receive and transmit such payments on behalf of their respective
Securityholders. Accordingly, although Securityholders will not possess
Securities, the rules provide a mechanism by which Securityholders will receive
distributions and will be able to transfer their interests.
Unless and until Physical Certificates are issued, Securityholders who are
not Participants may transfer ownership of Securities only through Participants
by instructing such Participants to transfer Securities, by book-entry transfer,
through DTC for the account of the purchasers of such Securities, which account
is maintained with their respective Participants. Under the Rules and in
accordance with DTC's normal procedures,
36
<PAGE>
<PAGE>
transfers of ownership of Securities will be executed through DTC and the
accounts of the respective Participants at DTC will be debited and credited.
Similarly, the respective Participants will make debits or credits, as the case
may be, on their records on behalf of the selling and purchasing
Securityholders.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Securityholder to pledge Securities to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
Securities may be limited due to the lack of a Physical Certificate for such
Securities.
DTC in general advises that it will take any action permitted to be taken
by a Securityholder under a Pooling and Servicing Agreement only at the
direction of one or more Participants to whose account with DTC the related
Securities are credited. Additionally, DTC in general advises that it will take
such actions with respect to specified percentages of the Securityholders only
at the direction of and on behalf of Participants whose holdings include current
principal amounts of outstanding Securities that satisfy such specified
percentages. DTC may take conflicting actions with respect to other current
principal amounts of outstanding Securities to the extent that such actions are
taken on behalf of Participants whose holdings include such current principal
amounts of outstanding Securities.
Any Securities initially registered in the name of Cede, as nominee of DTC,
will be issued in fully registered, certificated form to Securityholders or
their nominees ("Physical Certificates"), rather than to DTC or its nominee only
under the events specified in the related Pooling and Servicing Agreement and
described in the related Prospectus Supplement. Upon the occurrence of any of
the events specified in the related Pooling and Servicing Agreement and the
Prospectus Supplement, DTC will be required to notify all Participants of the
availability through DTC of Physical Certificates. Upon surrender by DTC of the
securities representing the Securities and instruction for re-registration, the
Trustee will issue the Securities in the form of Physical Certificates, and
thereafter the Trustee will recognize the holders of such Physical Certificates
as Securityholders. Thereafter, payments of principal of and interest on the
Securities will be made by the Trustee directly to Securityholders in accordance
with the procedures set forth herein and in the Pooling and Servicing Agreement.
The final distribution of any Security (whether Physical Certificates or
Securities registered in the name of Cede), however, will be made only upon
presentation and surrender of such Securities on the final Payment Date at such
office or agency as is specified in the notice of final payment to
Securityholders.
Assignment of Loans
At the time of issuance of a series of Securities, the Company will cause
the Loans being included in the related Trust Estate to be assigned to the
Trustee together with all payments and collections in respect of the Loans
due, accrued or received, as described in the related Prospectus Supplement on
or after the related Cut-Off Date. The Trustee will, concurrently with such
assignment, deliver a series of Securities to the Company in exchange for the
Loans. Each Loan will be identified in a schedule appearing as an exhibit to the
related Pooling and Servicing Agreement. Such schedule will include, among other
things, information as to the principal balance of each Loan as of the Cut-Off
Date, as well as information regarding the Loan Rate, the currently scheduled
monthly payment of principal and interest and the maturity of the Note.
A typical provision relating to document delivery requirements would
provide that the Company deliver to the Trustee a file consisting of (i) the
original Notes or certified copies thereof, endorsed in blank or to the order of
the holder, (ii) originals of all intervening assignments, showing a complete
chain of title from origination to the applicable Originators, if any, including
warehousing assignments, with evidence of recording thereon, (iii) originals of
all assumption and modification agreements, if any, and, unless such Loan is
covered by a counsel's opinion as described in the next paragraph, (iv) either:
(a) the original Loan, with evidence of recording thereon, (b) a true and
accurate copy of the Loan where the original has been transmitted for recording,
until such time as the original is returned by the public recording office or
(c) a copy of the Loan certified by the public recording office in those
instances where the original recorded Loan has been lost. To the extent that
such a file containing all or a portion of such items has been delivered to the
Trustee, the Trustee will generally be required, for the benefit of the
Securityholders, to review each such file within a specified period, generally
37
<PAGE>
<PAGE>
not exceeding 90 days, to ascertain that all required documents (or certified
copies of documents) have been executed and received.
Generally, transfer documentation from the Originators to the Company will
have been prepared and filed prior to the execution and delivery of the Pooling
and Servicing Agreement. A typical provision relating to the preparation and
filing of transfer documentation will require the Company to cause to be
prepared and recorded, within a specified period, generally not exceeding 75
business days of the execution and delivery of the applicable Pooling and
Servicing Agreement (or, if original recording information is unavailable,
within such later period as is permitted by the Pooling and Servicing Agreement)
assignments of the Mortgages from the Company to the Trustee, in the appropriate
jurisdictions in which such recordation is necessary to perfect the lien thereof
as against creditors of or purchasers from the Company, to the Trustee;
provided, however, that if the Company furnishes to the Trustee an opinion of
counsel to the effect that no such recording is necessary to perfect the
Trustee's interests in the Mortgages with respect to one or more jurisdictions,
then such recording will not be required with respect to such jurisdictions.
If any such document is found to be missing or defective in any material
respect, the Trustee (or such custodian) shall promptly so notify the Company,
which may notify the related Sub-Servicer or Originator, as the case may be. If
the Company or the Originator does not cure the omission or defect within a
specified period, generally not exceeding 60 days after notice is given to the
Company or Originator, as the case may be, the Company or such Originator will
be obligated to purchase on the next succeeding Remittance Date the related Loan
from the Trustee at its Loan Purchase Price (or, if specified in the related
Prospectus Supplement, will be permitted to substitute for such Loan under the
conditions specified in the related Prospectus Supplement). The Servicer will be
obligated to enforce this obligation of the Originator, as the case may be, to
the extent described above under "Underwriting Program--Representations."
Neither the Servicer nor the Company will, however, be obligated to purchase or
substitute for such Loan if the Originator defaults on its obligation to do so,
and there can be no assurance that an Originator, as the case may be, will carry
out any such obligation. Such purchase obligation constitutes the sole remedy
available to the Securityholders or the Trustee for omission of, or a material
defect in, a constituent document.
The Trustee will be authorized at any time to appoint a custodian pursuant
to a custodial agreement to maintain possession of and, if applicable, to review
the documents relating to the Loans as the agent of the Trustee. The identity of
any such custodian to be appointed on the date of initial issuance of the
Securities will be set forth in the related Prospectus Supplement.
Pursuant to each Pooling and Servicing Agreement, the Servicer, either
directly or through Sub-Servicers, will service and administer the Loans
assigned to the Trustee as more fully set forth below.
Forward Commitments; Pre-Funding
A Trust may enter into an agreement (each, a "Forward Purchase Agreement")
with the Company whereby the Company will agree to transfer additional Loans to
such Trust following the date on which such Trust is established and the related
Securities are issued. The Trust may enter into Forward Purchase Agreements to
permit the acquisition of additional Loans (the "Subsequent Loans") that could
not be delivered by the Company or have not formally completed the origination
process, in each case prior to the date on which the Securities are delivered to
the Securityholders (the "Closing Date"). Any Forward Purchase Agreement will
require that any Loans so transferred to a Trust conform to the requirements
specified in such Forward Purchase Agreement, this Prospectus and the related
Prospectus Supplement. In addition, the Forward Purchase Agreement will state
that the Company shall only transfer the Subsequent Loans upon the satisfaction
of certain conditions, including that the Company shall have delivered opinions
of counsel (including bankruptcy, corporate and tax opinions) with respect to
the transfer of the Subsequent Loans to the Certificate Insurer, if any, the
Rating Agencies, the Servicer and the Trustee.
If a Forward Purchase Agreement is to be utilized, the related Trustee
will be required to deposit in a segregated account (each, a "Pre-Funding
Account") a portion of the net proceeds received by the Trustee
38
<PAGE>
<PAGE>
in connection with the sale of one or more classes of Securities of the related
series (such amount, the "Pre-Funded Amount"); the additional Loans will be
transferred to the related Trust in exchange for money released to the Company
from the related Pre-Funding Account. Each Forward Purchase Agreement will set a
specified period (the " Funding Period") during which any such transfers must
occur The Forward Purchase Agreement or the related Pooling and Servicing
Agreement will require that if all moneys originally deposited to such
Pre-Funding Account are not so used by the end of the related Funding Period,
then any remaining moneys will be applied as a mandatory prepayment of the
related class or classes of Securities as specified in the related Prospectus
Supplement.
During the Funding Period, the moneys deposited to the Pre-Funding Account
will either (i) be held uninvested or (ii) will be invested in one or more
Eligible Investments. On payment dates that occur during the Funding Period, the
Trustee will transfer any earnings on the moneys in the Pre-Funding Account to
the Certificate Account for distribution to the Securityholders.
Although the specific parameters of the Pre-Funding Account with respect to
any issuance of Securities will be specified in the related Prospectus
Supplement, it is anticipated that: (a) the Funding Period will not exceed 120
days from the related Closing Date, (b) that the Additional Loans to be acquired
during the Funding Period will be subject to the same representations and
warranties as the Loans included in the related Trust Fund on the Closing Date
(although additional criteria may also be required to be satisfied, as described
in the related Prospectus Supplement) and (c) that the Pre-Funded Amount will
not exceed 25% of the principal amount of the Securities issued pursuant to a
particular offering.
The Pre-Funding Account will be maintained by a Trustee, which must be a
bank having combined capital and surplus, generally, of a least $100,000,000,
long-term, unsecured debt rated at least investment grade and a long-term
deposit rating of at least investment grade.
Payments on Loans; Deposits to Distribution Account
Each Sub-Servicer servicing a Loan pursuant to a Sub-Servicing Agreement
will establish and maintain an account (the "Sub-Servicing Account") that is
acceptable to the Servicer. A Sub-Servicing Account must be established with a
Federal Home Loan Bank or with a depository institution (including the
Sub-Servicer itself) whose accounts are insured by the National Credit Union
Share Insurance Fund or the FDIC. Except as otherwise permitted by the
applicable Rating Agencies, a Sub-Servicing Account must be segregated and may
not be established as a general ledger account.
A Sub-Servicer is required to deposit into its Sub-Servicing Account on a
daily basis all amounts that are received by it in respect of the Loans, less
its servicing or other compensation. On or before the date specified in the
Sub-Servicing Agreement (which date may be no later than the business day prior
to the Determination Date referred to below or, if such day is not a business
day, the preceding business day), the Sub-Servicer must remit or cause to be
remitted to the Servicer all funds held in the Sub-Servicing Account with
respect to Loans that are required to be so remitted. A Sub-Servicer may also be
required to make such Servicing Advances and Delinquency Advances and to pay
Compensating Interest as set forth in the related Sub-Servicing Agreement.
The Servicer will deposit or will cause to be deposited into the Principal
and Interest Account on a daily basis certain payments and collections due,
accrued or received, as described in the related Prospectus Supplement on or
after to the Cut-Off Date, as specifically set forth in the related Pooling and
Servicing Agreement, such as the following except as otherwise provided therein:
(i) all payments on account of principal, including principal payments
received in advance of the date on which the related monthly payment is due
(the "Due Date") (" Principal Prepayments"), on the Loans comprising a
Trust Estate;
39
<PAGE>
<PAGE>
(ii) all payments on account of interest on the Loans comprising such
Trust Estate, net of the portion of each payment thereof retained by the
Sub-Servicer, if any, as its servicing or other compensation;
(iii) all amounts (net of unreimbursed liquidation expenses and
insured expenses incurred, and unreimbursed advances made, by the related
Sub-Servicer) received and retained, if any, in connection with the
liquidation of any defaulted Loan, by foreclosure, deed in lieu of
foreclosure or otherwise ("Liquidation Proceeds"), including all proceeds
of any special hazard insurance policy, bankruptcy bond, mortgage pool
insurance policy, financial guaranty insurance policy and any title, hazard
or other insurance policy covering any Loan in such Loan Pool (together
with any payments under any letter of credit, "Insurance Proceeds") or
proceeds from any alternative arrangements established in lieu of any such
insurance and described in the applicable Prospectus Supplement, other than
proceeds to be applied to the restoration of the related property or
released to the Obligor in accordance with the Servicer's normal servicing
procedures (such amounts, net of related unreimbursed expenses and advances
of the Servicer, "Net Liquidation Proceeds");
(iv) any Buydown Funds (and, if applicable, investment earnings
thereon) required to be paid to Securityholders, as described below;
(v) all proceeds of any Loan in such Trust Estate purchased (or, in
the case of a substitution, certain amounts representing a principal
adjustment) by the Servicer, the Company, any Sub-Servicer or Originator or
any other person pursuant to the terms of the Pooling and Servicing
Agreement. See "Underwriting Program--Representations," "--Assignment of
Loans" above;
(vi) any amounts required to be deposited by the Servicer in
connection with losses realized on investments of funds held in the
Principal and Interest Account, as described below;
(vii) any amounts required to be deposited in connection with the
liquidation of the related Trust; and
(viii) any amounts required to be transferred from the Distribution
Account to the Principal and Interest Account.
In addition to the Principal and Interest Account, the Trustee will
establish and maintain, at the corporate trust office of the Trustee, in
the name of the Trust for the benefit of the holders of each series of
Securities, an account for the disbursement of payments on the Loans
evidenced by each series of Securities (the "Distribution Account"). The
Principal and Interest Account and the Distribution Account each must be
maintained with a Designated Depository Institution. A " Designated
Depository Institution" is an institution whose deposits are insured by the
Bank Insurance Fund or the Savings Association Insurance Fund of the FDIC,
the long-term deposits of which have a rating satisfactory to the Rating
Agencies and the related Credit Enhancer, if any, and which is any of the
following: (i) a federal savings and loan association duly organized,
validly existing and in good standing under the federal banking laws, (ii)
an institution duly organized, validly existing and in good standing under
the applicable banking laws of any state, (iii) a national banking
association duly organized, validly existing and in good standing under the
federal banking laws, (iv) a principal subsidiary of a bank holding
company, or (v) approved in writing by the related Credit Enhancer, if any,
each Rating Agency and, in each case acting or designated by the Servicer
as the depository institution for the Principal and Interest Account;
provided, however, that any such institution or association will generally
be required to have combined capital, surplus and undivided profits of at
least $100,000,000. Notwithstanding the foregoing, the Principal and
Interest Account may be held by an institution otherwise meeting the
preceding requirements except that the only applicable rating requirement
shall be that the unsecured and uncollateralized debt obligations thereof
shall be rated at a level satisfactory to one or more Rating Agencies if
such institution has trust powers and the Principal and Interest Account is
held by such institution in its trust capacity and not in its commercial
capacity. The Distribution Account, the Principal and Interest Account and
other accounts described in the related Prospectus Supplement are
collectively referred to as "Accounts." All funds in the Distribution
Account shall be invested and reinvested
40
<PAGE>
<PAGE>
by the Trustee for the benefit of the Securityholders and the related Credit
Enhancer, if any, as directed by the Servicer, in one or more Eligible
Investments. An "Eligible Investment" is any of the following, in each case as
determined at the time of the investment or contractual commitment to invest
therein (to the extent such investments would not require registration of the
Trust Fund as an investment company pursuant to the Investment Company Act of
1940): (a) negotiable instruments or securities represented by instruments in
bearer or registered or book-entry form which evidence: (i) obligations which
have the benefit of the full faith and credit of the United States of America,
including depository receipts issued by a bank as custodian with respect to any
such instrument or security held by the custodian for the benefit of the holder
of such depository receipt, (ii) demand deposits or time deposits in, or
bankers' acceptances issued by, any depository institution or trust company
incorporated under the laws of the United States of America or any state thereof
and subject to supervision and examination by Federal or state banking or
depository institution authorities; provided that at the time of the Trustee's
investment or contractual commitment to invest therein, the certificates of
deposit or short-term depositors (if any) or long-term unsecured debt
obligations (other than such obligations whose rating is based on collateral or
on the credit of a Person other than such institution or trust company) of such
depository institution or trust company has a credit rating in the highest
category from each Rating Agency, (iii) certificates of deposit having a rating
in the highest rating category by the Rating Agencies, or (iv) investments in
money market funds which are (or which are composed of instruments or other
investments which are) rated in the highest rating category from each Rating
Agency; (b) demand deposits in the name of the Trustee in any depository
institution or trust company referred to in clause (a)(ii) above; (c) commercial
paper (having original or remaining maturities of no more than 270 days) having
a credit rating in the highest rating category from each Rating Agency; (d)
Eurodollar time deposits that are obligations of institutions whose time
deposits carry a credit rating in the highest rating category from each Rating
Agency; (e) repurchase agreements involving any Eligible Investment described
in any of clauses (a)(i), (a)(iii) or (d) above, so long as the other party to
the repurchase agreement has its long-term unsecured debt obligations rated in
the highest rating category from each Rating Agency; and (f) any other
investment with respect to which each Rating Agency rating such Securities
indicates will not result in the reduction or withdrawal of its then-existing
rating of the Securities. Any Eligible Investment must mature not later than the
Business Day prior to the next Distribution Date. The Principal and Interest
Account may contain funds relating to more than one series of Securities as well
as payments received on other loans serviced or master serviced by it that have
been deposited into the Principal and Interest Account. All funds in the
Principal and Interest Account will be required to be held (i) uninvested, up to
limits insured by the FDIC or (ii) invested in Eligible Investments. The
Servicer will be entitled to any interest or other income or gain realized with
respect to the funds on deposit in the Principal and Interest Account.
To the extent that the ratings, if any, then assigned to the unsecured debt
of the Servicer or of the Servicer's corporate parent are satisfactory to the
Rating Agencies, the Servicer may be permitted to co-mingle Loan payments and
collections with the Servicer's general funds rather than be required to deposit
such amounts into a segregated Principal and Interest Account.
On the day seven days preceding each Payment Date (the " Remittance
Date"), the Servicer will withdraw from the Principal and Interest Account and
remit to the Trustee for deposit in the applicable Distribution Account, in
immediately available funds, the amount to be distributed therefrom to
Securityholders on such Payment Date. The Servicer will remit to the Trustee for
deposit into the Distribution Account the amount of any advances made by the
Servicer as described herein under "--Advances," any amounts required to be
transferred to the Distribution Account from a Reserve Fund, as described under
"Credit Enhancement" below, any amounts required to be paid by the Servicer out
of its own funds due to the operation of a deductible clause in any blanket
policy maintained by the Servicer to cover hazard losses on the Loans as
described under "Hazard Insurance; Claims Thereunder--Hazard Insurance Policies"
below and any other amounts as specifically set forth in the related Pooling and
Servicing Agreement. The Trustee will cause all payments received by it from any
Credit Enhancer to be deposited in the Distribution Account not later than the
related Payment Date.
Funds on deposit in the Principal and Interest Account attributable to
Loans underlying a series of Securities may be invested in Eligible Investments
maturing in general not later than the business day preceding
41
<PAGE>
<PAGE>
the next Payment Date. All income and gain realized from any such investment
will be for the account of the Servicer. Funds on deposit in the related
Distribution Account may be invested in Eligible Investments maturing, in
general, no later than the business day preceding the next Payment Date.
With respect to each Buydown Loan, the Servicer will deposit the related
Buydown Funds provided to it in a Buydown Account. The terms of all Buydown
Loans provide for the contribution of Buydown Funds in an amount equal to or
exceeding either (i) the total payments to be made from such funds pursuant to
the related buydown plan or (ii) if such Buydown Funds are to be deposited on a
discounted basis, that amount of Buydown Funds which, together with investment
earnings thereon at a rate as set forth by the Company from time to time, will
support the scheduled level of payments due under the Buydown Loan. Neither the
Servicer nor the Company will be obligated to add to any such discounted Buydown
Funds any of its own funds should investment earnings prove insufficient to
maintain the scheduled level of payments. To the extent that any such
insufficiency is not recoverable from the Obligor or, in an appropriate case,
from the related Originator or the related Servicer, distributions to
Securityholders may be affected. With respect to each Buydown Loan, the Servicer
will withdraw from the Buydown Account and deposit into the Principal and
Interest Account on or before the date specified in the Pooling and Servicing
Agreement the amount, if any, of the Buydown Funds (and, if applicable,
investment earnings thereon) for each Buydown Loan that, when added to the
amount due from the Obligor on such Buydown Loan, equals the full monthly
payment which would be due on the Buydown Loan if it were not subject to the
buydown plan.
If the Obligor on a Buydown Loan prepays such Loan in its entirety during
the Buydown Period, the Servicer will withdraw from the Buydown Account and
remit to the Obligor or such other designated party in accordance with the
related buydown plan any Buydown Funds remaining in the Buydown Account. If a
prepayment by an Obligor during the Buydown Period together with Buydown Funds
will result in full prepayment of a Buydown Loan, the Servicer will generally be
required to withdraw from the Buydown Account and deposit into the Principal and
Interest Account the Buydown Funds and investment earnings thereon, if any,
which together with such prepayment will result in a prepayment in full;
provided that Buydown Funds may not be available to cover a prepayment under
certain Loan programs. Any Buydown Funds relating to a prepayment described in
the preceding sentence will be deemed to reduce the amount that would be
required to be paid by the Obligor to repay fully the related Loan if the Loan
were not subject to the buydown plan. Any investment earnings remaining in the
Buydown Account after prepayment or after termination of the Buydown Period will
be remitted to the related Obligor or such other designated party pursuant to
the agreement relating to each Buydown Loan (the "Buydown Agreement"). If the
Obligor defaults during the Buydown Period with respect to a Buydown Loan and
the property securing such Buydown Loan is sold in liquidation (either by the
Servicer, the primary insurer, the insurer under the mortgage pool insurance
policy (the "Credit Enhancer") or any other insurer), the Servicer will be
required to withdraw from the Buydown Account the Buydown Funds and all
investment earnings thereon, if any, and pay the same to the primary insurer or
the Credit Enhancer, as the case may be, if the Property is transferred to such
insurer and such insurer pays all of the loss incurred in respect of such
default.
Withdrawals from the Principal and Interest Account
The Servicer may, from time to time, make withdrawals from the Principal
and Interest Account for certain purposes, as specifically set forth in the
related Pooling and Servicing Agreement, which generally will include the
following except as otherwise provided therein:
(i) to effect the timely remittance to the Trustee for deposit to the
Distribution Account in the amounts and in the manner provided in the
Pooling and Servicing Agreement and described in "--Payments on Loans;
Deposits to Distribution Account" above;
(ii) to reimburse itself or any Sub-Servicer for Delinquency Advances
and Servicing Advances as to any Property, out of late payments or
collections on the related Loan with respect to which such Delinquency
Advances or Servicing Advances were made;
42
<PAGE>
<PAGE>
(iii) to withdraw investment earnings on amounts on deposit in the
Principal and Interest Account;
(iv) to withdraw amounts that have been deposited in the Principal and
Interest Account in error;
(v) to clear and terminate the Principal and Interest Account in
connection with the termination of the Trust Estate pursuant to the Pooling
and Servicing Agreement, as described in "The Pooling and Servicing
Agreement--Termination, Retirement of Securities;" and
(vi) to invest in Eligible Investments.
Distributions
Beginning on the Payment Date in the month following the month (or, in the
case of quarterly-pay Securities, the third month following such month and each
third month thereafter or, in the case of semi-annually-pay Securities, the
sixth month following such month and each sixth month thereafter) in which the
Cut-Off Date occurs (or such other date as may be set forth in the related
Prospectus Supplement) for a series of Securities, distributions of principal
and interest (or, where applicable, of principal only or interest only) on each
class of Securities entitled thereto will be made either by the Trustee or a
paying agent appointed by the Trustee (the "Paying Agent"), to the persons who
are registered as Securityholders at the close of business on the Record Date in
proportion to their respective Percentage Interests. Interest that accrues and
is not payable on a class of Securities will be added to the principal balance
of each Security of such class in proportion to its Percentage Interest. The
undivided percentage interest (the "Percentage Interest") represented by a
Security of a particular class will be equal to the percentage obtained by
dividing the initial principal balance or notional amount of such Security by
the aggregate initial amount or notional balance of all the Securities of such
class. Distributions will be made in immediately available funds (by wire
transfer or otherwise) to the account of a Securityholder at a bank or other
entity having appropriate facilities therefor, if such Securityholder has so
notified the Trustee or the Paying Agent, as the case may be, and the applicable
Pooling and Servicing Agreement provides for such form of payment, or by check
mailed to the address of the person entitled thereto as it appears on the
Security Register; provided, however, that the final distribution in retirement
of the Securities (other than any Book-Entry Securities) will be made only upon
presentation and surrender of the Securities at the office or agency of the
Trustee specified in the notice to Securityholders of such final distribution.
Principal and Interest on the Securities
The method of determining, and the amount of, distributions of principal
and interest (or, where applicable, of principal only or interest only) on a
particular series of Securities will be described in the related Prospectus
Supplement. Each class of Securities (other than certain classes of Strip
Securities) may bear interest at a different interest rate (the "Pass-Through
Rate"), which may be a fixed or adjustable Pass-Through Rate. The related
Prospectus Supplement will specify the Pass-Through Rate for each class, or in
the case of an adjustable Pass-Through Rate, the initial Pass-Through Rate and
the method for determining the Pass-Through Rate. Interest on the Securities
will be calculated on the basis of a 360-day year consisting of twelve 30-day
months.
On each Payment Date for a series of Securities, the Trustee will
distribute or cause the Paying Agent to distribute, as the case may be, to each
holder of record on the Record Date of a class of Securities, an amount equal to
the Percentage Interest represented by the Security held by such holder
multiplied by such class' Distribution Amount. The Distribution Amount for a
class of Securities for any Payment Date will be the portion, if any, of the
principal distribution amount (as defined in the related Prospectus Supplement)
allocable to such class for such Payment Date, as described in the related
Prospectus Supplement, plus, if such class is entitled to payments of interest
on such Payment Date, the interest accrued at the applicable Pass-Through Rate
on the principal balance or notional amount of such class, as specified in the
applicable Prospectus Supplement, less the amount of any Deferred Interest
added to the principal balance of the Loans and/or the outstanding
43
<PAGE>
<PAGE>
balance of one or more classes of Securities on the related Due Date and any
other interest shortfalls allocable to Securityholders which are not covered by
advances or the applicable Credit Enhancement, in each case in such amount that
is allocated to such class on the basis set forth in the Prospectus Supplement.
As may be described in the related Prospectus Supplement, the related
Pooling and Servicing Agreement may provide that all or a portion of the
principal collected on or with respect to the related Loans may be applied by
the related Trustee to the acquisition of additional Loans during a specified
period (rather than used to fund payments of principal to Securityholders during
such period) with the result that the related securities will possess an
interest-only period, also commonly referred to as a revolving period, which
will be followed by an amortization period. Any such interest-only or revolving
period may, upon the occurrence of certain events to be described in the related
Prospectus Supplement, terminate prior to the end of the specified period and
result in the earlier than expected amortization of the related Securities.
In addition, and as may be described in the related Prospectus Supplement,
the related Pooling and Servicing Agreement may provide that all or a portion of
such collected principal may be retained by the Trustee (and held in certain
temporary investments, including Loans) for a specified period prior to being
used to fund payments of principal to Securityholders.
In the case of a series of Securities that includes two or more classes of
Securities, the timing, sequential order, priority of payment or amount of
distributions in respect of principal, and any schedule or formula or other
provisions applicable to the determination thereof (including distributions
among multiple classes of Senior Securities or Subordinate Securities) of each
such class shall be as provided in the related Prospectus Supplement.
Distributions in respect of principal of any class of Securities will be made on
a pro rata basis among all of the Securities of such class.
Except as otherwise provided in the related Pooling and Servicing
Agreement, on or prior to the third business day next preceding the Payment Date
(or such earlier day as shall be agreed by the related Credit Enhancer, if any,
and the Trustee) of the month of distribution (the "Determination Date"), the
Trustee will determine the amounts of principal and interest which will be
passed through to Securityholders on the immediately succeeding Payment Date. If
the amount in the Distribution Account is insufficient to cover the amount to be
passed through to Securityholders, the Trustee will be required to notify the
related Credit Enhancer, if any, pursuant to the related Pooling and Servicing
Agreement for the purpose of funding such deficiency.
Advances
The Servicer will be required, not later than each Remittance Date, to
deposit into the Principal and Interest Account an amount equal to the sum of
the principal and interest portions (net of the Servicing Fees) due, but not
collected, with respect to delinquent Loans directly serviced by the Servicer
during the prior Remittance Period, but only if, in its good faith business
judgment, the Servicer believes that such amount will ultimately be recovered
from the related Loan. As may be described in the related Prospectus Supplement,
the Servicer may also be required to advance delinquent payments of principal.
Any such amounts so advanced are "Delinquency Advances". The Servicer will be
permitted to fund its payment of Delinquency Advances on any Remittance Date
from collections on any Loan deposited to the Principal and Interest Account
subsequent to the related Remittance Period, and will be required to deposit
into the Principal and Interest Account with respect thereto (i) collections
from the Obligor whose delinquency gave rise to the shortfall which resulted in
such Delinquency Advance and (ii) Net Liquidation Proceeds recovered on account
of the related Loan to the extent of the amount of aggregate Delinquency
Advances related thereto. A Sub-Servicer will be permitted to fund its payment
of Delinquency Advances as set forth in the related Sub-Servicing Agreement.
A Loan is "delinquent" if any payment due thereon is not made by the close
of business on the day such payment is scheduled to be due.
44
<PAGE>
<PAGE>
On or prior to each Remittance Date, the Servicer will be required to
deposit in the Principal and Interest Account with respect to any full
prepayment received on a Loan directly serviced by the Servicer during the
related Remittance Period out of its own funds without any right of
reimbursement therefor, an amount equal to the difference between (x) 30 days'
interest at the Loan's Loan Rate (less the related Base Servicing Fees) on the
principal balance of such Loan as of the first day of the related Remittance
Period and (y) to the extent not previously advanced, the interest (less the
Servicing Fee) paid by the Obligor with respect to the Loan during such
Remittance Period (any such amount paid by the Servicer, "Compensating
Interest"). The Servicer shall not be required to pay Compensating Interest with
respect to any Remittance Period in an amount in excess of the aggregate related
Base Servicing Fees received by the Servicer with respect to all Loans directly
serviced by such Servicer for such Remittance Period.
The Servicer will be required to pay all "out of pocket" costs and expenses
incurred in the performance of its servicing obligations, but only to the extent
that the Servicer reasonably believes that such amounts will increase Net
Liquidation Proceeds on the related Loan. Each such amount so paid will
constitute a "Servicing Advance". The Servicer may recover Servicing Advances to
the extent permitted by the Loans or, if not theretofore recovered from the
Obligor on whose behalf such Servicing Advance was made, from Liquidation
Proceeds realized upon the liquidation of the related Loan or, in certain cases,
from excess cash flow otherwise payable to the holders of the related Equity
Securities.
Notwithstanding the foregoing, if the Servicer exercises its option, if
any, to purchase the assets of a Trust Estate as described under "The Pooling
and Servicing Agreement--Termination; Retirement of Securities" below, the
Servicer will be deemed to have been reimbursed for all related advances
previously made by it and not theretofore reimbursed to it. The Servicer's
obligation to make advances may be supported by Credit Enhancement as described
in the related Pooling and Servicing Agreement. In the event that the Credit
Enhancer is downgraded by a Rating Agency rating the related Securities or if
the collateral supporting such obligation is not performing or is removed
pursuant to the terms of any agreement described in the related Prospectus
Supplement, the Securities may also be downgraded.
Reports to Securityholders
With each distribution to Securityholders of a particular class the Trustee
will forward or cause to be forwarded to each holder of record of such class of
Securities a statement or statements with respect to the related Trust setting
forth the information specifically described in the related Pooling and
Servicing Agreement, which generally will include the following as applicable
except as otherwise provided therein:
(i) the amount of the distribution with respect to each class of
Securities;
(ii) the amount of such distribution allocable to principal,
separately identifying the aggregate amount of any prepayments or other
recoveries of principal included therein;
(iii) the amount of such distribution allocable to interest;
(iv) the aggregate unpaid Principal Balance of the Loans after giving
effect to the distribution of principal on such Payment Date;
(v) with respect to a series consisting of two or more classes, the
outstanding principal balance or notional amount of each class after giving
effect to the distribution of principal on such Payment Date;
(vi) the amount of coverage under any letter of credit, mortgage pool
insurance policy or other form of Credit Enhancement covering default risk
as of the close of business on the applicable Determination Date and a
description of any Credit Enhancement substituted therefor;
45
<PAGE>
<PAGE>
(vii) information furnished by the Company pursuant to section
6049(d)(7)(C) of the Code and the regulations promulgated thereunder to
assist Securityholders in computing their market discount;
(viii) the total of any substitution amounts and any Loan Purchase
Price amounts included in such distribution; and
(ix) a number with respect to each class (the "Pool Factor") computed
by dividing the principal balance of all Securities in such class (after
giving effect to any distribution of principal to be made on such Payment
Date) by the original principal balance of the Securities of such class on
the Closing Date.
Items (i) through (iii) above shall, with respect to each class of
Securities, be presented on the basis of a certificate having a $1,000
denomination. In addition, by January 31 of each calendar year during which
Securities are outstanding, the Trustee shall furnish a report to each
Securityholder at any time during each calendar year as to the aggregate amounts
reported pursuant to (i), (ii) and (iii) with respect to the Securities for such
calendar year. If a class of Securities are in book-entry form, DTC will supply
such reports to the Securityholders in accordance with its procedures.
In addition, on each Payment Date the Trustee will forward or cause to be
forwarded additional information, as of the close of business on the last day of
the prior calendar month, as more specifically described in the related Pooling
and Servicing Agreement, which generally will include the following as
applicable except as otherwise provided therein:
(i) the total number of Loans and the aggregate principal balances
thereof, together with the number, percentage (based on the
then-outstanding principal balances) and aggregate principal balances of
Loans (a) 30-59 days delinquent, (b) 60-89 days delinquent and (c) 90 or
more days delinquent;
(ii) the number, percentage (based on the then-outstanding principal
balances), aggregate Loan balances and status of all Loans in foreclosure
proceedings (and whether any such Loans are also included in any of the
statistics described in the foregoing clause (i));
(iii) the number, percentage (based on the then-outstanding principal
balances) and aggregate Loan balances of all Loans relating to Obligors in
bankruptcy proceedings (and whether any such Loans are also included in any
of the statistics described in the foregoing clause (i));
(iv) the number, percentage (based on the then-outstanding principal
balances) and aggregate Loan balances of all Loans relating to the status
of any Properties as to which title has been taken in the name of, or on
behalf of the Trustee (and whether any such Loans are also included in any
of the statistics described in the foregoing clause (i)); and
(v) the book value of any Property acquired through foreclosure or
grant of a deed in lieu of foreclosure.
Collection and Other Servicing Procedures
Acting directly or through one or more Sub-Servicers as provided in the
related Pooling and Servicing Agreement, the Servicer, is required to service
and administer the Loans in accordance with the Pooling and Servicing Agreement
and with reasonable care, and using that degree of skill and attention that the
Servicer exercises with respect to comparable mortgage loans that it services
for itself or others.
The duties of the Servicer include collecting and posting of all payments,
responding to inquiries of Obligors or by federal, state or local government
authorities with respect to the Loans, investigating delinquencies, reporting
tax information to Obligors in accordance with its customary practices and
accounting for collections and furnishing monthly and annual statements to the
Trustee with respect to distributions and making Delinquency Advances and
Servicing Advances to the extent described in the related Prospectus
46
<PAGE>
<PAGE>
Supplement and the related Pooling and Servicing Agreement. The Servicer is
required to follow its customary standards, policies and procedures in
performing its duties as Servicer.
The Servicer (i) is authorized and empowered to execute and deliver, on
behalf of itself, the Securityholders and the Trustee or any of them, any and
all instruments of satisfaction or cancellation, or of partial or full release
or discharge and all other comparable instruments, with respect to the Loans and
with respect to the related Properties; (ii) may consent to any modification of
the terms of any Note not expressly prohibited by the Pooling and Servicing
Agreement if the effect of any such modification (x) will not materially and
adversely affect the security afforded by the related Property or the timing of
receipt of any payments required thereunder (in each case other than as
permitted by the related Pooling and Servicing Agreement); and (y) will not
cause a Trust which is a REMIC to fail to qualify as a REMIC.
The related Pooling and Servicing Agreement will require the Servicer to
follow such collection procedures as it follows from time to time with respect
to mortgage loans in its servicing portfolio that are comparable to the Loans;
provided that the Servicer is required always at least to follow collection
procedures that are consistent with or better than standard industry practices.
The Servicer may in its discretion (i) waive any assumption fees, late payment
charges, charges for checks returned for insufficient funds, if any, or the fees
which may be collected in the ordinary course of servicing the Loans, (ii) if an
Obligor is in default or about to be in default because of an Obligor's
financial condition, arrange with the Obligor a schedule for the payment of
delinquent payments due on the related Loan; provided, however, the Servicer
shall generally not be permitted to reschedule the payment of delinquent
payments more than one time in any twelve consecutive months with respect to any
Obligor or (iii) modify payments of monthly principal and interest on any Loan
becoming subject to the terms of the Relief Act in accordance with the
Servicer's general policies of the comparable loans subject to such Relief Act.
When a Property (other than Manufactured Housing or Property subject to an
ARM Loan) has been or is about to be conveyed by the Obligor, the Servicer will
be required, to the extent it has knowledge of such conveyance or prospective
conveyance, to exercise its rights to accelerate the maturity of the related
Loan under any "due-on-sale" clause contained in the related Mortgage or Note;
provided, however, that the Servicer will not be required to exercise any such
right if (i) the "due-on-sale" clause, in the reasonable belief of the Servicer,
is not enforceable under applicable law or (ii) the Servicer reasonably believes
that to permit an assumption of the Loan would not materially and adversely
affect the interests of Securityholders or the related Credit Enhancer or
jeopardize coverage under any primary insurance policy or applicable Credit
Enhancement arrangements. In such event, the Servicer will be required to enter
into an assumption and modification agreement with the person to whom such
Property has been or is about to be conveyed, pursuant to which such person
becomes liable under the Mortgage Note and, unless prohibited by applicable law
or the related documents, the Obligor remains liable thereon. If the foregoing
is not permitted under applicable law, the Servicer will be authorized to enter
into a substitution of liability agreement with such person, pursuant to which
the original Obligor is released from liability and such person is substituted
as Obligor and becomes liable under the Mortgage Note. The assumed Loan must
conform in all respects to the requirements, representations and warranties of
the Pooling and Servicing Agreement.
An ARM Loan may be assumed if such ARM Loan is by its terms assumable and
if, in the reasonable judgment of the Servicer or the Sub-Servicer, the proposed
transferee of the related Property establishes its ability to repay the loan and
the security for such ARM Loan would not be impaired by the assumption. If a
Obligor transfers the Property subject to an ARM Loan without consent, such ARM
Loan may be declared due and payable. Any fee collected by the Servicer or
Sub-Servicer for entering into an assumption or substitution of liability
agreement will be retained by the Servicer or Sub-Servicer as additional
servicing compensation . See "Certain Legal Aspects of Loans and Related
Matters--Enforceability of Certain Provisions" herein.
The Servicer will have the right under the Pooling and Servicing Agreement
to approve applications of Obligors seeking consent for (i) partial releases of
Liens, (ii) alterations and (iii) removal, demolition or division of Properties.
No application for consent may be approved by the Servicer unless: (i) the
provisions of the related Note and Lien have been complied with; (ii) the credit
profile of the related Loan after any release is
47
<PAGE>
<PAGE>
consistent with the underwriting guidelines then applicable to such Loan; and
(iii) the lien priority of the related Lien is not reduced.
Realization Upon Defaulted Loans
The Servicer shall foreclose upon or otherwise comparably effect the
ownership of Properties relating to defaulted Mortgage Loans as to which no
satisfactory arrangements can be made for collection of delinquent payments and
which the Servicer has not purchased pursuant to the related Pooling and
Servicing Agreement (such Mortgage Loans, "REO Property"). In connection with
such foreclosure or other conversion, the Servicer shall exercise such of the
rights and powers vested in it, and use the same degree of care and skill in
their exercise or use, as prudent mortgage lenders would exercise or use under
the circumstances in the conduct of their own affairs, including, but not
limited to, making Servicing Advances for the payment of taxes, amounts due with
respect to Senior Liens, and insurance premiums. The Servicer shall sell any
REO Property within 23 months of its acquisition by the Trust. The Pooling and
Servicing Agreements generally will permit the Servicer to cease further
collection and foreclosure activity if the Servicer reasonably determines that
such further activity would not increase collections or recoveries to be
received by the related Trust with respect to the related Loan. In addition, any
required Delinquency Advancing may be permitted to cease at this point.
Notwithstanding the generality of the foregoing provisions, the Servicer
will be required to manage, conserve, protect and operate each REO Property for
the Securityholders solely for the purpose of its prompt disposition and sale as
"foreclosure property" within the meaning of Section 860G(a)(8) of the Code or
result in the receipt by the Trust of any "income from non-permitted assets"
within the meaning of Section 860F(a)(2)(B) of the Code or any "net income from
foreclosure property" which is subject to taxation under the REMIC Provisions.
Pursuant to its efforts to sell such REO Property, the Servicer shall either
itself or through an agent selected by the Servicer protect and conserve such
REO Property in the same manner and to such extent as is customary in the
locality where such REO Property is located and may, incident to its
conservation and protection of the interests of the Securityholders, rent the
same, or any part thereof, as the Servicer deems to be in the best interest of
the Securityholders for the period prior to the sale of such REO Property. The
Servicer shall take into account the existence of any hazardous substances,
hazardous wastes or solid wastes, as such terms are defined in the Comprehensive
Environmental Response Compensation and Liability Act, the Resource Conservation
and Recovery Act of 1976, or other federal, state or local environmental
legislation, on a Property in determining whether to foreclose upon or otherwise
comparably convert the ownership of such Property.
The Servicer shall determine, with respect to each defaulted Loan, when it
has recovered, whether through trustee's sale, foreclosure sale or otherwise,
all amounts it expects to recover from or on account of such defaulted Loan,
whereupon such Loan shall become a Liquidated Loan. A Loan which is
"charged-off", i.e., as to which the Servicer ceases further collection and/or
foreclosure activity as a result of a determination that such further actions
will not increase collections or recoveries to be received by the related Trust
is also a "Liquidated Loan".
If a loss is realized on a defaulted Loan or REO Property upon the final
liquidation thereof that is not covered by any applicable form of Credit
Enhancement or other insurance, the Securityholders will bear such loss.
However, if a gain results from the final liquidation of an REO Property that is
not required by law to be remitted to the related Obligor, the Servicer will be
entitled to retain such gain as additional servicing compensation . For a
description of the Servicer's obligations to maintain and make claims under
applicable forms of Credit Enhancement and insurance relating to the Loans, see
"Description of Credit Enhancement" and "Hazard Insurance; Claims Thereunder;
Hazard Insurance Policies."
Master Servicer
A Master Servicer may be specified in the related Prospectus Supplement for
the related series of Securities. Customary servicing functions with respect to
Loans constituting the Loan Pool in the Trust Estate will be provided by the
Servicer directly or through one or more Sub-Servicers subject to supervision by
the Master Servicer. If the Master Servicer is not directly servicing the Loans,
then the Master Servicer will (i)
48
<PAGE>
<PAGE>
administer and supervise the performance by the Servicer of its servicing
responsibilities under the Pooling and Servicing Agreement with the Master
Servicer, (ii) review monthly servicing reports and data relating to the Loan
Pool for discrepancies and errors, and (iii) act as back-up Servicer during the
term of the transaction unless the Servicer is terminated or resigns, in such
case the Master Servicer shall assume the obligations of the Servicer.
The Master Servicer will be a party to the Pooling and Servicing Agreement
for any Series for which Loans comprise the Trust Estate. The Master Servicer
will be required to meet the requirements set forth in the related Pooling and
Servicing Agreement and, in the case of FHA Loans, approved by HUD as an FHA
mortgagee. The Master Servicer will be compensated for the performance of its
services and duties under each Pooling and Servicing Agreement as specified in
the related Prospectus Supplement.
Sub-Servicing
The Servicer may assign its servicing duties to designated Sub-Servicers
and enter into Sub-Servicing Agreements with Sub-Servicers that may include
affiliates of the Company. While such a Sub-Servicing Agreement will be a
contract solely between the Servicer and the Sub-Servicer, the Pooling and
Servicing Agreement pursuant to which a series of Securities is issued will
provide that, if for any reason the Servicer for such series of Securities is no
longer the Servicer of the related Loans, the Trustee or any successor Servicer
must recognize the Sub-Servicer's rights and obligations under such
Sub-Servicing Agreement.
With the approval of the Servicer, a Sub-Servicer may delegate its
servicing obligations to third-party servicers, but such Sub-Servicer will
remain obligated under the related Sub-Servicing Agreement. Each Sub-Servicer
will be required to perform the customary functions of a servicer, including
collection of payments from Obligors and remittance of such collections to the
Servicer; maintenance of hazard insurance and flood insurance, if applicable,
and filing and settlement of claims thereunder, subject in certain cases to the
right of the Servicer to approve in advance any such settlement; maintenance of
escrow or impound accounts of Obligors for payment of taxes, insurance and other
items required to be paid by the Obligor pursuant to the Loan; processing of
assumptions or substitutions; attempting to cure delinquencies; supervising
foreclosures; inspecting and managing Properties under certain circumstances;
and maintaining accounting records relating to the Loans. A Sub-Servicer also
may be obligated to make advances to the Servicer in respect of delinquent
installments of principal and/or interest (net of any sub-servicing or other
compensation) on Loans, as described more fully under "Description of the
Securities--Advances," and in respect of certain taxes and insurance premiums
not paid on a timely basis by Obligors. A Sub-Servicer may also be obligated to
deposit amounts in respect of Compensating Interest to the related Principal and
Interest Account in connection with prepayments of principal received and
applied to reduce the outstanding principal balance of a Loan. No assurance can
be given that the Sub-Servicers will carry out their advance or payment
obligations, if any, with respect to the Loans.
As compensation for its servicing duties, the Sub-Servicer may be entitled
to a Base Servicing Fee. The Sub-Servicer may also be entitled to collect and
retain, as part of its servicing compensation, any late charges or prepayment
penalties provided in the Note or related instruments. The Sub-Servicer will be
entitled to reimbursement for certain expenditures that it makes, generally to
the same extent that the Servicer would be reimbursed under the applicable
Pooling and Servicing Agreement. See "The Pooling and Servicing
Agreement--Servicing and Other Compensation and Payment of Expenses."
Each Sub-Servicer will be required to agree to indemnify the Servicer for
any liability or obligation sustained by the Servicer in connection with any act
or failure to act by the Sub-Servicer in its servicing capacity. Each
Sub-Servicer is required to maintain a fidelity bond and an errors and omission
policy with respect to its officers, employees and other persons acting on its
behalf or on behalf of the Servicer.
Each Sub-Servicer will be required to service each Loan pursuant to the
terms of the Sub-Servicing Agreement for the entire term of such Loan, unless
the Sub-Servicing Agreement is terminated earlier by the Servicer or unless
servicing is released to the Servicer. The Servicer generally may terminate a
Sub-Servicing Agreement immediately upon the giving of notice upon certain
stated events, including the violation of such Sub-Servicing Agreement by the
Sub-Servicer, or following a specified period after notice to the Sub-Servicer
49
<PAGE>
<PAGE>
without cause upon payment of an amount equal to a specified termination fee
calculated as a specified percentage of the aggregate outstanding principal
balance of all loans, including the Loans serviced by such Sub-Servicer pursuant
to a Sub-Servicing Agreement and certain transfer fees.
The Servicer may agree with a Sub-Servicer to amend a Sub-Servicing
Agreement. Upon termination of a Sub-Servicing Agreement, the Servicer may act
as servicer of the related Loans or enter into one or more new Sub-Servicing
Agreements. If the Servicer acts as servicer, it will not assume liability for
the representations and warranties of the Sub-Servicer that it replaces. If the
Servicer enters into a new Sub-Servicing Agreement, each new Sub-Servicer must
have such servicing experience that is otherwise satisfactory to the Servicer.
The Servicer may make reasonable efforts to have the new Sub-Servicer assume
liability for the representations and warranties of the terminated Sub-Servicer,
but no assurance can be given that such an assumption will occur and, in any
event, if the new Sub-Servicer is an affiliate of the Servicer, the liability
for such representations and warranties will not be assumed by such new
Sub-Servicer. In the event of such an assumption, the Servicer may in the
exercise of its business judgment release the terminated Sub-Servicer from
liability in respect of such representations and warranties. Any amendments to a
Sub-Servicing Agreement or to a new Sub-Servicing Agreement may contain
provisions different from those described above that are in effect in the
original Sub-Servicing Agreements. However, the Pooling and Servicing Agreement
for each Trust Estate will provide that any such amendment or new agreement may
not be inconsistent with such Pooling and Servicing Agreement to the extent that
it would materially and adversely affect the interests of the Securityholders.
SUBORDINATION
A Senior/Subordinate Series of Securities will consist of one or more
classes of Senior Securities and one or more classes of Subordinate Securities,
as specified in the related Prospectus Supplement. Only the Senior Securities
will be offered hereby. Subordination of the Subordinate Securities of any
Senior/Subordinate Series of Securities will be effected by the following
method. In addition, certain classes of Senior (or Subordinate) Securities may
be senior to other classes of Senior (or Subordinate) Securities, as specified
in the related Prospectus Supplement, in which case the following discussion is
qualified in its entirety by reference to the related Prospectus Supplement with
respect to the various priorities and other rights as among the various classes
of Senior Securities or Subordinate Securities, as the case may be.
With respect to any Senior/Subordinate Series of Securities, the total
amount available for distribution on each Payment Date, as well as the method
for allocating such amount among the various classes of Securities included in
such series, will be as set forth in the related Prospectus Supplement.
Generally, the amount available for contribution will be allocated first to
interest on the Senior Securities of such series, and then to principal of the
Senior Securities up to the amounts determined as specified in the related
Prospectus Supplement, prior to allocation to the Subordinate Securities of such
series.
In the event of any Realized Losses (as defined below) on Loans not in
excess of the limitations described below, other than Extraordinary Losses, the
rights of the Subordinate Securityholders to receive distributions with respect
to the Loans will be subordinate to the rights of the Senior Securityholders.
With respect to any defaulted Loan that becomes a Liquidated Loan, through
foreclosure sale, disposition of the related Property if acquired by deed in
lieu of foreclosure, "charged-off" or otherwise, the amount of loss realized, if
any (as more fully described in the related Pooling and Servicing Agreement, a
"Realized Loss"), will equal the portion of the stated principal balance
remaining, after application of all amounts recovered (net of amounts
reimbursable to the Servicer for related advances and expenses) towards interest
and principal owing on the Loan. With respect to a Loan the principal balance of
which has been reduced in connection with bankruptcy proceedings, the amount of
such reduction will be treated as a Realized Loss.
Except as noted below, all Realized Losses will be allocated to the
Subordinate Securities of the related series, until the Principal Balance (as
defined in the related Prospectus Supplement) of such Subordinate Securities
thereof has been reduced to zero. Any additional Realized Losses will be
allocated to the Senior Securities (or, if such series includes more than one
class of Senior Securities, either on a pro-rata basis among all of the Senior
50
<PAGE>
<PAGE>
Securities in proportion to their respective outstanding Principal Balances or
as otherwise provided in the related Prospectus Supplement).
With respect to certain Realized Losses resulting from physical damage to
Properties that are generally of the same type as are covered under a special
hazard insurance policy, the amount thereof that may be allocated to the
Subordinate Securities of the related series may be limited to an amount (the
"Special Hazard Amount") specified in the related Prospectus Supplement. See
"Description of Credit Enhancement--Special Hazard Insurance Policies." If so,
any Special Hazard Losses in excess of the Special Hazard Amount will be
allocated among all outstanding classes of Securities of the related series,
either on a pro-rata basis in proportion to their outstanding Security Principal
Balances, regardless of whether any Subordinate Securities remain outstanding,
or as otherwise provided in the related Prospectus Supplement. The respective
amounts of other specified types of losses (including Fraud Losses and
Bankruptcy Losses) that may be borne solely by the Subordinate Securities may be
similarly limited to an amount (with respect to Fraud Losses, the "Fraud Loss
Amount" and with respect to Bankruptcy Losses, the " Bankruptcy Loss Amount"),
and the Subordinate Securities may provide no coverage with respect to certain
other specified types of losses, as described in the related Prospectus
Supplement, in which case such losses would be allocated on a pro-rata basis
among all outstanding classes of Securities.
Any allocation of a Realized Loss (including a Special Hazard Loss) to a
Security in a Senior/Subordinate Series will be made by reducing the Security
Principal Balance thereof as of the Payment Date following the calendar month in
which such Realized Loss was incurred.
In lieu of the foregoing provisions, subordination may be effected in the
following manner, or in any other manner described in the related Prospectus
Supplement. The rights of the holders of Subordinate Securities to receive any
or a specified portion of distributions with respect to the Loans may be
subordinated to the extent of the amount set forth in the related Prospectus
Supplement (the "Subordinate Amount"). As specified in the related Prospectus
Supplement, the Subordinate Amount may be subject to reduction based upon the
amount of losses borne by the holders of the Subordinate Securities as a result
of such subordination, a specified schedule or such other method of reduction as
such Prospectus Supplement may specify. If so specified in the related
Prospectus Supplement, additional credit support for this form of subordination
may be provided by the establishment of a reserve fund for the benefit of the
holders of the Senior Securities (which may, if such Prospectus Supplement so
provides, initially be funded by a cash deposit by the Originator) into which
certain distributions otherwise allocable to the holders of the Subordinate
Securities may be placed; such funds would thereafter be available to cure
shortfalls in distributions to holders of the Senior Securities.
DESCRIPTION OF CREDIT ENHANCEMENT
Each series of Securities may have credit support comprised of one or
more of the following components. Each component will have a monetary limit and
will provide coverage with respect to Realized Losses that are (i) attributable
to the Obligor's failure to make any payment of principal or interest as
required under the Mortgage Note, but not including Special Hazard Losses,
Extraordinary Losses or other losses resulting from damage to a Property,
Bankruptcy Losses or Fraud Losses (any such loss, a "Defaulted Mortgage Loss");
(ii) of a type generally covered by a special hazard insurance policy (as
defined below) (any such loss, a "Special Hazard Loss"); (iii) attributable to
certain actions which may be taken by a bankruptcy court in connection with a
Loan, including a reduction by a bankruptcy court of the principal balance of or
the Loan Rate on a Loan or an extension of its maturity (any such loss, a
"Bankruptcy Loss"); and (iv) incurred on defaulted Loans as to which there was
fraud in the origination of such Loans (any such loss, a "Fraud Loss"). Losses
occasioned by war, civil insurrection, certain governmental actions, nuclear
reaction and certain other risks ("Extraordinary Losses") will not be covered .
To the extent that the Credit Enhancement for any series of Securities is
exhausted, the Securityholders will bear all further risks of loss not otherwise
insured against.
As set forth below and in the applicable Prospectus Supplement, Credit
Enhancement may be provided with respect to one or more classes of a series of
Securities or with respect to the Loans in the related Trust. Credit Enhancement
may be in the form of (i) the subordination of one or more classes of
Subordinate Securities
51
<PAGE>
<PAGE>
to provide credit support to one or more classes of Senior Securities as
described under "Subordination," (ii) the use of a mortgage pool insurance
policy, special hazard insurance policy, bankruptcy bond, reserve fund, letter
of credit, financial guaranty insurance policy, other third party guarantees,
another method of Credit Enhancement described in the related Prospectus
Supplement, or the use of a cross-support feature or overcollateralization, or
(iii) any combination of the foregoing. Any Credit Enhancement will not
provide protection against all risks of loss and will not guarantee repayment of
the entire principal balance of the Securities and interest thereon. If losses
occur that exceed the amount covered by Credit Enhancement or are not covered by
the Credit Enhancement, holders of one or more classes of Securities will bear
their allocable share of deficiencies. If a form of Credit Enhancement applies
to several classes of Securities, and if principal payments equal to the
aggregate principal balances of certain classes will be distributed prior to
such distributions to the classes, the classes that receive such distributions
at a later time are more likely to bear any losses that exceed the amount
covered by Credit Enhancement.
The amounts and type of Credit Enhancement arrangement as well as the
provider thereof, if applicable, with respect to each series of Securities will
be set forth in the related Prospectus Supplement. To the extent provided in the
applicable Prospectus Supplement and the Pooling and Servicing Agreement, the
Credit Enhancement arrangements may be periodically modified, reduced and
substituted for based on the aggregate outstanding principal balance of the
Loans covered thereby. See "Description of Credit Enhancement--Reduction or
Substitution of Credit Enhancement." If specified in the applicable Prospectus
Supplement, Credit Enhancement for a series of Securities may cover one or more
other series of Securities.
The descriptions of any insurance policies or bonds described in this
Prospectus or any Prospectus Supplement and the coverage thereunder do not
purport to be complete and are qualified in their entirety by reference to the
actual forms of such policies, copies of which are available upon request.
Letter of Credit. If any component of Credit Enhancement as to any series
of Securities is to be provided by a letter of credit (the "Letter of Credit"),
a bank (the "Letter of Credit Bank") will deliver to the Trustee an irrevocable
Letter of Credit. The Letter of Credit may provide direct coverage with respect
to the related Securities or, if specified in the related Prospectus Supplement,
support the Company' or any other person's obligation pursuant to a Purchase
Obligation to make certain payments to the Trustee with respect to one or more
components of Credit Enhancement. The Letter of Credit Bank, as well as the
amount available under the Letter of Credit with respect to each component of
Credit Enhancement, will be specified in the applicable Prospectus Supplement.
The Letter of Credit will expire on the expiration date set forth in the related
Prospectus Supplement, unless earlier terminated or extended in accordance with
its terms. On or before each Payment Date, either the Letter of Credit Bank or
the Trustee (or other obligor under a Purchase Obligation) will be required to
make the payments specified in the related Prospectus Supplement after
notification from the Trustee, to be deposited in the related Distribution
Account, if and to the extent covered, under the applicable Letter of Credit.
Pool Insurance Policies. Any pool insurance policy ("Pool Insurance
Policy") obtained by the Company for each related Trust Estate will be issued by
the Credit Enhancer named in the related Prospectus Supplement. Each Pool
Insurance Policy will, subject to limitations specified in the related
Prospectus Supplement described below, cover Defaulted Losses in an amount equal
to a percentage specified in the related Prospectus Supplement (or in a Current
Report on Form 8-K) of the aggregate principal balance of the Loans on the
Cut-Off Date. As set forth under "Maintenance of Credit Enhancement," the
Servicer will use reasonable efforts to maintain the Pool Insurance Policy and
to present claims thereunder to the Credit Enhancer on behalf of itself, the
Trustee and the Securityholders. The Pool Insurance Policies, however, are not
blanket policies against loss (typically, such policies do not cover Special
Hazard Losses, Fraud Losses and Bankruptcy Losses), since claims thereunder may
only be made respecting particular defaulted Loans and only upon satisfaction of
certain conditions precedent described below due to a failure to pay
irrespective of the reason therefor.
52
<PAGE>
<PAGE>
Special Hazard Insurance Policies. Any insurance policy covering Special
Hazard Losses (a "Special Hazard Insurance Policy") obtained by the Company for
a Trust Estate will be issued by the insurer named in the related Prospectus
Supplement. Each Special Hazard Insurance Policy will, subject to limitations
described in the related Prospectus Supplement, protect holders of the related
series of Securities from (i) losses due to direct physical damage to a Property
other than any loss of a type covered by a hazard insurance policy or a flood
insurance policy, if applicable, and (ii) losses from partial damage caused by
reason of the application of the co-insurance clauses contained in hazard
insurance policies. See "Hazard Insurance; Claims Thereunder." A Special Hazard
Insurance Policy will not cover Extraordinary Losses. Aggregate claims under a
Special Hazard Insurance Policy will be limited to a maximum amount of coverage,
as set forth in the related Prospectus Supplement or in a Current Report on Form
8-K. A Special Hazard Insurance Policy will provide that no claim may be paid
unless hazard and, if applicable, flood insurance on the Property securing the
Loan has been kept in force and other protection and preservation expenses have
been paid by the Servicer.
Subject to the foregoing limitations, in general a Special Hazard Insurance
Policy will provide that, where there has been damage to property securing a
foreclosed Loan (title to which has been acquired by the insured) and to the
extent such damage is not covered by the hazard insurance policy or flood
insurance policy, if any, maintained by the Obligor or the Servicer or the
Sub-Servicer, the insurer will pay the lesser of (i) the cost of repair or
replacement of such property or (ii) upon transfer of the property to the
insurer, the unpaid principal balance of such Mortgage Loan at the time of
acquisition of such property by foreclosure or deed in lieu of foreclosure, plus
accrued interest at the Loan Rate to the date of claim settlement and certain
expenses incurred by the Servicer or the Sub-Servicer with respect to such
property. If the property is transferred to a third party in a sale approved by
the issuer of the Special Hazard Insurance Policy (the " Special Hazard
Insurer"), the amount that the Special Hazard Insurer will pay will be the
amount under (ii) above reduced by the net proceeds of the sale of the property.
As indicated under "Description of the Securities--Assignment of Loans"
above and to the extent set forth in the related Prospectus Supplement, coverage
in respect of Special Hazard Losses for a series of Securities may be provided,
in whole or in part by a type of special hazard instrument other than a Special
Hazard Insurance Policy or by means of the special hazard representation of the
Company.
Bankruptcy Bonds. In the event of a personal bankruptcy of a Obligor, it is
possible that the bankruptcy court may establish the value of the Property of
such Obligor at an amount less than the then-outstanding, principal balance of
the Loan secured by such Property (a "Deficient Valuation"). The amount of the
secured debt then could be reduced to such value, and, thus, the holder of such
Loan would become an unsecured creditor to the extent the outstanding principal
balance of such Loan exceeds the value assigned to the Property by the
bankruptcy court. In addition, certain other modifications of the terms of a
Loan can result from a bankruptcy proceeding, including a reduction in the
amount of the monthly payment on the related Mortgage Loan or a reduction in the
mortgage interest rate (a "Debt Service Reduction"; Debt Service Reductions and
Deficient Valuations, collectively referred to herein as "Bankruptcy Losses").
See "Certain Legal Aspects of Loans and Related Matters--Anti-Deficiency
Legislation and Other Limitations on Lenders." Any bankruptcy bond (" Bankruptcy
Bond") to provide coverage for Bankruptcy Losses for proceedings under the
federal Bankruptcy Code obtained by the Company for a Trust Estate will be
issued by an insurer named in the related Prospectus Supplement. The level of
coverage under each Bankruptcy Bond will be set forth in the applicable
Prospectus Supplement or in a Current Report on Form 8-K.
Reserve Funds. If so provided in the related Prospectus Supplement, the
Company will deposit or cause to be deposited in an account (a "Reserve Fund")
any combination of cash, one or more irrevocable letters of credit or one or
more Eligible Investments in specified amounts, amounts otherwise distributable
to Subordinate Securityholders, or any other instrument satisfactory to the
Rating Agency or Agencies, which will be applied and maintained in the manner
and under the conditions specified in such Prospectus Supplement. In addition,
with respect to any series of Securities as to which Credit Enhancement includes
a Letter of Credit, if so specified in the related Prospectus Supplement, under
certain circumstances the remaining amount of the Letter of Credit may be drawn
by the Trustee and deposited in a Reserve Fund. Amounts in a Reserve Fund may be
distributed to Securityholders, or applied to reimburse the Servicer for
outstanding advances or may be used for other
53
<PAGE>
<PAGE>
purposes, in the manner and to the extent specified in the related Prospectus
Supplement. A Trust Estate may contain more than one Reserve Fund, each of which
may apply only to a specified class of Securities or to specified Loans.
Financial Guaranty Insurance Policies. If so specified in the related
Prospectus Supplement, a financial guaranty insurance policy or surety bond
("Financial Guaranty Insurance Policy") may be obtained and maintained for each
class or series of Securities. The issuer of any Financial Guaranty Insurance
Policy (a "Financial Guaranty Insurer") will be described in the related
Prospectus Supplement. A copy of any such Financial Guaranty Insurance Policy
will be attached as an exhibit to the related Prospectus Supplement.
A Financial Guaranty Insurance Policy will unconditionally and
irrevocably guarantee to Securityholders that an amount equal to each full and
complete insured payment will be received by an agent of the Trustee (an
"Insurance Paying Agent") on behalf of Securityholders, for distribution by the
Trustee to each Securityholder. The "insured payment" will be defined in the
related Prospectus Supplement, and will generally equal the full amount of the
distributions of principal and interest to which Securityholders are entitled
under the related Pooling and Servicing Agreement plus any other amounts
specified therein or in the related Prospectus Supplement (the "Insured
Payment").
Financial Guaranty Insurance Policies may apply only to certain specified
classes, or may apply at the Property level and only to specified Loans.
The specific terms of any Financial Guaranty Insurance Policy will be as
set forth in the related Prospectus Supplement. Financial Guaranty Insurance
Policies may have limitations including (but not limited to) limitations on the
insurer's obligation to guarantee the obligations of the Company to repurchase
or substitute for any Loans, Financial Guaranty Insurance Policies will not
guarantee any specified rate of prepayments and/or to provide funds to redeem
Securities on any specified date.
Subject to the terms of the related Pooling and Servicing Agreement, the
Financial Guaranty Insurer may be subrogated to the rights of each
Securityholder to receive payments under the Securities to the extent of any
payment by such Financial Guaranty Insurer under the related Financial Guaranty
Insurance Policy.
Other Insurance, Guarantees and Similar Instruments or Agreements. If
specified in the related Prospectus Supplement, a Trust may include in lieu of
some or all of the foregoing or in addition thereto third party guarantees, and
other arrangements for maintaining timely payments or providing additional
protection against losses on all or any specified portion of the assets included
in such Trust, paying administrative expenses, or accomplishing such other
purpose as may be described in the Prospectus Supplement. The Trust may include
a guaranteed investment contract or reinvestment agreement pursuant to which
funds held in one or more accounts will be invested at a specified rate. If any
class of Securities has a floating interest rate, or if any of the Loans bears
interest at a floating interest rate, the Trust may include an interest rate
swap contract, an interest rate cap agreement or similar contract providing
limited protection against interest rate risks.
Cross Support. If specified in the Prospectus Supplement, the beneficial
ownership of separate groups of assets included in a Trust may be evidenced by
separate classes of the related series of Securities. In such case, credit
support may be provided by a cross-support feature which requires that
distributions be made with respect to one class of Securities may be made from
excess amounts available from other asset groups within the same Trust which
support other classes of Securities. The Prospectus Supplement for a series that
includes a cross-support feature will describe the manner and conditions for
applying such cross-support feature.
If specified in the Prospectus Supplement, the coverage provided by one or
more forms of credit support may apply concurrently to two or more separate
Trusts. If applicable, the Prospectus Supplement will identify the Trusts to
which such credit support relates and the manner of determining the amount of
the coverage provided thereby and of the application of such coverage to the
identified Trusts.
54
<PAGE>
<PAGE>
Overcollateralization. If specified in the Prospectus Supplement,
subordination provisions of a Trust may be used to accelerate to a limited
extent the amortization of one or more classes of Securities relative to the
amortization of the related Loans. The accelerated amortization is achieved by
the application of certain excess interest to the payment of principal of one or
more classes of Securities. This acceleration feature creates, with respect to
the Loans or groups thereof, overcollateralization which results from the excess
of the aggregate principal balance of the related Loans, or a group thereof,
over the principal balance of the related class of Securities. Such acceleration
may continue for the life of the related Security, or may be limited. In the
case of limited acceleration, once the required level of overcollateralization
is reached, and subject to certain provisions specified in the related
Prospectus Supplement, such limited acceleration feature may cease, unless
necessary to maintain the required level of overcollateralization.
Maintenance of Credit Enhancement. To the extent that the applicable
Prospectus Supplement does not expressly provide for Credit Enhancement
arrangements in lieu of some or all of the arrangements mentioned below, the
following paragraphs shall apply.
If a form of Credit Enhancement has been obtained for a series of
Securities, the Company will be obligated to exercise its best reasonable
efforts to keep or cause to be kept such form of credit support in full force
and effect throughout the term of the applicable Pooling and Servicing
Agreement, unless coverage thereunder has been exhausted through payment of
claims or otherwise, or substitution therefor is made as described below under
"Reduction or Substitution of Credit Enhancement."
In lieu of the Company's obligation to maintain a particular form of Credit
Enhancement, the Company may obtain a substitute or alternate form of Credit
Enhancement. If the Servicer obtains such a substitute form of Credit
Enhancement, it will maintain and keep such form of Credit Enhancement in full
force and effect as provided herein. Prior to its obtaining any substitute or
alternate form of Credit Enhancement, the Company will obtain written
confirmation from the Rating Agency or Agencies that rated the related series of
Securities that the substitution or alternate form of Credit Enhancement for the
existing Credit Enhancement will not adversely affect the then- current ratings
assigned to such Securities by such Rating Agency or Agencies.
The Servicer, on behalf of itself, the Trustee and Securityholders, will
provide the Trustee information required for the Trustee to draw under a Letter
of Credit or Financial Guaranty Insurance Policy, will present claims to each
Credit Enhancer, to the issuer of each Special Hazard Insurance Policy or other
special hazard instrument, to the issuer of each Bankruptcy Bond and will take
such reasonable steps as are necessary to permit recovery under such Letter of
Credit, Financial Guaranty Insurance Policy, Purchase Obligation, insurance
policies or comparable coverage respecting defaulted Loans or Loans which are
the subject of a bankruptcy proceeding. Additionally, the Servicer will present
such claims and take such steps as are reasonably necessary to provide for the
performance by another party of its Purchase Obligation. As set forth above, all
collections by the Servicer under any Purchase Obligation, any Pool Insurance
Policy, or any Bankruptcy Bond and, where the related property has not been
restored, any Special Hazard Insurance Policy, are to be deposited initially in
the Principal and Interest Account and ultimately in the Distribution Account,
subject to withdrawal as described above. All draws under any Letter of Credit
or Financial Guaranty Insurance Policy will be deposited directly in the
Distribution Account.
If any Property securing a defaulted Loan is damaged and proceeds, if any,
from the related hazard insurance policy or any applicable Special Hazard
Instrument are insufficient to restore the damaged property to a condition
sufficient to permit recovery under any applicable form of Credit Enhancement,
the Servicer is not required to expend its own funds to restore the damaged
property unless it determines (i) that such restoration will increase the
proceeds to one or more classes of Securityholders on liquidation of the Loan
after reimbursement of the Servicer for its expenses and (ii) that such expenses
will be recoverable by it through Liquidation Proceeds or Insurance Proceeds. If
recovery under any applicable form of Credit Enhancement is not available
because the Servicer has been unable to make the above determinations, has made
such determinations incorrectly or recovery is not available for any other
reason, the Servicer is nevertheless obligated to follow such normal practices
and procedures (subject to the preceding sentence) as it deems necessary or
55
<PAGE>
<PAGE>
advisable to realize upon the defaulted Loan and in the event such determination
has been incorrectly made, is entitled to reimbursement of its expenses in
connection with such restoration.
Reduction or Substitution of Credit Enhancement. The amount of credit
support provided pursuant to any of the Credit Enhancements (including, without
limitation, a Pool Insurance Policy, Financial Guaranty Insurance Policy,
Special Hazard Insurance Policy, Bankruptcy Bond, Letter of Credit, or any
alterative form of Credit Enhancement) may be reduced under certain specified
circumstances. In addition, if so described in the related Prospectus
Supplement, any formula used in calculating the amount or degree of Credit
Enhancement may be changed without the consent of the Securityholders upon
written confirmation from each Rating Agency then rating the Securities that
such change will not adversely affect the then-current rating or ratings
assigned to the Securities. In most cases, the amount available pursuant to any
Credit Enhancement will be subject to periodic reduction in accordance with a
schedule or formula on a nondiscretionary basis pursuant to the terms of the
related Pooling and Servicing Agreement as the aggregate outstanding principal
balance of the Loans declines. Additionally, in certain cases, such credit
support (and any replacements therefor) may be replaced, reduced or terminated
upon the written assurance from each applicable Rating Agency that the then
current rating of the related series of Securities will not be adversely
affected. Furthermore, in the event that the credit rating of any obligor under
any applicable Credit Enhancement is downgraded, the credit rating of the
related Securities may be downgraded to a corresponding level, and the Company
thereafter will not be obligated to obtain replacement credit support in order
to restore the rating of the Securities, and also will be permitted to replace
such credit support with other Credit Enhancement instruments issued by obligors
whose credit ratings are equivalent to such downgraded level and in lower
amounts which would satisfy such downgraded level, provided that the
then-current, albeit downgraded, rating of the related series of Securities is
maintained. Where the credit support is in the form of a Reserve Fund, a
permitted reduction in the amount of Credit Enhancement will result in a release
of all or a portion of the assets in the Reserve Fund to the Company, the
Servicer or such other person that is entitled thereto. Any assets so released
will not be available to fund distribution obligations in future periods.
HAZARD INSURANCE; CLAIMS THEREUNDER
Each Loan will be required to be covered by a hazard insurance policy (as
described below). The following is only a brief description of certain insurance
policies and does not purport to summarize or describe all of the provisions of
these policies. Such insurance is subject to underwriting and approval of
individual Loans by the respective insurers. The descriptions of any insurance
policies described in the Prospectus or any Prospectus Supplement and the
coverage thereunder do not purport to be complete and are qualified in their
entirety by reference to such forms of policies, sample copies of which are
available from the Trustee upon request.
Hazard Insurance Policies
The terms of the Loans require each Obligor to maintain a hazard insurance
policy for the Loan. Additionally, the Pooling and Servicing Agreement will
require the Servicer to cause to be maintained with respect to each Loan a
hazard insurance policy with a generally acceptable carrier that provides for
fire and extended coverage relating to such Loan in an amount not less than the
least of (i) the outstanding principal balance of the Loan, (ii) the minimum
amount required to compensate for damage or loss on a replacement cost basis or
(iii) the full insurable value of the premises.
If a Mortgage Loan relates to a Property in an area identified in the
Federal Register by the Federal Emergency Management Agency as having special
flood hazards, the Servicer will be required or cause to be required to maintain
with respect thereto a flood insurance policy in a form meeting the requirements
of the then-current guidelines of the Federal Insurance Administration with a
generally acceptable carrier in an amount representing coverage, and which
provides for recovery by the Servicer on behalf of the Trust of insurance
proceeds relating to such Mortgage Loan of not less than the least of (i) the
outstanding principal balance of the Mortgage Loan, (ii) the minimum amount
required to compensate for damage or loss on a replacement cost basis,
56
<PAGE>
<PAGE>
(iii) the maximum amount of insurance that is available under the Flood Disaster
Protection Act of 1973, as amended. Pursuant to the related Pooling and
Servicing Agreement, the Servicer will be required to indemnify the Trust out of
the Servicer's own funds for any loss to the Trust resulting from the Servicer's
failure to maintain such flood insurance.
In the event that the Servicer obtains and maintains a blanket policy
insuring against fire with extended coverage and against flood hazards on all of
the Mortgage Loans, then, to the extent such policy names the Servicer as loss
payee and provides coverage in an amount equal to the aggregate unpaid principal
balance on the Mortgage Loans without co-insurance, and otherwise complies with
the requirements of the Pooling and Servicing Agreement, the Servicer shall be
deemed conclusively to have satisfied its obligations with respect to fire and
hazard insurance coverage under the Pooling and Servicing Agreement. Such
blanket policy may contain a deductible clause, in which case the Servicer will
be required, in the event that there shall not have been maintained on the
related Property a policy complying with the Pooling and Servicing Agreement,
and there shall have been a loss that would have been covered by such policy, to
deposit in the Principal and Interest Account from the Servicer's own funds the
difference, if any, between the amount that would have been payable under a
policy complying with the Pooling and Servicing Agreement and the amount paid
under such blanket policy.
While the Servicer does not actively monitor the maintenance of hazard
insurance by borrowers (other than borrowers for Manufactured Housing), it
responds to the notices of cancellation or expiration as joint-loss payee by
requiring verification of replacement coverage.
THE COMPANY
Access Financial Lending Corp. ("AFL" or the "Company"), a Delaware
corporation, provides housing finance programs to consumers throughout the
United States through its Mortgage Lending and Manufactured Housing Programs.
The Company is the successor by merger of Access Financial Lending Corp., a
Delaware corporation (formerly Equicon Corporation), whose principal business
was the purchase of non-conforming mortgages, and Access Financial Corp., whose
principal business was the retail financing of manufactured housing. The merger
occurred on July 1, 1996.
The Company is a wholly-owned subsidiary of Access Financial Holdings Corp.
("AFH"), which is a Delaware corporation and wholly-owned subsidiary of Cargill
Financial Services Corporation. AFH was formed in January 1996 to facilitate the
continued growth of the housing finance business.
The Company maintains its principal offices at 400 Highway 169 South, Suite
400, St. Louis Park, Minnesota 55426-0365.
THE SERVICER
The Servicer for each series of Securities will be specified in the related
Prospectus Supplement.
THE POOLING AND SERVICING AGREEMENT
As described above under "Description of the Securities--General," each
series of Securities will be issued pursuant to a Pooling and Servicing
Agreement as described in that section. The following describes certain
additional provisions common to each Pooling and Servicing Agreement.
57
<PAGE>
<PAGE>
Servicing and Other Compensation and Payment of Expenses
Each servicer, whether the Servicer, any Sub-Servicer and any Master
Servicer (either the Servicer or any Sub-Servicer or any Master Servicer being a
"Servicer"), will retain a fee in connection with its servicing activities for
each series of Securities equal to the percentage per annum specified in the
related Prospectus Supplement (the "Base Servicing Fee"), generally payable
monthly with respect to each Loan directly serviced by such Servicer at
one-twelfth the annual rate, of the then-outstanding principal amount of each
such Loan as of the first day of each calendar month. The Master Servicer acting
as master servicer with respect to Loans being serviced directly by a
Sub-Servicer will retain a fee equal to the percentage per annum specified in
the related Prospectus Supplement or Current Report on Form 8-K ("Master
Servicing Fee"), generally payable monthly on one-twelfth the annual rate, of
the then-outstanding principal amount of each such Loan as of the first day of
each calendar month. The Base Servicing Fees and the Master Servicing Fee are
collectively referred to as the "Servicing Fee."
In addition to the Base Servicing Fee, each Servicer will generally be
entitled under the Pooling and Servicing Agreement to retain additional
servicing compensation in the form of release fees, bad check charges,
assumption fees, late payment charges, or any other servicing-related fees, Net
Liquidation Proceeds not required to be deposited in the Principal and Interest
Account pursuant to the Pooling and Servicing agreement, and similar items.
The Master Servicer will pay or cause to be paid certain ongoing expenses
associated with each Trust Estate and incurred by it in connection with its
responsibilities under the Pooling and Servicing Agreement, including, without
limitation, payment of any fee or other amount payable in respect of any
alternative Credit Enhancement arrangements, payment of the fees and
disbursements of the Master Servicer, the Trustee or accountant, any custodian
appointed by the Trustee, the Security Registrar and any Paying Agent, and
payment of expenses incurred in enforcing the obligations of Sub-Servicers and
Originators. The Master Servicer may be entitled to reimbursement of expenses
incurred in enforcing the obligations of Sub-Servicers and Originators under
certain limited circumstances. In addition, as indicated in the preceding
section, the Master Servicer will be entitled to reimbursements for certain
expenses incurred by it in connection with Liquidated Loans and in connection
with the restoration of Properties, such right of reimbursement being prior to
the rights of Securityholders to receive any related Liquidation Proceeds
(including Insurance Proceeds).
The Prospectus Supplement for a series of Securities will specify if there
was any stripped portion of the interest payments due under the related Note
that was retained by the originator or broker (the "Originator's Retained
Yield"). Any such Originator's Retained Yield will be a specified portion of the
interest payable on each Loan in a Loan Pool. Any such Originator's Retained
Yield will be established on a loan-by-loan basis and the amount thereof with
respect to each Loan in a Loan Pool will be specified on an exhibit to the
related Pooling and Servicing Agreement. Any Originator's Retained Yield in
respect of a Loan will represent a specified portion of the interest payable
thereon and will not be part of the related Trust Estate. Any partial recovery
of interest in respect of a Loan will be allocated between the owners of any
Originator's Retained Yield and the holders of classes of Securities entitled to
payments of interest as provided in the Prospectus Supplement and the applicable
Pooling and Servicing Agreement.
Evidence as to Compliance
Each Pooling and Servicing Agreement will require the Servicer to deliver
annually to the Trustee and any Credit Enhancer, an officers' certificate
stating, as to each signer thereof, that (i) a review of the activities of the
Servicer during such preceding year and of performance under the related Pooling
and Servicing Agreement has been made under such officers' supervision, and (ii)
to the best of such officers' knowledge, based on such review, the Servicer has
fulfilled all its obligations under the related Pooling and Servicing Agreement
for such year, or, if there has been a default in the fulfillment of any such
obligations, specifying each such default known to such officers and the nature
and status thereof including the steps being taken by the Servicer to remedy
such defaults.
58
<PAGE>
<PAGE>
Each Pooling and Servicing Agreement will require the Servicer to cause to
be delivered to the Trustee and any Credit Enhancer a letter or letters of a
firm of independent, nationally recognized certified public accountants
reasonably acceptable to the Credit Enhancer, if applicable, stating that such
firm has, with respect to the Servicer's overall servicing operations (i)
performed applicable tests in accordance with the compliance testing procedures
as set forth in Appendix 3 of the Audit Guide for Audits of HUD Approved
Nonsupervised Mortgagees or (ii) examined such operations in accordance with the
requirements of the Uniform Single Audit Program for Mortgage Bankers, and in
either case stating such firm's conclusions relating thereto.
Copies of the annual accountants' statement and the annual statement of
officers of the Servicer may be obtained by Securityholders without charge upon
written request to the Servicer.
Removal and Resignation of the Servicer
Each Pooling and Servicing Agreement will provide that the Servicer may
not resign from its obligations and duties thereunder, except in connection with
a permitted transfer of servicing, unless such duties and obligations are no
longer permissible under applicable law or are in material conflict by reason of
applicable law with any other activities of a type and nature presently carried
on by it or subject to the consent of the Master Servicer and the Trustee. No
such resignation will become effective until the Trustee, the Master Servicer or
a Successor Servicer has assumed the Servicer's obligations and duties under the
Pooling and Servicing Agreement. The Trustee, the Master Servicer, the
Securityholders or a Credit Enhancer, if applicable, will have the right,
pursuant to the related Pooling and Servicing Agreement, to remove the Servicer
upon the occurrence of any of (a) certain events of insolvency, readjustment of
debt, marshalling of assets and liabilities or similar proceedings regarding the
Servicer and certain actions by the Servicer indicating its insolvency or
inability to pay its obligations; (b) the failure of the Servicer to perform any
one or more of its material obligations under the Pooling and Servicing
Agreement as to which the Servicer shall continue in default with respect
thereto for a specified period, generally of sixty (60) days, after notice by
the Trustee, the Master Servicer or any Credit Enhancer (if required by the
Pooling and Servicing Agreement) of said failure; or (c) the failure of the
Servicer to cure any breach of any of its representations and warranties set
forth in the Pooling and Servicing Agreement which materially and adversely
affects the interests of the Securityholders or any Credit Enhancer, for a
specified period, generally of thirty (30) days after the Servicer's discovery
or receipt of notice thereof.
The Pooling and Servicing Agreement may also provide that the Company or
the related Credit Enhancer may remove the Servicer upon the occurrence of any
of certain events including:
(i) with respect to any Payment Date, if the total available funds
with respect to the Loans Group will be less than the related distribution
amount on the class of credit-enhanced securities in respect of such
Payment Date;
(ii) the failure by the Servicer to make any required Servicing
Advance;
(iii) the failure of the Servicer to perform one or more of its
material obligations under the Pooling and Servicing Agreement;
(iv) the failure by the Servicer to make any required Delinquency
Advance or to pay any Compensating Interest; or
(v) without cause on the part of the Servicer; provided that the
Certificate Insurer consents to such removal;
provided, however, that prior to any removal of the Servicer by the Company, or
the related Credit Enhancer pursuant to clauses (i), (ii) or (iii) above the
Servicer shall first have been given by the Company or the related Credit
Enhancer notice of the occurrence of one or more of the events set forth in
clauses (i) or (ii) above and the Servicer shall not have remedied, or shall not
have taken action satisfactory to the Company or such Credit Enhancer to remedy,
such event or events within a specified period, generally 30 days (60 days with
respect to
59
<PAGE>
<PAGE>
clause (iii)) after the Servicer's receipt of such notice; and provided, further
that in the event of the refusal or inability of the Servicer to make any
required Delinquency Advance or to pay any Compensating Interest as described in
clause (iv) above, such removal shall be effective (without the requirement of
any action on the part of the Company or such Credit Enhancer or of the Trustee)
not later than a shorter specified period, generally not in excess of five
business days, following the day on which the Trustee notifies an authorized
officer of the Servicer that a required Delinquency Advance or to pay any
Compensating Interest has not been received by the Trustee.
Resignation of the Master Servicer
Each Pooling and Servicing Agreement provides that the Master Servicer,
if any, may not resign from its obligations and duties thereunder, unless such
duties and obligations are no longer permissible under applicable law. No such
resignation is acceptable until a successor Master Servicer assumes such duties
and obligations.
Amendments
The Company, the Servicer, the Master Servicer and the Trustee may at any
time and from time to time, with the prior approval of the related Credit
Enhancer, if required, but without the giving of notice to or the receipt of the
consent of the Securityholders, amend a Pooling and Servicing Agreement, and the
Trustee will be required to consent to such amendment, for the purposes of (x)
(i) curing any ambiguity, or correcting or supplementing any provision of such
Pooling and Servicing Agreement which may be inconsistent with any other
provision of the Pooling and Servicing Agreement, (ii) in connection with a
Trust making REMIC elections, if accompanied by an approving opinion of counsel
experienced in federal income tax matters, removing the restriction against the
transfer of a REMIC residual security to a Disqualified Organization (as such
term is defined in the Code) or (iii) complying with the requirements of the
Code and the regulations proposed or promulgated thereunder; provided, however,
that such action shall not, as evidenced by an opinion of counsel delivered to
the Trustee, materially and adversely affect the interests of any Securityholder
(without its written consent) or (y) such other purposes set forth in the
related Pooling and Servicing Agreement.
Each Pooling and Servicing Agreement may also be amended by the Trustee,
the Company, the Servicer and the Master Servicer at any time and from time to
time, with the prior written approval of the related Credit Enhancer, if
required, and not less than a majority of the Percentage Interest represented by
each related class of Securities then outstanding, for the purpose of adding any
provisions or changing in any manner or eliminating any of the provisions of
such Pooling and Servicing Agreement or of modifying in any manner the rights of
the Securityholders thereunder; provided, however, that no such amendment shall
(a) change in any manner the amount of, or delay the timing of, payments which
are required to be distributed to any Securityholders without the consent of the
holder of such Security or (b) change the aforesaid percentages of Percentage
Interest which are required to consent to any such amendments, without the
consent of the holders of all Securities of the class or classes affected then
outstanding.
Termination; Retirement of Securities
Each Pooling and Servicing Agreement will provide that a Trust will
terminate upon the earlier of (i) the payment to the Securityholders of all
Securities issued by the Trust from amounts other than those available under, if
applicable, the related Credit Enhancement of all amounts required to be paid to
such Securityholders upon the later to occur of (a) the final payment or other
liquidation (or any advance made with respect thereto) of the last Loan in the
Trust Estate or (b) the disposition of all property acquired in respect of any
Loan remaining in the Trust Estate, (ii) any time when a Qualified Liquidation
(as defined in the Code) of the Trust Estate (if the related Trust is a REMIC)
is effected. In no event, however, will the trust created by the Pooling and
Servicing Agreement continue beyond the expiration of 21 years from the death of
the survivor of certain persons named in such Pooling and Servicing Agreement.
Written notice of termination of the Pooling and Servicing Agreement will be
given to each Securityholder, and the final distribution will be made only upon
surrender and cancellation of the Securities at an office or agency appointed by
the Trustee that will be specified in the notice of termination. If the
Securityholders are permitted to terminate the trust under the applicable
60
<PAGE>
<PAGE>
Pooling and Servicing Agreement, a penalty may be imposed upon the
Securityholders based upon the fee that would be foregone by the Servicer
because of such termination.
Any purchase of Loans and property acquired in respect of Loans evidenced
by a series of Securities shall be made at the option of the Servicer, the
Company or, if applicable, the holder of the REMIC Residual Securities at the
price specified in the related Prospectus Supplement. The exercise of such right
will effect earlier than expected retirement of the Securities of that series,
but the right of the Servicer, the Company or, if applicable, such holder to so
purchase is subject to the aggregate principal balance of the Loans for that
series as of any Remittance Date being less than ten percent or a percentage
set forth in the related Prospectus Supplement of the aggregate principal
balance of the Loans at the Cut-Off Date for that series. The Prospectus
Supplement for each series of Securities will set forth the amounts that the
holders of such Securities will be entitled to receive upon such earlier than
expected retirement. If a REMIC election has been made, the termination of the
related Trust Estate will be effected in a manner consistent with applicable
federal income tax regulations and its status as a REMIC.
If set forth in the related Prospectus Supplement, termination of the Trust
may be effected by an auction sale. Within a period following a Remittance Date
as of which the aggregate Pool principal balance is less than 10% of the initial
aggregate Pool principal balance, if the optional termination rights have not
been exercised by the parties having such rights by such date, the Trustee shall
solicit bids for the purchase of all Loans remaining in the Trust. In the event
that satisfactory bids are received as described in the Agreement, the net sale
proceeds will be distributed to Certificateholders, in the same order of
priority as collections received in respect of the Loans. The Trustee, however,
will not accept any bid for the Loans unless certain requirements are met. The
sale of the Loans must be for an amount no less than fair market value. If
satisfactory bids are not received, the Trustee shall decline to sell the Loans
and shall not be under any obligation to solicit any further bids or otherwise
negotiate any further sale of the Loans. Such sale and consequent termination of
the Trust must constitute a "qualified liquidation" of each REMIC established by
the Trust under Section 860F of the Internal Revenue Code of 1986, as amended,
including, without limitation, the requirement that the qualified liquidation
takes place over a period not to exceed 90 days.
THE TRUSTEE
The Trustee under each Pooling and Servicing Agreement will be named in the
related Prospectus Supplement. Each Pooling and Servicing Agreement will provide
that the Trustee shall be under no obligation to exercise any of the rights or
powers vested in it by the Pooling and Servicing Agreement at the request or
direction of any of the Securityholders, unless such Securityholders shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with such
request or direction.
The Trustee may execute any of the trusts or powers granted by each Pooling
and Servicing Agreement or perform any duties thereunder either directly or by
or through agents or attorneys, and the Trustee will not be responsible for any
misconduct or negligence on the part of any agent or attorney appointed and
supervised with due care by it thereunder.
Pursuant to each Pooling and Servicing Agreement, the Trustee will not be
liable for any action it takes or omits to take in good faith which it
reasonably believes to be authorized by an authorized officer of any person or
within its rights or powers under the Pooling and Servicing Agreement.
Each Pooling and Servicing Agreement will permit the removal of the
Trustee upon the occurrence and continuance of one of the following events:
61
<PAGE>
<PAGE>
(1) the Trustee shall fail to distribute to the Securityholders
entitled thereto on any Payment Date amounts available for distribution in
accordance with the terms of the Pooling and Servicing Agreement; or
(2) the Trustee shall default in the performance of, or breach, any
covenant or agreement of the Trustee in the Pooling and Servicing
Agreement, or if any representation or warranty of the Trustee made in the
Pooling and Servicing Agreement or in any certificate or other writing
delivered pursuant thereto or in connection therewith shall prove to be
incorrect in any material respect as of the time when the same shall have
been made, and such default or breach shall continue or not be cured for
the period then specified in the related Pooling and Servicing Agreement
after the Trustee shall have received notice specifying such default or
breach and requiring it to be remedied; or
(3) a decree or order of a court or agency or supervisory authority
having jurisdiction for the appointment of a conservator or receiver or
liquidator in any insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, shall have been entered against the Trustee,
and such decree or order shall have remained in force undischarged or
unstayed for the period then specified in the related Pooling and Servicing
Agreement; or
(4) a conservator or receiver or liquidator or sequestrator or
custodian of the property of the Trustee is appointed in any insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings of or relating to the Trustee or relating to all or
substantially all of its property; or
(5) the Trustee shall become insolvent (however insolvency is
evidenced), generally fail to pay its debts as they come due, file or
consent to the filing of a petition to take advantage of any applicable
insolvency or reorganization statute, make an assignment for the benefit of
its creditors, voluntarily suspend payment of its obligations, or take
corporate action for the purpose of any of the foregoing.
If an event described above occurs and is continuing, then, and in every
such case (i) the Company, (ii) the Securityholders (on the terms set forth in
the related Pooling and Servicing Agreement), or (iii) if there is a Credit
Enhancer, such Credit Enhancer may, whether or not the Trustee has resigned,
immediately, concurrently with the giving of notice to the Trustee, and without
delay, appoint a successor Trustee pursuant to the terms of the Pooling and
Servicing Agreement.
No Securityholder will have any right to institute any proceeding, judicial
or otherwise, with respect to a Pooling and Servicing Agreement or any Credit
Enhancement, if applicable, or for the appointment of a receiver or trustee, or
for any other remedy under the Pooling and Servicing Agreement, unless:
(1) such Securityholder has previously given written notice to the
Company and the Trustee of such Securityholder's intention to institute
such proceeding;
(2) the Securityholders of not less than 25% of the Percentage
Interests represented by certain specified classes of Securities then
outstanding shall have made written request to the Trustee to institute
such proceeding;
(3) such Securityholder or Securityholders have offered to the Trustee
reasonable indemnity, against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for the period specified in the related Pooling and
Servicing Agreement, generally not in excess of 60 days after receipt of
such notice, request and offer of indemnity, has failed to institute such
proceeding;
(5) as long as such action affects any credit-enhanced class of
Securities outstanding, the related Credit Enhancer has consented in
writing thereto; and
62
<PAGE>
<PAGE>
(6) no direction inconsistent with such written request has been given
to the Trustee during such specified period by the Securityholders of a
majority of the Percentage Interests represented by certain specified
classes of Securities;
No one or more Securityholders will have any right in any manner whatever by
virtue of, or by availing themselves of, any provision of the Pooling and
Servicing Agreement to affect, disturb or prejudice the rights of any other
Securityholder of the same class or to obtain or to seek to obtain priority or
preference over any other Securityholder of the same class or to enforce any
right under the Pooling and Servicing Agreement, except in the manner provided
in the Pooling and Servicing Agreement and for the equal and ratable benefit of
all of the Securityholders of the same class.
In the event the Trustee receives conflicting or inconsistent requests and
indemnity from two or more groups of Securityholders, each representing less
than a majority of the applicable class of Securities, the Trustee in its sole
discretion may determine what action, if any, shall be taken, notwithstanding
any other provision of the Pooling and Servicing Agreement.
Notwithstanding any other provision in the Pooling and Servicing Agreement,
the Securityholder of any Security has the right, which is absolute and
unconditional, to receive distributions to the extent provided in the Pooling
and Servicing Agreement with respect to such Security or to institute suit for
the enforcement of any such distribution, and such right shall not be impaired
without the consent of such Security.
Either (i) the Securityholders of a majority of the Percentage Interests
represented by certain specified classes of Securities then outstanding or (ii)
if there is a Credit Enhancer, such Credit Enhancer may direct the time, method
and place of conducting any proceeding for any remedy available to the Company
with respect to the Certificates or exercising any trust or power conferred on
the Trustee with respect to such Certificates; provided that:
(1) such direction shall not be in conflict with any rule of law or
with a Pooling and Servicing Agreement;
(2) the Company or the Trustee, as the case may be, shall have been
provided with indemnity satisfactory to them; and
(3) the Company or the Trustee, as the case may be, may take any other
action deemed proper by the Trustee which is not inconsistent with such
direction; provided, however, that the Company or the Trustee, as the case
may be, need not take any action which they determine might involve them in
liability or may be unjustly prejudicial to the Securityholders not so
directing.
The Trustee will be liable under the Pooling and Servicing Agreement only
to the extent of the obligations specifically imposed upon and undertaken by the
Trustee therein. Neither the Trustee nor any of the directors, officers,
employees or agents of the Trustee will be under any liability on any Security
or otherwise to any Account, the Company, the Servicer, the Master Servicer or
any Securityholder for any action taken or for refraining from the taking of any
action in good faith under a Pooling and Servicing Agreement, or for errors in
judgment; provided, however, that such provision shall not protect the Trustee
or any such person against any liability which would otherwise be imposed by
reason of negligent action, negligent failure to act or willful misconduct in
the performance of duties or by reason of reckless disregard of obligations and
duties thereunder.
YIELD CONSIDERATIONS
The yield to maturity of a Security will depend on the price paid by the
holder for such Security, the Pass-Through Rate on any such Security entitled to
payments of interest (which Pass-Through Rate may vary if so specified in the
related Prospectus Supplement) and the rate of payment of principal on such
Security (or the
63
<PAGE>
<PAGE>
rate at which the notional amount thereof is reduced if such Security is not
entitled to payments of principal) and other factors.
Each month the interest payable on an actuarial type of Loan will be
calculated as one-twelfth of the applicable Loan Rate multiplied by the
principal balance of such Loan outstanding as of a specified day, usually the
first day of the month prior to the month in which the Payment Date for the
related series of Securities occurs, after giving effect to the payment of
principal due on such day, subject to any Deferred Interest. With respect to
date of payment Loans, interest is charged to the Obligor at the Loan Rate on
the outstanding principal balance of such Note and calculated based on the
number of days elapsed between receipt of the Obligor's last payment through
receipt of the Obligor's most current payments. The amount of such payments with
respect to each Loan distributed (or accrued in the case of Deferred Interest or
Accrual Securities) either monthly, quarterly or semi-annually to holders of a
class of Securities entitled to payments of interest will be similarly
calculated on the basis of such class' specified percentage of each such payment
of interest (or accrual in the case of Accrual Securities) and will be expressed
as a fixed, adjustable or variable Pass-Through Loan Rate payable on the
outstanding principal balance or notional amount of such Security, calculated as
described herein and in the related Prospectus Supplement. Holders of Strip
Securities or a class of Securities having a fixed Pass-Through Rate that varies
based on the weighted average Loan Rate of the underlying Loans will be affected
by disproportionate prepayments and repurchases of Loans having higher Net Loan
Rates or rates applicable to the Strip Securities, as applicable.
The effective yield to maturity to each holder of fixed-rate Securities
entitled to payments of interest will be below that otherwise produced by the
applicable Pass-Through Rate and purchase price of such Security because, while
interest will accrue on each Loan from the first day of each month, the
distribution of such interest will be made once a month on the date set forth in
the related Prospectus Supplement (the " Interest Payment Date") or, in the case
of quarterly-pay Securities, on the Interest Payment Date of every third month
or, in the case of semi-annual-pay Securities, on the Interest Payment Date of
every sixth month following the month or months of accrual.
A class of Securities may be entitled to payments of interest at a fixed
Pass-Through Rate specified in the related Prospectus Supplement, a variable
Pass-Through Rate or adjustable Pass-Through Rate calculated based on the
weighted average of the Loan Rates (net of Servicing Fees (each, a "Net Loan
Rate")) of the related Loans for the designated periods preceding the Payment
Date if so specified in the related Prospectus Supplement, or at such other
variable rate as may be specified in the related Prospectus Supplement.
As will be described in the related Prospectus Supplement, the aggregate
payments of interest on a class of Securities, and the yield to maturity
thereon, will be affected by the rate of payment of principal on the Securities
(or the rate of reduction in the notional balance of Securities entitled only to
payments of interest) and, in the case of Securities evidencing interests in ARM
Loans, by changes in the Net Loan Rates on the ARM Loans. See "Maturity and
Prepayment Considerations" below. The yield on the Securities also will be
affected by liquidations of Loans following Obligor defaults and by purchases of
Loans required by the Pooling and Servicing Agreement in the event of breaches
of representations made in respect of such Loans by the Company, the
Originators, the Servicer and others, or repurchases due to conversions of ARM
Loans to a fixed interest rate. See "Underwriting Program--Representations" and
"Descriptions of the Securities--Assignment of Loans" above. In general, if a
class of Securities is purchased at initial issuance at a premium and payments
of principal on the related Loans occur at a rate faster than anticipated at the
time of purchase, the purchaser's actual yield to maturity will be lower than
that assumed at the time of purchase. Conversely, if a class of Securities is
purchased at initial issuance at a discount and payments of principal on the
related Loans occur at a rate slower than that assumed at the time of purchase,
the purchaser's actual yield to maturity will be lower than that originally
anticipated. The effect of principal prepayments, liquidations and purchases on
yield will be particularly significant in the case of a series of Securities
having a class entitled to payments of interest only or to payments of interest
that are disproportionately high relative to the principal payments to which
such class is entitled. Such a class likely will be sold at a substantial
premium to its principal balance, if any, and any faster than anticipated rate
of prepayments will adversely affect the yield to holders thereof. In certain
circumstances, rapid prepayments may result in the failure of such holders to
recoup their original investment. In addition, the yield to maturity
64
<PAGE>
<PAGE>
on certain other types of classes of Securities, including Accrual Securities or
certain other classes in a series including more than one class of Securities,
may be relatively more sensitive to the rate of prepayment on the related Loans
than other classes of Securities.
The timing of changes in the rate of principal payments on or repurchases
of the Loans may significantly affect an investor's actual yield to maturity,
even if the average rate of principal payments experienced over time is
consistent with an investor's expectation. In general, the earlier a prepayment
of principal on the underlying Loans or a repurchase thereof, the greater will
be the effect on an investor's yield to maturity. As a result, the effect on an
investor's yield of principal payments and repurchases occurring at a rate
higher (or lower) than the rate anticipated by the investor during the period
immediately following the issuance of a series of Securities would not be fully
offset by a subsequent like reduction (or increase) in the rate of principal
payments.
The Loan Rates on certain ARM Loans subject to negative amortization adjust
monthly and their amortization schedules adjust less frequently. During a period
of rising interest rates as well as immediately after origination (initial Loan
Rates are generally lower than the sum of the Indices applicable at origination
and the related Note Margins) the amount of interest accruing on the principal
balance of such Loans may exceed the amount of the minimum scheduled monthly
payment thereon. As a result, a portion of the accrued interest on negatively
amortizing Loans may become Deferred Interest that will be added to the
principal balance thereof and will bear interest at the applicable Loan Rate.
The addition of any such Deferred Interest to the principal balance will
lengthen the weighted average life of the Securities evidencing interests in
such Loans and may adversely affect yield to holders thereof depending upon the
price at which such Securities were purchased. In addition, with respect to
certain ARM Loans subject to negative amortization, during a period of declining
interest rates, it might be expected that each minimum scheduled monthly payment
on such a Loan would exceed the amount of scheduled principal and accrued
interest on the principal balance thereof, and since such excess will be applied
to reduce such principal balance, the weighted average life of such Securities
will be reduced and may adversely affect yield to holders thereof depending upon
the price at which such Securities were purchased.
For each Loan Pool, if all necessary advances are made and if there is no
unrecoverable loss on any Loan and if the related Credit Enhancer is not in
default under its obligations or other Credit Enhancement has not been
exhausted, the net effect of each distribution respecting interest will be to
pass-through to each holder of a class of Securities entitled to payments of
interest an amount which is equal to one month's interest (or, in the case of
quarterly-pay Securities, three month's interest or, in the case of
semi-annually-pay Securities, six month's interest) at the applicable
Pass-Through Rate on such class' principal balance or notional balance, as
adjusted downward to reflect any decrease in interest caused by any principal
prepayments and the addition of any Deferred Interest to the principal balance
of any Loan. "Description of the Securities--Principal and Interest on the
Securities."
With respect to certain of the ARM Loans, the Loan Rate at origination may
be below the rate that would result if the index and margin relating thereto
were applied at origination. Under typical underwriting standards, the Obligor
under each Loan will be qualified on the basis of the Loan Rate in effect at
origination. The repayment of any such Loan may thus be dependent on the ability
of the Obligor to make larger level monthly payments following the adjustment of
the Loan Rate.
MATURITY AND PREPAYMENT CONSIDERATIONS
As indicated above under "The Loan Pools," the original terms to maturity
of the Loans in a given Loan Pool will vary depending upon the type of Loans
included in such Loan Pool. The Prospectus Supplement for a series of Securities
will contain information with respect to the types and maturities of the Loans
in the related Loan Pool. The prepayment experience with respect to the Loans in
a Loan Pool will affect the maturity, average life and yield of the related
series of Securities.
With respect to Balloon Loans, payment of the Balloon Amount (which, based
on the amortization schedule of such Loans, may be a substantial amount) will
generally depend on the Obligor's ability to obtain
65
<PAGE>
<PAGE>
refinancing of such Loan or to sell the Property prior to the maturity of the
Balloon Loan. The ability to obtain refinancing will depend on a number of
factors prevailing at the time refinancing or sale is required, including,
without limitation, real estate values, the Obligor's financial situation,
prevailing mortgage loan interest rates, the Obligor's equity in the related
Property, tax laws and prevailing general economic conditions. Neither the
Company, the Servicer, the Master Servicer, nor any of their affiliates will be
obligated to refinance or repurchase any Loan or to sell the Property.
A number of factors, including obligor mobility, economic conditions,
enforceability of due-on-sale clauses, loan market interest rates and the
availability of funds, affect prepayment experience. The Loans will generally
contain due-on-sale provisions permitting the obligee to accelerate the maturity
of the Loan upon sale or certain transfers by the Obligor of the underlying
Property. The Servicer will generally enforce any due-on-sale clause to the
extent it has knowledge of the conveyance or proposed conveyance of the
underlying Property and it is entitled to do so under applicable law; provided,
however, that the Servicer will not take any action in relation to the
enforcement of any due-on-sale provision which would adversely affect or
jeopardize coverage under any applicable insurance policy. Certain ARM Loans may
be assumable under certain conditions if the proposed transferee of the related
Property establishes its ability to repay the Loan and, in the reasonable
judgment of the Servicer, the Master Servicer or the related Sub-Servicer, the
security for the ARM Loan would not be impaired or might be improved by the
assumption. The extent to which ARM Loans are assumed by purchasers of the
Properties rather than prepaid by the related Obligors in connection with the
sales of the Properties will affect the weighted average life of the related
series of Securities. See "Description of the Securities--Collection and Other
Servicing Procedures" and "Certain Legal Aspects of the Loans and Related
Matters--Enforceability of Certain Provisions" for a description of certain
provisions of the Pooling and Servicing Agreement and certain legal developments
that may affect the prepayment experience on the Loans.
There can be no assurance as to the rate of prepayment of the Loans. The
Company is not aware of any reliable, publicly available statistics relating to
the principal prepayment experience of diverse portfolios of loans such as the
Loans over an extended period of time. All statistics known to the Company that
have been compiled with respect to prepayment experience on loans indicates that
while some loans may remain outstanding until their stated maturities, a
substantial number will be paid prior to their respective stated maturities.
Although the Loan Rates on ARM Loans will be subject to periodic
adjustments, such adjustments will (i) not increase or decrease such Loan Rates
by more than a fixed percentage amount on each adjustment date, (ii) not
increase such Loan Rates over a fixed percentage amount during the life of any
ARM Loan and (iii) be based on an index (which may not rise and fall
consistently with interest rates) plus the related Note Margin (which may be
different from margins being used at the time for newly originated adjustable
rate loans). As a result, the Loan Rates on the ARM Loans in a Loan Pool at any
time may not equal the prevailing rates for similar, newly originated adjustable
rate loans. In certain rate environments, the prevailing rates on fixed-rate
loans may be sufficiently low in relation to the then-current Loan Rates on ARM
Loans that the rate of prepayment may increase as a result of refinancings.
There can be no certainty as to the rate of prepayments on the Loans during any
period or over the life of any series of Securities.
As may be described in the related Prospectus Supplement, the related
Pooling and Servicing Agreement may provide that all or a portion of the
principal collected on or with respect to the related Loans may be applied by
the related Trustee to the acquisition of additional Loans during a specified
period (rather than used to fund payments of principal to Securityholders during
such period) with the result that the related securities possess an
interest-only period, also commonly referred to as a revolving period, which
will be followed by an amortization period. Any such interest-only or revolving
period may, upon the occurrence of certain events to be described in the related
Prospectus Supplement, terminate prior to the end of the specified period and
result in the earlier than expected amortization of the related Securities.
In addition, and as may be described in the related Prospectus Supplement,
the related Pooling and Servicing Agreement may provide that all or a portion of
such collected principal may be retained by the Trustee (and held in certain
temporary investments, including Loans) for a specified period prior to being
used to fund payments of principal to Securityholders.
66
<PAGE>
<PAGE>
The result of such retention and temporary investment by the Trustee of
such principal would be to slow the amortization rate of the related Securities
relative to the amortization rate of the related Loans, or to attempt to match
the amortization rate of the related Securities to an amortization schedule
established at the time such Securities are issued. Any such feature applicable
to any Securities may terminate upon the occurrence of events to be described in
the related Prospectus Supplement, resulting in the current funding of principal
payments to the related Securityholders and an acceleration of the amortization
of such Securities.
Under certain circumstances, the Servicer, the Company or, if specified in
the related Prospectus Supplement, the holders of the REMIC Residual Securities
or the Credit Enhancer may have the option to purchase the Loans in a Trust
Estate. See "The Pooling and Servicing Agreement--Termination; Retirement of
Securities."
CERTAIN LEGAL ASPECTS OF THE LOANS AND RELATED MATTERS
Mortgage Loans
The following discussion contains certain legal aspects of mortgage
loans that are general in nature. Because such legal aspects are governed in
part by applicable state law (which laws may differ substantially), the
following does 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 Properties
may be situated. In the event that a particular Trust Fund contains mortgage
loans with a concentration in a particular state, and such state's laws vary
materially from the general discussion below, the related Prospectus Supplement
will elaborate on the relevant laws of such state. The following is qualified in
its entirety by reference to the applicable federal and state laws governing the
Mortgage Loans. Any particular legal matters related to specific types of
Mortgage Loans will be set forth in the related Prospectus Supplement.
General
The Mortgage Loans will be secured by either deeds of trust or mortgages,
depending upon the prevailing practice in the state in which the Property
subject to a Mortgage Loan is located. In some states, a mortgage creates a lien
upon the real property encumbered by the mortgage. In other states, the mortgage
conveys legal title to the property to the mortgagee subject to a condition
subsequent (i.e., the payment of the indebtedness secured thereby). The mortgage
is not prior to the lien for real estate taxes and assessments and other charges
imposed under governmental police powers. Priority between mortgages depends on
their terms in some cases or on the terms of separate subordination or
intercreditor agreements, and generally on the order of recordation of the
mortgage in the appropriate recording office. There are two parties to a
mortgage, the mortgagor, who is the obligor and homeowner, and the mortgagee,
who is the lender. Under the mortgage instrument, the mortgagor delivers to the
mortgagee a note or bond and the mortgage. In the case of a land trust, there
are three parties because title to the property is held by a land trustee under
a land trust agreement of which the obligor is the beneficiary; at origination
of a mortgage loan, the obligor executes a separate undertaking to make payments
on the mortgage note. Although a deed of trust is similar to a mortgage, a deed
of trust has three parties; the obligor-homeowner called the trustor (similar to
a mortgagor), a lender (similar to a mortgagee) called the beneficiary, and a
third-party grantee called the trustee. Under a deed of trust, the obligor
grants the property, irrevocably until the debt is paid, in trust, generally
with a power of sale, to the trustee to secure payment of the obligation. The
trustee's authority under a deed of trust and the mortgagee's authority under a
mortgage are governed by law, the express provisions of the deed of trust or
mortgage, and, in some cases, the directions of the beneficiary.
67
<PAGE>
<PAGE>
Cooperative Loans
If specified in the Prospectus Supplement relating to a series of
Securities, the Mortgage Loans also may consist of Cooperative Loans evidenced
by Cooperative Notes secured by security interests in shares issued by
cooperatives, which are private corporations that are entitled to be treated as
housing cooperatives under federal tax law, and in the related proprietary
leases or occupancy agreements granting exclusive rights to occupy specific
dwelling units in the cooperatives' buildings. The security agreement will
create a lien upon, or grant a title interest in, the property which it covers,
the priority of which will depend on the terms of the particular security
agreement as well as the order of recordation of the agreement in the
appropriate recording office. Such a lien or title interest is not prior to the
lien for real estate taxes and assessments and other charges imposed under
governmental police powers.
Each cooperative share owns in fee or has a leasehold interest in all the
real property and owns in fee or leases the building and all separate dwelling
units therein. The cooperative is directly responsible for property management
and, in most cases, payment of real estate taxes, other governmental impositions
and hazard and liability insurance. If there is a blanket mortgage or mortgages
on the cooperative buildings or underlying land, as is generally the case, or an
underlying lease of the land, as is the case in some instances, the cooperative,
as property mortgagor, or lessee, as the case may be, also is responsible for
meeting these mortgage or rental obligations. A blanket mortgage is ordinarily
incurred by the cooperative in connection with either the construction or
purchase of the cooperative's buildings or the obtaining of capital by the
cooperative. The interest of the occupant under proprietary leases or occupancy
agreements as to which that cooperative is the landlord generally is subordinate
to the interest of the holder of a blanket mortgage and to the interest of the
holder of a land lease. If the cooperative is unable to meet the payment
obligations (i) arising under a blanket mortgage, the mortgagee holding a
blanket mortgage could foreclose on that mortgage and terminate all subordinate
proprietary leases and occupancy agreements or (ii) arising under its land
lease, the holder of the landlord's interest under the land lease could
terminate it and all subordinate proprietary leases and occupancy agreements.
Also, a blanket mortgage on a cooperative may provide financing in the form of a
mortgage that does not fully amortize, with a significant portion of principal
being due in one final payment at maturity. The inability of the cooperative to
refinance a mortgage and its consequent inability to make such final payment
could lead to foreclosure by the mortgagee. Similarly, a land lease has an
expiration date and the inability of the cooperative to extend its term or, in
the alterative, to purchase the land could lead to termination of the
cooperative's interest in the property and termination of all proprietary leases
and occupancy agreements. In either event, a foreclosure by the holder of a
blanket mortgage or the termination of the underlying lease could eliminate or
significantly diminish the value of any collateral held by the lender who
financed the purchase by an individual tenant-stockholder of cooperative shares
or, in the case of the Loans, the collateral securing the Cooperative Loans.
The cooperative is owned by tenant-stockholders who, through ownership of
stock or shares in the corporation, receive proprietary leases or occupancy
agreements that confer exclusive rights to occupy specific units. Generally, a
tenant-stockholder of a cooperative must make a monthly payment to the
cooperative representing such tenant-stockholder's pro rata share of the
cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a cooperative and accompanying occupancy rights are financed through
a cooperative share loan evidenced by a promissory note and secured by an
assignment of and a security interest in the occupancy agreement or proprietary
lease and a security interest in the related cooperative shares. The lender
generally takes possession of the share certificate and a counterpart of the
proprietary lease or occupancy agreement and a financing statement covering the
proprietary lease or occupancy agreement and the cooperative shares is filed in
the appropriate state and local offices to perfect the lender's interest in its
collateral. Subject to the limitations discussed below, upon default of the
tenant-stockholder, the lender may sue for judgment on the promissory note,
dispose of the collateral at a public or private sale or otherwise proceed
against the collateral or tenant-stockholder as an individual as provided in the
security agreement covering the assignment of the proprietary lease or occupancy
agreement and the pledge of cooperative shares. See "Foreclosure on Shares of
Cooperatives" below.
68
<PAGE>
<PAGE>
Foreclosure
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale (private sale) under a specific provision in the deed of trust
and state laws which authorize the trustee to sell the property upon any default
by the borrower under the terms of the note or deed of trust. Beside the
non-judicial remedy, a deed of trust may be judicially foreclosed. In addition
to any notice requirements contained in a deed of trust, in some states, the
trustee must record a notice of default and within a certain period of time send
a copy to the borrower trustor and to any person who has recorded a request for
a copy of notice of default and notice of sale. In addition, the trustee must
provide notice in some states to any other individual having an interest of
record in the real property, including any junior lienholders. If the deed of
trust is not reinstated within a specified period, a notice of sale must be
posted in a public place and, in most states, published for a specific period of
time in one or more local newspapers. In addition, some state laws require that
a copy of the notice of sale be posted on the property and sent to all parties
having an interest of record in the real property.
Foreclosure of a mortgage is generally accomplished by judicial action.
Generally, the action is initiated by the service of legal pleadings upon all
parties having an interest of record in the real property. Delays in completion
of the foreclosure may occasionally result from difficulties in locating
necessary parties. Judicial foreclosure proceedings are often not contested by
any of the applicable parties. If the mortgagee's right to foreclose is
contested, the legal proceedings necessary to resolve the issue can be
time-consuming.
In some states, the borrower-trustor has the right to reinstate the loan at
any time following default until shortly before the trustee's sale. In general,
in such states, the borrower, or any other person having a junior encumbrance on
the real estate, may, during a reinstatement period, cure the default by paying
the entire amount in arrears plus the costs and expenses incurred in enforcing
the obligation.
In the case of foreclosure under either a mortgage or a deed of trust, the
sale by the referee or other designated officer or by the trustee is a public
sale. However, because of the difficulty a potential buyer at the sale would
have in determining the exact status of title and because the physical condition
of the property may have deteriorated during the foreclosure proceedings, it is
uncommon for a third party to purchase the property at a foreclosure sale unless
there is a great deal of economic incentive for the new purchaser to purchase
the subject property at the sale. Rather, it is common for the lender to
purchase the property from the trustee or referee for a credit bid less than or
equal to the unpaid principal amount of the mortgage or deed of trust, accrued
and unpaid interest and the expense of foreclosure. Generally, state law
controls the amount of foreclosure costs and expenses, including attorneys'
fees, which may be recovered by a lender. Thereafter, subject to the right of
the borrower in some states to remain in possession during the redemption
period, the lender will assume the burdens of ownership, including obtaining
hazard insurance and making such repairs at its own expense as are necessary to
render the property suitable for sale. The lender will commonly obtain the
services of a real estate broker and pay the broker's commission in connection
with the sale of the property. Depending upon market conditions, the ultimate
proceeds of the sale of the property may not equal the lender's investment in
the property and, in some states, the lender may be entitled to a deficiency
judgment. Any loss may be reduced by the receipt of any mortgage insurance
proceeds.
Foreclosure on Shares of Cooperatives
The cooperative shares and proprietary lease or occupancy agreement owned
by the tenant-stockholder and pledged to the lender are, in almost all cases,
subject to restrictions on transfer as set forth in the cooperative's
certificate of incorporation and by-laws, as well as in the proprietary lease or
occupancy agreement. The proprietary lease or occupancy agreement, even while
pledged, may be cancelled by the cooperative for failure by the tenant
stockholder to pay rent or other obligations or charges owed by such
tenant-stockholder, including mechanics' liens against the cooperative buildings
incurred by such tenant-stockholder. Commonly, rent and other obligations and
charges arising under a proprietary lease or occupancy agreement that are owed
to the cooperative are made liens upon the shares to which the proprietary lease
or occupancy agreement relates. In addition, the proprietary lease or occupancy
agreement generally permits the cooperative to terminate such lease or agreement
in the event the borrower defaults in the performance of covenants thereunder.
Typically, the
69
<PAGE>
<PAGE>
lender and the cooperative enter into a recognition agreement that, together
with any lender protection provisions contained in the proprietary lease,
establishes the rights and obligations of both parties in the event of a default
by the tenant-stockholder on its obligations under the proprietary lease or
occupancy agreement. A default by the tenant-stockholder under the proprietary
lease or occupancy agreement usually will constitute a default under the
security agreement between the lender and the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the cooperative will take no action to terminate such lease or
agreement until the lender has been provided with notice of and an opportunity
to cure the default. The recognition agreement typically provides that if the
proprietary lease or occupancy agreement is terminated, the cooperative will
recognize the lender's lien against proceeds from a sale of the cooperative
apartment, subject, however, to the cooperative's right to sums due under such
proprietary lease or occupancy agreement or sums that have become liens on the
shares relating to the proprietary lease or occupancy agreement. The total
amount owed to the cooperative by the tenant-stockholder, which the lender
generally cannot restrict and does not monitor, could reduce the amount realized
upon a sale of the collateral below the outstanding principal balance of the
Cooperative Loan and accrued and unpaid interest thereon.
Recognition agreements generally also provide that in the event of a
foreclosure on a Cooperative Loan, the lender must obtain the approval or
consent of the cooperative as required by the proprietary lease before
transferring the cooperative shares or assigning the proprietary lease.
Generally, the lender is not limited in any rights it may have to dispossess the
tenant-stockholder.
In New York, foreclosure on the cooperative shares is accomplished by
public sale in accordance with the provisions of Article 9 of the UCC and the
security agreement relating to those shares. Article 9 of the UCC requires that
a sale be conducted in a "commercially reasonable" manner. Whether a sale has
been conducted in a "commercially reasonable" manner will depend on the facts in
each case. In determining commercial reasonableness, a court will look to the
notice given the debtor and the method, manner, time, place and terms of the
sale and the sale price. Generally, a sale conducted according to the usual
practice of banks selling similar collateral will be considered reasonably
conducted.
Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the cooperative corporation to receive sums due under
the proprietary lease or occupancy agreement. If there are proceeds remaining,
the lender must account to the tenant-stockholder for the surplus. Conversely,
if a portion of the indebtedness remains unpaid, the tenant-stockholder is
generally responsible for the deficiency. See "Anti-Deficiency Legislation and
Other Limitations on Lenders" below.
Rights of Redemption
In some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and foreclosed junior obligors or other parties are given
a statutory period in which to redeem the property from the foreclosure sale. In
some states, redemption may occur only upon payment of the entire principal
balance of the loan, accrued interest and expenses of foreclosure. In other
states, redemption may be authorized if the former borrower pays only a portion
of the sums due. The effect of a statutory right of redemption is to diminish
the ability of the lender to sell the foreclosed property. The rights of
redemption would defeat the title of any purchaser subsequent to foreclosure or
sale under a deed of trust. Consequently, the practical effect of the redemption
right is to force the lender to maintain the property and pay the expenses of
ownership until the redemption period has expired. In some states, there is no
right to redeem property after a trustee's sale under a deed of trust.
70
<PAGE>
<PAGE>
Anti-Deficiency Legislation and Other Limitations on Lenders
Certain states have imposed statutory prohibitions that limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states statutes limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against the borrower following foreclosure. A deficiency
judgment is a personal judgment against the former borrower equal in most cases
to the difference between the amount due to the lender and the net amount
realized upon the public sale of the real property. In the case of a Loan
secured by a property owned by a trust where the Mortgage Note is executed on
behalf of the trust, a deficiency judgment against the trust following
foreclosure or sale under a deed of trust, even if obtainable under applicable
law, may be of little value to the mortgagee or beneficiary if there are no
trust assets against which such deficiency judgment may be executed. Other
statutes require the beneficiary or mortgagee to exhaust the security afforded
under a deed of trust or mortgage by foreclosure in an attempt to satisfy the
full debt before bringing a personal action against the borrower. In certain
other states, the lender has the option of bringing a personal action against
the borrower on the debt without first exhausting such security; however, in
some of these states the lender, following judgment on such personal action, may
be deemed to have elected a remedy and may be precluded from exercising remedies
with respect to the security. Consequently, the practical effect of the election
requirement, in those states permitting such election, is that lenders will
usually proceed against the security first rather than bringing a personal
action against the borrower. Finally, in certain other states, statutory
provisions limit any deficiency judgment against the former borrower following a
foreclosure to the excess of the outstanding debt over the fair value of the
property at the time of the public sale. The purpose of these statutes is
generally to prevent a beneficiary or mortgagee from obtaining a large
deficiency judgment against the former borrower as a result of low or no bids at
the judicial sale.
In addition to laws limiting or prohibiting deficiency judgments, numerous
other federal and state statutory provisions, including the federal bankruptcy
laws and state laws affording relief to debtors, may interfere with or affect
the ability of the secured mortgage lender to realize upon collateral or enforce
a deficiency judgment. For example, with respect to federal bankruptcy law, a
court with federal bankruptcy jurisdiction may permit a debtor through his or
her Chapter 11 or Chapter 13 rehabilitative plan to cure a monetary default in
respect of a mortgage loan on a debtor's residence by paying arrearages within a
reasonable time period and reinstating the original mortgage loan payment
schedule even though the lender accelerated the mortgage loan and final judgment
of foreclosure had been entered in state court (provided no sale of the
residence had yet occurred) prior to the filing of the debtor's petition. Some
courts with federal bankruptcy jurisdiction have approved plans, based on the
particular facts of the reorganization case, that effected the curing of a
mortgage loan default by paying arrearages over a number of years.
Courts with federal bankruptcy jurisdiction also have indicated that the
terms of a mortgage loan secured by property of the debtor may be modified.
These courts have allowed modifications that include reducing the amount of each
monthly payment, changing the rate of interest, altering the repayment schedule,
forgiving all or a portion of the debt and reducing the lender's security
interest to the value of the residence, thus leaving the lender a general
unsecured creditor for the difference between the value of the residence and the
outstanding balance of the loan.
Certain states have imposed general equitable principles upon judicial
foreclosure. These equitable principles are generally designed to relieve the
borrower from the legal effect of the borrower's default under the related 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, lenders
have been required to reinstate loans or recast payment schedules in order to
accommodate borrowers who are suffering from temporary financial disabilities.
In other cases, such courts have limited the right of the lender to foreclose if
the default under the loan is not monetary, such as the borrower failing to
adequately maintain the property or the borrower executing a second deed of
trust affecting the property.
Certain tax liens arising under the Internal Revenue Code of 1986, as
amended, may in certain circumstances provide priority over the lien of a
mortgage or deed of trust. In addition, substantive requirements
71
<PAGE>
<PAGE>
are imposed upon mortgage lenders in connection with the origination and the
servicing of mortgage loans by numerous federal and some state consumer
protection laws. These laws include, by example, the federal Truth-in-Lending
Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity Act, Fair
Credit Billing Act, Fair Credit Reporting Act and related statutes and the
California Fair Debt Collection Practices Act. These laws and regulations impose
specific statutory liabilities upon lenders who originate mortgage loans and
fail to comply with the provisions of the law. In some cases, this liability may
affect assignees of the mortgage loans.
Environmental Legislation
Certain states impose a statutory lien for associated costs on property
that is the subject of a cleanup action by the state on account of hazardous
wastes or hazardous substances released or disposed of on the property. Such a
lien generally will have priority over all subsequent liens on the property and,
in certain of these states, will have priority over prior recorded liens
including the lien of a mortgage. In some states, however, such a lien will not
have priority over prior recorded liens of a deed of trust. In addition, under
federal environmental legislation and under state law in a number of states, a
secured party which takes a deed in lieu of foreclosure or acquires a mortgaged
property at a foreclosure sale or assumes active control over the operation or
management of a property so as to be deemed an "owner" or "operator" of the
property may be liable for the costs of cleaning up a contaminated site.
Although such costs could be substantial, it is unclear whether they would be
imposed on a lender (such as a Trust Estate) secured by residential real
property. In the event that title to a Property securing a Mortgage Loan in a
Trust Estate was acquired by the Trust and cleanup costs were incurred in
respect of the Property, the holders of the related series of Securities might
realize a loss if such costs were required to be paid by the Trust.
Enforceability of Certain Provisions
Generally all of the Loans contain due-on-sale clauses. These clauses
permit the lender to accelerate the maturity of the loan if the borrower sells,
transfers or conveys the property. The enforceability of these clauses has been
the subject of legislation or litigation in many states, and in some cases the
enforceability of these clauses was limited or denied. However, the Garn-St.
Germain Depository Institutions Act of 1982 (the "Garn-St. Germain Act")
preempts state constitutional, statutory and case law that prohibits the
enforcement of due-on-sale clauses and permits lenders to enforce these clauses
in accordance with their terms, subject to certain limited exceptions. The
Garn-St Germain Act does "encourage" lenders to permit assumption of loans at
the original rate of interest or at some other rate less than the average of the
original rate and the market rate.
The Garn-St. Germain Act also sets forth nine specific instances in which a
mortgage lender covered by the Garn-St. Germain Act may not exercise a
due-on-sale clause, notwithstanding the fact that a transfer of the property may
have occurred. These include intra-family transfers, certain transfers by
operation of law, leases of fewer than three years and the creation of a junior
encumbrance. Regulations promulgated under the Garn-St. Germain Act also
prohibit the imposition of a prepayment penalty upon the acceleration of a loan
pursuant to a due-on-sale clause.
The inability to enforce a due-on-sale clause may result in a mortgage loan
bearing an interest rate below the current market rate being assumed by a new
home buyer rather than being paid off, that may have an impact upon the average
life of the Mortgage Loans and the number of Mortgage Loans that may be
outstanding until maturity.
Upon foreclosure, courts have imposed general equitable principles. These
equitable principles generally are 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
72
<PAGE>
<PAGE>
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 protections to the borrower.
Certain Provisions of California Deeds of Trust
Most institutional lenders in California use a form of deed of trust that
confers on the beneficiary the right both to receive all proceeds collected
under any hazard insurance policy and all awards made in connection with any
condemnation proceedings, and to apply such proceeds and awards to any
indebtedness secured by the deed of trust, in such order as the beneficiary may
determine, provided, however, that California law prohibits the beneficiary from
applying insurance and condemnation proceeds to the indebtedness secured by the
deed of trust unless the beneficiary's security has been impaired by the
casualty or condemnation, and, if such security has been impaired, permits such
proceeds to be so applied only to the extent of such impairment. Thus, in the
event improvements on the property are damaged or destroyed by fire or other
casualty, or in the event the property is taken by condemnation, and, as a
result thereof, the beneficiary's security is impaired, the beneficiary under
the underlying first deed of trust will have the prior right to collect any
insurance proceeds payable under a hazard insurance policy and any award of
damages in connection with the condemnation and to apply the same to the
indebtedness secured by the first deed of trust. Proceeds in excess of the
amount of indebtedness secured by a first deed of trust will, in most cases, be
applied to the indebtedness of a junior deed of trust.
Another provision typically found in the forms of deed of trust used by
most institutional lenders in California obligates the trustor to pay before
delinquency all taxes and assessments on the property and, when due, all
encumbrances, charges and liens on the property which appear prior to the deed
of trust, to provide and maintain fire insurance on the property, to maintain
and repair the property and not to commit or permit any waste thereof, and to
appear in and defend any action or proceeding purporting to affect the property
or the rights of the beneficiary under the deed of trust. Upon a failure of the
trustor to perform any of these obligations, the beneficiary is given the right
under the deed of trust to perform the obligation itself, at its election, with
the trustor agreeing to reimburse the beneficiary for any sums expended by the
beneficiary on behalf of the trustor. All sums so expended by the beneficiary
become part of the indebtedness secured by the deed of trust.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980 ("Title V"), provides that state usury
limitations shall not apply to certain types of residential first mortgage loans
originated by certain lenders after March 31, 1980. A similar federal statute
was in effect with respect to mortgage loans made during the first three months
of 1980. The Office of Thrift Supervision is authorized to issue rules and
regulations and to publish interpretations governing implementation of Title V.
The statute authorized any state to reimpose interest rate limits by adopting,
before April 1, 1983, a law or constitutional provision which expressly rejects
application of the federal law. In addition, even where Title V is not so
rejected, any state is authorized by the law to adopt a provision limiting
discount points or other charges on mortgage loans covered by Title V. Certain
states have taken action to reimpose interest rate limits or to limit discount
points or other charges.
As indicated above under "Underwriting Program--Representations," each
Originator of a Mortgage Loan will have represented that such Mortgage Loan was
originated in compliance with then applicable state laws, including usury laws,
in all material respects. However, the Loan Rates on the Mortgage Loans will be
subject to applicable usury laws as in effect from time to time.
73
<PAGE>
<PAGE>
Alternative Mortgage Instruments
Alternative mortgage instruments, including ARM Loans and early ownership
mortgage loans, originated by non-federally chartered lenders have historically
been subjected to a variety of restrictions. Such restrictions differed from
state to state, resulting in difficulties in determining whether a particular
alternative mortgage instrument originated by a state-chartered lender was in
compliance with applicable law. These difficulties were alleviated substantially
as a result of the enactment of Title VIII of the Garn-St. Germain Act ("Title
VIII"). Title VIII provides that: notwithstanding any state law to the contrary,
state-chartered banks may originate alternative mortgage instruments in
accordance with regulations promulgated by the Comptroller of the Currency with
respect to origination of alternative mortgage instruments by national banks;
state-chartered credit unions may originate alternative mortgage instruments in
accordance with regulations promulgated by the National Credit Union
Administration with respect to origination of alternative mortgage instruments
by federal credit unions; and all other non-federally chartered housing
creditors, including state-chartered savings and loan associations,
state-chartered savings banks and mutual savings banks and mortgage banking
companies, may originate alterative mortgage instruments in accordance with the
regulations promulgated by the Federal Home Loan Bank Board, predecessor to the
Office of Thrift Supervision, with respect to origination of alternative
mortgage instruments by federal savings and loan associations. Title VIII
provides that any state may reject applicability of the provisions of Title VIII
by adopting, prior to October 15, 1985, a law or constitutional provision
expressly rejecting the applicability of such provisions. Certain states have
taken such action.
Soldiers' and Sailors' Civil Relief Act of 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), a Obligor who enters military service after the
origination of such Obligor's Mortgage Loan (including a Obligor who was in
reserve status and is called to active duty after origination of the Mortgage
Loan), may not be charged interest (including fees and charges) above an annual
rate of 6% during the period of such Obligor's active duty status, unless a
court orders otherwise upon application of the lender. The Relief Act applies to
Obligors who are members of the Army, Navy, Air Force, Marines, National Guard,
Reserves, Coast Guard, and officers of the U.S. Public Health Service assigned
to duty with the military. Because the Relief Act applies to Obligors who enter
military service (including reservists who are called to active duty) after
origination of the related Mortgage Loan, no information can be provided as to
the number of loans that may be effected by the Relief Act. Application of the
Relief Act would adversely affect, for an indeterminate period of time, the
ability of the Servicer to collect full amounts of interest on certain of the
Mortgage Loans. Any shortfall in interest collections resulting from the
application of the Relief Act or similar legislation or regulations, which would
not be recoverable from the related Mortgage Loans, would result in a reduction
of the amounts distributable to the holders of the related Securities, and would
not be covered by advances, any Letter of Credit or any other form of Credit
Enhancement provided in connection with the related series of Securities. In
addition, the Relief Act imposes limitations that would impair the ability of
the Servicer to foreclose on an affected Mortgage Loan during the Obligor's
period of active duty status, and, under certain circumstances, during an
additional three month period thereafter. Thus, in the event that the Relief Act
or similar legislation or regulations applies to any Mortgage Loan which goes
into default, there may be delays in payment and losses on the related
Securities in connection therewith. Any other interest shortfalls, deferrals or
forgiveness of payments on the Mortgage Loans resulting from similar legislation
or regulations may result in delays in payments or losses to Securityholders of
the related series.
Manufactured Housing Contracts
General
The following discussion of certain legal aspects of the Contracts is
general in nature. Because certain of such legal aspects are governed by
applicable state law (which laws may differ substantially), the following does
not purport to be complete nor reflect the laws of any particular state, nor
encompass the laws of all states in which the properties securing the Contracts
are situated. In the event that a particular Trust Fund contains Contracts with
a concentration in a particular state, and such state's laws
74
<PAGE>
<PAGE>
vary materially from the general discussion below, the related Prospectus
Supplement will elaborate on the relevant laws of such state. The summaries are
qualified in their entirety by reference to the applicable federal and state
laws governing the Contracts.
As a result of the assignment of the Contracts in a Loan Pool to the
Trustee, the Trust will succeed collectively to all of the rights (including the
right to receive payment on such Contracts), and will assume the obligations of
the obligee, under such Contracts. Each Contract evidences both (a) the
obligation of the Obligor to repay the loan evidenced thereby, and (b) the grant
of a security interest in the Manufactured Home. Certain aspects of both
features of the Contracts are described more fully below.
The following discussion focuses on issues relating generally to the
Company's or any lender's interest in manufactured housing contracts.
Security Interests in the Manufactured Homes
The Manufactured Homes securing the Contracts may be located in all 50
states and the District of Columbia. Security interests in Manufactured Homes,
similar to the ones securing the Contracts, ("Manufactured Homes") generally may
be perfected either by notation of the secured party's lien on the certificate
of title or by delivery of the required documents and payment of a fee to the
state motor vehicle authority, depending on state law. In some non-title states,
perfection pursuant to the provisions of the UCC is required. Generally, with
respect to manufactured housing Contracts individually originated or purchased
by the Company, the Company effects such notation or delivery of the required
documents and fees, and obtains possession of the certificate of title or a lien
certificate, as appropriate, under the laws of the state in which any
Manufactured Home securing a manufactured housing conditional sales Contract is
registered. If the Company fails, due to clerical errors or otherwise, to effect
such notation or delivery, or files the security interest under the wrong law
(for example, under a motor vehicle title statute rather than under the UCC, in
a few states), the Company may not have a first-priority security interest in
the Manufactured Home securing a Contract. As Manufactured Homes have become
larger and often have been attached to their sites without any apparent
intention to move them, courts in many states have held that Manufactured Homes,
under certain circumstances, may become subject to real estate title and
recording laws. As a result, a security interest in a Manufactured Home could be
rendered subordinate to the interests of other parties claiming an interest in
the Manufactured Home under applicable state real estate law. In order to
perfect a security interest in a Manufactured Home under real estate laws, the
holder of the security interest must file either a "fixture filing" under the
provisions of the UCC or a real estate mortgage under the real estate laws of
the state where the Manufactured Home is located. These filings must be made in
the real estate records office of the county where the Manufactured Home is
located. Most of the Contracts in any Loan Pool will contain provisions
prohibiting the Obligor from permanently attaching the Manufactured Home to its
site if it was not so attached on the date of the Contract. As long as each
Manufactured Home was not so attached on the date of the Contract and the
Obligor does not violate this agreement, a security interest in the Manufactured
Home will be governed by the certificate of title laws or the UCC, and the
notation of the security interest on the certificate of title or the filing of a
UCC financing statement will be effective to maintain the priority of the
Company's security interest in the Manufactured Home. Upon the conveyance of
each Contract to the Company, the Company will represent that it had obtained a
perfected first-priority security interest in the Manufactured Home securing the
related Contract. Such representation, however, will not be based upon an
inspection of the site of any Manufactured Home to determine if the Manufactured
Home had become permanently attached to its site.
In the absence of fraud, forgery or permanent affixation of a Manufactured
Home to its site by the obligor, or administrative error by state recording
officials, the notation of the lien of the Company on the certificate of title
or delivery of the required documents and fees (or if applicable, perfection
under the UCC) will be sufficient to protect the Company against the rights of
subsequent purchasers of a Manufactured Home or subsequent lenders who take a
security interest in the Manufactured Home. If there are any Manufactured Homes
as to which the security interest in favor of the Company is not perfected, such
security interest would be subordinate to the claims of, among others,
subsequent purchasers for value of and holders of perfected security interests
in such Manufactured Homes.
75
<PAGE>
<PAGE>
In the event that the Obligor of a Manufactured Home moves it to a state
other than the state in which such Manufactured Home initially is registered,
under the laws of most states, the perfected security interest in the
Manufactured Home would continue for four months after such relocation and
thereafter until the Obligor registers the Manufactured Home in such state. If
the Obligor were to relocate a Manufactured Home to another state and were to
re-register the Manufactured Home in such state, and if steps are not taken by
the Company or the applicable Trust, to re-perfect an existing security interest
in such state, the security interest in the Manufactured Home would cease to be
perfected. A majority of states generally require surrender of a certificate of
title to such Manufactured Home. The Company must therefore surrender possession
if it holds the certificate of title to such Manufactured Home or, in the case
of Manufactured Homes registered in states which provide for notation of lien,
the Company would receive notice of surrender if its security interest in the
Manufactured Home is noted on the certificate of title. Accordingly, the Company
would have the opportunity to re-perfect its security interest in the
Manufactured Home in the state of relocation. In states which do not require a
certificate of title for registration of a Manufactured Home, re-registration
could defeat the perfection. In the ordinary course of servicing its
manufactured housing Contracts, the Company takes steps to effect such
re-perfection upon receipt of notice of re-registration or information from the
Obligor as to relocation. Similarly, when an Obligor under a Contract sells a
Manufactured Home, the Company must surrender possession of the certificate of
title or the Company will receive notice as a result of its lien noted thereon
and accordingly the Company will have an opportunity to require satisfaction of
the related Contract before release of the lien. Such protections generally
would not be available in the case of security, interests in Manufactured Homes
located in non-title states where perfection of such security interest is
achieved by appropriate filings under the UCC (as in effect in such state).
Under the laws of most states, liens for repairs performed on a
Manufactured Home and liens for personal property taxes take priority over a
perfected security interest in the Manufactured Home. Upon the conveyance of
each Contract to the Trust, the Company will represent that it had obtained a
perfected first-priority security interest in the Manufactured Home securing the
related Contract. However, such warranty will not be based on any lien searches
or other review. In addition, such liens could arise after the date of initial
issuance of the Securities. Notice may not be given to the Company, the
Servicer, the Trustee or Securityholders in the event such a lien arises.
Enforcement of Security Interests in Manufactured Homes
The Servicer on behalf of the Trustee, to the extent required by the
Pooling and Servicing Agreement, may take action to enforce the Trustee's
security interest with respect to Contracts in default by repossession and
resale of the Manufactured Homes securing such defaulted Contracts. In general,
as long as a Manufactured Home has not become subject to the real estate law, a
creditor can repossess a Manufactured Home by voluntary surrender, by
"self-help" repossession that is "peaceful" (i.e., without breach of the peace)
or, in the absence of voluntary surrender and the ability to repossess without
breach of the peace, by judicial process. The holder of a manufactured housing
Contract generally must give the obligor a number of days' notice prior to
commencement of any repossession. The UCC and consumer protection laws in most
states place restrictions on repossession sales, including requiring prior
notice to the obligor and commercial reasonableness in effecting such a sale.
The law in most states also requires that the obligor be given notice of any
sales prior to resale of the unit so that the obligor may redeem at or before
such resale.
Under the laws applicable in most states, a creditor is entitled to obtain
a deficiency, judgment from an obligor for any deficiency on repossession and
resale of the Manufactured Home securing such obligor's Contract. However, some
states impose prohibitions or limitations on deficiency judgments, and in many
cases the defaulting obligor would have no assets with which to pay a judgment.
Certain other statutory provisions, including federal and state bankruptcy
and insolvency laws and general equitable principles, may limit or delay the
Company's ability to repossess and resell any Manufactured Home or enforce a
deficiency judgment.
Land Secured Contracts
76
<PAGE>
<PAGE>
General. The Land Secured Contract will, to the extent described under "The
Loan Pool," be secured by Mortgages on the property on which the related
Manufactured Homes are located. The Mortgages will either be mortgages or deeds
of trust, depending on the general real estate practice in the state in which
the Property is located. A mortgage creates a lien upon the real property
described in the mortgage. There are two parties to a mortgage: the mortgagor,
who is the borrower, and the mortgagee, who is the lender. The mortgagor
delivers to the mortgagee a note or bond evidencing the loan and the mortgage. A
deed of trust normally has three parties: the real property owner called the
trustor (similar to a mortgagor), a lender called the beneficiary (similar to
the mortgagee) and a third-party grantee called the trustee. Under a deed of
trust, the trustor grants the property, irrevocably until the debt is paid, "in
trust with power of sale" to the trustee to secure payment of the obligation.
Non-Recordation. Because of the expenses and administrative inconvenience
involved, the assignment of mortgages or deeds of trust to the Trustee will not
be recorded with respect to the Mortgages securing each Land Secured Contract.
The failure to record the assignments to the Trustee of the Mortgage securing
Land Secured Contracts may result in the sale of such Contracts or the Trustee's
rights in the land secured by the Mortgage being ineffective against creditors
of the Company or against a trustee in bankruptcy of the Company or against a
subsequent purchaser of such Contracts from the Company, without notice of the
sale to the Trustee.
Foreclosure. Foreclosure of a mortgage is generally accomplished by
judicial action. The action is initiated by the service of legal pleadings upon
all parties having an interest of record in the real property. Delays in
completion of the foreclosure occasionally may result from difficulties in
locating and serving necessary parties. Judicial foreclosure proceedings are
generally not contested by any of the parties due to the lack of the mortgagor's
equity in the property. However, when the mortgagee's right to foreclosure is
contested, the legal proceedings necessary to resolve the issue can be time
consuming and expensive. After the completion of a judicial foreclosure
proceeding, the court issues a judgment of foreclosure and a court officer
conducts the sale of the property.
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale under a specific provision in the deed of trust that authorizes
the trustee to sell the property to a third party upon any default by the
borrower under the terms of the note or deed of trust. In certain states, such
foreclosure also may be accomplished by judicial action in the manner provided
for foreclosure of mortgages.
In some states, the borrower-trustor has the right to reinstate the loan at
any time following default until shortly before the trustee's sale. In general,
the borrower, or any other person having a junior encumbrance on the real
estate, may, during a reinstatement period, cure the default by paying the
entire amount in arrears plus the costs and expenses incurred in enforcing the
obligation. Certain state laws control the amount of foreclosure expenses and
costs, including attorneys' fees, which may be recovered by a lender.
The sale must be conducted by public auction and must be held in the county
where all or some part of the property subject to the mortgage is located.
However, because of the difficulty a potential buyer at the sale would have in
determining the exact status of title and because the physical condition of the
property may have deteriorated during the foreclosure proceedings, it is not
common for a third party to purchase the property at the foreclosure sale.
Rather, the lender generally purchases the property for an amount equal to the
unpaid principal amount of the note, accrued and unpaid interest and the
expenses of foreclosure. Thereafter, subject to the right of the borrower in
some states to remain in possession during the redemption period, the lender
will assume the burdens of ownership, including obtaining hazard insurance and
making such repairs at its own expense as are necessary to render the property
suitable for sale. The lender commonly will obtain the services of a real estate
broker and pay the broker a commission in connection with the sale of the
property. Depending upon market conditions, the ultimate proceeds of the sale of
the property may not equal the lender's investment in the property.
Rights of Redemption. In some states, after a sale pursuant to a deed of
trust or a foreclosure of a mortgage, the borrower and certain foreclosed junior
lienors are given a statutory period in which to redeem the property from the
foreclosure sale. Redemption may occur upon payment of the entire principal
balance of the
77
<PAGE>
<PAGE>
loan, accrued statutory interest and expenses of foreclosure. The effect of a
right of redemption is to diminish the ability of the lender to sell the
foreclosed property. The exercise of a right of redemption would defeat the
title of any purchaser from the lender subsequent to foreclosure and before
expiration of the redemption period. Consequently, the practical effect of the
redemption right is to force the lender to maintain the property, and pay the
expenses of ownership until the redemption period has expired.
Anti-Deficiency Legislation and Other Limitations on Lenders. Certain
states have imposed statutory restrictions that limit the remedies of a
mortgagee under a mortgage relating to a single family residence. In some
states, statutes limit the right of the lender to obtain a deficiency judgment
against the borrower following foreclosure or sale under a deed of trust. A
deficiency judgment is a personal judgment against the borrower equal in most
cases to the difference between the amount due to the lender and the net amount
realized upon the foreclosure sale.
Some state statutes may require the lender to exhaust the security afforded
under a mortgage or deed of trust by foreclosure in an attempt to satisfy the
full debt before bringing a personal action against the borrower. In certain
other states, the lender has the option of bringing a personal action against
the borrower on the debt without first exhausting such security; however, in
some of these states, the lender, following judgment on such personal action,
may be deemed to have elected a remedy and may be precluded from exercising
remedies with respect to the security.
Other statutory provisions may limit any deficiency judgment against the
former borrower following a foreclosure sale to the excess of the outstanding
debt over the fair market value of the property at the time of such sale. The
purpose of these statutes is to prevent a beneficiary or a mortgagee from
obtaining a large deficiency judgment against the former borrower as a result of
low or no bids at the foreclosure sale.
In some states, exceptions to the anti-deficiency statutes are provided for
in certain instances where the value of the lender's security has been impaired
by acts or omissions of the borrower, for example, in the event of waste of the
property.
In addition to anti-deficiency and related legislation, numerous other
federal and state, statutory provisions, including the federal bankruptcy laws,
the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws
affording relief to debtors, may interfere with or affect the ability of a
secured mortgage lender to realize upon its security. A bankruptcy court may
grant the debtor a reasonable time to cure a payment default, and in the case of
a mortgage loan not secured by the debtor's principal residence, also may reduce
the monthly payments due under such mortgage loan, change the rate of interest
and alter the mortgage loan repayment schedule. Certain court decisions have
applied such relief to claims secured by, the debtor's principal residence.
The Code provides priority to certain tax liens over the lien of the
mortgage or deed of trust. The laws of some states provide priority to certain
tax liens over the lien of the mortgage or deed of trust. Numerous federal and
some state consumer protection laws impose substantive requirements upon
mortgage lenders in connection with the origination, servicing and enforcement
of mortgage loans. 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 and regulations.
These federal laws and state laws impose specific statutory liabilities upon
lenders who originate or service 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.
Consumer Protection Laws
The so-called "Holder-in-Due-Course" rule of the Federal Trade Commission
is intended to defeat the ability of the transferor of a consumer credit
contract which is the seller of goods which gave rise to the transaction (and
certain related lenders and assignees) to transfer such contract free of notice
of claims by the obligor thereunder. The effect of this rule is to subject the
assignee of such a contract to all claims and defenses which the obligor could
assert against the seller of goods. Liability under this rule is limited to
amounts paid under such a contract; however, the obligor also may be able to
assert the rule to set off remaining amounts due
78
<PAGE>
<PAGE>
as a defense against a claim brought by the assignee against such obligor.
Generally, this rule will apply to any Contracts conveyed to the Trustee and to
any claims made by the Servicer on behalf of the Trustee, as the assignee of the
Company. Numerous other federal and state consumer protection laws impose
requirements applicable to the origination and lending pursuant to such
Contracts, including the Truth in Lending Act, the Federal Trade Commission Act,
the Fair Credit Billing Act, the Fair Credit Reporting Act, the Equal Credit
Opportunity Act, the Fair Debt Collection Practices Act and the Uniform Consumer
Credit Code. In the case of some of these laws, the failure to comply with their
provisions may affect the enforceability of the related Contract or create
liability for the Trust.
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), if so required by a obligor under a manufactured
housing contract who enters military service after the origination of such
obligor's contract (including a obligor who is a member of the National Guard or
is in reserve status at the time of the origination of the contract and is later
called to active duty), such obligor may not be charged interest above an annual
rate of 6% during the period of such obligor's active duty status, unless a
court orders otherwise upon application of the lender. In addition, the Relief
Act imposes limitations which would impair the ability of any lender to
foreclose on an affected contract during the obligor's period of active duty
status. It is possible that application of the Relief Act to certain of the
Contracts could have an effect, for an indeterminate period of time, on the
ability of the Servicer to collect full amounts of interest or foreclose on such
Contracts and to the extent not covered by a Credit Facility, could result in
delays in payment or losses to the holders of the related Certificates. The
Company will not make any representation or warranty as to whether any Contract
is or could become subject to the Relief Act.
Transfers of Manufactured Homes; Enforceability of Restrictions on Transfer
The Contracts comprising any Loan Pool generally will prohibit the sale or
transfer of the related Manufactured Homes without the consent of the Obligee
and permit the acceleration of the maturity of the Contracts by the Obligee upon
any such sale or transfer that is not consented to. Under the Pooling and
Servicing Agreement, the Servicer may be required to consent to any such
transfer and to permit the assumption of the related Contract if the proposed
buyer meets the Servicer's underwriting standards and enters into an assumption
agreement, the Servicer determines that permitting such assumption will not
materially increase the risk of nonpayment of the Contract and such action will
not adversely affect or jeopardize any coverage under any insurance policy
required by the Agreement. If the Servicer determines that these conditions have
not been fulfilled, then it may be required to withhold its consent to the
transfer, but only to the extent permitted under the Contract and applicable law
and governmental regulations and only to the extent that such action will not
adversely affect or jeopardize any coverage under any insurance policy required
by the Agreement. In certain cases, a delinquent Obligor may attempt to transfer
a Manufactured Home in order to avoid a repossession proceeding with respect to
such Manufactured Home.
In the case of a transfer of a Manufactured Home after which the Obligee
desires to accelerate the maturity of the related Contract, the Obligee's
ability to do so will depend on the enforceability under state law of the clause
permitting acceleration on transfer. The Garn-St. Germain Depositary
Institutions Act of 1982 preempts, subject to certain exceptions and conditions,
state laws prohibiting enforcement of such clauses applicable to Manufactured
Homes. To the extent such exceptions and conditions apply in some states, the
Servicer may be prohibited from enforcing such a clause in respect of certain
Manufactured Homes.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary Controls
Act of 1980, as amended ("Title V"), provides that, subject to the following
conditions, state usury limitations shall not apply to any loan which is secured
by a first lien on certain kinds of manufactured housing. The Contracts would be
covered under Title V if, among other things, they satisfy certain conditions
governing the terms of any prepayments, late charges and deferral fees and
requiring a 30-day notice period prior to instituting any action leading to
repossession of the related unit.
79
<PAGE>
<PAGE>
Title V authorized any state to reimpose limitations on interest rates and
finance charges by adopting before April 1, 1983 a law or constitutional
provision which expressly rejects application of the federal law. Fifteen states
adopted such a law prior to the April 1, 1983 deadline. In addition, even where
Title V was not so rejected, any state is authorized by the law to adopt a
provision limiting discount points or other charges on loans covered by Title V.
Upon the conveyance of each Contract to the Trust, Receivables Corp. will
represent that such Contract complied with applicable usury laws.
FEDERAL INCOME TAX CONSIDERATIONS
General
The following is a general discussion of the material anticipated federal
income tax considerations to investors of the purchase, ownership and
disposition of the Securities offered hereby. Dewey Ballantine, counsel to the
Company, has issued its approving opinion of the matters discussed herein. The
discussion is based upon laws, regulations, rulings and decisions now in effect,
all of which are subject to change. The discussion below does not purport to
deal with all federal tax considerations applicable to all categories of
investors, some of which may be subject to special rules. Investors should
consult their own tax advisors in determining the federal, state, local and any
other tax consequences to them of the purchase, ownership and disposition of the
Securities.
The following discussion addresses securities of three general types: (i)
securities ("Grantor Trust Securities") representing interests in a Trust (a
"Grantor Trust") which the Company will covenant not to elect to have treated as
a real estate mortgage investment conduit (a "REMIC"); (ii) securities ("REMIC
Securities") representing interests in a Trust, or a portion thereof, which the
Company will covenant to elect to have treated as a REMIC under Sections 860A
through 860G of the Internal Revenue Code of 1986, as amended (the "Code"); and
(iii) securities ("Debt Securities") that are intended to be treated for federal
income tax purposes as indebtedness secured by the underlying Loans. This
Prospectus does not address the tax treatment of partnership interests. Such a
discussion will be set forth in the related Prospectus Supplement for any Trust
issuing Securities characterized as partnership interests. The Prospectus
Supplement for each series of Securities will indicate whether a REMIC election
(or elections) will be made for the related Trust and, if a REMIC election is to
be made, will identify all "regular interests" and "residual interests" in the
REMIC. For purposes of this discussion, references to a "Securityholder" or a
"Holder" are to the beneficial owner of a Security.
Grantor Trust Securities
With respect to each series of Grantor Trust Securities, Dewey Ballantine,
special tax counsel to the Company, will deliver its opinion to the Company that
the related Grantor Trust will be classified as a grantor trust and not as a
partnership or an association taxable as a corporation. Accordingly, each Holder
of a Grantor Trust Security will generally be treated as the owner of an
interest in the Loans included in the Grantor Trust.
For purposes of the following discussion, a Grantor Trust Security
representing an undivided equitable ownership interest in the principal of the
Loans constituting the related Grantor Trust, together with interest thereon at
a pass-through rate, will be referred to as a "Grantor Trust Fractional Interest
Security." A Grantor Trust Security representing ownership of all or a portion
of the difference between interest paid on the Loans constituting the related
Grantor Trust and interest paid to the Holders of Grantor Trust Fractional
Interest Securities issued with respect to such Grantor Trust will be referred
to as a "Grantor Trust Strip Security."
Special Tax Attributes
Dewey Ballantine, special tax counsel to the Company, will deliver its
opinion to the Company that (a) Grantor Trust Fractional Interest Securities
will represent interests in (i) "qualifying real property loans" within the
meaning of Section 593(d) of the Code; (ii) "loans . . . secured by an interest
in real property" within the meaning of Section 7701(a)(19)(C)(v) of the Code;
and (iii) "obligation[s] (including any participation or certificate of
beneficial ownership therein) which . . . [are] principally secured by an
interest in real property"
80
<PAGE>
<PAGE>
within the meaning of Section 860G(a)(3)(A) of the Code; and (b) interest on
Grantor Trust Fractional Interest Securities will be considered "interest on
obligations secured by mortgages on real property or on interests in real
property" within the meaning of Section 856(c)(3)(B) of the Code. In addition,
the Grantor Trust Strip Securities will be "obligation[s] (including any
participation or certificate of beneficial ownership therein) . . . principally
secured by an interest in real property" within the meaning of Section
860G(a)(3)(A) of the Code.
Taxation of Holders of Grantor Trust Securities
Holders of Grantor Trust Fractional Interest Securities generally will be
required to report on their federal income tax returns their respective shares
of the income from the Loans (including amounts used to pay reasonable servicing
fees and other expenses but excluding amounts payable to Holders of any
corresponding Grantor Trust Strip Securities) and, subject to the limitations
described below, will be entitled to deduct their shares of any such reasonable
servicing fees and other expenses. If a Holder acquires a Grantor Trust
Fractional Interest Security for an amount that differs from its outstanding
principal amount, the amount includible in income on a Grantor Trust Fractional
Interest Security may differ from the amount of interest distributable thereon.
See "--Discount and Premium." Individuals holding a Grantor Trust Fractional
Interest Security directly or through certain pass-through entities will be
allowed a deduction for such reasonable servicing fees and expense only to the
extent that the aggregate of such Holder's miscellaneous itemized deductions
exceeds 2% of such Holder's adjusted gross income. Further, Holders (other than
corporations) subject to the alternative minimum tax may not deduct
miscellaneous itemized deductions in determining alternative minimum taxable
income.
Holders of Grantor Trust Strip Securities generally will be required to
treat such Securities as "stripped coupons" under Section 1286 of the Code.
Accordingly, such a Holder will be required to treat the excess of the total
amount of payments on such a Security over the amount paid for such Security as
original issue discount and to include such discount in income as it accrues
over the life of such Security. See "--Discount and Premium."
Grantor Trust Fractional Interest Securities may also be subject to the
coupon stripping rules if a class of Grantor Trust Strip Securities is issued as
part of the same series of Securities. The consequences of the application of
the coupon stripping rules would appear to be that any discount arising upon the
purchase of such a Security (and perhaps all stated interest thereon) would be
classified as original issue discount and includible in the Holder's income as
it accrues (regardless of the Holder's method of accounting), as described below
under "--Discount and Premium." The coupon stripping rules will not apply,
however, if (i) the pass-through rate is no more than 100 basis points lower
than the gross rate of interest payable on the underlying Loans and (ii) the
difference between the outstanding principal balance on the Security and the
amount paid for such Security is less than 0.25% of such principal balance times
the weighted average remaining maturity of the Security.
Sales of Grantor Trust Securities
Any gain or loss recognized on the sale of a Grantor Trust Security (equal
to the difference between the amount realized on the sale and the adjusted basis
of such Grantor Trust Security) will be capital gain or loss, except to the
extent of accrued and unrecognized market discount, which will be treated as
ordinary income, and in the case of banks and other financial institutions
except as provided under Section 582(c) of the Code. The adjusted basis of a
Grantor Trust Security will generally equal its cost, increased by any income
reported by the seller (including original issue discount and market discount
income) and reduced (but not below zero) by any previously reported losses, any
amortized premium and by any distributions of principal.
Grantor Trust Reporting
The Trustee will furnish to each Holder of a Grantor Trust Fractional
Interest Security with each distribution a statement setting forth the amount of
such distribution allocable to principal on the underlying Loans and to interest
thereon at the rate at which interest is payable on such Security. In addition,
within a reasonable time after the end of each calendar year, based on
information provided by the Servicer, the Trustee
81
<PAGE>
<PAGE>
will furnish to each Holder during such year such customary factual information
as the Servicer deems necessary or desirable to enable Holders of Grantor Trust
Securities to prepare their tax returns and will furnish comparable information
to the Internal Revenue Service (the "IRS") as and when required to do so by
law.
REMIC Securities
If provided in a related Prospectus Supplement, an election will be made to
treat a Trust as one or more REMICs under the Code. Qualification as a REMIC
requires ongoing compliance with certain conditions. With respect to each series
of Securities for which such an election is made, Dewey Ballantine, special tax
counsel to the Company, will deliver its opinion to the Company that, assuming
compliance with the Agreement, the Trust will be treated as a REMIC for federal
income tax purposes. A Trust for which a REMIC election is made will be referred
to herein as a "REMIC Trust." The Securities of each class will be designated as
"regular interests" in the REMIC Trust except that a separate class will be
designated as the "residual interest" in the REMIC Trust. The Prospectus
Supplement for each series of Securities will state whether Securities of each
class will constitute a regular interest (a "REMIC Regular Security") or a
residual interest (a "REMIC Residual Security").
A REMIC Trust will not be subject to federal income tax except with respect
to income from prohibited transactions and in certain other instances described
below. See "--Taxes on a REMIC Trust." Generally, the total income from the
Loans in a REMIC Trust will be taxable to the Holders of the Securities of that
series, as described below.
Regulations issued by the Treasury Department on December 23, 1992 (the
"REMIC Regulations") provide some guidance regarding the federal income tax
consequences associated with the purchase, ownership and disposition of REMIC
Securities. While certain material provisions of the REMIC Regulations are
discussed below, investors should consult their own tax advisors regarding the
possible application of the REMIC Regulations in their specific circumstances.
Special Tax Attributes
REMIC Regular Securities and REMIC Residual Securities will be "regular or
residual interests in a REMIC" within the meaning of Section 7701(a)(19)(C)(xi)
of the Code, "qualifying real property loans" within the meaning of Section
593(d) of the Code and "real estate assets" within the meaning of Section
856(c)(5)(A) of the Code. If at any time during a calendar year less than 95% of
the assets of a REMIC Trust consist of "qualified mortgages" (within the meaning
of Section 860G(a)(3) of the Code) then the portion of the REMIC Regular
Securities and REMIC Residual Securities that are qualifying assets under those
Sections during such calendar year may be limited to the portion of the assets
of such REMIC Trust that are qualified mortgages. Similarly, income on the REMIC
Regular Securities and REMIC Residual Securities will be treated as "interest on
obligations secured by mortgages on real property" within the meaning of Section
856(c)(3)(B) of the Code, subject to the same limitation as set forth in the
preceding sentence. For purposes of applying this limitation, a REMIC Trust
should be treated as owning the assets represented by the qualified mortgages.
REMIC Regular Securities and REMIC Residual securities held by a financial
institution to which Section 585, 586 or 593 of the Code applies will be treated
as evidences of indebtedness for purposes of Section 582(c)(1) of the Code.
REMIC Regular Securities will also be qualified mortgages with respect to other
REMICs.
Taxation of Holders of REMIC Regular Securities
Except as indicated below in this federal income tax discussion, the REMIC
Regular Securities will be treated for federal income tax purposes as debt
instruments issued by the REMIC Trust on the date such Securities are first sold
to the public (the "Closing Date") and not as ownership interests in the REMIC
Trust or its assets. Holders of REMIC Regular Securities that otherwise report
income under a cash method of accounting will be required to report income with
respect to such Securities under an accrual method. For additional tax
consequences relating to REMIC Regular Securities purchased at a discount or
with premium, see "-Discount and Premium," below.
82
<PAGE>
<PAGE>
Taxation of Holders of REMIC Residual Securities
Daily Portions. Except as indicated below, a Holder of a REMIC Residual
Security for a REMIC Trust generally will be required to report its daily
portion of the taxable income or net loss of the REMIC Trust for each day during
a calendar quarter that the Holder owned such REMIC Residual Security. For this
purpose, the daily portion shall be determined by allocating to each day in the
calendar quarter its ratable portion of the taxable income or net loss of the
REMIC Trust for such quarter and by allocating the amount so allocated among the
Holders of REMIC Residual Securities (on such day) in accordance with their
percentage interests on such day. Any amount included in the gross income or
allowed as a loss of any Holder of a REMIC Residual Security by virtue of this
paragraph will be treated as ordinary income or loss.
The requirement that each Holder of a REMIC Residual Security report its
daily portion of the taxable income or net loss of the REMIC Trust will continue
until there are no Securities of any class outstanding, even though the Holder
of the REMIC Residual Security may have received full payment of the stated
interest and principal on its REMIC Residual Security.
The Trustee will provide to Holders of REMIC Residual Securities of each
series of Securities (i) such information as is necessary to enable them to
prepare their federal income tax returns and (ii) any reports regarding the
Securities of such series that may be required under the Code.
Taxable Income or Net Loss of a REMIC Trust. The taxable income or net loss
of a REMIC Trust will be the income from the qualified mortgages it holds and
any reinvestment earnings less deductions allowed to the REMIC Trust. Such
taxable income or net loss for a given calendar quarter will be determined in
the same manner as for an individual having the calendar year as the taxable
year and using the accrual method of accounting, with certain modifications.
First, a deduction will be allowed for accruals of interest (including any
original issue discount, but without regard to the investment interest
limitation in Section 163(d) of the Code) on the REMIC Regular Securities (but
not the REMIC Residual securities), even though REMIC Regular Securities are for
non-tax purposes evidences of beneficial ownership rather than indebtedness of a
REMIC Trust. Second, market discount or premium equal to the difference between
the total stated principal balances of the qualified mortgages and the basis of
the REMIC Trust therein generally will be included in income (in the case of
discount) or deductible (in the case of premium) by the REMIC Trust as it
accrues under a constant yield method, taking into account the "Prepayment
Assumption" (as defined in the related Prospectus Supplement, see "--Discount
and Premium--Original Issue Discount," below). The basis of a REMIC Trust in the
qualified mortgages is the aggregate of the issue prices of all the REMIC
Regular Securities and REMIC Residual Securities in the REMIC Trust on the
related Closing Date. If, however, a substantial amount of a class of REMIC
Regular Securities or REMIC Residual Securities has not been sold to the public,
then the fair market value of all the REMIC Regular Securities or REMIC Residual
Securities in that class as of the related Closing Date should be substituted
for the issue price.
Third, no item of income, gain, loss or deduction allocable to a prohibited
transaction (see "-Taxes on a REMIC Trust-- Prohibited Transactions") will be
taken into account. Fourth, a REMIC Trust generally may not deduct any item that
would not be allowed in calculating the taxable income of a partnership by
virtue of Section 703(a)(2) of the Code. Finally, the limitation on
miscellaneous itemized deductions imposed on individuals by Section 67 of the
Code will not be applied at the REMIC Trust level to any servicing and guaranty
fees (See, however, "--Pass-Through of Servicing and Guaranty fees to
Individuals.") In addition, under the REMIC Regulations, any expenses that are
incurred in connection with the formation of a REMIC Trust and the issuance of
the REMIC Regular Securities and REMIC Residual Securities are not treated as
expenses of the REMIC Trust for which a deduction is allowed. If the deductions
allowed to a REMIC Trust exceed its gross income for a calendar quarter, such
excess will be a net loss for the REMIC Trust for that calendar quarter. The
REMIC Regulations also provide that any gain or loss to a REMIC Trust from the
disposition of any asset, including a qualified mortgage or "permitted
investment" (as defined in Section 860G(a)(5) of the Code) will be treated as
ordinary gain or loss.
83
<PAGE>
<PAGE>
A Holder of a REMIC Residual Security may be required to recognize taxable
income without being entitled to receive a corresponding amount of cash. This
could occur, for example, if the qualified mortgages are considered to be
purchased by the REMIC Trust at a discount, some or all of the REMIC Regular
Securities are issued at a discount, and the discount included as a result of a
prepayment on a Loan that is used to pay principal on the REMIC Regular
Securities exceeds the REMIC Trust's deduction for unaccrued original issue
discount relating to such REMIC Regular Securities. Taxable income may also be
greater in earlier years because interest expense deductions, expressed as a
percentage of the outstanding principal amount of the REMIC Regular Securities,
may increase over time as the earlier classes of REMIC Regular Securities are
paid, whereas interest income with respect to any given Loan expressed as a
percentage of the outstanding principal amount of that Loan, will remain
constant over time.
Basis Rules and Distributions. A Holder of a REMIC Residual security has an
initial basis in its Security equal to the amount paid for such REMIC Residual
Security. Such basis is increased by amounts included in the income of the
Holder and decreased by distributions and by any net loss taken into account
with respect to such REMIC Residual Security. A distribution on a REMIC Residual
Security to a Holder is not included in gross income to the extent it does not
exceed such Holder's basis in the REMIC Residual Security (adjusted as described
above) and, to the extent it exceeds the adjusted basis of the REMIC Residual
Security, shall be treated as gain from the sale of the REMIC Residual Security.
A Holder of a REMIC Residual Security is not allowed to take into account
any net loss for any calendar quarter to the extent such net loss exceeds such
Holder's adjusted basis in its REMIC Residual Security as of the close of such
calendar quarter (determined without regard to such net loss). Any loss
disallowed by reason of this limitation may be carried forward indefinitely to
future calendar quarters and, subject to the same limitation, may be used only
to offset income from the REMIC Residual Security.
Excess Inclusions. Any "excess inclusions" with respect to a REMIC Residual
Security are subject to certain special tax rules. With respect to a Holder of a
REMIC Residual Security, the "excess inclusions" for any calendar quarter is
defined as the excess (if any) of the daily portions of taxable income over the
sum of the "daily accruals" for each day during such quarter that such REMIC
Residual Security was held by such Holder. The "daily accruals" are determined
by allocating to each day during a calendar quarter its ratable portion of the
product of the "adjusted issue price" of the REMIC Residual Security at the
beginning of the calendar quarter and 120% of the "federal long-term rate" in
effect on the Settlement Date, based on quarterly compounding and properly
adjusted for the length of such quarter. For this purpose, the "adjusted issue
price" of a REMIC Residual Security as of the beginning of any calendar quarter
is equal to the "issue price" of the REMIC Residual Security, increased by the
amount of daily accruals for all prior quarters and decreased by any
distributions made with respect to such REMIC Residual Security before the
beginning of such quarter. The "issue price" of a REMIC Residual Security is the
initial offering price to the public (excluding bond houses and brokers) at
which a substantial number of the REMIC Residual Security was sold. The "federal
long-term rate" is a blend of current yields on Treasury securities having a
maturity of more than nine years, computed and published monthly by the IRS.
For Holders of REMIC Residual Securities that are thrift institutions
described in Section 593 of the Code, income from a REMIC Residual Security
generally may be offset by losses from other activities. Under the REMIC
Regulations, such an organization is treated as having applied its allowable
deductions for the year first to offset income that is not an excess inclusion
and then to offset that portion of its income that is an excess inclusion. For
other Holders of REMIC Residual Securities, any excess inclusions cannot be
offset by losses from other activities. For Holders that are subject to tax only
on unrelated business taxable income (as defined in Section 511 of the Code), an
excess inclusion of such Holder is treated as unrelated business taxable income.
With respect to variable contracts (within the meaning of Section 817 of the
Code), a life insurance company cannot adjust its reserve to the extent of any
excess inclusion, except as provided in regulations. The REMIC Regulations
indicate that if a Holder of a REMIC Residual Security is a member of an
affiliated group filing a consolidated income tax return, the taxable income of
the affiliated group cannot be less than the sum of the excess inclusions
attributable to all residual interests in REMICS held by members of the
affiliated group. For
84
<PAGE>
<PAGE>
a discussion of the effect of excess inclusions on certain foreign investors
that own REMIC Residual Securities, see "--Foreign Investors" below.
The REMIC Regulations provide that an organization to which Section 593 of
the Code applies and which is the Holder of a REMIC Residual Security may not
use its allowable deductions to offset any excess inclusions with respect to
such Security if such Security does not have "significant value." For this
purpose, a REMIC Residual Security has "significant value" under the REMIC
Regulations if (i) its issue price is at least 2% of the aggregate of the issue
prices of all the REMIC Regular Securities and REMIC Residual Securities in that
REMIC Trust and (ii) its "anticipated weighted average life" is at least 20% of
the anticipated weighted average life of such REMIC Trust.
In determining whether a REMIC Residual Security has significant value, the
"anticipated weighted average life" of such Security is based in part on the
Prepayment Assumption, except that all anticipated payments on such Security are
taken into account, regardless to their designation as principal or interest.
The anticipated weighted average life of a REMIC Trust is the weighted average
of the anticipated weighted average lives of the Securities.
The Treasury Department also has the authority to issue regulations that
would treat all taxable income of a REMIC Trust as excess inclusions if the
REMIC Residual Security does not have significant value. Although the Treasury
Department did not exercise this authority in the REMIC Regulations, future
regulations may contain such a rule. If such a rule were adopted, it is unclear
whether the test for significant value that is contained in the REMIC
Regulations and discussed in the two preceding paragraphs would be applicable.
If no such rule is applicable, excess inclusions would be calculated as
discussed above.
In the case of any REMIC Residual Securities that are held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Securities reduced (but not below zero) by the real estate investment
trust taxable income (within the meaning of Section 857(b)(2) of the Code,
excluding any net capital gain) will be allocated among the shareholders of such
trust in proportion to the dividends received by such shareholders from such
trust, and any amount so allocated will be treated as an excess inclusion with
respect to a REMIC Residual Security as if held directly by such shareholder.
Similar rules will apply in the case of regulated investment companies, common
trust funds and certain cooperatives that hold a REMIC Residual Security.
Pass-Through of Servicing and Guaranty Fees to Individuals. A Holder of a
REMIC Residual Security who is an individual will be required to include in
income a share of any servicing and guaranty fees. A deduction for such fees
will be allowed to such Holder only to the extent that such fees, along with
certain of such Holder's other miscellaneous itemized deductions exceed 2% of
such Holder's adjusted gross income. In addition, a Holder of a REMIC Residual
Security may not be able to deduct any portion of such fees in computing such
Holder's alternative minimum tax liability. A Holder's share of such fees will
generally be determined by (i) allocating the amount of such expenses for each
calendar quarter on a pro rata basis to each day in the calendar quarter, and
(ii) allocating the daily amount among the Holders in proportion to their
respective holdings on such day.
Taxes on a REMIC Trust
Prohibited Transactions. The Code imposes a tax on a REMIC equal to 100% of
the net income derived from "prohibited transactions." In general, a "prohibited
transaction" means the disposition of a qualified mortgage other than pursuant
to certain specified exceptions, the receipt of investment income from a source
other than a qualified mortgage or certain other permitted investments, the
receipt of compensation for services, or the disposition of an asset purchased
for temporary investment with payments on qualified mortgages pending
distributions on the regular and residual interests.
Contributions to a REMIC after the Startup Day. The Code imposes a tax on a
REMIC equal to 100% of the value of any property contributed to the REMIC after
the "startup day" (generally the same as the related
85
<PAGE>
<PAGE>
Closing Date). Exceptions are provided for contributions to a REMIC (i) during
the three-month period beginning on the startup day, (ii) made to a qualified
reserve fund by a Holder of a residual interest, (iii) in the nature of a
guarantee, (iv) made to facilitate a qualified liquidation or clean-up call, and
(v) as otherwise permitted by Treasury regulations.
Net Income from Foreclosure Property. The Code imposes a tax on a REMIC
equal to the highest corporate rate on "net income from foreclosure property."
The terms "foreclosure property" (which includes property acquired by deed in
lieu of foreclosure) and "net income from foreclosure property" are defined by
reference to the rules applicable to real estate investment trusts. Generally,
foreclosure property would be treated as such for a period of two years, with
possible extensions. Net income from foreclosure property generally means gain
from the sale of foreclosure property that is inventory property and gross
income from foreclosure property other than qualifying rents and other
qualifying income for a real estate investment trust.
Sales of REMIC Securities
General. Except as provided below, if a REMIC Regular or Residual Security
is sold, the seller will recognize gain or loss equal to the difference between
the amount realized on the sale and its "adjusted basis" in the Security. The
"adjusted basis" of a REMIC Regular Security generally will equal the cost of
such Security to the seller, increased by any original issue discount or market
discount included in the seller's gross income with respect to such Security and
reduced by distribution on such Security previously received by the seller of
amounts included in the stated redemption price at maturity and by any premium
that has reduced the seller's interest income with respect to such Security. See
"--Discount and Premium." The adjusted basis of a REMIC Residual Security is
determined as described above under "--Taxation of Holder of REMIC Residual
Securities-Basis Rules and Distributions". Except as provided in the following
paragraphs or under Section 582(c) of the Code, any such gain or loss will be
capital gain or loss, provided such Security is held as a "capital asset"
(generally, property held for investment) within the meaning of Section 1221 of
the Code.
Gains from the sale of a REMIC Regular Security that might otherwise be
capital gain will be treated as ordinary income to the extent that such gain
does not exceed the excess, if any, of (i) the amount that would have been
includible in the income of the Holder of a REMIC Regular Security had income
accrued at a rate equal to 110% of the "applicable federal rate" (generally, an
average of current yields on Treasury securities) as of the date of purchase
over (ii) the amount actually includible in such Holder's income. In addition,
gain recognized on such a sale by a Holder of a REMIC Regular Security who
purchased such a Security at a market discount would also be taxable as ordinary
income in an amount not exceeding the portion of such discount that accrued
during the period such Security was held by such Holder, reduced by any market
discount includible in income under the rules described below under "--Discount
and Premium."
If a Holder of a REMIC Residual Security sells such Security at a loss, the
loss will not be recognized if, within six months before or after the sale of
the REMIC Residual Security, such Holder purchases another residual interest in
any REMIC or any interest in a taxable mortgage pool (as defined in Section
7701(i) of the Code) comparable to a residual interest in a REMIC. Such
disallowed loss would be allowed upon the sale of the other residual interest
(or comparable interest) if the rule referred to in the preceding sentence does
not apply to that sale. While this rule may be modified by Treasury regulations,
to date such regulations have not been published.
Transfer of REMIC Residual Securities. Section 860E(c) of the Code imposes
a substantial tax, payable by the transferor (or, if a transfer is through a
broker, nominee or other middleman as the transferee's agent, payable by that
agent) upon any transfer of a REMIC Residual Security to a "disqualified
organization" and upon a pass-through entity (including regulated investment
companies, real estate investment trusts, common trust funds, partnerships,
trusts, estates, certain cooperatives, and nominees) that owns a REMIC Residual
Security if such pass-through entity has a disqualified organization as a
record-holder. For purposes of the preceding sentence, a transfer includes any
transfer of record or beneficial ownership, whether pursuant to a purchase, a
default under a secured lending agreement or otherwise.
86
<PAGE>
<PAGE>
The term "disqualified organization" includes the United States, any state
or political subdivision thereof, any foreign government, any international
organization, or any agency or instrumentality of the foregoing (other than
certain taxable instrumentalities), any cooperative organization furnishing
electric energy or providing telephone service to persons in rural areas, or any
organization (other than a farmers' cooperative) that is exempt from federal
income tax, unless such organization is subject to the tax on unrelated business
income. Moreover, an entity will not qualify as a REMIC unless there are
reasonable arrangements designed to ensure that (i) residual interests in such
entity are not held by disqualified organizations and (ii) information necessary
for the application of the tax described herein will be made available.
Restrictions on the transfer of a REMIC Residual Security and certain other
provisions that are intended to meet this requirement are described in the
related Pooling and Servicing Agreement, and will be discussed more fully in the
related Prospectus Supplement relating to the offering of any REMIC Residual
Security. In addition, a pass-through entity (including a nominee) that holds a
REMIC Residual Security may be subject to additional taxes if a disqualified
organization is a record-holder therein. A transferor of a REMIC Residual
Security (or an agent of a transferee of a REMIC Residual Security, as the case
may be) will be relieved of such tax liability with respect to a transfer if (i)
the transferee furnishes to the transferor an affidavit that the transferee is
not a disqualified organization, and (ii) the transferor (or the transferee's
agent) does not have actual knowledge that the affidavit is false at the time of
the transfer. Similarly, no such tax will be imposed on a pass-through entity
for a period with respect to an interest therein owned by a disqualified
organization if (i) the record-holder of such interest furnishes to the
pass-through entity an affidavit that it is not a disqualified organization, and
(ii) during such period, the pass-through entity has no actual knowledge that
the affidavit is false.
Under the REMIC Regulations, a transfer of a "noneconomic residual
interest" to a U.S. Person (as defined below under "-- Foreign
Investors--Grantor Trust Securities and REMIC Regular Securities") will be
disregarded for all federal tax purposes unless no significant purpose of the
transfer is to impede the assessment or collection of tax. A REMIC Residual
Security would be treated as constituting a "noneconomic residual interest"
unless, at the time of the transfer, (i) the present value of the expected
future distributions on the REMIC Residual Securities is no less than the
product of the present value of the "anticipated excess inclusions" with respect
to such Security and the highest corporate rate of tax for the year in which the
transfer occurs, and (ii) the transferor reasonably expects that the transferee
will receive distributions from the applicable REMIC Trust in an amount
sufficient to satisfy the liability for income tax on any excess inclusions at
or after the time when such liability accrues. "Anticipated excess inclusions"
are the excess inclusions that are anticipated to be allocated to each calendar
quarter (or portion thereof) following the transfer of a REMIC Residual
Security, determined as of the date such Security is transferred and based on
events that have occurred as of that date and on the Prepayment Assumption. See
"-- Discount and Premium" and "--Taxation of Holders of REMIC Residual
Securities--Excess Inclusions".
The REMIC Regulations provide that a significant purpose to impede the
assessment or collection of tax exists if, at the time of the transfer, a
transferor of a REMIC Residual Security has "improper knowledge" (i.e., either
knew, or should have known, that the transferee would be unwilling or unable to
pay taxes due on its share of the taxable income of the REMIC Trust). A
transferor is presumed not to have improper knowledge if (i) the transferor
conducts, at the time of a transfer, a reasonable investigation of the financial
condition of the transferee and, as a result of the investigation, the
transferor finds that the transferee has historically paid its debts as they
come due and finds no significant evidence to indicate that the transferee will
not continue to pay its debts as they come due in the future, and (ii) the
transferee makes certain representations to the transferor in the affidavit
relating to disqualified organizations discussed above. Transferors of a REMIC
Residual Security should consult with their own tax advisors for further
information regarding such transfers.
Reporting and Other Administrative Matters.
For purposes of the administrative provisions of the Code, each REMIC Trust
will be treated as a partnership and the Holders of REMIC Residual Securities
will be treated as partners. The Trustee will prepare, sign and file federal
income tax returns for each REMIC Trust, which returns are subject to audit by
the IRS. Moreover, within a reasonable time after the end of each calendar year,
the Trustee will furnish to each Holder that received a distribution during such
year a statement setting forth the portions of any such distributions
87
<PAGE>
<PAGE>
that constitute interest distributions, original issue discount, and such other
information as is required by Treasury regulations and, with respect to Holders
of REMIC Residual Securities in a REMIC Trust, information necessary to compute
the daily portions of the taxable income (or net loss) of such REMIC Trust for
each day during such year. The Trustee will also act as the tax matters
partner for each REMIC Trust, either in its capacity as a Holder of a REMIC
Residual Security or in a fiduciary capacity. Each Holder of a REMIC Residual
Security, by the acceptance of its REMIC Residual Security, agrees that the
Trustee will act as its fiduciary in the performance of any duties required of
it in the event that it is the tax matters partner.
Each Holder of a REMIC Residual Security is required to treat items on its
return consistently with the treatment on the return of the REMIC Trust, unless
the Holder either files a statement identifying the inconsistency or establishes
that the inconsistency resulted from incorrect information received from the
REMIC Trust. The IRS may assert a deficiency resulting from a failure to comply
with the consistency requirement without instituting an administrative
proceeding at the REMIC Trust level. The Trustee does not intend to register
any REMIC Trust as a tax shelter pursuant to Section 6111 of the Code.
Termination
In general, no special tax consequences will apply to a Holder of a REMIC
Regular Security upon the termination of a REMIC Trust by virtue of the final
payment or liquidation of the last of the Loans remaining in the Trust. If a
Holder's adjusted basis in its REMIC Residual Security at the time such
termination occurs exceeds the amount of cash distributed to such Holder in
liquidation of its interest, although the matter is not entirely free from
doubt, it would appear that the Holder of the REMIC Residual Security is
entitled to a loss equal to the amount of such excess.
Debt Securities
General
With respect to each series of Debt Securities, Dewey Ballantine, special
tax counsel to the Company, will deliver its opinion to the Company that the
Securities will be classified as debt of the Company secured by the related
Loans. Consequently, the Debt Securities will not be treated as ownership
interests in the Loans or the Trust. Holders will be required to report income
received with respect to the Debt Securities in accordance with their normal
method of accounting. For additional tax consequences relating to Debt
Securities purchased at a discount or with premium, see "-- Discount and
Premium," below.
Special Tax Attributes
As described above, Grantor Trust Securities will possess certain special
tax attributes by virtue of their being ownership interests in the underlying
Loans. Similarly, REMIC Securities will possess similar attributes by virtue of
the REMIC provisions of the Code. In general, Debt Securities will not possess
such special tax attributes. Investors to whom such attributes are important
should consult their own tax advisors regarding investment in Debt Securities.
Sale or Exchange
If a Holder of a Debt Security sells or exchanges such Security, the Holder
will recognize gain or loss equal to the difference, if any, between the amount
received and the Holder's adjusted basis in the Security. The adjusted basis in
the Security generally will equal its initial cost, increased by any original
issue discount or market discount previously included in the seller's gross
income with respect to the Security and reduced by the payments previously
received on the Security, other than payments of qualified stated interest, and
by any amortized premium.
In general (except as described under "-Discount and Premium-- Market
Discount," below), except for certain financial institutions subject to Section
582(c) of the Code, any gain or loss on the sale or exchange of
88
<PAGE>
<PAGE>
a Debt Security recognized by a Holder who holds the Security as a capital asset
(within the meaning of Section 1221 of the Code), will be capital gain or loss
and will be long-term or short-term depending on whether the Security has been
held for more than one year.
Discount and Premium
A Security purchased for an amount other than its outstanding principal
amount will be subject to the rules governing original issue discount, market
discount or premium. In addition, all Grantor Trust Strip Securities and certain
Grantor Trust Fractional Interest Securities will be treated as having original
issue discount by virtue of the coupon stripping rules in Section 1286 of the
Code. In very general terms, (i) original issue discount is treated as a form of
interest and must be included in a Holder's income as it accrues (regardless of
the Holder's regular method of accounting) using a constant yield method; (ii)
market discount is treated as ordinary income and must be included in a Holder's
income as principal payments are made on the Security (or upon a sale of a
Security); and (iii) if a Holder so elects, premium may be amortized over the
life of the Security and offset against inclusions of interest income. These tax
consequences are discussed in greater detail below.
Original Issue Discount
In general, a Security will be considered to be issued with original issue
discount equal to the excess, if any, of its "stated redemption price at
maturity" over its "issue price." The "issue price" of a Security is the initial
offering price to the public (excluding bond houses and brokers) at which a
substantial number of the Securities was sold. The issue price also includes any
accrued interest attributable to the period between the beginning of the first
remittance period and the Closing Date. The stated redemption price at maturity
of a Security that has a notional principal amount or receives principal only,
or that is or may be a Security with respect to which certain accrued interest
is not distributed but added to the principal amount, is equal to the sum of all
distributions to be made under such Security. The "stated redemption price at
maturity" of any other Security is its stated principal amount, plus an amount
equal to the excess (if any) of the interest payable on the first Distribution
Date for the Security over the interest that accrues for the period from the
Closing Date to the first Distribution Date.
Notwithstanding the general definition, original issue discount will be
treated as zero if such discount is less than 0.25 % of the stated redemption
price at maturity multiplied by the weighted average life of the Security. The
weighted average life of a Security is apparently computed for this purpose as
the sum, for all distributions included in the stated redemption price at
maturity of the amounts determined by multiplying (i) the number of complete
years (rounding down for partial years) from the Closing Date until the date on
which each such distribution is expected to be made under the assumption that
the Loans prepay at the rate specified in the related Prospectus Supplement (the
"Prepayment Assumption"), by (ii) a fraction, the numerator of which is the
amount of such distribution and the denominator of which is the Security's
stated redemption price at maturity. If original issue discount is treated as
zero under this rule, the actual amount of original issue discount must be
allocated to the principal distributions on the Security and, when each such
distribution is received, gain equal to the discount allocated to such
distribution will be recognized.
Section 1272(a)(6) of the Code contains special original issue discount
rules directly applicable to REMIC Securities and Debt Securities and applicable
by analogy to Grantor Trust Securities. Investors in Grantor Trust Securities
should be aware that there can be no assurance that the rules described below
will be applied to such Securities. In particular with respect to Grantor Trust
Strip Securities, on June 12, 1996 the Treasury issued regulations concerning
the tax treatment of debt instruments that provide for one or more contingent
payments (the "Contingent Payment Regulations"). Investors should be aware that
while the Contingent Payment Regulations do not specifically address the
taxation of Grantor Trust Strip Securities, the IRS may take the position that
Grantor Trust Strip Securities should be taxed under the methods described in
those regulations. In the absence of specific guidance, however, the Trustee
will apply the rules of Section 1272(a)(6) to calculate accruals of original
issue discount on the Grantor Trust Securities. Under these rules (described in
greater detail below), (i) the amount and rate of accrual of original issue
discount on each series of Securities will be based on (x) the Prepayment
Assumption, and (y) in the case of a Security calling
89
<PAGE>
<PAGE>
for a variable rate of interest, an assumption that the value of the index upon
which such variable rate is based remains equal to the value of that rate on the
Closing Date, and (ii) adjustments will be made in the amount of discount
accruing in each taxable year in which the actual prepayment rate differs from
the Prepayment Assumption.
Section 1272(a)(6)(b)(iii) of the Code requires that the prepayment
assumption used to calculate original issue discount be determined in the manner
prescribed in Treasury regulations. To date, no such regulations have been
promulgated. The legislative history of this Code provision indicates that the
assumed prepayment rate must be the rate used by the parties in pricing the
particular transaction. The Company anticipates that the Prepayment Assumption
for each series of Securities will be consistent with this standard. The Company
makes no representation, however, that the Loans for a given series will prepay
at the rate reflected in the Prepayment Assumption for that series or at any
other rate. Each investor must make its own decision as to the appropriate
prepayment assumption to be used in deciding whether or not to purchase any of
the Securities.
Each Holder of a Security must include in gross income the sum of the
"daily portions" of original issue discount on its Security for each day during
its taxable year on which it held such Security. For this purpose, in the case
of an original Holder, the "daily portions" of original issue discount will be
determined as described as follows. A calculation will first be made of the
portion of the original issue discount that accrued during each "accrual
period." The Trustee will supply, at the time and in the manner required by the
IRS, to Holders of Securities, brokers and middlemen information with respect to
the original issue discount accruing on the Securities. The Trustee will
report original issue discount based on accrual periods of one month, each
beginning on a payment date (or, in the case of the first such period, the
Closing Date) and ending on the day before the next payment date.
Under Section 1272(a)(6) of the Code, the portion of original issue
discount treated as accruing for any accrual period will equal the excess, if
any, of (i) the sum of (A) the present values of all the distributions remaining
to be made on the Security, if any, as of the end of the accrual period and (B)
the distribution made on such Security during the accrual period of amounts
included in the stated redemption price at maturity over (ii) the "adjusted
issue price" of such Security at the beginning of the accrual period. The
present value of the remaining distributions referred to in the preceding
sentence will be calculated based on (i) the yield to maturity of the Security,
calculated as of the Settlement Date, giving effect to the Prepayment
Assumption, (ii) events (including actual prepayments) that have occurred prior
to the end of the accrual period, (iii) the Prepayment Assumption, and (iv) in
the case of a Security calling for a variable rate of interest, and assumption
that the value of the index upon which such variable rate is based remains the
same as its value on the Closing Date over the entire life of such Security. The
"adjusted issued price" of a Security at any time will equal the issue price of
such Security, increased by the aggregate amount of previously accrued original
issue discount with respect to such Security, and reduced by the amount of any
distributions made on such Security as of that time of amounts included in the
stated redemption price at maturity. The original issue discount accruing during
any accrual period will then be allocated ratably to each day during the period
to determine the daily portion of original issue discount.
In the case of Grantor Trust Strip Securities and certain REMIC Securities,
the calculation described in the preceding paragraph may produce a negative
amount of original issue discount for one or more accrual periods. No definitive
guidance has been issued regarding the treatment of such negative amounts. The
legislative history of Section 1272(a)(6) indicates that such negative amounts
may be used to offset subsequent positive accruals, but may not offset prior
accruals and may not be allowed as a deduction item in a taxable year in which
negative accruals exceed positive accruals. Holders of such Securities should
consult their own tax advisors concerning the treatment of such negative
accruals.
A subsequent purchaser of a Security that purchases such Security at a cost
less than its remaining stated redemption price at maturity also will be
required to include in gross income for each day on which its holds such
Security, the daily portion of original issue discount with respect to such
Security (but reduced, if the cost of such Security to such purchaser exceeds
its adjusted issue price, by an amount equal to the product of (i) such daily
90
<PAGE>
<PAGE>
portion and (ii) a constant fraction, the numerator of which is such excess and
the denominator of which is the sum of the daily portions of original issue
discount on such Security for all days on or after the day of purchase).
Market Discount
A Holder that purchases a Security at a market discount, that is, at a
purchase price less than the remaining stated redemption price at maturity of
such Security (or, in the case of a Security with original issue discount, its
adjusted issue price), will be required to allocate each principal distribution
first to accrued market discount on the Security, and recognize ordinary income
to the extent that such distribution does not exceed the aggregate amount of
accrued market discount on such Security not previously included in income. With
respect to Securities that have unaccrued original issue discount, such market
discount must be included in income in addition to any original issue discount.
A Holder that incurs or continues indebtedness to acquire a Security at a market
discount may also be required to defer the deduction of all or a portion of the
interest on such indebtedness until the corresponding amount of market discount
is included in income. In general terms, market discount on a Security may be
treated as accruing either (i) under a constant yield method or (ii) in
proportion to remaining accruals of original issue discount, if any, or if none,
in proportion to remaining distributions of interest on the Security, in any
case taking into account the Prepayment Assumption. The Trustee will make
available, as required by the IRS, to Holders of Securities information
necessary to compute the accrual of market discount.
Notwithstanding the above rules, market discount on a Security will be
considered to be zero if such discount is less than 0.25% of the remaining
stated redemption price at maturity of such Security multiplied by its weighted
average remaining life. Weighted average remaining life presumably would be
calculated in a manner similar to weighted average life, taking into account
payments (including prepayments) prior to the date of acquisition of the
Security by the subsequent purchaser. If market discount on a Security is
treated as zero under this rule, the actual amount of market discount must be
allocated to the remaining principal distributions on the Security and, when
each such distribution is received, gain equal to the discount allocated to such
distribution will be recognized.
Securities Purchased at a Premium
A purchaser of a Security that purchases such Security at a cost greater
than its remaining stated redemption price at maturity will be considered to
have purchased such Security (a "Premium Security") at a premium. Such a
purchaser need not include in income any remaining original issue discount and
may elect, under Section 171(c)(2) of the Code, to treat such premium as
"amortizable bond premium." If a Holder makes such an election, the amount of
any interest payment that must be included in such Holder's income of each
period ending on a Distribution Date will be reduced by the portion of the
premium allocable to such period based on the Premium Security's yield to
maturity. The legislative history of the Tax Reform Act of 1986 states that such
premium amortization should be made under principles analogous to those
governing the accrual of market discount (as discussed above under "--Discount
and Premium--Market Discount"). If such election is made by the Holder, the
election will also apply to all bonds the interest on which is not excludible
from gross income ("fully taxable bonds") held by the Holder at the beginning of
the first taxable year to which the election applies and to all such fully
taxable bonds thereafter acquired by it, and is irrevocable without the consent
of the IRS. If such an election is not made, (i) such a Holder must include the
full amount of each interest payment in income as it accrues, and (ii) the
premium must be allocated to the principal distributions on the Premium Security
and, when each such distribution is received, a loss equal to the premium
allocated to such distribution will be recognized. Any tax benefit from the
premium not previously recognized will be taken into account in computing gain
or loss upon the sale or disposition of the Premium Security.
Some Securities may provide for only nominal distributions of principal in
comparison to the distributions of interest thereon. It is possible that the IRS
or the Treasury Department may issue guidance excluding such Securities from the
rules generally applicable to debt instruments issued at a premium. In
particular, it is possible that such a Security will be treated as having
original issue discount equal to the excess of the total payments to be received
thereon over its issue price. In such event, Section 1272(a)(6) of the Code
91
<PAGE>
<PAGE>
would govern the accrual of such original issue discount, but a Holder would
recognize substantially the same income in any given period as would be
recognized if an election were made under Section 171(e)(2) of the Code. Unless
and until the Treasury Department or the IRS publishes specific guidance
relating to the tax treatment of such Securities, the Trustee intends to furnish
tax information to Holders of such Securities in accordance with the rules
described in the preceding paragraph.
Special Election
For any Security acquired on or after April 4, 1994, a Holder may elect to
include in gross income all "interest" that accrues on the Security by using a
constant yield method. For purposes of the election, the term "interest"
includes stated interest, acquisition discount, original issue discount, de
minimis original issue discount, market discount, de minimis market discount and
unstated interest as adjusted by any amortizable bond premium or acquisition
premium. A Holder should consult it own tax advisor regarding the time and
manner of making and the scope of the election and the implementation of the
constant yield method.
Backup Withholding
Distributions of interest and principal, as well as distributions of
proceeds from the sale of Securities, may be subject to the "backup withholding
tax" under Section 3406 of the Code at rate of 31% if recipients of such
distributions fail to furnish to the payor certain information, including their
taxpayer identification numbers, or otherwise fail to establish an exemption
from such tax. Any amounts deducted and withheld from a distribution to a
recipient would be allowed as a credit against such recipient's federal income
tax. Furthermore, certain penalties may be imposed by the IRS on a recipient of
distributions that is required to supply information but that does not do so in
the proper manner.
Foreign Investors
Grantor Trust Securities and REMIC Regular Securities
Distributions made on a Grantor Trust Security or a REMIC Regular Security
to, or on behalf of, a Holder that is not a "U.S. Person" generally will be
exempt from United States federal income and withholding taxes. The term "U.S.
Person" means a citizen or resident of the United States, a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof, or an estate trust that is
subject to United States federal income tax regardless of the source of its
income. This exemption is applicable provided (a) the Holder is not subject to
United States tax as a result of a connection to the United States other than
ownership of the Security, (b) the Holder signs a statement under penalties of
perjury that certifies that such Holder is not a U.S. Person, and provides the
name and address of such Holder, and (c) the last U.S. Person in the chain of
payment to the Holder receives such statement from such Holder or a financial
institution holding on its behalf and does not have actual knowledge that such
statement is false. Holders should be aware that the IRS might take the position
that this exemption does not apply to a Holder that also owns 10% or more of the
REMIC Residual Securities of any REMIC Trust, or to a Holder that is a
"controlled foreign corporation" described in Section 881(c)(3)(C) of the Code.
REMIC Residual Securities
Amounts distributed to a Holder of a REMIC Residual Security that is not a
U.S. Person generally will be treated as interest for purposes of applying the
30% (or lower treaty rate) withholding tax on income that is not effectively
connected with a United States trade or business. Temporary Treasury Regulations
clarify that amounts not constituting excess inclusions that are distributed on
a REMIC Residual Security to a Holder that is not a U.S. Person generally will
be exempt from United States federal income and withholding tax, subject to the
same conditions applicable to distributions on Grantor Trust Securities and
REMIC Regular Securities, as described above, but only to the extent that the
obligations directly underlying the REMIC Trust that issued the REMIC Residual
Security (e.g., Loans or regular interests in another REMIC) were issued after
July 18, 1984. In no case will any portion of REMIC income that constitutes an
excess inclusion be entitled to any exemption
92
<PAGE>
<PAGE>
from the withholding tax or a reduced treaty rate for withholding. See
"--Taxation of Holders of REMIC Residual Securities--Excess Inclusions."
Taxation of the Securities Classified as Partnership Interests
Certain Trusts may be treated as partnerships for Federal income tax
purposes. In such event, the Trust may issue Debt Securities in the form of
Notes, as described above, and may also issue Securities characterized as
partnership interests ("Partnership Interests") as discussed in the related
Prospectus Supplement.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in " Federal
Income Tax Considerations," potential investors should consider the state and
local income tax consequences of the acquisition, ownership, and disposition of
the Securities. State and local income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe any
aspect of the income tax laws of any state or locality. Therefore, potential
investors should consult their own tax advisors with respect to the various
state and local tax consequences of an investment in the Securities.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain fiduciary and prohibited transaction restrictions on employee
pension and welfare benefit plans subject to ERISA ("ERISA Plans"). Section 4975
of the Code imposes essentially the same prohibited transaction restrictions on
tax-qualified retirement plans described in Section 401(a) of the Code
("Qualified Retirement Plans") and on Individual Retirement Accounts ("IRAs")
described in Section 408 of the Code (collectively, "Tax-Favored Plans").
Certain employee benefit plans, such as governmental plans (as defined in
Section 3(32) of ERISA), are not subject to the ERISA requirements discussed
herein. Accordingly, assets of such plans may generally be invested in
Securities without regard to the ERISA considerations described below, subject
to the provisions of applicable federal and state law. Any such plan that is a
Qualified Retirement Plan and exempt from taxation under Sections 401(a) and
501(a) of the Code, however, is subject to the prohibited transaction rules set
forth in Section 503 of the Code.
Section 404 of ERISA imposes general fiduciary requirements, including
those of investment prudence and diversification and the requirement that a
Plan's investment be made in accordance with the documents governing the Plan.
In addition, section 406 of ERISA and Section 4975 of the Code prohibit a broad
range of transactions involving assets of ERISA Plans and Tax-Favored Plans
(collectively, "Plans") and persons ("Parties in Interest" under ERISA or
"Disqualified Persons" under the Code) who have certain specified relationships
to the Plans, unless a statutory or administrative exemption is available.
Certain Parties in Interest (or Disqualified Persons) that participate in a
prohibited transaction may be subject to a penalty (or an excise tax) imposed
pursuant to Section 502(i) of ERISA or Section 4975 of the Code, unless a
statutory or administrative exemption is available.
A Plan's investment in Securities may cause the Loans included in a Loan
Pool to be deemed Plan assets. The United States Department of Labor ("DOL") has
issued a final regulation (29 C.F.R. Section 2510.3-101) containing rules for
determining what constitutes the assets of a Plan. This regulation provides
that, as a general rule, the underlying assets and properties of corporations,
partnerships, trusts and certain other entities in which a Plan makes an
investment in an "equity interest" will be deemed for purposes of ERISA to be
assets of the Plan unless certain exceptions apply.
93
<PAGE>
<PAGE>
Under the terms of the regulation, the Trust Estate may be deemed to hold
plan assets by reason of a Plan's investment in a Security; such plan assets
would include an undivided interest in the Loans and any other assets held by
the Trust Estate. In such an event, persons providing services with respect to
the assets of the Trust Estate may be parties in interest, subject to the
fiduciary responsibility provisions of Title I of ERISA, including the
prohibited transaction provisions of Section 406 of ERISA (and of Section 4975
of the Code), with respect to transactions involving such assets unless such
transactions are subject to a statutory or administrative exemption.
An exception applies if the class of equity interests in question is: (i)
"widely held" (held by 100 or more investors who are independent of the Trust
Estate and each other); (ii) freely transferable; and (iii) sold as part of an
offering pursuant to (A) an effective registration statement under the
Securities Act of 1933, and then subsequently registered under the Securities
Exchange Act of 1934 or (B) an effective registration statement under Section
12(b) or 12(g) of the Securities Exchange Act of 1934 ("Publicly Offered
Securities"). In addition, the regulation provides that if at all times more
than 75% of the value of each class of equity interest in the Trust Estate is
held by investors other than benefit plan investors (which is defined as
including, among others, plans subject to ERISA, government plans and individual
retirement accounts), the investing Plan's assets will not include any of the
underlying assets of the Trust Estate.
Under the regulation, a Plan will not be considered to have invested in an
"equity interest" if the interest described is treated as indebtedness under
applicable local law and has no substantial equity features. Generally, a
profits interest in a partnership, an undivided ownership interest in property
and a beneficial ownership interest in a trust are deemed to be "equity
interests" under the final regulation. If Notes of a particular series were
deemed to be indebtedness under applicable local law without any substantial
equity features, an investing Plan's assets would include such Notes, but not,
by reason of such purchase, the underlying assets of the Trust Estate.
If an investing Plan's assets are considered to include the underlying
assets of the Trust Estate, an exemption may be available. Various underwriters
and placement agents have been granted individual exemptions by the DOL from
certain of the prohibited transaction rules of ERISA with respect to the initial
purchase, the holding and the subsequent resale by Plans of securities
representing interests in, and the operation of, asset-backed pass-through
trusts that consist of certain receivables, loans and other obligations that
meet the conditions and requirements of such exemptions (each such exemption is
referred to hereafter as the "Exemption"). These securities may include the
Certificates. The obligations that may be held in trusts covered by the
Exemption include obligations such as the Loans.
Among the conditions which must be satisfied for the Exemption to apply are
the following:
(i) The acquisition of the Certificates by a Plan is on terms
(including the price for the Certificates) that are at least as favorable to the
Plan as they would be in an arm' s-length transaction with an unrelated party;
(ii) The rights and interests evidenced by the Certificates acquired
by the Plan are not subordinated to the rights and interests evidenced by other
securities of the trust;
(iii) The Certificates acquired by the Plan have received a rating at
the time of such acquisition that is in one of the three highest generic rating
categories from either Standard & Poor's Ratings Group ("Standard & Poor's"),
Moody's Investors Service, Inc. ("Moody's"), Duff & Phelps Inc. ("D&P") or Fitch
Investors Service, Inc. ("Fitch");
(iv) The sum of all payments made to the underwriter in connection
with the distribution of the Certificates represents not more than reasonable
compensation for underwriting the Certificates. The sum of all payments made to
and retained by the seller pursuant to the sale of the obligations to the trust
represents not more than the fair market value of such obligations. The sum of
all payments made to and retained by the servicer represents not more than
reasonable compensation for the servicer's services under the related servicing
agreement and reimbursement of the servicer's reasonable expenses in connection
therewith;
94
<PAGE>
<PAGE>
(v) The Trustee is not an affiliate of any other member of the
Restricted Group (as defined below); and
(vi) The Plan investing in the Certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the Securities and
Exchange Commission under the Securities Act of 1933.
The trust also must meet the following requirements:
(i) the corpus of the trust must consist solely of assets of the type
which have been included in other investment pools;
(ii) securities in such other investment pools must have been rated in
one of the three highest rating categories of Standard & Poor's, Moody's, D&P or
Fitch for at least one year prior to the Plan's acquisition of securities; and
(iii) securities evidencing interests in such other investment pools
must have been purchased by investors other than Plans for at least one year
prior to any Plan's acquisition of Securities.
Moreover, the Exemption provides relief from certain self-dealing/conflict
of interest prohibited transactions that may occur when the Plan fiduciary
causes a Plan to acquire securities in a trust in which the fiduciary (or its
affiliate) is an obligor on the receivables held in the trust provided that,
among other requirements: (i) in the case of an acquisition in connection with
the initial issuance of Certificates, at least fifty (50) percent of each class
of Certificates in which Plans have invested is acquired by persons independent
of the Restricted Group and at least fifty (50) percent of the aggregate
interest in the trust is acquired by persons independent of the Restricted
Group; (ii) such fiduciary (or its affiliate) is an obligor with respect to five
(5) percent or less of the fair market value of the obligations contained in the
trust; (iii) the Plan's investment in Certificates does not exceed twenty-five
(25) percent of all of the Certificates outstanding after the acquisition; and
(iv) no more than twenty-five (25) percent of the assets of the Plan are
invested in securities representing an interest in one or more trusts containing
assets sold or serviced by the same entity. The Exemption does not apply to
Plans sponsored by the Company, the underwriters of the Certificates, the
Trustee, the Servicer, any obligor with respect to obligations included in a
Trust Estate constituting more than five (5) percent of the aggregate
unamortized principal balance of the assets in a Trust Estate, or any affiliate
of such parties (the "Restricted Group").
There are other class (e.g. Prohibited Transaction Class Exemption 83-1)
and individual prohibited transaction exemptions issued by the DOL that could
apply to a Plan's acquisition or holding of Securities. The applicable
Prospectus Supplement under "ERISA Considerations" may contain additional
information regarding the application of the Exemption, or other prohibited
transaction exemptions that may be available, with respect to the series offered
thereby.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the potential application of the
regulation described above, the Exemption or other class and individual
exemptions issued by the DOL to the purchase and holding of the Securities and
the potential consequences to their specific circumstances, prior to making an
investment in the Securities. Moreover, each Plan fiduciary should determine
whether under the general fiduciary standards of investment procedure and
diversification an investment in the Securities is appropriate for the Plan,
taking into account the overall investment policy of the Plan and the
composition of the Plan's investment portfolio. In this regard, purchasers that
are insurance companies should consult with their counsel with respect to the
United States Supreme Court case interpreting the fiduciary responsibility rules
of ERISA, John Hancock Mutual Life Insurance Co. v. Harris Trust and Savings
Bank, 114 S. Ct. 517 (1993). In John Hancock, the Supreme Court ruled that
assets held in an insurance company's general account may be deemed to be "plan
assets" for purposes of ERISA under certain circumstances. Prospective
purchasers should determine whether the decision affects their ability to
purchase the Securities.
95
<PAGE>
<PAGE>
A Plan that is exempt from federal income taxation pursuant to Section 501
of the Code (a "Tax Exempt Investor") nonetheless will be subject to federal
income taxation to the extent that its income is UBTI within the meaning of
Section 512 of the Code. All "excess inclusions" of a REMIC allocated to a REMIC
Residual Security held by a Tax Exempt Investor will be considered UBTI and thus
will be subject to federal income tax. See " Federal Income Tax
Considerations--REMICS--Taxation of Owners of REMIC Residual Securities--Excess
Inclusions."
LEGAL INVESTMENT MATTERS
Certain classes of Securities offered hereby and by the related Prospectus
Supplement will constitute "mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA") so long as they are
rated in at least the second highest rating category by any Rating Agency, and
as such may be legal investments for persons, trusts, corporations,
partnerships, associations, business trusts and business entities (including
depository institutions, life insurance companies and pension funds) created
pursuant to or existing under the laws of the United States or of any State
whose authorized investments are subject to state regulation to the same extent
that, under applicable law, obligations issued by or guaranteed as to principal
and interest by the United States or any agency or instrumentality thereof
constitute legal investments for such entities. Under SMMEA, if a State enacted
legislation on or prior to October 3, 1991 specifically limiting the legal
investment authority of any such entities with respect to "mortgage related
securities," such securities will constitute legal investments for entities
subject to such legislation only to the extent provided therein. Certain States
have enacted legislation which overrides the preemption provisions of SMMEA.
SMMEA provides, however, that in no event will the enactment of any such
legislation affect the validity of any contractual commitment to purchase, hold
or invest in "mortgage related securities," or require the sale or other
disposition of such securities, so long as such contractual commitment was made
or such securities acquired prior to the enactment of such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal with "mortgage
related securities" without limitation as to the percentage of their assets
represented thereby, federal credit unions may invest in such securities, and
national banks may purchase such securities for their own account without regard
to the limitations generally applicable to investment securities set forth in 12
U.S.C. 24 (Seventh), subject in each case to such regulations as the applicable
federal regulatory authority may prescribe.
The Federal Financial Institutions Examination Council has adopted a
supervisory policy statement (the "Policy Statement"), applicable to all
depository institutions, setting forth guidelines for and significant
restrictions on investments in "high-risk mortgage securities." The Policy
Statement has been adopted by the Federal Reserve Board, the Office of the
Comptroller of the Currency, the FDIC and the Office of Thrift Supervision with
an effective date of February 10, 1992. The Policy Statement generally indicates
that a mortgage derivative product will be deemed to be high risk if it exhibits
greater price volatility than a standard fixed rate thirty-year mortgage
security. According to the Policy Statement, prior to purchase, a depository
institution will be required to determine whether a mortgage derivative product
that it is considering acquiring is high-risk, and if so that the proposed
acquisition would reduce the institution's overall interest rate risk. Reliance
on analysis and documentation obtained from a securities dealer or other outside
party without internal analysis by the institution would be unacceptable. There
can be no assurance as to which classes of Securities will be treated as
high-risk under the Policy Statement. In addition, the National Credit Union
Administration has issued regulations governing federal credit union investments
which prohibit investment in certain specified types of securities, which may
include certain classes of Securities. Similar policy statements have been
issued by regulators having jurisdiction over other types of depository
institutions.
There may be other restrictions on the ability of certain investors either
to purchase certain classes of Securities or to purchase any class of Securities
representing more than a specified percentage of the investors' assets. The
Company will make no representations as to the proper characterization of any
class of Securities for legal investment or other purposes, or as to the ability
of particular investors to purchase any class of Securities under applicable
legal investment restrictions. These uncertainties may adversely affect the
liquidity
96
<PAGE>
<PAGE>
of any class of Securities. Accordingly, all investors whose investment
activities are subject to legal investment laws and regulations, regulatory
capital requirements or review by regulatory authorities should consult with
their own legal advisors in determining whether and to what extent the
Securities of any class constitute legal investments under SMMEA or are subject
to investment, capital or other restrictions, and whether SMMEA has been
overridden in any jurisdiction applicable to such investor.
USE OF PROCEEDS
Substantially all of the net proceeds to be received from the sale of
Securities will be applied by the Company to finance the purchase of, or to
repay short-term loans incurred to finance the purchase of, the Loans underlying
the Securities or will be deposited by the Company in its general funds and used
by the Company for general corporate purposes, such as payment of salaries,
rent, utilities and related business expenses. The Company expects that it will
make additional sales of securities similar to the Securities from time to time,
but the timing and amount of any such additional offerings will be dependent
upon a number of factors, including the volume of loans originated or purchased
by the Company, prevailing interest rates, availability of funds and general
market conditions.
METHODS OF DISTRIBUTION
The Securities offered hereby and by the related Prospectus Supplements
will be offered in series through one or more of the methods described below.
The Prospectus Supplement prepared for each series will describe the method of
offering being utilized for that series and will state the public offering or
purchase price of such series and the net proceeds to the Company from such
sale.
The Company intends that Securities will be offered through the following
methods from time to time and that offerings may be made concurrently through
more than one of these methods or that an offering of a particular series of
Securities may be made through a combination of two or more of these methods.
Such methods are as follows:
1. By negotiated firm commitment or best efforts underwriting and public
re-offering by underwriters;
2. By placements by the Company with institutional investors through
dealers; and
3. By direct placements by the Company with institutional investors.
If underwriters are used in a sale of any Securities (other than in
connection with an underwriting on a best efforts basis), such Securities will
be acquired by the underwriters for their own account and may be resold from
time to time in one or more transactions, including negotiated transactions, at
fixed public offering prices or at varying prices to be determined at the time
of sale or at the time of commitment therefor. The managing underwriter or
underwriters with respect to the offer and sale of a particular series of
Securities will be set forth on the cover of the Prospectus Supplement relating
to such series and the members of the underwriting syndicate, if any, will be
named in such Prospectus Supplement.
In connection with the sale of the Securities, underwriters may receive
compensation from the Company or from purchasers of the Securities in the form
of discounts, concessions or commissions. Underwriters and dealers participating
in the distribution of the Securities may be deemed to be underwriters in
connection with such Securities, and any discounts or commissions received by
them from the Company and any profit on the resale of Securities by them may be
deemed to be underwriting discounts and commissions under the Securities Act of
1933, as amended. The Prospectus Supplement will describe any such compensation
paid by the Company.
97
<PAGE>
<PAGE>
It is anticipated that the underwriting agreement pertaining to the sale of
any series of Securities will provide that the obligations of the underwriters
will be subject to certain conditions precedent, that the underwriters will be
obligated to purchase all such Securities if any are purchased (other than in
connection with an underwriting on a best efforts basis) and that, in limited
circumstances, the Company will indemnify the several underwriters and the
underwriters will indemnify the Company against certain civil liabilities,
including liabilities under the Securities Act of 1933, as amended, or will
contribute to payments required to be made in respect thereof.
The Prospectus Supplement with respect to any series offered by placements
through dealers will contain information regarding the nature of such offering
and any agreements to be entered into between the Company and purchasers of
Securities of such series.
The Company anticipates that the Securities offered hereby will be sold
primarily to institutional investors. Purchasers of Securities, including
dealers, may, depending on the facts and circumstances of such purchases, be
deemed to be "underwriters" within the meaning of the Securities Act of 1933, as
amended, in connection with reoffers and sales by them of Securities. Holders of
Securities should consult with their legal advisors in this regard prior to any
such reoffer or sale.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Dewey
Ballantine, New York, New York and by the office of the general counsel of the
Company.
ADDITIONAL INFORMATION
This Prospectus, together with the Prospectus Supplement for each series of
Securities, contains a discussion of the material terms of the applicable
exhibits to the Registration Statement and the documents referred to herein and
therein. Copies of such exhibits are on file at the offices of the Securities
and Exchange Commission in Washington, D.C., and may be obtained at rates
prescribed by the Commission upon request to the Commission and may be
inspected, without charge, at the Commission's offices.
98
<PAGE>
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
Page
----
Accounts ..............................................................40
Accrual Securities.........................................................8
AFH ..............................................................57
AFL ...........................................................1, 57
APR ..............................................................24
ARM Loans ..............................................................19
Balloon Amount...........................................................29
Balloon Loans.............................................................17
Bankruptcy Bond...........................................................53
Bankruptcy Loss...........................................................51
Bankruptcy Loss Amount...................................................51
Base Servicing Fee.......................................................58
Book-Entry Securities....................................................36
Bulk Acquisitions.........................................................10
Buydown Account..........................................................23
Buydown Funds.............................................................22
Buydown Mortgage Loans....................................................22
Buydown Period............................................................22
Cede ...............................................................14
Certificates...............................................................6
Closing Date..............................................................38
CLTV (Combined Loan-to-Value Ratio).......................................24
Code ...............................................................80
Collateral ............................................................1, 6
Collateral Pool...........................................................21
Collateral Schedule......................................................22
Company ...........................................................1, 57
Company's Seller's Guide..................................................31
Compensating Interest.....................................................44
Contracts ...........................................................1, 21
Conventional Loans.......................................................22
Convertible Loan..........................................................29
Cooperative ..............................................................26
Cooperative Loans.........................................................21
Cooperative Notes........................................................28
Credit Enhancement.........................................................2
Credit Enhancer......................................................21, 42
Cut-Off Date.............................................................24
Debt Securities......................................................14, 80
Debt Service Reduction....................................................53
Defaulted Mortgage Loss...................................................51
Deferred Interest........................................................17
Deficient Valuation.......................................................53
Deleted Loan..............................................................30
Delinquency Advances......................................................44
Designated Depository Institution.........................................40
Detailed Description.....................................................22
Determination Date.......................................................44
Direct or Indirect Participants..........................................21
Disqualified Persons......................................................93
99
<PAGE>
<PAGE>
Page
----
Distribution Account......................................................40
DTC ...............................................................14
Due Date ..............................................................39
Eligible Investments......................................................40
Equity Securities..........................................................7
ERISA ..............................................................13
ERISA Plan(s)............................................................93
Exchange Act.............................................................14
Extraordinary Losses......................................................51
FHA ...............................................................27
Financial Guaranty Insurance Policy......................................54
Financial Guaranty Insurer...............................................54
Fixed-Income Securities....................................................7
Forward Purchase Agreement................................................11
Fraud Loss ..............................................................51
Fraud Loss Amount........................................................51
Funding Period.......................................................11, 38
Garn-St. Germain Act.....................................................72
Graduated Payments.......................................................23
Grantor Trust............................................................80
Grantor Trust Fractional Interest Security...............................80
Grantor Trust Securities.............................................13, 80
Grantor Trust Strip Security.............................................80
Guidelines...............................................................30
Holder ...............................................................80
Home Improvement Loans....................................................21
Indenture ...............................................................7
Indenture Trustee..........................................................7
Index ..............................................................28
Indirect Participant(s)...................................................36
Insurance Paying Agent...................................................54
Insurance Proceeds........................................................39
Insured Payment..........................................................54
Interest Payment Date....................................................64
Interest Rate..............................................................7
Investment Company Act....................................................10
IRAs ...............................................................93
IRS ..............................................................81
Junior Lien Loans.........................................................25
Land Secured Contracts....................................................18
Letter of Credit..........................................................52
Letter of Credit Bank.....................................................52
Liquidated Mortgage Loan..................................................17
Liquidation Proceeds......................................................17
Loan Pool ...............................................................1
Loan Purchase Price.......................................................30
Loan Rate ..............................................................22
Loans ...............................................................22
LTV ..............................................................24
Manufactured Homes........................................................27
Manufacturer's Invoice Price.............................................25
Master Commitments.......................................................32
100
<PAGE>
<PAGE>
Page
----
Master Servicer............................................................6
Master Servicing Fee.....................................................58
Mixed Use Loans.......................................................1, 21
Modified Loans...........................................................29
Mortgage Loans.........................................................1, 21
Mortgage Pool Insurance Policy............................................52
Mortgages ..............................................................10
Multi-family Loans........................................................21
Negotiated Transactions...................................................10
Net Liquidation Proceeds.................................................40
Net Loan Rate............................................................64
Note Margin ..............................................................28
Notes ...........................................................6, 27
Obligor ..............................................................16
Originator's Retained Yield...............................................58
Originators ...............................................................1
Participants..............................................................36
Parties in Interest.......................................................93
Partnership Interests....................................................14
Pass-Through Rate.........................................................43
Paying Agent.............................................................43
Payment Date...............................................................9
Percentage Interest......................................................43
Physical Certificates.....................................................35
Plan(s) ..............................................................13
Policy Statement.........................................................96
Pool Factor..............................................................46
Pooling and Servicing Agreement............................................7
Pre-Funding Account.......................................................11
Premium Security.........................................................91
Prepayment Assumption....................................................83
Principal Prepayments.....................................................39
Properties...............................................................22
Property ..............................................................10
Purchase Obligation.......................................................15
Qualified Replacement Loan................................................30
Qualified Retirement Plans...............................................93
Qualifying Rate...........................................................31
Rating Agencies..........................................................14
Realized Loss.............................................................50
Record Date ...............................................................9
Relief Act...........................................................21, 79
REMIC ...............................................................80
REMIC Regular Securities..................................................13
REMIC Regular Security...................................................82
REMIC Regulations........................................................82
REMIC Residual Securities.................................................13
REMIC Residual Security..................................................82
REMIC Securities.........................................................80
REMIC Trust..............................................................82
REMIC(s) ...............................................................2
Remittance Date..........................................................41
101
<PAGE>
<PAGE>
Page
----
Remittance Period..........................................................9
REO Property.............................................................48
Reserve Fund..............................................................53
Rule of 78's.............................................................24
Securities ............................................................1, 6
Security Registrar........................................................35
Securityholder...........................................................80
Securityholders............................................................1
Senior Lien..............................................................25
Senior Securities..........................................................8
Servicer ...............................................................6
Servicer(s) ...............................................................2
Servicing Advance(s).................................................... 45
Servicing Agreement........................................................7
Servicing Fee............................................................58
Single Family Loans.......................................................21
SMMEA ...............................................................13
Special Hazard Amount....................................................51
Special Hazard Insurance Policy..........................................53
Special Hazard Insurer...................................................53
Special Hazard Loss.......................................................51
Statistic Calculation Date...............................................24
Strip Securities...........................................................8
Sub-Servicers..............................................................2
Sub-Servicing Account.....................................................39
Sub-Servicing Agreement..................................................49
Subordinate Securities.....................................................8
Subordinate(d) Amount.....................................................51
Subsequent Collateral.....................................................11
Subsequent Loans..........................................................38
Tax Exempt Investor......................................................96
Tax-Favored Plans........................................................93
Title V ...........................................................73, 79
Title VIII ..............................................................73
Trust ...............................................................1
Trust Agreement............................................................6
Trust Estate...............................................................1
Trustee ...............................................................6
UCC ...............................................................36
102
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Set forth below is an estimate of the amount of fees and expenses (other
than underwriting discounts and commissions) to be incurred in connection with
the issuance and distribution of the Offered Certificates.
SEC Filing Fee......................................... $345
Trustee's Fees and Expenses*........................... 5,000
Legal Fees and Expenses*............................... 212,500
Accounting Fees and Expenses*.......................... 30,000
Printing and Engraving Expenses*....................... 35,000
Blue Sky Qualification and Legal
Investment Fees and Expenses*........................ 10,000
Rating Agency Fees*.................................... 40,000
Certificate Insurer's Fee*............................. 40,000
Miscellaneous*......................................... 200,000
-------
TOTAL............................................. $ 572,845
=========
- ----------
* Estimated in accordance with Item 511 of Regulation S-K.
Item 15. Indemnification of Directors and Officers.
Indemnification. Under the laws which govern the organization of the
Registrant, the Registrant has the power and in some instances may be required
to provide an agent, including an officer or director, who was or is a party or
is threatened to be made a party to certain proceedings, with indemnification
against certain expenses, judgments, fines, settlements and other amounts under
certain circumstances.
Article VII, Section 6 of the By-Laws of Access Financial Lending Corp.
provides that each person (including the heirs, executors, administrators, or
estate of such person) who by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise, and
who was, is or is threatened to be made a defendant in any threatened, pending
or completed suit, action or proceeding, shall be indemnified by the corporation
to the full extent permitted or authorized by the General Corporation Law of
Delaware against any liability, judgment, fine, amount paid in settlement, cost
and expense (including attorneys' fees) actually and reasonably incurred by such
person in defense of said suit, action or proceeding including, without limiting
the generality of the foregoing, any liability, judgment, fine, amount paid in
settlement, cost and expense (including attorneys' fees) arising out of or
connected with the unlawful restraint or confinement of any such person for any
purpose.
The form of the Underwriting Agreement, filed as Exhibit 1.1 to this
Registration Statement, provides that Access Financial Lending Corp. will
indemnify and reimburse the underwriter(s) and each director, officer and
controlling person of the underwriter(s) with respect to certain expenses and
liabilities, including liabilities under the 1933 Act or other federal or state
regulations or under the common law, which arise out of or are based on certain
material misstatements or omissions in the Registration Statement. In addition,
the Underwriting Agreement provides that the underwriter(s) will similarly
indemnify and reimburse Access Financial Lending Corp. and each director,
officer and controlling person of Access Financial Lending Corp. with respect to
certain material misstatements or omissions in the Registration Statement which
are based on certain written information furnished by the underwriter(s) for use
in connection with the preparation of the Registration Statement.
II-1
<PAGE>
<PAGE>
Insurance. As permitted under the laws which govern the organization of the
Registrant, the Registrant has adopted by-laws which permit the board of
directors to purchase and maintain insurance on behalf of the Registrant's
agents, including its officers and directors, against any liability asserted
against them in such capacity or arising out of such agents' status as such,
whether or not the Registrant would have the power to indemnify them against
such liability under applicable law. Access Financial Lending Corp. has general
liability policies which insure its agents, including directors and officers,
for general liability exposures.
As permitted by the Employee Retirement Income Security Act of 1974, Access
Financial Lending Corp. has obtained insurance covering all employees entrusted
with fiduciary responsibilities under certain of its employee welfare or benefit
plans. The maximum coverage provided by this policy is an aggregate of
$5,000,000 per year, subject to a maximum $100,000 deductible amount with
respect to each claim.
Item 16. Exhibits.
1.1** -- Form of Underwriting Agreement.
1.2** -- Form of Indemnification Agreement.
3.1** -- Certificate of Incorporation of Access Financial Lending Corp.
3.2** -- By-Laws of Access Financial Lending Corp.
4.1** -- Form of Pooling and Servicing Agreement.
4.2** -- Form of Pooling and Servicing Agreement.
5.1* -- Opinion of Dewey Ballantine with respect to validity.
8.1* -- Opinion of Dewey Ballantine with respect to tax matters.
10.1** -- Form of Financial Guaranty Insurance Policy.
23.1 -- Consents of Dewey Ballantine are included in its opinions
filed as Exhibits 5.1 and 8.1 hereto.
99.1* -- Form of Prospectus Supplement.
99.2* -- Form of Prospectus Supplement.
- ----------
* Filed herewith.
** Previously filed.
II-2
<PAGE>
<PAGE>
Item 17. Undertakings.
A. Undertaking in respect of indemnification
Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described above in Item 15, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrants of
expenses incurred or paid by a director, officer or controlling person
of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
them is against public policy as expressed in the 1933 Act and will be
governed by the final adjudication of such issue.
B. Undertaking pursuant to Rule 415.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) to reflect in the Prospectus any facts or events arising
after the effective date of the Registration Statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement;
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the
Registration Statement or any material change of such
information in the Registration Statement; provided,
however, that paragraphs (i) and (ii) do not apply if the
information required to be included in the post-effective
amendment is contained in periodic reports filed by the
Issuer pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by
reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
II-3
<PAGE>
<PAGE>
C. Undertaking pursuant to Rule 430A.
The Registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus
filed as part of a registration statement in reliance upon Rule
430A and contained in the form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-4
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 2
to the registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of St. Louis Park, State of Minnesota on
the 16th day of August, 1996.
ACCESS FINANCIAL LENDING CORP.
By /s/ Leslie Zejdlik Foster
-------------------------
Leslie Zejdlik Foster
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the registration statement has been signed below by the following
persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Leslie Zejdlik Foster Director and President August 16, 1996
- ------------------------- (Principal Executive Officer)
Leslie Zejdlik Foster
/s/ Heather A. McQueen Director and Treasurer August 16, 1996
- ------------------------- (Principal Financial Officer and
Heather A. McQueen Principal Accounting Officer)
/s/ Kenneth M. Duncan Director, Chairman of the Board August 16, 1996
- ------------------------- of Directors and Chief Executive
Kenneth M. Duncan Officer
II-5
<PAGE>
<PAGE>
EXHIBIT INDEX
Exhibit Location of Document in
Number Description of Document Sequential Numbering System
- --------------------------------------------------------------------------------
1.1** -- Form of Underwriting Agreement.
1.2** -- Form of Indemnification Agreement.
3.1** -- Certificate of Incorporation of
Access Financial Lending Corp.
3.2** -- By-Laws of Access Financial
Lending Corp.
4.1** -- Form of Pooling and Servicing
Agreement.
4.2** -- Form of Pooling and Servicing
Agreement.
5.1* -- Opinion of Dewey Ballantine with
respect to validity.
8.1* -- Opinion of Dewey Ballantine with
respect to tax matters.
10.1** -- Form of Financial Guaranty
Insurance Policy.
23.1 -- Consents of Dewey Ballantine are
included in its opinions filed as
Exhibits 5.1 and 8.1 hereto.
99.1* -- Form of Prospectus Supplement.
99.2* -- Form of Prospectus Supplement.
- ----------
* Filed herewith.
** Previously filed.
<PAGE>
<PAGE>
Exhibit 5.1
[Dewey Ballantine Letterhead]
August 16, 1996
Access Financial Lending Corp.
400 Highway 169 South
Suite 400
St. Louis Park, Minnesota 55426-0365
Re: Access Financial Lending Corp.
Asset Backed Securities
-----------------------
Ladies and Gentlemen:
We have acted as counsel to Access Financial Lending Corp.
(the "Registrant") in connection with the preparation and filing of the
registration statement on Form S-3 (such registration statement, the
"Registration Statement") being filed today with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended (the "Act"), in
respect of Asset Backed Securities ("Securities") which the Registrant plans to
offer in series, each series to be issued under a separate pooling and servicing
agreement (a "Pooling and Servicing Agreement"), in substantially one of the
forms incorporated by reference as Exhibits to the Registration Statement, among
Access Financial Lending Corp. (the "Company"), a servicer to be identified in
the prospectus supplement for such series of Securities (the "Servicer" for such
series), and a trustee to be identified in the prospectus supplement for such
series of Securities (the "Trustee" for such series).
We have examined and relied on the originals or copies
certified or otherwise identified to our satisfaction of all such documents and
records of the Company and such other instruments and other certificates of
public officials, officers and representatives of the Company and such other
persons, and we have made such investigations of law, as we have deemed
appropriate as a basis for the opinions expressed below.
The opinions expressed below are subject to bankruptcy,
insolvency, reorganization, moratorium and other laws relating to or affecting
creditors' rights generally and to general equity principles.
<PAGE>
<PAGE>
Access Financial Lending Corp.
July 25, 1996
Page 2
We are admitted to the Bar of the State of New York and we
express no opinion as to the laws of any other jurisdiction except as to matters
that are governed by Federal law or the laws of the State of New York. All
opinions expressed herein are based on laws, regulations and policy guidelines
currently in force and may be affected by future regulations.
Based upon the foregoing, we are of the opinion that:
1. When, in respect of a series of Securities, a Pooling and
Servicing Agreement has been duly authorized by all necessary action
and duly executed and delivered by the Company, the Servicer and the
Trustee for such series, such Pooling and Servicing Agreement will be a
valid and legally binding obligation of the Company; and
2. When a Pooling and Servicing Agreement for a series of
Securities has been duly authorized by all necessary action and duly
executed and delivered by the Company, the Servicer and the Trustee for
such series, and when the Securities of such series have been duly
executed and authenticated in accordance with the provisions of the
Pooling and Servicing Agreement, and issued and sold as contemplated in
the Registration Statement and the prospectus, as amended or
supplemented and delivered pursuant to Section 5 of the Act in
connection therewith, such Securities will be legally and validly
issued, fully paid and nonassessable, and the holders of such
Securities will be entitled to the benefits of such Pooling and
Servicing Agreement.
This opinion is furnished by us as counsel to the Registrant
and is solely for the benefit of the addressees hereof. It may not be relied
upon by any other person or for any other purpose without our prior written
consent.
We hereby consent to the filing of this opinion as an Exhibit
to the Registration Statement and to the reference to Dewey Ballantine in the
Registration Statement and the related prospectus under the heading "Legal
Matters."
Very truly yours,
Dewey Ballantine
<PAGE>
<PAGE>
Exhibit 8.1
[Dewey Ballantine Letterhead]
August 16, 1996
Access Financial Lending Corp.
400 Highway 169 South
Suite 400
St. Louis Park, Minnesota 55426-0365
Re: Access Financial Lending Corp.
Asset Backed Securities
-----------------------
Ladies and Gentlemen:
We have acted as counsel to Access Financial Lending Corp.
(the "Registrant") in connection with the preparation and filing of a
registration statement on Form S-3 (the "Registration Statement") being filed
today with the Securities and Exchange Commission pursuant to the Securities Act
of 1933, as amended (the "Act"), in respect of Mortgage Loan Asset Backed
Securities ("Securities") which the Registrant plans to offer in series. Our
advice formed the basis for the description of federal income tax consequences
appearing under the heading "Certain Federal Income Tax Considerations" in the
prospectus contained in the Registration Statement. Such description does not
purport to discuss all possible federal income tax considerations of an
investment in Securities, but with respect to those tax considerations which are
discussed in our opinion, the description is accurate.
We hereby consent to the filing of this letter as an Exhibit
to the Registration Statement and to the reference to Dewey Ballantine in the
Registration Statement and related prospectus under the heading "Certain Federal
Income Tax Considerations."
Very truly yours,
Dewey Ballantine
<PAGE>
<PAGE>
SUBJECT TO COMPLETION, DATED __________, 199_
PROSPECTUS SUPPLEMENT
(To Prospectus Dated , 1996)
- --------------------------------------------------------------------------------
$____________
___________ Mortgage Loan Trust 199 -
Mortgage Loan Pass-Through Certificates, Series 199 -
- --------------------------------------------------------------------------------
$ % Class A-1 Group I Certificates, Variable Pass-Through Rate
$ % Class A-2 Group I Certificates, ____% Pass-Through Rate
$ % Class A-3 Group I Certificates, ____% Pass-Through Rate
$ % Class A-4 Group I Certificates, ____% Pass-Through Rate
$ % Class A-5 Group I Certificates, ____% Pass-Through Rate
$ % Class A-6 Group II Certificates, Variable Pass-Through Rate
- --------------------------------------------------------------------------------
Access Financial Lending Corp.
Company
- --------------------------------------------------------------------------------
The ________________ Mortgage Loan Asset Backed Certificates, Series 199 - (the
"Certificates") will consist of six classes of offered certificates, the Class
A-1 Group I Certificates, the Class A-2 Group I Certificates, the Class A-3
Group I Certificates, the Class A-4 Group I Certificates, the Class A-5 Group I
Certificates (collectively, the "Class A Group I Certificates") and the Class
A-6 Group II Certificates (together with the Class A Group I Certificates, the
"Class A Certificates") which represent beneficial ownership interests in
__________ Mortgage Loan Trust 19__-__ (the "Trust"). The assets of the Trust
consist primarily of a pool (the "Pool") of fixed and adjustable rate,
amortizing mortgage loans which are secured by first or second liens on
residential properties (the "Mortgage Loans"), [funds on deposit in a trust
account (the "Pre-Funding Account") to be established with the Trustee] and the
Certificate Insurance Policy (as defined below; See the Index of Principal
Definitions on page i hereof) covering the Class A Certificates.
The Company has obtained a financial guaranty insurance policy (the "Certificate
Insurance Policy") from (the "Certificate Insurer") which will unconditionally
and irrevocably guarantee payment of certain amounts due to the Owners of the
Class A Certificates to the extent described herein; see "The Certificate
Insurance Policy and the Certificate Insurer -- The Certificate Insurance
Policy" in this Prospectus Supplement.
(Cover continued on next page)
- --------------------------------------------------------------------------------
For a discussion of certain risk factors regarding an investment in the Class A
Certificates, see "Risk Factors" on page S-17 herein and on page 15 of the
accompanying Prospectus.
- --------------------------------------------------------------------------------
___________________ (the "Underwriters") have agreed to purchase from the Trust
the Class A-1 Group I Certificates at an aggregate price of _____% of the
principal amount thereof, the Class A-2 Group I Certificates at an aggregate
price of _____% of the principal amount thereof, the Class A-3 Group I
Certificates at an aggregate price of _____% of the principal amount thereof,
the Class A-4 Group I Certificates at an aggregate price of _____% of the
principal amount thereof, the Class A-5 Group I Certificates at an aggregate
price of _____% of the principal amount thereof, and the Class A-6 Group II
Certificates at an aggregate price of _____% of the principal amount thereof
(representing $________ aggregate proceeds to the Company before deducting
expenses payable by the Company, estimated at $_______) plus accrued interest,
if any, from _________, 199 for the Class A-2, A-3, A-4 and A-5 Group I
Certificates subject to the terms and conditions set forth in the Underwriting
Agreement dated ______, 199 among the Underwriters and the Company. See
"Underwriting" in this Prospectus Supplement.
The Underwriters propose to offer the Class A Certificates from time to time for
sale in negotiated transactions or otherwise, at market prices prevailing at the
time of sale or at negotiated prices. For further information with respect to
the plan of distribution and any discounts, commissions or profits on resale
that may be deemed underwriting discounts or commissions, see "Underwriting" in
this Prospectus Supplement.
- --------------------------------------------------------------------------------
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 NOR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
The Class A Certificates are offered hereby by the Underwriters when, as and if
issued by the Trust, delivered and accepted by the Underwriters and subject to
their right to reject orders in whole or in part. It is expected that delivery
of the Class A Certificates will be made in book-entry form only through the
facilities of The Depository Trust Company, CEDEL, S.A. and Euroclear on or
about ________, 199 against payment in immediately available funds.
[NAME(S) OF UNDERWRITER(S)]
__________ , 199
<PAGE>
<PAGE>
(Cover continued from previous page)
The Class A Group I Certificates will represent undivided ownership
interests in a group ("Group I") of Mortgage Loans in the Trust which bear fixed
rates of interest and the Class A-6 Group II Certificates will represent
undivided ownership interests in a group ("Group II") of Mortgage Loans in the
Trust which bear adjustable rates of interest. Group I and Group II are
collectively referred to herein as the "Mortgage Loan Groups" and each
singularly, a "Mortgage Loan Group".
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement ("Pooling and Servicing Agreement") among Access Financial Lending
Corp. (the "Company"), __________, __________ (the "Master Servicer") and (the
"Trustee"). On or prior to the Closing Date, the Company will acquire the
Initial Mortgage Loans from the Originators, as described herein. In addition to
the Class A Certificates, the Trust will also issue a subordinate Class of
Certificates with respect to Group I (the "Class B Group I Certificates"), a
subordinate Class of Certificates with respect to Group II (the "Class B Group
II Certificates", together with the Class B Group I Certificates, the "Class B
Certificates") and one or more Classes of Residual Certificates. Only the Class
A Certificates are offered hereby. Distributions of interest on the Class A
Certificates are of an equal priority to the extent described herein, and
distributions on the Class B Certificates and on the Residual Certificates are
subordinate to distributions on the Class A Certificates to the extent described
herein. See "Description of the Certificates" herein.
[The Pooling and Servicing Agreement provides that additional mortgage
loans (the "Subsequent Mortgage Loans") are intended to be purchased by the
Trust from the Company from time to time on or before , 199
from funds on deposit in the Pre-Funding Account. Any Subsequent Mortgage Loan
so acquired by the Trust will be assigned to one (and only one) of the two
Mortgage Loan Groups. On the Closing Date an aggregate cash amount not to exceed
$________ will be deposited with the Trustee in the Pre-Funding Account; amounts
not to exceed $________, and $________ of such aggregate amount will be funded
from the sale of the Group I Certificates and the Group II Certificates,
respectively, and may be used to acquire Subsequent Mortgage Loans with respect
to Group I and Group II, respectively.]
All of the Mortgage Loans were originated under the Company's Mortgage
Loan Program by unaffiliated originators (the "Originators"). Except for certain
representations and warranties relating to the Mortgage Loans and certain other
matters, Access Financial Lending Corp., _________________, the Master Servicer,
any Sub-Servicers and the Originators will have no obligations with respect to
the Certificates.
Distributions of principal and interest on the Class A Certificates
will be made to the extent funds are available therefor on the day of each month
or if such day is not a business day, on the next succeeding business day
commencing , 199 (each, a "Payment Date") to holders of record as of the close
of business on the first business day of the current calendar month (with
respect to the Class A Fixed Rate Certificates) or as of the close of business
on the business on the business day immediately preceding such Payment Date
(with respect to the Class A-1 Group I Certificates and the Class A-6 Group II
Certificates), except in the case of the first Payment Date, on which
distributions will be made to holders of record as of the Closing Date (each
such date being the applicable "Record Date").
An ERISA Plan purchasing the Class A Certificates should consult with
its legal advisors concerning the impact of ERISA and the Code with respect to
such purchase. See "Risk Factors" and "ERISA Considerations" herein.
There is currently no secondary market for any Class of the Class A
Certificates. There can be no assurance that a secondary market for any of the
Class A Certificates will develop, or if it does develop, that it will continue.
One or more elections will be made to treat certain assets of the Trust
as "real estate mortgage investment conduits" ("REMICs") for federal income tax
purposes, pursuant to the Internal Revenue Code of 1986, as amended (the
"Code"). See "Federal Tax Consequences" herein.
S-2
<PAGE>
<PAGE>
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT
THE OFFERING OF THE SECURITIES. ADDITIONAL INFORMATION IS CONTAINED IN THE
PROSPECTUS AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE SECURITIES MAY NOT BE
CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A
CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
THE CERTIFICATE INSURANCE POLICY IS NOT COVERED BY THE
PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW
YORK INSURANCE LAW.
THE CLASS A CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY AND DO
NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF ACCESS FINANCIAL LENDING CORP., THE
TRUSTEE, THE CERTIFICATE INSURER, ANY SUB-SERVICER OR ANY OF THEIR RESPECTIVE
AFFILIATES. THE CLASS A CERTIFICATES AND THE MORTGAGE LOANS ARE NOT INSURED OR
GUARANTEED BY ANY GOVERNMENTAL AGENCY, NOR HAS ANY GOVERNMENTAL AGENCY PASSED
UPON THE ACCURACY OF THE INFORMATION CONTAINED IN THIS PROSPECTUS.
AVAILABLE INFORMATION
The Company has filed a Registration Statement under the Securities Act
of 1933, as amended, (the "1933 Act") with the Securities and Exchange
Commission (the "Commission") on behalf of the Trust with respect to the Class A
Certificates offered pursuant to this Prospectus Supplement and the related
Prospectus. For further information, reference is made to the Registration
Statement and amendments thereof and to the exhibits thereto, which are
available for inspection without charge at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549;
7 World Trade Center, 13th Floor, New York, New York 10048; and 500 West Madison
Street, Chicago, Illinois 60661. Copies of the Registration Statement and
amendments thereof and exhibits thereto may be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. In addition, the Commission maintains a site on the
world wide web at http://www.sec.gov containing reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission.
REPORTS TO THE HOLDERS
So long as the Class A Certificates are in book-entry form, monthly and
annual reports concerning such Certificates and the Trust will be sent by the
Trustee to Cede & Co. ("Cede"), as the nominee of The Depository Trust Company
("DTC") and as registered holder of the Class A Certificates pursuant to the
Pooling and Servicing Agreement. DTC will forward such reports to the
Participants and indirect participants by mail for forwarding to the Owner of
any Class A Certificates (the "Owner" or "Certificateholder"). See "Risk
Factors" and "Description of the Certificates -- Reports to Owners". The Trust
will not provide any financial information to the Owners which has been examined
and reported upon, with an opinion expressed by, an independent public
accountant. The Company and the Master Servicer have determined that their
respective financial statements are not material to the offering made hereby.
The Trust will have no assets or obligations prior to issuance of the
Certificates and will engage in no activities other than those described herein.
Accordingly, no financial statements with respect to the Trust are included in
this Prospectus Supplement and the related Prospectus. The audited financial
statements of the Certificate Insurer are set forth in Appendix A hereto.
S-3
<PAGE>
<PAGE>
SUMMARY
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus. Reference is made to the Indices of Principal
Definitions for the location in either the Prospectus or this Prospectus
Supplement of the definitions of certain capitalized terms.
<TABLE>
<S> <C>
Issuer Access Financial Mortgage Loan Trust 199_-_
(the "Trust").
Securities Offered $________ aggregate principal amount of
Class A-1 Group I Certificates, Variable
Pass-Through Rate; $_________ aggregate
principal amount of Class A-2 Group I
Certificates, ____% Pass-Through Rate;
$________ aggregate principal amount of
Class A-3 Group I Certificates, ____%
Pass-Through Rate; $________ aggregate
principal amount of Class A-4 Group I
Certificates, ____% Pass-Through Rate;
$________ aggregate principal amount of
Class A-5 Group I Certificates, ____%
Pass-Through Rate; and $________ aggregate
principal amount of Class A-6 Group II
Certificates.
Company Access Financial Lending Corp., a Delaware
corporation ("AFL") and a wholly-owned
subsidiary of Access Financial Holdings
Corp., a wholly-owned subsidiary of Cargill
Financial Services Corporation (the
"Company").
Master Servicer ___________________ (the "Master Servicer").
Trustee ____________________ (the "Trustee").
Originators of the
Mortgage Loans The Mortgage Loans to be acquired by
the Trust have been acquired by the Company
from the Originators, in accordance with the
Company's underwriting criteria.
Original Pool Principal
Balance $_________ as of the close of business on
the Cut-Off Date.
Original Group I
Pool Principal Balance $_________ as of the close of business on
the Cut-Off Date.
Original Group II
Pool Principal Balance $_________ as of the close of business on
the Cut-Off Date.
Closing Date ________, 199_.
Cut-Off Date ________, 199_.
</TABLE>
S-4
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Description of the
Certificates The Certificates will be issued by the Trust
pursuant to a Pooling and Servicing
Agreement to be dated as of ________, 199_
(the "Pooling and Servicing Agreement")
among the Master Servicer, the Company and
the Trustee. The $_________ aggregate
principal amount of Class A Group I
Certificates, comprised of five "sequential
pay" Classes (the "Class A Group I
Certificates") and the $________ aggregate
principal amount of Class A-6 Group II
Certificates (the "Class A-6 Group II
Certificates") are senior certificates as
described herein.
The assets of the Trust initially will
include two groups (each, a "Mortgage Loan
Group") of closed-end mortgage loans (the
"Initial Mortgage Loans") secured by
mortgages or deeds of trust (the
"Mortgages") on one-to-four family
residential properties (the "Mortgaged
Properties") to be conveyed to the Trust on
the Closing Date [and funds on deposit in a
trust account (the "Pre-Funding Account") to
be established with the Trustee.] The Group
I Certificates will represent undivided
ownership interests in a group of fixed-rate
Mortgage Loans ("Group I"). The Group II
Certificates will represent undivided
ownership interests in a group of
adjustable-rate Mortgage Loans ("Group II").
[The Pooling and Servicing Agreement provides
that additional mortgage loans (the
"Subsequent Mortgage Loans") are intended to
be purchased by the Trust from the Company
from time to time on or before __________,
199_ from funds on deposit in the
Pre-Funding Account. Any Subsequent Mortgage
Loan so acquired by the Trust will be
assigned to one (and only one) of the
Mortgage Loan Groups. On the Closing Date an
aggregate cash amount not to exceed
$________ will be deposited with the Trustee
in the Pre-Funding Account; amounts not to
exceed $________ and $________ of such
aggregate amount will be funded from the
sale of the Group I Certificates and the
Group II Certificates, respectively, and may
be used to acquire Subsequent Mortgage Loans
with respect to Group I and Group II,
respectively.]
The Trust will issue a subordinate Class of
Certificates with respect to Group I (the
"Class B Group I Certificates") and a
subordinate Class of Certificates with
respect to Group II (the "Class B Group II
Certificates", and together with the Class B
Group I Certificates, the "Class B
Certificates"), which are subordinated to
the Class A Group I Certificates and the
Class A-6 Group II Certificates,
respectively. The Class B Certificates are
not being offered hereby. The Trust will
also issue one residual class of
Certificates with respect to each REMIC
election made by the Trust (the "Residual
Certificates") which are not being offered
hereby and will initially be retained by the
Company or its affiliates. The Class A Group
I Certificates, the Class A-6 Group II
Certificates, the Class B Group I
Certificates, the Class B Group II
Certificates and the Residual Certificates
are collectively referred to as the
"Certificates". The Class A Group I
Certificates and the Class A-6 Group II
Certificates are collectively referred to as
the "Class A Certificates".
A. Class A Group I The Class A Group I Certificates represent
Certificates senior beneficial ownership interests in
Group I. One hundred percent (100%) of the
Group I Insured Distribution Amount (as
described herein under "Description of the
</TABLE>
S-5
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Certificates") due to the Owners of the
Class A Group I Certificates on each Payment
Date is guaranteed by the Certificate
Insurer. The final scheduled Payment Date
for the Class A-1 Group I Certificates is
________, for the Class A-2 Group I
Certificates is ________, for the Class A-3
Group I Certificates is ________, for the
Class A-4 Group I Certificates is ________
and for the Class A-5 Group I Certificates
is ________. Each Class of Class A Group I
Certificates is issuable in original
principal amounts of $1,000 and integral
multiples thereof except that one
certificate for each Class of Class A Group
I Certificates may be issued in a different
amount.
B. Class A-6 Group
II Certificates The Class A-6 Group II Certificates
represent senior beneficial ownership
interests in Group II. One hundred percent
(100%) of the Group II Insured Distribution
Amount (as described herein under
"Description of the Certificates") due to
the Owners of the Class A-6 Group II
Certificates on each Payment Date is
guaranteed by the Certificate Insurer. The
final scheduled Payment Date for the Class
A-6 Group II Certificates is ________. The
Class A-6 Group II Certificates are issuable
in original principal amounts of $1,000 and
integral multiples thereof except that one
certificate may be issued in a different
amount.
The Mortgage Loan
Pool The statistical information concerning the
Pool of Mortgage Loans is based upon Pool
information as of the close of business on
________, 199_ (the "Cut-Off Date").
The Pool of Mortgage Loans consists of Notes
secured by mortgages, deeds of trust or
other instruments creating liens or estates
in fee simple interests ("Mortgages") on
one- to four-family residential properties,
including investment properties. The
Mortgage Loans will not be insured by
primary mortgage insurance policies, nor
will any pool insurance insure the Mortgage
Loans. The Mortgage Loans are not guaranteed
by the Company, the Master Servicer, the
Sub-Servicers, the Trustee or any of their
respective affiliates. The Mortgage Loans
will be serviced by the Master Servicer on a
"scheduled/actual" basis (i.e., "scheduled"
interest and "actual" principal receipts are
required to be remitted by the Master
Servicer to the Trustee each month).
The Subsequent Mortgage Loans to be
purchased by the Trust, if available, will
be originated on or prior to ____________,
199_ by one or more of the Originators, sold
by such Originators to the Company and then
sold by the Company to the Trust. Any
Subsequent Mortgage Loans sold to the Trust
will be assigned to one (and only one) of
the two Mortgage Loan Groups. The Pooling
and Servicing Agreement will provide that
the Mortgage Loans in each Mortgage Loan
Group, following the conveyance of any
Subsequent Mortgage Loans to such Mortgage
Loan Group, must in the aggregate conform to
certain specified characteristics. See "The
Mortgage Loan Pool--Conveyance of Subsequent
Mortgage Loans."
Each Mortgage Loan in the Trust will be
assigned to one of two mortgage loan groups
("Group I" or the "Group II", each, a
"Mortgage Loan Group") comprised of Mortgage
Loans which bear fixed-interest rates only
in the case of Group I, and Mortgage Loans
which bear adjustable interest rates only in
</TABLE>
S-6
<PAGE>
<PAGE>
<TABLE>
<S> <C>
the case of Group II. As of the Cut-Off
Date, the Initial Mortgage Loans in Group I
had an aggregate principal balance of
approximately $________ (the "Original Group
I Pool Principal Balance"), and the Initial
Mortgage Loans in the Group II had an
aggregate principal balance of approximately
$________ (the "Original Group II Pool
Principal Balance"). The sum of the Original
Group I Pool Principal Balance and the
Original Group II Pool Principal Balance is
equal to the "Original Pool Principal
Balance".
The Pool of Initial Mortgage Loans in Group
I consists of approximately ____ Mortgages
secured by Mortgaged Properties located in
__ states and the District of Columbia. The
Pool of Initial Mortgage Loans in Group I
consists as of the Cut-Off Date and as a
percentage of the Original Group I Pool
Principal Balance, of approximately ____% of
loans secured by first liens on the related
Mortgaged Properties and approximately ____%
of loans secured by second liens on the
related Mortgaged Properties. The Pool of
Initial Mortgage Loans in Group I consists
of approximately ____% of loans secured by
primary residences. ____% of the Initial
Mortgage Loans in Group I will be fully
amortizing and ____% of the Initial Mortgage
Loans in Group I are "balloon loans"
("Balloon Loans"). The weighted average
Combined Loan-to-Value Ratio (with property
values calculated as of the time of
origination of the related Mortgage Loan) of
the Pool of Initial Mortgage Loans in Group
I is approximately ____% with a range from
approximately ____% to approximately ____%
the weighted average remaining term to
maturity is approximately ___ months, with a
range from ___ months to ___ months; the
weighted average number of months since
origination is approximately ___; the
average principal balance of the Initial
Mortgage Loans in Group I is approximately
$________, the highest principal balance is
approximately $________ and the lowest
principal balance is approximately
$________; the Coupon Rates (the "Coupon
Rates") of the Initial Mortgage Loans in
Group I range from ____% per annum to ____%
per annum, with a weighted average Coupon
Rate of approximately ____% per annum.
The Pool of Initial Mortgage Loans in Group
II consists of ___ Mortgages secured by
Mortgaged Properties located in ___ states
and the District of Columbia. The Pool of
Initial Mortgage Loans in Group II consists
as of the Cut-Off Date and as a percentage
of the Original Group II Pool Principal
Balance, of ___% of loans secured by first
liens on the related Mortgaged Properties.
The Pool of Initial Mortgage Loans in Group
II consists of approximately ____% of loans
secured by primary residences. ____% of the
Initial Mortgage Loans in Group II will be
fully amortizing and ____% of the Initial
Mortgage Loans in Group II are Balloon
Loans. The weighted average Combined
Loan-to-Value Ratio (with property values
calculated as of the time of origination of
the related Mortgage Loan) of the Pool of
Initial Mortgage Loans in Group II is
approximately ____% with a range from
approximately ____% to approximately ____%;
the weighted average remaining term to
maturity is approximately ____ months, with
a range from ____ months to ____ months; the
weighted average number of months since
origination is approximately ___; the
average principal balance of the Initial
Mortgage Loans in Group II is approximately
$________, the highest principal balance is
approximately $________ and the lowest
principal balance is approximately
$_________; the Coupon Rates of the Initial
Mortgage Loans in Group II range from ____%
per annum to ____% per
</TABLE>
S-7
<PAGE>
<PAGE>
<TABLE>
<S> <C>
annum, with a weighted average Coupon Rate
of approximately ____% per annum; the
margins of the Initial Mortgage Loans in
Group II range from ____% to ____% with a
weighted average margin of approximately
____% per annum. The Coupon Rates of
Mortgage Loans in Group II bear interest
rates that adjust semi-annually based on
six-month LIBOR. In general the interest
rates on the Mortgage Loans in Group II are
subject to periodic interest rate caps and
interest rate ceilings.
[Following the initial Cut-Off Date, the
Trust will be obligated to purchase from
time to time on or before ________________,
199_ subject to the availability thereof,
Subsequent Mortgage Loans which will be
originated on or before ___________________,
199_ by one or more Originators, and
acquired by the Company from such
Originators for subsequent sale to the Trust
pursuant to a Purchase Agreement (the
"Purchase Agreement") between the Company
and the Trust. Any Subsequent Mortgage Loans
sold to the Trust will be assigned to one
(and only one) of the two Mortgage Loan
Groups. The aggregate principal amounts of
Subsequent Mortgage Loans which may be
acquired by the Trust and assigned to Group
I and Group II are $________________ and
$__________________, respectively. In
connection with each purchase of Subsequent
Mortgage Loans, the Trust will be required
to pay to the Company a cash purchase price
of 100% of the principal amount thereof from
the Pre-Funding Account. Under the Pooling
and Servicing Agreement, the Company will be
obligated to sell Subsequent Mortgage Loans
to the Trust and the Trust will be
obligated, subject to the satisfaction of
certain conditions described herein, to
purchase such Subsequent Mortgage Loans. The
Company will designate as a cut-off date
(each a "Subsequent Cut-Off Date") the first
day of the month in which Subsequent
Mortgage Loans will be conveyed by the
Company to the Trust (each a "Subsequent
Transfer Date") occurring during the Funding
Period (as defined herein). The Trust may
purchase the Subsequent Mortgage Loans only
from the Company and not from any other
person.]
[Pre Funding Account On the Closing Date an aggregate cash amount
(the "Pre-Funded Amount"), which shall not
exceed $___________, will be deposited with
the Trustee in an account in the name of the
Trustee on behalf of the Trust (the
"Pre-Funding Account"); amounts not to
exceed $_______________ and $______________
of such aggregate amount will be funded from
the sale of the Group I Certificates and the
Group II Certificates, respectively, and may
be used to acquire subsequent Mortgage Loans
with respect to Group I and Group II,
respectively. During the period (the
"Funding Period") from the Closing Date
until the earliest of the date on which (i)
the amount on deposit in the Pre-Funding
Account with respect to each Mortgage Loan
Group is less than $100,000, (ii) an Event
of Default occurs under the Pooling and
Servicing Agreement, or (iii) the
______________, 199_ Payment Date occurs,
the Pre-Funded Amount will be maintained in
the Pre-Funding Account. The Pre-Funding
Account will be reduced during the Funding
Period by the amount thereof used to
purchase Subsequent Mortgage Loans in
accordance with the Pooling and Servicing
Agreement. The Company expects that the
Pre-Funded Amount will be reduced to less
than $100,000 with respect to each Mortgage
Loan Group by the __________________, 199_
Payment Date. Any Pre-Funded Amount
remaining at the end of the Funding Period
will be used to prepay pro rata the Class A
Certificates of the related Class on the
________________, 199_ Payment Date; the
Pooling and Servicing Agreement does not
permit Pre-Funding Account moneys
</TABLE>
S-8
<PAGE>
<PAGE>
<TABLE>
<S> <C>
funded from the sale of one Class of Class A
Certificates to be used to acquire Mortgage
Loans relating to either of the other
Classes of Class A Certificates.]
Class A-1 Pass-
Through Rate On each Payment Date, the "Class A-1
Pass-Through Rate" will be equal to the
least of (i) the London interbank offered
rate for one-month United States dollar
deposits ("LIBOR") (calculated as described
under "Description of the Certificates--
Calculation of LIBOR") as of the second to
last business day prior to the immediately
preceding Payment Date (or as of the second
to the last business day prior to the
Closing Date in the case of the first
Payment Date) plus ____% per annum, (ii) the
weighted average net coupon rate (i.e., the
weighted average coupon rate less ____% for
Servicing Fees, Trustee fees and Certificate
Insurer premiums) for Group I for such
Payment Date, and (iii) ____% per annum.
Class A-2 Pass-
Through Rate ____% per annum.
Class A-3 Pass-
Through Rate ____% per annum.
Class A-4 Pass-
Through Rate ____% per annum.
Class A-5 Pass-
Through Rate ____% per annum.
Class A-6 Pass-
Through Rate On each Payment Date, the "Class A-6
Pass-Through Rate" will be equal to the
lesser of (i) LIBOR as of the second to last
business day prior to the immediately
preceding Payment Date (or as of the second
to the last business day prior to the
Closing Date in the case of the first
Payment Date) plus ____% per annum, and (ii)
the weighted average net coupon rate (i.e.,
the weighted average coupon rate less
Servicing Fees, Trustee fees and Certificate
Insurer premiums) for Group II for such
Payment Date (the "Class A-6 Available Funds
Pass-Through Rate").
The "Class A-6 Formula Pass-Through Rate"
for a Payment Date is the rate described in
clause (i) of the definition of "Class A-6
Group II Pass-Through Rate" on such Payment
Date. The excess, if any, of (x) the
interest due on the Class A-6 Certificates
on any Payment Date calculated at the Class
A-6 Formula Pass-Through Rate over (y) the
interest due on the Class A-6 Certificates
calculated at the Class A-6 Available Funds
Pass-Through Rate is the "Supplemental
Interest Amount" for such Payment Date.
If, on any Payment Date, there is a
Supplemental Interest Amount calculated for
any Payment Date, the Owners of certain of
the Class R Certificates have agreed to pay
such amount. If the full amount of the
Supplemental Interest Amount is not paid on
a Payment Date, then the amount not paid
will accrue interest at the Class A-6
Formula Pass-Through Rate until actual
payment.
</TABLE>
S-9
<PAGE>
<PAGE>
<TABLE>
<S> <C>
The Certificate Insurer does not guarantee
the payment of, nor do the ratings assigned
to the Class A-6 Certificates address the
likelihood of the payment of, any
Supplemental Interest Amount.
Payment Dates, Record Dates
and Accrual Periods On the ____ day of each month, or, if such
day is not a business day, then the next
succeeding business day, commencing
________, 199_ (each such day being a
"Payment Date"), the Trustee will be
required to distribute to the Owners of
record of the Certificates as of the close
of business on the first business day of the
current calendar month (with respect to the
Class A Fixed Rate Certificates) or as of
the close of business on the business day
immediately preceding such Payment Date
(with respect to the Class A-1 Group I
Certificates and the Class A-6 Group II
Certificates), except in the case of the
first Payment Date, on which distributions
will be made to holders of record as of the
Closing Date (each such date being the
applicable "Record Date") such Owners'
Percentage Interests in the amounts required
to be distributed to the Owners of each
Class of Certificates on such Payment Date.
Interest will accrue on each Class A-2, A-3,
A-4 and A-5 Group I Certificate during the
period from and including the second day of
the month preceding the month in which a
Payment Date occurs through and including
the first day of the month in which such
Payment Date occurs and on each Class A-1
Group I Certificate and Class A-6 Group II
Certificate from and including each Payment
Date (or the Closing Date, with respect to
the initial Payment Date) to and including
the day preceding the current Payment Date.
Each period referred to in the immediately
preceding sentence relating to the accrual
of interest is the "Accrual Period" for the
related Class of Certificates. Interest will
be calculated on the basis of a 360-day year
consisting of twelve 30-day months for the
Class A-2, A-3, A-4 and A-5 Group I
Certificates. Interest for the Class A-1
Group I Certificates and the Class A-6 Group
II Certificates will be calculated based
upon the actual number of days in the
related Accrual Period, divided by 360.
Distributions on the
Certificates
A. Priority of
Distributions As more fully described herein, each Class
of Certificates has a specified priority to
the collections on the Pool of Mortgage
Loans which comprise the related Mortgage
Loan Group, subject to the credit
enhancement and cross-collateralization
provisions hereinafter described. In
addition, _______________________, as
Certificate Insurer, is required pursuant to
the Certificate Insurance Policy to make
available to the Trustee on each Payment
Date 100% of the related Class A Insured
Distribution Amount for the related Mortgage
Loan Group to the extent that available
funds remaining after payment of the
Certificate Insurer's premium and the
Trustee's fee are insufficient to cover such
amount.
The Owners of the Class A Group I
Certificates and the Class A-6 Group II
Certificates will receive certain monthly
distributions of principal on each Payment
Date which generally reflect collections of
principal during the prior Remittance Period
with respect to the related Mortgage Loan
Group.
</TABLE>
S-10
<PAGE>
<PAGE>
<TABLE>
<S> <C>
The Certificate Insurance Policy only
guarantees the amount by which the sum of
the related Interest Distribution Amount and
the related Subordination Deficit, if any,
exceeds Total Available Funds.
B. Distributions on
the Class A
Certificates
1. Interest Interest will accrue on each Class of Class
Distributions A Certificates at the related Class A
Pass-Through Rate during each Accrual Period
for such Class of Certificates, and will be
distributed, to the extent of the Total
Available Funds for the related Mortgage
Loan Group plus the proceeds of any Insured
Payments, on each Payment Date. Interest
accruing during the related Accrual Period
at the related Class A Pass-Through Rate on
the related Class A Principal Balance
immediately preceding such Payment Date is
referred to herein as the "Class A Interest
Distribution Amount" for the related Class
of Class A Certificates. The "Class A
Interest Distribution Amount" does not
include the amounts, if any, of the
Supplemental Interest Amount applicable to
the Class A-6 Group II Certificates. See
"Description of the Certificates -- Flow of
Funds and Distributions on the Class A
Certificates" herein.
2. Principal The Holders of the Class A Certificates
Distributions issued with respect to each Mortgage Loan
Group will be entitled to receive on each
Payment Date a distribution allocable to
principal (the "Class A Principal
Distribution Amount" for such Mortgage Loan
Group and Payment Date) which will be equal
to the lesser of:
(a) the Total Available Funds for the
related Mortgage Loan Group plus any
related Insured Payment minus the
interest then due on account of the
related Class A Certificates; and
(b) (i)the sum, without duplication, of:
(x) for the Mortgage Loans in the
related Mortgage Loan Group,
the sum of (i) the principal
portion of all scheduled and
unscheduled payments received
on the Mortgage Loans during
the related Remittance Period,
including (a) any full or
partial principal prepayments
of any Mortgage Loans
("Prepayments") received
during the related Remittance
Period, (b) the proceeds
received on any insurance
policy relating to a Mortgage
Loan, a Mortgaged Property or
a REO Property, net of
proceeds to be applied to the
repair of the Mortgaged
Property or released to the
Mortgagor (as defined herein)
and net of expenses
reimbursable therefrom
("Insurance Proceeds"), (c)
proceeds received in
connection with the
liquidation of any defaulted
Mortgage Loans, whether by
trustee's sale, foreclosure
sale or otherwise
("Liquidation Proceeds"), net
of fees and advances
reimbursable therefrom ("Net
Liquidation Proceeds") and (d)
proceeds received in
connection with a taking of a
Mortgaged Property by
condemnation or the exercise
of eminent domain or in
connection with a release of
part of
</TABLE>
S-11
<PAGE>
<PAGE>
<TABLE>
<S> <C>
the Mortgaged Property from
the related lien ("Released
Mortgaged Property Proceeds"),
(ii) the principal portion of
all amounts deposited into the
Principal and Interest Account
on the related Remittance Date
in connection with the
repurchase of, or the
substitution of a
substantially similar mortgage
loan for, a Mortgage as to
which there is defective
documentation or a breach of a
representation or warranty
contained in the Pooling and
Servicing Agreement, [(iii)
any moneys released from the
Pre-Funding Account at the end
of the Funding Period as a
prepayment of the related
Class of Class A
Certificates,] and (iv) the
proceeds received by the
Trustee in connection with
any termination of the
Trust, to the extent that such
proceeds relate to principal.
(y) the amount of any
Subordination Deficit with
respect to the related
Mortgage Loan Group for such
Payment Date; and
(z) the amount of any
Subordination Increase Amount
with respect to the related
Mortgage Loan Group for such
Payment Date, to the extent of
the Class B Interest available
to be applied for such purpose
for such Payment Date;
minus
(ii) the amount of any Subordination
Reduction Amount with respect to the
related Mortgage Loan Group for such
Payment Date.
The amount of any Subordination Deficit or
Subordination Increase Amount to be paid to
the Holders of the Class A Certificates will
be paid to the Holders of the Class A
Certificates then entitled to receive
distributions of principal. Similarly, the
amount of any Subordination Reduction Amount
to be deducted from the Class A Principal
Distribution Amount for the Class A
Certificates will be deducted from such
amounts otherwise due to the Holders of the
Class A Certificates then entitled to
receive distributions of principal.
The amount of any loss on a Liquidated
Mortgage Loan in the related Mortgage Loan
Group (i.e., a Realized Loss) may or may not
be allocated to the Owners of the Class A
Certificates issued with respect to such
Mortgage Loan Group on the Payment Date
which immediately follows the event of loss.
However, the Owners of each Class of the
Class A Certificates are entitled to receive
ultimate recovery of 100% of the original
principal balance for such Class.
The Class A Group I Certificates have been
tranched into five "sequential pay" Classes,
such that the Class A-5 Group I Certificates
are entitled to receive no principal
distributions until the Class A-4
Certificate Principal Balance has been
reduced to zero, the Class A-4 Group I
Certificates are entitled to receive no
principal distributions until the Class A-3
Certificate Principal Balance has been
reduced to zero, the Class A-3 Group I
Certificates are entitled to receive no
principal distributions until the Class A-2
Certificate Principal Balance has been
reduced to zero, and the Class A-
</TABLE>
S-12
<PAGE>
<PAGE>
<TABLE>
<S> <C>
2 Group I Certificates are entitled to
receive no principal distributions until the
Class A-1 Certificate Principal Balance has
been reduced to zero.
As of any Payment Date, the "Class A
Certificate Principal Balance" for a Class
of Class A Certificates, prior to any
distribution on such Payment Date, will
equal the original Class A Certificate
Principal Balance of such Class less the sum
of all amounts previously distributed to the
Owners of the related Class of Class A
Certificates on account of principal. "Class
A Group I Certificate Principal Balance"
refers to the Class A Group I Certificates,
and the "Class A Group II Certificate
Principal Balance" refers to the Class A-6
Group II Certificates.
C. Class A
Distribution Amounts
and Class A Insured The "Class A Distribution Amount" with
Distribution Amounts respect to each Class of Class A
Certificates and Payment Date is the sum,
without duplication, of (x) the Class A
Interest Distribution Amount with respect to
such Class and Payment Date, (y) the Class A
Principal Distribution Amount, if any, with
respect to such Class and Payment Date and
(z) the Class A Carry-Forward Amount, if
any, with respect to such Class and Payment
Date.
The "Class A Carry-Forward Amount" means,
with respect to each Class of Class A
Certificates and Payment Date, the sum,
without duplication, of (a) the amount, if
any, by which (x) the Class A Distribution
Amount for the related Class of Class A
Certificates as of the immediately preceding
Payment Date exceeded (y) the amount of the
actual distribution, exclusive of any
portion thereof representing the proceeds of
an Insured Payment, to the Owners of the
related Class of Class A Certificates on
such immediately preceding Payment Date and
(b) interest on the amount, if any,
described in clause (a) at the related Class
A Pass-Through Rate from such immediately
preceding Payment Date.
The "Class A Insured Distribution Amount"
with respect to each Class of Class A
Certificates and Payment Date is the sum,
without duplication, of (x) the Class A
Interest Distribution Amount with respect to
such Class and Payment Date, (y) the amount
of any Subordination Deficit with respect to
such Class and Payment Date and (z) the
Class A Carry-Forward Amount, if any, with
respect to such class and Payment Date.
To the extent that the Certificate Insurer
pays Insured Payments the Certificate
Insurer, as subrogee, will be entitled to
receive the Class A Carry-Forward Amount.
The Pooling and Servicing Agreement provides
that to the extent any portion of a Class A
Carry-Forward Amount relates to principal
such portion shall be treated as a
distribution of principal, with any portion
which relates to interest being treated as a
distribution of interest.
[Mandatory Prepayment Of the maximum original Pre-Funding Amount
of $________, maximum amounts of $________
and $________ will be funded from the
proceeds of the scale of the Group I
Certificates and the Group II Certificates,
respectively and may be used to acquire
Subsequent Mortgage Loans with respect to
Group I and Group II, respectively. In the
event that, on the
</TABLE>
S-13
<PAGE>
<PAGE>
<TABLE>
<S> <C>
199_ Payment Date, not all of the
$________ and $________ funded from the
proceeds of the sale of the Group I
Certificates and the Group II Certificates,
respectively, has been used to acquire
subsequent Mortgage Loans with respect to
the related Mortgage Loan Group, then the
related Class A Certificates will be prepaid
in part on such date, on a pro rata basis
with respect to the Owners of individual
Certificates of the related Group, from and
to the extent of such remaining amounts. The
Pooling and Servicing Agreement does not
permit Pre-Funding Account moneys funded
from the sale of one Group of Class A
Certificates to be used to acquire Mortgage
Loans relating to the other Group of Class A
Certificates.]
Registration of the
Class A Certificates The Class A Certificates will initially be
issued in book-entry form. Persons acquiring
beneficial ownership interests in such Class
A Certificates ("Beneficial Certificate
Owners") may elect to hold their interests
through The Depository Trust Company
("DTC"), in the United States, or Centrale
de Livraison de Valeurs Mobiliers, S.A.
("CEDEL") or the Euroclear System
("Euroclear"), in Europe. Transfers within
DTC, CEDEL or Euroclear, as the case may be,
will be in accordance with the usual rules
and operating procedures of the relevant
system. So long as the Class A Certificates
are book-entry certificates, such Class A
Certificates will be evidenced by one or
more Class A Certificates registered in the
name of Cede & Co. ("Cede"), as the nominee
of DTC or one of the relevant depositories
(collectively, the "European Depositories").
Cross-market transfers between persons
holding directly or indirectly through DTC,
on the one hand, and counterparties holding
directly or indirectly through CEDEL or
Euroclear, on the other, will be effected in
DTC through Citibank N.A. ("Citibank") or
Morgan Guaranty Trust Company of New York
("Morgan"), the relevant depositories of
CEDEL or Euroclear, respectively, and each a
participating member of DTC. The Class A
Certificates will initially be registered in
the name of Cede. The interests of the
Owners of such Class A Certificates will be
represented by book-entries on the records
of DTC and participating members thereof. No
Beneficial Certificate Owner will be
entitled to receive a definitive certificate
representing such person's interest, except
in the event that Definitive Certificates
(as defined herein) are issued under the
limited circumstances described herein. All
references herein to any Class A
Certificates reflect the rights of
Beneficial Certificate Owners only as such
rights may be exercised through DTC and its
participating organizations for so long as
such Class A Certificates are held by DTC.
See "Risk Factors" and "Description
of the Certificates -- Book-Entry
Registration of the Class A Certificates"
herein.
Servicing of the The Master Servicer has agreed to service
Mortgage Loans the Mortgage Loans in accordance with the
Pooling and Servicing Agreement. In certain
limited circumstances, the Master Servicer
may be removed as Master Servicer under the
Pooling and Servicing Agreement. In the
event that __________ is removed as Master
Servicer under the Pooling and Servicing
Agreement, a successor Master Servicer will
be appointed thereunder.
The Master Servicer has entered into certain
Sub-Servicing Agreements with respect to the
Mortgage Loans. See "The Company and the
Master Servicer."
</TABLE>
S-14
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Monthly Servicing Fee The Master Servicer will retain fees not in
excess of ____% per annum (the "Servicing
Fee"), payable monthly at one-twelfth the
annual rate, of the then outstanding
principal amount of each Mortgage Loan
serviced by it as of the close of business
on the first day of the preceding calendar
month.
Subordination of Class B The Class B Certificates are subordinated to
Certificates the Class A Certificates. Such subordination
is intended to enhance the likelihood that
the Owners of the Class A Certificates will
receive full and timely receipt of all
amounts due to them. See "Description of the
Certificates -- Subordination of Class B
Certificates" herein.
Certificate
Insurer __________________, a _________________.
Certificate The Company will obtain the Certificate
Insurance Policy Insurance Policy, which is non-cancelable,
in favor of the Trustee on behalf of the
Owners of the Class A Certificates. On each
Payment Date, the Certificate Insurer is
required to make available to the Trustee
the amount of any insufficiency in Total
Available Funds for the related Mortgage
Loan Group as of such Payment Date necessary
to distribute the Class A Insured
Distribution Amount with respect to the
related Mortgage Loan Group. The Certificate
Insurance Policy does not guarantee any
specified rate of Prepayments. See "The
Certificate Insurance Policy and the
Certificate Insurer" and "Description of the
Certificates--Subordination of Class B
Certificates" herein.
The Trustee or paying agent will (i) receive
as attorney-in-fact of each Owner of the
Class A Certificates, any Insured Payment
from the Certificate Insurer and (ii)
disburse the same to each Owner of the
related Class A Certificates in accordance
with the Pooling and Servicing Agreement.
The Pooling and Servicing Agreement will
provide that to the extent the Certificate
Insurer makes Insured Payments, either
directly or indirectly (as by paying through
the Trustee or a paying agent), to the
Owners of any Class A Certificates, the
Certificate Insurer will be subrogated to
the rights of such Owners of such Class A
Certificates with respect to such Insured
Payments. The Certificate Insurer will
receive reimbursement for such Insured
Payments, but only from the sources and in
the manner provided in the Pooling and
Servicing Agreement. Such subrogation and
reimbursement will have no effect on the
Certificate Insurer's obligations under the
Certificate Insurance Policy.
Optional The Company will have the right to purchase
Termination all the Mortgage Loans on any Payment Date
when the aggregate principal balances of the
Mortgage Loans has declined to ten percent
or less of the Original Pool Principal
Balance (the "Company Optional Termination
Date"). See "Description of the Certificates
-- Optional Termination by the Company"
herein.
Auction Sale The Pooling and Servicing Agreement requires
that, within ninety days following the
Company Optional Termination Date, if the
Company has not exercised its optional
termination right by such date, the Trustee
shall solicit bids for the purchase of all
Mortgage Loans remaining in the Trust. In
the event that satisfactory bids are
received as described in the Pooling and
Servicing Agreement, the net sale proceeds
will be distributed to Certificateholders,
in the same order of priority as collections
received in respect of the Mortgage Loans.
If satisfactory bids are not received, the
Trustee shall decline to sell the Mortgage
Loans and shall not be under any
</TABLE>
S-15
<PAGE>
<PAGE>
<TABLE>
<S> <C>
obligation to solicit any further bids or
otherwise negotiate any further sale of the
Mortgage Loans. Such sale and consequent
termination of the Trust must constitute a
"qualified liquidation" of each REMIC
established by the Trust under Section 860F
of the Internal Revenue Code of 1986, as
amended, including, without limitation, the
requirement that the qualified liquidation
takes place over a period not to exceed 90
days.
Ratings It is a condition of the original issuance
of the Class A Certificates that the Class A
Certificates receive ratings of ___ or ___
by _____ and _____, respectively. A security
rating is not a recommendation to buy, sell
or hold securities, and may be subject to
revision or withdrawal at any time by the
assigning entity.
Such ratings address credit risk, but do not
purport to address any prepayment risk
associated with the Class A Certificates,
nor do such ratings cover the payment of the
Supplemental Interest Amounts.
Federal Income
Tax Consequences One or more elections will be made to treat
certain assets of the Trust as one or more
REMICs for federal income tax purposes. Each
Class of the Class A Certificates will be
designated as a "regular interest" in a
REMIC and a separate class of certificates
will be designated as the "residual
interest" with respect to each REMIC.
Certificateholders that would otherwise
report income under a cash method of
accounting will be required to include in
income interest on the Class A Certificates
(including original issue discount, if any)
in accordance with an accrual method of
accounting. See "Federal Income Tax
Consequences" herein and in the Prospectus.
ERISA As described under "ERISA Considerations"
Considerations herein, the Class A Certificates may be
purchased by a pension or other employee
benefit plan subject to the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA"), or by individual
retirement accounts or Keogh plans covering
only a sole proprietor or partner which are
not subject to ERISA but are subject to
Section 4975 of the Code ("Plans"), [after
the earlier of (i) the date on which the
Funding Period expires and (ii) the date on
which the Department of Labor amends the
Exemption (as defined below) to permit the
use of pre-funding accounts thereunder.] See
"ERISA Considerations" herein and in the
Prospectus.
Legal Investment The Class A Certificates will not constitute
Considerations "mortgage related securities" for purposes
of the Secondary Mortgage Market Enhancement
Act of 1984 ("SMMEA"). Accordingly, many
institutions may not be legally authorized
to invest in the Class A Certificates.
Risk Factors For a discussion of certain factors that
should be considered by prospective
investors in the Class A Certificates, see
"Risk Factors" herein and in the
accompanying Prospectus.
</TABLE>
S-16
<PAGE>
<PAGE>
RISK FACTORS
Prospective investors should consider, among other things, the
following factors (as well as the factors set forth under "Risk Factors" in the
accompanying Prospectus) in connection with the purchase of the Class A
Certificates.
Maturity and Prepayment Considerations. All of the Mortgage Loans are
prepayable in full or in part at any time. The rate of Prepayments on the
Mortgage Loans may be influenced by a variety of economic, social and other
factors, including interest rates, the availability of alternative financing and
homeowner mobility. Although there is little significant data available on the
effects of interest rates on prepayment rates for non-purchase money,
non-conforming credit mortgage loans, a number of factors suggest that the
prepayment behavior of a pool of such mortgage loans may be significantly
different from that of a pool of purchase money, conforming-credit mortgage
loans. One such factor is the typically smaller principal balance of the average
non-purchase money mortgage loan than that of the average purchase money
mortgage conventional loan in the typical pool. A smaller principal balance is
easier for a borrower to prepay than a larger balance and therefore a higher
prepayment rate may result for a non-purchase money mortgage loan pool than for
a pool of purchase money mortgage loans, irrespective of the relative average
interest rates in the two pools and the general interest rate environment. A
small principal balance, however, also may make refinancing a non-purchase money
mortgage loan at a lower loan rate less attractive to the borrower relative to
refinancing a larger principal balance non-purchase money mortgage loan, as the
perceived impact to the borrower of lower interest rates on the size of the
monthly payment on a mortgage loan is much less than for a larger principal
balance non-purchase money mortgage loan. Other factors that might be expected
to affect the prepayment rate of a pool of mortgage loans include the amounts
of, and interest rates on, the related senior mortgage loans, if one exists, and
the use of the first mortgage loans as long-term financing for home purchase and
junior mortgage loans as shorter-term financing for a variety of purposes,
including debt consolidation, home improvement, education expenses and purchases
of consumer durables such as automobiles. See "Risk Factors" in the accompanying
Prospectus.
The weighted average life of a pool of loans is the average amount of
time for which each dollar of principal on such loans is outstanding. Because it
is expected that there will be payments of principal of Mortgage Loans in
advance of the scheduled due date for the payments of such principal (the
"Prepayments") and defaults on the Mortgage Loans, the actual weighted average
life of the Mortgage Loans is expected to vary substantially from the weighted
average life of the Mortgage Loans based upon their amortization schedules.
Prepayments may result from voluntary early payments by borrowers (including
payments in connection with refinancings of the related first mortgage loans or
the Mortgage Loan itself), the sale of Properties subject to due-on-sale
clauses, and liquidations due to default, as well as the receipt of proceeds
from physical damage insurance policies. In addition, repurchases of Mortgage
Loans from the Trust will have the same effect as Prepayments of the related
Mortgage Loans. Substantially all of the Mortgage Loans contain "due-on-sale"
provisions, and the Pooling and Servicing Agreement generally requires the
Master Servicer to enforce such provisions unless such enforcement is not
permitted by applicable law. See "Description of the Certificates -- Flow of
Funds and Distributions on the Class A Certificates", " -- General Servicing
Procedures", " -- Termination of the Trust", "Legal Investment Considerations",
and "Maturity, Prepayment and Yield Considerations" herein.
Risk of Higher Default Rates for Mortgage Loans with Balloon Payments.
____% of the Original Group I Pool Principal Balance of the Mortgage Loans in
Group I and ____% of the Original Group II Pool Principal Balance of the
Mortgage Loans in Group II are Balloon Loans. See "Risk Factors" in the
accompanying Prospectus.
Geographic Concentration of Mortgage Loans. Approximately ____% of the
Original Group I Pool Principal Balance represents Mortgage Loans relating to
Mortgaged Properties located in five states: ________ ____%, _________ ____%,
________ ____%, ________ ____%, and ________ ____% Approximately ____%
S-17
<PAGE>
<PAGE>
of the Original Group II Pool Principal Balance represents Mortgage Loans
relating to Mortgaged Properties located in five states: _________ ____%,
________ ____%, ________ ____%, _________ ____% and ________ ____%. See "Risk
Factors."
Risk of Higher Default Rates for Junior Lien Loans. ____% of the
Original Group I Pool Principal Balance of the Mortgage Loans relates to
Mortgage Loans secured by liens which are in a second position. See "Risk"
Factors in the Prospectus.
Risk of Potential Termination of Trust. The Trust may be terminated
when the aggregate principal balances of the Mortgage Loans has declined to ten
percent or less of the Original Pool Principal Balance, either by the Company,
exercising its optional termination right, or pursuant to the Auction Sale. See
"Description of Certificates -- Optional Termination by the Company" and
"Description of the Certificates -- Auction Sale". Such a termination would be
the equivalent of a prepayment of all the Mortgage Loans. The Owners of the
Class A Certificates would receive from the proceeds resulting from any such
termination, any interest accrued and unpaid, together with any distribution of
principal owed and unpaid, in the order of priority set forth under "Description
of Certificates -- Distributions on the Class A Certificates". Any such
termination of the Trust will reduce the yield to maturity on Class A
Certificates purchased at a premium. See "Description of the Certificates --
Termination of the Trust" herein.
Effect of Mortgage Loan Yield on Class A-1 and Class A-6 Pass-Through
Rate. The Class A-1 Pass- Through Rate is based upon the value of an adjustable
index (one-month LIBOR), while the Coupon Rates on the Group I Mortgage Loans
are fixed. Consequently, the interest which becomes due on such Mortgage Loans
in Group I (net of the Servicing Fees, the Trustee fees and the Certificate
Insurer premiums) during any Remittance Period may be less than the amount of
interest that would accrue at one-month LIBOR plus the margin on the Class A-1
Group I Certificates, during the related Accrual Period, and will be limited to
such lower amount. The Class A-1 Group I Certificates do not contain any
"carry-forward" or "catch-up" feature if the amount of interest paid is so
limited.
The Class A-6 Group II Pass-Through Rate is based upon the value of an
index (one-month LIBOR) which is different from the value of the indices
applicable to the Mortgage Loans in Group II, as described under "The Mortgage
Pool -- Group II" (either as a result of the use of a different index, rate
determination date, rate adjustment date or rate cap or floor). The Mortgage
Loans in Group II primarily adjust semi-annually or yearly based upon a
six-month LIBOR index whereas the Class A-6 Group II Pass-Through Rate adjusts
monthly based on a one-month LIBOR index and is limited by the Class A-6
Available Funds Pass-Through Rate, unless Supplemental Interest Amounts (the
payment of which is not insured by the Certificate Insurer and which is not
rated) are funded in full. Consequently the actual Class A-6 Pass-Through Rate
for such Payment Date may not equal the Class A-6 Formula Pass-Through Rate for
such Payment Date. In particular, the interest rates on the Mortgage Loans in
Group II adjust less frequently, with the result that the actual Class A-6 Pass-
Through Rate may be lower than the Class A-6 Formula Pass-Through Rate for
extended periods in a rising interest rate environment. In addition, one-month
LIBOR and six-month LIBOR may respond to different economic and market factors,
and there is not necessarily any correlation between them. Thus, it is possible,
for example, that one-month LIBOR may rise during periods in which one or more
Indices are falling or that, even if both one-month LIBOR and Indices rise
during the same period, one-month LIBOR may rise much more rapidly than
six-month LIBOR. See "Class A-6 Pass-Through Rate" in the Summary for this
Prospectus Supplement.
[The Subsequent Mortgage Loans and the Pre-Funding Account. If the
principal amount of eligible
S-18
<PAGE>
<PAGE>
Mortgage Loans available during the Funding Period and sold to the Trust is less
than 100% of the Pre-Funded Amount, the Company will have insufficient Mortgage
Loans to sell to the Trust, on the Subsequent Transfer Dates, thereby resulting
in prepayments of principal to Owners of one or more Classes of Class A
Certificates as described herein. In addition, any conveyance of Subsequent
Mortgage Loans is subject to the following conditions, among others: (i) each
such Subsequent Mortgage Loan must satisfy the representations and warranties
specified in the Purchase Agreement and the Pooling and Servicing Agreement;
(ii) the Company will not select such Subsequent Mortgage Loans in a manner that
they believe is adverse to the interests of the Class A Certificateholders;
(iii) the Company will deliver certain opinions of counsel with respect to the
validity of the conveyance of such Subsequent Mortgage Loans; and (iv) as of the
Subsequent Cut-Off Date, the Mortgage Loans in the related Mortgage Loan Group
at that time, including the Subsequent Mortgage Loans to be conveyed by the
Company as of such Subsequent Cut-Off Date, will satisfy the criteria set forth
in the Pooling and Servicing Agreement, as described herein under "The Mortgage
Loan Pool - Conveyance of Subsequent Mortgage Loans".
To the extent that amounts on deposit in the Pre-Funding Account have
not been fully applied to the purchase of Subsequent Mortgage Loans by the Trust
by the end of the Funding Period, the Owners of one or more Classes of Class A
Certificates will receive a prepayment of principal in an amount equal to the
Pre- Funded Amount allocable to such Class and remaining in the Pre-Funding
Account following the purchase of any Subsequent Mortgage Loans on the first
Payment Date following the Funding Period. Although no assurances can be given,
it is anticipated by the Company that the principal amount of Subsequent
Mortgage Loans sold to the Trust will require the application of substantially
all amounts on deposit in the Pre-Funding Account and that there will be no
material principal prepayment to the Class A Certificateholders.
Each Subsequent Mortgage Loan must satisfy the eligibility criteria
referred to above at the time of its addition. However, Subsequent Mortgage
Loans may have been originated by the Originators or purchased by the Company
using credit criteria different from those which were applied to the Initial
Home Mortgage and may be of a different credit quality. Therefore, following the
transfer of Subsequent Mortgage Loans to the related Mortgage Loan Group, the
characteristics of the related Mortgage Loan Group included in the Trust may
vary significantly from those of the Initial Mortgage Loans included in such
Mortgage Loan Group. See "The Mortgage Loan Pool - Conveyance of Subsequent
Mortgage Loans".]
USE OF PROCEEDS
The Trust will acquire the Mortgage Loans from the Company concurrently
with the sale of the Certificates and the net proceeds from the sale of the
Certificates will be paid to the Company. Such net proceeds (together with the
Residual Certificates retained by the Company or its affiliates) will, in
effect, represent the purchase price paid by the Trust to the Company for the
Mortgage Loans. The net proceeds, after funding transaction costs, to be
received from the sale of the Mortgage Loans will be added to the Company's
general funds and will be available for general corporate purposes.
THE COMPANY
Access Financial Lending Corp. ("AFL" or the "Company"), a Delaware
corporation, provides housing finance programs to consumers throughout the
United States through its Mortgage Lending and Manufactured Housing Programs.
The Company is the successor by merger of Access Financial Lending Corp., a
Delaware corporation (formerly Equicon Corporation), whose principal business
was the purchase of non-conforming mortgages, and Access Financial Corp., whose
principal business was the retail financing of manufactured housing. The merger
occurred on July 1, 1996.
S-19
<PAGE>
<PAGE>
The Company is a wholly-owned subsidiary of Access Financial Holding
Corp. ("AFH"), which is a Delaware corporation and wholly-owned subsidiary of
Cargill Financial Services Corporation. AFH was formed in January 1996 to
facilitate the continued growth of the housing finance business.
The Company maintains its principal offices at 400 Highway 169 South,
Suite 400, St. Louis Park, Minnesota 55426-0365.
As described herein, AFL will be obligated to repurchase certain
Mortgage Loans pursuant to certain representations and warranties made with
respect to the Mortgage Loans. See "The Mortgage Loan Pool -- Mortgage Loan
Program -- Underwriting Standards; Representations" herein and "Mortgage Loan
Program" in the accompanying Prospectus.
THE MASTER SERVICER
As Master Servicer, ________ will be obligated to service the Mortgage
Loans pursuant to the Pooling and Servicing Agreement. See "Description of the
Certificates -- General Servicing Procedures" herein. The Master Servicer has
entered into a sub-servicing agreement with __________, which provides for
servicing and administration of the Mortgage Loans. Notwithstanding such
sub-servicing agreement, the Master Servicer shall be obligated to the same
extent and under the same terms and conditions under the Pooling and Servicing
Agreement as if it alone were servicing and administering the Mortgage Loans.
See "Description of the Certificates--General Servicing Procedures" herein.
THE MORTGAGE LOAN POOL
General
The statistical information concerning the Pool of Mortgage Loans is
based upon Pool information as of the close of business on ________, 199_ (the
"Cut-Off Date").
The Initial Mortgage Loans consist of ____ mortgage loans evidenced by
promissory notes (the "Notes") secured by deeds of trust, security deeds or
mortgages on the properties (the "Properties" or "Mortgaged Properties"), which
are located in ___ states and the District of Columbia. The Properties securing
the Initial Mortgage Loans consist of one- to four-family residences (which may
be detached, part of a one- to four-family dwelling, a condominium unit, a
townhouse or a unit in a planned unit development). The Properties may be
owner-occupied (which includes second and vacation homes) and non-owner occupied
investment properties.
Each Mortgage Loan in the Trust will be assigned to one of two mortgage
loan groups: "Group I" or "Group II", (each a "Mortgage Loan Group") comprised
of Mortgage Loans which bear fixed interest rates only, in the case of Group I,
and Mortgage Loans which bear adjustable interest rates only, in the case of
Group II. The Class A Group I Certificates will be issued in respect of Group I
and the Class A-6 Group II Certificates will be issued in respect of Group II.
The Initial Mortgage Loans in Group I consist of ____% of fully
amortizing mortgage loans and ____% of Balloon Loans; consist of approximately
____% of loans secured by first liens on the related Properties, with the
remainder representing second liens; consist of approximately ____% of loans
secured by primary residences. No Group I Initial Mortgage Loan is more than ___
days contractually delinquent as of the Cut-Off Date.
The Initial Mortgage Loans in Group II consist of ____% of fully
amortizing mortgage loans and ____% of Balloon Loans; consist of ____% of loans
secured by first liens on the related Properties; and consist of
S-20
<PAGE>
<PAGE>
approximately ____% of Loans secured by primary residences. No Group II Initial
Mortgage Loan is more than ___ days contractually delinquent as of the Cut-Off
Date.
[Additional mortgage loans (the "Subsequent Mortgage Loans") are
intended to be purchased by the Trust from the Company from time to time on or
before , 199_, from funds on deposit in the Pre- Funding Account. The Initial
Mortgage Loans and the Subsequent Mortgage Loans are referred herein
collectively as the "Mortgage Loans". The Subsequent Mortgage Loans to be
purchased by the Trust, if available, will be originated on or prior to , 199_
by the Originators, sold by the Originators to the Company and then sold by the
Company to the Trust. The Pooling and Servicing Agreement will provide that the
Mortgage Loans in each Mortgage Loan Group, following the conveyance of the
Subsequent Loans, must in the aggregate conform to certain specified
characteristics described below under "Conveyance of Subsequent Mortgage
Loans".]
S-21
<PAGE>
<PAGE>
Delinquency Experience on the Company's
Portfolio of Mortgage Loans(1)
<TABLE>
<CAPTION>
As of
----------------------------------------------------------------------------------------
March December June 30, December June 30, December June 30,
31, 199 31, 199 199 31, 199 199 31, 199 199
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Number of Mortgage Loans.........
Dollar amount of Mortgage Loans.. $ $ $ $ $ $ $
Delinquency Period
30-59 Days
% of number of loans (2)..... % % % % % % %
% of dollar amount of loans (3) % % % % % % %
60-89 days
% of number of loans (2)..... % % % % % % %
% of dollar amount of loans (3) % % % % % % %
90 days and over
% of number of loans (2)..... % % % % % % %
% of dollar amount of loans (3) % % % % % % %
Foreclosed Properties
% of number of loans (2)..... % % % % % % %
% of dollar amount of loans (3) % % % % % % %
</TABLE>
- ----------
(1) The Mortgage Loans comprising the Company's portfolio were originated
beginning in April 1992. The variable rate program commenced in April
1994.
(2) The number of delinquent Mortgage Loans or the number of foreclosed
properties as a percentage of the total "Number of Mortgage Loans" as
of the date indicated.
(3) The dollar amount of delinquent Mortgage Loans or the dollar amount of
foreclosed properties as a percentage of the total "Dollar amount of
Mortgage Loans" as of the date indicated.
S-22
<PAGE>
<PAGE>
LOAN LOSS EXPERIENCE ON THE Company'S
PORTFOLIO OF MORTGAGE LOANS
Prior to June 14, 1995, the Company experienced no losses since the
Company's program began.
<TABLE>
<CAPTION>
For the Twelve Months Ended For the Months Ended , 199
December 31, 199
--------------------------------------------------------------------
<S> <C> <C>
Average amount outstanding(1)................. $ $
Gross losses(2)...............................
Recoveries(3).................................
Net losses(4).................................
Net losses as a percentage of average
amount outstanding ......................... % %
</TABLE>
(1) "Average Amount Outstanding" during the period is the arithmetic
average of the principal balances of the mortgage loans outstanding on
the last business day of each month during the period.
(2) "Gross Losses" are the principal amounts of the mortgage loans for each
respective period which have been determined to be uncollectible.
(3) "Recoveries" represent the excess of (x) the sum of recoveries from
liquidation proceeds and deficiency judgments over (y) the sum of
expenses and accrued interest.
(4) "Net Losses" represents "Gross Losses" minus "Recoveries".
While the above delinquency and loan loss experience represents the
recent experience of the Company's portfolio of Mortgage Loans, there can be no
assurance that the future delinquency and loan loss experience on the Mortgage
Loans included in the Pool will be similar. The Company can neither quantify the
impact of any recent property value declines on the Mortgage Loans nor predict
whether, to what extent or how long such declines may continue. In a period of
such decline, the rates of delinquencies, foreclosures and losses on the
Mortgage Loans could be higher than those heretofore experienced in the mortgage
lending industry in general. In addition, adverse economic conditions (which may
or may not affect real property values) may affect the timely payment by
borrowers of scheduled payments of principal and interest on the Mortgage Loans
and, accordingly, the actual rates of delinquencies, foreclosures and losses.
Group I
The Initial Mortgage Loans in Group I consist of approximately ____
loans under which the related Mortgaged Properties are located in ___ states and
the District of Columbia as set forth herein. As of the CutOff Date, the Initial
Mortgage Loans in Group I had an aggregate principal balance of $________, the
maximum principal balance of any of the Initial Mortgage Loans in the Group I
was $________, the minimum principal balance thereof was $________, and the
principal balance of the Initial Mortgage Loans in Group I averaged $________.
As of the Cut-Off Date, Coupon Rates on the Initial Mortgage Loans in Group I
ranged from ____% to ____% per annum, and the weighted average Coupon Rate of
the Initial Mortgage Loans in Group I was ____% per annum. As of the Cut-Off
Date, the original term to stated maturity of the Initial Mortgage Loans in
Group I ranged from ___ months to ___ months, the remaining term to stated
maturity ranged from ___ months to ___ months, the weighted average original
term to stated maturity was ___ months and the weighted average remaining term
to stated maturity was ___ months. No Initial Mortgage Loan in Group I had a
stated maturity later than ________. ____% of the aggregate principal balance of
the Initial Mortgage Loans in Group I require monthly payments of principal that
will fully amortize the Mortgage Loans by their respective maturity dates, and
____% of the aggregate principal balance of the Initial Mortgage Loans in Group
I are Balloon Loans.
The sum of the percentage columns set forth in the following tables may
not equal 100% due to rounding.
S-23
<PAGE>
<PAGE>
Geographic Distribution
Group I
<TABLE>
<CAPTION>
Number Aggregate Unpaid
of Initial Principal Balance % of
Mortgage as of the Aggregate
State Loans Cut-Off Date Principal Balance
- ----- ---------------- ----------------------- --------------------
<S> <C> <C> <C>
Alabama $ %
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
Tennessee
Texas
Utah
Virginia
Washington
Wisconsin
Wyoming
- --------------------------------------------------------------------------------------------------------
TOTAL $ %
========================================================================================================
</TABLE>
The combined loan-to-value ratio of a Mortgage Loan is equal to the
ratio (expressed as a percentage) of (x) the sum of the (i) original principal
balance of such Mortgage Loan and (ii) the outstanding principal balances of any
senior mortgage loans (computed at the date of origination of such Mortgage
Loan) and (y) the appraised value of the related Mortgaged Property at the time
of origination or in the case of a purchase money mortgage loan the lesser of
the purchase price or the appraised value at the time of origination (the
"Combined Loan-to-Value Ratio"). The Combined Loan-to-Value Ratios are
distributed as follows:
S-24
<PAGE>
<PAGE>
Combined Loan-To-Value Ratio Distribution
Group I
<TABLE>
<CAPTION>
Number Aggregate Unpaid
of Initial Principal Balance % of
Range of Combined Mortgage as of the Aggregate
Loan-to-Value Ratios Loans Cut-Off Date Principal Balance
- -------------------- --------- ----------------- ------------------
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
TOTAL $ %
=======================================================================================================
</TABLE>
The Combined Loan-to-Value Ratios shown above were calculated based
upon the appraised values of the Properties at the time of origination of the
Mortgage Loans or in the case of a purchase money mortgage loan the lesser of
the purchase price or the appraised value at the time of origination (the
"Appraised Values"). No assurance can be given that values of the Properties
have remained or will remain at their levels on the dates of origination of the
related Mortgage Loans. If the residential real estate market should experience
an overall decline in property values such that the unpaid principal balances of
the Mortgage Loans, together with the unpaid principal balances of any senior
mortgage loans, become equal to or greater than the value of the Properties, the
actual rates of delinquencies, foreclosures and losses could be higher than
those now generally experienced in the mortgage lending industry.
S-25
<PAGE>
<PAGE>
Coupon Rate Distribution
Group I
<TABLE>
<CAPTION>
Number Aggregate Unpaid
of Initial Principal Balance % of
Range of Mortgage as of the Aggregate
Coupon Rates (%) Loans Cut-Off Date Principal Balance
- ---------------- --------- ----------------- ------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
TOTAL $ 100.00%
========================================================================================================
</TABLE>
S-26
<PAGE>
<PAGE>
Distribution of Unpaid Principal Balances as of the Cut-Off Date
Group I
<TABLE>
<CAPTION>
Number Aggregate Unpaid
of Initial Principal Balance % of
Range of Unpaid Mortgage as of the Aggregate
Principal Balances ($) Loans Cut-Off Date Principal Balance
- ---------------------- ----- ------------- -----------------
<C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL $ 100.00%
=============================================================================================================================
</TABLE>
Lien Status and Occupancy Status
Group I
<TABLE>
<CAPTION>
Number Aggregate Unpaid
of Initial Principal Balance % of
Lien Status and Mortgage as of the Aggregate
Occupancy Status Loans Cut-Off Date Principal Balance
- ---------------------------------- ------------ ------------------- -----------------
<S> <C> <C> <C>
First Lien Owner Occupied $ %
Non-Owner Occupied
Second Lien Owner Occupied
Non-Owner Occupied
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL $ 100.00%
=============================================================================================================================
</TABLE>
Distribution of Age (in months) from Origination to the Cut-Off Date
Group I
<TABLE>
<CAPTION>
Number Aggregate Unpaid
of Initial Principal Balance % of
Months Elapsed Mortgage as of the Aggregate
Since Origination Loans Cut-Off Date Principal Balance
- ----------------- ---------- ------------------ -----------------
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL $ 100.00%
=============================================================================================================================
</TABLE>
S-27
<PAGE>
<PAGE>
Property Type
Group I
<TABLE>
<CAPTION>
Number Aggregate Unpaid
of Initial Principal Balance % of
Mortgage as of the Aggregate
Property Type Loans Cut-Off Date Principal Balance
- ------------- ----------- ------------------ -----------------
<S> <C> <C> <C>
Single-family $ %
Modular Housing
Manufactured Housing
FUD
SF Row House
Townhouse
Duplex
Condominium
2-4 family
- --------------------------------------------------------------------------------------------------------
TOTAL $ 100.00%
========================================================================================================
</TABLE>
Distribution of Remaining Term to Maturity
(in months) as of the Cut-Off Date
Group I
<TABLE>
<CAPTION>
Number Aggregate Unpaid
of Initial Principal Balance % of
Months Remaining Mortgage as of the Aggregate
to Maturity Loans Cut-Off Date Principal Balance
- ---------------- ---------- ----------------- -----------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
TOTAL $ 100.00%
============================================================================================================
</TABLE>
Group I -- Conveyance of Subsequent Mortgage Loans
The Pooling and Servicing Agreement permits the Trust to acquire up to
$ aggregate principal balance of Subsequent Mortgage Loans for assignment to
Group I. Accordingly, the statistical characteristics of Group I will vary as of
any Subsequent Cut-Off Date upon the acquisition of Subsequent Mortgage Loans
which are assigned to Group I.
The obligation of the Trust to purchase the Subsequent Mortgage Loans
on a Subsequent Transfer Date for assignment to Group I is subject to the
following requirements: (i) such Subsequent Mortgage Loan may not be _____ or
more days contractually delinquent as of the related Subsequent Cut-Off Date;
(ii) the stated term to maturity to such Subsequent Mortgage Loan may not exceed
_____ years; (iii) such Subsequent Mortgage Loan will be secured by a Mortgage
in a first lien position and (iv) following the purchase of such Subsequent
Mortgage Loans by the Trust, the Mortgage Loans in Group I (including the
Subsequent Mortgage Loans) (a) will have a weighted average Mortgage Rate of at
least %; (b) will have a weighted average original term to stated maturity of
not more
S-28
<PAGE>
<PAGE>
than months; (c) will have a weighted average LTV of not more than %; (d) will
not have more than % by aggregate principal balance Balloon Loans; (e) will have
no Mortgage Loan with a principal balance in excess of $ ; (f) will have a
[state] concentration not in excess of % by aggregate principal balance; and (g)
will have not more than % in aggregate principal balance of Mortgage Loans
relating to non-owner occupied Mortgaged Properties.
Group II
The Initial Mortgage Loans in Group II consist of approximately ___
loans under which the related Mortgaged Properties are located in ___ states and
the District of Columbia as set forth herein. As of the CutOff Date, the Initial
Mortgage Loans in Group II had an aggregate principal balance of $________, the
maximum principal balance of any of the Initial Mortgage Loans in Group II was
$________, the minimum principal balance thereof was $________ and the principal
balance of the Initial Mortgage Loans in Group II averaged $________. As of the
Cut-Off Date, Coupon Rates of the Initial Mortgage Loans in Group II ranged from
____% per annum to ____% per annum. As of the Cut-Off Date, the weighted average
Coupon Rate of the Mortgage Loans in Group II was ____%. As of the Cut-Off Date,
margins of the Initial Mortgage Loans in Group II ranged from ____% per annum to
____% per annum, and the weighted average margin was ____%. As of the Cut-Off
Date, the maximum coupons of the Initial Mortgage Loans in Group II ranged from
____% per annum to ____% per annum, and the weighted average maximum coupon was
____%. ____% of the aggregate principal balance of the Initial Mortgage Loans in
Group II had a periodic interest rate cap of ___%, and ____% of the aggregate
principal balance of the Initial Mortgage Loans in Group II had a periodic
interest rate cap of ___%, ____% of the aggregate principal balance of the
Initial Mortgage Loans in Group II were fixed rate loans that, in __ years from
origination, will be converted into variable rate loans with an interest rate
cap of ___% on the date of such conversion and with a periodic interest rate cap
of ___% thereafter, and ____% of the aggregate principal balance of the Initial
Mortgage Loans in Group II were fixed rate loans that, in ___ years from
origination, will be converted into variable rate loans with an interest rate
cap of ___% on the date of such conversion and with a periodic interest rate cap
of ___% thereafter.
As of the Cut-Off Date, the original term to stated maturity of the
Initial Mortgage Loans in Group II ranged from ___ months to ___ months, the
remaining term to stated maturity ranged from ___ months to ___ months, the
weighted average original term to stated maturity was ___ months and the
weighted average remaining term to stated maturity was ___ months. No Initial
Mortgage Loan in Group II had a stated maturity later than ________. ____% of
the aggregate principal balance of the Initial Mortgage Loans in Group II
require monthly payments of principal that will fully amortize the Initial
Mortgage Loans by their respective dates and ____% of the aggregate principal
balance of the Initial Mortgage Loans in Group II are Balloon Loans.
The Coupon Rates of the Initial Mortgage Loans in Group II adjust
semi-annually based on six month LIBOR.
S-29
<PAGE>
<PAGE>
The sum of the percentage columns set forth on the following tables may
not equal 100% due to rounding.
Geographic Distribution
Group II
<TABLE>
<CAPTION>
Number Aggregate Unpaid
of Initial Principal Balance % of
Mortgage as of the Aggregate
State Loans Cut-Off Date Principal Balance
- ----- ----------- ------------------ -----------------
<S> <C> <C> <C>
Alabama $ %
Arizona
California
Colorado
Connecticut
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Maryland
Massachusetts
Michigan
Minnesota
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
Ohio
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Virginia
Washington
West Virginia
Wisconsin
Wyoming
- -------------------------------------------------------------------------------------------------------
TOTAL $ 100.00%
=======================================================================================================
</TABLE>
S-30
<PAGE>
<PAGE>
The combined loan-to-value ratio of a Mortgage Loan is equal to the
ratio (expressed as a percentage) of (x) the sum of the (i) original principal
balance of such Mortgage Loan and (ii) the outstanding principal balances of any
senior mortgage loans (computed at the date of origination of such Mortgage
Loan) and (y) the appraised value of the related Mortgaged Property at the time
of origination or in the case of a purchase money mortgage loan the lesser of
the purchase price or the appraised value at the time of origination (the
"Combined Loan-to-Value Ratio"). The Combined Loan-to-Value Ratios are
distributed as follows:
Combined Loan-To-Value Ratio Distribution
Group II
<TABLE>
<CAPTION>
Number Aggregate Unpaid
of Initial Principal Balance % of
Range of Combined Mortgage as of the Aggregate
Loan-to-Value Ratios Loans Cut-Off Date Principal Balance
-------------------- --------- ----------------- -----------------
<S> <C> <C> <C>
10.36
- --------------------------------------------------------------------------------------------------
TOTAL $ 100.00%
==================================================================================================
</TABLE>
The Combined Loan-to-Value Ratios shown above were calculated based
upon the appraised values of the Properties at the time of origination of the
Mortgage Loans or in the case of a purchase money mortgage loan the lesser of
the purchase price or the appraised value at the time of origination (the
"Appraised Values"). No assurance can be given that values of the Properties
have remained or will remain at their levels on the dates of origination of the
related Mortgage Loans. If the residential real estate market should experience
an overall decline in property values such that the unpaid principal balances of
the Mortgage Loans, together with the unpaid principal balances of any senior
mortgage loans, become equal to or greater than the value of the Properties, the
actual rates of delinquencies, foreclosures and losses could be higher than
those now generally experienced in the mortgage lending industry.
S-31
<PAGE>
<PAGE>
Distribution of Unpaid Principal Balances as of the Cut-Off Date
Group II
<TABLE>
<CAPTION>
Number Aggregate Unpaid % of
of Initial Principal Balance Aggregate
Range of Unpaid Mortgage as of the Principal
Principal Balances ($) Loans Cut-Off Date Balance
---------------------- ----- ------------ -------
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL $ 100.00%
=============================================================================================================================
</TABLE>
Lien Status and Occupancy Status
Group II
<TABLE>
<CAPTION>
Number Aggregate Unpaid
of Initial Principal Balance % of
Lien Status and Mortgage as of the Aggregate
Occupancy Status Loans Cut-Off Date Principal Balance
- --------------------------------- ----------- --------------------- -----------------
<S> <C> <C> <C>
First Lien Owner Occupied $ %
Non-Owner Occupied
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL $ 100.00%
=============================================================================================================================
</TABLE>
Distribution of Age (in months) from Origination to the Cut-Off Date
Group II
<TABLE>
<CAPTION>
Number Aggregate Unpaid
of Initial Principal Balance % of
Months Elapsed Mortgage as of the Aggregate
Since Origination Loans Cut-Off Date Principal Balance
- ----------------- ---------- ------------------ -----------------
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL $ 100.00%
===========================================================================================================================
</TABLE>
S-32
<PAGE>
<PAGE>
Property Type
Group II
<TABLE>
<CAPTION>
Number Aggregate Unpaid
of Initial Principal Balance % of
Mortgage as of the Aggregate
Property Type Loans Cut-Off Date Principal Balance
- ------------- ---------- ------------------ -----------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
TOTAL $ 100.00%
========================================================================================================
</TABLE>
Distribution of Remaining Term to Maturity
(in months) as of the Cut-Off Date
Group II
<TABLE>
<CAPTION>
Number Aggregate Unpaid
of Initial Principal Balance % of
Months Remaining Mortgage as of the Aggregate
to Maturity Loans Cut-Off Date Principal Balance
----------- ----- ------------ -----------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
TOTAL $ 100.00%
========================================================================================================
</TABLE>
S-33
<PAGE>
<PAGE>
Distribution of Current Coupon Rates
as of the Cut Off Date
Group II
<TABLE>
<CAPTION>
Number Aggregate Unpaid
of Initial Principal Balance
Mortgage as of the % of Aggregate
Current Coupon Rates (%) Loans Cut-Off Date Principal Balance
- ----------------------- ----- ------------ -----------------
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
TOTAL $ 100.00%
===================================================================================================
</TABLE>
Distribution of Maximum Coupon Rates
Group II
<TABLE>
<CAPTION>
Number Aggregate Unpaid
of Initial Principal Balance
Mortgage as of the % of Aggregate
Maximum Coupon Rates (%) Loans Cut-Off Date Principal Balance
- ----------------------- ----- ------------ -----------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
TOTAL $ 100.00%
========================================================================================================
</TABLE>
S-34
<PAGE>
<PAGE>
Distribution of Margins
as of the Cut Off Date
Group II
<TABLE>
<CAPTION>
Number Aggregate Unpaid
of Initial Principal Balance
Mortgage as of the % of Original Pool
Margins (%) Loans Cut-Off Date Principal Balance
- ---------- ----- ------------ -----------------
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
TOTAL $ 100.00%
=================================================================================================================
</TABLE>
S-35
<PAGE>
<PAGE>
Next Interest Adjustment Date
Group II
<TABLE>
<CAPTION>
Number of Aggregate Unpaid
Initial Principal Balance
Next Interest Mortgage as of the % of Aggregate
Adjustment Date Loans Cut-Off Date Principal Balance
- --------------- ----- ------------ -----------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
TOTAL $ 100.00%
========================================================================================================
</TABLE>
Distribution of Minimum
Coupon Rates
Group II
<TABLE>
<CAPTION>
Number Aggregate Unpaid
of Initial Principal Balance
Minimum Mortgage as of the % of Aggregate
Coupon Rates (%) Loans Cut-Off Date Principal Balance
---------------- ----- ------------ -----------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
TOTAL $ 100.00%
========================================================================================================
</TABLE>
Group II - Conveyance of Subsequent Mortgage Loans
The Pooling and Servicing Agreement permits the Trust to acquire up to
$ aggregate principal balance of Subsequent Mortgage Loans for assignment to
Group II. Accordingly, the statistical characteristics of Group II will vary as
of any Subsequent Cut-Off Date upon the acquisition of Subsequent Mortgage
Loans.
S-36
<PAGE>
<PAGE>
The obligation of the Trust to purchase the Subsequent Mortgage Loans
on a Subsequent Transfer Date for assignment to the Variable Rate Group is
subject to the following requirements: (i) such Subsequent Mortgage Loan may not
be _____ or more days contractually delinquent as of the related Subsequent
Cut-Off Date; (ii) the stated term to maturity of such Subsequent Mortgage Loan
may not exceed _____ years; (iii) must have an index which is any of 6 Monthly
Treasury Bills, One Year CMT, Cost of Funds (Eleventh District) or ; (iv) must
have a margin of at least over the related Index; (v) must have a floor Mortgage
Rate of at least % and (vi) following the purchase of such Subsequent Mortgage
Loans by the Trust, the Mortgage Loans in the Variable Rate Group (including the
Subsequent Mortgage Loans) (a) will have a weighted average Mortgage Rate of at
least %; (b) will have a weighted average original term to stated maturity of
not more than months; (c) will have a weighted average CLTV of not more than %;
(d) will have not more than % by aggregate principal balance Balloon Loans; (e)
will have no Mortgage Loan with a principal balance in excess of $ ; (f) will
have a [state] concentration not in excess of % by aggregate principal balance;
(g) will not have more than % in aggregate principal balance of Mortgage Loans
secured by third liens; (h) will have not less than % in aggregate principal
balance of Mortgage Loans secured by first liens; and (i) will have not more
than % in aggregate principal balance of Mortgage Loans relating to non-owner
occupied Mortgaged Properties.
The Mortgage Loan Program -- Underwriting Standards; Representations
The Initial Mortgage Loans were acquired by the Company from ___
Unaffiliated Originators. Not more than ___% of the Original Pool Principal
Balance represents Mortgage Loans purchased from any single Unaffiliated
Originator. All of the Mortgage Loans will be originated or acquired by the
Originators generally in accordance with underwriting criteria satisfactory to
the Company.
The Company will make representations and warranties with respect to
the Initial Mortgage Loans sold to the Trust as of the Closing Date pursuant to
the Pooling and Servicing Agreement and with respect to the Subsequent Mortgage
Loans as of the Subsequent Transfer Date pursuant to the Purchase Agreement. The
Company may be obligated to repurchase the Mortgage Loans in respect of which a
breach of representation or warranty has occurred.
See "Mortgage Loan Program" in the accompanying Prospectus.
The Company's Guidelines provide that each borrower is required to
provide, and the Originator is generally required to verify, personal financial
information. The borrower's total monthly obligations (including principal and
interest on each mortgage, tax assessments, other loans, charge accounts and all
other scheduled indebtedness) should not exceed 60% of the borrower's monthly
income. Borrowers who are salaried employees must provide current employment
information, in addition to recent employment history. The Originator verifies
this information for salaried borrowers based on a current pay stub and either
(i) a written verification of income signed by their employer or (ii) two years'
W-2 forms. A self-employed applicant is generally required to be successfully
self-employed in the same field for a minimum of two years. A self-employed
borrower is generally required to provide financial statements and signed copies
of federal income tax returns (including schedules) filed for the most recent
two years. The borrower's debt-to-income ratio is calculated based on income as
generally verified by the Originator and must be reasonable.
The Mortgage Loans were underwritten pursuant to the Company's "Full
Documentation Program," "Alternative Income Documentation Program" and "Stated
Income Program," as set forth in the Company's Guidelines. Under each of the
programs, the Originator reviews the loan applicant's source of income,
calculates the amount of income from sources indicated on the loan application
or similar documentation, reviews the credit history of the applicant,
calculates the debt service-to-income ratio to determine the applicant's ability
to repay the loan, reviews the type and use of the property being financed and
reviews the property for compliance with its standards. In determining the
ability of the applicant to repay an adjustable rate Mortgage Loan, the
Originators use a rate (the "Qualifying Rate") that generally is a rate equal to
the fully-indexed Mortgage interest rate for such adjustable rate Mortgage Loan.
The Company's Guidelines are applied in a standardized procedure that complies
with applicable federal and state laws and regulations.
S-37
<PAGE>
<PAGE>
Under the Full Documentation Program, the income of each applicant and
the source of funds (if any) required to be deposited by an applicant into a
bank account will be verified by the Originators. Applicants are generally
required to submit a current pay stub and either (i) a written verification of
income signed by their employer or (ii) two years' W-2 forms. Under the
Alternative Income Documentation Program, a self-employed applicant is required
to provide the applicant's business' profit and loss statement, and bank account
statements supporting such statement for the prior calendar year and any
completed calendar quarter of the current year and a current copy of a business
license. Both the Alternative Income Program and the Stated Income Program
generally require (i) that the applicant's income be reasonable for its
business/profession, (ii) that the business has been in existence for three
years or more and (iii) that the loan-to-value ratio be reduced. In addition,
the Mortgage Loan will generally improve the applicant's cash flow. Verification
of the source of funds (if any) required to be deposited by the applicant into a
bank account is generally required under all documentation programs in the form
of a standard verification of deposit or two months' consecutive bank statements
or other acceptable documentation. Twelve months' mortgage payment or rental
history is generally required to be verified by the applicant's current lender
or landlord. If appropriate compensating factors exist, the Originators and the
Company may waive certain documentation requirements for individual applicants.
MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS
Class A Certificates
The weighted average life of, and, if purchased at other than par, the
yield to maturity on, a Class A Certificate will be directly related to the rate
of payment of principal of the Mortgage Loans in the related Mortgage Loan
Group, including for this purpose Prepayments, liquidations due to defaults,
casualties and condemnations, and repurchases of Mortgage Loans by the Company,
or purchases of Mortgage Loans by the Master Servicer or a Sub- Servicer. The
Mortgage Loans in the related Mortgage Loan Group may be prepaid by the related
obligors on the Notes ("Mortgagors") at any time. The actual rate of principal
prepayments on pools of mortgage loans is influenced by a variety of economic,
tax, geographic, demographic, social, legal and other factors and has fluctuated
considerably in recent years. In addition, the rate of principal prepayments may
differ among pools of mortgage loans at any time because of specific factors
relating to the mortgage loans in the particular pool, including, among other
things, the age of the mortgage loans, the geographic locations of the
properties securing the loans, the extent of the mortgagors' equity in such
properties, and changes in the mortgagors' housing needs, job transfers and
unemployment.
Generally, however, because the Mortgage Loans in Group I bear interest
at fixed rates, and the rate of prepayment on fixed rate mortgage loans is
sensitive to prevailing interest rates, if prevailing interest rates were to
fall, the Mortgage Loans in Group I may be subject to higher prepayment rates.
Conversely, if prevailing interest rates were to rise, the rate of prepayments
on Mortgage Loans in Group I would be likely to decrease.
If purchased at other than par, the yield to maturity on a Class A
Certificate will be affected by the rate of the payment of principal of the
Mortgage Loans in the related Mortgage Loan Group. If the actual rate of
payments on the Mortgage Loans in the related Mortgage Loan Group is slower than
the rate anticipated by an investor who purchases a Class A Certificate at a
discount, the actual yield to such investor will be lower than such investor's
anticipated yield. If the actual rate of payments on the Mortgage Loans in the
related Mortgage Loan Group is faster than the rate anticipated by an investor
who purchases a Class A Certificate at a premium, the actual yield to such
investor will be lower than such investor's anticipated yield.
All of the Mortgage Loans in Group II are adjustable rate mortgage
loans. As is the case with conventional fixed rate mortgage loans, adjustable
rate mortgage loans may be subject to a greater rate of principal prepayments in
a declining interest rate environment. For example, if prevailing interest rates
fall significantly, adjustable rate mortgage loans could be subject to higher
prepayment rates than if prevailing interest rates remain constant because the
availability of fixed rate mortgage loans at competitive interest rates may
encourage Mortgagors to refinance their adjustable rate mortgage loans to "lock
in" a lower fixed interest
S-38
<PAGE>
<PAGE>
rate. However, no assurance can be given by the Company as to the level of
prepayments that the Group II Mortgage Loans will experience.
The final scheduled Payment Date for the A-1 Group I Certificates is
________, for the Class A-2 Group I Certificates is ________, for the Class A-3
Group I Certificates is ________, for the A-4 Group I Certificates is ________,
for the Class A-5 Group I Certificates is ________, and for the Class A-6 Group
II Certificates is ________. Such dates are the dates on which the related Class
A Certificate Principal Balance would be reduced to zero, assuming, among other
things that with respect to the Class A-1 Group I Certificates, the Class A-2
Group I Certificates, the Class A-3 Group I Certificates and the Class A-4 Group
I Certificates (i) no Prepayments are received on any of the Mortgage Loans,
(ii) distributions of principal and interest on each of the Mortgage Loans is
timely received, (iii) Class B Interest will be used to make accelerated
payments of principal (i.e. Subordination Increase Amounts) to the Holders of
the Class A Certificates and (iv) the Mortgage Loans in each Mortgage Loan Group
have the applicable characteristics set forth in the "Weighted Average Lives of
Class A Certificates" section herein. The final scheduled Payment Date for the
Class A-5 Group I Certificates and the Class A-6 Group II Certificates is the
Payment Date in the calendar month in which the stated maturity of the Mortgage
Loan in the related Mortgage Loan Group having the latest stated maturity
occurs. The weighted average life of the Class A Certificates of each Class is
likely to be shorter than would be the case if payments actually made on the
Mortgage Loans in the related Mortgage Loan Group conformed to the foregoing
assumptions, and the final Payment Dates with respect to the Class A
Certificates of each Class could occur significantly earlier than such final
scheduled Payment Dates because (i) Prepayments are likely to occur, (ii) the
Company may repurchase Mortgage Loans in the related Mortgage Loan Group in the
event of breaches of representations and warranties and (iii) the Company may
cause, and the Trustee may, pursuant to the Auction Call, cause a termination of
the Trust when the Pool Principal Balance has declined to ten percent or less of
the Original Pool Principal Balance.
"Weighted average life" refers to the average amount of time from the
date of issuance of a security until each dollar of principal of such security
will be repaid to the investor. The weighted average lives of the Classes of
Class A Certificates will be influenced by the rate at which principal payments
(including scheduled payments and prepayments) on the Mortgage Loans in the
related Mortgage Loan Group are made. Principal payments on Mortgage Loans may
be in the form of scheduled amortization or prepayments (for this purpose, the
term "prepayment" includes prepayments and liquidations due to a default or
other dispositions of the Mortgage Loans). The weighted average lives of the
Class A Certificates will also be influenced by delays associated with realizing
on defaulted Mortgage Loans in the related Mortgage Loan Group. The model used
in this Prospectus Supplement (the "Home Equity Prepayment" Model or "HEP")
assumes that, (i) with respect to Group I, the pool of loans prepays in the
first month at a constant prepayment rate of 2.3% and increases by an additional
2.3% each month thereafter until the tenth month, where it remains at a constant
prepayment rate equal to 23% and (ii) with respect to Group II, the pool of
loans prepays in the first month at a constant prepayment rate of 2.4% and
increases by an additional 2.4%, each month thereafter until the tenth month,
where it remains at a constant prepayment rate equal to 24%, (the "Prepayment
Assumption"). HEP represents an assumed annualized rate of prepayment relative
to the then outstanding principal balance on a pool of new mortgage loans.
[Mandatory Prepayment
Of the maximum original Pre-Funding Amount of $________, maximum
amounts of $________, and $________ will be funded from the proceeds of the sale
of the Group I Certificates and the Group II Certificates, respectively, and may
be used to acquire Subsequent Mortgage Loans with respect to Group I and the
Group II, respectively. In the event that, on the 199_ Payment Date, not all of
the $________, $y $________ funded from the proceeds of the sale of the Group I
Certificates and the Group II Certificates, respectively, has been used to
acquire subsequent Mortgage Loans with respect to the related Mortgage Loan
Group, then the related Class A Certificates will be prepaid in part on such
date, on a pro rata basis with respect to the Owners of individual Certificates
of the related Class, from and to the extent of such remaining amounts. The
Pooling and Servicing Agreement does not permit Pre-Funding Account moneys
funded from
S-39
<PAGE>
<PAGE>
the sale of one Group of Class A Certificates to be used to acquire Mortgage
Loans relating to the other Group of Class A Certificates.
Although no assurances can be given, it is anticipated by the Company
that the principal amount of Subsequent Mortgage Loans sold to the Trust will
require the application of substantially all the amount on deposit in the
Pre-Funding Account and that there should be no material principal prepaid to
the Class A Certificateholders.]
Weighted Average Lives of Class A Certificates
For the purpose of the tables below, it is assumed that: (i) the
Mortgage Loans of each Mortgage Loan Group consist of pools of loans with
level-pay and balloon amortization methodologies, Cut-Off Date principal
balances, gross coupon rates, net coupon rates, original and remaining terms to
maturity, and original amortization terms as applicable, as set forth below,
(ii) the Closing Date for the Certificates occurs on ______, 199_, (iii)
distributions on the Certificates are made on the ___ day of each month
regardless of the day on which the Payment Date actually occurs, commencing in
________ 199_ in accordance with the priorities described herein, (iv) the
difference between the gross coupon rate and the net coupon rate is sufficient
to pay Servicer Fees, Trustee fees and Certificate Insurer premiums, (v) the
Mortgage Loans' prepayment rates are a multiple of the Prepayment Assumption,
(vi) prepayments include 30 days' interest thereon, (vii) no optional
termination or mandatory termination is exercised, (viii) the Specified
Subordinated Amount for each Mortgage Loan Group is set initially as specified
in the Insurance Agreement and thereafter changes in accordance with the
provisions of the Insurance Agreement, (ix) no delinquencies in the payment by
Mortgagors of principal and interest on the Mortgage Loans are experienced, (x)
no Mortgage Loan is repurchased for breach of a representation and warranty or
otherwise, (xi) the Coupon Rate for each Mortgage Loan in Group II is adjusted
on its next rate adjustment date (and on subsequent rate adjustment dates, if
necessary) to equal the sum of (a) an assumed level of the applicable index
(____%) and (b) the respective gross margin (such sum being subject to the
applicable periodic adjustment cap and maximum interest rate) and (xii) the
Class A-6 Group II Pass-Through Rate remains constant at ____%.
S-40
<PAGE>
<PAGE>
GROUP I CHARACTERISTICS
<TABLE>
<CAPTION>
Original Remaining Original
Term to Term to Amortization
Pool Principal Gross Coupon Net Coupon Maturity Maturity Term Amortization
Number Balance Rate Rate (in months) (in months) (in months) Method
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
GROUP II CHARACTERISTICS
<TABLE>
<CAPTION>
Original Remaining Original
Gross Net Months Maximum Term to Term to Amortization
Pool Principal Coupon Coupon to Rate Interest Maturity Maturity Term Periodic Amortization
Number Balance Rate Rate Change Margin Rate (in months) (in months) (in months) Cap Method
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
(1) The aggregate principal balance of the Mortgage Loans are fixed rate
loans that, in __ years from origination, will be converted into
variable rate loans with an interest rate cap of __% on the date of
such conversion and with a periodic interest rate cap of __%
thereafter.
(2) The aggregate principal balance of the Mortgage Loans are fixed rate
loans that, in __ years from origination, will be converted into
variable rate loans with an interest rate cap of __% on the date of
such conversion and with a periodic interest rate cap of __%
thereafter.
The model used for the Mortgage Loan Groups in this Prospectus
Supplement is the prepayment assumption (the "Prepayment Assumption") which
represents an assumed rate of prepayment each month relative to the then
outstanding principal balance of a pool of Mortgage Loans for the life of such
Mortgage Loans. A 100% Prepayment Assumption with respect to Group I assumes
constant prepayment rates of 2.3% per annum of the then outstanding principal
balance of such Mortgage Loans in the first month of the life of the Mortgage
Loans and an additional 2.3% in each month thereafter until the tenth month.
Beginning in the tenth month and in each month thereafter during the life of the
Mortgage Loans, 100% Prepayment Assumption assumes a constant prepayment rate of
23% per annum each month. A 100% Prepayment Assumption with respect to Group II
assumes constant prepayment rates of 2.4% per annum of the then outstanding
principal balance of such Mortgage Loans in the first month of the life of the
Mortgage Loans and an additional 2.4% in each month thereafter until the tenth
month. Beginning in the tenth month and in each
S-41
<PAGE>
<PAGE>
month thereafter during the life of the Mortgage Loans, 100% Prepayment
Assumption with respect to the Group II assumes a constant prepayment rate of
24% per annum each month.
With respect to the Mortgage Loan Groups as used in the tables below,
0% Prepayment Assumption assumes prepayment rates equal to 0% of the Prepayment
Assumption, i.e., no prepayments. Correspondingly, 100% Prepayment Assumption
assumes prepayment rates equal to 100% of the Prepayment Assumption, and so
forth. The Prepayment Assumption does not purport to be a historical description
of prepayment experience or a prediction of the anticipated rate of prepayment
of any pool of mortgage loans, including the Mortgage Loans. The Company
believes that no existing statistics of which it is aware provide a reliable
basis for holders of Class A Certificates to predict the amount or the timing of
receipt of prepayments on the related Mortgage Loans.
Since the tables were prepared on the basis of the assumptions in the
above paragraphs, there are discrepancies between the characteristics of the
actual Mortgage Loans and the characteristics of the Mortgage Loans assumed in
preparing the tables. Any such discrepancy may have an effect upon the
percentages of the related Class A Certificate Principal Balances outstanding
and weighted average lives of the Class A Certificates set forth in the tables.
In addition, since the actual Mortgage Loans in the Trust have characteristics
which differ from those assumed in preparing the tables set forth below, the
Class A Principal Distribution Amount may be made earlier or later than as
indicated in the tables.
The following tables set forth the percentages of the initial principal
amount of the Class A Certificates that would be outstanding after each of the
dates shown, based on a rate equal to varying percentages of the Prepayment
Assumption (as defined above).
S-42
<PAGE>
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
<TABLE>
<CAPTION>
Class A-1 Group I Certificates Class A-2 Group I Certificates Class A-3 Group I Certificates
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Payment Date 0% 13% 18% 21% 23% 28% 0% 13% 18% 21% 23% 28% 0% 13% 18% 21% 23% 28%
-- --- --- --- --- --- -- --- --- --- --- --- -- --- --- --- --- ---
Weighted
Average
Life (Years)(1)
</TABLE>
(1) The weighted average life of the Class A Certificates is determined by (i)
multiplying the amount of each principal payment by the number of years
from the Closing Date to the related Payment Date, (ii) adding the results,
and (iii) dividing the sum by the initial respective Certificate Principal
Balance for such Class of Class A Certificate.
S-43
<PAGE>
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
<TABLE>
<CAPTION>
Class A-4 Group I Certificates Class A-5 Group I Certificates Class A-6 Group II Certificates
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Payment Date 0% 13% 18% 21% 23% 28% 0% 13% 18% 21% 23% 28% 0% 15% 20% 23% 24% 30%
-- --- --- --- --- --- -- --- --- --- --- --- -- --- --- --- --- ---
Weighted
Average
Life (Years)(1)
(1) The weighted average life of the Class A Certificates is determined by (i) multiplying the amount of each principal payment by
the number of years from the Closing Date to the related Payment Date, (ii) adding the results, and (iii) dividing the sum by
the initial respective Certificate Principal Balance for such Class of Class A Certificate.
</TABLE>
S-44
<PAGE>
<PAGE>
The Mortgage Loans will not have the characteristics assumed above, and
there can be no assurance that (i) the Mortgage Loans will prepay at any of the
rates shown in the table or at any other particular rate or will prepay
proportionately or (ii) the weighted average lives of the Class A Group I
Certificates of each Class or the weighted average life of the Class A-6 Group
II Certificates will be as calculated above. Because the rate of distributions
of principal of the Class A Certificates will be a result of the actual
amortization (including prepayments) of the Mortgage Loans in the related
Mortgage Loan Group, which will include Mortgage Loans that have remaining terms
to stated maturity shorter or longer than those assumed and Coupon Rates higher
or lower than those assumed, the weighted average lives of the Class A Group I
Certificates and the Class A-6 Group II Certificates will differ from those set
forth above, even if all of the Mortgage Loans in the related Mortgage Loan
Group prepay at the indicated constant prepayment rates.
Payment Delay Feature of Class A-2, A-3, A-4 and A-5 Group I Certificates
The effective yield to the Owners of the Class A-2, A-3, A-4 and A-5
Group I Certificates will be lower than the yield which would otherwise apply
because distributions will not be payable to such Owners until at least the ___
day of the month in which the related Accrual Period ends, without any
additional distribution of interest or earnings thereon in respect of such
delay.
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued in classes (each, a "Class") pursuant
to a Pooling and Servicing Agreement to be dated as of ________, 199_ (the
"Pooling and Servicing Agreement") among the Master Servicer, the Company and
the Trustee. The Trustee will make available for inspection a copy of the
Pooling and Servicing Agreement (without exhibits or schedules) to the Owners of
the Certificates on written request. The following describes certain
terms of the Pooling and Servicing Agreement, but does not purport to be
complete and is qualified in its entirety by reference to the Pooling and
Servicing Agreement.
The $________ aggregate principal amount of Class A-1 Group I
Certificates, Variable Pass-Through Rate (the "Class A-1 Group I Certificates"),
the $________ aggregate principal amount of Class A-2 Group I Certificates,
____% Pass-Through Rate (the "Class A-2 Group I Certificates"), the $________
aggregate principal amount of Class A-3 Group I Certificates, ____% Pass-Through
Rate (the "Class A-3 Group I Certificates"), the $________ aggregate principal
amount of Class A-4 Group I Certificates, ____% Pass-Through Rate (the "Class
A-4 Group I Certificates") and the $________ aggregate principal amount of Class
A-5 Group I Certificates, ____% Pass-Through Rate (the "Class A-5 Group I
Certificates", and, collectively with the Class A-1 Group I Certificates, the
Class A-2 Group I Certificates, the Class A-3 Group I Certificates, Class A-4
Group I Certificates, the "Class A Group I Certificates"), and the $________
aggregate principal amount of Class A-6 Group II Certificates (the "Class A-6
Group II Certificates") are senior certificates as described herein (together,
the "Class A Certificates"). The Class B Certificates are not being offered
hereby. Each Class of Class A Certificates will be issued in original principal
amounts of $1,000 and integral multiples thereof, except that one certificate
for each class of Class A Certificates may be issued in a different amount. The
Trust will also issue a residual class in each REMIC created by the Trust (the
"Residual Certificates") which are not being offered hereby and will initially
be retained by the Company or its affiliates. The Class A Certificates, the
Class B Certificates and the Residual Certificates are collectively referred to
as the "Certificates".
Payment Dates and Distributions
On the ____ day of each month, or, if such day is not a business day
then the next succeeding business day, commencing ________, 199_ (each such day
being a "Payment Date"), the Trustee will be required to distribute to the
Owners of record of the Certificates as of the related Record Date, such Owners'
Percentage Interest in the amounts required to be distributed to the Owners of
each Class of Certificates on
S-45
<PAGE>
<PAGE>
such Payment Date. For so long as any Class A Certificate is in book-entry form
with DTC, the only "Owner" of such Class A Certificates will be Cede. See " --
Book-Entry Registration of the Class A Certificates" herein.
Each Owner of record of a Certificate as of each Record Date will be
entitled to receive such Owner's Percentage Interest in the amounts due on the
related Payment Date to the Owners of the related Class of Certificates. The
"Percentage Interest" of each Class A Certificate as of any date of
determination will be equal to the percentage obtained by dividing the principal
balance of such Class A Certificate as of the Cut-Off Date by the related Class
A Certificate Principal Balance as of the Cut-Off Date.
Flow of Funds and Distributions on the Class A Certificates
The Principal and Interest Account. The Pooling and Servicing Agreement
requires the Master Servicer to establish a custodial account (the "Principal
and Interest Account") on behalf of the Trustee at a depository institution
meeting the requirements set forth in the Pooling and Servicing Agreement. The
Pooling and Servicing Agreement requires the Master Servicer to deposit all
collections (other than amounts escrowed for taxes and insurance) related to the
Mortgage Loans to the Principal and Interest Account on a daily basis (but no
later than the first business day after receipt). All funds in the Principal and
Interest Account can only be invested in Eligible Investments. Investment
earnings on funds held in the Principal and Interest Account are for the account
of the Master Servicer, and the Master Servicer will be responsible for any
losses.
The Master Servicer is required pursuant to the Pooling and Servicing
Agreement on the thirteenth day or, if such day is not a business day, on the
next following business day (the "Remittance Date") of each month to remit to
the Trustee the following amounts with respect to the Mortgage Loans in each
Mortgage Loan Group: (i) an amount equal to the sum, without duplication, of (x)
the aggregate portions of the interest payments (whether or not collected)
becoming due on the Mortgage Loans during the immediately preceding Remittance
Period, and (y) any Compensating Interest calculated at the Coupon Rate on the
related Mortgage Loan, less the Servicing Fee with respect to the Mortgage Loans
serviced by the Master Servicer due with respect to such Mortgage Loans with
respect to the immediately preceding Remittance Period (the amount described in
this clause (i) for the Mortgage Loans in the Group I being the "Group I
Interest Remittance Amount" and the amount in this clause (i) for the Mortgage
Loans in the Group II being the "Group II Interest Remittance Amount"), (ii) an
amount equal to the sum, without duplication, of (x) the aggregate portions of
the scheduled principal payments, but only to the extent collected, on the
Mortgage Loans during the immediately preceding Remittance Period, (y) any
Prepayments, Insurance Proceeds and Net Liquidation Proceeds (but only to the
extent that such Net Liquidation Proceeds do not exceed the principal balance of
the related Mortgage Loan) and Released Mortgaged Property Proceeds, in each
case only to the extent collected on the Mortgage Loans during the preceding
Remittance Period and (z) all Loan Purchase Prices and Substitution Amounts with
respect to the related Mortgage Loans at such Remittance Date paid or received
by the Master Servicer for deposit to the Principal and Interest Account (the
amount described in this clause (ii) for the Mortgage Loans in the Group I being
the "Group I Principal Remittance Amount" and the amount described in this
clause (ii) for the Mortgage Loans in Group II being the "Group II Principal
Remittance Amount"). For any Remittance Date the Group I Interest Remittance
Amount and the Group I Principal Remittance Amount are together referred to as
the "Group I Monthly Remittance" for such Remittance Date, and the Group II
Interest Remittance Amount and the Group II Principal Remittance Amount are
together referred to as the "Group II Monthly Remittance" for such Remittance
Date. The sum of the Group I Interest Remittance Amount and the Group II
Interest Remittance Amount is equal to the "Interest Remittance Amount". The sum
of Group I Principal Remittance Amount and the Group II Principal Remittance
Amount is equal to the "Principal Remittance Amount". For any Remittance Date
the Interest Remittance Amount and the Principal Remittance Amount are together
referred to as the "Monthly Remittance" for such Remittance Date.
A "Remittance Period" is the period commencing at the opening of
business on the second day of each month and ending at the close of business on
the first day of the following month.
S-46
<PAGE>
<PAGE>
Delinquency Advances. The Pooling and Servicing Agreement requires that
if, on any Remittance Date, the amount then on deposit in the Principal and
Interest Account from Mortgage Loan collections and relating to interest is less
than the Interest Remittance Amount applicable to such Remittance Period, then
the Master Servicer is required to deposit into the Principal and Interest
Account a sufficient amount of its own funds ("Delinquency Advances") to make
such amount equal to such Interest Remittance Amount. The Master Servicer is not
required to make a Delinquency Advance if it believes that such Delinquency
Advance will not be recoverable from the related Mortgage Loan. The Trustee, as
successor Master Servicer, will not be required to make a Delinquency Advance if
it believes that such Delinquency Advance will not be recoverable from the
related Mortgage Loan.
The Certificate Account. The Pooling and Servicing Agreement provides
that the Trustee shall create and maintain one or more accounts for the purpose
of funding distributions to the Owners (collectively, the "Certificate
Account"). The Pooling and Servicing Agreement provides that the Trustee shall
deposit to the Certificate Account (i) monthly, the Monthly Remittance received
from the Master Servicer on the related Remittance Date and (ii) all Insured
Payments received from the Certificate Insurer.
[On each Payment Date, the Trustee shall withdraw from the Pre-Funding
Account any earnings received on investment of the Pre-Funding Amount held by it
in the Pre-Funding Account and deposit such earnings in the Certificate Account.
On the , 199_ Payment Date, the Trustee shall withdraw from the Pre-Funding
Account any funds theretofore remaining and deposit such funds in the
Certificate Account.]
On the second business day prior to each Payment Date, in preparation
of making distributions on such Payment Date, if the Trustee determines with
respect to either Mortgage Loan Group that the Total Available Funds to be on
deposit in the Certificate Account with respect to such Mortgage Loan Group will
be insufficient to pay the full amount of the related Insured Distribution
Amount and the fees of the Trustee and Certificate Insurer for such Payment
Date, the Trustee will then be required to make a draw on the related
Certificate Insurance Policy for the deficiency (the amount of any such
deficiency being the amount of the "Insured Payment" required to be made) and to
deposit the amount received with respect to such draw into the Certificate
Account.
The Pooling and Servicing Agreement also establishes an account, the
"Supplemental Interest Account," which is held in trust by the Trustee, but does
not constitute a part of the Trust. The Supplemental Interest Account will hold
certain amounts and other property relating to the funding of Supplemental
Interest Amounts, if any, to the Owners of the Class A-6 Group II Certificates.
"Supplemental Interest Amounts" are payments due on any Payment Date which
result from any shortfall between Class A-6 Group II Certificate interest
calculated at the Class A-6 Formula Pass-Through Rate, and such interest
calculated at the Class A-6 Available Funds Pass-Through Rate.
Distributions on the Class A Certificates. On each Payment Date, the
Trustee shall be required to make the following disbursements and transfers from
the Certificate Account in the following order of priority, and each such
transfer and disbursement shall be treated as having occurred only after all
preceding transfers and disbursements have occurred:
(i) first, the Trustee shall pay first, to itself the
Trustee's fees then due;
(ii) second, the Trustee shall pay to the Certificate Insurer
the premium amount then due;
(iii) third, the Trustee shall pay, pari passu, to the Owners of
each of the Class A Certificates, the related Class A Distribution
Amount for such Class and such Payment Date;
(iv) fourth, the Trustee shall distribute any remaining amount
in the Certificate Account to the Owners of the related Class B
Certificates and as otherwise required by the Pooling and Servicing
Agreement.
S-47
<PAGE>
<PAGE>
The Class A Group I Certificates have been tranched into five
"sequential pay" Classes, such that the Class A-5 Group I Certificates are
entitled to receive no principal distributions until the Class A-4 Certificate
Principal Balance has been reduced to zero, the Class A-4 Group I Certificates
are entitled to receive no principal distributions until the Class A-3
Certificate Principal Balance has been reduced to zero, the Class A-3 Group I
Certificates are entitled to receive no principal distributions until the Class
A-2 Certificate Principal Balance has been reduced to zero, and the Class A-2
Group I Certificates are entitled to receive no principal distributions until
the Class A-1 Certificate Principal Balance has been reduced to zero.
The Pooling and Servicing Agreement provides that to the extent the
Certificate Insurer makes Insured Payments, the Certificate Insurer will be
subrogated to the rights of the Owners of the related Class A Certificates with
respect to such Insured Payments and shall be deemed, to the extent of the
payments so made, to be a registered Owner of Class A Certificates and shall be
entitled to reimbursement for such Insured Payments, as provided in the Pooling
and Servicing Agreement.
Calculation of LIBOR
On the second business day preceding each Payment Date or, in the case
of the first Payment Date, on the second business day preceding the Closing Date
(each such date, an "Interest Determination Date"), the Trustee will determine
the London interbank offered rate for one-month U.S. dollar deposits ("LIBOR")
for the next Accrual Period for the Class A-1 Group I Certificates and Class A-6
Group II Certificates on the basis of the offered rates of the Reference Banks
for one-month U.S. dollar deposits, as such rates appear on the Reuters Screen
LIBO Page, as of 11:00 a.m. (London time) on such Interest Determination Date.
As used in this section, "business day" means a day on which banks are open for
dealing in foreign currency and exchange in London and New York City; "Reuters
Screen LIBO Page" means the display designated as page "LIBO" on the Reuter
Monitor Money Rates Service (or such other page as may replace the LIBO page on
that service for the purpose of displaying London interbank offered rates of
major banks); and "Reference Banks" means leading banks selected by the Trustee
and engaged in transactions in Eurodollar deposits in the international
Eurocurrency market (i) with an established place of business in London, (ii)
whose quotations appear on the Reuters Screen LIBO Page on the Interest
Determination Date in question, (iii) which have been designated as such by the
Trustee and (iv) not controlling, controlled by, or be under common control
with, the Company or the Trustee.
On each Interest Determination Date, LIBOR for the related Accrual
Period for the Class A-6 Group II Certificates will be established by the
Trustee as follows:
(a) If on such Interest Determination Date two or more Reference Banks
provide such offered quotations, LIBOR for the related Accrual Period for the
Class A-1 Group I and the Class A-6 Group II Certificates shall be the
arithmetic mean of such offered quotations (rounded upwards if necessary to the
nearest whole multiple of 1/16%).
(b) If on such Interest Determination Date fewer than two Reference
Banks provide such offered quotations, LIBOR for the related Accrual Period for
the Class A-1 Group I and the Class A-6 Group II Certificates shall be the
higher of (x) LIBOR as determined on the previous Interest Determination Date
and (y) the Reserve Interest Rate. The "Reserve Interest Rate" shall be the rate
per annum that the Trustee determines to be either (i) the arithmetic mean
(rounded upwards if necessary to the nearest whole multiple of 1/16%) of the
one-month U.S. dollar lending rates which New York City banks selected by the
Trustee are quoting on the relevant Interest Determination Date to the principal
London offices of leading banks in the London interbank market or, in the event
that the Trustee can determine no such arithmetic mean, (ii) the lowest
one-month U.S. dollar lending rate which New York City banks selected by the
Trustee are quoting on such Interest Determination Date to leading European
banks.
The establishment of LIBOR on each Interest Determination Date by the
Trustee and the Trustee's calculation of the rate of interest applicable to the
Class A-1 Group I and the Class A-6 Group II Certificates
S-48
<PAGE>
<PAGE>
for the related Accrual Period shall (in the absence of manifest error) be final
and binding. Each such rate of interest may be obtained by telephoning the
Trustee at (612) 667-8085.
Subordination of Class B Certificates
The Class B Certificates are subordinated to the Class A Certificates.
Such subordination is intended to enhance the likelihood that the Owners of the
Class A Certificates will receive full and timely receipt of all amounts due to
them.
The Pooling and Servicing Agreement requires that the excess of the
aggregate principal balance of the Mortgage Loans in Group I over the Class A
Certificate Principal Balance for all Classes of the Class A Group I
Certificates be maintained at a certain amount (which amount may vary over time)
over the life of the transaction, which amount is specified by the Certificate
Insurer. The actual amount of this excess is the "Subordinated Amount" for Group
I, and the specified target amount of the excess at a point in time is the
"Specified Subordinated Amount" for Group I.
Similarly, the Pooling and Servicing Agreement requires that the excess
of Group II's Pool Principal Balance over the Class A Certificate Principal
Balance for the Class A-6 Group II Certificates be maintained at a certain
amount (which amount may vary over time) over the life of the transaction, which
amount is specified by the Certificate Insurer. The actual amount of this excess
is the "Subordinated Amount" for Group II, and the specified target amount of
the excess at a point in time is the "Specified Subordinated Amount" for Group
II.
The Certificate Insurer may permit the reduction of the Specified
Subordinated Amount without the consent of, or the giving of notice to, the
Owners of the related Class A Certificates; provided, that the Certificate
Insurer is not then in default; and provided, further, that such reduction would
not change materially the weighted average life of the related Class A
Certificates or the current rating thereof.
The Pooling and Servicing Agreement generally provides that the Owners
of the Class B Certificates will only receive distributions of principal to the
extent that the actual related Subordinated Amount exceeds the then related
Specified Subordinated Amount; i.e., to the extent that there is a level of
subordination greater than that required by the Certificate Insurer, as will be
the case when the Specified Subordinated Amount decreases or "steps down" in
accordance with its terms. Consequently, unless there exists on any particular
Payment Date such related excess subordination, the Owners of the related Class
A Certificates will be entitled to receive 100% of the principal to be
distributed on such Payment Date with respect to the related Mortgage Loan
Group.
The Class B Certificates are also entitled to receive all excess
interest available on any Payment Date for the related Mortgage Loan Group,
i.e., the interest remitted by the Master Servicer to the Trustee relating to
the prior Remittance Period (which interest remittance is itself net of the
aggregate monthly Servicing Fees) less the interest due and payable to the
Owners of the related Class A Certificates, together with the fees and premium
due and payable to the Trustee and the Certificate Insurer (such interest to
which the related Class B Certificates are entitled, the "Class B Interest" for
the related Mortgage Loan Group).
On each Payment Date the Class B Interest will be used, to the extent
available, to fund any shortfalls in amounts due to the Owners of the Class A
Certificates on such Payment Date. In addition, to the extent that the related
Specified Subordinated Amount increases or "steps up" due to the effect of the
triggers set forth in the definition thereof, or if, due to Realized Losses, the
related Subordinated Amount has been reduced below the related Specified
Subordinated Amount, the Pooling and Servicing Agreement requires that Class B
Interest be used to make payments of principal to the Owners of the Class A
Group I Certificates and the Class A-6 Group II Certificates for the purposes of
accelerating the amortization thereof relative to the amortization of the
Mortgage Loans in the related Mortgage Loan Group. Such accelerated payments of
principal will be made to the extent necessary to increase the related
Subordinated Amount to its then-applicable Specified
S-49
<PAGE>
<PAGE>
Subordinated Amount. To the extent that, on any Payment Date, the actual related
Subordinated Amount is less than the related Specified Subordinated Amount, a
"Subordination Deficiency" will exist. The Insurance Agreement defines a "Group
I Subordination Deficit" with respect to a Payment Date to be the amount, if
any, by which (x) the aggregate Certificate Principal Balance of the Class A
Group I Certificates as of such Payment Date, and following the making of all
distributions to be made on such Payment Date (except for any payment to be made
as to principal from proceeds of the related Certificate Insurance Policy),
exceeds (y) an amount equal to the aggregate principal balances of the Mortgage
Loans in the Group I as of the close of business on the last day of the
preceding Remittance Period; a "Group II Subordination Deficit" with respect to
a Payment Date is the amount, if any, by which (x) the aggregate Certificate
Principal Balance of the Class A-6 Group II Certificates as of such Payment
Date, and following the making of all distributions to be made on such Payment
Date (except for any payment to be made as to principal from proceeds of the
related Certificate Insurance Policy) exceeds (y) the aggregate principal
balances of the Mortgage Loans in the Group II as of the close of business on
the last day of the preceding Remittance Period.
"Subordination Increase Amount" means, as of any Payment Date and with
respect to the related Mortgage Loan Group, the lesser of (i) the Subordination
Deficiency applicable to such Mortgage Loan Group as of such Payment Date and
(ii) the actual amount available to pay the Class B Interest on such Payment
Date.
"Subordination Reduction Amount" means, with respect to any Payment
Date and with respect to the related Mortgage Loan Group, an amount equal to the
lesser of (x) the excess of the actual Subordinated Amount applicable to such
Mortgage Loan Group over the Specified Subordinated Amount for such Payment Date
and (y) the amount described in clause (b)(i)(x) of the definition of Class A
Principal Distribution Amount for such Payment Date.
Overcollateralization and the Certificate Insurance Policy. The Pooling
and Servicing Agreement requires the Trustee to make a claim for an Insured
Payment under the related Certificate Insurance Policy not later than the second
business day prior to any Payment Date as to which the Trustee has determined
that a Subordination Deficit will occur for the purpose of applying the proceeds
of such Insured Payment as a payment of principal to the Owners of the Class A
Group I Certificates or Class A-6 Group II Certificates, as the case may be, on
such Payment Date. The Certificate Insurance Policy is thus similar to the
subordination provisions described above insofar as the Certificate Insurance
Policy guarantees ultimate, rather than current, payment of the amounts of any
Realized Losses to the Holders of the related Class A Group I Certificates and
Class A-6 Group II Certificates. Investors in the Class A Group I Certificates
of each Class and the Class A-6 Group II Certificates should realize that, under
extreme loss or delinquency scenarios applicable to the related Mortgage Loan
Pool, they may temporarily receive no distributions of principal.
Crosscollateralization Provisions
The Pooling and Servicing Agreement further provides that the Class B
Interest generated by the Group I may be used to fund certain shortfalls with
respect to the Group II and vice versa, provided that such Class B Interest must
first be applied to fund certain required payments with respect to the related
Mortgage Loan Group. Specifically, the Class B Interest generated by one
Mortgage Loan Group is to be applied in the following order of priority: (i)
first, to fund a Subordination Increase Amount payment in response to a
Subordination Deficit in the related Mortgage Loan Group; (ii) second, to fund a
Subordination Increase Amount payment in response to a Subordination Deficit or
interest shortfall in the other Mortgage Loan Group; (iii) third, to fund a
Subordination Increase Amount payment in response to a Subordination Deficiency
in the related Mortgage Loan Group; and (iv) fourth, to fund a Subordination
Increase Amount payment in response to a Subordination Deficiency with respect
to the other Mortgage Loan Group.
S-50
<PAGE>
<PAGE>
Credit Enhancement Does Not Apply to Prepayment Risk
In general, the protection afforded by the subordination provisions and
by the Certificate Insurance Policy is protection for credit risk and not for
prepayment risk. The subordination provisions may not be adjusted, nor may a
claim be made under the Certificate Insurance Policy to guarantee or insure that
any particular rate of prepayment is experienced by either of the two Mortgage
Loan Groups.
Class A Certificate Distributions and Insured Payments
No later than the second business day prior to each Payment Date the
Trustee will be required to determine the amounts to be on deposit in the
Certificate Account on such Payment Date and following the application of the
cross-collateralization provisions described above with respect to each of the
two Mortgage Loan Groups, such amounts being the "Group I Total Available
Funds", and the "Group II Total Available Funds", respectively, or,
collectively, the "Total Available Funds". If the aggregate Class A Insured
Distribution Amount related to the Class A Group I Certificates for any Payment
Date exceeds the Group I Total Available Funds for such Payment Date, the
Trustee will be required to draw the amount of such insufficiency from the
Certificate Insurer under the Certificate Insurance Policy. Similarly, if on any
Payment Date the Class A Insured Distribution Amount related to the Class A-6
Group II Certificates exceeds the Group II Total Available Funds for such
Payment Date, the Trustee will be required to draw the amount of such
insufficiency from the Certificate Insurer under the Certificate Insurance
Policy. The Trustee will be required to deposit to the Certificate Account the
amount of any Insured Payment made by the Certificate Insurer. The Pooling and
Servicing Agreement provides that amounts which cannot be distributed to the
Owners of the Certificates as a result of final, non-appealable proceedings
under the United States Bankruptcy Code or similar insolvency laws will not be
considered in determining the amount of Total Available Funds with respect to
any Payment Date.
Book-Entry Registration of the Class A Certificates
The Class A Certificates will be book-entry certificates (the
"Book-Entry Certificates"). The Beneficial Certificate Owners may elect to hold
their Class A Certificates through DTC in the United States, or CEDEL or
Euroclear (in Europe) if they are participants of such systems ("Participants"),
or indirectly through organizations which are Participants in such systems. The
Book-Entry Certificates will be issued in one or more certificates per class of
Class A Certificates which in the aggregate equal the principal balance of such
Class A Certificates and will initially be registered in the name of Cede, the
nominee of DTC. CEDEL and Euroclear will hold omnibus positions on behalf of
their Participants through customers' securities accounts in CEDEL's and
Euroclear's names on the books of their respective depositories which in turn
will hold such positions in customers' securities accounts in the depositories'
names on the books of DTC. Citibank will act as depository for CEDEL and Morgan
will act as depository for Euroclear (in such capacities, individually the
"Relevant Depository" and collectively the "European Depositories"). Investors
may hold such beneficial interests in the Book-Entry Certificates in minimum
denominations representing principal amounts of $1,000. Except as described
below, no Beneficial Certificate Owner will be entitled to receive a physical
certificate representing such Certificate (a "Definitive Certificate"). Unless
and until Definitive Certificates are issued, it is anticipated that the only
"Owner" of such Class A Certificates will be Cede, as nominee of DTC. Beneficial
Certificate Owners will not be Owners as that term is used in the Pooling and
Servicing Agreement. Beneficial Certificate Owners are only permitted to
exercise their rights indirectly through Participants and DTC.
The Beneficial Certificate Owner's ownership of a Book-Entry
Certificate will be recorded on the records of the brokerage firm, bank, thrift
institution or other financial intermediary (each, a "Financial Intermediary")
that maintains the Beneficial Certificate Owner's account for such purpose. In
turn, the Financial Intermediary's Ownership of such Book-Entry Certificate will
be recorded on the records of DTC (or of a participating firm that acts as agent
for the Financial Intermediary, whose interest will in turn be recorded on the
records of DTC, or, if the Beneficial Certificate Owner's Financial Intermediary
is not a DTC Participant, then on the records of CEDEL or Euroclear, as
appropriate).
S-51
<PAGE>
<PAGE>
Beneficial Certificate Owners will receive all distributions of
principal of, and interest on, the Class A Certificates from the Trustee through
DTC and DTC Participants. While such Class A Certificates are outstanding
(except under the circumstances described below), under the rules, regulations
and procedures creating and affecting DTC and its operations (the "Rules"), DTC
is required to make book-entry transfers among Participants on whose behalf it
acts with respect to such Class A Certificates and is required to receive and
transmit distributions of principal of, and interest on, such Class A
Certificates. Participants and indirect participants with whom Beneficial
Certificate Owners have accounts with respect to Class A Certificates are
similarly required to make book-entry transfers and receive and transmit such
distributions on behalf of their respective Beneficial Certificate Owners.
Accordingly, although Beneficial Certificate Owners will not possess
certificates, the Rules provide a mechanism by which Beneficial Certificate
Owners will receive distributions and will be able to transfer their interest.
Beneficial Certificate Owners will not receive or be entitled to
receive certificates representing their respective interests in the Class A
Certificates, except under the limited circumstances described below. Unless and
until Definitive Certificates are issued, Beneficial Certificate Owners who are
not Participants may transfer ownership of Class A Certificates only through
Participants and indirect participants by instructing such Participants and
indirect participants to transfer such Class A Certificates, by book-entry
transfer, through DTC for the account of the purchasers of such Class A
Certificates, which account is maintained with their respective Participants.
Under the Rules and in accordance with DTC's normal procedures, transfers of
ownership of such Class A Certificates will be executed through DTC and the
accounts of the respective Participants at DTC will be debited and credited.
Similarly, the Participants and indirect participants will make debits or
credits, as the case may be, on their records on behalf of the selling and
purchasing Beneficial Certificate Owners.
Because of time zone differences, credits of securities received in
CEDEL or Euroclear as a result of a transaction with a Participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or CEDEL Participants on such business day. Cash received in CEDEL or
Euroclear as a result of sales of securities by or through a CEDEL Participant
(as defined below) or Euroclear Participant (as defined below) to a DTC
Participant will be received with value on the DTC settlement date but will be
available in the relevant CEDEL or Euroclear cash account only as of the
business day following settlements in DTC. For information with respect to tax
documentation procedures relating to the Certificates, see "Federal
Income Tax Consequences -- Foreign Investors" and " -- Backup Withholding" in
the Prospectus and "Global Clearance, Settlement and Tax Documentation
Procedures -- Certain U.S. Federal Income Tax Documentation Requirements" in
Annex I hereto.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depository; however, such cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depository to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. CEDEL Participants and Euroclear Participants may not deliver instructions
directly to the European Depositories.
S-52
<PAGE>
<PAGE>
DTC, which is a New York-chartered limited purpose trust company,
performs services for its Participants ("DTC Participants"), some of which
(and/or their representatives) own DTC. In accordance with its normal
procedures, DTC is expected to record the positions held by each DTC Participant
in the Book-Entry Certificates, whether held for its own account or as a nominee
for another person. In general, beneficial ownership of Book-Entry Certificates
will be subject to the rules, regulations and procedures governing DTC and DTC
Participants as in effect from time to time.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participant organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to CEDEL is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 31 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the "Euroclear Operator"), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear Securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries. Indirect access to Euroclear is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions on the Book-Entry Certificates will be made on each
Payment Date by the Trustee to DTC. DTC will be responsible for crediting the
amount of such payments to the accounts of the applicable DTC Participants in
accordance with DTC's normal procedures. Each DTC Participant will be
responsible for
S-53
<PAGE>
<PAGE>
disbursing such payment to the Beneficial Certificate Owners of the Book-Entry
Certificates that it represents and to each Financial Intermediary for which it
acts as agent. Each such Financial Intermediary will be responsible for
disbursing funds to the Beneficial Certificate Owners of the Book-Entry
Certificates that it represents.
Under a book-entry format, Beneficial Certificate Owners of the
Book-Entry Certificates may experience some delay in their receipt of payments,
since such payments will be forwarded by the Trustee to Cede. Distributions with
respect to Class A Certificates held through CEDEL or Euroclear will be credited
to the cash accounts of CEDEL Participants or Euroclear Participants in
accordance with the relevant system's rules and procedures, to the extent
received by the Relevant Depository. Such distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
Because DTC can only act on behalf of Financial Intermediaries, the ability of a
Beneficial Certificate Owner to pledge Book-Entry Certificates, to persons or
entities that do not participate in the Depository system, or otherwise take
actions in respect of such Book-Entry Certificates, may be limited due to the
lack of physical certificates for such Book-Entry Certificates. In addition,
issuance of the Book-Entry Certificates in book-entry form may reduce the
liquidity of such Certificates in the secondary market since certain potential
investors may be unwilling to purchase Certificates for which they cannot obtain
physical certificates.
Monthly and annual reports on the Trust provided by the Master Servicer
to Cede, as nominee of DTC, may be made available to Beneficial Certificate
Owners upon request, in accordance with the rules, regulations and procedures
creating and affecting the Depository, and to the Financial Intermediaries to
whose DTC accounts the Book-Entry Certificates of such Beneficial Certificate
Owners are credited.
DTC has advised the Trustee that, unless and until Definitive
Certificates are issued, DTC will take any action permitted to be taken by the
holders of the Book-Entry Certificates under the Pooling and Servicing Agreement
only at the direction of one or more Financial Intermediaries to whose DTC
accounts the Book-Entry Certificates are credited, to the extent that such
actions are taken on behalf of Financial Intermediaries whose holdings include
such Book-Entry Certificates. CEDEL or the Euroclear Operator, as the case may
be, will take any action permitted to be taken by an Owner under the Pooling and
Servicing Agreement on behalf of a CEDEL Participant or Euroclear Participant
only in accordance with its relevant rules and procedures and subject to the
ability of the Relevant Depository to effect such actions on its behalf through
DTC. DTC may take actions, at the direction of the related Participants, with
respect to some Class A Certificates which conflict with actions taken with
respect to other Class A Certificates.
Definitive Certificates will be issued to Beneficial Certificate Owners
of the Book-Entry Certificates, or their nominees, rather than to DTC, only if
(a) DTC or the Depositor advises the Trustee in writing that DTC is no longer
willing, qualified or able to discharge properly its responsibilities as a
nominee and depository with respect to the Book-Entry Certificates and the
Depositor or the Trustee is unable to locate a qualified successor, (b) the
Depositor, at its sole option, elects to terminate a book-entry system through
DTC or (c) DTC, at the direction of the Beneficial Certificate Owners
representing a majority of the outstanding Percentage Interests of the Class A
Certificates, advises the Trustee in writing that the continuation of a
book-entry system through DTC (or a successor thereto) is no longer in the best
interests of Beneficial Certificate Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all Beneficial
Certificate Owners of the occurrence of such event and the availability through
DTC of Definitive Certificates. Upon surrender by DTC of the global certificate
or certificates representing the Book-Entry Certificates and instructions for
re-registration, the Trustee will issue Definitive Certificates, and thereafter
the Trustee will recognize the holders of such Definitive Certificates as Owners
under the Pooling and Servicing Agreement.
Although DTC, CEDEL and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Certificates among Participants
of DTC, CEDEL and Euroclear, they are under no obligation to perform or continue
to perform such procedures and such procedures may be discontinued at any time.
S-54
<PAGE>
<PAGE>
Certain Activities
The Trust has not and will not: (i) issue securities (except for the
Certificates); (ii) borrow money; (iii) make loans; (iv) invest in securities
for the purpose of exercising control; (v) underwrite securities; (vi) except as
provided in the Pooling and Servicing Agreement, engage in the purchase and sale
(or turnover) of investments other than the purchase of Subsequent Mortgage
Loans; (vii) offer securities (except the Certificates) in exchange for
property; or (viii) repurchase or otherwise reacquire its securities. See
"Reports to the Holders" for information regarding reports to the
Certificateholders.
General Servicing Procedures
Acting directly or through one or more sub-servicers, ________ (the
"Master Servicer") is required to service and administer the Mortgage Loans in
accordance with the Pooling and Servicing Agreement.
The Master Servicer in its own name or in the name of a sub-servicer is
authorized and empowered pursuant to the Pooling and Servicing Agreement (i) to
execute and deliver any and all instruments of satisfaction or cancellation or
of partial or full release or discharge and all other comparable instruments
with respect to the Mortgage Loans and with respect to the Properties, (ii) to
institute foreclosure proceedings or obtain a deed in lieu of foreclosure so as
to effect ownership of any Property in its own name on behalf of the Trustee,
and (iii) to hold title in the name of the Trust to any Property upon such
foreclosure or deed in lieu of foreclosure on behalf of the Trustee; provided,
however, that to the extent any instrument described in clause (i) would be
delivered by the Master Servicer outside of its ordinary procedures for mortgage
loans held for its own account, the Master Servicer is required, prior to
executing and delivering such instrument, to obtain the prior written consent of
the Certificate Insurer.
The Master Servicer, in its own name or in the name of a Sub-Servicer,
has the right to approve requests of Mortgagors for consent to (i) partial
releases of Mortgages, (ii) alterations, and (iii) removal, demolition or
division of Properties subject to Mortgages. The Pooling and Servicing Agreement
provides that no such request shall be approved by the Master Servicer unless:
(i) (x) the provisions of the related Note and Mortgage have been complied with,
(y) the Combined Loan-to-Value Ratio (which may, for this purpose, be determined
at the time of any such action in a manner reasonably acceptable to the
Certificate Insurer) after any release does not exceed the Combined
Loan-to-Value Ratio set forth for such Mortgage Loan in the Schedule of Mortgage
Loans, and (z) the lien priority of the related Mortgage is not affected; or
(ii) the Certificate Insurer shall have approved the granting of such request.
On the tenth day of each month (or the immediately following business
day if the tenth day does not fall on a business day), the Master Servicer or
Sub-Servicer shall send to the Trustee a report detailing the payments on the
Mortgage Loans serviced by it in each of the two Mortgage Loan Groups during the
prior Remittance Period.
Collection of Certain Mortgage Loan Payments
The Master Servicer is required generally to service the Mortgage Loan
Pool in a prudent manner consistent with its general servicing standards for
similar mortgage loans and to make reasonable efforts to collect all payments
called for under the terms and provisions of the Mortgage Loans, and shall, to
the extent such procedures shall be consistent with the provisions of the
Pooling and Servicing Agreement, follow collection procedures for all Mortgage
Loans at least as rigorous as those the Master Servicer would take in servicing
loans and in collecting payments thereunder for its own account.
Consistent with the foregoing, the Master Servicer, in its own name or
in the name of a Sub-Servicer, may (i) in its discretion waive or permit to be
waived any late payment charge or assumption fee or any other fee or charge
which the Master Servicer would be entitled to retain as servicing compensation,
(ii) extend the due date for payments due on a Note for a period (with respect
to each payment as to which the due date is
S-55
<PAGE>
<PAGE>
extended) not greater than 125 days after the initially scheduled due date for
such payment, and (iii) amend any Note to extend the maturity thereof, provided
that no maturity shall be extended beyond the maturity date of the Mortgage Loan
with the latest maturity date and that no more than 1.0% of the Original Pool
Balance of the Mortgage Loans shall have a maturity date which has been extended
beyond the maturity date thereof at the Cut-Off Date; provided that such action
does not violate applicable REMIC provisions. In the event the Master Servicer,
in its own name or in the name of a Sub-Servicer, consents to the deferment of
the due dates for payments due on a Note, the Master Servicer or Sub-Servicer is
nonetheless required to make payment of any required Delinquency Advance with
respect to the payments so extended to the same extent as if such installment
were due, owing and delinquent and had not been deferred.
Generally the Class A Certificate Owners would prefer that
"due-on-sale" clauses be waived in the event of a sale of the underlying
Mortgaged Property, that extensions and accommodations be made with delinquent
Mortgagors, and that liquidations of Mortgage Loans be deferred, since upon
prepayment due to sale or upon liquidation such Owners will receive a payment of
principal in connection with such prepayment or liquidation. If attractive
re-investment opportunities are available at the time, Class A Certificate
Owners may prefer that "due-on-sale" clauses not be waived and that no such
extensions, accommodations or deferments be made, thus hastening the return of
principal to such Owners.
Owners do not have the right under the Pooling and Servicing Agreement
to make decisions with respect to Mortgagor accounts. Such decisions are in the
nature of mortgage servicing and the Master Servicer generally has the right to
make such decisions without the requirement of consent of the Owners, the
Trustee or the Certificate Insurer. The Master Servicer will generally be
required under the Pooling and Servicing Agreement to enforce "due-on-sale"
clauses, and will make decisions with respect to liquidations in accordance with
the Pooling and Servicing Agreement.
Under certain limited circumstances the Pooling and Servicing Agreement
may require the Master Servicer to obtain the consent of the Certificate Insurer
before taking certain actions with respect to defaulted Mortgage Loans and in
connection with the waiver of "due-on-sale" clauses. Since the Certificate
Insurer's exposure increases, to the extent of interest accrued, the longer the
liquidation process, it is likely to be the case that the Certificate Insurer
will favor quick liquidations in those situations in which its consent is
required. Similarly, the Certificate Insurer would favor the enforcement of a
"due-on-sale" clause, since a prepayment in the event of a sale also reduces its
exposure by limiting the accrual of interest.
Principal and Interest Account
The Master Servicer, in its own name or in the name of a Sub-Servicer,
is required to deposit to the Principal and Interest Account all collections on
the Mortgage Loans, certain proceeds received by the Master Servicer in
connection with the termination of the Trust, Loan Purchase Prices and
Substitution Amounts received or paid by the Master Servicer, insurance and
condemnation proceeds received by the Master Servicer, other amounts related to
the Mortgage Loans received by the Master Servicer, including any income from
REO Properties (net of Servicing Advances made with respect to such REO
Properties), and Delinquency Advances together with any amounts which are
reimbursable from the Principal and Interest Account, but net of the Servicing
Fee with respect to each Mortgage Loan serviced by the Master Servicer and other
servicing compensation to the Master Servicer as permitted by the Pooling and
Servicing Agreement.
The Master Servicer or Sub-Servicer may make withdrawals from the
Principal and Interest Account only for the following purposes: (a) to effect
the timely remittance to the Trustee of the Monthly Remittance due on the
Remittance Date; (b) to withdraw investment earnings on amounts on deposit in
the Principal and Interest Account; (c) to withdraw amounts that have been
deposited to the Principal and Interest Account in error; (d) to pay certain
miscellaneous amounts over to the Company and (e) to clear and terminate the
Principal and Interest Account.
S-56
<PAGE>
<PAGE>
On each Remittance Date the Master Servicer and any Sub-Servicer is
required to remit the Monthly Remittance amount inclusive of all Delinquency
Advances and Compensating Interest to the Trustee by wire transfer, or otherwise
make funds available in immediately available funds.
Servicing Advances
The Pooling and Servicing Agreement obligates the Master Servicer to
pay all reasonable and customary "out-of-pocket" costs and expenses (including
reasonable legal fees) incurred in the performance of its servicing obligations
including, but not limited to, the cost of (i) preservation expenses, (ii) any
enforcement or judicial proceedings, including foreclosures, (iii) the
management and liquidation of REO Property (including, without limitation,
realtors' commissions) and (iv) advances made for taxes, insurance and other
charges against a Property. Each such expenditure will constitute a "Servicing
Advance". The Master Servicer may recover Servicing Advances from the Mortgagors
to the extent permitted by the Mortgage Loans or, if not theretofore recovered
from the Mortgagor on whose behalf such Servicing Advance was made, from
Liquidation Proceeds realized upon the liquidation of the related Mortgage Loan.
In no case may the Master Servicer recover Servicing Advances from the principal
and interest payments on any Mortgage Loan or from any amounts relating to any
other Mortgage Loan. The Master Servicer is not required to make a Servicing
Advance if it believes that such Servicing Advance will not be recoverable from
the related Mortgage Loan.
Compensating Interest
A full month's interest on each Mortgage Loan, calculated at a rate
equal to such Mortgage Loan's Coupon Rate less the Servicing Fee is due to the
Trustee on the outstanding principal balance of each Mortgage Loan as of the
beginning of each Remittance Period. If a Prepayment of a Mortgage Loan occurs
during any calendar month, any difference between the interest collected from
the Mortgagor during such calendar month and the full month's interest at such
rate ("Compensating Interest") that is due is required to be deposited by the
Master Servicer to the Principal and Interest Account (without any right of
reimbursement therefor) and shall be included in the Monthly Remittance and made
available to the Trustee on the next succeeding Remittance Date.
Maintenance of Insurance
The Master Servicer is required to cause to be maintained with respect
to each Mortgage Loan that it services and related Property a hazard insurance
policy with a carrier licensed in the state in which such Property is located
that provides for fire and extended coverage, and which provides for a recovery
by the Trust of insurance proceeds relating to such Mortgage Loan in an amount
not less than the least of (i) the outstanding principal balance of the Mortgage
Loan (together in the case of a Junior Mortgage, with the outstanding principal
balance of the senior lien), or (ii) the minimum amount required to compensate
for loss or damage on a replacement cost basis, or (iii) the full insurable
value of the premises.
If a Mortgage Loan at the time of origination relates to a Mortgaged
Property in an area identified in the Federal Register by the Federal Emergency
Management Agency as having special flood hazards, the Master Servicer, in its
own name or in the name of a Sub-Servicer, will be required to maintain with
respect thereto a flood insurance policy in a form meeting the requirements of
the then-current guidelines of the Federal Insurance Administration with a
generally acceptable carrier in an amount representing coverage, and which
provides for recovery by the Master Servicer or a Sub-Servicer on behalf of the
Trust of insurance proceeds relating to such Mortgage Loan, of not less than the
least of (i) the outstanding principal balance of the Mortgage Loan, or (ii) the
minimum amount required to compensate for damage or loss on a replacement cost
basis, or (iii) the maximum amount of insurance that is available under the
Flood Disaster Protection Act of 1973, as amended.
In the event that the Master Servicer or a Sub-Servicer obtains and
maintains a blanket policy insuring against fire with extended coverage and
against flood hazards on all of the Mortgage Loans that it services,
S-57
<PAGE>
<PAGE>
then, to the extent such policy names the Master Servicer or a Sub-Servicer as
loss payee and provides coverage in an amount equal to the aggregate unpaid
principal balance on the Mortgage Loans without co-insurance, and otherwise
complies with the requirements of the Pooling and Servicing Agreement, the
Master Servicer shall be deemed conclusively to have satisfied its obligations
with respect to fire and hazard insurance coverage under the Pooling and
Servicing Agreement. Such blanket policy may contain a deductible clause, in
which case the Master Servicer will be required, in the event that there shall
not have been maintained on the related Mortgaged Property a policy complying
with the Pooling and Servicing Agreement, and there shall have been a loss that
would have been covered by such policy, to deposit in the Principal and Interest
Account from the Master Servicer's own funds the difference, if any, between the
amount that would have been payable under a policy complying with the Pooling
and Servicing Agreement and the amount paid under such blanket policy.
Pursuant to the Pooling and Servicing Agreement, the Master Servicer
will be required to indemnify the Trust out of its own funds for any loss to the
Trust resulting from the Master Servicer's failure to maintain any required
insurance.
Due-on-Sale Clauses
When a Property has been or is about to be conveyed by the Mortgagor,
the Master Servicer or a Sub- Servicer, to the extent it has knowledge of such
conveyance or prospective conveyance, is required to exercise its rights to
accelerate the maturity of the related Mortgage Loan under any "due on sale"
clause contained in the related Mortgage or Note; provided, however, that the
Master Servicer will not be required to exercise any such right if the
"due-on-sale" clause, in the reasonable belief of the Master Servicer, is not
enforceable under applicable law; and provided further, that the Master Servicer
may refrain from exercising any such right if the Certificate Insurer gives its
prior consent to such non-enforcement.
Realization Upon Defaulted Mortgage Loans
The Master Servicer, in its own name or in the name of a Sub-Servicer,
is required to foreclose upon or otherwise comparably effect the ownership in
the name of the Trust, on behalf of the Trustee, of Properties relating to
defaulted Mortgage Loans that it services as to which no satisfactory
arrangements can be made for collection of delinquent payments and which the
Master Servicer has not purchased pursuant to its purchase option described
below, unless the Master Servicer reasonably believes that Net Liquidation
Proceeds with respect to such Mortgage Loan would not be increased as a result
of such foreclosure or other action, in which case such Mortgage Loan will be
charged off and will become a Liquidated Mortgage Loan. In connection with such
foreclosure or other conversion, the Master Servicer is required to exercise or
use foreclosure procedures with the same degree of care and skill as it would
exercise or use under the circumstances in the conduct of its own affairs. Any
amounts advanced in connection with such foreclosure or other action shall
constitute "Servicing Advances".
The Master Servicer, in its own name or in the name of a Sub-Servicer,
is required to sell any REO Property within 23 months of its acquisition by the
Trustee, unless the Master Servicer obtains for the Trustee an opinion of
counsel experienced in federal income tax matters, addressed to the Trustee and
the Master Servicer, to the effect that the holding by the Trust of such REO
Property for a greater specified period will not result in the imposition of
taxes on "prohibited transactions" of the Trust as defined in Section 860F of
the Code or cause the Trust to fail to qualify as a REMIC.
In accordance with the Pooling and Servicing Agreement, if the Master
Servicer has actual knowledge that a Property which it is contemplating
acquiring in foreclosure or by deed in lieu of foreclosure contains
environmental or hazardous waste risks known to it, the Master Servicer shall
notify the Certificate Insurer and the Trustee prior to acquiring the Property.
The Master Servicer is not permitted to take any action with respect to such a
Property without the prior written approval of the Certificate Insurer.
S-58
<PAGE>
<PAGE>
The Master Servicer is required to determine, with respect to each
defaulted Mortgage Loan that it services, when it has recovered, whether through
trustee's sale, foreclosure sale or otherwise, all amounts, if any, it expects
to recover from or on account of such defaulted Mortgage Loan, whereupon such
Mortgage Loan shall become a "Liquidated Mortgage Loan".
Servicing Compensation
As compensation for its servicing activities under the Pooling and
Servicing Agreement, the Master Servicer shall be entitled to retain the amount
of the Servicing Fee with respect to each Mortgage Loan that it services.
Additional servicing compensation in the form of release fees, bad check
charges, assumption fees, late payment charges, and any other servicing-related
fees, and similar items may, to the extent collected from Mortgagors, be
retained by the Master Servicer.
Annual Statement as to Compliance
The Master Servicer is required to deliver, on its own behalf, to the
Trustee, the Company and the Certificate Insurer, on or before the last day of
April of each year, commencing in 1997, an Officer's Certificate stating, as to
each signer thereof, that (i) a review of the activities of the Master Servicer
during such preceding calendar year and of performance under the Pooling and
Servicing Agreement has been made under such officer's supervision, and (ii) to
the best of such officer's knowledge, based on such review, the Master Servicer
has fulfilled all its obligations under the Pooling and Servicing Agreement for
such year, or, if there has been a default in the fulfillment of all such
obligations, specifying each such default known to such officer and the nature
and status thereof including the steps being taken by the Master Servicer to
remedy such default.
Annual Independent Certified Public Accountants' Reports
On or before the last day of April of each year, commencing in 1997,
the Master Servicer is required to cause to be delivered, on its own behalf, to
the Trustee and the Certificate Insurer a letter or letters of a firm of
independent, nationally recognized certified public accountants reasonably
acceptable to the Certificate Insurer stating that such firm has, with respect
to the Master Servicer's overall servicing operations (i) performed applicable
tests in accordance with the compliance testing procedures as set forth in
Appendix 3 of the Audit Guide for Audits of HUD Approved Nonsupervised
Mortgagees or (ii) examined such operations in accordance with the requirements
of the Uniform Single Audit Program for Mortgage Bankers, and stating such
firm's conclusions relating thereto.
Assignment of Agreement
The Master Servicer may not assign its obligations under the Pooling
and Servicing Agreement, in whole or in part, unless it shall have first
obtained the written consent of the Company, the Trustee and the Certificate
Insurer; provided, however, that any assignee must meet the eligibility
requirements set forth in the Pooling and Servicing Agreement for a successor
Master Servicer.
Removal and Resignation of the Master Servicer; Events of Default
The Certificate Insurer, or with the consent of the Certificate
Insurer, the Company or the Owners of Class A Certificates owning a majority in
Percentage Interest in the Class A Certificates may remove the Master Servicer
upon the occurrence of any of the following events (each, an "Event of
Default"):
(i) The Master Servicer shall (I) apply for or consent to
the appointment of a receiver, trustee, liquidator or custodian or
similar entity with respect to itself or its property, (II) admit in
writing its inability to pay its debts generally as they become due,
(III) make a general assignment for the benefit of creditors, (IV) be
adjudicated bankrupt or insolvent, (V) commence a voluntary case under
the federal bankruptcy laws of the United States of America or file a
voluntary petition or
S-59
<PAGE>
<PAGE>
answer seeking reorganization, an arrangement with creditors or an
order for relief or seeking to take advantage of any insolvency law or
file an answer admitting the material allegations of a petition filed
against it in any bankruptcy, reorganization or insolvency proceeding
or (VI) cause corporate action to be taken by it for the purpose of
effecting any of the foregoing; or
(ii) If without the application, approval or consent of the
Master Servicer, a proceeding shall be instituted in any court of
competent jurisdiction, under any law relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking in respect of
the Master Servicer an order for relief or an adjudication in
bankruptcy, reorganization, dissolution, winding up, liquidation, a
composition or arrangement with creditors, a readjustment of debts, the
appointment of a trustee, receiver, liquidator or custodian or similar
entity with respect to the Master Servicer or of all or any substantial
part of its assets, or other like relief in respect thereof under any
bankruptcy or insolvency law, and, if such proceeding is being
contested by the Master Servicer in good faith, the same shall (A)
result in the entry of an order for relief or any such adjudication or
appointment or (B) continue undismissed or pending and unstayed for any
period of sixty (60) consecutive days; or
(iii) The Master Servicer shall fail to perform any one or
more of its obligations under the Pooling and Servicing Agreement
(other than its obligations referenced in clauses (vi) and (vii) below)
and shall continue in default thereof for a period of thirty (30) days
after the earlier to occur of (x) the date on which an authorized
officer of the Master Servicer knows or reasonably should know of such
failure or (y) receipt by the Master Servicer of a written notice by
the Trustee, any Owner, the Company or the Certificate Insurer of said
failure; or
(iv) The Master Servicer shall fail to cure any breach of
any of its representations and warranties set forth in the Pooling and
Servicing Agreement which materially and adversely affects the
interests of the Owners or Certificate Insurer for a period of thirty
(30) days after the earlier of (x) the date on which an authorized
officer of the Master Servicer knows or reasonably should know of such
breach or (y) receipt by the Master Servicer of a written notice from
the Trustee, any Owner, the Company or the Certificate Insurer of such
breach;
(v) If the Certificate Insurer pays out any money under the
Certificate Insurance Policy, or if the Certificate Insurer otherwise
funds any shortfall with its own money, because the amounts available
to the Trustee (other than from the Certificate Insurer) are
insufficient to make required distributions on the Class A
Certificates;
(vi) The failure by the Master Servicer to make any required
Servicing Advance for a period of 30 days following the earlier of (x)
the date on which an authorized officer of the Master Servicer knows or
reasonably should know of such failure or (y) receipt by the Master
Servicer of a written notice from the Trustee, any Owner, the Company
or the Certificate Insurer of such failure;
(vii) The failure by the Master Servicer to make any
required Delinquency Advance or to pay any Compensating Interest or to
pay over the Monthly Remittance; or
(viii) If the delinquency or loss levels applicable to the
Mortgage Loans serviced by the Master Servicer exceed certain "trigger"
levels set forth in the Pooling and Servicing Agreement;
provided, however, that (x) prior to any removal of the Master Servicer pursuant
to clauses (ii) through (iv) and (vi) above, any applicable grace period granted
by any such clause shall have expired prior to the time such occurrence shall
have been remedied and (y) in the event of the refusal or inability of the
Master Servicer to comply with its obligations described in clause (vii) above,
such removal shall be effective (without the requirement of any action on the
part of the Company, the Trustee or the Certificate Insurer) at 4 p.m. (New York
City time) on the second business day following the day on which the Trustee
notifies the Master Servicer that a required amount described in clause (vii)
above has not been received by the Trustee, unless the
S-60
<PAGE>
<PAGE>
required amount described in clause (vii) above is paid by the Master Servicer
prior to such time. Upon the Trustee's determination that a required amount
described in clause (vii) above has not been made by the Master Servicer, the
Trustee shall so notify the Master Servicer, the Company and the Certificate
Insurer as soon as is reasonably practical.
The Master Servicer may not resign from the obligations and duties
imposed on it under the Pooling and Servicing Agreement, except upon
determination that its duties thereunder are no longer permissible under
applicable law or are in material conflict by reason of applicable law with any
other activities carried on by it, the other activities of the Master Servicer
so causing such a conflict being of a type and nature carried on by the Master
Servicer at the date of the Pooling and Servicing Agreement. Any such
determination permitting the resignation of the Master Servicer shall be
evidenced by an opinion of counsel to such effect which shall be delivered to
the Trustee, the Company and the Certificate Insurer.
No removal or resignation of the Master Servicer shall become effective
until the Trustee or a successor servicer shall have assumed the Master
Servicer's responsibilities and obligations in accordance with the Pooling and
Servicing Agreement.
Successor Master Servicer
Upon removal or resignation of ________ as Master Servicer under the
Pooling and Servicing Agreement, the Trustee (x) may solicit bids for a
successor Master Servicer under the Pooling and Servicing Agreement, and (y)
pending the appointment of a successor Master Servicer under the Pooling and
Servicing Agreement, as a result of soliciting such bids, is required to serve
as Master Servicer under the Pooling and Servicing Agreement, unless ________
has been removed without cause, in which event the Trustee prior to any such
removal must designate a successor Master Servicer under the Pooling and
Servicing Agreement acceptable to the Certificate Insurer. The Trustee, if it is
unable to obtain a qualifying bid and is prevented by law from acting as Master
Servicer under the Pooling and Servicing Agreement, may appoint, or petition a
court of competent jurisdiction to appoint, any housing and home finance
institution, bank or mortgage servicing institution which has been designated as
an approved seller-servicer by FNMA or FHLMC for first and second mortgage loans
and having equity of not less than $15,000,000, as determined in accordance with
generally accepted accounting principles, and acceptable to the Certificate
Insurer.
The Trustee, or any other successor Master Servicer, upon assuming the
duties of the Master Servicer, is required immediately to make payment of all
Compensating Interest and all Delinquency Advances which the Master Servicer has
theretofore failed to remit with respect to the Mortgage Loans; provided,
however, that if the Trustee is acting as successor Master Servicer, the Trustee
is only required to make Delinquency Advances (including the Delinquency
Advances described in this sentence) if, in the Trustee's reasonable good faith
judgment, such Delinquency Advances will ultimately be recoverable from the
related Mortgage Loans.
Investment of Accounts
All or a portion of the Principal and Interest Account, the Certificate
Account and any other account which may be created by the Trustee, may be
invested and reinvested in one or more Eligible Investments bearing interest or
sold at a discount. The bank serving as Trustee or any affiliate thereof, may be
the obligor on any investment in any Account which otherwise qualifies as an
Eligible Investment. No investment in any Account held by the Trustee may mature
later than the business day immediately preceding the next succeeding Payment
Date; provided, however, that if the investment is an investment of the bank
serving as Trustee, then it may mature on the Payment Date.
The Trustee will not in any way be held liable by reason of any
insufficiency in any Account resulting from any loss on any Eligible Investment
included therein (except to the extent that the bank serving as Trustee is the
obligor thereon).
S-61
<PAGE>
<PAGE>
All income or other gain from investments in any Account will be
required to be deposited in such Account immediately upon receipt, and any loss
resulting from such investments will be required to be charged to such Account.
Eligible Investments
The Pooling and Servicing Agreement defines the following as Eligible
Investments:
(a) Direct general obligations of the United States or the
obligations of any agency or instrumentality of the United States, the
timely payment or the guarantee of which constitutes a full faith and
credit obligation of the United States.
(b) Federal Housing Administration debentures, but excluding
any such securities whose terms do not provide for payment of a fixed
dollar amount upon maturity or call for redemption.
(c) FHLMC senior debt obligations, but excluding any such
securities whose terms do not provide for payment of a fixed dollar
amount upon maturity or call for redemption.
(d) FNMA senior debt obligations, but excluding any such
securities whose terms do not provide for payment of a fixed dollar
amount upon maturity or call for redemption.
(e) Federal funds, certificates of deposit, time and demand
deposits, and bankers' acceptances (having original maturities of not
more than 365 days) of any domestic bank, the short-term debt
obligations of which have been rated A-1 or better by S&P and P-1 by
Moody's.
(f) Deposits of any bank or savings and loan association which
has combined capital, surplus and undivided profits of at least
$50,000,000 which deposits are not in excess of the applicable limits
insured by the Bank Insurance Fund or the Savings Association Insurance
Fund of the FDIC, provided that the long-term deposits of such bank or
savings and loan association are rated at least "BBB" by S&P and "Baa3"
by Moody's.
(g) Commercial paper (having original maturities of not more
than 270 days) rated A-1 or better by S&P and P-1 by Moody's.
(h) Investments in money market funds rated AAAm or AAAm-G by
S&P and Aaa or P-1 by Moody's.
(i) Such other investments as have been approved in writing by
S&P, Moody's and the Certificate Insurer.
provided that no instrument described above is permitted to evidence
either the right to receive (a) only interest with respect to obligations
underlying such instrument or (b) both principal and interest payments derived
from obligations underlying such instrument and the interest and principal
payments with respect to such instrument provided a yield to maturity at par
greater than 120% of the yield to maturity at par of the underlying obligations;
and provided, further, that no instrument described above may be purchased at a
price greater than par if such instrument may be prepaid or called at a price
less than its purchase price prior to stated maturity.
S-62
<PAGE>
<PAGE>
Amendments
The Trustee, the Master Servicer and the Company may at any time and
from time to time, with the prior written consent of the Certificate Insurer but
without the consent of the Owners, amend the Pooling and Servicing Agreement,
for the purposes of (a) curing any ambiguity, or correcting or supplementing any
provision of any such agreement which may be inconsistent with any other
provision of such agreement, (b) if accompanied by an approving opinion of
counsel experienced in federal income tax matters, removing the restriction
against the transfer of a Residual Certificate to a Disqualified Organization
(as such term is defined in the Code) or (c) complying with the requirements of
the Code; provided, however, that such action shall not, as evidenced by an
opinion of counsel delivered to the Trustee, materially and adversely affect the
interests of any Owner or materially and adversely affect (without its written
consent) the rights and interests of the Certificate Insurer.
The Pooling and Servicing Agreement may also be amended by the Trustee,
the Master Servicer and the Company, as applicable, at any time and from time to
time, with the prior written approval of the Certificate Insurer and of not less
than 66 2/3% of the Percentage Interest represented by each affected Class of
Certificates then outstanding, for the purpose of adding any provisions or
changing in any manner or eliminating any of the provisions thereof or of
modifying in any manner the rights of the Owners thereunder; provided, however,
that no such amendment shall (a) change in any manner the amount of, or delay
the timing of, payments which are required to be distributed to any Owner
without the consent of the Owner of such Certificate or (b) change the aforesaid
percentages of Percentage Interest which are required to consent to any such
amendments, without the consent of the Owners of all Certificates of the Class
or Classes affected then outstanding. Any such amendment must be accompanied by
an opinion of tax counsel as to REMIC matters.
The Trustee will be required to furnish a copy of any such amendment to
each Owner in the manner set forth in the Pooling and Servicing Agreement.
Termination of the Trust
The Pooling and Servicing Agreement provides that the Trust will
terminate upon the payment to the Owners of all Certificates from amounts other
than those available under the Certificate Insurance Policy all amounts required
to be paid to such Owners upon the final payment and other liquidation (or any
advance made with respect thereto) of the last Mortgage Loan.
Optional Termination By the Company
At its option, the Company may purchase from the Trust all (but not
fewer than all) remaining Mortgage Loans and other property, acquired by
foreclosure, deed in lieu of foreclosure, or otherwise, then constituting the
Trust Estate, and thereby effect early retirement of the Certificates, on any
Payment Date when the Pool Principal Balance has declined to ten percent or less
of the Original Pool Principal Balance.
The termination of the Trust by the preceding method is equivalent to a
prepayment of all the Mortgage Loans and a liquidation of the Trust. The Owners
of the Class A Certificates would receive from the proceeds of such purchase any
interest owed and the Owners of the Class A Certificates would receive any
principal not yet paid, in the order of priority set forth under "Description of
Certificates -- Distributions on Class A Certificates". Consequently, a
termination of the Trust pursuant to the preceding methods, if purchased at a
price in excess of par, reduces the yield to maturity on the Class A
Certificates.
Auction Sale
The Pooling and Servicing Agreement requires that, within ninety days
following the Company Optional Termination Date, if the Company has not
exercised its optional termination right by such date, the Trustee solicit bids
for the purchase of all Mortgage Loans remaining in the Trust. In the event that
satisfactory
S-63
<PAGE>
<PAGE>
bids are received as described in the Pooling and Servicing Agreement, the net
sale proceeds will be distributed to Certificateholders, in the same order of
priority as collections received in respect of the Mortgage Loans. If
satisfactory bids are not received, the Trustee shall decline to sell the
Mortgage Loans and shall not be under any obligation to solicit any further bids
or otherwise negotiate any further sale of the Mortgage Loans. Such sale and
consequent termination of the Trust must constitute a "qualified liquidation" of
each REMIC established by the Trust under Section 860F of the Internal Revenue
Code of 1986, as amended, including, without limitation, the requirement that
the qualified liquidation takes place over a period not to exceed 90 days.
THE TRUSTEE
Pursuant to the Pooling and Servicing Agreement, ______________________
will serve as trustee of the Trust. The Pooling and Servicing Agreement sets
forth provisions regarding the Trustee, certain of which are described below.
Certain Covenants of the Trustee
Withholding. The Trustee is required to comply with all requirements of
the Code or any applicable state or local law with respect to the withholding
from any distributions made by it to any Owner of any applicable withholding
taxes imposed thereon and with respect to any applicable reporting requirements
in connection therewith.
Unclaimed Moneys. Any money held by the Trustee in trust for the
payment of any amount due with respect to any Class A Certificate and remaining
unclaimed for the period then specified in the escheat laws of the State of New
York after such amount has become due and payable will be discharged from such
trust and be paid to the Company, and the Owner of such Class A Certificate
shall thereafter, as an unsecured general creditor, look only to the Company for
payment thereof (but only to the extent of the amounts so paid to the Company),
and all liability of the Trustee with respect to such trust money will thereupon
cease; provided, however, that the Trustee, before being required to make any
such payment, may at the expense of the Company cause to be published once, in
the eastern edition of The Wall Street Journal, notice that such money remains
unclaimed and that, after a date specified therein, which shall be not less than
30 days from the date of such publication, any unclaimed balance of such money
then remaining will be paid to the Company. The Trustee may also adopt and
employ, at the expense of the Company, any other reasonable means of
notification of such payment (including but not limited to mailing notice of
such payment to Owners whose right to or interest in moneys due and payable but
not claimed is determinable from the Register at the last address of record for
each such Owner).
Protection of Trust Estate. The trust estate (the "Trust Estate") of
the Trust primarily consists of (i) the Mortgage Loans, (ii) all moneys held in
the Accounts and (iii) the Certificate Insurance Policy. The Trustee is required
to hold the Trust Estate in Trust for the benefit of the Owners and, upon
request of and at the expense of the Company and at the expense of the
requesting party, will from time to time execute and deliver all such
supplements and amendments to the Pooling and Servicing Agreement, instruments
of further assurance and other instruments, and will take such other action upon
such request as it deems reasonably necessary or advisable, to more effectively
hold in trust all or any portion of the Trust Estate.
The Trustee has the power to enforce, and is required to enforce the
obligations of the other parties to the Pooling and Servicing Agreement by
action, suit or proceeding at law or equity, and also has the power to enjoin,
by action or suit, any acts or occurrences which may be unlawful or in violation
of the rights of the Owners; provided, however, that nothing in the Pooling and
Servicing Agreement requires any action by the Trustee unless the Trustee shall
first (i) have been furnished indemnity satisfactory to it and (ii) when
required by the Pooling and Servicing Agreement, have been requested to take
such action by the Owners.
S-64
<PAGE>
<PAGE>
Performance and Enforcement of Obligations. The Pooling and Servicing
Agreement provides that the Trustee is under no obligation to exercise any of
the rights or powers vested in it by the Pooling and Servicing Agreement at the
request or direction of any of the Owners, unless such Owners shall have offered
to the Trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request or
direction.
The Trustee may execute any of the rights or powers granted by the
Pooling and Servicing Agreement or perform any duties thereunder either directly
or by or through agents or attorneys, and the Trustee is responsible for any
misconduct or negligence on the part of any agent or attorney appointed and
supervised with due care by it thereunder.
Pursuant to the Pooling and Servicing Agreement, the Trustee is not
liable for any action it takes or omits to take in good faith which it
reasonably believes to be authorized by an authorized officer of any person or
within its rights or powers under the Pooling and Servicing Agreement.
The Pooling and Servicing Agreement provides that no Owner has any
right to institute any proceeding, judicial or otherwise, with respect to the
Pooling and Servicing Agreement or the Certificate Insurance Policy, or for the
appointment of a receiver or trustee under the Pooling and Servicing Agreement,
unless:
(1) such Owner has previously given written notice to the
Company, the Certificate Insurer and the Trustee of such Owner's
intention to institute such proceeding;
(2) the Owners of not less than 25% of the Percentage
Interests represented by any Class of Class A Certificates then
outstanding or, if there are no Class A Certificates then outstanding,
by such Percentage Interest represented by the Class B Certificates
then outstanding, shall have made written request to the Trustee to
institute such proceeding in its own name as representative of the
Owners;
(3) such Owner or Owners have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 30 days after its receipt of such notice,
request and offer of indemnity, has failed to institute such
proceeding; and
(5) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Owners of a
majority of the Percentage Interests represented by each Class of Class
A Certificates then outstanding or, if there are no Class A
Certificates then outstanding, by a majority of the Percentage
Interests represented by the Class B Certificates then outstanding.
The Pooling and Servicing Agreement provides that no one or more Owners
shall have any right in any manner whatever by virtue of, or by availing
themselves of, any provision of the Pooling and Servicing Agreement to affect,
disturb or prejudice the rights of any other Owner of the same Class or to
obtain or to seek to obtain priority or preference over any other Owner of the
same Class or to enforce any right under the Pooling and Servicing Agreement,
except in the manner herein provided and for the equal and ratable benefit of
all the Owners of the same Class.
In the event the Trustee receives conflicting or inconsistent requests
and indemnity from two or more groups of Owners, each representing less than a
majority of the applicable Class of Certificates, the Trustee shall follow the
directions of the Certificate Insurer.
The Certificate Insurer or, with the consent of the Certificate
Insurer, the Owners of a majority of the Percentage Interests represented by
each Class of Class A Certificates then outstanding or, if there are no Class A
Certificates then outstanding, by such majority of the Percentage Interests
represented by the Class B
S-65
<PAGE>
<PAGE>
Certificates then outstanding, may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee with respect
to the Certificates or exercising any trust or power conferred on the Trustee
with respect to the Certificates or the Trust Estate provided that: (1) such
direction is not in conflict with any rule of law or with the Pooling and
Servicing Agreement; (2) the Trustee has been provided with indemnity
satisfactory to it; and (3) the Trustee may take any other action deemed proper
by the Trustee which is not inconsistent with such direction; provided, however,
that the Trustee need not take any action which it determines might involve it
in liability or may be unjustly prejudicial to the Owners not so directing.
Disposition of Trust Estate. The Trustee covenants not to permit the
Trust to sell, transfer, exchange or otherwise dispose of any of the Trust
Estate except as expressly permitted by the Pooling and Servicing Agreement.
Reporting Requirements. On each Payment Date the Trustee is required to
report in writing to each Owner: (i) the amount of the distribution with respect
to the Class A Certificates, the Class B Certificates and the Residual
Certificates; (ii) the amount of such distributions allocable to principal,
separately identifying the aggregate amount of any Prepayments or other
recoveries of principal included therein; (iii) the amount of such distributions
allocable to interest; (iv) the amount of such distributions allocable to the
Class A Carry-Forward Amount or the Class B Carry-Forward Amount; (v) the amount
of any Insured Payment made with respect to such Payment Date; (vi) the Class A
Principal Balance as of such Payment Date, together with the principal amount of
each Class A Certificate (based on a Certificate in the original principal
amount of $1,000) then outstanding, in each case after giving effect to any
payment of principal on such Payment Date; (vii) the Class B Principal Balance
as of such Payment Date, together with the principal amount of each Class B
Certificate (based on a Certificate in the original principal amount of $1,000)
then outstanding, in each case after giving effect to any payment of principal
on such Payment Date; (viii) the total of any Substitution Amounts and any Loan
Purchase Prices included in such distribution; (ix) the amount of the Servicing
Fee paid with respect to such Payment Date; and (x) the Subordinated Amount as
of such Payment Date.
Removal of Trustee for Cause
The Trustee may be removed upon the occurrence of any of the following
events (whatever the reason for such event and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) the Trustee shall fail to distribute to the Owners
entitled thereto on any Payment Date amounts available for distribution
in accordance with the terms of the Pooling and Servicing Agreement; or
(2) the Trustee shall fail in the performance of, or breach,
any covenant or agreement of the Trustee in the Pooling and Servicing
Agreement, or if any representation or warranty of the Trustee made in
the Pooling and Servicing Agreement or in any certificate or other
writing delivered pursuant thereto or in connection therewith shall
prove to be incorrect in any material respect as of the time when the
same shall have been made, and such failure or breach shall continue or
not be cured for a period of 30 days after, there shall have been
given, by registered or certified mail, to the Trustee by the Company
or by the Certificate Insurer or by the Owners of at least 25% of the
aggregate Percentage Interest represented by any Class of Class A
Certificates then outstanding, or, if there are no Class A Certificates
then outstanding, by such Percentage Interest represented by the Class
B Certificates then outstanding, a written notice specifying such
failure or breach and requiring it to be remedied; or
(3) certain insolvency events related to the Trustee.
S-66
<PAGE>
<PAGE>
If any event described above occurs and is continuing, then and in
every such case (x) the Company or the Certificate Insurer or (y) with the
consent of the Certificate Insurer, the Owners of a majority Percentage Interest
represented by any Class of Class A Certificates or, if there are no Class A
Certificates then outstanding, by such Percentage Interest represented by the
Class B Certificates then outstanding, may immediately appoint a successor
trustee.
Liability of the Trustee
The Trustee, prior to the occurrence of an Event of Default and after
the curing of all Events of Default which may have occurred, undertakes to
perform such duties and only such duties as are specifically set forth in the
Pooling and Servicing Agreement. If an Event of Default has occurred and has not
been cured or waived, the Trustee shall exercise such of the rights and powers
vested in it by the Pooling and Servicing Agreement, and use the same degree of
care and skill in its exercise as a prudent person would exercise or use under
the circumstances in the conduct of such person's own affairs. Prior to the
occurrence of an Event of Default, and after the curing of all such Events of
Default which may have occurred, the Trustee (i) undertakes to perform such
duties and only such duties as are specifically set forth in the Pooling and
Servicing Agreement, and no implied covenants or obligations shall be read into
the Pooling and Servicing Agreement against the Trustee and (ii) in the absence
of bad faith on its part, may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished pursuant to and conforming to the
requirements of the Pooling and Servicing Agreement; provided, however, that
such provisions do not protect the Trustee or any such person against any
liability which would otherwise be imposed by reason of negligent action,
negligent failure to act or willful misconduct in the performance of duties or
by reason of reckless disregard of obligations and duties thereunder.
The Trustee and any director, officer, employee or agent of the Trustee
may rely and will be protected in acting or refraining from acting in good faith
in reliance on any certificate, notice or other document of any kind prima facie
properly executed and submitted by the authorized officer of any person
respecting any matters arising under the Pooling and Servicing Agreement.
THE CERTIFICATE INSURANCE POLICY AND THE CERTIFICATE INSURER
General
[description of certificate insurer]
Capitalization
The following table sets forth the capitalization of the Certificate
Insurer as of December 31, 199_ and December 31, 199_, respectively, on the
basis of generally accepted accounting principles. No material adverse change in
the capitalization of the Certificate Insurer has occurred since December 31,
199_.
<TABLE>
<CAPTION>
December 31, December 31,
199_ 199_
------------- ---------------
(in millions) (in millions)
<S> <C> <C>
Unearned Premiums............................................................. $ $
Other Liabilities.............................................................
Stockholder's Equity
Common Stock...............................................................
Additional Paid-in Capital.................................................
Net Unrealized Gains/(Losses)..............................................
</TABLE>
S-67
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
Foreign Currency Translation Adjustment....................................
Retained Earnings..........................................................
Total Stockholder's Equity....................................................
Total Liabilities and Stockholder's Equity.................................... $ $
==== ====
</TABLE>
For further financial information concerning the Certificate Insurer,
see the audited financial statements of the Certificate Insurer included as
Appendix A.
Copies of the Certificate Insurer's quarterly and annual statutory
statements filed by the Certificate Insurer with the New York Insurance
Department are available upon request to ____________________,
____________________, Attention: ____________________. The Certificate Insurer's
telephone number is
- ----------.
The Certificate Insurer does not accept any responsibility for the
accuracy or completeness of this Prospectus or any information or disclosure
contained herein, or omitted herefrom, other than with respect to the accuracy
of information regarding the Certificate Insurer and the Certificate Insurance
Policy set forth under the heading "The Certificate Insurance Policy and The
Certificate Insurer" and in Appendix A.
An indemnification agreement among the Certificate Insurer, the Company
and the Underwriters provides that each of the parties to such agreement will
indemnify each other for certain liabilities under the 1933 Act.
The Certificate Insurance Policy
The Company will obtain the Certificate Insurance Policy, issued by the
Certificate Insurer, in favor of the Owners of the Class A Certificates. The
Certificate Insurance Policy provides for 100% coverage of the related Insured
Distribution Amount.
The Certificate Insurance Policy unconditionally guarantees the payment
of Insured Payments on the Class A Certificates. The Certificate Insurer is
required to make Insured Payments to the Trustee as paying agent on the later of
the Payment Date or on the business day next following the day on which the
Certificate Insurer shall have received telephonic or telegraphic notice,
subsequently confirmed in writing, or written notice by registered or certified
mail, from the Trustee that an Insured Payment is due.
The Pooling and Servicing Agreement will provide that the term "Total
Available Funds" does not include Insured Payments and does not include any
amounts that cannot be distributed to the Owners of any Class A Certificates by
the Trustee as a result of final, non-appealable proceedings under the United
States Bankruptcy Code.
Each Owner of a Class A Certificate which pays to the bankruptcy court
as a "voidable preference" under the United States Bankruptcy Code any amounts
("Preference Amounts") theretofore received by such Owner on account of such
Class A Certificate will be entitled to receive reimbursement for such amounts
from the Certificate Insurer, but only after (i) delivering a copy to the
Trustee of a final, nonappealable order (a "Preference Order") of a court having
competent jurisdiction demanding payment of such amount to the bankruptcy court
and (ii) assigning such Owner's claim with respect to such Preference Order to
the Certificate Insurer. In no event shall the Certificate Insurer pay more than
one Insured Payment in respect of any Preference Amount.
The Certificate Insurance Policy is non-cancelable.
THE CERTIFICATE INSURANCE POLICY IS NOT COVERED BY THE
PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW
YORK INSURANCE LAW.
S-68
<PAGE>
<PAGE>
The Certificate Insurer's obligation under the Certificate Insurance
Policy will be discharged to the extent that funds are received by the Trustee
for distribution to the Class A Certificateholders, whether or not such funds
are properly distributed by the Trustee.
The Certificate Insurance Policy does not guarantee to the owners of
the Class A Certificates any specific rate of prepayments of principal of the
Mortgage Loans. Also, the Certificate Insurance Policy does not guarantee the
payment of any Supplemental Interest Amount.
Pursuant to the Pooling and Servicing Agreement, the Certificate
Insurer is subrogated to the rights of the Owners of the Class A Certificates to
the extent of any such payment under the Certificate Insurance Policy.
Credit Enhancement Does Not Apply to Prepayment Risk
In general, the protection afforded by the Certificate Insurance Policy
is protection for credit risk and not for prepayment risk. A claim may not be
made under the Certificate Insurance Policy in an attempt to guarantee or insure
that any particular rate of prepayment is experienced by the Trust.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion of the material federal income tax
consequences of the purchase, ownership and disposition of the Class A
Certificates is to be considered only in connection with "Federal Income
Tax Considerations" in the Prospectus. The discussion herein and in the
Prospectus is based upon laws, regulations, rulings and decisions now in effect,
all of which are subject to change. The discussion below and in the Prospectus
does not purport to deal with all federal tax consequences applicable to all
categories of investors, some of which may be subject to special rules.
Investors should consult their own tax advisors in determining the federal,
state, local and any other tax consequences to them of the purchase, ownership
and disposition of the Class A Certificates.
REMIC Election
The Trustee will cause one or more elections to be made with respect to
certain specified assets of the Trust as real estate mortgage investment
conduits ("REMICs") within the meaning of Code Section 860D. _______________,
special tax counsel, will advise that, in its opinion, for federal income tax
purposes, assuming the REMIC elections are made and compliance with the Pooling
and Servicing Agreement, each Class of Class A Certificates will be treated as a
"regular interest" in a REMIC.
For federal income tax purposes, regular interests in a REMIC are
treated as debt instruments issued by the REMIC on the date on which those
interests are created, and not as ownership interests in the REMIC or its
assets. Owners of Class A Certificates that otherwise report income under a cash
method of accounting will be required to report income with respect to such
Certificates under an accrual method. The prepayment assumption that will be
used in determining the rate of accrual of original issue discount on the Class
A Certificates is ___% of the "Prepayment Assumption." See "Maturity, Prepayment
and Yield Considerations" herein and "Federal Income Tax Considerations
- -- Discount and Premium" in the Prospectus.
The Owners of Class A-6 Group II Certificates and the related rights to
receive Supplemental Interest Amounts will be treated for tax purposes as owning
two separate investments: (i) Class A-6 Group II Certificates without the right
to receive Supplemental Interest Amounts and (ii) the right to receive the
Supplemental Interest Amounts. The Owners of Class A-6 Group II Certificates
must allocate the purchase price of their Certificates between these two
investments based on their relative fair market values. The purchase price
allocated to the first investment will be the issue price of the Class A-6 Group
II Certificates for calculating accruals of OID (if any). See "Federal Income
Tax Consequences--Discount and Premium" in the Prospectus.
S-69
<PAGE>
<PAGE>
An Owner of a Class A-6 Group II Certificate and the related rights to
receive Supplemental Interest Amounts will be treated for federal income tax
purposes as having entered into a notional principal contract on the date that
it purchases its Certificate. Treasury Regulations under Section 446 of the Code
relating to notional principal contracts (the "Notional Principal Contract
Regulations") provide that taxpayers must recognize periodic payments with
respect to a notional principal contract under the accrual method of accounting.
Any Supplemental Interest Amounts will be periodic payments. Income with respect
to periodic payments under a notional principal contract for a taxable year
should constitute ordinary income. The purchase price allocated to the right to
receive the related Supplemental Interest Amounts will be treated as a
nonperiodic payment under the Notional Principal Contract Regulations. Such a
nonperiodic payment may be amortized using several methods, including the level
payment method described in the Notional Principal contract Regulations.
The right to receive the Supplemental Interest Amounts will not
constitute: (i) a "real estate asset" within the meaning of section 858(c)(5)(A)
of the Internal Revenue Code (the "Code") if held by a real estate investment
trust; (ii) a "qualified mortgage" within the meaning of section 860G(a)(3) of
the Code or a "permitted investment" within the meaning of section 860G(a)(5) of
the Code if held by a REMIC, or (iii) an asset described in section
7701(a)(19)(C)(xi) of the Code if held by a thrift. Moreover, other special
rules may apply to certain investors, including dealers in securities and
dealers in notional principal contracts.
Taxation of Foreign Investors
In general, foreign investors will not be subject to U.S. withholding
on income from the Class A Certificates. See "Federal Income Tax Considerations
- -- Foreign Investors -- Grantor Trust Securities and REMIC Regular
Securities" in the Prospectus.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), imposes certain requirements on those employee benefit plans to which
it applies ("ERISA Plan") and on those persons who are fiduciaries with respect
to such ERISA Plans. Certain employee benefit plans, such as governmental plans
(as defined in ERISA Section 3(32)) and certain church plans (as defined in
ERISA Section 3(33)), are not subject to ERISA. In accordance with ERISA's
general fiduciary standards, before investing in a Class A Certificate, an ERISA
Plan fiduciary should determine whether such an investment is permitted under
the governing ERISA Plan instruments and is appropriate for the ERISA Plan in
view of its overall investment policy and the composition and diversification of
its portfolio.
In addition, provisions of ERISA, and the corresponding provisions of
the Code, prohibit a broad range of transactions involving assets of ERISA
Plans, individual retirement accounts, and Keogh plans covering only a sole
proprietor or partners (collectively, the "Plans") and persons having certain
specified relationships to such a Plan ("parties in interest" and "disqualified
persons"). Such transactions are treated as "prohibited transactions" under
Sections 406 and 407 of ERISA and excise taxes are imposed upon such persons by
Section 4975 of the Code. Certain affiliates of the Originators, the Company,
the Master Servicer, any Sub- Servicer, and of the Trustee might be considered
"parties in interest" or "disqualified persons" with respect to a Plan. If so,
the acquisition or holding of Class A Certificates by or on behalf of such Plan
could be considered to give rise to a "prohibited transaction" within the
meaning of ERISA or the Code unless an exemption is available. Furthermore, if
an investing Plan's assets were deemed to include an interest in the assets of
the Mortgage Loans which constitute the Trust Estate and not merely an interest
in the Class A Certificates, transactions occurring in the servicing of the
Mortgage Loans might constitute prohibited transactions unless an administrative
exemption applies.
The DOL has issued to ____________________ an administrative exemption,
Prohibited Transaction Exemption _____ (the "Exemption"), which generally
exempts from the application of the prohibited transaction provisions of Section
406(a), Section 406(b)(1) and Section 406(b)(2) of ERISA and the excise taxes
imposed
S-70
<PAGE>
<PAGE>
pursuant to Sections 4975(a) and (b) of the Code, certain transactions relating
to the servicing and operation of asset pools, including pools of mortgage
loans, and the purchase, sale and holding of asset-backed pass-through
certificates, including pass-through certificates evidencing interests in
mortgage loans, such as the Class A Certificates underwritten by
____________________ and certain of its affiliates, provided that certain
conditions set forth in the Exemption are satisfied.
If the general conditions of Section II of the Exemption are satisfied,
the Exemption may provide an exemption from the restrictions imposed by Sections
406(a) and 407(a) of ERISA (as well as the excise taxes imposed by Sections
4975(a) and (b) of the Code by reason of Section 4975(c)(1)(A) through (D) of
the Code) in connection with the direct or indirect sale, exchange or transfer
of Class A Certificates by Plans in the initial issue of Certificates, the
holding of Class A Certificates by Plans or the direct or indirect acquisition
or disposition in the secondary market of Class A Certificates by Plans.
However, no exemption is provided from the restrictions of Section 406(a)(1)(E),
406(a)(2) and 407 of ERISA for the acquisition or holding of a Class A
Certificate on behalf of an "Excluded Plan" (defined below) by any person who
has discretionary authority or renders investment advice with respect to the
assets of such Excluded Plan. For purposes of the Class A Certificates, an
Excluded Plan is a Plan sponsored by (1) the Underwriters, (2) the Master
Servicer and any Sub- Servicer, (3) the Certificate Insurer, (4) the Trustee,
(5) the Company, (6) any Mortgagor with respect to Mortgage Loans constituting
more than 5 percent of the aggregate unamortized principal balance of the
Mortgage Loans as of the date of initial issuance and (7) any affiliate or
successor of a person described in (1) to (6) above (the "Restricted Group").
If the specific conditions of paragraph I.B of Section I of the
Exemption are also satisfied, the Exemption may provide an exemption from the
restrictions imposed by Sections 406(b)(1) and (b)(2) of ERISA and the taxes
imposed by Sections 4975(a) and (b) of the Code by reason of Section
4975(c)(1)(E) of the Code in connection with (1) the direct or indirect sale,
exchange or transfer of Class A Certificates in the initial issuance of Class A
Certificates between the Company, the Underwriters and a Plan when the person
who has discretionary authority or renders investment advice with respect to the
investment of Plan assets in Class A Certificates is (a) a mortgagor with
respect to 5 percent or less of the fair market value of the Mortgage Loans or
(b) an affiliate of such a person, (2) the direct or indirect acquisition or
disposition in the secondary market of Class A Certificates by Plans and (3) the
holding of Class A Certificates by Plans.
If the specific conditions of paragraph I.C of Section I of the
Exemption are satisfied, the Exemptions may provide an exemption from the
restrictions imposed by Sections 406(a), 406(b) and 407(a) of ERISA, and the
taxes imposed by Sections 4975(a) and (b) of the Code by reason of Section
4975(c) of the Code for transactions in connection with the servicing,
management and operation of the Trust.
The Exemption may provide an exemption from the restrictions imposed by
Section 406(a) and 407(a) of ERISA, and the taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of the Code
if such restrictions are deemed to otherwise apply merely because a person is
deemed to be a "party in interest" or a "disqualified person" with respect to an
investing Plan by virtue of providing services to the Plan (or by virtue of
having certain specified relationships to such a person) solely as a result of
such Plan's ownership of Class A Certificates.
The Exemption set forth the following seven general conditions which
must be satisfied for a transaction to be eligible for exemptive relief
thereunder.
(1) The acquisition of the certificates by a Plan is on terms
(including the price for the certificates) that are at least as
favorable to the Plan as they would be in an arm's length transaction
with an unrelated party;
(2) The rights and interests evidenced by the certificates
acquired by the Plan are not subordinated to the rights and interests
evidenced by other certificates of the trust;
S-71
<PAGE>
<PAGE>
(3) The certificates acquired by the Plan have received a
rating at the time of such acquisition that is one of the three highest
generic rating categories from either Standard & Poor's Corporation
("S&P"), Moody's Investors Service, Inc. ("Moody's"), Duff & Phelps
Rating Co. ("D&P") or Fitch Investors Service, Inc. ("Fitch");
(4) The trustee is not an affiliate of any other member of
the Restricted Group (as defined above);
(5) The sum of all payments made to and retained by the
Underwriters in connection with the distribution of certificates
represents not more than reasonable compensation for underwriting the
certificates. The sum of all payments made and retained by the seller
pursuant to the assignment of the loans to the trust fund represents
not more than the fair market value of such loans. The sum of all
payments made to and retained by the servicer represents not more than
reasonable compensation for such person's services under the pooling
and servicing agreement and reimbursement of such person's reasonable
expenses in connection therewith; and
(6) The Plan investing in the certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the
Commission under the Securities Act of 1933.
(7) The trust fund must also meet the following requirements:
(i) the corpus of the trust fund must consist solely
of assets of the type that have been included in other
investment pools;
(ii) certificates in such other investment pools must
have been rated in one of the three highest generic rating
categories of S&P, Moody's, Fitch or D&P for at least one year
prior to the Plan's acquisition of certificates; and
(iii) certificates evidencing interests in such other
investment pools must have been purchased by investors other
than Plans for at least one year prior to any Plan's
acquisition of certificates.
It is a condition of issuance of the Class A Certificates that they be
rated ___ or ___ by _____ and _____, respectively. [Prior to the earlier of (i)
the date on which the Funding Period expires and (ii) the date on which the DOL
amends the Exemption to permit the use of pre-funding accounts thereunder, Plans
will not be permitted to purchase the Class A Certificates. On or after the
earlier to occur of such dates, the Exemption may be available for the purchase
of Class A Certificates by Plans.] Before purchasing a Class A Certificate,
based on the Exemption, a fiduciary of a Plan should itself confirm (1) that
such Certificate constitutes a "certificate" for purposes of the Exemption and
(2) that the specific conditions set forth in Section I of the Exemption, the
general conditions set forth in Section II of the Exemption and the other
requirements set forth in the Exemption would be satisfied.
Any person purchasing a Class A-6 Group II Certificate and the related
right to receive Supplemental Interest Amounts will have acquired for purposes
of ERISA and for federal income tax purposes, such Class A-6 Certificate without
the right to receive the Supplemental Interest Amounts, together with the right
to receive the Supplemental Interest Amounts. The Exemption does not apply to
the acquisition, holding or resale of the right to receive the Supplemental
Interest Amounts. Accordingly, the acquisition of the right to receive the
Supplemental Interest Amounts by a Plan could result in a prohibited transaction
unless another administrative exemption to ERISA's prohibited transaction rules
is applicable. One or more alternative exemptions may be available with respect
to certain prohibited Transaction rules of ERISA that might apply in connection
with the initial purchase, holding and resale of the right to receive the
Supplemental Interest Amounts, including, but not limited to: (i) Prohibited
transaction Class Exemption ("PTCE") 91-38, regarding investments by bank
collective investment funds; (ii) PTCE 90-1, regarding investments by insurance
company pooled separate
S-72
<PAGE>
<PAGE>
accounts; (iii) PTCE 84-14, regarding transactions negotiated by qualified
professional asset managers; or (iv) PTCE 75-1, Part II, regarding principal
transactions by broker-dealers (the "Principal Transactions Exemption"). It is
believed that the conditions of the Principal Transactions Exemption will be met
with respect to the acquisition of a right to receive the Supplemental Interest
Amounts by a Plan, so long as such Underwriter is not a fiduciary with respect
to the Plan (and is not a party in interest with respect to the Plan by reason
of being a participating employer or affiliate thereof). Before purchasing Class
A-6 Group II Certificates based on an administrative exemption (or exemptions),
a fiduciary of a Plan should determine whether the conditions of such exemption
(or exemptions) would be met and whether the scope of the relief provided by
such exemption (or exemptions) would cover all acts that might be construed as
prohibited transactions.
Prospective Plan investors in the Class A Certificates should consult
with their legal advisors concerning the impact of ERISA and the Code, the
applicability of the Exemption, and the potential consequences in their specific
circumstances, prior to making an investment in the Class A Certificates.
Moreover, each Plan fiduciary should determine whether under the general
fiduciary standards of investment prudence and diversification an investment in
the Class A Certificates is appropriate for the Plan, taking into account the
overall investment policy of the Plan and the composition of the Plan's
investment portfolio.
In addition to the matters described above, purchasers of a Class A
Certificate that are insurance companies should consult with their counsel with
respect to the United States Supreme Court case interpreting the fiduciary
responsibility rules of ERISA, John Hancock Mutual Life Insurance Co. v. Harris
Trust and Savings Bank, 114 S.CT. 517 (1993). In John Hancock, the Supreme Court
ruled that assets held in an insurance company's general account may be deemed
to be "plan assets" for ERISA purposes under certain circumstances. Prospective
purchasers using insurance company general account assets should determine
whether the decision affects their ability to make purchases of the Class A
Certificates.
Non-ERISA Plans
Employee benefit plans that are governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to ERISA requirements. Accordingly, assets of such plans
may be invested in the Class A Certificates without regard to the ERISA
restrictions described above, subject to applicable provisions of other federal
and state laws.
RATINGS
Ratings which are assigned to securities such as the Class A
Certificates generally evaluate the ability of the issuer (i.e., the Trust) and
any guarantor (i.e., the Certificate Insurer) to make timely payment when such
payments are due, as required by such securities. The amounts which are "due"
with respect to the Class A Certificates consist of principal and interest. In
general, ratings address credit risk and not prepayment risk. The ratings issued
with respect to the Class A-6 Group II Certificates do not cover the payment of
the Supplemental Interest Amounts.
It is a condition of the original issuance of the Class A Certificates
that they receive ratings of ___ or ___ by _____ and _____, respectively.
Explanations of the significance of such rating may be obtained from such rating
agency. The ratings will be the views only of such rating agencies. There is no
assurance that any such ratings will continue for any period of time or that
such ratings will not be revised or withdrawn. Any such revision or withdrawal
of such ratings may have an adverse effect on the market price of the Class A
Certificates. A security rating is not a recommendation to buy, sell or hold
securities.
S-73
<PAGE>
<PAGE>
LEGAL INVESTMENT CONSIDERATIONS
The Class A Certificates will not constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA"). Accordingly, many institutions may not be legally authorized to
invest in the Class A Certificates.
UNDERWRITING
Under the terms and subject to the conditions contained in an
Underwriting Agreement dated ________, 199_ (the "Underwriting Agreement"),
_____________________ and ____________________ (together, the "Underwriters")
have agreed to purchase, and the Company has agreed to sell, the Class A
Certificates offered hereby.
In the Underwriting Agreement, each of the Underwriters has agreed,
subject to the terms and conditions set forth therein, to purchase, the
principal amount of the Class A Certificates set forth opposite its name below.
<TABLE>
<CAPTION>
Underwriter Principal Amount of Class A Certificates
----------- ----------------------------------------
<S> <C>
____________________...................................... $168,602,000
____________________...................................... 42,000,000
Total................................................ $210,602,000
</TABLE>
The Underwriters have advised the Company that they propose to offer
the Class A Certificates for sale from time to time in one or more transactions
(which may include block transactions), in negotiated transactions or otherwise,
or a combination of such methods of sale, at market prices prevailing at the
time of sale or at negotiated prices. The Underwriters may effect such
transactions by selling the Class A Certificates to or through dealers, and such
dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Underwriters and/or the purchasers of the
Class A Certificates for whom they may act as agents. In connection with the
sale of the Class A Certificates, the Underwriters may be deemed to have
received compensation from the Company in the form of underwriting discounts,
and the Underwriters may also receive commissions from purchasers of the Class A
Certificates for whom it may act as agent. The Underwriters and any dealers that
participate with the Underwriters in the distribution of the Class A
Certificates may be deemed to be underwriters, and any discounts or commissions
received by them and any profit on the resale of the Class A Certificates by
them may be deemed to be underwriting discounts or commissions.
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all the Class A Certificates offered
hereby if any are purchased.
The Class A Certificates are a new issue of securities with no
established trading market. The Underwriters have advised the Company that they
intend to act as market makers for the Class A Certificates. However, the
Underwriters are not obligated to do so and may discontinue any market making at
any time without notice. No assurance can be given as to the liquidity of the
trading market for the Class A Certificates.
The Company has agreed to indemnify each Underwriter against certain
liabilities, including civil liabilities under the Securities Act of 1933, or
contribute to payments which either Underwriter may be required to make in
respect thereof.
S-74
<PAGE>
<PAGE>
EXPERTS
The financial statements of _____________________, included in this
Prospectus Supplement in Appendix A, as of December 31, 199 and 199 and for each
of the years in the three year period ended December 31, 199 , have been
included in reliance upon the report of ____________________, independent
certified public accountants, appearing in Appendix A, and upon the authority of
such firm as experts in accounting and auditing.
The report of ____________________ refers to changes, in 1993, in
accounting methods for multiple- year retrospectively rated reinsurance
contracts, and for the adoption of the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
CERTAIN LEGAL MATTERS
Certain legal matters will be passed upon for the Company by
____________________, counsel to the Company. Certain tax matters concerning the
issuance of the Certificates will be passed upon by
- --------------------.
S-75
<PAGE>
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Access
Financial Mortgage Loan Trust 199_-_ Class A Certificates (the "Global
Securities") will be available only in book-entry form. Investors in the Global
Securities may hold such Global Securities through any of DTC, CEDEL or
Euroclear. The Global Securities will be tradeable as home market instruments in
both the European and U.S. domestic markets.
Initial settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors through CEDEL and Euroclear
will be conducted in the ordinary way in accordance with the normal rules and
operating procedures of CEDEL and Euroclear and in accordance with conventional
eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors through DTC will be
conducted according to DTC's rules and procedures applicable to U.S. corporate
debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositories of CEDEL and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in the
name of Cede as nominee of DTC. Investors' interests in the Global Securities
will be represented through financial institutions acting on their behalf as
direct and indirect Participants in DTC. As a result, CEDEL and Euroclear will
hold positions on behalf of their participants through their Relevant Depository
which in turn will hold such positions in their accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will
follow DTC settlement practices. Investor securities custody accounts will be
credited with their holdings against payment in same-day funds on the settlement
date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior home
equity loan asset-backed certificates issues in same-day funds.
I-1
<PAGE>
<PAGE>
Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC, Company and CEDEL or Euroclear Participants. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a CEDEL Participant or a Euroclear Participant, the purchaser
will send instructions to CEDEL or Euroclear through a CEDEL Participant or
Euroclear Participant at least one business day prior to settlement. CEDEL or
Euroclear will instruct the Relevant Depository, as the case may be, to receive
the Global Securities against payment. Payment will include interest accrued on
the Global Securities from and including the last coupon payment date to and
excluding the settlement date, on the basis of the actual number of days in such
accrual period and a year assumed to consist of 360 days. For transactions
settling on the 31st of the month, payment will include interest accrued to and
excluding the first day of the following month. Payment will then be made by the
Relevant Depository to the DTC Participant's account against delivery of the
Global Securities. After settlement has been completed, the Global Securities
will be credited to the respective clearing system and by the clearing system,
in accordance with its usual procedures, to the CEDEL Participant's or Euroclear
Participant's account. The securities credit will appear the next day (European
time) and the cash debt will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the CEDEL or Euroclear cash debt
will be valued instead as of the actual settlement date.
CEDEL Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within CEDEL or Euroclear. Under this
approach, they may take on credit exposure to CEDEL or Euroclear until the
Global Securities are credited to their account one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit
to them, CEDEL Participants or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon to finance
settlement. Under this procedure, CEDEL Participants or Euroclear Participants
purchasing Global Securities would incur overdraft charges for one day, assuming
they cleared the overdraft when the Global Securities were credited to their
accounts. However, interest on the Global Securities would accrue from the value
date. Therefore, in many cases the investment income on the Global Securities
earned during that one-day period may substantially reduce or offset the amount
of such overdraft charges, although the result will depend on each CEDEL
Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours,
DTC Participants can employ their usual procedures for crediting Global
Securities to the respective European Depository for the benefit of CEDEL
Participants or Euroclear Participants. The sale proceeds will be available to
the DTC seller on the settlement date. Thus, to the DTC Participants a
cross-market transaction will settle no differently than a trade between two DTC
Participants.
Trading between CEDEL or Euroclear Company and DTC Purchaser. Due to
time zone differences in their favor, CEDEL Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depository, to a DTC Participant. The seller will send
instructions to CEDEL or Euroclear through a CEDEL Participant or Euroclear
Participant at least one business day prior to settlement. In these cases CEDEL
or Euroclear will instruct the respective Depository, as appropriate, to credit
the Global Securities to the DTC Participant's account against payment. Payment
will include interest accrued on the Global Securities from and including the
last coupon payment to and excluding the settlement date on the basis of the
actual number of days in such accrual period and a year assumed to consist of
360 days. For transactions settling on the 31st of the month, payment will
include interest accrued to and excluding the first day of the following month.
The payment will then be reflected in the account of CEDEL Participant or
Euroclear Participant the
I-2
<PAGE>
<PAGE>
following day, and receipt of the cash proceeds in the CEDEL Participant's or
Euroclear Participant's account would be back-valued to the value date (which
would be the preceding day, when settlement occurred in New York). In the event
that the CEDEL Participant or Euroclear Participant have a line of credit with
its respective clearing system and elect to be in debt in anticipation of
receipt of the sale proceeds in its account, the back-valuation will extinguish
any overdraft incurred over that one-day period. If settlement is not completed
on the intended value date (i.e., the trade fails), receipt of the cash proceeds
in the CEDEL Participant's or Euroclear Participant's account would instead be
valued as of the actual settlement date.
Finally, day traders that use CEDEL or Euroclear and that purchase
Global Securities from DTC Participants for delivery to CEDEL Participants or
Euroclear Participants should note that these trades would automatically fail on
the sale side unless affirmative action is taken. At least three techniques
should be readily available to eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the
purchase side of the trade is reflected in their CEDEL or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their CEDEL or Euroclear account
in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at least one
day prior to the value date for the sale to the CEDEL Participant or Euroclear
Participant.
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of Global Securities holding securities through
CEDEL or Euroclear (or through DTC if the holder has an address outside the
U.S.) will be subject to the 30% U.S. withholding tax that generally applies to
payments of interest (including original issue discount) on registered debt
issued by U.S. Persons (as defined below), unless (i) each clearing system, bank
or other financial institution that holds customers' securities in the ordinary
course of its trade or business in the chain of intermediaries between such
beneficial owner and the U.S. entity required to withhold tax complies with
applicable certification requirements and (ii) such beneficial owner takes one
of the following steps to obtain an exemption or reduced tax rate:
Exemption for Non-U.S. Persons (Form W-8). Beneficial Certificate
Owners of Global Securities that are Non-U.S. Persons (as defined below) can
obtain a complete exemption from the withholding tax by filing a signed Form W-8
(Certificate of Foreign Status). If the information shown on Form W-8 changes, a
new Form W-8 must be filed within 30 days of such change.
Exemption for Non-U.S. Persons with effectively connected income (Form
4224). A Non-U.S. Person (as defined below), including a non-U.S. corporation or
bank with a U.S. branch, for which the interest income is effectively connected
with its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a Trade
or Business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons residing in a country that has a tax
treaty with the United States can obtain an exemption or reduced tax rate
(depending on the treaty terms) by filing Form 1001 (Ownership, Exemption or
Reduced Rate Certificate). If the treaty provides only for a reduced rate,
withholding tax will be imposed at that rate unless the filer alternatively
files Form W-8. Form 1001 may be filed by Certificate Owners or their agent.
I-3
<PAGE>
<PAGE>
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's Request
for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Owner of a Global
Security or, in the case of a Form 1001 or a Form 4224 filer, his agent, files
by submitting the appropriate form to the person through whom it holds (the
clearing agency, in the case of persons holding directly on the books of the
clearing agency). Form W-8 and Form 1001 are effective for three calendar years
and Form 4224 is effective for one calendar year.
On April 22, 1996 the IRS issued proposed regulations relating to (i)
withholding income tax on U.S.- source income paid to Non-U.S. Persons; (ii)
claiming Non-U.S. Person status to avoid backup withholding; and (iii) reporting
to the IRS of payments to Non-U.S. Persons. The proposed regulations would
substantially revise some aspects of the current system for withholding on and
reporting amounts paid to Non-U.S. Persons. The regulations unify current
certification procedures and forms and reliance standards are clarified. Most
forms are proposed to be combined into a single form: Form W-8. The regulations
are proposed to be effective for payments made after December 31, 1997.
Certificates issued, however, on or before the date that is 60 days after the
proposed regulations are made final will continue to be valid until they expire.
All proposed regulations are subject to change before adoption in their final
form. No reliable prediction can be made as to when, if ever, the proposed
regulations will be made final and if so, as to their final form.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity organized in or under
the laws of the United States or any political subdivision thereof or (iii) an
estate or trust that is subject to U.S. federal income tax regardless of the
source of its income. The term "Non-U.S. Person" means any person who is not a
U.S. Person. This discussion does not deal with all aspects of U.S. Federal
income tax withholding that may be relevant to foreign holders of the
Global Securities. Investors are advised to consult their own tax advisors for
specific tax advice concerning their holding and disposing of the Global
Securities.
I-4
<PAGE>
<PAGE>
APPENDIX A
Audited Financial Statements
-------------------------
Years ended December 31, 1995 and 1994
with Report of Independent Auditors
A-1
<PAGE>
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<S> <C>
1933 Act ................................................................................................3
Accrual Period ...............................................................................................10
AFH ...............................................................................................21
AFL ...............................................................................................20
Appraised Values ...........................................................................................26, 32
Balloon Loans ................................................................................................7
Beneficial Certificate Owner.....................................................................................14
Book-Entry Certificates..........................................................................................52
Cede ............................................................................................3, 14
CEDEL ...............................................................................................14
CEDEL Participants...............................................................................................54
Certificate Account..............................................................................................48
Certificate Insurance Policy......................................................................................1
Certificate Insurer...............................................................................................1
Certificateholder ................................................................................................3
Certificates .........................................................................................1, 5, 46
Citibank ...............................................................................................14
Class ...............................................................................................46
Class A Carry-Forward Amount.....................................................................................13
Class A Certificate Principal Balance............................................................................13
Class A Certificates.......................................................................................1, 5, 46
Class A Distribution Amount......................................................................................13
Class A Group I Certificate Principal Balance....................................................................13
Class A Group I Certificates...............................................................................1, 5, 46
Class A Group II Certificate Principal Balance...................................................................13
Class A Insured Distribution Amount..............................................................................13
Class A Interest Distribution Amount.............................................................................11
Class A Principal Distribution Amount............................................................................11
Class A-1 Group I Certificates...................................................................................46
Class A-1 Pass-Through Rate.......................................................................................9
Class A-2 Group I Certificates...................................................................................46
Class A-3 Group I Certificates...................................................................................46
Class A-4 Group I Certificates...................................................................................46
Class A-5 Group I Certificates...................................................................................46
Class A-6 Formula Pass-Through Rate...............................................................................9
Class A-6 Group II Certificates...............................................................................5, 46
Class A-6 Pass-Through Rate.......................................................................................9
Class B Certificates...........................................................................................2, 5
Class B Group I Certificates...................................................................................2, 5
Class B Group II Certificates..................................................................................2, 5
Class B Interest ...............................................................................................50
Closing Date ................................................................................................4
Code ................................................................................................2
Combined Loan-to-Value Ratio.................................................................................25, 32
Commission ................................................................................................3
Company ............................................................................................4, 20
Company Optional Termination Date................................................................................15
Compensating Interest............................................................................................58
Cooperative ...............................................................................................54
Coupon Rates ................................................................................................7
Cut-Off Date .........................................................................................4, 6, 21
</TABLE>
i
<PAGE>
<PAGE>
<TABLE>
<S> <C>
D&P ...............................................................................................73
Definitive Certificate...........................................................................................52
Delinquency Advances.............................................................................................48
Description of the Certificates...................................................................................5
Disqualified persons.............................................................................................71
DTC ............................................................................................3, 14
DTC Participants ...............................................................................................54
ERISA ...........................................................................................16, 71
ERISA Plan ...............................................................................................71
Euroclear ...............................................................................................14
Euroclear Operator...............................................................................................54
Euroclear Participants...........................................................................................54
European Depositaries............................................................................................52
European Depositories............................................................................................14
Event of Default ...............................................................................................60
Excluded Plan ...............................................................................................72
Exemption ...........................................................................................16, 71
Financial Intermediary...........................................................................................52
Fitch ...............................................................................................73
Global Securities ................................................................................................1
Group I .............................................................................................2, 6
Group I Interest Remittance Amount...............................................................................47
Group I Monthly Remittance.......................................................................................47
Group I Principal Remittance Amount..............................................................................47
Group I Subordination Deficit....................................................................................51
Group I Total Available Funds....................................................................................52
Group II .............................................................................................2, 6
Group II Interest Remittance Amount..............................................................................47
Group II Monthly Remittance......................................................................................47
Group II Principal Remittance Amount.............................................................................47
Group II Subordination Deficit...................................................................................51
Group II Total Available Funds...................................................................................52
Insurance Proceeds...............................................................................................11
Insured Payment ...............................................................................................48
Interest Determination Date......................................................................................49
Interest Remittance Amount.......................................................................................47
LIBOR ............................................................................................9, 49
Liquidated Mortgage Loan.........................................................................................60
Liquidation Proceeds.............................................................................................11
Master Servicer ............................................................................................2, 56
Monthly Remittance...............................................................................................47
Moody's ...............................................................................................73
Morgan ...............................................................................................14
Mortgage Loan Group........................................................................................2, 6, 21
Mortgage Loans ................................................................................................1
Mortgaged Properties.............................................................................................21
Mortgages ................................................................................................6
Mortgagors ...............................................................................................39
Net Liquidation Proceeds.........................................................................................11
Non-U.S. Person ................................................................................................4
Notes ...............................................................................................21
Original Group I Pool Principal Balance...........................................................................7
Original Group II Pool Principal Balance..........................................................................7
Original Pool Principal Balance...................................................................................7
</TABLE>
ii
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Original Variable Rate Pool Principal Balance
Original Variable Rate Pool Principal Balance............................................................4
Originators ................................................................................................2
Owner ................................................................................................3
Participants ...............................................................................................52
Parties in interest..............................................................................................71
Payment Date ........................................................................................2, 10, 46
Percentage Interest..............................................................................................47
Plans ...........................................................................................16, 71
Pool ................................................................................................1
Pooling and Servicing Agreement............................................................................2, 5, 46
Pre-Funded Amount ................................................................................................8
Pre-Funding Account............................................................................................1, 8
Preference Amounts...............................................................................................69
Preference Order ...............................................................................................69
Prepayment Assumption............................................................................................42
Prepayments ...........................................................................................11, 18
Principal and Interest Account...................................................................................47
Principal Remittance Amount......................................................................................47
Properties ...............................................................................................21
Qualifying Rate ...............................................................................................38
Record Date ............................................................................................2, 10
Reference Banks ...............................................................................................49
Released Mortgaged Property Proceeds.............................................................................12
Relevant Depositary..............................................................................................52
REMICs ............................................................................................2, 70
Remittance Date ...............................................................................................47
Remittance Period ...............................................................................................47
Reserve Interest Rate............................................................................................49
Residual Certificates.........................................................................................5, 46
Restricted Group ...............................................................................................72
Reuters Screen LIBO Page.........................................................................................49
Rules ...............................................................................................53
S&P ...............................................................................................73
Servicing Advances...............................................................................................59
Servicing Fee ...............................................................................................15
SMMEA ...........................................................................................16, 75
Specified Subordinated Amount....................................................................................50
Subordinated Amount..............................................................................................50
Subordination Deficiency.........................................................................................51
Subordination Increase Amount....................................................................................51
Subordination Reduction Amount...................................................................................51
Subsequent Cut-Off Date...........................................................................................8
Subsequent Mortgage Loans..................................................................................2, 5, 22
Subsequent Transfer Date..........................................................................................8
Terms and Conditions.............................................................................................54
The Mortgage Loan Pool............................................................................................6
Total Available Funds............................................................................................52
Trust .............................................................................................1, 4
Trust Estate ...............................................................................................65
Trustee .............................................................................................2, 4
U.S. Person ................................................................................................4
Underwriters ............................................................................................1, 75
Underwriting Agreement...........................................................................................75
</TABLE>
iii
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Weighted average life............................................................................................40
</TABLE>
iv
<PAGE>
<PAGE>
<TABLE>
<S> <C>
- -------------------------------------------------------------- -----------------------------------------------------------
No dealer, salesperson or any other person has been
authorized to give any information or to make any ________________
representation not contained in this Prospectus Mortgage Loan Trust
Supplement and the Prospectus, if given or made, 199_-_
such information or representations may not be
relied upon as having been authorized by the
Company or by the Underwriters. This Prospectus $__________
Supplement and the Prospectus do not constitute an
offer to sell, or a solicitation of an offer to
buy, the securities offered hereby in any Mortgage Loan Pass-Through
jurisdiction to any person to whom it is unlawful Certificates,
to make such offer in such jurisdiction. Neither
the delivery of this Prospectus Supplement or
Prospectus nor any sale made hereunder shall, under Series 199_-_
any circumstances, create any implication that
information herein is correct as of any time
subsequent to the date hereof or that there has been
no change in the affairs of the Company, the Master
Servicer or the Certificate Insurer since such date. $__________ Class A-1 Group I Certificates,
Variable Pass-Through Rate
------------------ ----------------------
$__________ Class A-2 Group I Certificates,
TABLE OF CONTENTS ___% Pass-Through Rate
PROSPECTUS SUPPLEMENT ----------------------
Page
Available Information.................................. S- $__________ Class A-3 Group I Certificates,
Reports to the Holders................................. S- ___% Pass-Through Rate
Summary................................................ S- ----------------------
Risk Factors........................................... S-
Use of Proceeds........................................ S- $__________ Class A-4 Group I Certificates,
The Company............................................ S- ___% Pass-Through Rate
The Master Servicer.................................... S- ----------------------
The Mortgage Loan Pool................................. S-
Maturity, Prepayment and Yield Considerations.......... S- $__________ Class A-5 Group I Certificates,
Description of the Certificates........................ S- ___% Pass-Through Rate
The Trustee............................................ S- ----------------------
The Certificate Insurance Policy and the
Certificate Insurer.................................. S- $__________ Class A-6 Group II Certificates,
Certain Federal Income Tax Consequences................ S- Variable Pass-Through Rate
ERISA Considerations................................... S- ----------------------
Ratings................................................ S-
Legal Investment Considerations........................ S-
Underwriting........................................... S- Access Financial Lending Corp.
Experts................................................ S- Company
Certain Legal Matters.................................. S- ----------------------
Annex I................................................ I-
Appendix A--Audited Financial Statements of
Certificate Insurer.................................. A-1
Index of Principal Definitions......................... i PROSPECTUS SUPPLEMENT
PROSPECTUS
Incorporation of Certain Documents by Reference
Summary of Prospectus.................................. [Names of Underwriters]
Risk Factors...........................................
The Trusts.............................................
The Mortgage Pools.....................................
Mortgage Loan Program..................................
Description of the Securities..........................
Subordination.......................................... __________, 199_
Description of Credit Enhancement......................
Hazard Insurance; Claims Thereunder....................
The Company............................................
The Servicer...........................................
The Pooling and Servicing Agreement....................
The Trustee............................................
Yield Considerations...................................
Maturity and Prepayment Considerations.................
Certain Legal Aspects of Mortgage Loans
and Related Matters..................................
Federal Income Tax Considerations......................
ERISA Considerations...................................
Legal Investment Matters...............................
Use of Proceeds........................................
Methods of Distribution................................
Legal Matters..........................................
Additional Information.................................
Index of Principal Definitions.........................
------------------
Until 90 days after the date of this Prospectus Supplement,
all dealers effecting transactions in the Class A
Certificates, whether or not participating in this
distribution, may be required to deliver a Prospectus
Supplement or a Prospectus. 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.
- -------------------------------------------------------------- -----------------------------------------------------------
</TABLE>
<PAGE>
<PAGE>
Exhibit 99.2
PROSPECTUS SUPPLEMENT
(To Prospectus dated )
- --------------------------------------------------------------------------------
$___________ (Approximate)
____________________ Manufactured Housing Contract Trust 199 -
Manufactured Housing Contract
Senior/Subordinate Pass-Through Certificates, Series 199 -
<TABLE>
<S> <C> <C> <C> <C>
$ (Approximate) % Class A-1 $ (Approximate) % Class -5
$ (Approximate) % Class A-2 $ (Approximate) % Class A-6
$ (Approximate) % Class A-3 $ (Approximate) % Class B-1
$ (Approximate) % Class A-4
</TABLE>
Access Financial Lending Corp., Servicer
[LOGO]
- --------------------------------------------------------------------------------
The Manufactured Housing Contract Senior/Subordinate Pass-Through Certificates,
Series (the "Certificates") will represent interests in a pool (the "Contract
Pool") of actuarial manufactured housing installment sales contracts and
installment loan agreements (the "Initial Contracts"), held by the --
Manufactured Housing Contract Trust (the "Trust") including certain
rights to receive payments due on the Contracts on and after the Cut-off Date
(as defined herein; see "Index of Principal Definitions on page i hereof),
amounts held from time to time in the Certificate Account (as described herein
under "Description of the Certificates -- Payment on Contracts; Certificate
Account") maintained by the Trustee, [funds on deposit in a trust account (the
"Pre-Funding Account") to be established with the Trustee], any property which
initially secured a Contract and which is acquired in the process of realizing
thereon and the obligation of Access Financial Lending Corp. under certain
conditions to repurchase contracts sold by it with respect to which certain
representations and warranties have been breached and not cured. The Trust will
acquire the Contracts from Access Financial Receivables Corp. ("Receivables
Corp." or the "Seller"), as described herein. Each Contract was originated or
purchased from certain dealers or brokers by Access Financial Lending Corp.
("AFL") in the ordinary course of its business. AFL will serve as servicer of
the Contracts (in such capacity and together with any successor servicer,
the "Servicer"). The term "approximate," with respect to the aggregate principal
amount of any Certificates or Contracts, means that the amount is subject to a
variance of plus or minus 5%. Terms used and not otherwise defined herein have
the respective meanings ascribed to such terms in the Prospectus dated and
attached hereto (the "Prospectus").
The Certificates will consist of five classes of senior certificates
(collectively, the "Senior Certificates") designated as the Class A-1
Certificates, the Class A-2 Certificates, the Class A-3 Certificates, the Class
A-4 Certificates and the Class A-5 Certificates, four classes of subordinate
certificates designated as the Class A-6 Certificates, the Class B-1
Certificates, the Class B-2 Certificates and the Class C Certificates
(collectively, the "Subordinate Certificates"). The Trust will also issue a
residual class of Certificates for each REMIC election made by the Trust (the
"Residual Certificates"). Only the Senior Certificates, the Class A-6
Certificates and the Class B-1 Certificates are being offered hereby (the
"Offered Certificates"). The Class A-1 Certificates, Class A-2 Certificates,
Class A-3 Certificates, the Class A-4 Certificates, the Class A-5 Certificates,
the Class A-6 Certificates, the Class B-1 Certificates and the Class B-2
Certificates will evidence in the aggregate initial undivided interests in the
Contract Pool of approximately %, %, %, %, %, %, % and %,
respectively, based on their Original Certificate Principal Balances (as defined
herein); the Class C Certificate is a subordinate "interest-only" certificate
and does not have a Certificate Principal Balance. See "Description of the
Certificates" herein.
(Continued on following page)
- --------------------------------------------------------------------------------
Prospective investors should consider the information set forth under "Risk
Factors" on page of this Prospectus Supplement and page of the accompanying
Prospectus.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURI-
TIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public(1) Commissions Seller(1)(2)
--------- -------------- ------------
<S> <C> <C> <C>
Class A-1 Certificates........ %
Class A-2 Certificates........ %
Class A-3 Certificates........ %
Class A-4 Certificates........ %
Class A-5 Certificates........ %
Class A-6 Certificates........ %
Class B-1 Certificates........ %
Total......................... $ $ $
= =
(1) Plus accrued interest, if any, at the applicable rate from .
(2) Before deducting expenses, payable by the Seller estimated to be $.
- --------------------------------------------------------------------------------
</TABLE>
The Offered Certificates are offered by the Underwriters, when, as and if issued
by the Trust, delivered to and accepted by the Underwriters and subject to their
right to reject orders in whole or in part. It is expected that delivery of the
Offered Certificates in book-entry form will be made through The Depository
Trust Company, Cedel Bank, societe anonyme and the Euroclear System on or about
against payment in immediately available funds.
<PAGE>
<PAGE>
(Continued from previous page)
[The Pooling and Servicing Agreement dated as of (the
"Agreement") by and among AFL, Receivables Corp. and , as
Trustee, provides that additional contracts (the "Subsequent Contracts") are
intended to be purchased by the Trust from the Seller from time to time on or
before , 199 from funds on deposit in the Pre-Funding Account. On
the Closing Date an aggregate cash amount not to exceed $ will be
deposited with the Trustee in the Pre-Funding Account; amounts not to exceed
$ of such amount will be funded from the sale of the Class A
Certificates, and may be used to acquire Subsequent Contracts.
One or more elections will be made to treat certain assets of the Trust
as one or more real estate mortgage investment conduits ("REMICs") for federal
income tax purposes. See "Federal Income Tax Consequences" herein and in the
Prospectus.]
Neither AFL nor Receivables Corp. nor any of their affiliates will have
any obligations with respect to the Certificates except, in the case of AFL for
obligations arising from certain representations and warranties of AFL with
respect to certain characteristics of the Contracts. In the event of an uncured
breach of any such representation or warranty that materially adversely affects
a Contract, AFL will be obligated under certain circumstances to repurchase such
Contract or substitute another contract therefor, as described herein and in the
Prospectus.
The interests of the owners of the Offered Certificates (the
"Certificate Owners") will be represented by book-entries on the records of The
Depository Trust Company and participating members thereof. See "Description of
the Certificates -- Registration of Offered Certificates" herein.
and (the
"Underwriters") intend to make a secondary market in the Offered Certificates,
but have no obligation to do so. There can be no assurance that a secondary
market for the Offered Certificates will develop, or if it does develop, that it
will continue to exist or provide sufficient liquidity.
The Offered Certificates will not be insured or guaranteed by any
governmental agency or instrumentality, the Underwriters or any of their
affiliates, or Receivables Corp., AFL or any of their affiliates.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE
CERTIFICATES OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
---------------------------
This Prospectus Supplement does not contain complete information about
the offering of the Offered 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 Offered Certificates may not be
consummated unless the purchaser has received both this Prospectus Supplement
and the Prospectus. Terms used and not otherwise defined herein have the
respective meanings ascribed to such terms in the Prospectus.
To the extent that any statements in this Prospectus Supplement
conflict with statements contained in the Prospectus, the statements in the
Prospectus Supplement shall control.
S-2
<PAGE>
<PAGE>
SUMMARY
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and in the
accompanying Prospectus. Capitalized terms used and not otherwise defined herein
have the respective meanings assigned them in the Prospectus or elsewhere in
this Prospectus Supplement. Reference is made to the "Index of Significant
Definitions" herein and in the Prospectus for the location of the definitions of
certain capitalized terms.
<TABLE>
<S> <C>
Issuer................................. Manufactured Housing Contract Trust 199
Offered Certificates................... Manufactured Housing Contract
Senior/Subordinate Pass-Through
Certificates, Series (the
"Certificates"). The Offered
Certificates consist of five classes
of senior certificates designated as
the Class A-1, Class A-2, Class A-3,
Class A-4 and Class A-5 Certificates
(collectively, the "Senior
Certificates") and two classes of
Subordinate Certificates, designated
as the Class A-6 and Class B-1
Certificates. The Trust will also
issue two additional classes of
Subordinate Certificates and the
Residual Certificates.
Servicer............................... Access Financial Lending Corp., a
Delaware corporation ("AFL" or,
together with any successor servicer
under the Agreement referred to below,
the "Servicer") and a wholly-owned
subsidiary of Access Financial
Holdings Corp., which is a
wholly-owned subsidiary of Cargill
Financial Services Corporation.
Seller................................. The Contracts will be acquired by the
Trust from Access Financial
Receivables Corp. (the "Seller") on
the Closing Date. See "The Contract
Pool" herein.
Trustee................................
Risk Factors......................... Certain risk factors are particularly
relevant to a decision to invest in
the Offered Certificates sold
hereunder. See "Risk Factors"
herein and in the Prospectus.
Cut-off Date...........................
Closing Date...........................
Original Class A-1 Principal Balance... $ (Approximate, subject to a variance of
plus or minus 5%).
Original Class A-2 Principal Balance.. $ (Approximate, subject to a variance of
plus or minus 5%.
Original Class A-3 Principal Balance... $ (Approximate, subject to a variance of
plus or minus 5%).
Original Class A-4 Principal Balance... $ (Approximate, subject to a variance of
plus or minus 5%).
</TABLE>
S-3
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Original Class A-5 Principal Balance... $ (Approximate, subject to a variance of
plus or minus 5%).
Original Class A-6 Principal Balance... $ (Approximate, subject to a variance of
plus or minus 5%).
Original Class B-1 Principal Balance... $ (Approximate, subject to a variance of
plus or minus 5%).
Class A-1 Remittance Rate.............. % per annum, calculated on the basis
of a 360-day year comprised of twelve
30-day months, payable monthly,
subject to a maximum rate equal to the
Weighted Average Net Contract Rate.
The "Weighted Average Net Contract
Rate" with respect to each Remittance
Date is a rate equal to (i) the
weighted average of the Contract Rates
applicable to the Scheduled Payments
that were due in the related
Collection Period on outstanding
Contracts less (ii) _____% per annum,
representing the Monthly Servicing Fee
(as defined herein), if AFL is no
longer the Servicer.
Class A-2 Remittance Rate.............. % per annum, calculated on the basis
of a 360-day year comprised of twelve
30-day months, payable monthly,
subject to a maximum rate equal to the
Weighted Average Net Contract Rate.
Class A-3 Remittance Rate.............. % per annum, calculated on the basis
of a 360-day year comprised of twelve
30-day months, payable monthly,
subject to a maximum rate equal to the
Weighted Average Net Contract Rate.
Class A-4 Remittance Rate.............. % per annum, calculated on the basis
of a 360-day year comprised of twelve
30-day months, payable monthly,
subject to a maximum rate equal to the
Weighted Average Net Contract Rate.
Class A-5 Remittance Rate.............. % per annum, calculated on the basis
of a 360-day year comprised of twelve
30-day months, payable monthly,
subject to a maximum rate equal to the
Weighted Average Net Contract Rate.
Class A-6 Remittance Rate.............. % per annum, calculated on the basis
of a 360-day year comprised of twelve
30-day months, payable monthly,
subject to a maximum rate equal to the
Weighted Average Net Contract Rate.
Class B-1 Remittance Rate.............. % per annum, calculated on the basis
of a 360-day year comprised of twelve
30-day months, payable monthly,
subject to a maximum rate equal to the
Weighted Average Net Contract Rate.
Remittance Date........................ The ____ day of each month (or if such
____ day is not a business day, the
next succeeding business day),
commencing in . The first
Remittance Date is .
Record Date............................ The last business day of the month
preceding the related Remittance Date.
</TABLE>
S-4
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Collection Period...................... With respect to any Remittance Date, the
calendar month prior to the month of
such Remittance Date (each, a
"Collection Period").
Agreement.............................. The Pooling and Servicing Agreement
dated as of _________ (the
"Agreement"), by and among AFL,
Receivables Corp. and
___________________, as trustee (the
"Trustee").
The Contract Pool...................... The Contract Pool will initially be
comprised of actuarial manufactured
housing installment sales contracts
and installment loan agreements
(collectively, the "Initial
Contracts") originated or purchased
from certain dealers or brokers by AFL
in the ordinary course of its business
to be conveyed to the Trust on the
Closing Date [and funds on deposit in
a trust account (the "Pre-Funding
Account") to be established with the
Trustee.]
[The Agreement provides that additional
actuarial manufactured housing
installment sales contracts and
installment loan agreements (the
"Subsequent Contracts") (the Initial
Contracts and the Subsequent Contracts
together, the "Contracts") are
intended to be purchased by the Trust
from the Seller from time to time on
or before , 199_ from funds on deposit
in the Pre-Funding Account. On the
Closing Date an aggregate cash amount
not to exceed $ will be deposited with
the Trustee in the Pre-Funding
Account; amounts not to exceed $ of
such aggregate amount will be funded
from the sale of the Class A
Certificates, and may be used to
acquire Subsequent Contracts.]
[The Subsequent Contracts to be purchased
by the Trust, if available, will be
originated on or prior to , 199_, sold
by AFL to the Seller and then sold by
the Seller to the Trust. The Agreement
will provide that the Contracts must
in the aggregate conform to certain
specified characteristics following
the conveyance of any Subsequent
Contracts. See "The Contract Pool."]
Each Contract will be secured by (i) a
new or used manufactured home (each
manufactured home securing a Contract
being referred to herein as a
"Manufactured Home") (a Contract
secured by a Manufactured Home, a
"Manufactured Home Contract") or (ii)
a Manufactured Home together with the
real estate on which such Manufactured
Home is located (a Contract secured by
a Manufactured Home and such real
estate, a "Land Secured Contract").
The Contracts will not be insured by
any governmental agency or
instrumentality.
As of the Cut-off Date, the Contract
Pool consisted of approximately
Initial Contracts having a Cut-off
Date Pool Principal Balance of
approximately $ . The Initial
Contracts, as of their origination,
were
</TABLE>
S-5
<PAGE>
<PAGE>
<TABLE>
<S> <C>
secured by Manufactured Homes located
in __ states and have been selected
by AFL from the manufactured housing
installment sale contracts and
installment loan portfolio of AFL on
the basis of the criteria specified in
the Agreement. Approximately % of the
Initial Contracts by outstanding
principal balance as of the Cut-off
Date were secured by Manufactured
Homes located in , % in ,
% in , % in
and % in . No other state
represented more than % of the Initial
Contracts. All of the Initial
Contracts bear interest at a fixed
annual percentage rate (the "Contract
Rate") which is specified in the
Contract. Monthly payments of
principal and interest on the Initial
Contracts will be due on various days
(each, a "Due Date") throughout each
month. As of the Cut-off Date, the
Contract Rates on the Initial
Contracts ranged from % to %, with
a weighted average Contract Rate of
approximately %. Because the Servicing
Fee is subordinated while AFL is the
Servicer, the Weighted Average Net
Contract Rate as of the Cut-off Date
is also %. As of the Cut-off Date, the
Initial Contracts had a weighted
average original term to maturity of
approximately months and a weighted
average remaining term to maturity of
approximately months. The final
scheduled payment date on the Initial
Contract with the latest maturity is
in . The Initial Contracts were
originated or purchased from certain
dealers or brokers during , and . See
"The Contract Pool" and "Prepayment
and Yield Considerations" herein for a
detailed description of the Initial
Contracts.
[Following the initial Cut-Off Date, the
Trust will be obligated to purchase
from time to time on or before , 199_
subject to the availability thereof,
Subsequent Contracts which will be
originated on or before , 199_, and
acquired by the Seller from AFL for
subsequent sale to the Trust pursuant
to a Purchase Agreement (the "Purchase
Agreement") between the Seller and the
Trust. The aggregate principal amounts
of Subsequent Contracts which may be
acquired by the Trust is $ . In
connection with each purchase of
Subsequent Contracts, the Trust will
be required to pay to the Seller a
cash purchase price of 100% of the
principal amount thereof from the
Pre-Funding Account. Under the
Agreement, AFL will be obligated to
sell Subsequent Contracts to the
Seller for sale to the Trust, and the
Trust will be obligated, subject to
the satisfaction of certain conditions
described herein, to purchase such
Subsequent Contracts. AFL will
designate as a cut-off date (each a
"Subsequent Cut-Off Date") the first
day of the month in which Subsequent
Contracts will be conveyed by the
Seller to the Trust (each a
"Subsequent Transfer Date") occurring
during the Funding Period (as defined
herein). The Trust may
</TABLE>
S-6
<PAGE>
<PAGE>
<TABLE>
<S> <C>
purchase the Subsequent Contracts only
from the Seller and not from any other
person.]
Pre Funding Account.................... On the Closing Date an aggregate cash
amount (the "Pre- Funded Amount"),
which shall not exceed $ , will be
deposited with the Trustee in an
account in the name of the Trustee on
behalf of the Trust (the "Pre- Funding
Account"); amounts not to exceed $ of
such aggregate amount will be funded
from the sale of the Class A
Certificates, and may be used to
acquire Subsequent Contracts. During
the period (the "Funding Period") from
the Closing Date until the earliest of
the date on which (i) the amount on
deposit in the Pre-Funding Account is
less than $100,000, (ii) an Event of
Default occurs under the Agreement, or
(iii) the , 199_ Remittance Date
occurs, the Pre- Funded Amount will be
maintained in the Pre- Funding
Account. The Pre-Funding Account will
be reduced during the Funding Period
by the amount thereof used to purchase
Subsequent Contracts in accordance
with the Agreement. AFL expects that
the Pre-Funded Amount will be reduced
to less than $100,000 by the , 199_
Remittance Date. Any Pre-Funded Amount
remaining at the end of the Funding
Period will be used to prepay pro rata
the Class A Certificates on the , 199_
Remittance Date.
Description of Certificates............ The Certificates evidence undivided
interests in the Contract Pool and
certain other property held in trust
for the benefit of the
Certificateholders. The Class A-1,
Class A-2, Class A-3, Class A-4 and
Class A-5 Certificates are Senior
Certificates and the Class A-6, Class
B-1, Class B-2 and Class C
Certificates are Subordinate
Certificates, all as described herein.
The Class A-1, Class A-2, Class A-3,
Class A-4, Class A-5, Class A-6 and
Class B-1 Certificates are the Offered
Certificates. The Offered Certificates
will be offered in book-entry form
only in denominations of $1,000. The
undivided percentage interest (the
"Percentage Interest") evidenced by
any particular Class A-1, Class A-2,
Class A-3, Class A-4, Class A-5, Class
A-6 or Class B-1 Certificate for
purposes of calculating distributions
to the holder of such Certificate will
be equal to the percentage obtained by
dividing the original denomination of
such Certificate by the Original Class
A-1 Principal Balance, the Original
Class A-2 Principal Balance, the
Original Class A-3 Principal Balance,
the Original Class A-4 Principal
Balance, the Original Class A-5
Principal Balance, the Original Class
A-6 Principal Balance or the Original
Class B-1 Principal Balance, as
appropriate.
In addition to the Offered Certificates,
the Trust will issue two additional
classes of Subordinate Certificates,
the Class B-2 and the Class C
Certificates, which are subordinated
to the Senior Certificates, the Class
A-6 and the Class B-1
</TABLE>
S-7
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Certificates to the extent described
herein. The Class B-2 and the Class C
Certificates are not being offered
hereby. The Class B-2 Certificates
will have an original balance of $
and a Remittance Rate which, for
purposes of this Prospectus
Supplement, has been assumed on each
Remittance Date to equal % per annum,
subject to a maximum rate equal to the
Weighted Average Net Contract Rate.
The Trust will also issue one residual
class of Certificates with respect to
each REMIC election made by the Trust
(the "Residual Certificates") which
are not being offered hereby. The
Class C Certificates and the Residual
Certificates will initially be
retained by the Seller or an affiliate
thereof.
The Class B-2, Class C and Residual
Certificates are not offered hereby,
and any information contained herein
with respect to the Class B-2, Class C
and Residual Certificates is provided
only to permit a better understanding
of the cash flow mechanics and
subordination provisions of the Trust,
insofar as such mechanics and
provisions are relevant to the Offered
Certificates. The Senior Certificates,
the Class A-6, the Class B-1, the
Class B-2, the Class C Certificates
and the Residual Certificates are
collectively referred to as the
"Certificates."
Distributions.......................... On each Remittance Date, distributions
on the Certificates will be made in
the following order of priority: (i)
to the holders of the Senior
Certificates, (ii) to the holders of
the Class A-6 Certificates, (iii) to
the holders of the Class B-1
Certificates, (iv) to the holders of
the Class B-2 Certificates and (v) to
the holders of the Class C
Certificates, in the manner described
below.
Distributions of interest and principal
to the holders of a Class of Senior
Certificates will be made in an amount
equal to the sum of (i) their
respective Percentage Interests of the
amount of interest calculated as
described below under "A. Senior
Interest" and (ii) their respective
Percentage Interests of an amount of
principal calculated as described
below under "B. Senior Principal."
Distributions of interest and principal
to the Class A-6 Certificateholders
will be made in an amount equal to
their respective Percentage Interests
multiplied by the Class A-6
Distribution Amount (as defined
below).
Distributions of interest and principal
to the Class B-1 Certificateholders
will be made in an amount equal to
their respective Percentage Interests
multiplied by the Class B-1
Distribution Amount (as described
below).
Distributions of interest and principal
to the Class B-2 Certificateholders
will be made in an amount equal to
their respective Percentage Interests
of the Class B-2 Distribution Amount
(as described below).
</TABLE>
S-8
<PAGE>
<PAGE>
<TABLE>
<S> <C>
The rights of the Subordinate
Certificateholders and the Residual
Certificateholders to receive
distributions are subordinated to the
rights of the Senior
Certificateholders to the extent
described herein. The rights of the
Class B-1, Class B-2, Class C and
Residual Certificateholders to receive
distributions are subordinated to the
rights of the Class A-6
Certificateholders, and the rights of
the Class B-2, Class C and Residual
Certificateholders to receive
distributions are subordinated to the
rights of the Class B-1
Certificateholders to the extent
described herein. The Class C
Certificates represent a class of
subordinated, "interest-only"
certificates, the distributions on
which are subordinated to the rights
of the Class B-2 Certificateholders
and, if AFL is no longer the Servicer,
to the payment of the Monthly
Servicing Fee. The holders of the
Residual Certificates will be entitled
to receive only miscellaneous amounts
(consisting of any excess of the
initial Pool Scheduled Principal
Balance over the aggregate initial
Certifiate Principal Balance of the
Non-IO Certificates, together with
foreclosure gains (e.g., if a
foreclosure results in higher proceeds
than the loan amount, and the obligor
cannot be located for the purpose of
receiving such amount) not required
to be distributed on account of the
other classes of Certificates
(the "Residual Distribution Amount").
Distributions will be made on each
Remittance Date commencing in to
holders of record on the related
Record Date, except that the final
distribution in respect of the Offered
Certificates will only be made upon
presentation and surrender of the
Offered Certificates at the office or
agency appointed by the Trustee for
that purpose in New York, New York.
The "Class A-6 Distribution Amount" for
any Remittance Date is intended to be
equal to the "Class A-6 Formula
Distribution Amount," which equals the
sum of (i) the amount of interest
calculated as described under "C.
Class A-6 Interest" below and (ii) an
amount of principal calculated as
described under "D. Class A-6
Principal" below. The "Class A-6
Distribution Amount" for any
Remittance Date will equal the lesser
of (i) the Class A-6 Formula
Distribution Amount for such
Remittance Date or (ii) the Amount
Available in the Certificate Account
available for distribution to the
Class A-6 Certificateholders (after
giving effect to the distributions
made to Senior Certificateholders) on
such Remittance Date (the "Class A-6
Remaining Amount Available").
The "Class B-1 Distribution Amount" for
any Remittance Date is intended to be
equal to the "Class B-1 Formula
Distribution Amount," which equals the
sum of (i) the amount of interest
calculated as described under "E.
Class B-1 Interest" below and (ii) an
amount of principal calculated as
described under "F. Class B-1
Principal" below. The "Class B-1
Distribution Amount" for any
Remittance Date will equal the lesser
of (i) the Class B-1 Formula
Distribution Amount for such
Remittance Date or (ii) the Amount
Available in the Certificate Account
available for distribution to the
Class B-1
</TABLE>
S-9
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Certificateholders (after giving
effect to the distributions made to
Senior and Class A-6
Certificateholders) on such Remittance
Date (the "Class B-1 Remaining Amount
Available").
The "Class B-2 Distribution Amount" for
any Remittance Date is intended to be
equal to the "Class B-2 Formula
Distribution Amount," which equals the
sum of (i) the amount of interest
calculated as described below under
"G. Class B-2 Interest," and (ii) the
amount of principal calculated as
described below under "H. Class B-2
Principal." The "Class B-2
Distribution Amount" for any
Remittance Date will equal the lesser
of (i) the Class B-2 Formula
Distribution Amount for such
Remittance Date or (ii) the Amount
Available in the Certificate Account
available for distribution to the
Class B-2 Certificateholders (after
giving effect to the distributions
made to Senior, Class A-6 and Class
B-1 Certificateholders) on such
Remittance Date (the "Class B-2
Remaining Amount Available").
See "Description of the Certificates"
for a detailed description of the
amounts on deposit in the Certificate
Account that will constitute the
Amount Available on each Remittance
Date (the "Amount Available"). The
Amount Available will include amounts
otherwise payable to the holders of
the Class A-6, the Class B-1, the
Class B-2 and the Class C
Certificates, to AFL as the Monthly
Servicing Fee and to the Residual
Certificateholders. The Class A-6
Remaining Amount Available will
include amounts otherwise payable to
the holders of the Class B-1, the
Class B-2 and the Class C
Certificates, to AFL as the Monthly
Servicing Fee and to the Residual
Certificateholders. The Class B-1
Remaining Amount Available will
include amounts otherwise payable to
the holders of the Class B-2 and the
Class C Certificates, to AFL as the
Monthly Servicing Fee and to the
Residual Certificateholders. The Class
B-2 Remaining Amount Available will
include amounts otherwise payable to
the holders of the Class C
Certificates, to AFL as the Monthly
Servicing Fee and to the Residual
Certificateholders.
The "Certificate Principal Balance" of a
Class of Certificates as of any
Remittance Date is the original
principal balance of such Class of
Certificates less all amounts
previously distributed to such Class
on account of principal. The Senior
Principal Balance as of any Remittance
Date is the sum of the Class A-1
Principal Balance, the Class A-2
Principal Balance, the Class A-3
Principal Balance, the Class A-4
Principal Balance and the Class A-5
Principal Balance as of such date.
A. Senior Interest..................... Interest on the outstanding Principal
Balance of each Class of Senior
Certificates will accrue with respect
to each Remittance Date for the period
commencing
</TABLE>
S-10
<PAGE>
<PAGE>
<TABLE>
<S> <C>
on the first day of the calendar month
and ending on the last day of such
calendar month preceding such
Remittance Date (each such period, an
"Accrual Period"), commencing .
Interest will be paid concurrently on
each Class of Senior Certificates on
each Remittance Date, to the extent of
the Amount Available for such date in
the Certificate Account, at the
related Remittance Rate on the Class
A-1 Principal Balance, the Class A-2
Principal Balance, the Class A-3
Principal Balance, the Class A-4
Principal Balance and the Class A-5
Principal Balance, respectively,
before giving effect to any
distributions on such Remittance Date.
In the event that, on a particular
Remittance Date, the Amount Available
in the Certificate Account is not
sufficient to make a full distribution
of interest to the holders of each
Class of Senior Certificates, the
Amount Available will be distributed
among the outstanding Classes of
Senior Certificates pro rata based on
the aggregate amount of interest due
on each such Class, and the amount of
the shortfall will be carried forward
and added to the amount such holders
will be entitled to receive on the
next Remittance Date. Any such amount
so carried forward will bear interest
at the related Remittance Rate, to the
extent legally permissible. See
"Description of the Certificates."
B. Senior Principal.................... Holders of a Class of Senior
Certificates will be entitled to
receive on each Remittance Date as
payments of principal, in the order of
priority set forth below and to the
extent of the Amount Available in the
Certificate Account on such date after
payment of interest on all Classes of
Senior Certificates, the sum of (x)
the Senior Percentage of the Formula
Principal Distribution Amount for such
Remittance Date, and (y) any portion
of the amount described in clause (x)
preceding which was due to the holders
of the Senior Certificates on prior
Remittance Dates, but which remains
unpaid on such Remittance Date. The
Agreement defines the "Formula
Principal Distribution Amount" with
respect to a Remittance Date as the
sum of (i) all scheduled payments of
principal due on each outstanding
Contract during the related Collection
Period, (ii) the Scheduled Principal
Balance of each Contract which, during
the related Collection Period, was
purchased by AFL pursuant to the
Agreement on account of certain
breaches of its representations and
warranties, (iii) all Partial
Principal Prepayments applied and all
Principal Prepayments in full received
during the related Collection Period,
(iv) the Scheduled Principal Balance
of each Contract that became a
Liquidated Contract during such
related Collection Period and (v) the
Accelerated Principal Payment, if any,
for such Remittance Date. When the
Certificate Principal Balance of a
Class of Senior Certificates is
reduced to zero, no further
distributions of principal will be
made to the holders of such Class.
</TABLE>
S-11
<PAGE>
<PAGE>
<TABLE>
<S> <C>
The "Senior Percentage" for any
Remittance Date prior to the Class B
Cross-over Date (as defined below),
and for any Remittance Date on or
after the Class B Cross-over Date on
which any Class B Principal
Distribution Test (as described below)
has not been satisfied, will equal
100%. On each Remittance Date on or
after the Class B Cross-over Date, if
each Class B Principal Distribution
Test has been satisfied on such
Remittance Date, the "Senior
Percentage" will equal a fraction,
expressed as a percentage, the
numerator of which is the sum of the
Senior Principal Balance and the Class
A-6 Principal Balance for such
Remittance Date (before giving effect
to any distributions on such
Remittance Date) and the denominator
of which is the Pool Scheduled
Principal Balance at the end of the
second preceding Collection Period.
The "Scheduled Principal Balance" of a
Contract for any Collection Period is
its principal balance as specified in
its amortization schedule, after
giving effect to any previous partial
principal prepayments, any principal
prepayment in full and to the
principal portion of the scheduled
payment due on its scheduled payment
date (the "Due Date") in that
Collection Period, but without giving
effect to any adjustments due to
bankruptcy or similar proceedings and
after giving effect to any partial
principal prepayments applied and
principal prepayments in full received
during the related Collection Period.
The "Pool Scheduled Principal Balance"
with respect to any Collection Period
is the aggregate of the Scheduled
Principal Balances of all Contracts
(other than Liquidated Contracts and
Contracts repurchased by AFL during
such Collection Period) outstanding at
the end of such Collection Period. A
"Liquidated Contract" is a defaulted
Contract as to which all amounts that
the Servicer expects to recover
through the date of disposition of the
Manufactured Home have been received.
The principal distribution to be made to
the holders of the Senior Certificates
on any Remittance Date will be
distributed, to the extent of the
Amount Available after payment of
interest on all Classes of Senior
Certificates, first, to the Class A-1
Certificateholders until the Class A-1
Principal Balance has been reduced to
zero, then to the Class A-2
Certificateholders until the Class A-2
Principal Balance has been reduced to
zero, then to the Class A-3
Certificateholders until the Class A-3
Principal Balance has been reduced to
zero, then to the Class A-4
Certificateholders until the Class A-4
Principal Balance has been reduced to
zero, then to the Class A-5
Certificateholders until the Class A-5
Principal Balance has been reduced to
zero.
If, on any Remittance Date prior to the
Class A-5 Principal Balance being
reduced to zero, the Pool
</TABLE>
S-12
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Scheduled Principal Balance at the
close of business on the last day of
the related Collection Period would be
less than the sum of the Class A-1
Principal Balance, the Class A-2
Principal Balance, the Class A-3
Principal Balance, the Class A-4
Principal Balance and the Class A-5
Principal Balance on such Remittance
Date after giving effect to
distributions of principal to be made
on such date, then the Amount
Available remaining after distribution
of interest on the Senior Certificates
will be distributed to the Classes of
Senior Certificates on a pro rata
basis as a distribution of principal,
and the amount of the shortfall will
be allocated pro rata among the
outstanding Classes of Senior
Certificates, based upon their
respective outstanding Certificate
Principal Balances.
C. Class A-6 Interest.................. Interest on the outstanding Class A-6
Principal Balance will accrue with
respect to each Remittance Date during
the related Accrual Period, commencing
. On each Remittance Date,
to the extent of the Class A-6
Remaining Amount Available, if any, on
such Remittance Date after payment of
the Senior Distribution Amount,
interest will be paid to the Class A-6
Certificateholders at the Class A-6
Remittance Rate on the Class A-6
Principal Balance (before giving
effect to any distributions on such
Remittance Date). The "Class A-6
Principal Balance" is the Original
Class A-6 Principal Balance less all
amounts previously distributed to the
Class A-6 Certificateholders on
account of principal. In the event
that, on a particular Remittance Date,
the Class A-6 Remaining Amount
Available, plus other funds, if any,
in the Certificate Account available
therefor, are not sufficient to make a
full distribution of interest to the
Class A-6 Certificateholders, the
amount of the deficiency will be
carried forward as an amount that the
Class A-6 Certificateholders are
entitled to receive on the next
Remittance Date. Any amount so carried
forward will bear interest at the
Class A-6 Remittance Rate, to the
extent legally permissible. See
"Description of the Certificates --
Class A-6 Interest."
D. Class A-6 Principal................. Payments of principal on the Class A-6
Certificates will not commence until
the Senior Principal Balance has been
reduced to zero. On each Remittance
Date on or after the date on which the
Senior Principal Balance has been
reduced to zero, holders of Class A-6
Certificates will be entitled to
receive the Senior Percentage of the
Formula Principal Distribution Amount,
until the Class A-6 Principal Balance
has been reduced to zero.
E. Class B-1 Interest.................. Interest on the outstanding Class B-1
Principal Balance will accrue with
respect to each Remittance Date during
the related Accrual Period, commencing
.
</TABLE>
S-13
<PAGE>
<PAGE>
<TABLE>
<S> <C>
On each Remittance Date, to the extent
of the Class B-1 Remaining Amount
Available, if any, on such Remittance
Date after payment of the Senior
Distribution Amount and the Class A-6
Distribution Amount, interest will be
paid to the Class B-1
Certificateholders at the Class B-1
Remittance Rate on the Class B-1
Principal Balance (before giving
effect to any distributions on such
Remittance Date). The "Class B-1
Principal Balance" is the Original
Class B-1 Principal Balance less all
amounts previously distributed to the
Class B-1 Certificateholders on
account of principal.
In the event that, on a particular
Remittance Date, the Class B-1
Remaining Amount Available, plus other
funds, if any, in the Certificate
Account available therefor, are not
sufficient to make a full distribution
of interest to the Class B-1
Certificateholders, the amount of the
deficiency will be carried forward as
an amount that the Class B-1
Certificateholders are entitled to
receive on the next Remittance Date.
Any amount so carried forward will
bear interest at the Class B-1
Remittance Rate, to the extent legally
permissible. See "Description of the
Certificates -- Class B-1 Interest."
F. Class B-1 Principal................. Payments of principal on the Class B-1
Certificates will not commence until
the Class B Cross-over Date, and will
be made on that Remittance Date and
each Remittance Date thereafter only
if each Class B Principal Distribution
Test is satisfied on such Remittance
Date (unless the Senior Principal
Balance and the Class A-6 Principal
Balance have been reduced to zero in
which event none of the Class B
Distribution Tests need be satisfied).
The "Class B Cross-over Date" will be
the later of (A) the Remittance Date
in , or (B) the first Remittance Date
on which the sum of (i) the Senior
Principal Balance on such Remittance
Date (before taking into account any
distributions to be made on such
Remittance Date) and (ii) the Class
A-6 Principal Balance on such
Remittance Date (before taking into
account any distributions to be made
on such Remittance Date) (such sum
expressed as a percentage of the Pool
Scheduled Principal Balance at the end
of the second preceding Collection
Period) is less than %. The Class B
Principal Distribution Tests on each
Remittance Date relate to losses and
delinquencies on the Contracts, and
are described under "Description of
the Certificates -- Class B-1
Principal."
On each Remittance Date on or after the
Class B Cross-over Date, if each Class
B Principal Distribution Test is
satisfied on such Remittance Date
(unless the Senior Principal Balance
and the Class A-6 Principal Balance
have been reduced to zero in which
event none of the Class B Distribution
Tests
</TABLE>
S-14
<PAGE>
<PAGE>
<TABLE>
<S> <C>
need be satisfied), Class B-1
Certificateholders will be entitled to
receive, as payments of principal, the
sum of (i) the Class B Percentage of
the Formula Principal Distribution
Amount and (ii) any portion of the
amount described in clause (i)
preceding which was due to the Class
B-1 Certificateholders on prior
Remittance Dates but which remains
unpaid on such Remittance Date; such
amount will only be distributed to the
extent of the Class B-1 Remaining
Amount Available in the Certificate
Account on such date after payment of
all interest payable on the Class B-1
Certificates.
The Class B Percentage for any
Remittance Date on or after the Class
B Cross-over Date on which each Class
B Principal Distribution Test has been
satisfied will be equal to 100% minus
the Senior Percentage. The Class B
Percentage for each Remittance Date,
if any, after the Senior Principal
Balance and the Class A-6 Principal
Balance have both been reduced to
zero, will be equal to 100%.
G. Class B-2 Interest.................. Interest on the outstanding Class B-2
Principal Balance will accrue with
respect to each Remittance Date during
the related Accrual Period, commencing
.
On each Remittance Date, to the extent
of the Class B-2 Remaining Amount
Available, if any, for a Remittance
Date after payment of the Senior
Distribution Amount, the Class A-6
Distribution Amount and the Class B-1
Distribution Amount for such date,
interest will be paid to the Class B-2
Certificateholders on such Remittance
Date at the Class B-2 Remittance Rate
on the Class B-2 Principal Balance
(before giving effect to any
distributions on such Remittance
Date). The "Class B-2 Principal
Balance" is the Original Class B-2
Principal Balance less all amounts
previously distributed to the Class
B-2 Certificateholders on account of
principal.
In the event that, on a particular
Remittance Date, the Class B-2
Remaining Amount Available, plus other
funds, if any, in the Certificate
Account available therefor, are not
sufficient to make a full distribution
of interest to the Class B-2
Certificateholders, the amount of the
deficiency will be carried forward as
an amount that the Class B-2
Certificateholders are entitled to
receive on the next Remittance Date.
Any amount so carried forward will
bear interest at the Class B-2
Remittance Rate, to the extent legally
permissible. See "Description of the
Certificates -- Class B-2 Interest."
H. Class B-2 Principal................. Payments of principal on the Class B-2
Certificates will not commence until
the Remittance Date on which the Class
B-1 Principal Balance has been reduced
to zero and will be made on such
Remittance Date and each Remittance
Date thereafter only if each Class B
Principal Distribution Test is
satisfied on such
</TABLE>
S-15
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Remittance Date (unless the Senior
Principal Balance and the Class A-6
Principal Balance have been reduced to
zero in which event none of the Class
B Distribution Tests need be
satisfied). See "Description of the
Certificates -- Class B-2 Principal."
On each Remittance Date, on or after the
date on which the Class B-1 Principal
Balance has been reduced to zero and
on which each Class B Principal
Distribution Test is satisfied (unless
the Senior Principal Balance and the
Class A-6 Principal Balance have been
reduced to zero in which event none of
the Class B Distribution Tests need be
satisfied), the Class B-2
Certificateholders will be entitled to
receive, as payments of principal, the
sum of (i) the Class B Percentage of
the Formula Principal Distribution
Amount and (ii) any portion of the
amount described in clause (i)
preceding which was due to the Class
B- 2 Certificateholders on prior
Remittance Dates but which remains
unpaid on such Remittance Date; such
amount will only be distributed to the
extent of the Class B-2 Remaining
Amount Available in the Certificate
Account on such date, after payment of
all interest payable on the Class B-2
Certificates.
I.Class C Distributions;
Overcollateralization Amount ........ The Weighted Average Net Contract Rate
for the Contract Pool is expected
generally to be higher than the
weighted average of the Remittance
Rates applicable to the Class A-1,
Class A-2, Class A-3, Class A-4, Class
A-5, Class A-6, Class B-1 and Class
B-2 Certificates (collectively, the
"Non-IO Certificates"), thus
generating certain excess interest
collections which, in the absence of
losses and delinquencies, will not be
necessary to fund distributions on the
Non-IO Certificates. The Agreement
provides that this excess interest,
together with, if AFL is then the
Servicer, the Monthly Servicing Fee
then otherwise due to AFL, be applied,
to the extent available, to make
accelerated payments of principal to
the class or classes then entitled to
receive distributions of principal;
such application is expected to cause
the aggregate Certificate Principal
Balance of the Non-IO Certificates to
amortize more rapidly than the
Contract Pool, resulting in
"overcollateralization" (i.e., the
excess of the Pool Scheduled Principal
Balance over the aggregate Certificate
Principal Balance of the Non-IO
Certificates). This excess interest
for a Collection Period, together with
interest on the overcollateralization
amount itself, on the related
Remittance Date is the "Class C
Formula Distribution Amount" for such
Remittance Date. On any Remittance
Date the "Overcollateralization
Amount" will be an amount equal to the
difference between the Pool Scheduled
Principal Balance as of the end of the
immediately preceding Collection
Period and the aggregate Certificate
Principal Balance of the Non-IO
Certificates on such Remittance Date
(and after taking
</TABLE>
S-16
<PAGE>
<PAGE>
<TABLE>
<S> <C>
into account all other distributions
to be made on such Remittance Date).
The amounts available to fund the Class
C Formula Distribution Amount (which
amount will be the Class B-2 Remaining
Amount Available less the Class B-2
Distribution Amount and less the
Monthly Servicing Fee (for such
Remittance Date) such amount being the
"Class C Distribution Amount") will be
applied, together with the Monthly
Servicing Fee if AFL is the Servicer,
to make such accelerated payments of
principal on each Remittance Date
until the Overcollateralization Amount
is approximately equal to $
(the "Initial Required
Overcollateralization Amount").
Thereafter, the Class C Distribution
Amount will be available to make
distributions of the Class C Formula
Distribution Amount to the holders of
the Class C Certificates, unless, due
to losses, the Overcollateralization
Amount is decreased, in which event
such applications will commence to the
extent necessary to increase the
actual Overcollateralization Amount to
the Required Overcollateralization
Amount. The level of the Required
Overcollateralization Amount is equal
to, for any Remittance Date, (x) prior
to the Class B Cross-over Date, the
Initial Required Overcollateralization
Amount, (y) on and after the Class B
Cross-over Date, and as long as each
Class B Principal Distribution Test is
then satisfied, the lesser of (i) the
Initial Required Overcollateralization
Amount and (ii) the greater of (a) %
of the then Scheduled Pool Principal
Balance and (b) % of the Cut-off Date
Pool Principal Balance and (z) on and
after the Class B Cross-over Date, if
any Class B Distribution Test is not
satisfied, the required level as of
the immediately preceding Remittance
Date.
The amount, if any, of the Class C
Distribution Amount actually applied
as an accelerated payment of principal
on any Remittance Date (such amount to
be the lesser of (x) the excess of (i)
the Required Overcollateralization
Amount over (ii) the actual
Overcollateralization Amount on such
Remittance Date and (y) the Class C
Distribution Amount and the Monthly
Servicing Fee if AFL is the Servicer
for the immediately preceding
Collection Period) is the "Accelerated
Principal Payment" for such Remittance
Date.
Subordination of Class A-6, Class B-1,
Class B-2, Class C and Residual
Certificates......................... The rights of the holders of the Class
A-6, Class B-1, Class B-2, Class C
Certificates and Residual Certificates
to receive distributions with respect
to the Contracts in the Trust will be
subordinated, to the extent described
herein, to such rights of the holders
of the Senior Certificates. This
subordination is intended to enhance
the likelihood
</TABLE>
S-17
<PAGE>
<PAGE>
<TABLE>
<S> <C>
of regular receipt by the holders of
the Senior Certificates of the full
amount of their scheduled monthly
payments of interest and principal and
to afford such holders protection
against losses on Liquidated
Contracts.
The protection afforded to the holders
of the Senior Certificates by means of
the subordination of the Class A-6,
Class B-1, Class B-2, Class C and
Residual Certificates will be
accomplished by the preferential right
of the Senior Certificateholders to
receive, prior to any distribution
being made on a Remittance Date in
respect of the Class A-6, Class B-1,
Class B-2, Class C and Residual
Certificates, the amounts of interest
and principal due them on each
Remittance Date out of the Amount
Available on such date in the
Certificate Account and, if necessary,
by the right of such Senior
Certificateholders to receive future
distributions of Amounts Available
that would otherwise be payable to the
holders of the Class A-6, Class B-1,
Class B-2, Class C and Residual
Certificates.
Inaddition, the rights of the holders
of the Class B-1, Class B-2, Class C
and Residual Certificates to receive
distributions with respect to the
Contracts will be subordinated, to the
extent described herein, to such
rights of the holders of the Class A-6
Certificates. This subordination is
intended to enhance the likelihood of
regular receipt by the holders of the
Class A-6 Certificates of the full
amount of their scheduled monthly
payments of interest and principal and
to afford such holders protection
against losses on Liquidated
Contracts.
The protection afforded to the holders
of the Class A-6 Certificates by means
of the subordination of the Class B-1,
Class B-2, Class C and Residual
Certificates will be accomplished by
the preferential right of the Class
A-6 Certificateholders to receive,
prior to any distribution being made
on a Remittance Date in respect of the
Class B-1, Class B-2, Class C and
Residual Certificates, the amounts of
interest and principal due them on
each Remittance Date out of the Class
A-6 Remaining Amount Available on such
date in the Certificate Account and,
if necessary, by the right of such
Class A-6 Certificateholders to
receive future distributions of Class
A-6 Remaining Amounts Available that
would otherwise be payable to the
holders of the Class B-1, Class B-2,
Class C and Residual Certificates.
The rights of the holders of the Class
B-2, Class C and Residual Certificates
to receive distributions with respect
to the Contracts will be subordinated
in the same manner to such rights of
the holders of the Senior
Certificates, Class A-6 Certificates
and Class B-1 Certificates.
</TABLE>
S-18
<PAGE>
<PAGE>
<TABLE>
<S> <C>
The rights of the holders of the Class C
Certificates to receive distributions
with respect to the Contracts on each
Remittance Date will be subordinated
to the rights of the holders of the
Senior Certificates, Class A-6
Certificates, Class B-1 Certificates
and Class B-2 Certificates and to the
payment of the Monthly Servicing Fee.
See "Description of the
Certificates-Subordination of Class
A-6, Class B-1, Class B-2, Class C and
Residual Certificates."
The rights of the holders of the
Residual Certificates to receive
distributions with respect to the
Contracts on each Remittance Date will
be subordinated to the rights of the
holders of all other classes of
Certificates and to the payment of the
Monthly Servicing Fee. See
"Description of the Certificates --
Subordination of Class A-6, Class B-1,
Class B-2, Class C and Residual
Certificates."
Losses on Liquidated Contracts......... As described above, the distribution of
principal to the Senior and the Class
A-6 Certificateholders and to the
Class B-1 Certificateholders is
intended to include the Senior
Percentage and the Class B Percentage,
respectively, of the Scheduled
Principal Balance of each Contract
that became a Liquidated Contract
during the preceding Collection
Period. If the Net Liquidation
Proceeds (as defined below) from a
Liquidated Contract are less than the
Scheduled Principal Balance of such
Liquidated Contract plus accrued and
unpaid interest thereon plus amounts
reimbursable to the Servicer for
advances of certain taxes and
insurance premiums, the deficiency (a
"Realized Loss") will, in effect, be
absorbed first, by the Residual
Certificateholders, second, by the
Class C Certificateholders (both
through the application of the Class C
Distribution Amount to fund such
deficiency and through a reduction in
the Overcollateralization Amount),
third, by the Monthly Servicing Fee
(so long as AFL is the Servicer),
fourth, by the Class B-2
Certificateholders, fifth, by the
Class B-1 Certificateholders and
sixth, by the Class A-6
Certificateholders, since a portion of
the Amount Available equal to such
deficiency and otherwise distributable
to them will be paid to the Senior
Certificateholders. If AFL is no
longer the Servicer, then the Monthly
Servicing Fee will become senior to
all Certificateholders' distributions.
"Liquidation Proceeds" means cash
(including insurance proceeds)
received in connection with the
liquidation of defaulted Contracts,
whether through repossession,
foreclosure sale or otherwise,
including any rental income realized
from the repossessed Manufactured
Home. "Net Liquidation Proceeds"
means, as to a Liquidated Contract,
all Liquidation Proceeds received on
or prior to the last day of the
Collection Period in which such
Contract became a Liquidated Contract,
net of Liquidation Expenses.
"Liquidation Expenses" means
out-of-pocket expenses (exclusive of
any overhead expenses) which are
</TABLE>
S-19
<PAGE>
<PAGE>
<TABLE>
<S> <C>
incurred by the Servicer in connection
with the liquidation of any defaulted
Contract, on or prior to the date on
which the related Manufactured Home is
disposed of, including, without
limitation, legal fees and expenses,
and any related and unreimbursed
expenditures for property taxes,
property preservation or restoration
of the property to marketable
condition.
If the Amount Available is not
sufficient to cover the entire
principal portion of the Senior
Formula Distribution Amount due to the
Senior Certificateholders or the
entire principal portion of the Class
A-6 Formula Distribution Amount due to
the Class A-6 Certificateholders on a
particular Remittance Date, then (i)
if the Senior Percentage is less than
100%, the Senior Percentage on future
Remittance Dates will be increased and
the Class B Percentage on future
Remittance Dates will be reduced as a
result of such deficiency and (ii) the
amount of the deficiency will be
carried forward as an amount the
Senior Certificateholders or the Class
A-6 Certificateholders are entitled to
receive on future Remittance Dates,
until paid in full. If the Amount
Available is sufficient to cover the
entire principal portion of the Senior
Formula Distribution Amount due to the
Senior Certificateholders and the
entire principal portion of the Class
A-6 Formula Distribution Amount due to
the Class A-6 Certificateholders on a
particular Remittance Date but is not
sufficient to cover the entire
principal portion of the Class B-1
Formula Distribution Amount due to the
Class B-1 Certificateholders, the
amount of the deficiency will be
carried forward as an amount that the
Class B-1 Certificateholders are
entitled to receive on the next
Remittance Date.
As a result of the subordination of the
Class B-1 and the Class B-2
Certificates, the Monthly Servicing
Fee (so long as AFL is the Servicer),
and the subordination of the Class C
and Residual Certificates, the Class
A-6 Certificateholders will not absorb
(i) losses resulting from Realized
Losses or (ii) delinquent payments on
the Contracts, at least to the extent
that such subordination has not been
exhausted. See "Description of the
Certificates -- Subordination of Class
A-6, Class B-1, Class B-2, Class C and
Residual Certificates" and "Prepayment
and Yield Considerations."
As a result of the subordination of the
Class B-2 Certificates, the Monthly
Servicing Fee (so long as AFL is the
Servicer), and the subordination of
the Class C and Residual Certificates,
the Class B-1 Certificateholders will
not absorb (i) losses resulting from
Realized Losses or (ii) delinquent
payments on the Contracts, at least to
the extent that such subordination has
not been exhausted. See "Description
of the Certificates -- Subordination
of Class A-6, Class B-1, Class B-2,
Class C and
</TABLE>
S-20
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Residual Certificates" and "Prepayment
and Yield Considerations."
As a result of the subordination of the
Monthly Servicing Fee (so long as AFL
is the Servicer) and of the Class C
and Residual Certificates, the Class
B-2 Certificateholders will not absorb
(i) losses resulting from Realized
Losses or (ii) delinquent payments on
the Contracts, at least to the extent
that such subordination has not been
exhausted. See "Description of the
Certificates -- Subordination of Class
A-6, Class B-1, Class B-2, Class C and
Residual Certificates" and "Prepayment
and Yield Considerations."
Final Scheduled Remittance Date........ The Final Scheduled Remittance Date for
each Class of the Offered Certificates
will be the Remittance Date in . The
Final Scheduled Remittance Date has
been determined by adding six months
to the maturity date of the Contract
with the latest stated maturity.
Because the rate of distributions in
reduction of the Principal Balances of
the Offered Certificates will depend
on the rate of amortization of the
Contracts (including amortization due
to prepayments and defaults), the
actual final distribution on any Class
of Offered Certificates could occur
significantly earlier than the Final
Scheduled Remittance Date. The rate of
payments on the Contracts will depend
on their particular characteristics,
as well as on interest rates
prevailing from time to time and other
economic factors, and no assurance can
be given as to the actual payment or
default experience of the Contracts.
[Mandatory Prepayment.................. Of the maximum original Pre-Funding
Amount of $ , maximum amounts of $
will be funded from the proceeds of
the scale of the Class A Certificates,
and may be used to acquire Subsequent
Contracts. In the event that, on the
199_ Remittance Date, not all of the $
funded from the proceeds of the sale
of the Class A Certificates, has been
used to acquire Subsequent Contracts,
then the Class A Certificates will be
prepaid in part on such date, on a pro
rata basis with respect to the Owners
of individual Certificates of the
related Class, from and to the extent
of such remaining amounts.]
Optional Termination................... The Servicer has the option to purchase
from the Trust all Contracts then
outstanding and all other property in
the Trust if, among other conditions,
on any Remittance Date the Pool
Scheduled Principal Balance is less
than 10% of the Cut-off Date Pool
Principal Balance. See "Description of
the Certificates -- Optional
Termination" herein.
Auction Sale........................... The Agreement requires that, within
ninety days following the first
Remittance Date as of which the Pool
Scheduled Principal Balance is less
than 10% of the Cut-off Date Pool
Principal Balance, if the
</TABLE>
S-21
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Servicer has not exercised its
optional termination right by such
date, the Trustee solicit bids for the
purchase of all Contracts remaining in
the Trust. In the event that
satisfactory bids are received as
described in the Agreement, the net
sale proceeds will be distributed to
Certificateholders, in the same order
of priority as collections received in
respect of the Contracts. If
satisfactory bids are not received,
the Trustee shall decline to sell the
Contracts and shall not be under any
obligation to solicit any further bids
or otherwise negotiate any further
sale of the Contracts. Such sale and
consequent termination of the Trust
must constitute a "qualified
liquidation" of each REMIC established
by the Trust under Section 860F of the
Internal Revenue Code of 1986, as
amended, including, without
limitation, the requirement that the
qualified liquidation takes place over
a period not to exceed 90 days. See
"Description of the Certificates --
Auction Sale".
Advances............................... The Servicer will be required, not later
than each Remittance Date, to deposit
into the Certificate Account an amount
equal to the Scheduled Payments due,
but not collected, with respect to
delinquent Contracts during the prior
Collection Period, but only if, in its
good faith business judgment, the
Servicer believes that such amounts
will ultimately be recovered on or
with respect to the related Contract.
Any such amounts so advanced are
"Delinquency Advances." See
"Description of the Certificates --
Advances" herein.
Registration of Offered Certificates... The Offered Certificates initially will
be issued in book- entry form. Persons
acquiring beneficial ownership
interests in such Offered Certificates
("Beneficial Certificate Owner") may
elect to hold their interests through
The Depository Trust Company ("DTC"),
in the United States, or Cedel Bank,
societe anonyme ("CEDEL") or the
Euroclear System ("Euroclear"), in
Europe. Transfers within DTC, CEDEL or
Euroclear, as the case may be, will be
in accordance with the usual rules and
operating procedures of the relevant
system. So long as the Offered
Certificates are book-entry
certificates, such Offered
Certificates will be evidenced by one
or more Offered Certificates
registered in the name of Cede & Co.
("Cede"), as the nominee of DTC or one
of the relevant depositories
(collectively, the "European
Depositories"). Cross-market transfers
between persons holding directly or
indirectly through DTC, on the one
hand, and counterparties holding
directly or indirectly through CEDEL
or Euroclear, on the other, will be
effected in DTC through Citibank N.A.
("Citibank") or Morgan Guaranty Trust
Company of New York ("Morgan"), the
relevant depositories of CEDEL or
Euroclear, respectively, and each a
participating member of DTC. The
Offered Certificates will initially be
registered in the name of Cede. The
interests of such Beneficial
Certificate
</TABLE>
S-22
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Owners will be represented by
book-entries on the records of DTC and
participating members thereof. No
Beneficial Certificate Owner will be
entitled to receive a definitive
certificate representing such person's
interest, except under the limited
circumstances described herein. All
references herein to any Offered
Certificates reflect the rights of
Beneficial Certificate Owners only as
such rights may be exercised through
DTC and its participating
organizations for so long as such
Offered Certificates are held by DTC.
See "Description of the Certificates
-- Registration of Offered
Certificates" herein.
Federal Income Tax Consequences........ One or more elections will be made to
treat certain assets of the Trust as
one or more REMICs for federal income
tax purposes. Each class of the
Offered Certificates will be
designated as a "regular interest" in
a REMIC and a separate class of
certificates will be designated as the
"residual interest" with respect to
each REMIC. Certificateholders that
would otherwise report income under a
cash method of accounting will be
required to include in income interest
on the Offered Certificates (including
original issue discount, if any) in
accordance with an accrual method of
accounting. See "Federal Income Tax
Consequences" herein and in the
Prospectus.
ERISA Considerations................... Senior Certificates. Subject to the
conditions and discussion set forth
herein, the Senior Certificates may be
purchased by employee benefit plans
that are subject to the Employee
Retirement Income Security Act of
1974, as amended ("ERISA") [after the
earlier of (i) the date on which the
Funding Period expires and (ii) the
date on which the Department of Labor
amends the Exemption (as defined
below) to permit the use of
pre-funding accounts thereunder.] See
"ERISA Considerations" herein and in
the Prospectus.
Subordinate Certificates. Except for an
insurance company using assets of its
general account, a fiduciary of any
employee benefit plan or other plan
subject to ERISA and/or Section 4975
of the Internal Revenue Code of 1986,
as amended (the "Code"), should not
purchase or hold the Subordinate
Certificates as such actions may give
rise to a transaction prohibited under
ERISA or Section 4975 of the Code. See
"ERISA Considerations" herein and in
the Prospectus.
Legal Investment....................... The Offered Certificates (other than the
Class B-1 Certificates) at the time of
issuance qualify as "mortgage related
securities" under the Secondary
Mortgage Market Enhancement Act of
1984, as amended ("SMMEA") and, as
such, will constitute legal
investments for certain types of
investors to the extent provided in
SMMEA. The Class B-1 Certificates are
not "mortgage related securities"
</TABLE>
S-23
<PAGE>
<PAGE>
<TABLE>
<S> <C>
under SMMEA. Accordingly, many
institutions with legal authority to
invest in comparably rated securities
may not be legally authorized to
invest in the Class B-1 Certificates.
Investors should consult their own
legal advisors in determining whether
and to what extent the Offered
Certificates (other than the Class B-1
Certificates) constitute legal
investments for such investors. See
"Legal Investment Matters" in the
Prospectus.
Ratings................................ It is a condition to the issuance of the
Senior Certificates that they be rated
" " by (" ") and
" " by , (" "). It
is a condition to the issuance of the
Class A-6 Certificates that they be
rated at least " " by and
" " by . It is a condition
to the issuance of the Class B-1
Certificates that they be rated at
least " " by and " " by . The Seller
has not requested a rating on the
Offered Certificates by any rating
agency other than and . However, there
can be no assurance as to whether any
other rating agency will rate any or
all of the Offered Certificates, or if
it does, what rating would be assigned
by any such other rating agency. A
rating on any or all of the Offered
Certificates by certain other rating
agencies, if assigned at all, may be
lower than the rating assigned to such
Certificates by either or .
See "Ratings" herein.
A security rating is not a
recommendation to buy, sell or hold
securities and may be subject to
revision or withdrawal at any time.
</TABLE>
S-24
<PAGE>
<PAGE>
RISK FACTORS
Prospective Offered Certificateholders should consider, among other
things, the factors discussed in the Prospectus under "Risk Factors." In
addition, prospective Offered Certificateholders should consider the following
in connection with the purchase of Offered Certificates:
1. A downturn in economic conditions could cause losses to the Holders.
An investment in the Certificates may be affected by, among other things, a
downturn in national, regional or local economic conditions. The geographic
locations of the Manufactured Homes in the Contract Pool are set forth
herein. Regional and local economic conditions are often volatile and,
historically, regional and local economic conditions, as well as national
economic conditions, have affected the delinquency, loan loss and repossession
experience of manufactured housing installment sales contracts. Adverse economic
conditions in any of the states with high concentrations could adversely affect
the delinquency or loan loss experience of the Contracts. Moreover, regardless
of its location, manufactured housing generally depreciates in value. Thus,
Certificateholders should expect that, as a general matter, the market value of
any Manufactured Home will be lower than the outstanding principal balance of
the related Contract. See "The Contract Pool." Sufficiently high delinquencies
and liquidation losses on the Contracts in the Contract Pool will have the
effect of reducing, and could eliminate, the protection against loss afforded by
any credit enhancement supporting any Class of the related Certificates. See
"Description of Credit Enhancement" in the Prospectus. If such protection is
eliminated, or if no such protection is provided, the holders of such
Certificates will bear all risk of loss on the Contracts and must rely on the
value of the Manufactured Homes for recovery of the outstanding principal of and
unpaid interest on any defaulted Contracts.
2. Security Interests in the Manufactured Homes may not be perfected
and the Trust may not realize upon the full amount under the related Contract.
On or prior to the Closing Date, AFL will convey the related Contracts to the
Seller and the Seller will convey the related Contracts to the Trust.
Each Contract is secured by a security interest in a Manufactured Home
together with, in the case of Land Secured Contracts, the real estate on which
the related Manufactured Home is located. Perfection of security interests in
the Manufactured Homes and enforcement of rights to realize upon the value of
the Manufactured Homes as collateral for the Contracts are subject to a number
of federal and state laws, including the Uniform Commercial Code (the "UCC") as
adopted in the states in which the Manufactured Homes are located and such
states' certificate of title statutes, but generally not their real estate laws.
Under such federal and state laws, a number of factors may limit the ability of
a holder of a perfected security interest in Manufactured Homes to realize upon
such Manufactured Homes or may limit the amount realized to less than the amount
due under the related Contract. See "Certain Legal Aspects of the Contracts."
In addition, because of the expense and administrative inconvenience
involved, AFL will not amend any certificates of title relating to any
Manufactured Home to change the lienholder specified therein to the Trustee, and
will not execute any transfer instrument (including, among, other instruments,
UCC-3 assignments) relating to any Manufactured Home in favor of the Trustee or
note thereon the Trustee's interest. As a result, AFL will remain the lienholder
on the certificate of title relating to the Manufactured Home. In some states,
in the absence of such an amendment, execution or notation, the assignment to
the Trustee of the security interest in the Manufactured Homes located therein
may not be effective or such security interest may not be perfected. If any
otherwise effectively assigned security interest in favor of the Trustee is not
perfected, such assignment of the security interest to the Trustee may not be
effective against creditors of AFL to the extent it continues to be specified as
lienholder on any certificate of title or as secured party on any UCC filing, or
against a trustee in bankruptcy of AFL.
Each Contract (other than a Land Secured Contract) will be "chattel
paper" as defined in the UCC as in effect in Minnesota (where AFL's executive
office is currently located) and the jurisdiction in which the related
Manufactured Home was located at origination. Under the UCC as in effect in each
such jurisdiction, the sale of chattel paper is treated in a manner similar to
perfection of a security interest in chattel paper. Under the Agreement, the
Trustee will have possession of the Contracts. In addition, AFL and the Seller
will make appropriate filings of UCC-1 financing statements in the office of the
Secretary
S-25
<PAGE>
<PAGE>
of State of the State where their principal place of business is located to give
notice of the Trustee's ownership of the Contracts. The Trustee's interest in
the Contracts could, through the fraud or negligence of the Trustee, be defeated
if a subsequent purchaser were able to take physical possession of the Contracts
without notice of such assignment.
Further, because of the expenses and administrative inconvenience
involved, the assignment of mortgages or deeds of trust to the Trustee will not
be recorded with respect to the mortgages or deeds of trust (each, a"Mortgage")
securing each Land Secured Contract. The failure to record the assignments to
the Trustee of the Mortgage securing Land Secured Contracts may result in the
sale of such Contracts or the Trustee's rights in the land secured by the
Mortgage being ineffective against creditors of AFL or against a trustee in
bankruptcy of AFL or against a subsequent purchaser of such Contracts from AFL
or Receivables Corp., without notice of the sale to the Trustee. See "The
Contract Pool" herein for a description of the programs under which Contracts
are originated or purchased by AFL.
3. Federal and State Consumer Protection Laws may limit collection or
principal and interest on the Contracts. Numerous federal and state consumer
protection laws could adversely affect the interest of the Trust in the
Contracts in the Contract Pool. For instance, as described herein under
"Certain Legal Aspects of the Contracts -- Consumer Protection Laws," the
Soldiers' and Sailors' Civil Relief Act of 1940, as amended (the "Relief Act"),
could, under certain circumstances, cap the amount of interest that may be
charged on certain Contracts at 6% and may hinder the ability, of the Servicer
to foreclose on such Contracts in a timely fashion. In addition, other federal
and state consumer protection laws impose requirements on lending under
installment sales contracts and installment loan agreements such as the
Contracts, and the failure by the lender or seller of goods to comply with such
requirements could give rise to liabilities of assignees for amounts due under
such agreements and the right of set-off against claims by such assignees. These
laws could apply to the Trust as assignee of the related Contracts. AFL will
represent and warrant that, as of the Cut-Off Date, each Contract complies with
all requirements of law. A breach of any such representation or warranty that
materially adversely affects the Trust's interest in any Contract will create an
obligation by AFL to repurchase, or at its option substitute another contract
for, such Contract, unless such breach is cured within the time period specified
in the Agreement. AFL will have no obligation to repurchase any Contract subject
to the Relief Act, however.
4. Lack of recourse may increase risk of losses to the Holders.
The purchase of the Certificates will be without recourse. See
"Description of Credit Enhancement" in the Prospectus. The Certificates
will not represent an interest in or obligation of, and the Certificates
will not be guaranteed by, AFL or Receivables Corp. or any of their affiliates.
In addition, the Certificates will not be insured or guaranteed by any
governmental agency or instrumentality.
5. Prepayments and repurchases may adversely affect the yield to
maturity of the Certificates. The prepayment experience on the Contracts
underlying the Certificates (including prepayments due to liquidations
of defaulted Contracts) will affect the average life and the maturity of such
Certificates. Prepayments on the Contracts in the Contract Pool may be
influenced by a variety of economic, geographic, social and other factors,
including repossessions, seasonality and interest rates. Other factors affecting
prepayment on the Contracts include changes in housing needs, job transfers and
unemployment. See "Prepayment and Yield Considerations" herein.
6. Insolvency of AFL or Receivables Corp. may cause a delay in payment
to the Holders. As described herein under "The Contract Pool," each of
the Contracts will be conveyed by AFL to Receivables Corp. and by
Receivables Corp. to the Trust. Each of AFL and Receivables Corp. intend
that their respective conveyance of the Contracts constitute a sale, rather
than a pledge of the Contracts to secure its respective indebtedness.
However, if any such entity were to become a debtor under the federal bankruptcy
code, it is possible that a creditor or trustee in bankruptcy of such entity or
such entity as debtor-in-possession may argue that the sale of the Contracts
by such entity was a pledge of the Contracts rather than a sale. This
position, if presented to or accepted by a court, could result in a delay in
or reduction of distributions to the Certificateholders.
[7. Lack of Subsequent Contracts could adversely affect the yield to
maurity of the Certificates. If the principal amount of eligible Contracts
available during the Funding Period and sold to the Trust is less than 100% of
the Pre-Funded Amount, the Seller will have insufficient Contracts to
sell to the Trust, on the Subsequent Transfer Dates,
S-26
<PAGE>
<PAGE>
thereby resulting in prepayments of principal to Owners of one or more Classes
of Class A Certificates as described herein. In addition, any conveyance of
Subsequent Contracts is subject to the following conditions, among others: (i)
each such Subsequent Contract must satisfy the representations and warranties
specified in the Purchase Agreement and the Agreement; (ii) AFL will not select
such Subsequent Contracts in a manner that they believe is adverse to the
interests of the Class A Certificateholders; (iii) AFL will deliver certain
opinions of counsel with respect to the validity of the conveyance of such
Subsequent Contracts; and (iv) as of the Subsequent Cut-Off Date, the Contracts
at that time, including the Subsequent Contracts to be conveyed by the Seller as
of such Subsequent Cut-Off Date, will satisfy the criteria set forth in the
Agreement, as described herein under "The Contract Pool".
To the extent that amounts on deposit in the Pre-Funding Account have
not been fully applied to the purchase of Subsequent Contracts by the Trust by
the end of the Funding Period, the Owners of one or more Classes of Class A
Certificates will receive a prepayment of principal in an amount equal to the
Pre-Funded Amount allocable to such Class and remaining in the Pre-Funding
Account following the purchase of any Subsequent Contracts on the first
Remittance Date following the Funding Period. Although no assurances can be
given, it is anticipated by AFL that the principal amount of Subsequent
Contracts sold to the Trust will require the application of substantially all
amounts on deposit in the Pre- Funding Account and that there will be no
material principal prepayment to the Class A Certificateholders.
Each Subsequent Contract must satisfy the eligibility criteria referred
to above at the time of its addition. However, Subsequent Contracts may have
been originated or purchased by AFL using credit criteria different from those
which were applied to the Initial Contracts and may be of a different credit
quality. Therefore, following the transfer of Subsequent Contracts to the Trust,
the characteristics of the Contracts in the Trust may vary significantly from
those of the Initial Contracts. See "The Contract Pool".]
THE CONTRACT POOL
All of the Contracts to be sold by Receivables Corp. to the Trust will
be originated or purchased by AFL. On or prior to the Closing Date, AFL will
sell such Initial Contracts to Receivables Corp. On the date of initial issuance
of the Offered Certificates, the Trust will acquire the Initial Contracts
comprising the Contract Pool from Receivables Corp. [Additional contracts (the
"Subsequent Contracts") are intended to be purchased by the Trust from the
Seller from time to time on or before , 199_, from funds on deposit in the
Pre-Funding Account.] The Initial Contracts and the Subsequent Contracts are
referred herein collectively as the "Contracts". [The Subsequent Contracts to be
purchased by the Trust, if available, will be originated on or prior to , 199_,
sold by AFL to the Seller and then sold by the Seller to the Trust.] The
Agreement will provide that the Contracts must in the aggregate conform to
certain specified characteristics described below following the conveyance of
the Subsequent Contracts. The Trustee will have possession of the Contracts.
Each Contract will provide for scheduled payments of principal and
interest on specified monthly due dates (each, a "Due Date"). The day of each
month constituting the Due Date will vary from Contract to Contract. The
scheduled payment due on each monthly Due Date (the "Scheduled Payment") is or
will be specified in the Initial Contract or Subsequent Contract, respectively.
The Contracts will all be actuarial Contracts. Each Contract will bear
interest at a fixed annual percentage rate (the "Contract Rate") and will
provide for level payments over the term of such Contract that fully amortize
the principal balance of such Initial Contract. The Contract Pool will not
contain any "step-up rate" Contracts.
The Contract Pool will contain a limited number of Contracts as to
which the real estate is either (i) in lieu of a cash down payment on the
Manufactured Home ("Land-in-Lieu Contracts"), representing % of the Contract
Pool (by aggregate principal balance as of the Cut-off Date) or (ii) taken as
collateral against a loan advanced on the related Manufactured Home together
with the real estate on
S-27
<PAGE>
<PAGE>
which the Manufactured Home is located ("Land-Home Contracts") (together, "Land
Secured Contracts"), representing % of the Contract Pool (by aggregate
principal balance as of the Cut-off Date).
Under the Agreement, the Manufactured Homes are required to comply with
the requirements of certain federal statutes. These statutes generally require
the Manufactured Homes to have a minimum of 400 square feet of living space and
a minimum width of 102 inches and to be of a kind customarily used at a fixed
location. Such statutes also require the Manufactured Homes to be transportable
in one or more sections, and to be built on a permanent chassis and designed to
be used as dwellings, with or without permanent foundations, when connected to
the required utilities. The Manufactured Homes include the plumbing, heating,
air conditioning and electrical systems contained therein.
Management of AFL estimates that as of the date of origination in
excess of % of the Manufactured Homes are used as primary residences by the
obligors under the Initial Contracts (each, an "Obligor") secured by such
Manufactured Homes.
All Contracts will have fixed Contract Rates. As of the Cut-off Date,
the Contract Rates on the Initial Contracts ranged % to %. The weighted
average Contract Rate as of the Cut-off Date was approximately %. Because the
Servicing Fee is subordinated while AFL is the Servicer, the Weighted Average
Net Contract Rate as of the Cut-off Date is also %. As of the Cut-off Date, the
Initial Contracts had remaining terms to maturity of at least months but not
more than months, and original terms to maturity of at least months but not more
than months. As of the Cut-off Date, the Initial Contracts had a weighted
average remaining term to maturity of approximately months, and a weighted
average original term to maturity of approximately months. The average
outstanding principal balance of the Initial Contracts as of the Cut-off Date
was $ and the outstanding principal balances of the Initial Contracts as
of the Cut-off Date ranged from $ to $ . The weighted average
loan-to-value ratio for the Initial Contracts at origination was %. "Value"
in such calculation, (i) in the case of Manufactured Home Contracts and Land
as Additional Collateral Contracts, is equal to the stated cash sale price of
such Manufactured Home, including sales and other taxes, plus, to the extent
financed, filing and recording fees imposed by law, premiums for related
insurance and prepaid finance charges, (ii) in the case of Land-Home Contracts
and Land-in-Lieu Contracts, is equal to the sum of Value in (i) above and the
appraised value of the land securing the Initial Contract and (iii) in the case
of Refinanced Contracts, is equal to the outstanding principal balance of the
Contract refinanced at the time such Refinanced Contract was originated.
Manufactured homes, unlike site-built homes, generally depreciate in value, and
it has been AFL's experience that, upon repossession, the market value of a
manufactured home securing a manufactured housing contract is generally lower
than the principal balance of the related manufactured housing contract.
The Contracts will be secured by Manufactured Homes located in states;
approximately % of the Initial Contracts by outstanding principal balance as
of the Cut-off Date were secured by Manufactured Homes located in , % in
, % in , % in and % in . No other
state represented more than % of the Initial Contracts.
Approximately % of the Initial Contracts by outstanding principal
balance as of the Cut-off Date are secured by Manufactured Homes which were new
at the time the related Initial Contracts were originated and approximately %
of the Initial Contracts by outstanding principal balance as of the Cut-off Date
are secured by Manufactured Homes which were used at the time the related
Initial Contracts were originated.
All of the Contracts will be conventional Contracts in that they are
not insured or guaranteed by any governmental agency or instrumentality.
Conveyance of Subsequent Contracts
The Agreement permits the Trust to acquire up to $ aggregate
principal balance of Subsequent Contracts. Accordingly, the statistical
characteristics of the Contract Pool will vary as of any Subsequent Cut-Off Date
upon the acquisition of Subsequent Contracts.
S-28
<PAGE>
<PAGE>
The obligation of the Trust to purchase the Subsequent Contracts on a
Subsequent Transfer Date is subject to the following requirements: (i) such
Subsequent Contract may not be _____ or more days contractually delinquent as of
the related Subsequent Cut-Off Date; (ii) the stated term to maturity to such
Subsequent Contract may not exceed _____ years; (iii) such Subsequent Contract
will be a Manufactured Home Contract or a Land Secured Contract and (iv)
following the purchase of such Subsequent Contracts by the Trust, the Contracts
in the Contract Pool (including the Subsequent Contracts) (a) will have a
weighted average Contract Rate of at least %; (b) will have a weighted average
original term to stated maturity of not more than months; (c) will have a
weighted average LTV of not more than %; (d) will have no Contract with a
principal balance in excess of $ ; (e) will have a concentration not in
excess of % by aggregate principal balance; and (f) will have not more
than % in aggregate principal balance of Contracts relating to non-owner
occupied Manufactured Homes.
S-29
<PAGE>
<PAGE>
Set forth below is a description of certain additional characteristics
of the Initial Contracts:
Geographical Distribution of Manufactured Homes as of Origination(1)
<TABLE>
<CAPTION>
Aggregate
Number of Principal % of
Initial Balance Contract Pool
Contracts Outstanding By Outstanding
As of As of Cut-off Principal Balance As
State Cut-off Date Date of Cut-off Date
----- ------------ ------------- --------------------
<S> <C> <C> <C>
Alabama...................................... $ %
Arizona......................................
Arkansas.....................................
California...................................
Colorado.....................................
Delaware.....................................
Florida......................................
Georgia......................................
Idaho........................................
Illinois.....................................
Indiana......................................
Iowa.........................................
Kansas.......................................
Kentucky.....................................
Louisiana....................................
Maryland.....................................
Michigan.....................................
Minnesota....................................
Mississippi..................................
Missouri.....................................
Montana......................................
Nebraska.....................................
Nevada.......................................
New Mexico...................................
New York.....................................
North Carolina...............................
Oklahoma.....................................
Oregon.......................................
Pennsylvania.................................
South Carolina...............................
Tennessee....................................
Texas........................................
Utah.........................................
Virginia.....................................
Washington...................................
West Virginia................................
Wisconsin....................................
Wyoming......................................
------ ------------- ---------
Total...................................... $ %
====== ============= =========
</TABLE>
- --------------------
(1) Based on billing address of Obligors.
S-30
<PAGE>
<PAGE>
Years of Origination of Initial Contracts
<TABLE>
<CAPTION>
Aggregate
Number of Principal % of
Initial Balance Contract Pool
Contracts Outstanding By Outstanding
As of As of Cut-off Principal Balance As
Years Cut-off Date Date of Cut-off Date
----- ------------ ------------- --------------------
<S> <C> <C> <C>
......................................... $ %
.........................................
.........................................
------ ----------- -------
Total...................................... $ %
====== =========== =======
</TABLE>
Distribution of Original Principal Balances of Initial Contracts(1)
<TABLE>
<CAPTION>
Aggregate % of
Number of Principal Contract Pool
Initial Balance By Outstanding
Contracts Outstanding Principal Balance
As of As of Cut-off As of Cut-off
Distribution Cut-off Date Date Date
------------ ------------ ------------- -----------------
<S> <C> <C> <C>
$ 5,000 or less........................... $ %(2)
$ 5,000+ - 10,000............................
$ 10,000+ - 20,000............................
$ 20,000+ - 30,000............................
$ 30,000+ - 40,000............................
$ 40,000+ - 50,000............................
$ 50,000+ - 60,000............................
$ 60,000+ - 70,000............................
$ 70,000+ - 80,000............................
$ 80,000+ - 90,000............................
$ 90,000+ -100,000............................
$100,000+ -110,000............................
$110,000+ -120,000............................
$150,000+...... ..............................
Total.......................................
------ ------------ ---------
$ %
====== ============ =========
</TABLE>
(1) The maximum original Initial Contract principal balance is $ ,
which represents % of the original principal balance of the Initial
Contracts at origination.
(2) This percentage is less than 0.01%.
S-31
<PAGE>
<PAGE>
Distribution of Original Loan-to-Value Ratios(1)
<TABLE>
<CAPTION>
Aggregate
Number of Principal % of
Initial Balance Contract Pool
Contracts Outstanding By Outstanding
As of As of Cut-off Principal Balance As
Distribution Cut-off Date Date of Cut-off Date
------------ ------------ ------------- --------------------
<S> <C> <C> <C>
50% or less.................................. $ %
50.01 - 60%..................................
60.01 - 70%..................................
70.01 - 80%..................................
80.01 - 90%..................................
90.01 - 100%.................................
Total......................................
------ ----------- ----------
$ %
====== =========== ==========
</TABLE>
- ------------------
(1) Determined at the time of loan origination. The definition of "Value"
is set forth above under "The Contract Pool". Manufactured Homes,
unlike site-built homes, generally depreciate in value, and it should
generally be expected, especially with Initial Contracts with high
loan-to-value ratios at origination, that at any time after the
origination of an Initial Contract the market value of the Manufactured
Home securing such Initial Contract may be lower than the outstanding
principal balance of such Initial Contract. The original loan-to-value
ratio of a Refinanced Contract is determined at the time of origination
of such Refinanced Contract for purposes of preparing this table and
other statistical information presented herein related to loan-to-value
ratios. See "Access Financial Lending Corp. -- Underwriting Guidelines
-- Loan-to-Value Ratio" herein. The Contract Pool contained $ in
aggregate principal balance of Refinanced Contracts as of the Cut-Off
Date.
The weighted average original loan-to-value ratio of the Initial
Contracts as of the Cut-off Date was approximately %.
Contract Rates(1)
<TABLE>
<CAPTION>
Aggregate
Number of Principal % of
Initial Balance Contract Pool
Contracts Outstanding By Outstanding
As of As of Cut-off Principal Balance As
Contract Rate Cut-off Date Date of Cut-off Date
------------- ------------ ------------- --------------------
<S> <C> <C> <C>
6.01 - 7.00%................................ $ %
7.01 - 8.00%................................
8.01 - 9.00%................................
9.01 - 10.00%...............................
10.01 - 11.00%...............................
11.01 - 12.00%...............................
12.01 - 13.00%...............................
13.01 - 14.00%...............................
14.01 - 16.00%............................... (2)
------- --------------- ------------
Total...................................... $ %
======= =============== ===========
</TABLE>
- ------------------
(1) The weighted average Contract Rate of the Initial Contracts as of the
Cut-off Date was approximately %.
(2) This percentage is less than 0.01%.
S-32
<PAGE>
<PAGE>
Remaining Terms to Maturity (in Months)(1)
<TABLE>
<CAPTION>
Aggregate
Number of Principal % of
Initial Balance Contract Pool
Contracts Outstanding By Outstanding
As of As of Cut-off Principal Balance As
Remaining Terms Cut-off Date Date of Cut-off Date
--------------- ------------ -------------- --------------------
<S> <C> <C> <C>
1 - 60..................................... $ %
61 - 84.....................................
85 - 120....................................
121 - 180....................................
181 - 240....................................
241 - 300....................................
301 - 360....................................
-------- ------------- ----------
Total...................................... $ %
======== ============= ==========
</TABLE>
- ------------------
(1) The weighted average remaining term to maturity of the Initial
Contracts as of the Cut-off Date was approximately months.
Loan Purpose
<TABLE>
<CAPTION>
Aggregate
Number of Principal % of
Initial Balance Contract Pool
Contracts Outstanding By Outstanding
As of As of Cut-off Principal Balance As
Purpose Cut-off Date Date of Cut-off Date
------- ------------ ------------- --------------------
<S> <C> <C> <C>
Purchase..................................... $ %
Refinance....................................
------ ------------- ----------
Total...................................... $ %
====== ============= ==========
</TABLE>
Manufactured Home Type
<TABLE>
<CAPTION>
Aggregate
Number of Principal % of
Initial Balance Contract Pool
Contracts Outstanding By Outstanding
As of As of Cut-off Principal Balance As
Type Cut-off Date Date of Cut-off Date
---- ------------ ------------- --------------------
<S> <C> <C> <C>
Single Wide.................................. $ %
Double Wide..................................
----- ----------- ---------
Total...................................... $ %
===== =========== =========
</TABLE>
S-33
<PAGE>
<PAGE>
PREPAYMENT AND YIELD CONSIDERATIONS
The general prepayment and yield considerations discussed in the
Prospectus under "Yield Considerations" are applicable to the Offered
Certificates. In addition, prospective Offered Certificateholders should
consider the following:
The Initial Contracts had maturities at origination ranging from months
to months, but may be prepaid in full or in part at any time. The prepayment
experience of the Contracts (including prepayments due to liquidations of
defaulted Contracts) will affect the weighted average life of the Offered
Certificates. Based on AFL's experience with the portfolio of conventional
manufactured housing contracts serviced by it, AFL anticipates that a number of
Contracts will be prepaid in full prior to their maturity. A number of factors,
including homeowner mobility, general and regional economic conditions and
prevailing interest rates, may influence prepayments. Natural disasters may also
influence prepayments. In addition, repurchases of Contracts on account of
certain breaches of representations and warranties will have the effect of
prepaying such Contracts and therefore will affect the weighted average life of
the Offered Certificates. Most of the Initial Contracts contain provisions that
prohibit the owner from selling the Manufactured Home without the prior consent
of the holder of the related Initial Contract. Such provisions are similar to
"due-on-sale" clauses and may not be enforceable in certain states. See "Certain
Legal Aspects of the Contracts -- Transfers of Manufactured Homes;
Enforceability of Restrictions on Transfer" herein. Notwithstanding the
inclusion of such "due on sale" clauses in the Contract, it is AFL's current
policy to permit most sales of Manufactured Homes where the proposed buyer meets
AFL's then current underwriting standards and enters into an assumption
agreement. See "-- Weighted Average Life of the Offered Certificates" below.
The allocation of distributions to the Offered Certificateholders in
accordance with the Agreement will have the effect of accelerating the
amortization of the Classes of Senior Certificates and delaying the amortization
of certain other Classes of Offered Certificates from the amortization that
otherwise would be applicable if the principal were distributed pro rata
according to the outstanding principal balances of each Offered Certificate. If
a purchaser of Offered Certificates purchases them at a discount and calculates
its anticipated yield to maturity based on an assumed rate of distributions of
principal on the Offered Certificates that is faster than the rate actually
realized, such purchaser's actual yield to maturity will be lower than the yield
so calculated by such purchaser. See "Description of the Certificates --
Distributions."
As described herein under "Description of the Certificates --
Subordination of Class A-6, Class B-1, Class B-2, Class C and Residual
Certificates" and "-- Losses on Liquidated Contracts," to the extent that, on
any Remittance Date, the Amount Available is not sufficient to permit a full
distribution of the principal to the Offered Certificateholders, the effect will
be to cause the Offered Certificates to be amortized more slowly than they
otherwise would have been amortized, and losses on Liquidated Contracts and
delinquencies on the Contracts will be borne by the Offered Certificateholders
in the manner described thereunder and as described below.
The distribution of Accelerated Principal Payments to create and
thereafter maintain the Overcollateralization Amount at the Required
Overcollateralization Amount will accelerate the amortization of the Non-IO
Certificates relative to the amortization of the Contract Pool. It is possible
that, under certain scenarios and with respect to certain Remittance Dates, if
the Required Overcollateralization Amount is reduced and Overcollateralization
Reduction Amounts (as defined herein) are paid to the holders of the Class C
Certificates, the holders of the Senior, Class A-6, Class B-1 and Class B-2
Certificates may receive no, or reduced, distributions of principal. See
"Description of the Certificates - Class C Distributions, Overcollateralization
Amounts."
The Servicer (whether or not AFL remains the Servicer) has the option
to repurchase the Contracts and any other property constituting the Trust if on
any Remittance Date the Pool Scheduled Principal Balance is less than 10% of the
Cut-off Date Pool Principal Balance. See "Description of the Certificates --
Optional Termination" herein. If the Servicer does not exercise such option on
the first
S-34
<PAGE>
<PAGE>
Remittance Date on which such option may be exercised, the Trustee will be
required to conduct an auction sale as described herein. See "Description of the
Certificates -- Auction Sale" herein.
Although Contract Rates on the Contracts vary, in the event that, with
respect to the Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class A-6,
Class B-1 and Class B-2 Certificates, a large number of Contracts having Net
Contract Rates equal to or higher than the applicable Remittance Rate (without
giving effect to the maximum rate) were to prepay while Contracts having Net
Contract Rates lower than such Remittance Rate did not prepay, with the result
that the interest collections on the remaining Contracts were not sufficient to
support such Remittance Rate, then the Remittance Rate for such Class of
Certificates would be equal to the weighted average of the Net Contract Rates on
each Contract remaining in the Contract Pool. The "Net Contract Rate" is the
contractual rate of interest payable under a Contract (the "Contract Rate"),
less, if AFL is no longer the Servicer, the Monthly Servicing Fee allocable to
such Contract for such Collection Period.
Obligors are not required to pay interest on the Contracts after the
date of full prepayment of principal or the date of a partial prepayment of
principal (to the extent of such partial prepayment). As a result, partial or
full prepayments in advance of the related Due Dates for such Contracts in any
Collection Period will reduce the amount of interest received from the related
Obligors during such Collection Period to less than one month's interest.
However, when a Contract is prepaid in full during any Collection Period, but
after the Due Date for such Contract in such Collection Period, the effect will
be to increase the amount of interest received from the related Obligor during
such Collection Period to more than one month's interest. If a sufficient amount
of partial prepayments are made or a sufficient number of Contracts are prepaid
in full in a given Collection Period in advance of their respective Due Dates,
interest received on all of the Contracts during that Collection Period, after
netting out the Monthly Servicing Fee (and other expenses of the Trust), may be
less than the interest payable on the Senior and/or Subordinate Certificates
with respect to such Collection Period. As a result, the Amount Available for
the related Remittance Date may not be sufficient to distribute the interest on
the Offered Certificates in the full amount set forth herein under "Description
of the Certificates -- Distributions on the Certificates" and to make a full
distribution of the Formula Principal Distribution Amount to the Senior and/or
Subordinate Certificateholders. Although no assurance can be given in this
matter, Receivables Corp. does not anticipate that the net shortfall of interest
received because of partial prepayments or prepayments in full in any Collection
Period would be great enough, in the absence of delinquencies or liquidation
losses, to reduce the Amount Available for a Remittance Date below the amount
that would have been required to be distributed to Offered Certificateholders on
that Remittance Date in the absence of such prepayment interest shortfalls.
Because the Contracts are actuarial Contracts, the outstanding
principal balances thereof will reduce, for purposes of accrual of interest
thereon, by a precomputed amortization amount on each Due Date whether or not
the Scheduled Payment for such Due Date is received in advance of or subsequent
to such Due Date. Thus, the effect of delinquent Scheduled Payments, even if
they are ultimately paid by the Obligor, will be to reduce the yields on such
Contracts below their respective Contract Rates (because interest will not have
accrued on the principal portion of any Scheduled Payment while it is
delinquent). If the Servicer does not make a Monthly Advance with respect to
such delinquent Contracts as described herein, the result will be to reduce the
effective yield to the Trust derived from such Initial Contracts to a yield
below their Contract Rates. Under certain circumstances, such yield reductions
could cause the aggregate yield to the Trust derived from the Contract Pool to
be insufficient to support the distribution of interest on the Offered
Certificates, after netting out other expenses of the Trust.
To the extent that on any Remittance Date the Class A-6 Remaining
Amount Available, Class B-1 Remaining Amount Available or Class B-2 Remaining
Amount Available is not sufficient to pay to the holders of the Class A-6
Certificates, Class B-1 Certificates or Class B-2 Certificates, respectively,
all payments of interest to which such Certificateholders are entitled on such
Remittance Date, the Trustee will withdraw the amount of such deficiency from
the Certificate Account from funds, if any, which would otherwise constitute a
portion of the Amount Available for the following Remittance Date and distribute
such funds to the Class A-6, Class B-1 and Class B-2 Certificateholders, as the
case may be.
S-35
<PAGE>
<PAGE>
In such event, the Amount Available to be distributed to all Certificateholders,
including the holders of the Senior Certificates, on the next Remittance Date
will be reduced by such amount.
The yield to Offered Certificateholders will be below that otherwise
produced by the applicable remittance rates because, while, in the absence of
losses or delinquencies, one month's interest on the Contracts will be collected
during each Collection Period, the portion of such interest to which the Offered
Certificateholders are entitled will not be distributed until the ____ day (or,
if such day is not a business day, the next business day) of the month following
the Collection Period.
[Mandatory Prepayment
Of the maximum original Pre-Funding Amount of $ , maximum amounts
of $ will be funded from the proceeds of the sale of the Class A
Certificates, and may be used to acquire Subsequent Contracts. In the event
that, on the 199_ Payment Date, not all of the $ funded from the proceeds
of the sale of the Class A Certificates, has been used to acquire Subsequent
Contracts, then the Class A Certificates will be prepaid in part on such date,
on a pro rata basis with respect to the Owners of individual Certificates, from
and to the extent of such remaining amounts.
Although no assurances can be given, it is anticipated by AFL that the
principal amount of Subsequent Contracts sold to the Trust will require the
application of substantially all the amount on deposit in the Pre-Funding
Account and that there should be no material principal prepaid to the Class A
Certificateholders.]
Weighted Average Lives of the Offered Certificates
The following information is given solely to illustrate the effect of
prepayments of the Contracts on the weighted average lives of the Offered
Certificates under the stated assumptions and is not a prediction of the
prepayment rate that might actually be experienced by the Contracts.
Weighted average life refers to the average amount of time from the
date of issuance of a security until each dollar of principal of such security
will be repaid to the investor. The weighted average life of an Offered
Certificate is determined by (i) multiplying the amount of cash distributions in
reduction of the Principal Balance of such Certificate by the number of years
from the date of issuance of such Certificate to the stated Remittance Date,
(ii) adding the results, and (iii) dividing the sum by the Original Principal
Balance of such Certificate. The weighted average life of the Offered
Certificates will be affected by the rate at which principal on the Contracts is
paid. Principal payments on Contracts may be in the form of scheduled
amortization or prepayments (for this purpose, the term "prepayment" includes
repayments (other than from scheduled amortization) and liquidations due to
default or other dispositions of Contracts). Prepayments on Contracts may be
measured by a prepayment standard or model. The model used in this Prospectus
Supplement ("Prepayment Model") is based on an assumed rate of prepayment each
month of the then unpaid principal balance of a pool of new contracts. 100% of
the Prepayment Model assumes constant prepayment rates of 3.7% per annum of the
then unpaid principal balance of such Contracts in the first month of the life
of the Contracts and an additional 0.1% per annum in each month thereafter until
the 24th month. Beginning in the 24th month and in each month thereafter during
the life of the Contracts, 100% of the Prepayment Model assumes a constant
prepayment rate of 6% per annum.
As used in the following table, "0% of the Prepayment Model" assumes no
prepayments on the Contracts; "75% of the Prepayment Model" assumes the
Contracts will prepay at rates equal to 75% of the Prepayment Model assumed
prepayment rates; "100% of the Prepayment Model" assumes the Contracts will
prepay at rates equal to 100% of the Prepayment Model assumed prepayment rates;
"150% of the Prepayment Model" assumes the Contracts will prepay at rates equal
to 150% of the Prepayment Model assumed prepayment rates; "200% of the
Prepayment Model" assumes the Contracts will prepay at rates equal to 200% of
the Prepayment Model assumed prepayment rates; and "300% of the Prepayment
Model" assumes the Contracts will prepay at rates equal to 300% of the
Prepayment Model assumed prepayment rates.
S-36
<PAGE>
<PAGE>
There is no assurance, however, that prepayments of the Contracts will
conform to any level of the Prepayment Model, and no representation is made that
the Contracts will prepay at the prepayment rates shown or any other prepayment
rate. The rate of principal payments on pools of manufactured housing contracts
is influenced by a variety of economic, geographic, social and other factors,
including the level of interest rates and the rate at which manufactured
homeowners sell their manufactured homes or default on their contracts. Other
factors affecting prepayment of such contracts include changes in obligors'
housing needs, jobs transfers, unemployment and obligors' net equity in the
manufactured homes. In the case of mortgage loans secured by site-built homes,
in general, if prevailing interest rates fall significantly below the interest
rates on such mortgage loans, the mortgage loans are likely to be subject to
higher prepayments rates than if prevailing interest rates remained at or above
the rates borne by such mortgage loans. Conversely, if prevailing interest rates
rise above the interest rates on such mortgage loans, the rate of prepayment
would be expected to decrease. In the case of manufactured housing contracts,
however, because the outstanding principal balances are, in general, much
smaller than mortgage loan balances and the original term to maturity of each
such contract is generally shorter, the reduction or increase in the size of the
monthly payments on contracts of the same maturity and principal balance arising
from a change in the interest rate there on is generally much smaller.
Consequently, changes in prevailing interest rates may not have a similar
effect, or may have a similar effect, but to a smaller degree, on the prepayment
rates on manufactured housing contracts.
The percentages and weighted average lives in the following tables were
determined assuming that (i) scheduled interest and principal payments on the
Contracts are received in a timely manner and prepayments are made at the
indicated percentages of the Prepayment Model set forth in the tables; (ii) the
Servicer does not exercise its right of optional termination described above;
(iii) the Contracts, as of the Cut-off Date, will be grouped into eight groups
having the additional characteristics set forth in the table entitled 'Assumed
Contract Characteristics' below; (iv) the Original Principal Balance and
Remittance Rate of each Class of Certificates is as described herein; (v) no
interest shortfalls will arise in connection with prepayment in full of the
Contracts; (vi) there will be no losses on the Contract Pool; (vii) a servicing
fee of % per annum will be paid to the Servicer after distribution on the
Offered Certificates; (viii) amounts, including Accelerated Principal Payments,
will be distributed on account of each class of Certificates in accordance with
the payment priorities described herein; (ix) distributions are made on the
Certificates on the 15th day of each month commencing on , (x) the Closing Date
for the issuance of the Certificates is and (xi) the Class B-2 Remittance Rate
is %. The tables assume that there are no losses or delinquencies on the
Contracts. No representation is made that losses or delinquencies on the
Contracts will be experienced at the rate assumed in the preceding sentence or
at any other rate.
Assumed Contract Characteristics
<TABLE>
<CAPTION>
Original Remaining
Principal Term to Maturity Term to Maturity
Pool Balance Contract Rate (Months) (Months)
- ---------------- --------- ------------- ---------------- ----------------
<S> <C> <C> <C> <C>
1.............. $ %
2..............
3..............
4..............
5..............
6..............
7..............
8..............
---------
$
=========
</TABLE>
Since the tables were prepared on the basis of the assumptions in the
preceding paragraph, there are discrepancies between the characteristics of the
actual Contracts and the characteristics of the
S-37
<PAGE>
<PAGE>
Contracts assumed in preparing the tables. Any such discrepancy may have an
effect upon the percentages of the Original Class A-1 Principal Balance,
Original Class A-2 Principal Balance, Original Class A-3 Principal Balance,
Original Class A-4 Principal Balance, Original Class A-5 Principal Balance,
Original Class A-6 Principal Balance and Original Class B-1 Principal Balance
outstanding and weighted average lives of such Certificates set forth in the
tables. In addition, since the actual Contracts and the Trust have
characteristics which differ from those assumed in preparing the tables set
forth below, the distributions of principal on the Senior Certificates may be
made earlier or later than indicated in the tables.
It is not likely that Contracts will prepay at any constant percentage
of the Prepayment Model to maturity or that all Contracts will prepay at the
same rate. In addition, the diverse remaining terms to maturity of the Contracts
(which include recently originated Contracts) could produce slower distributions
of principal than indicated in the tables at the various percentages of the
Prepayment Model specified even if the weighted average remaining term to
maturity of the Contracts is months.
Investors are urged to make their investment decisions on a basis that
includes their determination as to anticipated prepayment rates under a variety
of the assumptions discussed herein.
Based on the foregoing assumptions, the following tables indicate the
resulting weighted average lives of the Offered Certificates and set forth the
percentage of the Original Class A-1 Balance, Original Class A-2 Principal
Balance, Original Class A-3 Principal Balance, Original Class A-4 Principal
Balance, Original Class A-5 Principal Balance, Original Class A-6 Principal
Balance and Original Class B-1 Principal Balance that would be outstanding after
each of the dates shown at the indicated percentages of the Prepayment Model.
[Remainder of page intentionally left blank]
S-38
<PAGE>
<PAGE>
Percent of the Original Class A-1 Principal Balance at the
Respective Percentages of the Prepayment Model
Prepayments (% of Prepayment Model)
<TABLE>
<CAPTION>
Date 0% 75% 100% 150% 200% 300%
- ---- -- --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage.......
Weighted Average Life
(1) (years)...............
</TABLE>
(1) The weighted average life of a Class A-1 Certificate is determined by
(i) multiplying the amount of cash distributions in reduction of the
principal balance of such Certificate by the number of years from the
date of issuance of such Class A-1 Certificate to the stated Remittance
Date, (ii) adding the results, and (iii) dividing the sum by the
initial principal balance of such Class A-1 Certificate.
S-39
<PAGE>
<PAGE>
Percent of the Original Class A-2 Principal Balance at the
Respective Percentages of the Prepayment Model
Prepayments (% of Prepayment Model)
<TABLE>
<CAPTION>
Date 0% 75% 100% 150% 200% 300%
- ---- -- --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage
Weighted Average Life
(1) (years)
</TABLE>
(1) The weighted average life of a Class A-2 Certificate is determined by
(i) multiplying the amount of cash distributions in reduction of the
principal balance of such Certificate by the number of years from the
date of issuance of such Class A-2 Certificate to the stated Remittance
Date, (ii) adding the results, and (iii) dividing the sum by the
initial principal balance of such Class A-2 Certificate.
S-40
<PAGE>
<PAGE>
Percent of the Original Class A-3 Principal Balance at the
Respective Percentages of the Prepayment Model
Prepayments (% of Prepayment Model)
<TABLE>
<CAPTION>
Date 0% 75% 100% 150% 200% 300%
- ---- -- --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage
Weighted Average Life
(1) (years)
</TABLE>
(1) The weighted average life of a Class A-3 Certificate is determined by
(i) multiplying the amount of cash distributions in reduction of the
principal balance of such Certificate by the number of years from the
date of issuance of such Class A-3 Certificate to the stated Remittance
Date, (ii) adding the results, and (iii) dividing the sum by the
initial principal balance of such Class A-3 Certificate.
* This figure is less than 0.5% but greater than 0%.
S-41
<PAGE>
<PAGE>
Percent of the Original Class A-4 Principal Balance at the
Respective Percentages of the Prepayment Model
Prepayments (% of Prepayment Model)
<TABLE>
<CAPTION>
Date 0% 75% 100% 150% 200% 300%
- ---- -- --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage
Weighted Average Life
(1) (years)
</TABLE>
(1) The weighted average life of a Class A-4 Certificate is determined by
(i) multiplying the amount of cash distributions in reduction of the
principal balance of such Certificate by the number of years from the
date of issuance of such Class A-4 Certificate to the stated Remittance
Date, (ii) adding the results, and (iii) dividing the sum by the
initial principal balance of such Class A-4 Certificate.
S-42
<PAGE>
<PAGE>
Percent of the Original Class A-5 Principal Balance at the
Respective Percentages of the Prepayment Model
Prepayments (% of Prepayment Model)
<TABLE>
<CAPTION>
Date 0% 75% 100% 150% 200% 300%
- ---- -- --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage
Weighted Average Life
(1) (years)
</TABLE>
(1) The weighted average life of a Class A-5 Certificate is determined by
(i) multiplying the amount of cash distributions in reduction of the
principal balance of such Certificate by the number of years from the
date of issuance of such Class A-5 Certificate to the stated Remittance
Date, (ii) adding the results, and (iii) dividing the sum by the
initial principal balance of such Class A-5 Certificate.
S-43
<PAGE>
<PAGE>
Percent of the Original Class A-6 Principal Balance at the
Respective Percentages of the Prepayment Model
Prepayments (% of Prepayment Model)
<TABLE>
<CAPTION>
Date 0% 75% 100% 150% 200% 300%
- ---- -- --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage
Weighted Average Life
(1) (years)
</TABLE>
(1) The weighted average life of a Class A-6 Certificate is determined by
(i) multiplying the amount of cash distributions in reduction of the
principal balance of such Certificate by the number of years from the
date of issuance of such Class A-6 Certificate to the stated Remittance
Date, (ii) adding the results, and (iii) dividing the sum by the
initial principal balance of such Class A-6 Certificate.
S-44
<PAGE>
<PAGE>
Percent of the Original Class B-1 Principal Balance at the
Respective Percentages of the Prepayment Model
Prepayments (% of Prepayment Model)
<TABLE>
<CAPTION>
Date 0% 75% 100% 150% 200% 300%
- ---- -- --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage
Weighted Average Life
(1) (years)
</TABLE>
(1) The weighted average life of a Class B-1 Certificate is determined by
(i) multiplying the amount of cash distributions in reduction of the
principal balance of such Certificate by the number of years from the
date of issuance of such Class B-1 Certificate to the stated Remittance
Date, (ii) adding the results, and (iii) dividing the sum by the initial
principal balance of such Class B-1 Certificate.
* This figure is less than 0.5% but greater than 0.0%.
S-45
<PAGE>
<PAGE>
ACCESS FINANCIAL LENDING CORP.
General
Access Financial Lending Corp. ("AFL"), a Delaware corporation, provides
housing finance programs to consumers throughout the United States through its
Mortgage Lending and Manufactured Housing Programs. AFL is the successor by
merger of Access Financial Lending Corp., a Delaware corporation (formerly
Equicon Corporation), whose principal business was the purchase of
non-conforming mortgages, and Access Financial Corp., whose principal business
was the retail financing of manufactured housing. The merger occurred on July 1,
1996.
The Company is a wholly-owned subsidiary of Access Financial Holding
Corp. ("AFH"), which is a Delaware corporation and wholly-owned subsidiary of
Cargill Financial Services Corporation. AFH was formed in January 1996 to
facilitate the continued growth of the housing finance business.
The Company maintains its principal offices at 400 Highway 169 South,
Suite 400, St. Louis Park, Minnesota 55426-0365.
AFL is engaged in the business of, among other things, purchasing,
originating, selling and servicing installment sales contracts and installment
loan agreements for manufactured housing (hereinafter referred to as "contracts"
or "manufactured housing contracts").
AFL purchases and originates manufactured housing contracts through
regional offices throughout the United States, servicing states.
In addition to its purchases of manufactured housing contracts from
dealers, since August 1995, AFL has originated certain contracts through
brokers. Each broker will solicit potential obligors to refinance contracts on
used manufactured homes with AFL. All broker-originated contracts must meet
AFL's underwriting criteria, as described below.
Underwriting Policies
General.
All manufactured housing contracts that are purchased by AFL from
dealers or originated by AFL through a broker are written on forms provided by
AFL and are purchased or underwritten, as the case may be, on an individually
approved basis. With respect to each retail manufactured housing contract to be
purchased from a dealer or submitted by a broker and underwritten, as the case
may be, AFL's general practice is to have the dealer or broker submit the
customer's credit application, manufacturer's invoice (if the contract is for a
new home) and certain other information relating to the contract to the
applicable regional office of AFL. Personnel at the regional office make an
analysis of the creditworthiness of the customer and of other aspects of the
proposed transaction. If the creditworthiness of the customer and other aspects
of the transaction are approved by the regional office, AFL purchases the
contract after the manufactured home is delivered and set up.
Because manufactured homes generally depreciate in value, AFL's
management believes that the creditworthiness of a potential obligor under a
manufactured housing contract should be the most important criterion in
determining whether to approve the purchase or origination of such manufactured
housing contract. In this regard, AFL uses an underwriting guideline matrix
based upon each applicant's credit history, residence history, employment
history, debt-to-income ratio and down payment percentage. Although, with
respect to certain of these criteria, AFL has minimum requirements, AFL
management does not believe that these minimum requirements are themselves
generally sufficient to warrant a credit approval of an applicant. Thus, there
were and are no requirements on the basis of which, if they are met, credit is
routinely approved, and if they are not met, credit is routinely denied. Rather,
if an applicant has a low rating with respect to one of the criteria mentioned
above, there generally must be a compensating higher rating with respect to
other items in order for such applicant to be approved. In
S-46
<PAGE>
<PAGE>
addition, in certain cases, credit applications are approved even if certain of
the minimum criteria are not met. The ultimate decision to approve or reject a
credit application is thus the result of a judgment made by either regional
management or AFL senior management.
AFL's policy is to approve or reject each credit application within 72
hours of receipt. Thus, there is generally less time for credit investigation
than is the case, for instance, with loans for site-built homes. Although AFL's
management believes that the 72 hour period for approval or rejection of each
credit application is in line with industry practice, no assurance can be given
that any credit application that was approved in 72 hours would have been
approved if a longer period had been provided for credit investigation.
The qualifications of all regional office personnel authorized to
approve or reject credit applications are reviewed by the President and/or the
Chief Executive Officer of AFL. All such personnel have certain lending limits
applicable to their approval authority. AFL has no set qualifications for any
employees to whom authority to approve or reject credit applications may be
delegated.
The credit review and approval practices of each regional office are
subject to internal reviews and audits that, through sampling, examine the
nature of the verification of credit histories, residence histories, employment
histories and debt-to-income ratios of the applicants and evaluate the credit
risks associated with the contracts purchased through such regional office by
rating the obligors on such contracts according to their credit histories,
residence histories, employment histories, debt-to-income ratios and down
payment percentage. Selection of underwriting files for review is generally made
by the personnel performing the examination, without prior knowledge on the part
of regional office personnel of the files to be selected for review. However,
AFL has no requirement that any specific random selection procedures be
followed, and no assurance can be given that the files reviewed in any
examination process are representative of the contract originations in the
related regional office. In addition, no statistical analysis is performed on
the results of any such examination of underwriting files.
AFL currently purchases or originates only conventional manufactured
housing contracts (that is, contracts that are not insured or guaranteed by a
governmental agency or instrumentality).
Underwriting policies for the origination or purchase on an individual
basis of manufactured housing contracts are established by AFL's management and
are applicable to all regional offices in AFL's manufactured housing regional
office system. Except as described above, during the period in which any
Contracts were originated or purchased on an individual basis by AFL there were
no significant changes in the aspects of such policies that are described above.
S-47
<PAGE>
<PAGE>
Certain Origination Statistics.
The volume of manufactured housing contracts originated by AFL or
purchased by AFL from dealers on an individual basis for the periods indicated
below and certain other information at the end of such periods are as follows:
S-48
<PAGE>
<PAGE>
Contracts Originated or Purchased on an Individual Basis
<TABLE>
<CAPTION>
Months Months
Ended Ended
-------- --------
(Dollars in Thousands)
<S> <C> <C>
Principal balance of contracts purchased..................... $ $
Number of contracts purchased................................
Average contract size(1)..................................... $ $
Average interest rate(1)(2).................................. % %
Number of regional offices(3)................................
</TABLE>
(1) As of period end.
(2) Weighted average gross coupon.
(3) Includes regional offices originating or purchasing manufactured housing
contracts as of the end of the time period.
Servicing
AFL services all of the manufactured housing contracts that it purchases or
originates. AFL plans to retain servicing responsibilities with respect to
contracts sold by it. Generally, such servicing responsibilities are also
carried out through AFL's centralized servicing facility and regional offices.
Servicing responsibilities include collecting principal and interest payments,
taxes, insurance premiums and other payments from obligors and, where such
contracts have been sold, remitting principal and interest payments to the
holders thereof, to the extent such holders are entitled thereto. Collection
procedures include repossession and resale of manufactured homes securing
defaulted contracts and, if deemed advisable by AFL, entering into workout
arrangements with obligors under certain defaulted contracts. Although decisions
as to whether to repossess any manufactured home are made on an individual
basis, AFL's general policy is to institute repossession procedures promptly
after AFL personnel determine that it is unlikely that a defaulted contract will
be brought current, and thereafter to diligently pursue the resale of such
manufactured homes if the market is favorable. In addition, AFL may enter into
arrangements, pursuant to which it will service manufactured housing contracts
held by other entities. Such contracts would not be purchased by AFL or sold to
such other entities by AFL.
The following tables show the size of the portfolio of manufactured housing
contracts originated and serviced by AFL, together with certain delinquency,
loan loss and liquidation experience on the dates indicated:
Size of Serviced Portfolio
<TABLE>
<CAPTION>
As of As of
(1)
--------- ----------
(Dollars in Thousands)
<S> <C> <C>
Unpaid principal balance of contracts being serviced.... $ $
Average unpaid principal balance............................ $ $
Number of contracts being serviced.........................
</TABLE>
(1)
S-49
<PAGE>
<PAGE>
Delinquency Experience
<TABLE>
<CAPTION>
As of As of
----------------- ---------------------
(Dollars in Thousands)
<S> <C> <C>
Number of Contracts Outstanding(1).................................
Number of Contracts Delinquent:(2)
30 - 59 Days...................................................
60 - 89 Days...................................................
90 Days or More................................................
Total Contracts Delinquent.........................................
Delinquencies as a Percentage of Contracts Outstanding(3).......... % %
</TABLE>
(1) Excludes contracts already held in repossession.
(2) The period of delinquency is based on the number of days payments are
contractually past due (assuming 30-day months).
(3) As a percentage of the total number of contracts outstanding as of period
end.
Loan Loss and Repossession Experience
<TABLE>
<CAPTION>
For the For the Nine
Fiscal Year Months Ending
End Ending ,
, (1)
------------- ----------------
(Dollars in Thousands)
<S> <C> <C>
Number of Contracts Serviced(1)................................
Principal Balance of Contracts Serviced(1)..................... $ $
Contract Liquidations(2)....................................... % %
Net Losses:
Dollars(3)................................................. $ $
Percentage(4).............................................. % %
</TABLE>
(1) As of period end. Includes contracts already in repossession and stage
funding of Land Home contracts.
(2) As a percentage of the total number of contracts being serviced as of period
end. The percentage for the months ending is not annualized.
(3) The calculation of net loss on liquidated contracts included unpaid interest
to the date of repossession and all expenses of repossession and
liquidation. The dollar amount for the months ending is not annualized.
(4) As a percentage of the aggregate principal balance of contracts being
serviced as of period end. The percentage for the months ending is not
annualized.
The data presented in the foregoing tables is for illustrative purposes
only.
S-50
<PAGE>
<PAGE>
DESCRIPTION OF THE CERTIFICATES
The Offered Certificates will be issued pursuant to the Agreement. A
form of the Agreement will be made available to prospective investors upon
request (made to AFL at the address specified in the Prospectus under
"Incorporation of Certain Documents by Reference") and will be filed with the
Securities and Exchange Commission after the initial issuance of the
Certificates as an exhibit to a Current Report on Form 8-K. Reference is made to
the Prospectus for additional information regarding the terms and conditions of
the Agreement.
Set forth below are descriptions of the specific terms and
provisions pursuant to which the Offered Certificates will be issued. The
following does not purport to be complete and are subject to, and are qualified
in their entirety by reference to, the provisions of the Agreement. When
particular provisions or terms used in the Agreement are referred to, the
actual provisions (including definitions of terms) are incorporated by
reference.
General
The Offered Certificates initially will be issued in book-entry form.
Persons acquiring beneficial ownership interests in such Offered Certificates
("Beneficial Certificate Owner") may elect to hold their interests through The
Depository Trust Company ("DTC"), in the United States, or Cedel Bank, societe
anonyme ("CEDEL") or the Euroclear System ("Euroclear"), in Europe. Transfers
within DTC, CEDEL or Euroclear, as the case may be, will be in accordance with
the usual rules and operating procedures of the relevant system. So long as the
Offered Certificates are book-entry certificates, such Offered Certificates will
be evidenced by one or more Offered Certificates registered in the name of Cede
& Co. ("Cede"), as the nominee of DTC or one of the relevant depositories
(collectively, the "European Depositories"). Cross-market transfers between
persons holding directly or indirectly through DTC, on the one hand, and
counterparties holding directly or indirectly through CEDEL or Euroclear, on the
other, will be effected in DTC through Citibank N.A. ("Citibank") or Morgan
Guaranty Trust Company of New York ("Morgan"), the relevant depositories of
CEDEL or Euroclear, respectively, and each a participating member of DTC. The
Offered Certificates will initially be registered in the name of Cede. The
interests of such Beneficial Certificate Owners will be represented by
book-entries on the records of DTC and participating members thereof. No
Beneficial Certificate Owner will be entitled to receive a definitive
certificate representing such person's interest, except under the limited
circumstances described herein. All references herein to any Offered
Certificates reflect the rights of Beneficial Certificate Owners only as such
rights may be exercised through DTC and its participating organizations for so
long as such Offered Certificates are held by DTC. See " -- Registration of
Offered Certificates" below.
The Percentage Interest of a Class A-1, Class A-2, Class A-3, Class
A-4, Class A-5, Class A-6 Certificate or Class B-1 Certificate is the percentage
obtained from dividing the original denomination of such Certificate by the
Original Class A-1 Principal Balance, the Original Class A-2 Principal Balance,
the Original Class A-3 Principal Balance, the Original Class A-4 Principal
Balance, the Original Class A-5 Principal Balance, the Original Class A-6
Principal Balance or the Original Class B-1 Principal Balance, as appropriate.
Definitive Senior Certificates, if issued, will be transferable and exchangeable
at the corporate trust office of the Trustee at its Corporate Trust Department
in New York or, if it so elects, at the office of an agent in New York, New
York. No service charge will be made for any registration of exchange or
transfer, but the Trustee may require payment of a sum sufficient to cover any
tax or other governmental charge.
The Class B-2 and Class C Certificates are not being offered hereby.
The Trust will also issue a residual class in each REMIC created by the Trust
(the "Residual Certificates") which are not being offered hereby and will
initially be retained by the Seller. The Senior Certificates, the Class A-6
Certificates, the Class B-1 Certificates, the Class B-2 Certificates, the Class
C Certificates and the Residual Certificates are collectively referred to as the
"Certificates."
The Trust includes (i) the Contract Pool, including certain rights to
receive payments due on the Contracts on and after the Cut-off Date, (ii) the
amounts held from time to time in the "Certificate
S-51
<PAGE>
<PAGE>
Account" (as described herein under " -- Payment on Contracts; Certificate
Account") maintained by the Trustee pursuant to the Agreement, [(iii) the
amounts held from time to time in the "Pre-Funding Account" maintained by the
Trustee pursuant to the Agreement,] (iv) any property which initially secured a
Contract and which is acquired in the process of realizing thereon and (v) the
obligation of AFL under certain conditions, to repurchase Contracts sold by it
with respect to which certain representations and warranties have been
breached and not cured.
[On the Closing Date, AFL will convey the Initial Contracts to
Receivables Corp. and Receivables Corp. will convey the Initial Contracts to the
Trust. See "The Contract Pool" herein. Pursuant to the Agreement, following the
initial Cut-Off Date, the Trust will be obligated to purchase from time to time
on or before 199_, subject to the availability of Subsequent Contracts which
will be originated on or before 199_, and acquired by the Seller from AFL for
subsequent sale to the Trust pursuant to a Purchase Agreement between the Seller
and the Trust. The aggregate principal amounts of Subsequent Contracts which may
be acquired by the Trust is $ . In connection with each purchase of Subsequent
Contracts, the Trust will be required to pay to the Seller a cash purchase price
of 100% of the principal amount thereof from the Pre-Funding Account. Under the
Agreement, AFL will be obligated to sell Subsequent Contracts to the Seller for
sale to the Trust, and the Trust will be obligated, subject to the satisfaction
of certain conditions set forth therein to purchase such Subsequent Contracts.
AFL will designate as a Subsequent Cut-Off Date the first day of the month in
which the related Subsequent Contracts are conveyed to the Trust. The Trust may
purchase the Subsequent Contracts only from the Seller and not from any other
person.]
AFL, as Servicer, will service the Contracts pursuant to the Agreement.
The Contracts will be held by the Trustee.
Distributions of principal and interest to the holders of the Offered
Certificates will be made on the ____ day of each month, or, if such day is not
a business day, the next succeeding business day (each, a "Remittance Date")
beginning in , to the persons in whose names the Offered Certificates are
registered at the close of business on the last business day of the month
preceding the month in which such distribution payment is made (the "Record
Date").
Representations and Warranties
AFL will make certain warranties with respect to each Contract as of
the Closing Date, including that: (a) as of the Cut-off Date the most recent
scheduled payment was made or was not delinquent more than 59 days; (b) no
provision of a Contract has been waived, altered or modified in any respect,
except by instruments or documents contained in the related Contract file; (c)
each Contract is a legal, valid and binding obligation of the Obligor and is
enforceable in accordance with its terms (except as may be limited by laws
affecting creditors' rights generally); (d) no Contract is subject to any right
of rescission, set-off, counterclaim or defense; (e) each Manufactured Home
securing a Contract is covered by hazard insurance; (f) each Contract has been
originated by a manufactured housing dealer or AFL in the ordinary course of
such dealer's or AFL's business and, if originated by a manufactured housing
dealer, was purchased by AFL in the ordinary course of business; (g) no Contract
was originated in or is subject to the laws of any jurisdiction whose laws would
make unlawful the transfer of the Contract or an interest therein to the Trust;
(h) each Contract complies with all requirements of law; (i) no Contract has
been satisfied, subordinated in whole or in part or rescinded and the
Manufactured Home securing the Contract has not been released from the lien of
the Contract in whole or in part; (j) each Contract creates a valid and
enforceable first priority security interest in favor of AFL in the Manufactured
Home covered thereby and, with respect to each Land Secured Contract, the lien
created thereby has been recorded or will be recorded within six months, and
such security interest or lien has been assigned by AFL; (k) all parties to each
Contract had capacity to execute such Contract; (l) prior to the transfer of the
Contracts by AFL, AFL had good and marketable title to each Contract free and
clear of any encumbrance, equity, loan, pledge, charge, claim or security
interest, and was the sole owner and had full right to transfer such Contract;
(m) as of the Cut-off Date, there was no default, breach, violation or event
permitting acceleration under any Contract (except for payment delinquencies
permitted by clause (a) above), no event which with notice and the expiration of
any grace or cure period would constitute a default, breach,
S-52
<PAGE>
<PAGE>
violation or event permitting acceleration under such Contract, and AFL has not
waived any of the foregoing; (n) as of the Closing Date there were no liens or
claims which have been filed for work, labor or materials affecting a
Manufactured Home or any related real property securing a Contract, which are or
may be liens prior or equal to the lien of the Contract; (o) each Contract is a
fully-amortizing loan with a fixed Contract Rate and provides for level payments
over the term of such Contract; (p) each Contract contains customary and
enforceable provisions such as to render the rights and remedies of the holder
thereof adequate for realization against the collateral of the benefits of the
security; (q) the description of each Contract set forth in the list of
Contracts delivered to the Trustee is true and correct; (r) there is only one
original of each Contract and each Contract (other any Land Secured Contract)
constitutes chattel paper within the meaning of the applicable Uniform
Commercial Code; (s) none of the Contracts had a loan-to-value ratio at
origination greater than ____________________; (t) the principal balance of each
Refinanced Contract at the time of origination did not exceed the then
outstanding principal balance of the Contract refinanced thereby together with
certain insurance and refinancing costs; (u) to the best knowledge of AFL, not
less than 95% of the Contract Pool relates to Manufactured Homes which were the
related Obligors' primary residence at the time of origination; (v) the related
Manufactured Home (other than any Manufactured Home relating to a Land-Home
Contract) is not considered or classified as part of the real estate on which it
is located under the laws of the jurisdiction in which it is located, and as of
the Closing Date such Manufactured Home was free of damage and in good repair
and (w) each Contract is a "qualified mortgage" under Section 860G(a)(3) of the
Code and each Manufactured Home is "manufactured housing" within the meaning of
Section 25(e)(10) of the Code.
Subject to AFL's option to effect a substitution as described in the
next paragraph, AFL will be obligated to repurchase for the Repurchase Price (as
defined below) any Contract on the first business day after the first
Determination Date which is more than 90 days after AFL becomes aware, or AFL's
receipt of written notice from the Trustee or the Servicer, of a breach of any
representation or warranty of AFL that materially adversely affects the Trust's
interest in any Contract if such breach has not been cured. The Repurchase Price
for any Contract will be the remaining principal amount outstanding on such
Contract on the date of repurchase plus accrued and unpaid interest thereon at
its Contract Rate to the end of the related Due Date.
In lieu of purchasing a Contract as specified in the preceding
paragraph, during the two-year period following the Closing Date, AFL may, at
its option, substitute an Eligible Substitute Contract (as defined below) for
the Contract that it is otherwise obligated to repurchase (referred to herein as
the "Replaced Contract"). An Eligible Substitute Contract is a Contract that (a)
as of the date of its substitution, satisfies all of the representations and
warranties, (b) after giving effect to the scheduled payment due in the month of
such substitution has a Scheduled Principal Balance that is not greater than the
Scheduled Principal Balance of the Replaced Contract, (c) has a Contract Rate
that is at least equal to the Contract Rate of the Replaced Contract and (d) has
a remaining term to maturity that is not greater than the remaining term to
maturity of the Replaced Contract. AFL will be required to deposit in the
Certificate Account cash in the amount, if any, by which the Scheduled Principal
Balance of the Replaced Contract exceeds the Scheduled Principal Balance of the
Contract being substituted.
Payments on Contracts; Certificate Account
The Trustee will initially establish and maintain an account (the
"Certificate Account") at a depository institution organized under the laws of
the United States or any state, the deposits of which are insured to the full
extent permitted by law by the Federal Deposit Insurance Corporation (the
"FDIC") whose commercial paper, long-term deposits or long-term unsecured senior
debt has a rating of F-1 by Fitch and P-1 by Moody's in the case of commercial
paper or in one of the two highest rating categories by Fitch and Moody's in the
case of long-term deposits or long-term unsecured senior debt, and which is
subject to examination by federal or state authorities or a depository
institution otherwise acceptable to Fitch and Moody's (an "Eligible
Institution"). The funds in the Certificate Account are required to be invested
in Eligible Investments that will mature not later than the business day
preceding the applicable Remittance Date. "Eligible Investments" include,
obligations of the United States or of any agency thereof backed by the
full faith and credit of the United States; certificates
S-53
<PAGE>
<PAGE>
of deposit, time deposits and bankers' acceptances sold by eligible financial
institutions; commercial paper rated F-1+ by Fitch and P-1 by Moody's; and other
obligations acceptable to Fitch and Moody's.
All payments in respect of principal and interest on the Contracts
received by the Servicer (exclusive of Scheduled Payments due prior to the
Cut-off Date), including Liquidation Proceeds (net of Liquidation Expenses), are
required to be paid into the Certificate Account not later than the second
business day following receipt thereof. Amounts received as late payment fees,
extension fees, assumption fees or similar fees may be retained by the Servicer
as part of its servicing fees. See " -- Servicing Compensation" herein. In
addition, the amount paid by AFL for any Contract repurchased as a result of a
breach of a representation or warranty under the Agreement, and amounts required
to be deposited upon substitution of an Eligible Substitute Contract because of
a breach of a representation or warranty (which amounts will be treated as
partial principal prepayments) are required to be paid in the Certificate
Account. [On each Remittance Date, the Trustee shall withdraw from the
Pre-Funding Account any earnings received on investment of the Pre-Funding
Amount held by it in the Pre-Funding Account and deposit such earnings in the
Certificate Account. On the , 199_ Payment Date, the Trustee shall withdraw from
the Pre-Funding Account any funds theretofore remaining and deposit such funds
in the Certificate Account.]
On the third business day prior to each Remittance Date (the
"Determination Date"), the Servicer will determine the Amount Available and the
amounts to be distributed on the Certificates on such Remittance Date. The
"Amount Available" for any Remittance Date is (I) the sum of (a) the amount in
the Certificate Account on the close of business on the day immediately
preceding such Determination Date and (b) the aggregate amount of Delinquency
Advances relating to such Remittance Date, together with certain
insurance-related amounts to be deposited by the Servicer for such Remittance
Date, less (II) the sum of (a) payments on Contracts that have been repurchased
as a result of a breach of a representation or warranty, (b) the Amount Held For
Future Distribution, (c) any portion of Liquidation Proceeds used to reimburse
the Servicer for Servicing Advances and Delinquency Advances previously made by
the Servicer with respect to the related Contract, (d) amounts used to reimburse
the Servicer with respect to Nonrecoverable Delinquency Advances and Delinquency
Advances and Servicing Advances to the extent permitted by the Agreement, (e) if
AFL is not the Servicer, the Monthly Servicing Fee, and (f) amounts which may be
withdrawn from the Certificate Account as a result of a deposit thereto made in
error, or to fund certain rebates or refunds due to Obligors. The "Amount Held
For Future Distribution" as of a Determination Date are amounts representing
Scheduled Payments or other collections and recoveries which relate to the
second following, or any future, Remittance Date. See " -- Advances" below for a
description of the Servicer's advancing responsibilities.
The Trustee or its Paying Agent will withdraw funds from the
Certificate Account on each Remittance Date (but only to the extent of the
related Amount Available and, in certain limited circumstances to pay interest
on the Subordinate Certificates, from certain other amounts) to make payments to
Offered Certificateholders as specified under " -- Distributions" below. As more
fully described herein under "The Contract Pool," the day of each month
constituting the Due Date of the Scheduled Payments for each Contract will vary
from Contract to Contract. In addition, the Contracts may be prepaid in full or
in part at any time. Thus, the Amount Available for any Remittance Date (other
than the portion thereof consisting of the applicable monthly Delinquency
Advance, if any) will have been deposited into the Certificate Account on
various days throughout the preceding calendar month. As a result, payments
received at any time during a calendar month will not be distributed to the
Offered Certificateholders until the day of the succeeding calendar month (or if
such day is not a business day, on the next succeeding business day.) See
"Prepayment and Yield Considerations" herein and "Yield Considerations" in the
Prospectus. From time to time, as provided in the Agreement, the Servicer will
also withdraw funds from the Certificate Account to make payments to it as
permitted by the Agreement and described in subclauses (ii), (iv) and (v) of
clause (b) in the second preceding paragraph.
S-54
<PAGE>
<PAGE>
Distributions
On each Remittance Date, distributions on the Offered Certificates will
be made in the following order of priority: (i) to the holders of the Senior
Certificates, (ii) to the holders of the Class A-6 Certificates, (iii) to the
holders of the Class B-1 Certificates, (iv) to the holders of the Class B-2
Certificates, and (v) to the holders of the Class C Certificates, as described
below.
Distributions of interest and, to the extent specified below, principal
to holders of a Class of Senior Certificates will be made on each Remittance
Date in an amount equal to the sum of (i) their respective Percentage Interests
of the amount of interest calculated as described under "Senior Interest" below
and (ii) their respective Percentage Interests, distributed to each Class of
Senior Certificates in the order of priority described under "Senior Principal"
below, of an amount of principal calculated as described below under "Senior
Principal." Distributions on the Senior Certificates will be applied first to
the payment of interest and then to the payment of principal. The Senior
Distribution Amount for any Remittance Date is intended to be equal to the sum
(referred to as the "Senior Formula Distribution Amount") of (i) the amount of
interest calculated as set forth under "Senior Interest" below and (ii) the
amount of principal described below under "Senior Principal," except that, if
the Senior Formula Distribution Amount exceeds the Amount Available in the
Certificate Account on such Remittance Date, then the Senior Distribution Amount
shall instead equal the Amount Available.
Distributions of interest and, to the extent specified below, principal
to holders of Class A-6 Certificates will be made on each Remittance Date in an
amount equal to their respective Percentage Interests multiplied by the Class
A-6 Distribution Amount. Distributions on the Class A-6 Certificates will be
applied first to the payment of interest and then to the payment of principal.
The Class A-6 Distribution Amount for any Remittance Date is intended to be
equal to the sum (referred to as the "Class A-6 Formula Distribution Amount") of
(i) the amount of interest calculated as set forth under "Class A-6 Interest"
below and (ii) on and after the Remittance Date on which the Senior Principal
Balance is reduced to zero, the amount of principal described below under "Class
A-6 Principal." If the Amount Available in the Certificate Account available for
distribution to the Class A-6 Certificateholders (after giving effect to any
distribution made to Senior Certificateholders on such Remittance Date) (the
"Class A-6 Remaining Amount Available") is less than the Class A-6 Formula
Distribution Amount, then the Class A-6 Distribution Amount will equal the Class
A-6 Remaining Amount Available and the amount of such deficiency, to the extent
not funded by certain other amounts on deposit in the Certificate Account and
available therefor, will be carried forward and added to the amount such holders
will be entitled to receive on the next Remittance Date.
Distributions of interest and, to the extent specified below, principal
to holders of Class B-1 Certificates will be made on each Remittance Date in an
amount equal to their respective Percentage Interests multiplied by the Class
B-1 Distribution Amount. Distributions on the Class B-1 Certificates will be
applied first to the payment of interest and then to the payment of principal.
The Class B-1 Distribution Amount for any Remittance Date is intended to be
equal to the sum (referred to as the "Class B-1 Formula Distribution Amount") of
(a) the amount of interest calculated as set forth under "Class B-1 Interest"
below and (b) on and after the Class B Cross-over Date, if each Class B
Principal Distribution Test was satisfied on such Remittance Date, the Formula
Principal Distribution Amount calculated as described under "Class B-1
Principal" below. If the Amount Available in the Certificate Account available
for distribution to the Class B-1 Certificateholders (after giving effect to any
distribution made to Senior and Class A-6 Certificateholders on such Remittance
Date) (the "Class B-1 Remaining Amount Available") is less than the Class B-1
Formula Distribution Amount, then the Class B-1 Distribution Amount will equal
the Class B-1 Remaining Amount Available and the amount of such deficiency, to
the extent not funded by certain other amounts on deposit in the Certificate
Account and available therefor, will be carried forward and added to the amount
such holders will be entitled to receive on the next Remittance Date.
Distributions of interest and, to the extent specified below, principal
to holders of the Class B-2 Certificates will be made on each Remittance Date in
an amount equal to their respective Percentage Interests of the Class B-2
Distribution Amount. The Class B-2 Distribution Amount for any Remittance
S-55
<PAGE>
<PAGE>
Date is intended to equal to the sum (referred to as the "Class B-2 Formula
Distribution Amount") of (a) the amount of interest calculated as set forth
under "Class B-2 Interest" below and (b) on and after the Remittance Date on
which the Class B-1 Principal Balance is reduced to zero, if each Class B
Principal Distribution Test was satisfied on such Remittance Date, the amount of
principal described below under "Class B-2 Principal" below. Distributions on
the Class B-2 Certificates will be applied first to the payment of interest and
then to the payment of principal. If the Amount Available in the Certificate
Account available for distribution to the Class B-2 Certificateholders (after
giving effect to distributions made to Senior, Class A-6 and Class B-1
Certificateholders on such Remittance Date) (the "Class B-2 Remaining Amount
Available") is not sufficient to make a full distribution of the Class B-2
Formula Distribution Amount to the Class B-2 Certificateholders, then the Class
B-2 Distribution Amount will equal the Class B-2 Remaining Amount Available and
the amount of such deficiency, to the extent not funded by certain other amounts
on deposit in the Certificate Account and available therefor, will be carried
forward and added to the amount such holders will be entitled to receive on the
next Remittance Date.
The rights of the Subordinate Certificateholders and the Residual
Certificateholders to receive distributions are subordinated to the rights of
the Senior Certificateholders, the rights of the Class B-1, Class B-2, Class C
and Residual Certificateholders to receive distributions are subordinated to the
rights of the Class A-6 Certificateholders, the rights of the Class B-2, Class C
and Residual Certificateholders to receive distributions are subordinated to the
rights of the Class B-1 Certificateholders, in each case, to the extent
described herein. The Class C Certificates represent a class of subordinated,
"interest-only" certificates, the distributions on which are subordinated to the
rights of the Class B-2 Certificateholders and, for so long as AFL is the
Servicer, the payment of the Monthly Servicing Fee. The holders of the Residual
Certificates will be entitled to receive only miscellaneous amounts not required
to be distributed on account of the other classes of Certificates.
Each distribution with respect to a Book-Entry Certificate will be paid
to DTC, which will credit the amount of such distribution to the accounts of its
Participants in accordance with its normal procedures. Each Participant will be
responsible for disbursing such distribution to the Certificate Owners that it
represents and to each indirect participating brokerage firm (a "brokerage firm"
or "indirect participating firm") for which it acts as agent. Each brokerage
firm will be responsible for disbursing funds to the Certificate Owners that it
represents. All such credits and disbursements with respect to a Book-Entry
Certificate are to be made by DTC and the Participants in accordance with DTC's
rules.
The Servicer will furnish to the Trustee, and the Trustee will send
with each distribution on a Remittance Date to each holder of the Offered
Certificates, a statement or statements setting forth, among other things, (i)
the amount of such distribution allocable to principal (including Principal
Prepayments, if any) and (ii) the amount of such distribution allocable to
interest.
Senior Interest
One month's interest (computed on the basis of a 360-day year of twelve
30-day months) will be paid concurrently to the holders of each Class of Senior
Certificates on each Remittance Date, to the extent of the Amount Available in
the Certificate Account on such date, at the related Remittance Rate on the then
outstanding Principal Balance of each Class of Senior Certificates. Interest on
each Class of Senior Certificates will accrue with respect to each Remittance
Date during the related Accrual Period, commencing .
The Remittance Rates for the Class A-1, Class A-2, Class A-3, Class A-4
and Class A-5 Certificates are %, %, %, % and % per annum, respectively, subject
to a maximum rate equal to the Weighted Average Net Contract Rate, computed on
the basis of a 360-day year of twelve 30-day months. In all but the most unusual
prepayment scenarios, it is anticipated that the applicable Remittance Rate on
the Senior Certificates will be the Remittance Rate without giving effect to the
maximum rate of the Weighted Average Net Contract Rate. In the unlikely event
that a large number of Contracts having Net Contract Rates equal to or greater
than such applicable Remittance Rate were
S-56
<PAGE>
<PAGE>
to prepay while the Contracts having Net Contract Rates less than such
applicable Remittance Rate did not prepay, with the result that interest
collections on the remaining Contracts were not sufficient to support such
applicable Remittance Rate, then the Remittance Rate for any such Class would be
equal to the Weighted Average Net Contract Rate.
The Certificate Principal Balance of any Class of Senior Certificates
of any Remittance Date is the Original Principal Balance of such Class less all
amounts previously distributed to holders of such Class on account of principal.
The Senior Principal Balance as of any Remittance Date is the sum of the Class
A-1 Principal Balance, the Class A-2 Principal Balance, the Class A-3 Principal
Balance, the Class A-4 Principal Balance and the Class A-5 Principal Balance.
In the event that, on a particular Remittance Date, the Amount
Available in the Certificate Account is not sufficient to make a full
distribution of interest to the holders of each Class of Senior Certificates,
the Amount Available will be distributed among the outstanding Classes of Senior
Certificates pro rata based on the aggregate amount of interest due on each such
Class, and the amount of shortfall will be carried forward and added to the
amount such holders will be entitled to receive on the future Remittance Dates,
until paid in full. Such a shortfall could occur, for example, if delinquencies
or losses realized on the Contracts were exceptionally high and were
concentrated in a particular month. In addition, the Amount Available in the
Certificate Account with respect to any Remittance Date may be reduced by the
amount of funds, if any, used to cover an interest shortfall on the Class A-6,
Class B-1 or Class B-2 Certificates, as described below. Any such amount so
carried forward will bear interest at the applicable Remittance Rate for each
Class of Senior Certificates, to the extent permitted by law.
Senior Principal
Holders of a Class of Senior Certificates will be entitled to receive
on each Remittance Date as payments of principal, in the order of priority set
forth below and to the extent of the Amount Available in the Certificate Account
on such date after payment of interest on all Classes of Senior Certificates,
the sum of (x) the Senior Percentage of the Formula Principal Distribution
Amount for such Remittance Date, and (y) any portion of the amount described in
clause (x) preceding which was due to the holders of the Senior Certificates on
prior Remittance Dates, but which remains unpaid on such Remittance Date. The
Agreement defines the "Formula Principal Distribution Amount" with respect to a
Remittance Date as the sum of (i) all scheduled payments of principal due on
each outstanding Contract during the related Collection Period, (ii) the
Scheduled Principal Balance of each Contract which, during the related
Collection Period, was purchased by AFL pursuant to the Agreement on account of
certain breaches of its representations and warranties, (iii) all Partial
Principal Prepayments applied and all Principal Prepayments in full received
during the related Collection Period, (iv) the Scheduled Principal Balance of
each Contract that became a Liquidated Contract during such related Collection
Period, (v) the Accelerated Principal Payment, if any, for such Remittance Date
[and (vi) on the , 199_ Remittance Date, any amount remaining on deposit in the
Pre-Funding Account.] When the Certificate Principal Balance of a Class of
Senior Certificates is reduced to zero, no further distributions of principal
will be made to the holders of such Class.
The "Senior Percentage" for any Remittance Date prior to the Class B
Cross-over Date, and for any Remittance Date on or after the Class B Cross-over
Date on which any Class B Principal Distribution Test is not satisfied (each as
described under "Class B-1 Principal" below) will be 100%, and for any
Remittance Date on or after the Class B Cross-over Date on which each Class B
Principal Distribution Test is satisfied will equal a fraction, expressed as a
percentage, the numerator of which is the sum of the Senior Principal Balance
and the Class A-6 Principal Balance for such Remittance Date (before giving
effect to any distributions on such Remittance Date) and the denominator of
which is the Pool Scheduled Principal Balance at the end of the second preceding
Collection Period. The Scheduled Principal Balance of a Contract for any
Collection Period is its principal balance as specified in its amortization
schedule at the time relating thereto (before any adjustment to such schedule by
reason of bankruptcy, moratorium or similar waiver or grace period) as of the
Due Date in the Collection Period next preceding such Remittance Date, after
giving effect to the principal portion of the scheduled payment due on such Due
Date and irrespective of any delinquency in payment on such Contract and after
giving effect to any
S-57
<PAGE>
<PAGE>
partial prepayments applied and prepayments in full received during the related
Collection Period. The "Pool Scheduled Principal Balance" is the aggregate of
the Scheduled Principal Balances of all Contracts (other than Liquidated
Contracts and Contracts purchased by AFL during such Collection Period)
outstanding at the end of such Collection Period. A "Liquidated Contract" is a
defaulted Contract as to which all amounts that the Servicer expects to recover
through the date of disposition of the Manufactured Home have been received.
The principal distribution to be made to the holders of the Senior
Certificates on any Remittance Date will be distributed, to the extent of the
Amount Available after payment of interest on all Classes of Senior
Certificates, first to the Class A-1 Certificateholders until the Class A-1
Principal Balance has been reduced to zero, then to the Class A-2
Certificateholders until the Class A-2 Principal Balance has been reduced to
zero, then to the Class A-3 Certificateholders until the Class A-3 Principal
Balance has been reduced to zero, then to the Class A-4 Certificateholders until
the Class A-4 Principal Balance has been reduced to zero, then to the Class A-5
Certificateholders until the Class A-5 Principal Balance has been reduced to
zero.
If, on any Remittance Date prior to the Class A-5 Principal Balance
being reduced to zero, the Pool Scheduled Principal Balance at the close of
business on the last day of the related Collection Period would be less than the
sum of the Class A-1 Principal Balance, the Class A-2 Principal Balance, the
Class A-3 Principal Balance, the Class A-4 Principal Balance and the Class A-5
Principal Balance on such Remittance Date after giving effect to distributions
of principal to be made on such date, then the Amount Available remaining after
distribution of interest on the Senior Certificates will be distributed to the
Classes of Senior Certificates on a pro rata basis as a distribution of the
Senior Percentage of the Formula Principal Distribution Amount, and the amount
of the shortfall will be allocated pro rata among the outstanding Classes of
Senior Certificates, based upon their respective outstanding Certificate
Principal Balances.
As hereinafter described, all Realized Losses will be absorbed first,
by the Residual Certificates, second, by the Class C Certificates, third, by the
Monthly Servicing Fee otherwise payable to AFL in its capacity as Servicer,
fourth, by the Class B-2 Certificates, fifth, by the Class B-1 Certificates and
sixth, by the Class A-6 Certificates. If the Amount Available on any Remittance
Date is less than the Senior Distribution Amount, the Amount Available will be
applied first to the payment of interest pro rata to the outstanding Senior
Certificates, based on the aggregate amount of interest then payable on each
Class of Senior Certificates and then to the payment of principal to the Class
of Senior Certificates then entitled thereto.
Class A-6 Interest
Interest will be paid to the Class A-6 Certificateholders on each
Remittance Date, to the extent of the Class A-6 Remaining Amount Available, if
any. Interest on the outstanding Class A-6 Principal Balance will accrue with
respect to each Remittance Date during the related Accrual Period, commencing
. On each Remittance Date, to the extent of the Class A-6
Remaining Amount Available, if any, on such Remittance Date after payment of the
Senior Distribution Amount, interest will be paid to the Class A-6
Certificateholders at the Class A-6 Remittance Rate on the Class A-6 Principal
Balance (before giving effect to any distributions on such Remittance Date). The
Class A-6 Principal Balance is the Original Class A-6 Principal Balance less the
sum of all amounts previously distributed to Class A-6 Certificateholders on
account of principal. In the event that, on a particular Remittance Date, the
Class A-6 Remaining Amount Available in the Certificate Account is not
sufficient to make a full distribution of interest to the Class A-6
Certificateholders, funds in the Certificate Account representing collections
received after the related Collection Period will be applied to such deficiency,
and any remaining deficiency will be carried forward and added to the amount
such holders will be entitled to receive on the next Remittance Date. Any such
amount so carried forward will bear interest at the Class A-6 Remittance Rate,
to the extent permitted by law.
The Class A-6 Remittance Rate on each Remittance Date will be % per
annum, subject to a maximum rate equal to the Weighted Average Net Contract
Rate, computed on the basis of a 360-day
S-58
<PAGE>
<PAGE>
year of twelve 30-day months. In all but the most unusual prepayment scenarios,
it is anticipated that the Class A-6 Remittance Rate will be %. In the unlikely
event that a large number of Contracts having Net Contract Rates equal to or
higher than % (which Contracts represent approximately
% of the Cut-off Date Pool Principal Balance) were to prepay while the
Contracts having Net Contract Rates lower than % did not prepay, with the result
that the interest collections on the remaining Contracts were not sufficient to
support a Class A-6 Remittance Rate of %, then the Class A-6 Remittance Rate
would be equal to the Weighted Average Net Contract Rate.
Class A-6 Principal
On each Remittance Date on or after the date on which the Senior
Principal Balance has been reduced to zero, Class A-6 Certificateholders will be
entitled to receive, as payments of principal, the sum of (i) the Senior
Percentage of the Formula Principal Distribution Amount, and (ii) any portion of
the amount described in clause (i) preceding which was due to the Class A-6
Certificateholders on prior Remittance Dates, but which remains unpaid on such
Remittance Date; such amount will only be distributed to the extent of the Class
A-6 Remaining Amount Available in the Certificate Account on such Remittance
Date, after payment of all interest payable on the Class A-6 Certificates. On
each Remittance Date on or after the Class B Cross-over Date on which each Class
B Principal Distribution Test is satisfied, payments of principal will be made
to Class B-1 or Class B-2 Certificateholders, even if Class A-6
Certificateholders are not yet entitled to receive payments of principal because
the Senior Principal Balance has not been reduced to zero.
Class B-1 Interest
Interest will be paid to the Class B-1 Certificateholders on each
Remittance Date, to the extent of the Class B-1 Remaining Amount Available if
any. Interest on the outstanding Class B-1 Principal Balance will accrue with
respect to each Remittance Date during the related Accrual Period, commencing
. On each Remittance Date, to the extent of the Class B-1
Remaining Amount Available, if any, on such Remittance Date after payment of the
Senior Distribution Amount and the Class A-6 Distribution Amount, interest will
be paid to the Class B-1 Certificateholders at the Class B-1 Remittance Rate on
the Class B-1 Principal Balance (before giving effect to any distributions on
such Remittance Date). The Class B-1 Principal Balance is the Original Class B-1
Principal Balance less the sum of all amounts previously distributed to Class
B-1 Certificateholders on account of principal. In the event that, on a
particular Remittance Date, the Class B-1 Remaining Amount Available is not
sufficient to make a full distribution of interest to the Class B-1
Certificateholders, funds in the Certificate Account representing collections
received after the related Collection Period will be applied to such deficiency,
and any remaining deficiency will be carried forward and added to the amount
such holders will be entitled to receive on the next Remittance Date.
The Class B-1 Remittance Rate on each Remittance Date will be % per
annum, subject to a maximum rate equal to the Weighted Average Net Contract
Rates, computed on the basis of a 360-day year of twelve 30-day months. In all
but the most unusual prepayment scenarios, it is anticipated that the Class B-1
Remittance Rate will be %. In the unlikely event that a large number of
Contracts having Net Contract Rates equal to or higher than % (which Contracts
represent approximately
% of the Cut-off Date Pool Principal Balance) were to prepay while the
Contracts having Net Contract Rates lower than % did not prepay, with the result
that the interest collections on the remaining Contracts were not sufficient to
support a Class B-1 Remittance Rate of %, then the Class B-1 Remittance Rate
would be equal to the Weighted Average Net Contract Rate.
Class B-1 Principal
Prior to the Class B Cross-over Date, there will be no distributions of
principal on the Class B-1 Certificates. The Class B Cross-over Date will be the
later of (A) the Remittance Date in or the first Remittance Date on which the
sum of (i) the Senior Principal Balance on such Remittance Date (before taking
into account any distributions to be made on such Remittance Date) and (ii) the
Class A-6 Principal Balance on such Remittance Date (before taking into account
any distributions to be made on
S-59
<PAGE>
<PAGE>
such Remittance Date) (such sum expressed as a percentage of the Pool Scheduled
Principal Balance at the end of the second preceding Collection Period) is less
than %.
On each Remittance Date on or after the Class B Cross-over Date and
prior to the Remittance Date on which the Senior Principal Balance and the Class
A-6 Principal Balance are reduced to zero, holders of Class B-1 and Class B-2
Certificates will be entitled to distributions of principal only if each of the
following tests (each a "Class B Principal Distribution Test") is satisfied on
such Remittance Date: (i) the Average Sixty-Day Delinquency Ratio (as defined
below) as of such Remittance Date must not exceed %; (ii) the Average Thirty-Day
Delinquency Ratio (as defined below) as of such Remittance Date must not exceed
%; (iii) the Cumulative Realized Losses (as defined below) as of such Remittance
Date must not exceed a certain specified percentage of the Cut-off Date Pool
Principal Balance, depending on the year in which such Remittance Date occurs;
(iv) the Current Realized Loss Ratio (as defined below) as of such Remittance
Date must not exceed % if AFL is the Servicer, or % if AFL is not the Servicer;
(v) the sum of (a) the Senior Principal Balance on such Remittance Date and (b)
the Class A-6 Principal Balance divided by the Pool Scheduled Principal Balance
at the end of the second preceding Collection Period must be less than %; and
(vi) the sum of (a) the Class B-1 and Class B-2 Principal Balance and (b) the
Overcollateralization Amount must not be less than % of the Aggregate Principal
Balance of the Contracts as of the Cut-off Date.
The "Average Sixty-Day Delinquency Ratio" for any Remittance Date will
be equal to the arithmetic average, for such Remittance Date and for the two
immediately preceding Remittance Dates, of a fraction, expressed as a
percentage, the numerator of which is the aggregate of the Scheduled Principal
Balance of all Contracts (including Contracts in repossession) that were
delinquent 60 days or more as of the end of the Collection Period preceding such
Remittance Date, and the denominator of which is the Pool Scheduled Principal
Balance as of such date. The "Average Thirty-Day Delinquency Ratio" for any
Remittance Date will be equal to the arithmetic average, for such Remittance
Date and for the two immediately preceding Remittance Dates, of a fraction,
expressed as a percentage, the numerator of which is the aggregate of the
Scheduled Principal Balance of all Contracts (including Contracts in
repossession) that were delinquent 30 days or more as of the end of the
Collection Period preceding such date, and the denominator of which is the Pool
Scheduled Principal Balance as of such date. The "Current Realized Loss Ratio"
for any Remittance Date will be equal to a fraction, expressed as a percentage,
the numerator of which is the aggregate of all Realized Losses during the twelve
immediately preceding Collection Periods, and the denominator of which is the
arithmetic average of the Pool Scheduled Principal Balance as of the last day of
the twelfth preceding Collection Period and the Pool Scheduled Principal Balance
as of the last day of the immediately preceding Collection Period. The
"Cumulative Realized Losses" for any Remittance Date will be equal to the sum of
all liquidation losses of all Contracts that became Liquidated Contracts since
the Cut-off Date.
On each Remittance Date on or after the Class B Cross-over Date, if
each Class B Principal Distribution Test is satisfied on such Remittance Date
(unless the Senior Principal Balance and the Class A-6 Principal Balance have
been reduced to zero in which event none of the Class B Distribution Tests need
be satisfied), Class B-1 Certificateholders will be entitled to receive, as
payments of principal, the sum of (i) the Class B Percentage of the Formula
Principal Distribution Amount and (ii) any portion of the amount described in
clause (i) preceding which was due to the Class B-1 Certificateholders on prior
Remittance Dates but which remains unpaid on such Remittance Date; such amount
will only be distributed to the extent of the Class B-1 Remaining Amount
Available in the Certificate Account on such date after payment of all interest
payable on the Class B-1 Certificates. The Agreement provides that in no event
shall an amount of principal be distributed to the holders of the Class B-1 or
Class B-2 Certificates if, after paying such amount, the test set forth in
clause (vi) of "Class B Principal Distribution Test" would be violated; any such
principal not so distributed shall instead be distributed to the Class of Senior
Certificates or the Class A-6 Certificates, whichever is then entitled to
receive distributions of principal. The Class B-2 Certificateholders will not be
entitled to any distributions of principal until the Class B-1 Principal Balance
has been reduced to zero. The Class B Percentage for any Remittance Date on or
after the Class B Cross-over Date on which each Class B Principal Distribution
Test has been satisfied will be equal to 100% minus the Senior Percentage. The
Class B Percentage for each
S-60
<PAGE>
<PAGE>
Remittance Date, if any, after the Senior Principal Balance and the Class A-6
Principal Balance have both been reduced to zero, will be equal to 100%.
Class B-2 Interest
Interest will be paid to the Class B-2 Certificateholders on each
Remittance Date, to the extent of the Class B-2 Remaining Amount Available, if
any. Interest on the outstanding Class B-2 Principal Balance will accrue with
respect to each Remittance Date during the Related Accrual Period, commencing
. On each Remittance Date, to the extent of the Class B-2 Remaining
Amount Available, if any, for a Remittance Date after payment of the Senior
Distribution Account, the Class A-6 Distribution Amount and the Class B-1
Distribution Amount, interest will be paid to the Class B-2 Certificateholders
on such Remittance Date at the Class B-2 Remittance Rate on the Class B-2
Principal Balance (before giving effect to any distributions on such Remittance
Date). The Class B-2 Principal Balance is the Original Class B-2 Principal
Balance less the sum of all amounts previously distributed to Class B-2
Certificateholders on account of principal. In the event that, on a particular
Remittance Date, the Class B-2 Remaining Amount Available is not sufficient to
make a full distribution of interest to the Class B-2 Certificateholders, funds
in the Certificate Account representing collections received after the related
Collection Period will be applied to such deficiency and any remaining
deficiency will be carried forward and added to the amount such holders will be
entitled to receive on the next Remittance Date.
For purposes of this Prospectus Supplement, the Class B-2 Remittance
Rate on each Remittance Date has been assumed to be % per annum, subject to a
maximum rate equal to the Weighted Average Net Contract Rates, computed on the
basis of a 360-day year of twelve 30-day months.
Class B-2 Principal
Prior to the Remittance Date on which the Class B-1 Principal Balance
is reduced to zero, there will be no distributions of principal on the Class B-2
Certificates. Prior to the Class B Cross-over Date, there will be no
distributions of principal on the Class B-1 Certificates. On each Remittance
Date, on or after the date on which the Class B-1 Principal Balance has been
reduced to zero and on which each Class B Principal Distribution Test is
satisfied (unless the Senior Principal Balance and the Class A-6 Principal
Balance have been reduced to zero in which event none of the Class B
Distribution Tests need be satisfied), the Class B-2 Certificateholders will be
entitled to receive, as payments of principal, the sum of (i) the Class B
Percentage of the Formula Principal Distribution Amount and (ii) any portion of
the amount described in clause (i) preceding which was due to the Class B-2
Certificateholders on prior Remittance Dates but which remains unpaid on such
Remittance Date; such amount will only be distributed to the extent of the Class
B-2 Remaining Amount Available in the Certificate Account on such date, after
payment of all interest payable on the Class B-2 Certificates. The Agreement
provides that in no event shall an amount of principal be distributed to the
holders of the Class B-1 or Class B-2 Certificates if, after paying such amount,
the test set forth in clause (vi) of "Class B Principal Distribution Test" would
be violated; any such principal not so distributed shall instead be distributed
to the Class of Senior Certificates or the Class A-6 Certificates, whichever is
then entitled to receive distributions of principal.
Class C Distributions; Overcollateralization Amount
The Weighted Average Net Contract Rate for the Contract Pool is
expected generally to be higher than the weighted average of the fixed
Remittance Rates applicable to the Class A-1, Class A-2, Class A-3, Class A-4,
Class A-5, Class A-6, Class B-1 and Class B-2 Certificates (collectively, the
"Non-IO Certificates"), thus generating certain excess interest collections
which, in the absence of losses and delinquencies, will not be necessary to fund
distributions on the Non-IO Certificates. The Agreement provides that this
excess interest, together with, if AFL is then the Servicer, the Monthly
Servicing Fee then otherwise due to AFL, be applied, to the extent available, to
make accelerated payments of principal to the Class or Classes then entitled to
receive distributions of principal. Such accelerated payments are expected to
cause the aggregate Principal Balance of the Non-IO Certificates to amortize
more rapidly than the Contract Pool, resulting in "overcollateralization" (i.e.,
the excess of the Pool Scheduled
S-61
<PAGE>
<PAGE>
Principal Balance over the aggregate Principal Balance of the Non-IO
Certificates). This excess interest for a Collection Period, together with
interest on the overcollateralization amount itself, on the related Remittance
Date is the "Class C Formula Distribution Amount" for such Remittance Date. On
any Remittance Date, the "Overcollateralization Amount" will be an amount equal
to the difference between the Pool Scheduled Principal Balance as of the end of
the immediately preceding Collection Period and the aggregate Certificate
Principal Balance of the Non-IO Certificates on such Remittance Date (and after
taking into account all other distributions to be made on such Remittance Date).
The amounts available to fund the Class C Formula Distribution Amount
(which amount will be the Class B-2 Remaining Amount Available less the Class
B-2 Distribution Amount and less the Monthly Servicing Fee for such Remittance
Date, such amount being the "Class C Distribution Amount") will be applied,
together with the Monthly Servicing Fee if AFL is the Servicer, to make such
accelerated payments of principal on each Remittance Date until the
Overcollateralization Amount is equal to approximately $ (the "Initial
Overcollateralization Amount"). Thereafter, the Class C Distribution Amount will
be available to make distributions of the Class C Formula Distribution Amount to
the holders of the Class C Certificates, unless, due to losses, the
Overcollateralization Amount is decreased, in which event such applications will
commence to the extent necessary to increase the actual Overcollateralization
Amount to the Required Overcollateralization Amount. The level of the Required
Overcollateralization Amount is equal to, for any Remittance Date, (x) prior to
the Class B Cross-over Date, the Initial Required Overcollateralization Amount,
(y) on and after the Class B Cross-over Date, and as long as each Class B
Principal Distribution Test is then satisfied, the lesser of (i) the Initial
Required Overcollateralization Amount and (ii) the greater of (a) % of the then
Scheduled Pool Principal Balance and (b) % of the Cut-off Date Pool Principal
Balance and (z) on and after the Class B Crossover Date, if any Class B
Distribution Test is not satisfied, the required level as of the immediately
preceding Remittance Date. If, on any Remittance Date, the level of Required
Overcollateralization Amount is permitted to be reduced, the "Excess
Overcollateralization Amount" (the excess of (x) the actual
Overcollateralization Amount on such Remittance Date (after taking into account
all other distributions on such Remittance Date) over (y) the Required
Overcollateralization Amount for such Remittance Date) will be paid to the Class
C Certificateholders from the Formula Principal Distribution Amount otherwise
payable to the holders of the Non-IO Certificates on such Remittance Date (any
such amount so paid to the Class C Certificateholders, an "Overcollateralization
Reduction Amount"). The Overcollateralization Reduction Amount, if any, on any
Remittance Date shall be funded first, from the Class B Percentage of the
Formula Principal Distribution Amount otherwise distributable to the holders of
the Class B-1 or Class B-2 Certificates on such Remittance Date, and, if such
amount is insufficient to fund in full the Overcollateralization Reduction
Amount on such Remittance Date, then, second, from the Senior Percentage of the
Formula Principal Distribution Amount otherwise distributable to the holders of
the Senior or Class A-6 Certificates on such Remittance Date. The Agreement
provides that in no event shall an Overcollateralization Reduction Amount be
paid to the Class C Certificateholders if, after paying such amount, the test
set forth in clause (vi) of the definition of "Class B Principal Distribution
Test" would be violated.
The amount, if any, of the Class C Distribution Amount actually applied
as an accelerated payment of principal on any Remittance Date (such amount to be
the lesser of (x) the excess of (i) the Required Overcollateralization Amount
over (ii) the actual Overcollateralization Amount on such Remittance Date and
(y) the Class C Distribution Amount and the Monthly Servicing Fee if AFL is the
Servicer for the immediately preceding Collection Period) is the "Accelerated
Principal Payment" for such Remittance Date.
Subordination of Class A-6, Class B-1, Class B-2, Class C and Residual
Certificates
The rights of the holders of the Class A-6, the Class B-1, the Class
B-2, Class C Certificates and the Residual Certificates to receive distributions
with respect to the Contracts in the Trust will be subordinated to such rights
of the Senior Certificateholders. This subordination is intended to enhance the
likelihood of regular receipt by the holders of the Senior Certificates of the
full amount of their scheduled monthly payments of principal and interest and to
afford such holders protection against losses on Liquidated Contracts. The
protection afforded to the Senior Certificateholders by means of the
S-62
<PAGE>
<PAGE>
subordination feature will be accomplished by the preferential right of the
Senior Certificateholders to receive, prior to any distribution being made on a
Remittance Date in respect of the Class A-6, the Class B-1, the Class B-2, the
Class C Certificates and the Residual Certificates, the amount of principal and
interest due them on each Remittance Date out of the Amount Available on deposit
on such date in the Certificate Account and by the right of the Senior
Certificateholders to receive future distributions on the Contracts that would
otherwise be payable to the holders of Class A-6, Class B-1, Class B-2, Class C
and Residual Certificates. On each Remittance Date the Class A-6
Certificateholders will be entitled to receive only amounts described above
under "Class A-6 Interest" and "Class A-6 Principal," the Class B-1
Certificateholders will be entitled to receive only amounts described above
under "Class B-1 Interest" and "Class B-1 Principal," and the Class B-2
Certificateholders will be entitled to receive only amounts described above
under "Class B-2 Interest" and "Class B-2 Principal."
In addition, the rights of the holders of the Class B-1, the Class B-2,
the Class C and the Residual Certificates to receive distributions will be
subordinate to such rights of the Class A-6 Certificateholders. This
subordination is intended to enhance the likelihood of regular receipt by the
holders of the Class A-6 Certificates of the full amount of their scheduled
monthly payments of principal and interest and to afford such holders protection
against losses on Liquidated Contracts. The protection afforded to the Class A-6
Certificateholders by means of the subordination feature will be accomplished by
the preferential right of the Class A-6 Certificateholders to receive, prior to
the distribution being made on a Remittance Date in respect of the Class B-1,
the Class B-2, the Class C and the Residual Certificates, the amount of
principal and interest due them on each Remittance Date out of the Class A-6
Remaining Amount Available on deposit on such date in the Certificate Account
and by the right of the Class A-6 Certificate holders to receive future
distributions on the Contracts that would otherwise be payable to the holders of
Class B-1, Class B-2, Class C and Residual Certificates.
In addition, the rights of the holders of the Class B-2, the Class C
and the Residual Certificates to receive distributions will be subordinate to
such rights of the Class B-1 Certificateholders. This subordination is intended
to enhance the likelihood of regular receipt by the holders of the Class B-1
Certificates of the full amount of their scheduled monthly payments of principal
and interest and to afford such holders protection against losses on Liquidated
Contracts. The protection afforded to the Class B-1 Certificateholders by means
of the subordination feature will be accomplished by the preferential right of
the Class B-1 Certificateholders to receive, prior to any distribution being
made on a Remittance Date in respect of the Class B-2, the Class C and the
Residual Certificates, the amount of principal and interest due them on each
Remittance Date out of the Class B-1 Remaining Amount Available on deposit on
such date in the Certificate Account and by the right of the Class B-1
Certificateholders to receive future distributions on the Contracts that would
otherwise be payable to the holders of Class B-1, Class B-2, Class C and
Residual Certificates.
The rights of the holders of the Class C Certificates to receive
distributions with respect to the Contracts on each Remittance Date will be
subordinated to the rights of the holders of the Senior Certificates, Class A-6
Certificates, Class B-1 Certificates and Class B-2 Certificates, and to the
payment of the Monthly Servicing Fee.
The rights of the Residual Certificateholders to receive distributions
will be subordinated to the rights of the holders of all other classes of
Certificates and to the payment of the Monthly Servicing Fee. On each Remittance
Date the Residual Certificateholders will receive the remaining Amount
Available, if any, after payment of the amount distributed to the Senior, Class
A-6, Class B-1, Class B-2 and Class C Certificateholders as described above
(less the Monthly Servicing Fee and less amounts retained by the Servicer to
reimburse itself for taxes paid in respect of prohibited transactions) plus
aggregate Repossession Profits (as defined in the Agreement).
Losses on Liquidated Contracts
As described above, the distribution of principal to the Senior and the
Class A-6 Certificateholders and to the Class B-1 Certificateholders is intended
to include the Senior Percentage and the Class B Percentage, respectively, of
the Scheduled Principal Balance of each Contract that became
S-63
<PAGE>
<PAGE>
a Liquidated Contract during the preceding Collection Period. If the Net
Liquidation Proceeds (as defined below) from a Liquidated Contract are less than
the Scheduled Principal Balance of such Liquidated Contract plus accrued and
unpaid interest thereon plus amounts reimbursable to the Servicer for advances
of certain taxes and insurance premiums, the deficiency (a "Realized Loss")
will, in effect, be absorbed first, by the Residual Certificateholders, second,
by the Class C Certificateholders (both through the application of the Class C
Distribution Amount to fund such deficiency and through a reduction in the
Overcollateralization Amount), third, by the Monthly Servicing Fee (so long as
AFL is the Servicer), fourth, by the Class B-2 Certificateholders, fifth, by the
Class B-1 Certificateholders and sixth, by the Class A-6 Certificateholders,
since a portion of the Amount Available equal to such deficiency and otherwise
distributable to them will be paid to the Senior Certificateholders. If AFL is
no longer the Servicer, then the Monthly Servicing Fee will become senior to all
Certificateholders distributions.
"Liquidation Proceeds" means cash (including insurance proceeds)
received in connection with the liquidation of defaulted Contracts, whether
through repossession, foreclosure sale or otherwise. 'Net Liquidation Proceeds'
means, as to a Liquidated Contract, all Liquidation Proceeds received on or
prior to the last day of the Collection Period in which such Contract became a
Liquidated Contract, net of Liquidation Expenses. "Liquidation Expenses" means
out-of-pocket expenses (exclusive of any overhead expenses) which are incurred
by the Servicer in connection with the liquidation of any defaulted Contract, on
or prior to the date on which the related Manufactured Home is disposed of,
including, without limitation, legal fees and expenses, and any related and
unreimbursed expenditures for property taxes, property preservation or
restoration of the property to marketable condition.
If the Amount Available is not sufficient to cover the entire principal
portion of the Senior Formula Distribution Amount due to the Senior
Certificateholders or the entire principal portion of the Class A-6 Formula
Distribution Amount due to the Class A-6 Certificateholders on a particular
Remittance Date, then (i) if the Senior Percentage is less than 100%, the Senior
Percentage on future Remittance Dates will be increased and the Class B
Percentage on future Remittance Dates will be reduced as a result of such
deficiency and (ii) the amount of the deficiency will be carried forward as an
amount the Senior Certificateholders or the Class A-6 Certificateholders are
entitled to receive on future Remittance Dates, until paid in full. If the
Amount Available is sufficient to cover the entire principal portion of the
Senior Formula Distribution Amount due to the Senior Certificateholders and the
entire principal portion of the Class A-6 Formula Distribution Amount due to the
Class A-6 Certificateholders on a particular Remittance Date but is not
sufficient to cover the entire principal portion of the Class B-1 Formula
Distribution Amount due to the Class B-1 Certificateholders, the amount of the
deficiency will be carried forward as an amount that the Class B-1
Certificateholders are entitled to receive on the next Remittance Date.
As a result of the subordination of the Class B-1 and the Class B-2
Certificates, the Monthly Servicing Fee (so long as AFL is the Servicer), and
the subordination of the Class C and Residual Certificates, the Class A-6
Certificateholders will not absorb (i) losses resulting from Realized Losses or
(ii) delinquent payments on the Contracts, at least to the extent that such
subordination has not been exhausted. See " -- Subordination of Class A-6, Class
B-1, Class B-2, Class C and Residual Certificates" and "Prepayment and Yield
Considerations."
As a result of the subordination of the Class B-2 Certificates, the
Monthly Servicing Fee (so long as AFL is the Servicer), and the subordination of
the Class C and Residual Certificates, the Class B-1 Certificateholders will not
absorb (i) losses resulting from Realized Losses or (ii) delinquent payments on
the Contracts, at least to the extent that such subordination has not been
exhausted. See " -- Subordination of Class A-6, Class B-1, Class B-2, Class C
and Residual Certificates" and "Prepayment and Yield Considerations."
As a result of the subordination of the Monthly Servicing Fee (so long
as AFL is the Servicer) and of the Class C and Residual Certificates, the Class
B-2 Certificateholders will not absorb (i) losses resulting from Realized Losses
or (ii) delinquent payments on the Contracts at least to the extent that such
subordination has not been exhausted. See " -- Subordination of Class A-6, Class
B-1, Class B-2, Class C and Residual Certificates" and "Prepayment and Yield
Considerations."
S-64
<PAGE>
<PAGE>
Reports to Certificateholders
The Servicer will furnish to the Trustee, and the Trustee will include
with each distribution to a Offered Certificateholder, a statement in respect of
the related Remittance Date setting forth, among other things:
(a) the amount of such distribution to holders of each
Class of Certificates allocable to interest (separately identifying any
unpaid interest shortfall included);
(b) the amount of such distribution to holders of each
Class of Certificates allocable to principal (separately identifying
the aggregate amount of any principal prepayments included);
(c) the amount of any shortfall in the Formula Principal
Distribution Amount allocated to each Class of Certificateholders for
such Remittance Date, as applicable;
(d) the Principal Balance of each Class of Certificates
after giving effect to the distribution of principal on such Remittance
Date;
(e) the Senior Percentage for the following Remittance
Date;
(f) the Pool Scheduled Principal Balance of the Contracts
for the following Remittance Date;
(g) the Pool Factor (a percentage derived from a fraction
the numerator of which is (f) and the denominator of which is the
Cut-off Date Pool Principal Balance);
(h) the number and aggregate principal balance of
Contracts delinquent (i) 30-59 days and (ii) 60 or more days;
(i) the number of Manufactured Homes that were
repossessed during the Collection Period ending immediately prior to
such Remittance Date;
(j) the number of Manufactured Homes that were
repossessed but remain in inventory as of the last day of the
Collection Period ending immediately prior to such Remittance Date;
(k) the Weighted Average Net Contract Rate of all
outstanding Contracts; and
(l) the Overcollateralization Amount and any
Overcollateral Reduction Amount for such Remittance Date.
Information furnished pursuant to clauses (a) through (d) will be
expressed as dollar amounts for a Senior Certificate with a 1% Percentage
Interest or per $1,000 denomination of Certificate.
In addition, within a reasonable period of time after the end of each
calendar year, the Servicer will furnish a report to each Certificateholder of
record at any time during such calendar year as to the aggregate of amounts
reported pursuant to (a) and (b) above for such calendar year.
Optional Termination
The Agreement provides that on any Remittance Date after the first
Remittance Date on which the Pool Scheduled Principal Balance is less than 10%
of the Cut-off Date Pool Principal Balance, the Servicer will have the option to
repurchase, upon giving notice mailed no earlier than the and no later than the
day of the month next preceding the month of the exercise of such option, all
outstanding Contracts at a price equal to the greater of (i) the sum of (w) 100%
of the Scheduled Principal Balance of each Contract (other than any Contract as
to which the related Manufactured Home has been acquired
S-65
<PAGE>
<PAGE>
and not yet disposed of and whose fair market value is included pursuant to
clause (x) below) as of the final Remittance Date; (x) the fair market value of
such acquired property (as determined by the Servicer); (y) the aggregate amount
of any unreimbursed Delinquency Advances and unreimbursed Servicing Advances and
(z) any unpaid interest on the Certificates due on prior Remittance Dates as
well as one month's interest, at a rate equal to the related remittance rate
borne by any outstanding Class of Certificates plus the Monthly Servicing Fee,
on the Scheduled Principal Balance of each Contract (including any Contract as
to which the related Manufactured Home has been repossessed and not yet disposed
of), but in no event less than the amount necessary to pay all Classes of
Certificates in full, including accrued and unpaid interest thereon (the amount
described in this clause (i) being the "Termination Price") and (ii) the sum of
(x) the aggregate fair market value (as determined by the Servicer) of all of
the assets of the Trust and (y) the amount described in clause (i)(z) above.
Auction Sale
The Agreement requires that, within ninety days following a Remittance
Date as of which the Pool Scheduled Principal Balance is less than 10% of the
Cut-off Date Pool Principal Balance, if the Servicer has not exercised its
optional termination rights by such date, the Trustee shall solicit bids for the
purchase of all Contracts remaining in the Trust. In the event that satisfactory
bids are received as described in the Agreement, the net sale proceeds will be
distributed to Certificateholders, in the same order of priority as collections
received in respect of the Contracts. The Trustee, however, will not accept any
bid for the Contracts unless certain requirements are met, including the
requirement that such bid is in an amount at least equal to the Termination
Price. The sale of the Contracts must be for an amount no less than fair market
value. If satisfactory bids are not received, the Trustee shall decline to sell
the Contracts and shall not be under any obligation to solicit any further bids
or otherwise negotiate any further sale of the Contracts. Such sale and
consequent termination of the Trust must constitute a "qualified liquidation" of
each REMIC established by the Trust under Section 860F of the Internal Revenue
Code of 1986, as amended, including, without limitation, the requirement that
the qualified liquidation takes place over a period not to exceed 90 days.
Termination of the Agreement
The Agreement will terminate upon the last action required to be taken
by the Trustee on the final Remittance Date following the later of (i) the
purchase by the Servicer of all Contracts and all property acquired in respect
of any Contract remaining in the Trust as described above under "-- Optional
Termination", (ii) the sale of the Contracts as described under "-- Auction
Sale" or (iii) the final payment or other liquidation (or any advance with
respect thereto) of the last Contract remaining in the Trust or the disposition
of all property acquired upon repossession of any Manufactured Home.
Upon presentation and surrender of the Certificates, the Trustee shall
cause to be distributed, to the extent of funds available, to such
Certificateholders on the final Remittance Date in proportion to their
respective Percentage Interests an amount equal to the respective unpaid
Principal Balances of the Certificates, together with any unpaid interest on
such Certificates due on prior Remittance Dates and one month's interest at the
applicable Remittance Rates on such unpaid Principal Balances. If the Agreement
is then being terminated, any amount which remains on deposit in the Certificate
Account (other than amounts retained to meet claims) after distribution to the
Certificateholders will be distributed to the Residual Certificateholders.
Amendment
The Agreement may be amended by Receivables Corp., the Servicer and the
Trustee without the consent of the Certificateholders (i) to cure any ambiguity,
(ii) to correct or supplement any provision therein that may be inconsistent
with any other provision therein, (iii) to add to the duties or obligations of
the Servicer, (iv) to obtain a rating from a nationally recognized rating agency
or to maintain or improve the ratings of any Class of the Offered Certificates
then given by any rating agency (it being understood that, after obtaining the
rating of the Offered Certificates from _____ and _____, neither the Trustee nor
the Servicer is obligated to obtain, maintain or improve any rating assigned to
the Offered
S-66
<PAGE>
<PAGE>
Certificates), or (v) to make any other provisions with respect to matters or
questions arising under such Agreement, provided that such action will not, as
evidenced by an opinion of counsel, adversely affect in any material respect the
interests of the Certificateholders. The Agreement may also be amended by
Receivables Corp., the Servicer and the Trustee with the consent of the holders
of Certificates of each Class affected thereby evidencing, as to such Class,
Percentage Interests aggregating not less than 51% for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
such Agreement or of modifying in any manner the rights of the
Certificateholders; provided, however, that no such amendment shall (i) reduce
in any manner the amount of, or delay the timing of, any distributions which are
required to be made on any Certificate without the consent of the holder of each
Certificate affected thereby or (ii) reduce the aforesaid percentage of
Certificates the holders of which are required to consent to any such amendment,
without the consent of the holders of all Certificates then outstanding, and no
such amendment shall adversely affect the status of the Trust as a REMIC.
The Agreement may also be amended from time to time, without the
consent of any Certificateholders, by the Trustee, Receivables Corp., and the
Servicer to modify, eliminate or add to the provisions of the Agreement to (i)
maintain the qualification of the Trust as a REMIC under the Code or avoid, or
minimize the risk of, the imposition of any tax on the Trust under the Code that
would be a claim against the Trust assets, provided that an opinion of counsel
is delivered to the Trustee to the effect that such action is necessary or
appropriate to maintain such qualification or avoid any such tax or minimize the
risk of its imposition, or (ii) prevent the Trust from entering into any
"prohibited transaction" as defined in Section 860F of the Code, provided that
an opinion of counsel is delivered to the Trustee to the effect that such action
is necessary or appropriate to prevent the Trust from entering into such
prohibited transaction.
Servicing Compensation
For its servicing of the Contracts, the Servicer will be entitled to
receive a monthly servicing fee equal to 1/12th of the product of % and the Pool
Scheduled Principal Balance for the related Remittance Date (the "Monthly
Servicing Fee"). The Amount Available will be net of the Monthly Servicing Fee
if AFL is not the Servicer; if AFL is the Servicer, the Monthly Servicing Fee
will be subordinate to distributions on account of the Certificates except
distributions to the Class C and Residual Certificateholders. See "-- Payments
on the Contracts; Certificate Account" herein.
Advances
Delinquency Advances. The Servicer will be required, not later than
each Remittance Date, to deposit into the Certificate Account an amount equal to
the Scheduled Payments due, but not collected, with respect to delinquent
Contracts during the prior Collection Period, but only if, in its good faith
business judgment, the Servicer believes that such amounts will ultimately be
recovered on or with respect to the related Contract. Any such amounts so
advanced are "Delinquency Advances." The Servicer will be permitted to fund its
payment of Delinquency Advances on any Remittance Date from collections on any
Contract deposited to the Certificate Account subsequent to the related
Collection Period not required to be distributed to Certificateholders on the
related Remittance Date, and will be required to reimburse the Certificate
Account for such amounts from its own funds or from payments collected on the
Contracts in a Collection Period that are not otherwise distributable on the
related Remittance Date. Delinquency Advances are intended to maintain a regular
flow of scheduled interest and principal payments to Certificateholders rather
than to guarantee or insure against losses.
A Contract is "delinquent" if any payment due thereon is not made by
the close of business on its Due Date.
The Servicer is permitted to reimburse itself for Delinquency Advances
funded from its own funds only from subsequent collections on the related
delinquent Contract, unless the Servicer determines that any unreimbursed
Delinquency Advance constitutes a Nonrecoverable Delinquency Advance, in which
event it will be reimbursable to the Servicer from collections on the Contract
Pool generally.
S-67
<PAGE>
<PAGE>
A "Nonrecoverable Delinquency Advance" is a Delinquency Advance
previously made by the Servicer but which the Servicer subsequently, in its good
faith business judgment, determines not to be recoverable from the related
Contract.
Servicing Advances. The Agreement requires the Servicer to pay, from
its own funds, all reasonable and customary out-of-pocket costs and expenses
incurred in connection with its servicing duties, including property
preservation expenses, the costs of enforcing the Contracts, the security
interests in the related Manufactured Homes, the management and liquidation of
repossessed Manufactured Homes, advances for taxes, insurance, ground rents and
similar types of charges (all such amounts, "Servicing Advances"). The Servicer
will be required to make a Servicing Advance only if it believes that such
amount will be recoverable with respect to the related Contract, or, if the
related Manufactured Home is being liquidated, if such amount will increase the
related Net Liquidation Proceeds. Servicing Advances are reimbursable to the
Servicer only from the related Contract or related Liquidation Proceeds, and,
except as otherwise provided in the Agreement, not from collections on the
Contract Pool generally.
Both unreimbursed Delinquency Advances and unreimbursed Servicing
Advances are a priority claim against subsequent collections on or with respect
to the related Contract, and the payment of such claims thus will reduce the
Amount Available.
Servicer Termination Events
Events of Termination under the Agreement will include the following
(i) any failure by the Servicer to distribute to the Certificateholders any
required payment which continues unremedied for 5 days after the giving of
written notice; (ii) any failure by the Servicer duly to observe or perform in
any material respect any other of its covenants or agreements in the Agreement
that materially and adversely affects the interests of Certificateholders,
which, in either case, continues unremedied for 30 days after the giving of
written notice of such failure of breach; (iii) any assignment or delegation by
the Servicer of its duties or rights under the Agreement, except as specifically
permitted under the Agreement, or any attempt to make such an assignment or
delegation; (iv) certain events of insolvency, readjustment of debt, marshalling
of assets and liabilities or similar proceedings regarding the Servicer, and (v)
the Servicer is no longer an Eligible Servicer (as defined in the Agreement).
Notice as used herein shall mean notice to the Servicer by the Trustee or AFL,
or to AFL, the Servicer, if any, and the Trustee by the holders of Certificates
representing interests aggregating not less than 25% of the Trust.
The Trustee
(the "Trustee") has its corporate trust offices at . The
Trustee may resign at any time, in which event Receivables Corp. will be
obligated to appoint a successor Trustee. Receivables Corp. may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Agreement or if the Trustee becomes insolvent. In such circumstances,
Receivables Corp. will also be obligated to appoint a successor Trustee. Any
resignation or removal of the Trustee and appointment of a successor Trustee
will not become effective until acceptance of the appointment by the successor
Trustee.
The Agreement requires the Trustee to maintain, at its own expense, an
office or agency in __________ where Certificates may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Trustee and the Certificate Registrar in respect of the Certificates
pursuant to the Agreement may be served.
The Trustee, or any of its affiliates, in its individual or any other
capacity, may become the owner or pledgee of Certificates with the same rights
as it would if it were not Trustee.
The Trustee will also act as Certificate Administrator under the
Agreement. In such capacity it will act as Paying Agent, Certificate Registrar
and Authenticating Agent.
S-68
<PAGE>
<PAGE>
Registration of Offered Certificates
The Offered Certificates will be book-entry certificates (the
"Book-Entry Certificates"). The Beneficial Certificate Owners may elect to hold
their Offered Certificates through DTC in the United States, or CEDEL or
Euroclear (in Europe) if they are participants of such systems ("Participants"),
or indirectly through organizations which are Participants in such systems. The
Book-Entry Certificates will be issued in one or more certificates per class of
Offered Certificates which in the aggregate equal the principal balance of such
Offered Certificates and will initially be registered in the name of Cede, the
nominee of DTC. CEDEL and Euroclear will hold omnibus positions on behalf of
their Participants through customers' securities accounts in CEDEL's and
Euroclear's names on the books of their respective depositaries which in turn
will hold such positions in customers' securities accounts in the depositaries'
names on the books of DTC. Citibank will act as depositary for CEDEL and Morgan
will act as depositary for Euroclear (in such capacities, individually the
"Relevant Depositary" and collectively the "European Depositaries"). Investors
may hold such beneficial interests in the Book-Entry Certificates in minimum
denominations representing principal amounts of $1,000. Except as described
below, no Beneficial Certificate Owner will be entitled to receive a physical
certificate representing such Certificate (a "Definitive Certificate"). Unless
and until Definitive Certificates are issued, it is anticipated that the only
"Owner" of such Offered Certificates will be Cede, as nominee of DTC. Beneficial
Certificate Owners will not be Owners as that term is used in the Pooling
Agreement. Beneficial Certificate Owners are only permitted to exercise their
rights indirectly through Participants and DTC.
The Beneficial Certificate Owner's ownership of a Book-Entry
Certificate will be recorded on the records of the brokerage firm, bank, thrift
institution or other financial intermediary (each, a "Financial Intermediary")
that maintains the Beneficial Certificate Owner's account for such purpose. In
turn, the Financial Intermediary's Ownership of such Book-Entry Certificate will
be recorded on the records of DTC (or of a participating firm that acts as agent
for the Financial Intermediary, whose interest will in turn be recorded on the
records of DTC, if the Beneficial Certificate Owner's Financial Intermediary is
not a DTC Participant and on the records of CEDEL or Euroclear, as appropriate).
Beneficial Certificate Owners will receive all distributions of
principal of, and interest on, the Offered Certificates from the Trustee through
DTC and DTC Participants. While such Offered Certificates are outstanding
(except under the circumstances described below), under the rules, regulations
and procedures creating and affecting DTC and its operations (the "Rules"), DTC
is required to make book-entry transfers among Participants on whose behalf it
acts with respect to such Offered Certificates and is required to receive and
transmit distributions of principal of, and interest on, such Offered
Certificates. Participants and indirect participants with whom Beneficial
Certificate Owners have accounts with respect to Offered Certificates are
similarly required to make book-entry transfers and receive and transmit such
distributions on behalf of their respective Beneficial Certificate Owners.
Accordingly, although Beneficial Certificate Owners will not possess
certificates, the Rules provide a mechanism by which Beneficial Certificate
Owners will receive distributions and will be able to transfer their interest.
Beneficial Certificate Owners will not receive or be entitled to
receive certificates representing their respective interests in the Offered
Certificates, except under the limited circumstances described below. Unless and
until Definitive Certificates are issued, Beneficial Certificate Owners who are
not Participants may transfer ownership of Offered Certificates only through
Participants and indirect participants by instructing such Participants and
indirect participants to transfer such Offered Certificates, by book-entry
transfer, through DTC for the account of the purchasers of such Offered
Certificates, which account is maintained with their respective Participants.
Under the Rules and in accordance with DTC's normal procedures, transfers of
ownership of such Offered Certificates will be executed through DTC and the
accounts of the respective Participants at DTC will be debited and credited.
Similarly, the Participants and indirect participants will make debits or
credits, as the case may be, on their records on behalf of the selling and
purchasing Beneficial Certificate Owners.
Because of time zone differences, credits of securities received in
CEDEL or Euroclear as a result of a transaction with a Participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
S-69
<PAGE>
<PAGE>
securities settled during such processing will be reported to the relevant
Euroclear or CEDEL Participants on such business day. Cash received in CEDEL or
Euroclear as a result of sales of securities by or through a CEDEL Participant
(as defined below) or Euroclear Participant (as defined below) to a DTC
Participant will be received with value on the DTC settlement date but will be
available in the relevant CEDEL or Euroclear cash account only as of the
business day following settlements in DTC. For information with respect to tax
documentation procedures relating to the Certificates, see "Federal
Income Tax Consequences -- Foreign Investors" and " -- Backup Withholding" in
the Prospectus and "Global Clearance, Settlement and Tax Documentation
Procedures -- Certain U.S. Federal Income Tax Documentation Requirements" in
Annex I hereto.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. CEDEL Participants and Euroclear Participants may not deliver instructions
directly to the European Depositaries.
DTC, which is a New York-chartered limited purpose trust company,
performs services for its Participants ("DTC Participants"), some of which
(and/or their representatives) own DTC. In accordance with its normal
procedures, DTC is expected to record the positions held by each DTC Participant
in the Book-Entry Certificates, whether held for its own account or as a nominee
for another person. In general, beneficial ownership of Book-Entry Certificates
will be subject to the rules, regulations and procedures governing DTC and DTC
Participants as in effect from time to time.
CEDEL is incorporated under the laws of Luxembourg as a professional
depositary. CEDEL holds securities for its participant organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depositary, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to CEDEL is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 31 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the "Euroclear Operator"), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative
S-70
<PAGE>
<PAGE>
corporation (the "Cooperative"). All operations are conducted by the Euroclear
Operator, and all Euroclear Securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear operator, not the Cooperative. The
Cooperative establishes policy for Euroclear on behalf of Euroclear
Participants. Euroclear Participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries.
Indirect access to Euroclear is also available to other firms that clear through
or maintain a custodial relationship with a Euroclear Participant, either
directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions on the Book-Entry Certificates will be made on each
Remittance Date by the Trustee to DTC. DTC will be responsible for crediting the
amount of such payments to the accounts of the applicable DTC Participants in
accordance with DTC's normal procedures. Each DTC Participant will be
responsible for disbursing such payment to the Beneficial Certificate Owners of
the Book-Entry Certificates that it represents and to each Financial
Intermediary for which it acts as agent. Each such Financial Intermediary will
be responsible for disbursing funds to the Beneficial Certificate Owners of the
Book-Entry Certificates that it represents.
Under a book-entry format, Beneficial Certificate Owners of the
Book-Entry Certificates may experience some delay in their receipt of payments,
since such payments will be forwarded by the Trustee to Cede. Distributions with
respect to Offered Certificates held through CEDEL or Euroclear will be credited
to the cash accounts of CEDEL Participants or Euroclear Participants in
accordance with the relevant system's rules and procedures, to the extent
received by the Relevant Depositary. Such distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
Because DTC can only act on behalf of Financial Intermediaries, the ability of a
Beneficial Certificate Owner to pledge Book-Entry Certificates, to persons or
entities that do not participate in the Depository system, or otherwise take
actions in respect of such Book-Entry Certificates, may be limited due to the
lack of physical certificates for such Book-Entry Certificates. In addition,
issuance of the Book-Entry Certificates in book-entry form may reduce the
liquidity of such Certificates in the secondary market since certain potential
investors may be unwilling to purchase Certificates for which they cannot obtain
physical certificates.
Monthly and annual reports on the Trust provided by the Servicer to
Cede, as nominee of DTC, may be made available to Beneficial Certificate Owners
upon request, in accordance with the rules, regulations and procedures creating
and affecting the Depository, and to the Financial Intermediaries to whose DTC
accounts the Book-Entry Certificates of such Beneficial Certificate Owners are
credited.
DTC has advised the Trustee that, unless and until Definitive
Certificates are issued, DTC will take any action permitted to be taken by the
holders of the Book-Entry Certificates under the Pooling Agreement only at the
direction of one or more Financial Intermediaries to whose DTC accounts the
Book-Entry Certificates are credited, to the extent that such actions are taken
on behalf of Financial Intermediaries whose holdings include such Book-Entry
Certificates. CEDEL or the Euroclear Operator, as the case may be, will take any
action permitted to be taken by an Owner under the Pooling Agreement
S-71
<PAGE>
<PAGE>
on behalf of a CEDEL Participant or Euroclear Participant only in accordance
with its relevant rules and procedures and subject to the ability of the
Relevant Depositary to effect such actions on its behalf through DTC. DTC may
take actions, at the direction of the related Participants, with respect to some
Offered Certificates which conflict with actions taken with respect to other
Offered Certificates.
Definitive Certificates will be issued to Beneficial Certificate Owners
of the Book-Entry Certificates, or their nominees, rather than to DTC, only if
(a) DTC or the Depositor advises the Trustee in writing that DTC is no longer
willing, qualified or able to discharge properly its responsibilities as a
nominee and depository with respect to the Book-Entry Certificates and the
Depositor or the Trustee is unable to locate a qualified successor, (b) the
Depositor, at its sole option, elects to terminate a book-entry system through
DTC or (c) DTC, at the direction of the Beneficial Certificate Owners
representing a majority of the outstanding Percentage Interests of the Offered
Certificates, advises the Trustee in writing that the continuation of a
book-entry system through DTC (or a successor thereto) is no longer in the best
interests of Beneficial Certificate Owners.
Although DTC, CEDEL and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Certificates among Participants
of DTC, CEDEL and Euroclear, they are under no obligation to perform or continue
to perform such procedures and such procedures may be discontinued at any time.
CERTAIN LEGAL ASPECTS OF THE CONTRACTS
General
As a result of the assignment of the Contracts in a Contract Pool to
the Trustee, the Trust will succeed collectively to all of the rights (including
the right to receive payment on such Contracts), and will assume the obligations
of the obligee, under such Contracts. Each Contract evidences both (a) the
obligation of the Obligor to repay the loan evidenced thereby, and (b) the grant
of a security interest in either the Manufactured Home. Certain aspects of both
features of the Contracts are described more fully below.
The following discussion focuses on issues relating generally to AFL's
or any lender's interest in manufactured housing contracts. See "-- Security
Interests in the Manufactured Homes" herein for a discussion of certain issues
relating to the transfer to the Trust of the Contracts and the related security
interests in the Manufactured Homes.
Security Interests in the Manufactured Homes
The Manufactured Homes securing the Contracts may be located in all 50
states and the District of Columbia. Security interests in manufactured homes,
similar to the ones securing the Contracts, ("manufactured homes") generally may
be perfected either by notation of the secured party's lien on the certificate
of title or by delivery of the required documents and payment of a fee to the
state motor vehicle authority, depending on state law. In some non-title states,
perfection pursuant to the provisions of the UCC is required. Generally, with
respect to manufactured housing contracts individually originated or purchased
by AFL, AFL effects such notation or delivery of the required documents and
fees, and obtains possession of the certificate of title or a lien certificate,
as appropriate, under the laws of the state in which any manufactured home
securing a manufactured housing conditional sales contract is registered. If AFL
fails, due to clerical errors or otherwise, to effect such notation or delivery,
or files the security interest under the wrong law (for example, under a motor
vehicle title statute rather than under the UCC, in a few states), AFL may not
have a first-priority security interest in the manufactured home securing a
contract. As manufactured homes have become larger and often have been attached
to their sites without any apparent intention to move them, courts in many
states have held that manufactured homes, under certain circumstances, may
become subject to real estate title and recording laws. As a result, a security
interest in a manufactured home could be rendered subordinate to the interests
of other parties claiming an interest in the home under applicable state real
estate law. In order to perfect a security interest in a manufactured home under
real estate laws, the holder of the security interest must
S-72
<PAGE>
<PAGE>
file either a "fixture filing" under the provisions of the UCC or a real estate
mortgage under the real estate laws of the state where the home is located.
These filings must be made in the real estate records office of the county where
the home is located. Most of the Contracts in any Contract Pool will contain
provisions prohibiting the Obligor from permanently attaching the Manufactured
Home to its site if it was not so attached on the date of the Contract. As long
as each Manufactured Home was not so attached on the date of the Contract and
the Obligor does not violate this agreement, a security interest in the
Manufactured Home will be governed by the certificate of title laws or the UCC,
and the notation of the security interest on the certificate of title or the
filing of a UCC financing statement will be effective to maintain the priority
of AFL's security interest in the Manufactured Home. Upon the conveyance of each
Contract to the Seller, AFL will represent that it had obtained a perfected
first-priority security interest in the Manufactured Home securing the related
Contract. Such representation, however, will not be based upon an inspection of
the site of any Manufactured Home to determine if the Manufactured Home had
become permanently attached to its site.
In the absence of fraud, forgery or permanent affixation of a
manufactured home to its site by the manufactured home owner, or administrative
error by state recording officials, the notation of the lien of AFL on the
certificate of title or delivery of the required documents and fees (or if
applicable, perfection under the UCC) will be sufficient to protect AFL against
the rights of subsequent purchasers of a manufactured home or subsequent lenders
who take a security interest in the manufactured home. If there are any
manufactured homes as to which the security interest in favor of AFL is not
perfected, such security interest would be subordinate to the claims of, among
others, subsequent purchasers for value of and holders of perfected security
interests in such manufactured homes.
In the event that the owner of a manufactured home moves it to a state
other than the state in which such manufactured home initially is registered,
under the laws of most states, the perfected security interest in the
manufactured home would continue for four months after such relocation and
thereafter until the owner registers the manufactured home in such state. If the
owner were to relocate a manufactured home to another state and were to
re-register the manufactured home in such state, and if steps are not taken to
re-perfect an existing security interest in such state, the security interest in
the manufactured home would cease to be perfected. A majority of states
generally require surrender of a certificate of title to such manufactured home.
AFL must therefore surrender possession if it holds the certificate of title to
such manufactured home or, in the case of manufactured homes registered in
states which provide for notation of lien, AFL would receive notice of surrender
if its security interest in the manufactured home is noted on the certificate of
title. Accordingly, AFL would have the opportunity to re-perfect its security
interest in the manufactured home in the state of relocation. In states which do
not require a certificate of title for registration of a manufactured home,
re-registration could defeat the perfection. In the ordinary course of servicing
its manufactured housing contracts, AFL takes steps to effect such re-perfection
upon receipt of notice of re-registration or information from the obligor as to
relocation. Similarly, when an obligor under a contract sells a manufactured
home, AFL must surrender possession of the certificate of title or AFL will
receive notice as a result of its lien noted thereon and accordingly AFL will
have an opportunity to require satisfaction of the related contract before
release of the lien. Such protections generally would not be available in the
case of security interests in manufactured homes located in non-title states
where perfection of such security interest is achieved by appropriate filings
under the UCC (as in effect in such state).
Under the laws of most states, liens for repairs performed on a
manufactured home and liens for personal property taxes take priority over a
perfected security interest in the manufactured home. Upon the conveyance of
each Contract to the Seller, AFL will represent that it had obtained a perfected
first-priority security interest in the Manufactured Home securing the related
Contract. The Seller will, in turn, warrant in the Agreement that, as of the
date of initial issuance of such Series of Certificates, no Manufactured Home
was subject to any such lien. However, such warranties will not be based on any
lien searches or other review. In addition, such liens could arise after the
date of initial issuance of the Certificates. Notice may not be given to
Receivables Corp., the Servicer, the Trustee or Certificateholders in the event
such a lien arises.
Enforcement of Security Interests in Manufactured Homes
S-73
<PAGE>
<PAGE>
The Servicer on behalf of the Trustee, to the extent required by the
related Agreement, may take action to enforce the Trustee's security interest
with respect to Contracts in default by repossession and resale of the
Manufactured Homes securing such defaulted Contracts. In general, as long as a
manufactured home has not become subject to the real estate law, a creditor can
repossess a manufactured home by voluntary surrender, by "self-help"
repossession that is "peaceful" (i.e., without breach of the peace) or, in the
absence of voluntary surrender and the ability to repossess without breach of
the peace, by judicial process. The holder of a manufactured housing contract
generally must give the obligor a number of days' notice prior to commencement
of any repossession. The UCC and consumer protection laws in most states place
restrictions on repossession sales, including requiring prior notice to the
obligor and commercial reasonableness in effecting such a sale. The law in most
states also requires that the obligor be given notice of any sales prior to
resale of the unit so that the obligor may redeem at or before such resale.
Under the laws applicable in most states, a creditor is entitled to
obtain a deficiency judgment from an obligor for any deficiency on repossession
and resale of the manufactured home securing such obligor's contract. However,
some states impose prohibitions or limitations on deficiency judgments, and in
many cases the defaulting obligor would have no assets with which to pay a
judgment.
Certain other statutory provisions, including federal and state
bankruptcy and insolvency laws and general equitable principles, may limit or
delay AFL's ability to repossess and resell any Manufactured Home or enforce a
deficiency judgment.
Land Secured Contracts
General. The Land Secured Contract will, to the extent described under
"The Contract Pool," be secured by Mortgages on the property on which the
related Manufactured Homes are located. The Mortgages will either be mortgages
or deeds of trust, depending on the general real estate practice in the state in
which the Mortgaged Property is located. A mortgage creates a lien upon the real
property described in the mortgage. There are two parties to a mortgage: the
mortgagor, who is the borrower, and the mortgagee, who is the lender. The
mortgagor delivers to the mortgagee a note or bond evidencing the loan and the
mortgage. A deed of trust normally has three parties: the real property owner
called the trustor (similar to a mortgagor), a lender called the beneficiary
(similar to the mortgagee) and a third-party grantee called the trustee. Under a
deed of trust, the trustor grants the property, irrevocably until the debt is
paid, "in trust with power of sale" to the trustee to secure payment of the
obligation.
Non-Recordation. Because of the expenses and administrative
inconvenience involved, the assignment of mortgages or deeds of trust to the
Trustee will not be recorded with respect to the Mortgages securing each Land
Secured Contract. The failure to record the assignments to the Trustee of the
Mortgage securing Land Secured Contracts may result in the sale of such
Contracts or the Trustee's rights in the land secured by the Mortgage being
ineffective against creditors of AFL or against a trustee in bankruptcy of AFL
or against a subsequent purchaser of such Contracts from AFL or Receivables
Corp., without notice of the sale to the Trustee.
Foreclosure. Foreclosure of a mortgage is generally accomplished by
judicial action. The action is initiated by the service of legal pleadings upon
all parties having an interest of record in the real property. Delays in
completion of the foreclosure occasionally may result from difficulties in
locating and serving necessary parties. Judicial foreclosure proceedings are
generally not contested by any of the parties due to the lack of the mortgagor's
equity in the property. However, when the mortgagee's right to foreclosure is
contested, the legal proceedings necessary to resolve the issue can be time
consuming and expensive. After the completion of a judicial foreclosure
proceeding, the court issues a judgment of foreclosure and a court officer
conducts the sale of the property.
Foreclosure of a deed of trust is generally accomplished by a
non-judicial trustee's sale under a specific provision in the deed of trust that
authorizes the trustee to sell the property to a third party upon any default by
the borrower under the terms of the note or deed of trust. In certain states,
such
S-74
<PAGE>
<PAGE>
foreclosure also may be accomplished by judicial action in the manner provided
for foreclosure of mortgages.
In some states, the borrower-trustor has the right to reinstate the
loan at any time following default until shortly before the trustee's sale. In
general, the borrower, or any other person having a junior encumbrance on the
real estate, may, during a reinstatement period, cure the default by paying the
entire amount in arrears plus the costs and expenses incurred in enforcing the
obligation. Certain state laws control the amount of foreclosure expenses and
costs, including attorneys' fees, which may be recovered by a lender.
The sale must be conducted by public auction and must be held in the
county where all or some part of the property subject to the mortgage is
located. However, because of the difficulty a potential buyer at the sale would
have in determining the exact status of title and because the physical condition
of the property may have deteriorated during the foreclosure proceedings, it is
not common for a third party to purchase the property at the foreclosure sale.
Rather, the lender generally purchases the property for an amount equal to the
unpaid principal amount of the note, accrued and unpaid interest and the
expenses of foreclosure. Thereafter, subject to the right of the borrower in
some states to remain in possession during the redemption period, the lender
will assume the burdens of ownership, including obtaining hazard insurance and
making such repairs at its own expense as are necessary to render the property
suitable for sale. The lender commonly will obtain the services of a real estate
broker and pay the broker a commission in connection with the sale of the
property. Depending upon market conditions, the ultimate proceeds of the sale of
the property may not equal the lender's investment in the property.
Rights of Redemption. In some states, after a sale pursuant to a deed
of trust or a foreclosure of a mortgage, the borrower and certain foreclosed
junior lienors are given a statutory period in which to redeem the property from
the foreclosure sale. Redemption may occur upon payment of the entire principal
balance of the loan, accrued statutory interest and expenses of foreclosure. The
effect of a right of redemption is to diminish the ability of the lender to sell
the foreclosed property. The exercise of a right of redemption would defeat the
title of any purchaser from the lender subsequent to foreclosure and before
expiration of the redemption period. Consequently, the practical effect of the
redemption right is to force the lender to maintain the property, and pay the
expenses of ownership until the redemption period has expired.
Anti-Deficiency Legislation and Other Limitations on Lenders. Certain
states have imposed statutory restrictions that limit the remedies of a
mortgagee under a mortgage relating to a single family residence. In some
states, statutes limit the right of the lender to obtain a deficiency judgment
against the borrower following foreclosure or sale under a deed of trust. A
deficiency judgment is a personal judgment against the borrower equal in most
cases to the difference between the amount due to the lender and the net amount
realized upon the foreclosure sale.
Some state statutes may require the lender to exhaust the security
afforded under a mortgage or deed of trust by foreclosure in an attempt to
satisfy the full debt before bringing a personal action against the borrower. In
certain other states, the lender has the option of bringing a personal action
against the borrower on the debt without first exhausting such security;
however, in some of these states, the lender, following judgment on such
personal action, may be deemed to have elected a remedy and may be precluded
from exercising remedies with respect to the security.
Other statutory provisions may limit any deficiency judgment against
the former borrower following a foreclosure sale to the excess of the
outstanding debt over the fair market value of the property at the time of such
sale. The purpose of these statutes is to prevent a beneficiary or a mortgagee
from obtaining a large deficiency judgment against the former borrower as a
result of low or no bids at the foreclosure sale.
In some states, exceptions to the anti-deficiency statutes are provided
for in certain instances where the value of the lender's security has been
impaired by acts or omissions of the borrower, for example, in the event of
waste of the property.
S-75
<PAGE>
<PAGE>
In addition to anti-deficiency and related legislation, numerous other
federal and state, statutory provisions, including the federal bankruptcy laws,
the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws
affording relief to debtors, may interfere with or affect the ability of a
secured mortgage lender to realize upon its security. A bankruptcy court may
grant the debtor a reasonable time to cure a payment default, and in the case of
a mortgage loan not secured by the debtor's principal residence, also may reduce
the monthly payments due under such mortgage loan, change the rate of interest
and alter the mortgage loan repayment schedule. Certain court decisions have
applied such relief to claims secured by, the debtor's principal residence.
The Code provides priority to certain tax liens over the lien of the
mortgage or deed of trust. The laws of some states provide priority to certain
tax liens over the lien of the mortgage or deed of trust. Numerous federal and
some state consumer protection laws impose substantive requirements upon
mortgage lenders in connection with the origination, servicing and enforcement
of mortgage loans. 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 and regulations.
These federal laws and state laws impose specific statutory liabilities upon
lenders who originate or service 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.
Consumer Protection Laws
The so-called "Holder-in-Due-Course" rule of the Federal Trade
Commission is intended to defeat the ability of the transferor of a consumer
credit contract which is the seller of goods which gave rise to the transaction
(and certain related lenders and assignees) to transfer such contract free of
notice of claims by the obligor thereunder. The effect of this rule is to
subject the assignee of such a contract to all claims and defenses which the
obligor could assert against the seller of goods. Liability under this rule is
limited to amounts paid under such a contract; however, the obligor also may be
able to assert the rule to set off remaining amounts due as a defense against a
claim brought by the assignee against such obligor. Generally, this rule will
apply to any Contracts conveyed to the Trustee and to any claims made by the
Servicer on behalf of the Trustee, as the assignee of Receivables Corp., and in
turn AFL. Numerous other federal and state consumer protection laws impose
requirements applicable to the origination and lending pursuant to such
Contracts, including the Truth in Lending Act, the Federal Trade Commission Act,
the Fair Credit Billing Act, the Fair Credit Reporting Act, the Equal Credit
Opportunity Act, the Fair Debt Collection Practices Act and the Uniform Consumer
Credit Code. In the case of some of these laws, the failure to comply with their
provisions may affect the enforceability of the related Contract or create
liability for the Trust.
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940,
as amended (the "Relief Act"), if so required by a obligor under a manufactured
housing contract who enters military service after the origination of such
obligor's contract (including a obligor who is a member of the National Guard or
is in reserve status at the time of the origination of the contract and is later
called to active duty), such obligor may not be charged interest above an annual
rate of 6% during the period of such obligor's active duty status, unless a
court orders otherwise upon application of the lender. In addition, the Relief
Act imposes limitations which would impair the ability of any lender to
foreclose on an affected contract during the obligor's period of active duty
status. It is possible that application of the Relief Act to certain of the
Contracts could have an effect, for an indeterminate period of time, on the
ability of the Servicer to collect full amounts of interest or foreclose on such
Contracts and to the extent not covered by a Credit Facility, could result in
delays in payment or losses to the holders of the related Certificates. Neither
AFL nor Receivables Corp. will make any representation or warranty as to whether
any Contract is or could become subject to the Relief Act.
Transfers of Manufactured Homes; Enforceability of Restrictions on Transfer
The Contracts comprising any Contract Pool generally will prohibit the
sale or transfer of the related Manufactured Homes without the consent of the
obligee and permit the acceleration of the maturity of the Contracts by the
obligee upon any such sale or transfer that is not consented to. Under
S-76
<PAGE>
<PAGE>
the Agreement, AFL as Servicer is required to consent to any such transfer and
to permit the assumption of the related Contract if the proposed buyer meets the
Servicer's underwriting standards and enters into an assumption agreement, the
Servicer determines that permitting such assumption will not materially increase
the risk of nonpayment of the Contract and such action will not adversely affect
or jeopardize any coverage under any insurance policy required by the Agreement.
If the Servicer determines that these conditions have not been fulfilled, then
it is required to withhold its consent to the transfer, but only to the extent
permitted under the Contract and applicable law and governmental regulations and
only to the extent that such action will not adversely affect or jeopardize any
coverage under any insurance policy required by the Agreement. In certain cases,
a delinquent Obligor may attempt to transfer a Manufactured Home in order to
avoid a repossession proceeding with respect to such Manufactured Home.
In the case of a transfer of a Manufactured Home after which the
obligee desires to accelerate the maturity of the related Contract, the
obligee's ability to do so will depend on the enforceability under state law of
the clause permitting acceleration on transfer. The Garn-St. Germain Depositary
Institutions Act of 1982 preempts, subject to certain exceptions and conditions,
state laws prohibiting enforcement of such clauses applicable to manufactured
homes. To the extent such exceptions and conditions apply in some states, the
Servicer may be prohibited from enforcing such a clause in respect of certain
Manufactured Homes.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary
Controls Act of 1980, as amended ("Title V"), provides that, subject to the
following conditions, state usury limitations shall not apply to any loan which
is secured by a first lien on certain kinds of manufactured housing. The
Contracts would be covered under Title V if, among other things, they satisfy
certain conditions governing the terms of any prepayments, late charges and
deferral fees and requiring a 30-day notice period prior to instituting any
action leading to repossession of the related unit.
Title V authorized any state to reimpose limitations on interest rates
and finance charges by adopting before April 1, 1983 a law or constitutional
provision which expressly rejects application of the federal law. Fifteen states
adopted such a law prior to the April 1, 1983 deadline. In addition, even where
Title V was not so rejected, any state is authorized by the law to adopt a
provision limiting discount points or other charges on loans covered by Title V.
Upon the conveyance of each Contract to the Trust, Receivables Corp. will
represent that such Contract complied with applicable usury laws.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion of certain of the material federal income tax
consequences of the purchase, ownership and disposition of the Offered
Certificates is to be considered only in connection with "Federal Income
Tax Considerations" in the Prospectus. The discussion herein and in the
Prospectus is based upon laws, regulations, rulings and decisions now in effect,
all of which are subject to change. The discussion below and in the Prospectus
does not purport to deal with all federal tax consequences applicable to all
categories of investors, some of which may be subject to special rules.
Investors should consult their own tax advisors in determining the federal,
state, local and any other tax consequences to them of the purchase, ownership
and disposition of the Offered Certificates.
REMIC Elections
The Trustee will cause one or more elections to be made with respect to
certain specified assets of the Trust as real estate mortgage investment
conduits ("REMICs") within the meaning of Code Section 860D. _______________,
special tax counsel, will advise that, in its opinion, for federal income tax
purposes, assuming the REMIC elections are made and compliance with the Pooling
and Servicing Agreement, each Class of the Class A-1 Certificates, the Class A-2
Certificates, the Class A-3 Certificates, the Class A-4 Certificates, the Class
A-5 Certificates, the Class A-6 Certificates and the Class B-1 Certificates will
each be treated as a "regular interest" in a REMIC.
S-77
<PAGE>
<PAGE>
For federal income tax purposes, regular interests in a REMIC are
treated as debt instruments issued by the REMIC on the date on which those
interests are created, and not as ownership interests in the REMIC or its
assets. Owners of Class A Certificates that otherwise report income under a cash
method of accounting will be required to report income with respect to such
Certificates under an accrual method. The prepayment assumption that will be
used in determining the rate of accrual of original issue discount on the Class
A Certificates is ___% of the "Prepayment Assumption." See "Maturity, Prepayment
and Yield Considerations" herein. herein and "Federal Income Tax Considerations
- - - Discount and Premium" in the Prospectus.
Taxation of Foreign Investors
In general, foreign investors will not be subject to U.S. withholding
on income from the Offered Certificates. See "Federal Income Tax
Considerations -- Foreign Investors -- Grantor Trust Securities and REMIC
Regular Securities" in the Prospectus.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), imposes certain fiduciary restrictions on employee benefit plans that
are subject to ERISA and on persons who are fiduciaries with respect to such
plans. In addition, such plans, as well as certain plans or other retirement
arrangements not subject to ERISA, but which are subject to Section 4975 of the
Code (such as individual retirement accounts) and any entity whose underlying
assets include plan assets by reason of a plan or account investing in such
entity (collectively, "Plans") are subject to prohibited transaction
restrictions.
See "ERISA Considerations" in the Prospectus.
Purchasers that are insurance companies should consult with their
counsel with respect to the recent United States Supreme Court case interpreting
the fiduciary responsibility rules of ERISA, John Hancock Mutual Life Insurance
Co. v. Harris Trust & Savings Bank, 114 S. Ct. 517 (1993). In John Hancock, the
Supreme Court ruled that assets held in an insurance company's general account
may be deemed to be "plan assets" for purposes of ERISA under certain
circumstances.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of the Exemption
(defined below) and other administrative exemptions under ERISA and the
potential consequences in their specific circumstances, prior to making an
investment in the Offered Certificates. Moreover, each Plan fiduciary should
determine whether under the general fiduciary standards of investment prudence
and diversification an investment in the Offered Certificates is appropriate for
the Plan, taking into account the overall investment policy of the Plan and the
composition of the Plan's investment portfolio.
Senior Certificates
The Department of Labor ("DOL") has granted to each of
and an administrative exemption, Prohibited Transaction
Exemption and Prohibited Transaction Exemption , respectively
(each, an "Exemption"), from certain of the prohibited transaction rules of
ERISA. The Exemption exempts from the prohibitions of Sections 406(a) and 407(a)
of ERISA, and the related excise tax provisions of Section 4975 of the Code, the
purchase, holding, and resale by Plans of pass-through certificates representing
interests in trusts that hold assets consisting primarily of certain
receivables, loans, and other obligations that meet the general conditions
described below. The receivables covered by the Exemption include manufactured
housing installment sales contracts and installment loan agreements secured by
manufactured homes such as the Contracts.
Among the general conditions which must be satisfied for the Exemption
to apply to the acquisition, holding and resale by a Plan of the Senior
Certificates are the following:
S-78
<PAGE>
<PAGE>
(1) The acquisition of the Senior Certificates by a Plan is on
terms (including the price for the Senior Certificates) that are at
least as favorable to the Plan as they would be in an arm's-length
transaction with an unrelated party.
(2) The rights and interests evidenced by the Senior
Certificates acquired by the Plan are not subordinated to the rights
and interests evidenced by other certificates of the Trust.
(3) The Senior Certificates acquired by the Plan have received
a rating at the time of such acquisition that is in one of the three
highest generic rating categories from Moody's, Fitch, Duff & Phelps
Rating Co. or Standard & Poor's Corporation.
(4) The Trustee is not an affiliate of the Underwriters,
Receivables Corp., AFL, any obligor with respect to Contracts included
in the Trust constituting more than 5% of the aggregate unamortized
principal balance of the assets in the Trust, or any affiliate of such
parties. (Such parties and the Trustee and its affiliates, are
sometimes referred to herein collectively as the "Restricted Group").
As of the date hereof, no Obligor with respect to Contracts included in
the Trust is an Obligor with respect to Contracts constituting more
than 5% of the aggregate unamortized principal balance of the assets of
the Trust.
(5) The sum of all payments made to and retained by the
Underwriters in connection with the distribution of the Senior
Certificates represents not more than reasonable compensation for
underwriting the Senior Certificates. The sum of all payments made to
and retained by Receivables Corp. pursuant to the sale of the Contracts
to the Trust represents not more than the fair market value of such
Contracts. The sum of all payments made to and retained by AFL
represents not more than reasonable compensation for AFL's services
under the Agreement and reimbursement of AFL's reasonable expenses in
connection therewith.
(6) The Plan is an "accredited investor" as defined in Rule
501(a)(1) of Regulation D of the Securities and Exchange Commission
under the Securities Act of 1933.
In addition, the Exemption exempts from the prohibitions of Sections
406(a), 406(b) and 407(a) of ERISA, and the related excise tax provisions of
Section 4975 of the Code, transactions undertaken in connection with the
servicing, management and operation of such a trust pursuant to a binding
pooling and servicing agreement, subject to the foregoing general conditions and
to certain additional requirements.
The Exemption also exempts from the prohibition of Sections 406(b)(1)
and 406(b)(2) of ERISA the related excise tax provisions of Section 4975 of the
Code, the direct or indirect sale, exchange or transfer of Senior Certificates
between Receivables Corp. or the Underwriters and a Plan when the person who has
discretionary authority or renders investment advice with respect to the
investment of the Plan's assets in the Senior Certificates (the "Fiduciary") is
(a) an obligor with respect to 5 percent or less of the fair market value of
Contracts in the Trust or (b) an affiliate or any such person, subject to the
general conditions described above and to the following additional
requirements:
(1) No member of the Restricted Group is a sponsor of the
Plan.
(2) In connection with the initial issuance of Senior
Certificates, at least 50% in Percentage Interests of each Class of
Senior Certificates is acquired by persons independent of the
Restricted Group and at least 50% of the aggregate interest in the
Trust is acquired by persons independent of the Restricted Group.
(3) The Plan's investment in the Senior Certificates does not
exceed 25% in Percentage Interests of any Class of Senior Certificates
outstanding at the time of acquisition.
(4) Immediately after the acquisition of the Senior
Certificates, no more than 25% of the assets of the Plan with respect
to which the Fiduciary has discretionary authority or renders
S-79
<PAGE>
<PAGE>
investment advice are invested in certificates representing an interest
in a trust containing assets sold or serviced by the same entity.
The exemption also applies to the direct or indirect acquisition or disposition
of Senior Certificates by a Plan in the secondary market if certain conditions
are met and the continued holding of Senior Certificates acquired in initial or
secondary markets.
[Prior to the earlier of (i) the date on which the Funding Period
expires and (ii) the date on which the DOL amends the Exemption to permit the
use of pre-funding accounts thereunder, Plans will not be permitted to purchase
the Senior Certificates. On the earlier to occur of such dates, the Exemption
may be available for the purchase of Senior Certificates by Plans.] Before
purchasing a Senior Certificate, a fiduciary of a Plan should make its own
determination as to the availability of the exemptive relief provided in the
Exemption, and whether the conditions of such Exemption will be applicable to
the Certificate. Any fiduciary of a Plan considering whether to purchase a
Senior Certificate should also carefully review with its own legal advisors the
applicability of the fiduciary duty and prohibited transaction provisions of
ERISA and the Code to such investment. See "ERISA Considerations" in the
Prospectus.
Subordinate Certificates
As indicated above, one of the general conditions for use of the
Exemption is that the rights and interests evidenced by certificates acquired by
the Plan not be subordinated to the rights and interests evidenced by other
certificates of the Trust. Accordingly, the Subordinated Certificates could not
generally be purchased or held by a Plan or a person using plan assets in
reliance on the Exemption. However, Prohibited Transaction Class Exemption 95-60
("PTCE 95-60") provides an exemption for an insurance company general account
purchaser of a certificate issued by an asset-backed pool trust if, among other
conditions, the trust is covered by an administrative exemption granted to the
underwriter (such as the Exemption) and the conditions for such exemption are
met except for the general conditions described in (2) and (3) above. Thus, if
the conditions of the Exemption are satisfied with respect to the Senior
Certificates, the Class A-6 and Class B-1 Certificates may be acquired by an
insurance company using general account assets provided the conditions of PTCE
95-60 are satisfied.
Before purchasing a Class A-6 or Class B-1 Certificate, an
insurance company general account purchaser should make its own determination as
to the availability of the exemptive relief provided in the Exemption and in
PTCE 95-60, and whether the conditions of the Exemption and PTCE 95-60 will be
applicable to the Certificate. Any insurance company considering whether to
purchase a Class A-6 or B-1 Certificate should also carefully review with its
own legal advisors the applicability of the fiduciary duty and prohibited
transaction provisions of ERISA and the Code to such investment.
RATINGS
It is a condition to the issuance of the Senior Certificates that they
be rated " " by (" ") and " " by (" "). It is a condition to the issuance of the
Class A-6 Certificates that they be rated at least " " by and " " by . It is a
condition to the issuance of the Class B-1 Certificates that they be rated at
least " " by and " " by . A security rating is not a recommendation to buy, sell
or hold securities and may be subject to revision or withdrawal at any time by
the assigning rating agency.
The ratings assigned by and to pass-through certificates address the
likelihood of the receipt by the related certificateholders of their allocable
share of principal and interest on the underlying assets. and ratings take into
consideration the credit quality of the related underlying assets, any credit
support arrangements, structural and legal aspects associated with such
certificates, and the extent to which the payment stream on such underlying
assets are adequate to make payments required by such certificates. and ratings
on such certificates do not, however, constitute a statement
S-80
<PAGE>
<PAGE>
regarding frequency of prepayments on the underlying assets or as to whether
yield may be adversely affected as a result thereof.
Receivables Corp. has not requested a rating on the Offered
Certificates by any rating agency other than and . However, there can be no
assurance as to whether any other rating agency will rate any or all of the
Offered Certificates, or if it did, what rating would be assigned to the Offered
Certificates by any such other rating agency. A rating on any or all of the
Offered Certificates by certain other rating agencies, if assigned at all, may
be lower than the rating assigned to such Certificates by
and .
PLAN OF DISTRIBUTION
Subject to the terms and conditions of the Underwriting Agreement dated
(the "Underwriting Agreement"), the Seller has agreed to sell, and and (the
"Underwriters") have agreed to purchase from the Seller, the Offered
Certificates.
In the Underwriting Agreement, each of the Underwriters has agreed,
subject to the terms and conditions set forth therein, to purchase, the
principal amount of the Offered Certificates set forth opposite its name below.
<TABLE>
<CAPTION>
Underwriter Principal Amount of Offered Certificates
<S> <C>
.......................................................... $
..........................................................
Total................................................ $
</TABLE>
The Seller has been advised by the Underwriters that they propose to
offer the Offered Certificates to the public initially at the prices set forth
on the cover page of this Prospectus Supplement, and to certain dealers at such
prices less a concession not to exceed % of the Original Class A-1 Principal
Balance, % of the Original Class A-2 Principal Balance, % of the Original Class
A-3 Principal Balance, % of the Original Class A-4 Principal Balance, % of the
Original Class A-5 Principal Balance, % of the Original A-6 Principal Balance
and % of the Original Class B-1 Principal Balance; that the Underwriters and
such dealers may allow a discount of % of the Original Class A-1 Principal
Balance, % of the Original Class A-2 Principal Balance, % of the Original Class
A-3 Principal Balance, % of the Original Class A-4 Principal Balance, % of the
Original Class A-5 Principal Balance, % of the Original A-6 Principal Balance
and % of the Original Class B-1 Principal Balance to certain other dealers.
After the initial public offering of the Offered Certificates, the public
offering price and concession and discount to dealers may be changed by the
Underwriters.
The Underwriting Agreement provides that AFL will indemnify each
Underwriter against certain liabilities, including civil liabilities, under the
Securities Act of 1933, as amended, or contribute to payments either Underwriter
may be required to make in respect thereof.
USE OF PROCEEDS
Substantially all of the net proceeds to be received from the sale of
the Certificates will be used by Receivables Corp. for general corporate
purposes, including the purchase of the Contracts, the carrying costs of the
Contracts until the sale of the Certificates and to pay other expenses connected
with pooling the Contracts and issuing the Certificates.
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon
for AFL and the Seller by . Certain tax matters concerning the issuance of the
Certificates will be passed upon by , will act as counsel for the Underwriters.
S-81
<PAGE>
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered
Manufactured Housing Contract Trust Offered Certificates (the "Global
Securities") will be available only in book-entry form. Investors in the Global
Securities may hold such Global Securities through any of DTC, CEDEL or
Euroclear. The Global Securities will be tradeable as home market instruments in
both the European and U.S. domestic markets. Initial settlement and all
secondary trades will settle in same-day funds.
Secondary market trading between investors through CEDEL and Euroclear
will be conducted in the ordinary way in accordance with the normal rules and
operating procedures of CEDEL and Euroclear and in accordance with conventional
eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors through DTC will be
conducted according to DTC's rules and procedures applicable to U.S. corporate
debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of CEDEL and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in the
name of Cede as nominee of DTC. Investors' interests in the Global Securities
will be represented through financial institutions acting on their behalf as
direct and indirect Participants in DTC. As a result, CEDEL and Euroclear will
hold positions on behalf of their participants through their Relevant Depositary
which in turn will hold such positions in their accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will
follow DTC settlement practices. Investor securities custody accounts will be
credited with their holdings against payment in same-day funds on the settlement
date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior home
equity loan asset-backed certificates issues in same-day funds.
I-1
<PAGE>
<PAGE>
Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC, Seller and CEDEL or Euroclear Participants. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a CEDEL Participant or a Euroclear Participant, the purchaser
will send instructions to CEDEL or Euroclear through a CEDEL Participant or
Euroclear Participant at least one business day prior to settlement. CEDEL or
Euroclear will instruct the Relevant Depositary, as the case may be, to receive
the Global Securities against payment. Payment will include interest accrued on
the Global Securities from and including the last coupon payment date to and
excluding the settlement date, on the basis of the actual number of days in such
accrual period and a year assumed to consist of 360 days. For transactions
settling on the 31st of the month, payment will include interest accrued to and
excluding the first day of the following month. Payment will then be made by the
Relevant Depositary to the DTC Participant's account against delivery of the
Global Securities. After settlement has been completed, the Global Securities
will be credited to the respective clearing system and by the clearing system,
in accordance with its usual procedures, to the CEDEL Participant's or Euroclear
Participant's account. The securities credit will appear the next day (European
time) and the cash debt will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the CEDEL or Euroclear cash debt
will be valued instead as of the actual settlement date.
CEDEL Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within CEDEL or Euroclear. Under this
approach, they may take on credit exposure to CEDEL or Euroclear until the
Global Securities are credited to their account one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit
to them, CEDEL Participants or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon to finance
settlement. Under this procedure, CEDEL Participants or Euroclear Participants
purchasing Global Securities would incur overdraft charges for one day, assuming
they cleared the overdraft when the Global Securities were credited to their
accounts. However, interest on the Global Securities would accrue from the value
date. Therefore, in many cases the investment income on the Global Securities
earned during that one-day period may substantially reduce or offset the amount
of such overdraft charges, although the result will depend on each CEDEL
Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours,
DTC Participants can employ their usual procedures for crediting Global
Securities to the respective European Depositary for the benefit of CEDEL
Participants or Euroclear Participants. The sale proceeds will be available to
the DTC seller on the settlement date. Thus, to the DTC Participants a
cross-market transaction will settle no differently than a trade between two DTC
Participants.
Trading between CEDEL or Euroclear Seller and DTC Purchaser. Due to
time zone differences in their favor, CEDEL Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depository, to a DTC Participant. The seller will send
instructions to CEDEL or Euroclear through a CEDEL Participant or Euroclear
Participant at least one business day prior to settlement. In these cases CEDEL
or Euroclear will instruct the respective Depository, as appropriate, to credit
the Global Securities to the DTC Participant's account against payment. Payment
will include interest accrued on the Global Securities from and including the
last coupon payment to and excluding the settlement date on the basis of the
actual number of days in such accrual period and a year assumed to consist of
360 days. For transactions settling on the 31st of the month, payment will
include interest accrued to and excluding the first day of the following month.
The payment will then be reflected in the
I-2
<PAGE>
<PAGE>
account of CEDEL Participant or Euroclear Participant the following day, and
receipt of the cash proceeds in the CEDEL Participant's or Euroclear
Participant's account would be back-valued to the value date (which would be the
preceding day, when settlement occurred in New York). In the event that the
CEDEL Participant or Euroclear Participant have a line of credit with its
respective clearing system and elect to be in debt in anticipation of receipt of
the sale proceeds in its account, the back-valuation will extinguish any
overdraft incurred over that one-day period. If settlement is not completed on
the intended value date (i.e., the trade fails), receipt of the cash proceeds in
the CEDEL Participant's or Euroclear Participant's account would instead be
valued as of the actual settlement date.
Finally, day traders that use CEDEL or Euroclear and that purchase
Global Securities from DTC Participants for delivery to CEDEL Participants or
Euroclear Participants should note that these trades would automatically fail on
the sale side unless affirmative action is taken. At least three techniques
should be readily available to eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the
purchase side of the trade is reflected in their CEDEL or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their CEDEL or Euroclear account
in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at least one
day prior to the value date for the sale to the CEDEL Participant or Euroclear
Participant.
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of Global Securities holding securities through
CEDEL or Euroclear (or through DTC if the holder has an address outside the
U.S.) will be subject to the 30% U.S. withholding tax that generally applies to
payments of interest (including original issue discount) on registered debt
issued by U.S. Persons (as defined below), unless (i) each clearing system, bank
or other financial institution that holds customers' securities in the ordinary
course of its trade or business in the chain of intermediaries between such
beneficial owner and the U.S. entity required to withhold tax complies with
applicable certification requirements and (ii) such beneficial owner takes one
of the following steps to obtain an exemption or reduced tax rate:
Exemption for Non-U.S. Persons (Form W-8). Beneficial Certificate
Owners of Global Securities that are Non-U.S. Persons (as defined below) can
obtain a complete exemption from the withholding tax by filing a signed Form W-8
(Certificate of Foreign Status). If the information shown on Form W-8 changes, a
new Form W-8 must be filed within 30 days of such change.
Exemption for Non-U.S. Persons with effectively connected income (Form
4224). A Non-U.S. Person (as defined below), including a non-U.S. corporation or
bank with a U.S. branch, for which the interest income is effectively connected
with its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a Trade
or Business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons residing in a country that has a tax
treaty with the United States can obtain an exemption or reduced tax rate
(depending on the treaty terms) by filing Form 1001 (Ownership, Exemption or
Reduced Rate Certificate). If the treaty provides only for a reduced rate,
withholding tax will be imposed at that rate unless the filer alternatively
files Form W-8. Form 1001 may be filed by Certificate Owners or their agent.
I-3
<PAGE>
<PAGE>
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's Request
for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Owner of a Global
Security or, in the case of a Form 1001 or a Form 4224 filer, his agent, files
by submitting the appropriate form to the person through whom it holds (the
clearing agency, in the case of persons holding directly on the books of the
clearing agency). Form W-8 and Form 1001 are effective for three calendar years
and Form 4224 is effective for one calendar year.
On April 22, 1996 the IRS issued proposed regulations relating to (i)
withholding income tax on U.S.-source income paid to Non-U.S. Persons; (ii)
claiming Non-U.S. Person status to avoid backup withholding; and (iii) reporting
to the IRS of payments to Non-U.S. Persons. The proposed regulations would
substantially revise some aspects of the current system for withholding on and
reporting amounts paid to Non-U.S. Persons. The regulations unify current
certification procedures and forms and reliance standards are clarified. Most
forms are proposed to be combined into a single form: Form W-8. The regulations
are proposed to be effective for payments made after December 31, 1997.
Certificates issued, however, on or before the date that is 60 days after the
proposed regulations are made final will continue to be valid until they expire.
All proposed regulations are subject to change before adoption in their final
form. No reliable prediction can be made as to when, if ever, the proposed
regulations will be made final and if so, as to their final form.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity organized in or under
the laws of the United States or any political subdivision thereof or (iii) an
estate or trust that is subject to U.S. federal income tax regardless of the
source of its income. The term "Non-U.S. Person" means any person who is not a
U.S. Person. This discussion does not deal with all aspects of U.S. Federal
income tax withholding that may be relevant to foreign holders of the Global
Securities. Investors are advised to consult their own tax advisors for specific
tax advice concerning their holding and disposing of the Global Securities.
I-4
<PAGE>
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<CAPTION>
Page
<S> <C>
Accelerated Principal Payment..................................................................................S-17
Accrual Period .............................................................................................S-11
AFC .........................................................................................S-1, S-3
AFH .............................................................................................S-46
AFL .............................................................................................S-46
Agreement ..............................................................................................S-5
Amount Available .......................................................................................S-10, S-54
Beneficial Certificate Owner.............................................................................S-22, S-51
Book-Entry Certificates........................................................................................S-69
Cede .......................................................................................S-22, S-51
CEDEL .......................................................................................S-22, S-51
CEDEL Participants.............................................................................................S-70
Certificate Account............................................................................................S-53
Certificate Owners..............................................................................................S-2
Certificate Principal Balance..................................................................................S-10
Certificates .........................................................................................S-1, S-8
Citibank .......................................................................................S-22, S-51
Class A-1 Remittance Rate.......................................................................................S-4
Class A-2 Remittance Rate.......................................................................................S-4
Class A-3 Remittance Rate.......................................................................................S-4
Class A-4 Remittance Rate.......................................................................................S-4
Class A-5 Remittance Rate.......................................................................................S-4
Class A-6 Distribution Amount...................................................................................S-9
Class A-6 Formula Distribution Amount.....................................................................S-9, S-55
Class A-6 Principal Balance....................................................................................S-13
Class A-6 Remaining Amount Available......................................................................S-9, S-55
Class A-6 Remittance Rate.......................................................................................S-4
Class B Cross-over Date........................................................................................S-14
Class B Principal Distribution Test............................................................................S-60
Class B-1 Distribution Amount...................................................................................S-9
Class B-1 Formula Distribution Amount.....................................................................S-9, S-55
Class B-1 Interest.............................................................................................S-14
Class B-1 Principal..........................................................................S-14, S-16, S-57, S-61
Class B-1 Principal Balance....................................................................................S-14
Class B-1 Remaining Amount Available.....................................................................S-10, S-55
Class B-1 Remittance Rate.......................................................................................S-4
Class B-2 Distribution Amount..................................................................................S-10
Class B-2 Formula Distribution Amount....................................................................S-10, S-56
Class B-2 Interest.............................................................................................S-15
Class B-2 Principal............................................................................................S-16
Class B-2 Principal Balance....................................................................................S-15
Class B-2 Remaining Amount Available.....................................................................S-10, S-56
Class C Distribution Amount....................................................................................S-17
Class C Formula Distribution Amount............................................................................S-16
Closing Date ..............................................................................................S-3
Code .............................................................................................S-23
Collection Period ..............................................................................................S-5
Contract Pool ..............................................................................................S-1
Contract Rate ..................................................................................S-6, S-27, S-35
Contracts ........................................................................................S-5, S-27
Cooperative .............................................................................................S-71
Cut-off Date ..............................................................................................S-3
</TABLE>
i
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
Definitive Certificate.........................................................................................S-69
Determination Date.............................................................................................S-54
DOL .............................................................................................S-78
DTC .......................................................................................S-22, S-51
DTC Participants .............................................................................................S-70
Due Date ..................................................................................S-6, S-12, S-27
Eligible Institution...........................................................................................S-53
Eligible Investments...........................................................................................S-53
ERISA .......................................................................................S-23, S-78
Euroclear .......................................................................................S-22, S-51
Euroclear Operator.............................................................................................S-70
Euroclear Participants.........................................................................................S-70
European Depositaries..........................................................................................S-69
European Depositories....................................................................................S-22, S-51
Extras .............................................................................................S-47
FDIC .............................................................................................S-53
Financial Intermediary.........................................................................................S-69
Fitch .......................................................................................S-24, S-80
Funding Period ..............................................................................................S-7
Global Securities ..............................................................................................S-1
Initial Contracts .........................................................................................S-1, S-5
Land Secured Contract...........................................................................................S-5
Land Secured Contracts.........................................................................................S-28
Land-Home Contracts............................................................................................S-28
Land-in-Lieu Contracts.........................................................................................S-27
Liquidated Contract............................................................................................S-12
Liquidation Expenses.....................................................................................S-19, S-64
Liquidation Proceeds...........................................................................................S-19
Manufactured Home ..............................................................................................S-5
Manufactured Home Contract......................................................................................S-5
Monthly Servicing Fee..........................................................................................S-67
Moody's .......................................................................................S-24, S-80
Morgan .......................................................................................S-22, S-51
Mortgage .............................................................................................S-26
NADA .............................................................................................S-47
Non-IO Certificates......................................................................................S-16, S-61
Non-U.S. Person ..............................................................................................S-4
Obligor .............................................................................................S-28
Original Class A-1 Principal Balance............................................................................S-3
Original Class A-2 Principal Balance............................................................................S-3
Original Class A-3 Principal Balance............................................................................S-3
Original Class A-4 Principal Balance............................................................................S-3
Original Class A-5 Principal Balance............................................................................S-4
Original Class A-6 Principal Balance............................................................................S-4
Original Class B-1 Principal Balance............................................................................S-4
Overcollateralization..........................................................................................S-16
Overcollateralization Amount...................................................................................S-16
Overcollateralization Reduction Amount.........................................................................S-62
Participants .............................................................................................S-69
Plans .............................................................................................S-78
Pool Scheduled Principal Balance...............................................................................S-12
Pre-Funded Amount ..............................................................................................S-7
Pre-Funding Account........................................................................................S-1, S-7
</TABLE>
ii
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
Prepayment Model .............................................................................................S-36
Prospectus ..............................................................................................S-1
Purchase Agreement..............................................................................................S-6
Realized Loss .......................................................................................S-19, S-64
Receivables Corp. ..............................................................................................S-1
Record Date ........................................................................................S-4, S-52
Refinanced Contract............................................................................................S-48
Relevant Depositary............................................................................................S-69
Relief Act .......................................................................................S-26, S-76
REMIC ..............................................................................................S-2
REMICs .............................................................................................S-77
Remittance Date ........................................................................................S-4, S-52
Replaced Contract .............................................................................................S-53
Required Overcollateralization Amount....................................................................S-17, S-62
Residual Certificates.....................................................................................S-8, S-51
Residual Distribution Amount....................................................................................S-9
Rules .............................................................................................S-69
Scheduled Payment .............................................................................................S-27
Scheduled Principal Balance....................................................................................S-12
Seller .........................................................................................S-1, S-3
Senior Certificates.............................................................................................S-1
Senior Formula Distribution Amount.............................................................................S-55
Senior Percentage .......................................................................................S-12, S-57
Servicer .........................................................................................S-1, S-3
Servicing Advances.............................................................................................S-68
SMMEA .............................................................................................S-23
Subordinate Certificates........................................................................................S-1
Subsequent Contracts.................................................................................S-2, S-5, S-27
Subsequent Cut-Off Date.........................................................................................S-6
Terms and Conditions...........................................................................................S-71
Title V .............................................................................................S-77
Trust ..............................................................................................S-1
Trustee ........................................................................................S-5, S-68
U.S. Person ..............................................................................................S-4
UCC .............................................................................................S-25
Underwriters ........................................................................................S-2, S-81
Underwriting Agreement.........................................................................................S-81
Weighted Average Net Contract Rate..............................................................................S-4
</TABLE>
iii
<PAGE>
