<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 12, 1996
REGISTRATION STATEMENT NO. 333-07837
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
PRE-EFFECTIVE AMENDMENT NO. 3
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 41-1768416
DELAWARE POST OFFICE BOX 26365 (I.R.S. EMPLOYER
(STATE OR OTHER ST. LOUIS PARK, MINNESOTA 55426-0365 IDENTIFICATION NO)
JURISDICTION OF (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
INCORPORATION OR NUMBER,INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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 Amount of
to be maximum aggregate registration
Title of each class of securities to registered aggregate price offering price(1) fee(2)
be registered per unit(1)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset Backed Certificates
Asset Backed Notes
Asset Backed Securities $1,000,000 100% $1,000,000 $345
=====================================================================================================================
(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 and 333-10743 (the
"Prior Registration Statement"). The amount of securities eligible to be
sold under the Prior Registration Statement ($1,407,000 as of September 1,
1996) shall be carried forward to this Registration Statement. A filing fee
in the amount of $344,482.59 was paid with the Prior Registration
Statement.
__________________________
</TABLE>
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>
CROSS REFERENCE SHEET
TO FORM S-3
<TABLE>
<CAPTION>
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>
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* Not applicable or answer is negative.
** To be completed from time to time
by Prospectus Supplement.
<PAGE>
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED SEPTEMBER __, 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. The Securities will consist of two basic types: (i) Securities of
the fixed-income type ("Fixed-Income Securities" or "Offered 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. 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 under "The
Trusts" 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 under "the Pooling and Servicing Agreement"
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 under "Description of the Securities" 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)
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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
UNDER "UNDERWRITING PROGRAM" AND "DESCRIPTION OF THE SECURITIES" 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 September ___, 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. 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 under "Maturity and Prepayment Considerations" 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 "Maturity
and Prepayment Considerations" herein. A Trust may be subject to early
termination under the circumstances described herein under "The Pooling and
Servicing Agreement -- Termination; Retirement of Securities" 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" herein.
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" herein 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
<TABLE>
<CAPTION>
Caption Page
- ------- ----
<S> <C>
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...................................................................................................... 22
THE LOAN POOLS.................................................................................................. 28
General.................................................................................................... 28
The Loan Pools............................................................................................. 28
UNDERWRITING PROGRAM............................................................................................ 30
General.................................................................................................... 30
Mortgage Loan Program...................................................................................... 31
Manufactured Housing Contract Program...................................................................... 34
DESCRIPTION OF THE SECURITIES................................................................................... 35
General.................................................................................................... 35
Form of Securities......................................................................................... 38
Assignment of Loans........................................................................................ 39
Forward Commitments; Pre-Funding........................................................................... 40
Payments on Loans; Deposits to Distribution Account........................................................ 41
Withdrawals from the Principal and Interest Account........................................................ 44
Distributions.............................................................................................. 45
Principal and Interest on the Securities................................................................... 45
Advances................................................................................................... 46
Reports to Securityholders................................................................................. 47
Collection and Other Servicing Procedures.................................................................. 48
Realization Upon Defaulted Loans........................................................................... 50
Master Servicer............................................................................................ 50
Sub-Servicing.............................................................................................. 51
SUBORDINATION................................................................................................... 52
DESCRIPTION OF CREDIT ENHANCEMENT............................................................................... 53
HAZARD INSURANCE; CLAIMS THEREUNDER............................................................................. 58
Hazard Insurance Policies.................................................................................. 58
THE COMPANY..................................................................................................... 59
THE SERVICER.................................................................................................... 59
</TABLE>
<TABLE>
<CAPTION>
Caption Page
- ------- ----
<S> <C>
THE POOLING AND SERVICING AGREEMENT............................................................................. 59
Servicing and Other Compensation and
Payment of Expenses.................................................................................... 60
Evidence as to Compliance.................................................................................. 60
Removal and Resignation of the Servicer.................................................................... 61
Resignation of the Master Servicer......................................................................... 62
Amendments................................................................................................. 62
Termination; Retirement of Securities...................................................................... 62
THE TRUSTEE..................................................................................................... 63
YIELD CONSIDERATIONS............................................................................................ 65
MATURITY AND PREPAYMENT
CONSIDERATIONS............................................................................................. 67
CERTAIN LEGAL ASPECTS OF THE LOANS
AND RELATED MATTERS........................................................................................ 69
Mortgage Loans............................................................................................. 69
Manufactured Housing Contracts............................................................................. 76
FEDERAL INCOME TAX CONSIDERATIONS............................................................................... 82
General.................................................................................................... 82
Grantor Trust Securities................................................................................... 82
REMIC Securities........................................................................................... 84
Debt Securities............................................................................................ 90
Discount and Premium....................................................................................... 91
Backup Withholding......................................................................................... 94
Foreign Investors.......................................................................................... 94
Taxation of the Securities Classified as
Partnership Interests.................................................................................. 95
STATE TAX CONSIDERATIONS........................................................................................ 95
ERISA CONSIDERATIONS............................................................................................ 95
LEGAL INVESTMENT MATTERS........................................................................................ 98
USE OF PROCEEDS................................................................................................. 99
METHODS OF DISTRIBUTION......................................................................................... 99
LEGAL MATTERS...................................................................................................100
ADDITIONAL INFORMATION..........................................................................................100
INDEX OF PRINCIPAL DEFINITIONS..................................................................................101
</TABLE>
3
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<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..................... Amaster 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 "Description of the
Securities -- 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
"Description of the Securities --
Sub-Servicing."
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") or (B) installment
loan contracts and installment loan
agreements for manufactured homes (the
"Contracts") (the Mortgage Loans and the
Contracts together, the "Loans"),
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 therein. Each Trust Agreement will
describe the related pool of assets
6
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<PAGE>
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, 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 if so specified in the
related Prospectus Supplement.
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" or "Offered 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 secured by such Loans. Each
series
7
<PAGE>
<PAGE>
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 herein under
"Description of the Securities -- General"
and specified 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
under "Description of the Securities
--General" and specified 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
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Company 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
herein under "Description of the
Securities -- General" and as specified 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 specified in the
related Prospectus Supplement; Payments on
Equity Securities, if any, will occur
monthly, quarterly or semi-annually as
specified in the related Prospectus
Supplement.
The related Prospectus Supplement will
specify 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
specify 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. The related
Prospectus Supplement will specify whether
the related Pooling and Servicing
Agreement will 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
described herein under "Description of the
Securities -- General" and as specified 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, the related Prospectus
Supplement will specify whether 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 described
herein under "Description of the
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Securities -- General" and as specified 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, 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, the
related Prospectus Supplement may specify
that a Trust Estate includes 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 "Underwriting 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. See "The Loan Pools."
A Current Report on Form 8-K will be
available to purchasers or underwriters of
the related series of Securities and will
generally be
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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.
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 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
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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. If specified in the
related Prospectus Supplement, the
mortgage pool insurance policy will have
certain exclusions from coverage
thereunder, 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............................ If specified 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.
If specified 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
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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
specified 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
Offered Securities 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.
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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 Offered Securities 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 herein and 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.
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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 specified
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
specified 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. See "Description of Credit Enhancement" herein. Unless specified
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
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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 specified 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 such
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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
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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
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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.
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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.
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
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"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 herein and
in the related Prospectus Supplement. See "Description of the Securities -- Form
of Securities" herein.
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.
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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 specified 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 specified in the related Prospectus Supplement and
may include any of the following features or combination thereof or other
features specified 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, or a rate that is convertible from an
adjustable rate to a fixed rate). The specified rate of interest on a
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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.
As specified 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
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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
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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."
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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 herein and 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
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.
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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, 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.
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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 specified 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
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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
specified 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
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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 herein and 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.
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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 the Company's Guidelines.
As more fully described below and 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 Loan Program. Mortgage Loans originated or purchased by
Originators and acquired by the Company generally have been originated in
accordance with the Guidelines as set forth in the Company's Seller's Guide.
Management permits deviations from the specific criteria of the Guidelines to
reflect local economic trends, real estate valuations, and credit factors
specific to each Mortgage Loan. The Company generally reviews or causes to be
reviewed all of the Mortgage Loans in any delivery of Mortgage Loans from
Originators for conformity with the Company's Seller's Guide. See "Quality
Control."
The following is a brief description of the Guidelines set forth in the
Company's Seller's Guide currently employed by the Company. The Company believes
that these standards are consistent with those generally used by lenders in the
business of making mortgage loans based on non-conforming credits. The
underwriting process is intended to assess both the borrower's willingness and
ability to repay its debts and the adequacy of the real property as collateral
for the Mortgage Loan.
The Guidelines permit the origination and purchase of mortgage loans
with multitiered credit characteristics tailored to individual credit profiles.
In general, the Guidelines require an analysis of the equity in the collateral,
the credit history and debt-to-income ratio of the borrower, the property type
and the characteristics of the underlying first mortgage, if any. A lower
maximum CLTV is required for lower gradations of credit quality and higher
property values.
The Guidelines permit the origination or purchase of fixed or
adjustable rate Mortgage Loans that either fully amortize over a period
generally not to exceed 30 years or, in the case of a balloon mortgage,
generally amortize based on a 30-year or less amortization schedule with a due
date and a "balloon" payment at the end of 15 years. The loan amounts generally
range from a minimum of $15,000 to a maximum of $500,000.
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The Mortgaged Properties used for collateral to secure the Mortgage
Loans may be either owner occupied (which includes second and vacation homes) or
non-owner occupied investor properties which, in either case are residential
properties (which may be detached, part of a two-to four-family dwelling, a
condominium unit, a unit in a planned unit development or manufactured housing).
Each Mortgaged Property generally has a minimum appraised fair market value of
$30,000. Cooperatives, commercial properties or agricultural land are not
accepted as collateral.
The Guidelines require that the CLTV of a Mortgage Loan generally may
not exceed 80%. If a senior mortgage exists, the Originator must first review
the senior mortgage documentation. If it contains open end advance or negative
amortization provisions, the maximum potential senior mortgage balance is used
in calculating the CLTV which determines the maximum loan amount. The Guidelines
generally do not permit the purchase of Mortgage Loans where the senior mortgage
contains a provision pursuant to which the senior mortgagee may share in any
appreciation of the Mortgaged Property, where the senior mortgage is privately
held or where the senior mortgage has a "balloon" payment due at any time prior
to twelve months following the due date of the Mortgage Loan.
The value of each property proposed as security for a Mortgage Loan is
required to be appraised by licensed appraisers, if state or applicable law so
requires, and shall have been performed in accordance with industry standards in
the appraising industry in the area where the Mortgaged Property is located.
The Guidelines provide that each borrower is required to provide, and
the Originator is 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 borrower 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 verified
by the Originator and must be reasonable.
The Mortgage Loans are underwritten pursuant to the Company's "Full
Documentation Program," "Alternative Income Documentation Program" and "Stated
Income Program," as set forth in the 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 borrower, reviews the type
and use of the property being financed and reviews the property for compliance
with its underwriting guidelines. In determining the ability of the borrower
to repay a Variable Rate Mortgage Loan, the Originators use a rate that
generally is a rate equal to the fully-indexed Mortgage interest rate for such
ARM Loan. The Guidelines are applied in a standardized procedure that complies
with applicable federal and state laws and regulations.
Under the Full Documentation Program, the income of each borrower and
the source of funds (if any) required to be deposited by a borrower into a
bank account or an escrow account is verified by the Originators. Borrowers
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 borrower
is generally required to provide the borrower'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 borrower'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 generally improves the borrower's
cash flow. Verification of the source of funds (if any) required to be deposited
by the borrower into a bank account or an escrow account is generally required
under all documentation programs in the form
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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 borrower's current lender
or landlord. If appropriate compensating factors exist, the Originators and
the Company, upon the purchase of such Mortgage Loan from an Originator, may
waive certain documentation requirements for individual borrowers.
A credit report by an independent, nationally recognized credit
reporting agency is required reflecting the borrower's complete credit history.
The credit report should reflect all repossessions, judgments, foreclosures,
garnishments, bankruptcies and similar instances of adverse credit that can be
discovered by a search of public records. Verification is required to be
obtained of the senior mortgage balance, if any, the status and whether local
taxes, interest, insurance and assessments are included in the borrower's
monthly payment. All taxes and assessments not included in the payment are
required to be verified as current.
Certain laws protect borrowers obtaining certain types of Mortgage
Loans by requiring a time-frame after loan documents are signed, termed the
rescission period, during which the borrower has the right to rescind or cancel
the Mortgage Loan. The Guidelines provide that the rescission period may not be
waived by the borrower except as specifically provided by applicable law. The
rescission period must have expired prior to the purchase of a Mortgage Loan by
the Company.
The Originator agreements with the Company generally require title
insurance coverage issued by an insurance company that is qualified to do
business in the jurisdiction where the Mortgaged Property is located on each
Mortgage Loan it purchases. The Company's assignees or the related Originator
and its assignees generally are named as the insured. Title insurance policies
indicate the lien position of the Mortgage Loan and protect the insured against
loss if the title or lien position is not as indicated.
The Originator agreements with the Company generally require flood
insurance coverage, to the extent required by the Flood Disaster Protection Act
of 1973, as amended, issued by an insurance company that is qualified to do
business in the jurisdiction where the Mortgaged Property is located. The
Company's assignees or the related Originator and its assignees are generally
named as the insured.
The Originator agreements with the Company generally require property
hazard insurance in an amount sufficient to cover the new loan and any prior
mortgage. If the sum of the outstanding first mortgage, if any, and the
related Mortgage Loan exceeds replacement value (the cost of rebuilding the
subject property, which generally does not include land value), insurance
equal to replacement value may be accepted. The Company's assignees or the
related Originator and its assignees generally are named as the insured.
Negotiated Transactions. The Company may acquire Mortgage Loans 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 represent
that the Mortgage Loans have been originated in accordance with underwriting
guidelines agreed to by the Company.
The underwriting standards utilized in Negotiated Transactions may vary
substantially from the Guidelines described above. 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 Mortgaged Property as
collateral, or a combination of both. 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.
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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.
Quality Control. The Company maintains a quality control department
which generally will review loans acquired from all Originators. The quality
control department selects a random and adverse portion of the files for
underwriting review. For the random sample, employment and mortgage information
is reverified and a full review of legal documentation and reunderwriting the
Mortgage Loans is performed. The Company also performs field and desk appraisal
reviews on a random sample of Mortgage Loans.
With respect to the Mortgage Loan Program, certain Bulk Acquisitions,
and certain Negotiated Transactions, the Company will cause a percentage of the
Mortgage Loans acquired from Originators to be (i) reunderwritten for the
purpose of determining whether such Mortgage Loans were originated in accordance
with the Guidelines, (ii) reappraised to assess the accuracy of the appraised
values, and (iii) audited to determine the accuracy of the loan data in the loan
files. Such process may consist of a review of all such Mortgage Loans or may be
performed on a sample basis.
Qualifications of Originators. Each Originator from which a Mortgage
Loan is acquired has been approved by the Company for participation in the
Mortgage Loan Program. Originators enter into agreements to sell Mortgage Loans
to the Company pursuant to the Mortgage Loan Program which provides for the
periodic, "spot," or negotiated transaction or bulk acquisition purchase and
sale of loans meeting the Company's Guidelines generally. As part of the
qualification process, the Company determines whether each Originator has a
specified minimum level of equity and experience in originating non-conforming
credit Mortgage Loans. Notwithstanding this process, however, there can be no
assurance that any Originator presently meets such qualifications or will
continue to meet such qualifications at the time of inclusion of Mortgage
Loans sold by it and included in the Trust Estate for a series of Securities,
or thereafter. In addition, the Company may waive or modify in an appropriate
case any of the foregoing requirements for Originators.
All Originators must have received a satisfactory on-site review by the
Company of its operating procedures. All Originators are required to originate
mortgage loans in accordance with the applicable industry underwriting standards
and federal and state laws and regulations. However, with respect to any
Originator, some of the generally applicable underwriting standards described
herein and in the Guidelines may be modified or waived with respect to certain
Mortgage Loans acquired from such Originators.
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.
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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 Officer 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.
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.
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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.
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 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 specified 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; Payments on Equity Securities will be made
monthly, quarterly or semi-annually, as specified in the related Prospectus
Supplement.
The related Prospectus Supplement will specify 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.
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The related Prospectus Supplement and the Pooling and Servicing
Agreement will specify 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. The related Prospectus
Supplement will specify whether the related Pooling and Servicing Agreement
will 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 terminate prior to the
end of the specified period and result in the earlier than expected amortization
of the related Securities upon the occurrence of certain events, which may
include (i) default in payment of interest or principal to the
Certificateholders, (ii) breach of the Company's representations and warranties
that materially and adversely affects the Certificateholders, which continues
for a period of 30 days after notice to the Company, (iii) the commencement of
proceedings against the Company to adjudicate it insolvent, (iv) an Event of
Servicing Termination has occurred, (v) the Certificate Insurer has made
payments to the Trustee, (vi) that the ratio of delinquent Loans to the
aggregate Loan Balance exceeds a percentage set forth in the related Prospectus
Supplement or (vii) the ratio of defaulted Loans to the aggregate Loan Balance
exceeds a percentage set forth in the related Prospectus Supplement.
In addition, the related Prospectus Supplement will specify whether
the related Pooling and Servicing Agreement will 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, resulting in the current funding of principal
payments to the related Securityholders and an acceleration of the amortization
of such Securities upon the occurrence of certain events, which may include (i)
default in payment of interest or principal to the Certificateholders, (ii)
breach of the Company's representations and warranties that materially and
adversely affects the Certificateholders, which continues for a period of 30
days after notice to the Company, (iii) the commencement of proceedings against
the Company to adjudicate it insolvent, (iv) an Event of Servicing Termination
has occurred, (v) the Certificate Insurer has made payments to the Trustee, (vi)
that the ratio of delinquent Loans to the aggregate Loan Balance exceeds a
percentage set forth in the related Prospectus Supplement or (vii) the ratio of
defaulted Loans to the aggregate Loan Balance exceeds a percentage set forth in
the related Prospectus Supplement.
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 specified 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;
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(iv) hazard and flood insurance policies and primary mortgage insurance
policies, if any, and 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."
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, transfers of
ownership of Securities will be executed through DTC and the accounts of the
respective Participants
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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.
Upon the occurrence of any of the events specified in the related Pooling and
Servicing Agreement and the Prospectus Supplement, (which may include the
following events: (a) DTC or the Company 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 Company or the Trustee is unable to locate a qualified
successor, (b) the Company, at its sole option, elects to terminate a book-entry
system through DTC or (c) DTC, at the direction of the Securityholders
representing a majority of the outstanding Percentage Interests of the specified
class of Securities, 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 the Securityholders) 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 specified 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
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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 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,
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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 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 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 specified 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:
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(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;
(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") , 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
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Account is held by such institution in its trust capacity and not in its
commercial capacity. The Distribution Account, the Principal and Interest
Account are together referred to as "Accounts." All funds in the Distribution
Account shall be invested and reinvested 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.
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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 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;
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(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;
(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 is described below and will be
specified 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 (generally the sum of all amounts received by the
Servicer
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in respect of principal during the related collection period, as may be adjusted
to maintain any subordination levels specified in the related Prospectus
Supplement) (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 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.
The related Prospectus Supplement will specify whether the related
Pooling and Servicing Agreement will 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 terminate prior to the end of the specified period and result in
the earlier than expected amortization of the related Securities upon the
occurrence of certain events, which may include (i) default in payment of
interest or principal to the Certificateholders, (ii) breach of the Company's
representations and warranties that materially and adversely affects the
Certificateholders, which continues for a period of 30 days after notice to the
Company, (iii) the commencement of proceedings against the Company to adjudicate
it insolvent, (iv) an Event of Servicing Termination has occurred, (v) the
Certificate Insurer has made payments to the Trustee, (vi) that the ratio of
delinquent Loans to the aggregate Loan Balance exceeds a percentage set forth in
the related Prospectus Supplement or (vii) the ratio of defaulted Loans to the
aggregate Loan Balance exceeds a percentage set forth in the related
Prospectus Supplement.
In addition, the related Prospectus Supplement, will specify whether
the related Pooling and Servicing Agreement will 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.
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. The related Prospectus Supplement will specify
whether the Servicer may also be required to advance delinquent payments of
principal. Any such amounts so advanced are
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"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.
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;
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(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;
(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.
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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 above under "-- Advances" and
specified in the related Prospectus 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.
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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 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.
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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) 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
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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
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
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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
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. 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.
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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 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, 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
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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.
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
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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 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
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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.
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
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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
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.
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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, (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.
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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.
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.
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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.
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;
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(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 (each such event, an
"Event of Servicing Termination");
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 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.
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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
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 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. 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.
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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:
(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;
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(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
(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
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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 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.
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
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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 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.
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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 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.
The related Prospectus Supplement will specify whether 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
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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 terminate prior to the end of the specified period and
result in the earlier than expected amortization of the related Securities upon
the occurrence of certain events, which may include (i) default in payment of
interest or principal to the Certificateholders, (ii) breach of the Company's
representations and warranties that materially and adversely affects the
Certificateholders, which continues for a period of 30 days after notice to
the Company, (iii) the commencement of proceedings against the Company to
adjudicate it insolvent, (iv) an Event of Servicing Termination has occurred,
(v) the Certificate Insurer has made payments to the Trustee, (vi) that the
ratio of delinquent Loans to the aggregate Loan Balance exceeds a percentage set
forth in the related Prospectus Supplement or (vii) the ratio of defaulted
Loans to the aggregate Loan Balance exceeds a percentage set forth in
the related Prospectus Supplement.
In addition, the related Prospectus Supplement will specify whether
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 described herein
under "Description of the Securities -- General" and as specified 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
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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.
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
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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.
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
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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 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.
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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.
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.
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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 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.
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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 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
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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.
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
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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 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
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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.
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
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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
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
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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.
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
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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 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
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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 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 Offered Securities. 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.
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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" 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.
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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 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,
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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.
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.
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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.
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.
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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 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.
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Taxes on a REMIC Trust
Prohibited Transactions. The Code imposes a tax on a REMIC equal to
100% of the net income derived from "prohibited transactions." In general, a
"prohibited transaction" means the disposition of a qualified mortgage other
than pursuant to certain specified exceptions, the receipt of investment income
from a source other than a qualified mortgage or certain other permitted
investments, the receipt of compensation for services, or the disposition of an
asset purchased 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 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
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to that sale. While this rule may be modified by Treasury regulations, to date
such regulations have not been published.
Transfer of REMIC Residual Securities. Section 860E(c) of the Code
imposes a substantial tax, payable by the transferor (or, if a transfer is
through a broker, nominee or other middleman as the transferee's agent, payable
by that agent) upon any transfer of a REMIC Residual Security to a "disqualified
organization" and upon a pass-through entity (including regulated investment
companies, real estate investment trusts, common trust funds, partnerships,
trusts, estates, certain cooperatives, and nominees) that owns a REMIC Residual
Security if such pass-through entity has a disqualified organization as a
record-holder. For purposes of the preceding sentence, a transfer includes any
transfer of record or beneficial ownership, whether pursuant to a purchase, a
default under a secured lending agreement or otherwise.
The term "disqualified organization" includes the United States, any
state or political subdivision thereof, any foreign government, any
international organization, or any agency or instrumentality of the foregoing
(other than certain taxable instrumentalities), any cooperative organization
furnishing electric energy or providing telephone service to persons in rural
areas, or any organization (other than a farmers' cooperative) that is exempt
from federal income tax, unless such organization is subject to the tax on
unrelated business income. Moreover, an entity will not qualify as a REMIC
unless there are reasonable arrangements designed to ensure that (i) residual
interests in such entity are not held by disqualified organizations and (ii)
information necessary for the application of the tax described herein will be
made available. Restrictions on the transfer of a REMIC Residual Security and
certain other provisions that are intended to meet this requirement 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
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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 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.
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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 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.
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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 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.
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In the case of Grantor Trust Strip Securities and certain REMIC
Securities, the calculation described in the preceding paragraph may produce a
negative amount of original issue discount for one or more accrual periods. No
definitive guidance has been issued regarding the treatment of such negative
amounts. The legislative history of Section 1272(a)(6) indicates that such
negative amounts may be used to offset subsequent positive accruals, but may not
offset prior accruals and may not be allowed as a deduction item in a taxable
year in which negative accruals exceed positive accruals. Holders of such
Securities should consult their own tax advisors concerning the treatment of
such negative accruals.
A subsequent purchaser of a Security that purchases such Security at a
cost less than its remaining stated redemption price at maturity also will be
required to include in gross income for each day on which its holds such
Security, the daily portion of original issue discount with respect to such
Security (but reduced, if the cost of such Security to such purchaser exceeds
its adjusted issue price, by an amount equal to the product of (i) such daily
portion and (ii) a constant fraction, the numerator of which is such excess and
the denominator of which is the sum of the daily portions of original issue
discount on such Security for all days on or after the day of purchase).
Market Discount
A Holder that purchases a Security at a market discount, that is, at a
purchase price less than the remaining stated redemption price at maturity of
such Security (or, in the case of a Security with original issue discount, its
adjusted issue price), will be required to allocate each principal distribution
first to accrued market discount on the Security, and recognize ordinary income
to the extent that such distribution does not exceed the aggregate amount of
accrued market discount on such Security not previously included in income. With
respect to Securities that have unaccrued original issue discount, such market
discount must be included in income in addition to any original issue discount.
A Holder that incurs or continues indebtedness to acquire a Security at a market
discount may also be required to defer the deduction of all or a portion of the
interest on such indebtedness until the corresponding amount of market discount
is included in income. In general terms, market discount on a Security may be
treated as accruing either (i) under a constant yield method or (ii) in
proportion to remaining 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
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applies and to all such fully taxable bonds thereafter acquired by it, and is
irrevocable without the consent of the IRS. If such an election is not made, (i)
such a Holder must include the full amount of each interest payment in income as
it accrues, and (ii) the premium must be allocated to the principal
distributions on the Premium Security and, when each such distribution is
received, a loss equal to the premium allocated to such distribution will be
recognized. Any tax benefit from the premium not previously recognized will be
taken into account in computing gain or loss upon the sale or disposition of the
Premium Security.
Some Securities may provide for only nominal distributions of principal
in comparison to the distributions of interest thereon. It is possible that the
IRS or the Treasury Department may issue guidance excluding such Securities from
the rules generally applicable to debt instruments issued at a premium. In
particular, it is possible that such a Security will be treated as having
original issue discount equal to the excess of the total payments to be received
thereon over its issue price. In such event, Section 1272(a)(6) of the Code
would govern the accrual of such original issue discount, but a Holder would
recognize substantially the same income in any given period as would be
recognized if an election were made under Section 171(e)(2) of the Code. Unless
and until the Treasury Department or the IRS publishes specific guidance
relating to the tax treatment of such Securities, the Trustee intends to furnish
tax information to Holders of such Securities in accordance with the rules
described in the preceding paragraph.
Special Election
For any Security acquired on or after April 4, 1994, a Holder may elect
to include in gross income all "interest" that accrues on the Security by using
a constant yield method. For purposes of the election, the term "interest"
includes stated interest, acquisition discount, original issue discount, de
minimis original issue discount, market discount, de 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.
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REMIC Residual Securities
Amounts distributed to a Holder of a REMIC Residual Security that is
not a U.S. Person generally will be treated as interest for purposes of applying
the 30% (or lower treaty rate) withholding tax on income that is not effectively
connected with a United States trade or business. Temporary Treasury Regulations
clarify that amounts not constituting excess inclusions that are distributed on
a REMIC Residual Security to a Holder that is not a U.S. Person generally will
be exempt from United States federal income and withholding tax, subject to the
same conditions applicable to distributions on Grantor Trust Securities and
REMIC Regular Securities, as described above, but only to the extent that the
obligations directly underlying the REMIC Trust that issued the REMIC Residual
Security (e.g., Loans or regular interests in another REMIC) were issued after
July 18, 1984. In no case will any portion of REMIC income that constitutes an
excess inclusion be entitled to any exemption from the withholding tax or a
reduced treaty rate for withholding. See "--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
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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.
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;
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(iii) The Certificates acquired by the Plan have received a
rating at the time of such acquisition that is in one of the three highest
generic rating categories from either Standard & Poor's Ratings Group ("Standard
& Poor's"), Moody's Investors Service, Inc. ("Moody's"), Duff & Phelps Inc.
("D&P") or Fitch Investors Service, Inc. ("Fitch");
(iv) The sum of all payments made to the underwriter in
connection with the distribution of the Certificates represents not more than
reasonable compensation for underwriting the Certificates. The sum of all
payments made to and retained by the seller pursuant to the sale of the
obligations to the trust represents not more than the fair market value of such
obligations. The sum of all payments made to and retained by the servicer
represents not more than reasonable compensation for the servicer's services
under the related servicing agreement and reimbursement of the servicer's
reasonable expenses in connection therewith;
(v) The Trustee is not an affiliate of any other member of the
Restricted Group (as defined below); and
(vi) The Plan investing in the Certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the Securities and
Exchange Commission under the Securities Act of 1933.
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.
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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.
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 Offered Securities 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
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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 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 Offered Securities 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
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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.
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 Offered Securities 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.
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INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<CAPTION>
Page
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<S> <C>
Accounts ................................................................ 43
Accrual Securities ...................................................... 8
AFH ..................................................................... 59
AFL ..................................................................... 1, 59
APR ..................................................................... 24
ARM Loans ............................................................... 19
Balloon Amount .......................................................... 29
Balloon Loans ........................................................... 17
Bankruptcy Bond ......................................................... 55
Bankruptcy Loss ......................................................... 53
Bankruptcy Loss Amount .................................................. 53
Base Servicing Fee ...................................................... 60
Book-Entry Securities ................................................... 38
Bulk Acquisitions ....................................................... 10
Buydown Account ......................................................... 23
Buydown Funds ........................................................... 23
Buydown Mortgage Loans .................................................. 23
Buydown Period .......................................................... 23
Cede .................................................................... 14
Certificates ............................................................ 6
Closing Date ............................................................ 40
CLTV (Combined Loan-to-Value Ratio) ..................................... 25
Code .................................................................... 82
Collateral .............................................................. 1,6
Collateral Pool ......................................................... 22
Collateral Schedule ..................................................... 22
Company ................................................................. 1, 59
Company's Seller's Guide ................................................ 31
Compensating Interest ................................................... 47
Contracts ............................................................... 1, 22
Conventional Loans ...................................................... 22
Convertible Loan ........................................................ 29
Cooperative ............................................................. 26
Cooperative Loans ....................................................... 22
Cooperative Notes ....................................................... 28
Credit Enhancement ...................................................... 2
Credit Enhancer ......................................................... 21, 44
Cut-Off Date ............................................................ 24
Debt Securities ......................................................... 14, 82
Debt Service Reduction .................................................. 55
Defaulted Mortgage Loss ................................................. 53
Deferred Interest ....................................................... 17
Deficient Valuation ..................................................... 55
Deleted Loan ............................................................ 31
Delinquency Advances .................................................... 46
Designated Depository Institution ....................................... 42
Detailed Description .................................................... 22
Determination Date ...................................................... 46
Direct or Indirect Participants ......................................... 21
Disqualified Persons .................................................... 95
</TABLE>
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<TABLE>
<CAPTION>
Page
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<S> <C>
Distribution Account ................................................... 42
DTC .................................................................... 14
Due Date ............................................................... 42
Eligible Investments ................................................... 43
Equity Securities ...................................................... 1, 7
ERISA .................................................................. 13
ERISA Plan(s) .......................................................... 95
Exchange Act ........................................................... 14
Extraordinary Losses ................................................... 53
FHA .................................................................... 27
Financial Guaranty Insurance Policy .................................... 56
Financial Guaranty Insurer ............................................. 56
Fixed-Income Securities ................................................ 1, 7
Forward Purchase Agreement ............................................. 11
Fraud Loss ............................................................. 53
Fraud Loss Amount ...................................................... 53
Funding Period ......................................................... 11, 41
Garn-St. Germain Act ................................................... 74
Graduated Payments ..................................................... 23
Grantor Trust .......................................................... 82
Grantor Trust Fractional Interest Security ............................. 82
Grantor Trust Securities ............................................... 13, 82
Grantor Trust Strip Security ........................................... 82
Guidelines ............................................................. 30
Holder ................................................................. 82
Home Improvement Loans ................................................. 22
Indenture .............................................................. 7
Indenture Trustee ...................................................... 7
Index .................................................................. 28
Indirect Participant(s) ................................................ 38
Insurance Paying Agent ................................................. 56
Insurance Proceeds ..................................................... 42
Insured Payment ........................................................ 56
Interest Payment Date .................................................. 66
Interest Rate .......................................................... 7
Investment Company Act ................................................. 10
IRAs ................................................................... 95
IRS .................................................................... 84
Junior Lien Loans ...................................................... 25
Land Secured Contracts ................................................. 18
Letter of Credit ....................................................... 54
Letter of Credit Bank .................................................. 54
Liquidated Mortgage Loan ............................................... 17
Liquidation Proceeds ................................................... 17
Loan Pool .............................................................. 1
Loan Purchase Price .................................................... 30
Loan Rate .............................................................. 23
Loans .................................................................. 22
LTV .................................................................... 25
Manufactured Homes ..................................................... 27
Manufacturer's Invoice Price ........................................... 25
Master Commitments ..................................................... 33
</TABLE>
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Master Servicer ........................................................ 6
Master Servicing Fee ................................................... 60
Mixed Use Loans ........................................................ 1, 22
Modified Loans ......................................................... 29
Mortgage Loans ......................................................... 1, 22
Mortgage Pool Insurance Policy ......................................... 54
Mortgages .............................................................. 10
Multi-family Loans ..................................................... 22
Negotiated Transactions ................................................ 10
Net Liquidation Proceeds ............................................... 42
Net Loan Rate .......................................................... 66
Note Margin ............................................................ 28
Notes .................................................................. 6, 28
Obligor ................................................................ 16
Originator's Retained Yield ............................................ 60
Originators ............................................................ 1
Participants ........................................................... 38
Parties in Interest .................................................... 95
Partnership Interests .................................................. 14
Pass-Through Rate ...................................................... 45
Paying Agent ........................................................... 45
Payment Date ........................................................... 9
Percentage Interest .................................................... 45
Physical Certificates .................................................. 38
Plan(s) ................................................................ 13
Policy Statement ....................................................... 98
Pool Factor ............................................................ 48
Pooling and Servicing Agreement ........................................ 7
Pre-Funding Account .................................................... 11
Premium Security ....................................................... 93
Prepayment Assumption .................................................. 85
Principal Prepayments .................................................. 42
Properties ............................................................. 22
Property ............................................................... 10
Purchase Obligation .................................................... 15
Qualified Replacement Loan ............................................. 31
Qualified Retirement Plans ............................................. 95
Rating Agencies ........................................................ 14
Realized Loss .......................................................... 52
Record Date ............................................................ 9
Relief Act ............................................................. 21, 81
REMIC .................................................................. 82
REMIC Regular Securities ............................................... 13
REMIC Regular Security ................................................. 84
REMIC Regulations ...................................................... 84
REMIC Residual Securities .............................................. 13
REMIC Residual Security ................................................ 84
REMIC Securities ....................................................... 82
REMIC Trust ............................................................ 84
REMIC(s) ............................................................... 2
Remittance Date ........................................................ 43
Remittance Period ...................................................... 9
</TABLE>
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REO Property ........................................................... 50
Reserve Fund ........................................................... 55
Rule of 78's ........................................................... 24
Securities ............................................................. 1, 6
Security Registrar ..................................................... 38
Securityholder ......................................................... 82
Securityholders ........................................................ 1
Senior Lien ............................................................ 25
Senior Securities ...................................................... 8
Servicer ............................................................... 6
Servicer(s) ............................................................ 2
Servicing Advance(s) ................................................... 47
Servicing Agreement .................................................... 7
Servicing Fee .......................................................... 60
Single Family Loans .................................................... 22
SMMEA .................................................................. 13
Special Hazard Amount .................................................. 53
Special Hazard Insurance Policy ........................................ 55
Special Hazard Insurer ................................................. 55
Special Hazard Loss .................................................... 53
Statistic Calculation Date ............................................. 24
Strip Securities ....................................................... 8
Sub-Servicers .......................................................... 2
Sub-Servicing Account .................................................. 41
Sub-Servicing Agreement ................................................ 51
Subordinate Securities ................................................. 8
Subordinate(d) Amount .................................................. 53
Subsequent Collateral .................................................. 11
Subsequent Loans ....................................................... 40
Tax Exempt Investor .................................................... 98
Tax-Favored Plans ...................................................... 95
Title V ................................................................ 75, 81
Title VIII ............................................................. 76
Trust .................................................................. 1
Trust Agreement ........................................................ 6
Trust Estate ........................................................... 1
Trustee ................................................................ 6
UCC .................................................................... 38
</TABLE>
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the amount of fees and expenses
(other than underwriting discounts and commissions) to be incurred in connection
with the issuance and distribution of the Offered Certificates.
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
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<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.
4.3* --Form of Indenture.
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
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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
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C. UNDERTAKING PURSUANT TO RULE 512(j).
THE UNDERSIGNED REGISTRANT HEREBY UNDERTAKES TO FILE AN
APPLICATION FOR THE PURPOSE OF DETERMINING THE ELIGIBILITY OF THE
TRUSTEE TO ACT UNDER SUBSECTION (a) OF SECTION 310 OF THE TRUST
INDENTURE ACT ("ACT") IN ACCORDANCE WITH THE RULES AND
REGULATIONS PRESCRIBED BY THE COMMISSION UNDER SECTION 305(b)(2)
OF THE ACT.
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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. 3 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 12th day of September, 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. 3 to the registration statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
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SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Leslie Zejdlik Foster Director and President September 12, 1996
--------------------------- (Principal Executive Officer)
Leslie Zejdlik Foster
/s/ Heather A. McQueen Director and Treasurer September 12, 1996
-------------------------- (Principal Financial Officer
Heather A. McQueen and Principal Accounting Officer)
/s/ Kenneth M. Duncan Director, Chairman of the Board September 12, 1996
-------------------------- of Directors and Chief Executive
Kenneth M. Duncan Officer
</TABLE>
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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.
4.3* --FORM OF INDENTURE.
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.
STATEMENT OF DIFFERENCES
------------------------
The section mark symbol shall be expressed as ........ ss.
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ACCESS FINANCIAL MORTGAGE LOAN TRUST 199_-_
Class A-1 [Floating Rate] Mortgage Backed Notes
Class A-2 [Floating Rate] Mortgage Backed Notes
INDENTURE
Dated as of _____________, 199__
-----------------------
Indenture Trustee
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TABLE OF CONTENTS
<TABLE>
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ARTICLE I Definitions and Incorporation by Reference........................... 2
SECTION 1.1 (a) Definitions.................................... 2
SECTION 1.2 Incorporation by Reference of Trust
Indenture Act.......................................... 11
SECTION 1.3 Rules of Construction.................................. 11
SECTION 1.4 Calculations of Interest............................... 12
ARTICLE II The Notes............................................................ 12
SECTION 2.1 Form................................................... 12
SECTION 2.2 Execution, Authentication and Delivery................. 12
SECTION 2.3 Temporary Notes........................................ 13
SECTION 2.4 Registration; Registration of Transfer
Exchange............................................... 13
SECTION 2.5 Mutilated, Destroyed, Lost or Stolen
Notes.................................................. 15
SECTION 2.6 Persons Deemed Owner................................... 16
SECTION 2.7 Payment of Principal and Interest;
Defaulted Interest..................................... 16
SECTION 2.8 Cancellation........................................... 17
SECTION 2.9 Release of Collateral.................................. 17
SECTION 2.10 Book-Entry Notes....................................... 18
SECTION 2.11 Notices to Clearing Agency............................. 19
SECTION 2.12 Definitive Notes....................................... 19
ARTICLE III Covenants..................................................... 19
SECTION 3.1 Payment of Principal and Interest...................... 19
SECTION 3.2 Maintenance of Office or Agency........................ 20
SECTION 3.3 Money for Payments To Be Held in Trust................. 20
SECTION 3.4 Existence.............................................. 22
SECTION 3.5 Protection of Trust Estate............................. 22
SECTION 3.6 Opinions as to Trust Estate............................ 23
SECTION 3.7 Performance of Obligations; Servicing of
Mortgage Loans......................................... 23
SECTION 3.8 Negative Covenants..................................... 26
SECTION 3.9 Annual Statement as to Compliance...................... 26
SECTION 3.10 Issuer May Consolidate, etc., Only on
Certain Term........................................... 27
SECTION 3.11 Successor or Transferee................................ 29
SECTION 3.12 No Other Business...................................... 29
SECTION 3.13 No Borrowing........................................... 29
SECTION 3.14 Servicer's Obligations................................. 29
SECTION 3.15 Guarantees, Loans, Advances and Other
Liabilities............................................ 29
SECTION 3.16 Capital Expenditures................................... 29
SECTION 3.17 Removal of Administrator............................... 30
SECTION 3.18 Restricted Payments.................................... 30
</TABLE>
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SECTION 3.19 Notice of Events of Default............................ 30
SECTION 3.20 Further Instruments and Acts........................... 30
ARTICLE IV Satisfaction and Discharge........................................... 30
SECTION 4.1 Satisfaction and Discharge of Indenture................ 30
SECTION 4.2 Application of Trust Money............................. 32
SECTION 4.3 Repayment of Moneys Held by Paying
Agent.................................................. 32
ARTICLE V Remedies...................................................... 32
SECTION 5.1 Events of Default...................................... 32
SECTION 5.2 Acceleration of Maturity; Rescission and
Annulment.............................................. 33
SECTION 5.3 Collection of Indebtedness and Suits for
Enforcement by Indenture Trustee....................... 34
SECTION 5.4 Remedies; Priorities................................... 37
SECTION 5.5 Optional Preservation of the Mortgage
Loans.................................................. 38
SECTION 5.6 Limitation of Suits.................................... 38
SECTION 5.7 Unconditional Rights of Noteholders To
Receive Principal and Interest......................... 39
SECTION 5.8 Restoration of Rights and Remedies..................... 39
SECTION 5.9 Rights and Remedies Cumulative......................... 40
SECTION 5.10 Delay or Omission Not a Waiver......................... 40
SECTION 5.11 Control by Noteholders................................. 40
SECTION 5.12 Waiver of Past Defaults................................ 41
SECTION 5.13 Undertaking for Costs.................................. 41
SECTION 5.14 Waiver of Stay or Extension Laws....................... 41
SECTION 5.15 Action on Notes........................................ 42
SECTION 5.16 Performance and Enforcement of Certain
Obligations............................................ 42
ARTICLE VI Indenture Trustee............................................. 43
SECTION 6.1 Duties of Indenture Trustee............................ 43
SECTION 6.2 Rights of Indenture Trustee............................ 45
SECTION 6.3 Individual Rights of Indenture Trustee................. 45
SECTION 6.4 Indenture Trustee's Disclaimer......................... 45
SECTION 6.5 Notice of Defaults..................................... 46
SECTION 6.6 Reports by Indenture Trustee to Holders................ 46
SECTION 6.7 Compensation and Indemnity............................. 46
SECTION 6.8 Replacement of Indenture Trustee....................... 47
SECTION 6.9 Successor Indenture Trustee by Merger.................. 48
SECTION 6.10 Appointment of Co-Trustee or Separate
Trustee................................................ 48
SECTION 6.11 Eligibility; Disqualification.......................... 50
SECTION 6.12 Preferential Collection of Claims
Against Issuer......................................... 50
ARTICLE VII Noteholders' Lists and Reports................................ 50
SECTION 7.1 Issuer to Furnish Indenture Trustee
Names and Addresses to Noteholders..................... 50
</TABLE>
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SECTION 7.2 Preservation of Information;
Communications to Noteholders.......................... 50
SECTION 7.3 Reports by Issuer...................................... 51
SECTION 7.4 Reports by Indenture Trustee........................... 51
ARTICLE VIII Accounts, Disbursements and Releases.......................... 52
SECTION 8.1 Collection of Money.................................... 52
SECTION 8.2 Trust Accounts......................................... 52
SECTION 8.3 General Provisions Regarding Accounts.................. 53
SECTION 8.4 Release of Trust Estate................................ 54
SECTION 8.5 Opinion of Counsel..................................... 54
ARTICLE IX Supplemental Indentures.............................................. 55
SECTION 9.1 Supplemental Indentures Without Consent
of Noteholders......................................... 55
SECTION 9.2 Supplemental Indentures with Consent of
Noteholders............................................ 56
SECTION 9.3 Execution of Supplemental Indentures................... 58
SECTION 9.4 Effect of Supplemental Indenture....................... 58
SECTION 9.5 Conformity with Trust Indenture Act.................... 58
SECTION 9.6 Reference in Notes to Supplemental
Indentures............................................. 59
ARTICLE X Redemption of Notes........................................... 59
SECTION 10.1 Redemption............................................. 59
SECTION 10.2 Form of Redemption Notice.............................. 59
SECTION 10.3 Notes Payable on Redemption Date....................... 60
ARTICLE XI Miscellaneous................................................. 60
SECTION 11.1 Compliance Certificates and Opinions,
etc.................................................... 60
SECTION 11.2 Form of Documents Delivered to Indenture
Trustee................................................ 62
SECTION 11.3 Acts of Noteholders.................................... 63
SECTION 11.4 Notices, etc., to Indenture Trustee,
Issuer and Rating Agencies............................. 64
SECTION 11.5 Notices to Noteholders; Waiver......................... 64
SECTION 11.6 Alternate Payment and Notice Provisions................ 65
SECTION 11.7 Conflict with Trust Indenture Act...................... 65
SECTION 11.8 Effect of Headings and Table of
Contents............................................... 65
SECTION 11.9 Successors and Assigns................................. 66
SECTION 11.10 Separability................................................. 66
SECTION 11.11 Benefits of Indenture........................................ 66
SECTION 11.12 Legal Holidays............................................... 66
SECTION 11.13 GOVERNING LAW................................................ 66
SECTION 11.14 Counterparts................................................. 66
SECTION 11.15 Recording of Indenture....................................... 66
SECTION 11.16 Trust Obligation............................................. 67
SECTION 11.17 No Petition.................................................. 67
SECTION 11.18 Inspection................................................... 67
</TABLE>
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EXHIBITS
Testimonium, Signatures and Seals
Acknowledgments
Exhibit A Schedule of Mortgage Loans
Exhibit B Form of Pooling and Servicing Agreement
Exhibit C Form of Depository Agreement
Exhibit D Form of [Class A-1] Note
Exhibit E Form of [Class A-2] Note
Exhibit F Form of Transferee Certificate
iv
<PAGE>
<PAGE>
This INDENTURE dated as of _____________, 199_, between ACCESS
FINANCIAL MORTGAGE LOAN TRUST 199_-_, a Delaware business trust (the "Issuer"),
and _________________________, a [New York] banking corporation, solely as
trustee and not in its individual capacity (the "Indenture Trustee").
Each party agrees as follows for the benefit of the other party
and for the equal and ratable benefit of the Holders of the Issuer's Class A-1
[Floating Rate] Mortgage Backed Notes (the "Class A-1 Notes", Class A-2
[Floating Rate] Mortgage Backed Notes (the "Class A-2 Notes") and Class B
Mortgage Backed Notes (the "Class B Notes") (collectively, the "Notes"):
GRANTING CLAUSE
The Issuer hereby Grants to the Indenture Trustee at the Closing
Date, as trustee for the benefit of the Holders of the Notes, all of the
Issuer's right, title and interest in and to (a) the Mortgage Loans and all
moneys due thereon on or after the Cut-off Date; (b) the security interests in
the Mortgage Property granted by Obligors pursuant to the Mortgage Loans and any
other interest of the Issuer in the Mortgage Loans; (c) any proceeds with
respect to the Mortgage Loans from claims on any physical damage, credit life or
disability insurance policies covering Mortgage Loans or Obligors; (d) the
Contribution Agreement, including the right assigned to the Issuer to cause the
Company to repurchase Mortgage Loans from the Sponsor under certain
circumstances; (e) all funds on deposit from time to time in the Trust Accounts,
including the Reserve Account Initial Deposit, and in all investments and
proceeds thereof (including all income thereon); (f) the Pooling and Servicing
Agreement (including all rights of the Sponsor under the Contribution Agreement
assigned to the Issuer pursuant to the Pooling and Servicing Agreement); and (g)
all present and future claims, demands, causes and chooses in action in respect
of any or all of the foregoing and all payments on or under and all proceeds of
every kind and nature whatsoever in respect of any or all of the foregoing,
including all proceeds of the conversion, voluntary or involuntary, into cash or
other liquid property, all cash proceeds, accounts, accounts receivable, notes,
drafts, acceptances, chattel paper, checks, deposit accounts, insurance
proceeds, condemnation awards, rights to payment of any and every kind and other
forms of obligations and receivables, instruments and other property which at
any time constitute all or part of or are included in the proceeds of any of the
foregoing (collectively, the "Collateral").
The foregoing Grant is made in trust to secure the payment of
principal of and interest on, and any other amounts owing in respect of, the
Notes, equally and ratably without prejudice, priority or distinction, and to
secure compliance with the provisions of this Indenture, all as provided in this
Indenture.
1
<PAGE>
<PAGE>
The Indenture Trustee, as Indenture Trustee on behalf of the Holders of the
Notes, acknowledges such Grant, and accepts the trusts under this Indenture in
accordance with the provisions of this Indenture for the use and benefit of such
Holders.
ARTICLE I
Definitions and Incorporation by Reference
SECTION 1.1 (a) Definitions. Except as otherwise specified herein
or as the context may otherwise require, the following terms have the respective
meanings see forth below for all purposes of this Indenture.
"Act" has the meaning specified in Section 11.3(a).
"Affiliate" means, with respect to any specified person, any
other Person controlling or controlled by or under common control with such
specified Person. For the purposes of this definition, "control" when used with
respect to any specified Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Authorized Officer" means, with respect to the Issuer, any
officer of the Owner Trustee who is authorized to act for the Owner Trustee in
matters relating to the Issuer and who is identified on the list of Authorized
Officers, containing the specimen signature of each such Person, delivered by
the Owner Trustee to the Indenture Trustee on the Closing Date (as such list may
be modified or supplemented from time to time thereafter).
"Basic Documents" means the Certificate of Trust, the Trust
Agreement, the Contribution Agreement, the Pooling and Servicing Agreement, the
Depository Agreement and other documents and certificates delivered in
connection therewith.
"Book Entry Notes" means a beneficial interest in the Notes,
ownership and transfers of which shall be made through book entries by a
Clearing Agency as described in Section 2.10.
"Business Day" means any day other than a Saturday, Sunday or a
day on which banking institutions or trust companies in the City of New York are
authorized or obligated by law, regulation or executive order to remain closed.
"Certificate" has the meaning assigned to it in the
Trust Agreement.
2
<PAGE>
<PAGE>
"Certificate of Trust" means the certificate of trust of the
Issuer substantially in the form of Exhibit A to the Trust Agreement.
"[Class A-1] Note" means a [Class A-1] [Floating Rate] Mortgage
Backed Note, substantially in the form of Exhibit D.
"[Class A-l] Note Interest Rate" means, for a Payment Date, [the
lesser of (i) LIBO for such Payment Date minus __% and (ii)] __%; provided that
if the weighted average Net APR for the Mortgage Loans during the Collection
Period immediately preceding such Payment Date is less than the interest rate
computed without giving effect to this proviso, then the [Class A-1] Note
Interest Rate for such Payment Date shall not exceed such weighted average Net
APR.
"[Class A-2] Note" means a [Class A-2] [Floating Rate] Mortgage
Backed Note, substantially in the form of Exhibit E.
"[Class A-2] Note Interest Rate" means, for a Payment Date, [the
lesser of (i) LIBO for such Payment Date plus and (ii)] __%; provided that if
the weighted average Net APR or the Mortgage Loans during the Collection Period
immediately receding such Payment Date is less than the interest rate computed
without giving effect to this proviso plus [0.25]%, then the [Class A-2] Note
Interest Rate for such Payment Date shall not exceed such weighted average Net
APR less [0.25]%.
"Clearing Agency" means an organization registered as a "clearing
agency" pursuant to Section 17A of the Exchange Act.
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closing Date" means ___________________, 199_.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time, and Treasury Regulations Promulgated thereunder.
"Collateral" has the meaning specified in the granting
Clause of this Indenture.
"Company" means Access Financial Lending Corp., a
Delaware corporation, and its successor.
"Corporate Trust Office" means the principal office of the
Indenture Trustee at which at any particular time its corporate trust business
shall be administered which office to date of the execution of this Agreement is
located at ____________________________________________________________________
_______________________________________________________________________________
________________________, Attention: Corporate Trustee
Administration; or at such other address as the Indenture Trustee
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may designate from time to time by notice to the Noteholders and the Issuer, or
the principal corporate trust office of any successor Indenture Trustee (the
addresses of which the successor Indenture Trustee will notify the Noteholders
and the Issuer).
"Default" means any occurrence that is, or with notice or the
lapse of time or both would become, an Event of Default.
"Definitive Notes" has the meaning specified in
Section 2.10.
"Depository Agreement" means the agreement among the Issuer, the
Indenture Trustee, and The Depository Trust Company, as the initial Clearing
Agency, dated as of the Closing Date, substantially in the form of Exhibit C.
"Event of Default" has the meaning specified in
Section 5.1.
"Exchange Act" means the Securities Exchange Act of
1934, as amended.
"Executive Officer" means, with respect to any corporation, and
Chief Executive Officer, Chief Operating Officer, Chief Financial Officer,
President, Executive Vice President, any Vice President, the Secretary or the
Treasurer of such corporation; and with respect to any partnership, any general
partner thereof.
"Grant" means mortgage, pledge, bargain, sell, warrant, alienate,
remise, release, convey, assign, transfer, create, and grant a lien upon and a
security interest in and right of set-off against, deposit, set over and confirm
pursuant to this Indenture. A Grant of the Collateral or of any other agreement
or instrument shall include all rights, powers and options (but none of the
obligations) of the Granting party thereunder, including the immediate and
continuing right to claim for, collect, receive and give receipt for principal
and interest payments in respect of the Collateral and all other moneys payable
thereunder, to give and receive notices and other communications, to make
waivers or other agreements, to exercise all rights and options, to bring
Proceedings in the name of the Granting party or otherwise and generally to do
and receive anything that the Granting party is or may be entitled to do or
receive hereunder or with respect thereto.
"Holder" or "Noteholder" means the Person in whose name a [Class
A-1] Note or a [Class A-2] Note is registered on the Note Register.
"Indenture" means this Indenture as amended or
supplemented from time to time.
"Indenture Trustee" means __________________, a [New
York] banking corporation, as Indenture Trustee under this
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Indenture, or any successor Indenture Trustee under this Indenture.
"Independent" means, when used with respect to any specified
Person, that the Person (a) is in fact independent of the Issuer, any other
obligor upon the Notes, the Sponsor and any Affiliate of any of the foregoing
Persons, (b) does not have any direct financial interest or any material
indirect financial interest in the Issuer, any such other obligor, the Sponsor
or any Affiliate of any of the foregoing Persons and (c) is not connected with
the Issuer, any such other obligor, the Sponsor or any Affiliate of any of the
foregoing Persons as an officer, employee, promoter, underwriter, trustee,
partner, director or person performing similar functions.
"Independent Certificate" means a certificate or opinion to be
delivered to the Indenture Trustee under the circumstances described in, and
otherwise complying with, the applicable requirements of Section 11.1, made by
an Independent appraiser or other expert appointed by an Issuer order and
approved by the Indenture Trustee, and such opinion or certificate shall state
that the signer has read the definition of "Independent" in this Indenture and
that the signer is Independent within the meaning thereof.
"Issuer" means Access Financial Mortgage Loan Trust 199_-_ until
a successor replaces it and, thereafter, means the successor and, for purposes
of any provision contained herein and required by the TIA, each other obligor on
the Notes.
"Issuer Order" and "Issuer Request" means a written order or
request signed in the name of the Issuer by any one of its Authorized Officers
and delivered to the Indenture Trustee.
["LIBO" with respect to any Payment Date shall be established by
the Indenture Trustee and shall equal the arithmetic mean (rounded upwards, if
necessary, to the nearest one-sixteenth of a percent) of the offered rates for
United States dollar deposits for three months which appear on the Reuters
Screen LIBO Page (as defined below) as of 11:00 A.M., London time, on the second
LIBO Business Day prior to the immediately preceding Payment Date (or the
Closing Date in the case of the first Payment Date); provided that at least two
such offered rates appear on the Reuters Screen LIBO Page on such date. If fewer
than two offered rates appear, LIBO will be determined on such date as described
in the paragraph below. "Reuters Screen LIBO Page" means the display designated
as page "LIBO" on the Reuters Monitor Money Rates Service (or such other page as
may replace the LIBO page on that service for the purpose of displaying London
inter-bank offered rates of major banks). "LIBO Business Day" is a day that is
both a Business Day and a day on which banking institutions in the City of
London, England are not required or authorized by law to be closed.
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If on such date fewer than two offered rates appear on the
Reuters Screen LIBO Page, the Indenture Trustee will request of each of the
Reference Banks (which shall be major banks that are engaged in transactions in
the London inter-bank market, selected by the Indenture Trustee after
consultation with the Sponsor) to provide the Indenture Trustee with its offered
quotation for United States dollar deposits for three months to prime banks in
the London inter-bank market as of 11:00 A.M., London time, on such date. If at
least two Reference Banks provide the Indenture Trustee with such offered
quotations, LIBO on such date will be the arithmetic mean (rounded upwards, if
necessary, to the nearest one-sixteenth of a percent) of all such quotations. If
on such date fewer than two of the Reference Banks provide the Indenture Trustee
with such an offered quotation, LIBO on such date will be the arithmetic mean
(rounded upwards, if necessary, to the nearest one-sixteenth of a percent) of
the offered per annum rates which one or more leading banks in the City of New
York selected by the Indenture Trustee (after consultation with the Sponsor) are
quoting as of 11:00 A.M., New York City time, on such date to leading European
banks for United States dollar deposits for one month, provided, however, that
if such banks are not quoting as described above, LIBO will be the LIBO
applicable to the immediately preceding Payment Date.]
"Net APR" means, with respect to a Mortgage Loan, its APR less
the Servicing Fee Rate.
"Note Interest Rate" means the per annum interest rate
borne by a Note.
"Note Owner" means, with respect to a Book-Entry Note, the Person
who is the owner of such Book-Entry Note, as reflected all the books of the
Clearing Agency, or on the books of a Person maintaining an account with such
Clearing Agency (directly as a Clearing Agency Participant or as an indirect
participant, in each case in accordance with the rules of such Clearing Agency).
"Note Register" and "Note Registrar" have the respective meanings
specified in Section 2.4.
"Notes" means the [Class A-l] Notes and the [Class A-2]
Notes.
"Officers' Certificate" means a certificate signed by any
Authorized Officer of the Issuer, under the circumstances described in, and
otherwise complying with, the applicable requirements of Section 11.1, and
delivered to the Indenture Trustee. Unless otherwise specified, any reference in
this Indenture to an Officers' Certificate shall be to an Officers' Certificate
of any Authorized Officer of the Issuer.
"Opinion of Counsel" means one or more written opinions of
counsel who may, except as otherwise expressly provided in this Indenture, be
employees of or counsel to the Issuer and who shall be acceptable to the
Indenture Trustee, and which opinion
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or opinions shall be addressed to the Indenture Trustee as Indenture Trustee,
and shall comply with ny applicable requirements of Section 11.1.
"Outstanding" means, as of the date of determination, all Notes
theretofore authenticated and delivered under this Indenture except:
(i) Notes theretofore cancelled by the Note Registrar
or delivered to the Note Registrar for cancellation;
(ii) Notes or portions thereof the payment for which money in the
necessary amount has been theretofore deposited wi.h the Indenture Trustee or
any Paying Agent in trust for the Holders of such Notes (provided, however, that
if such Notes are to be redeemed, notice of such redemption has been duly given
pursuant to this Indenture or provision therefor, satisfactory to the Indenture
Trustee): and
(iii) Notes in exchange for or in lieu of other Notes which have
been authenticated and delivered pursuant to this Indenture unless proof
satisfactory to the Indenture Trustee is presented that any such Notes are held
by a bona fide purchaser;
provided that in determining whether the Holders of the requisite Outstanding
Amount of the Notes have given any request, demand, authorization, direction,
notice, consent or waiver hereunder or under any Basic Document, Notes owned by
the Issuer, any Sponsor obligor upon the Notes, the Sponsor or any Affiliate of
any of the foregoing Persons shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Indenture Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Notes that the Indenture Trustee knows to be so
owned shall be so disregarded. Notes so owned that have been pledged in good
faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Indenture Trustee the pledgee's right so to act with respect
to such Notes and that the pledgee is not the Issuer, any other obligor upon the
Notes, the Sponsor or any Affiliate of any of the foregoing Persons.
"Outstanding Amount" means the aggregate principal amount of all
Notes, or a Class of Notes, as applicable, Outstanding at the date of
determination.
"Owner Trustee" means ______ not in its individual capacity but
solely as Owner Trustee under the Agreement, or any successor Owner Trustee
under the Agreement.
"Paying Agent" means the Indenture Trustee, [Indenture Trustee]
or any Person that meets the eligibility standards for the Indenture Trustee
specified in Section 6.11 a authorized by the Issuer to make the payments to and
distributions from the Collection Account and the Note Distribution Account,
including
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payment of principal of or interest on the Notes on behalf of the Issuer.
"Payment Date" means the _th day of each and
[___________________, ______________, and ______________], or, if any such date
is not a Business Day, the next succeeding Business Day, commencing
______________, 199__.
"Person" means any individual, corporation, estate, partnership,
joint venture, association, joint stock company, (including any beneficiary
thereof), unincorporated organization or government or any agency or political
subdivision thereof.
"Pooling and Servicing Agreement" means the Pooling and Servicing
Agreement dated as of __________, 199_ among the Issuer, the Sponsor and the
Servicer, in the form of Exhibit B.
"Predecessor Note" means, with respect to any particular Note,
every previous Note evidencing all or a portion of the same debt as that
evidenced by such particular Note; and, for the purpose of this definition, any
Note authenticated and delivered under Section 2.5 in lieu of a mutilated, lost,
destroyed or stolen Note shall be deemed to evidence the same debt as the
mutilated, lost destroyed or stolen Note.
"Proceeding" means any suit in equity, action at law
other judicial or administrative proceeding.
"Rating Agency" means [Moody's], [Standard & Poor's] and [Duff &
Phelps]. If no such organization or successor is any longer in existence,
"Rating Agency" shall be a nationally recognized statistical rating organization
or other comparable Person designated by the Issuer, notice of which designation
shall be given to the Indenture Trustee, Owner Trustee and the Servicer.
"Rating Agency Condition" means, with respect to any action, that
each Rating Agency shall have been given [10] days or notice thereof and that
each of the Rating Agencies will have notified the Sponsor, the Servicer and the
Issuer in writing that such action will not result in a reduction or withdrawal
of the then current rating of the Notes.
"Record Date" means, with respect to a Payment Date Redemption
Date, the close of business on the [fourteenth] day or of the calendar month in
which such Payment Date or Redemption Date occurs.
"Redemption Date" means the Payment Date specified by the
Servicer or the Issuer pursuant to Section 10.1(a) or , as applicable.
"Redemption Price" means (a) in the case of a redemption of the
Notes pursuant to Section 10.1(a), an amount equal to the principal amount of
the Notes redeemed plus accrued
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and unpaid interest thereon at the related Note Interest Rate to but excluding
the Redemption Date, or (b) in the case of a payment made to Noteholders
pursuant to Section 10.1(b), the amount on deposit in the Note Distribution
Account, but not in excess of the amount specified in clause (a) above.
"Registered Holder" means the Person in whose name a Note is
registered on the Note Register on the applicable Record Date.
"Responsible Officer" means, with respect to the Indenture
Trustee, any officer within the Corporate Trust Office of the Indenture Trustee,
including any Vice President, Assistant Vice President, Secretary, Assistant
Secretary, or any other officer of the Indenture Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also, with respect to a particular matter, any other officer to whom such matter
is referred because of such officer's knowledge of and familiarity with the
particular subject.
"Schedule of Mortgage Loans" means the listing of the Mortgage
Loans set forth in Exhibit A (which Exhibit may be in form of microfiche).
"State" means any one of the 50 states of the United
States of America or the District of Columbia.
"Successor Servicer" has the meaning specified in
Section 3.7(e).
"Trust Estate" means all money, instruments, rights and other
property that are subject or intended to be subject the lien and security
interest of this Indenture for the benefit of the Noteholders (including,
without limitation, all property and interests Granted to the Indenture
Trustee), including all proceeds thereof.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of
1939 as in force on the date hereof, unless otherwise specifically provided.
"UCC" means, unless the context otherwise requires, the Uniform
Commercial Code, as in effect in the relevant jurisdiction, as amended from time
to time.
(b) Except as otherwise specified herein or as the context may
otherwise require, the following terms have the respective meanings set forth in
the Pooling and Servicing Agreement as in effect on the Closing Date for all
purposes of this Indenture, and the definitions of such terms are equally
applicable both to the singular and plural forms of such terms:
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<TABLE>
<CAPTION>
==================================================================================================
Term Section of Pooling and
Servicing Agreement
==================================================================================================
<S> <C>
APR Section 1.1
- --------------------------------------------------------------------------------------------------
Certificate Section 1.1
- --------------------------------------------------------------------------------------------------
Certificateholders Section 1.1
- --------------------------------------------------------------------------------------------------
[Class A-2] Final Section 1.1
Scheduled Payment Date
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Collection Account Section 1.1
- --------------------------------------------------------------------------------------------------
Collection Period Section 1.1
- --------------------------------------------------------------------------------------------------
Contract Section 1.1
- --------------------------------------------------------------------------------------------------
Cut-off Date Section 1.1
- --------------------------------------------------------------------------------------------------
Dealers Section 1.1
- --------------------------------------------------------------------------------------------------
Depositor Section 1.1
- --------------------------------------------------------------------------------------------------
[Duff & Phelps Section 1.1]
- --------------------------------------------------------------------------------------------------
Eligible Deposit Account Section 1.1
- --------------------------------------------------------------------------------------------------
Eligible Investments Section 1.1
- --------------------------------------------------------------------------------------------------
Fitch Section 1.1
- --------------------------------------------------------------------------------------------------
Moody's Section 1.1
- --------------------------------------------------------------------------------------------------
Mortgage Loans Section 1.1
- --------------------------------------------------------------------------------------------------
Note Distribution Account Section 1.1
- --------------------------------------------------------------------------------------------------
Noteholders Distributable Amount Section 1.1
- --------------------------------------------------------------------------------------------------
Obligor Section 1.1
- --------------------------------------------------------------------------------------------------
Pool Balance Section 1.1
- --------------------------------------------------------------------------------------------------
Contribution Agreement Section 1.1
- --------------------------------------------------------------------------------------------------
Purchased Receivable Section 1.1
- --------------------------------------------------------------------------------------------------
Recoveries Section 1.1
- --------------------------------------------------------------------------------------------------
Reserve Account Section 1.1
- --------------------------------------------------------------------------------------------------
Reserve Account Initial Deposit Section 1.1
- --------------------------------------------------------------------------------------------------
Sponsor Section 1.1
- --------------------------------------------------------------------------------------------------
Servicer Section 1.1
- --------------------------------------------------------------------------------------------------
Servicer Default Section 1.1
- --------------------------------------------------------------------------------------------------
Servicing Fee Rate Section 1.1
- --------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
==================================================================================================
Term Section of Pooling and
Servicing Agreement
==================================================================================================
<S> <C>
Specified Reserve Account Balance Section 1.1
- --------------------------------------------------------------------------------------------------
Standard & Poor's Section 1.1
- --------------------------------------------------------------------------------------------------
Total Distribution Amount Section 1.1
- --------------------------------------------------------------------------------------------------
Transfer Date Section 1.1
- --------------------------------------------------------------------------------------------------
Trust Accounts Section 1.1
- --------------------------------------------------------------------------------------------------
Trust Agreement Section 1.1
==================================================================================================
</TABLE>
SECTION 1.2 Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used this Indenture have the following meanings:
"Commission" means the Securities and Exchange
Commission.
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means
Indenture Trustee.
"Obligor" on the indenture securities means the Issuer
and any other obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by Commission
rule have the meaning assigned to them by such definitions.
SECTION 1.3 Rules of Construction. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting principles as in
effect from time to time;
(iii) "or" is not exclusive;
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(iv) "including" means "including without limitation"; and
(v) words in the singular include the plural and words
in the plural include the singular.
SECTION 1.4 Calculations of Interest. All calculations of
interest made hereunder shall be made on the is of a year of 360 days, in each
case for the actual number of days in the period for which such interest is
payable.
ARTICLE II
The Notes
SECTION 2.1 Form. The [Class A-1] and [Class A-2] Notes, in each
case together with the Indenture Trustee's certificate of authentication, shall
be in substantially the forms set forth in Exhibits D and E, respectively, with
such appropriate insertions, omissions, substitutions and other variations as
are required or permitted by this Indenture and may have such letters, numbers
or other marks of identification and such legends or endorsements placed thereon
as may, consistently herewith, be determined by the officers executing such
Notes, as evidenced by their execution of the Notes. Any portion of the text of
any Note may be set forth on the reverse thereof, with an appropriate reference
thereto on the face of the Note.
The Definitive Notes shall be typewritten, printed, lithographed
or engraved or produced by any combination of methods (with or without steel
engraved borders), all determined by the officers executing such Notes, as
evidenced by their execution of such Notes.
Each Note shall be dated the date of its authentication. The
terms of the Notes set forth in Exhibits are part of the terms of this
Indenture.
SECTION 2.2 Execution, Authentication and Delivery. The Notes
shall be executed on behalf of the Issuer by any of its Authorized Officers. The
signature of any such Authorized Officer on the Notes may be manual or
facsimile.
Notes bearing the manual or facsimile signature of individual's
who were at any time Authorized Officers of the Issuer shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior
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to the authentication and delivery of such Notes or did not hold such offices at
the date of such Notes.
The Indenture Trustee shall upon Issuer Order authenticate and
deliver [Class A-1] Notes for original issue in an aggregate principal amount of
$____________________ and [Class A-2] Notes for an original issue in an
aggregate principal amount of $______________. The aggregate principal amount of
[Class A-1] and [Class A-2] Notes outstanding at any time may not exceed such
amounts, respectively, except as provided Section 2.5.
Each Note shall be dated the date of its authentication. The
Notes shall be issuable as registered the minimum denomination of $ and in
integral multiples thereof.
No Note shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Indenture Trustee by the manual signature of one of its
authorized signatories, and such certificate upon any Note shall be conclusive
evidence, and the only evidence, that such Note has been duly authenticated and
delivered hereunder.
SECTION 2.3 Temporary Notes. Pending the preparation of
definitive Notes, the Issuer may execute, and upon receipt of an Issuer Order
the Indenture Trustee shall authenticate and deliver, temporary Notes which are
printed, lithographed, typewritten, mimeographed or otherwise produced, of the
tenor of the definitive Notes in lieu of which they are issued and with such
variations not inconsistent with the terms of this Indenture as the officers
executing such notes may determine, as evidenced by their execution of such
Notes.
If temporary Notes are issued, the Issuer will cause definitive
Notes to be prepared without unreasonable delay. After preparation of definitive
Notes, the temporary Notes shall be exchangeable for definitive Notes upon
surrender of the temporary Notes at the office or agency of the Issuer to be
maintained as provided in Section 3.2, without charge to the Holder. Upon
surrender for cancellation of any one or more temporary Notes, the Issuer
execute and the Indenture Trustee shall authenticate and deliver in exchange
therefor a like principal amount of definitive Notes of authorized
denominations. Until so exchanged, the temporary Notes shall in all respects be
entitled to the same benefits under this Indenture as definitive Notes.
SECTION 2.4 Registration; Registration of Transfer Exchange. The
Issuer shall cause to be kept a register (the "Note Register") in which, subject
to such reasonable regulations as it may prescribe, the Issuer shall provide for
the registration of Notes and the registration of transfers of Notes.
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The Indenture Trustee shall be "Note Registrar" for the purpose of registering
Notes and transfers of Notes as herein provided. Upon any resignation of any
Note Registrar, the Issuer shall promptly appoint a successor or, if it elects
not to make such an appointment, assume the duties of Note Registrar.
If a Person other than the Indenture Trustee is appointed by the
Issuer as Note Registrar, the Issuer will give the Indenture Trustee prompt
written notice of the appointment of such Note Registrar and of the location,
and any change in the location, of the Note Register, and the Indenture Trustee
shall have the right to inspect the Note Register at all reasonable times and to
obtain copies thereof, and the Indenture Trustee shall have the right to rely
upon a certificate executed on behalf of the Note Registrar by an Executive
Officer thereof as to the names and addresses of the Holders of the Notes and
the principal amounts and number of such Notes.
Upon surrender for registration of transfer of any Note at the
office or agency of the Issuer to be maintained as provided in Section 3.2, if
the requirements of Section 8-401(1) of the UCC are met the Issuer shall
execute, and the Indenture Trustees shall authenticate and the Noteholders shall
obtain from the Indenture Trustee, in the name of the designated transferee or
transferees, one or more new Notes of the same Class in any authorized
denominations, of a like aggregate principal amount.
At the option of the Holder, Notes may be exchanged for other
Notes of the same Class in any authorized denominations, of a like aggregate
principal amount, upon surrender of the Notes to be exchanged at such office or
agency. Whenever any Notes are so surrendered for exchange, if the requirements
of Section 8-401(1) of the UCC are met the Issuer shall execute, and the
Indenture Trustee authenticate and the Noteholder shall obtain from the
Indenture Trustee, the Notes which the Noteholder making the exchange is
entitled to receive.
All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Issuer, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer
or exchange shall be duly endorsed by, or be accompanied by a written instrument
of transfer in the form of Exhibit F hereto, duly executed by, the Holder
thereof or such Holder's attorney duly authorized in writing, with such
signature guaranteed by a commercial bank or trust company located, or having a
correspondent located, in the City of New York or the city in which the
Corporate Trust Office is located, or by a member firm of a national securities
exchange, and such other documents as the Indenture Trustee may require.
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No service charge shall be made to a Holder for any registration
of transfer or exchange of Notes, but the Issuer may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 2.3 or 9.6 not involving any transfer.
The preceding provisions of this Section 2.4 notwithstanding, the
Issuer shall not be required to make and the Note Registrar need not register
transfers or exchanges of Notes selected for redemption or of any Note for a
period of [15] days preceding the due date for any payment with respect to the
Note.
SECTION 2.5 Mutilated, Destroyed, Lost or Stolen Notes. If (i)
any mutilated Note is surrendered to the Indenture Trustee, or the Indenture
Trustee receives evidence to its satisfaction of the destruction, loss or theft
of any Note, and (ii) there is delivered to the Indenture Trustee such security
or indemnity as may be required by it to hold the Issuer and the Indenture
Trustee harmless, then, in the absence of notice to the Issuer, the Note
Registrar or the Indenture Trustee that such Note has been acquired by a bona
fide purchaser, and provided that the requirements of Section 8-405 of the UCC
are met, the Issuer shall execute and upon its request the Indenture Trustee
shall authenticate and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Note, a replacement Note of the same Class;
provided, however, that if any such destroyed, lost or stolen Note, but not a
mutilated Note, shall have become or within seven days shall be due and payable,
or shall have been called for redemption, instead of issuing a replacement Note,
the Issuer may pay such destroyed, lost or stolen Note when so due or payable or
upon the Redemption Date without surrender thereof. If, after the delivery of
such replacement Note or payment of a destroyed, lost or stolen Note pursuant to
the proviso to the preceding sentence, a bona fide purchaser of the original
Note in lieu of which such replacement Note was issued presents for payment such
original Note, the Issuer and the Indenture Trustee shall be entitled to recover
such replacement Note (or such payment) from the Person to whom it was delivered
or any Person taking such replacement Note from such Person to whom such
replacement Note was delivered or any assignee of such Person, except a bona
fide purchaser, and shall be entitled to recover upon the security or indemnity
provided therefor to the extent of any loss, damage, cost or expense incurred by
the Issuer or the Indenture Trustee in connection therewith.
Upon the issuance of any replacement Note under this Section, the
Issuer may require the payment by the Holder of such Note of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other reasonable expenses (including the fees and expenses of
the Indenture Trustee) connected therewith.
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Every replacement Note issued pursuant to this Section in
replacement of any mutilated, destroyed, lost or stolen Note shall constitute an
original additional contractual obligation of the Issuer, whether or not the
mutilated, destroyed, lost or stolen Note shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.6 Persons Deemed Owner. Prior to due presentment for
registration of transfer of any Note, the Issuer, the Indenture Trustee and any
agent of the Issuer or the Indenture Trustee may treat the Person in whose name
any Note is registered (as of the day of determination) as the owner of such
Note for the purpose of receiving payments of principal of and interest, if any,
on such Note and for all other purposes whatsoever, whether or not such Note be
overdue, and neither the Issuer, the Indenture Trustee nor any agent of the
Issuer or the Indenture Trustee shall be affected by notice to the contrary.
SECTION 2.7 Payment of Principal and Interest;
Defaulted Interest.
(a) The Notes shall accrue interest as provided in the forms of
the [Class A-1] Note and [Class A-2] Note set forth in Exhibits D and E,
respectively, and such interest shall be payable on each Payment Date as
specified therein. Any installment of interest or principal, if any, payable on
any Note which is punctually paid or duly provided for by the Issuer on the
applicable Payment Date shall be paid to the Person in whose name such Note (or
one or more Predecessor Notes) is registered on the Record Date, by check mailed
first-class, postage prepaid to such Person's address as it appears on the Note
Register on such Record Date, except that, unless Definitive Notes have been
issued pursuant to Section 2.12, with respect to Notes registered on the Record
Date in the name of the nominee of the Clearing Agency [(initially, such nominee
to be Cede & Co.)], payment will be made by wire transfer in immediately
available funds to the account designated by such nominee and except for the
final installment of principal payable with respect to such Note on a Payment
Date (and except for the Redemption Price for any Note called for redemption
pursuant to Section 10.1(a)) which shall be payable as provided below. The funds
represented by any such checks returned undelivered shall be held in accordance
with Section 3.3.
(b) The principal of each Note shall be payable in installments
on each Payment Date as provided in the forms of the [Class A-1] Note and [Class
A-2] Note set forth in Exhibits D and E, respectively. Notwithstanding the
foregoing, the entire
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unpaid principal amount of the Notes shall be due and payable, if not previously
paid, on the date on which an Event of Default shall have occurred and be
continuing, if the Indenture Trustee or the Holders of the Notes representing
not less than a majority of the Outstanding Amount of the Notes have declared
the Notes to be immediately due and payable in the manner provided in Section
5.2. All principal payments on each Class of Notes shall be made pro rata to the
Noteholders of such Class entitled thereto. Upon notice to the Indenture Trustee
by the Issuer, the Indenture Trustee shall notify the Person in whose name a
Note is registered at the close of business on the Record Date preceding the
Payment Date on which the Issuer expects that the final installment of principal
of and interest on such Note will be paid. Such notice shall be mailed no later
than [five] Business Days prior to such final Payment Date and shall specify
that such final installment will be payable only upon presentation and surrender
of such Note and shall specify the place where such Note may be presented and
surrendered for payment of such installment. Notices in connection with
redemptions of Notes shall be mailed to Noteholders as provided in Section 10.2.
(c) If the Issuer defaults in a payment of interest on the Notes,
the Issuer shall pay defaulted interest (plus interest on such defaulted
interest to the extent lawful) in any lawful manner. The Issuer may pay such
defaulted interest to the persons who are Noteholders on a subsequent special
record date, which date shall be at least [five] Business Days prior to the
payment date. The Issuer shall fix or cause to be fixed any such special record
date and payment date, and, at least [10] days before any such special record
date, the Issuer shall mail to each Noteholder a notice that states the special
record date, the payment date and the amount of defaulted interest to be paid.
SECTION 2.8 Cancellation. All notes surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Indenture Trustee, be delivered to the Indenture Trustee
and shall be promptly cancelled by the Indenture Trustee. The Issuer may at any
time deliver to the Indenture Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Issuer may have acquired in any
manner whatsoever, and all Notes so delivered shall be promptly cancelled by the
Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange for
any Notes cancelled as provided in this Section, except as expressly permitted
by this Indenture. All cancelled Notes may be held or disposed of by the
Indenture Trustee in accordance with its standard retention or disposal policy
as in effect at the time unless the Issuer shall direct by an Issuer Order that
they be destroyed or returned to it; provided that such Issuer Order is timely
and the Notes have not been previously disposed of by the Indenture Trustee.
SECTION 2.9 Release of Collateral. Subject to Section 11.1, the
Indenture Trustee shall release property from the lien of this Indenture only
upon receipt of an Issuer Request
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accompanied by an Officers' Certificate, an Opinion of Counsel and Independent
Certificates in accordance with TIA ss.ss. 314(c) and 314(d)(1) or an Opinion of
Counsel in lieu of such Independent Certificates to the effect that the TIA does
not require any such Independent Certificates.
SECTION 2.10 Book-Entry Notes. The Notes, upon original issuance,
will be issued in the form of a typewritten Note or Notes representing the
Book-Entry Notes, to be delivered to The Depository Trust Company, the initial
Clearing Agency, by, or on behalf of, the Issuer. Such Note shall initially be
registered on the Note Register in the name of Cede & Co., the nominee of the
initial Clearing Agency, and no Note Owner will receive a Definitive Note (as
hereinafter defined) representing such Note Owner's interest in such Note,
except as provided in Section 2.12. Unless and until definitive, fully
registered Notes (the "Definitive Notes") have been issued to Note Owners
pursuant to Section 2.12:
(i) the provisions of this Section shall be in
full force and effect;
(ii) the Note Registrar and the Indenture Trustee shall be
entitled to deal with the Clearing Agency for all purposes of
this Indenture (including the payment of principal of and
interest on the Notes and the giving of instructions or
directions hereunder) as the sole holder of the Notes, and shall
have no obligation to the Note Owners;
(iii) to the extent that the provisions of this Section
conflict with any other provisions of this Indenture, the
provisions of this Section shall control;
(iv) the rights of Note Owners shall be exercised only
through the Clearing Agency and shall be limited to those
established by law and agreements between such Note Owners and
the Clearing Agency and/or the Clearing Agency Participants.
Pursuant to the Depository Agreement, unless and until Definitive
Notes are issued pursuant to Section 2.12, the initial Clearing
Agency will make book-entry transfers among the Clearing Agency
Participants and receive and transmit payments of principal of
and interest on the Notes to such Clearing Agency Participants;
and
(v) whenever this Indenture requires or permits actions to
be taken based upon instructions or directions of Holders of
Notes evidencing a specified percentage of the Outstanding Amount
of the Notes, the Clearing Agency shall be deemed to represent
such percentage only to the extent that it has received
instructions to such effect from Note Owners and/or Clearing
Agency Participants owning or representing,
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respectively, such required percentage of the beneficial interest
in the Notes and has delivered such instructions to the Indenture
Trustee.
SECTION 2.11 Notices to Clearing Agency. Whenever a notice or
other communication to the Noteholders is required or other communication to the
Noteholders is required under this Indenture, unless and until Definitive Notes
shall have been issued to Note Owners pursuant to Section 2.12, the Indenture
Trustee shall give all such notices and communications specified herein to be
given to Holders of the Notes to the Clearing Agency, and shall have no
obligation to the Note Owners or other Holders of the Notes.
SECTION 2.12 Definitive Notes. If (i) the Indenture Trustee is
notified in writing that the Clearing Agency is no longer willing or able to
properly discharge its responsibilities with respect to the Notes, and the
Indenture Trustee is unable to locate a qualified successor, (ii) the Indenture
Trustee elects to terminate the book-entry system through the Clearing Agency or
(iii) after the occurrence of an Event of Default or a Servicer Default, Note
Owners representing beneficial interests aggregating at least a majority of the
Outstanding Amount of the Notes advise the Clearing Agency in writing that the
continuation of a book-entry system through the Clearing Agency is no longer in
the best interests of the Note Owners, then the Clearing Agency shall notify all
Note Owners and the Indenture Trustee of the occurrence of any such event and of
the availability of Definitive Notes to Note Owners requesting the same. Upon
surrender to the Indenture Trustee of the typewritten Note or Notes representing
the Book-Entry Notes by the Clearing Agency, accompanied by registration
instructions, the Issuer shall execute and the Indenture Trustee shall
authenticate the Definitive Notes in accordance with the instructions of the
Clearing Agency. None of the Issuer, the Note Registrar or the Indenture Trustee
shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be protected in relying on, such instructions.
Upon the issuance of Definitive Notes, the Indenture Trustee shall recognize the
Holders of the Definitive Notes as Noteholders.
ARTICLE III
Covenants
SECTION 3.1 Payment of Principal and Interest. The Issuer will
duly and punctually pay the principal of and interest, if any, on the Notes in
accordance with the terms of the Notes and this Indenture. Without limiting the
foregoing, the Issuer will cause to be distributed all amounts on deposit in the
Note Distribution Account on a Payment Date. Amounts properly withheld under the
Code by any Person from a payment to any Noteholder of interest and/or principal
shall be considered
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as having been paid by the Issuer to such Noteholder for all purposes of this
Indenture.
SECTION 3.2 Maintenance of Office or Agency. The Issuer will
maintain in the [County of _____________, State of ______________], an office or
agency where Notes may be surrendered for registration of transfer or exchange,
and where notices and demands to or upon the Issuer in respect of the Notes and
this Indenture may be served. The Issuer hereby initially appoints_____________
to serve as its agent for the foregoing purposes. The Issuer will give prompt
written notice to the Indenture Trustee of the location, and of any change in
the location, of any such office or agency. If at any time the Issuer shall fail
to maintain any such office or agency or shall fail to furnish the Indenture
Trustee with the address thereof, such surrenders, notices and demands may be
made or served at the Corporate Trust Office, and the Issuer hereby appoints the
Indenture Trustee as its agent to receive all such surrenders, notices and
demands.
SECTION 3.3 Money for Payments To Be Held in Trust. As provided
in Section 8.02(a) and (b), all payments of amounts due and payable with respect
to any Notes that are to be made from amounts withdrawn from the Collection
Account and the Note Distribution Account pursuant to Section 8.02(c) shall be
made on behalf of the Issuer by the Indenture Trustee or by another Paying
Agent, and no amounts so withdrawn from the Collection Account and the Note
Distribution Account for payments of Notes shall be paid over to the Issuer
except as provided in this Section.
On or before [noon (New York time)] on each Payment Date and
Redemption Date, the Issuer shall deposit or cause to be deposited in the Note
Distribution Account an aggregate sum sufficient to pay the amounts then
becoming due under the Notes, such sum to be held in trust for the benefit of
the Persons entitled thereto and (unless the Paying Agent is the Indenture
Trustee) shall promptly notify the Indenture Trustee of its action or failure so
to act.
The Issuer will cause each Paying Agent other than the Indenture
Trustee to execute and deliver to the Indenture Trustee an instrument in which
such Paying Agent shall agree with the Indenture Trustee (and if the Indenture
Trustee acts as Paying Agent, it hereby so agrees), subject to the provisions of
this Section, that such Paying Agent will:
(i) hold sums held by it for the payment of amounts due
with respect to the Notes in trust for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of
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as herein provided and pay such sums to such Persons as
herein provided;
(ii) give the Indenture Trustee notice of any default by
the Issuer of which it has actual knowledge (or any other obligor
upon the Notes) in the making of any payment required to be made
with respect to the Notes;
(iii) at any time during the continuance of any such
default, upon the written request of the Indenture Trustee,
forthwith pay to the Indenture Trustee all sums so held in trust
by such Paying Agent;
(iv) immediately resign as a Paying Agent and forthwith
pay to the Indenture Trustee all sums held by it in trust for the
payment of Notes if at any time it ceases to meet the standards
required to be met by a Paying Agent at the time of its
appointment; and
(v) comply with all requirements of the Code with respect
to the withholding from any payments made by it on any Notes of
any applicable withholding taxes imposed thereon and with respect
to any applicable reporting requirements in connection therewith.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by Issuer
Order direct any Paying Agent to pay to the Indenture Trustee all sums held in
trust by such Paying Agent, such sums to be held by the Indenture Trustee upon
the same terms as those upon which the sums were held by such Paying Agent; and
upon such payment by any Paying Agent to the Indenture Trustee, such Paying
Agent shall be released from all further liability with respect to such money.
Subject to applicable laws with respect to escheat of funds, any
money held by the Indenture Trustee or any Paying Agent in trust for the payment
of any amount due with respect to any Note and remaining unclaimed for [two]
years after such amount has become due and payable shall be discharged from such
trust, and the Indenture Trustee or such Paying Agent, as the case may be, shall
give prompt notice of such occurrence to the Issuer and shall release such money
to the Issuer on Issuer Request; and the Holder of such Note shall thereafter,
as an unsecured general creditor, look only to the Issuer for payment thereof
(but only to the extent of the amounts so paid to the Issuer), and all liability
of the Indenture Trustee or such Paying Agent with respect to such trust money
shall thereupon cease; provided, however, that the Indenture Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Issuer cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of general
circulation in the City of _____________, notice that such money remains
unclaimed
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and that, after the date specified therein, which shall not be less than [30]
days from the date of such publication, any unclaimed balance of such money then
remaining will be repaid to the Issuer. The Indenture Trustee may also adopt and
employ, at the expense of the Issuer, any other reasonable means of notification
of such repayment (including, but not limited to, mailing notice of such
repayment to Holders whose Notes have been called but have not been surrendered
for redemption or whose right to or interest in moneys due and payable but not
claimed is determinable from the records of the Indenture Trustee or of any
Paying Agent, at the last address of record for each such Holder).
SECTION 3.4 Existence. The Issuer will keep in full effect its
existence, rights and franchises as a business trust under the laws of the State
of [Delaware] (unless it becomes, or any successor Issuer hereunder is or
becomes, organized under the laws of any other State or of the United States of
America, in which case the Issuer will keep in full effect its existence, rights
and franchises under the laws of such other jurisdiction) and will obtain and
preserve its qualification to do business in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of this Indenture, the Notes, the Collateral and each other
instrument or agreement included in the Trust Estate.
SECTION 3.5 Protection of Trust Estate. The Issuer will from time
to time prepare, execute, deliver and file all such supplements and amendments
hereto and all such financing statements, continuation statements, instruments
of further assurance and other instruments, and will take such other action
necessary or advisable to:
(i) maintain or preserve the lien and security interest
(and the priority thereof) of this Indenture or carry out more
effectively the purposes hereof;
(ii) perfect, publish notice of or protect the
validity of any Grant made or to be made by this
Indenture;
(iii) enforce any of the Collateral; or
(iv) preserve and defend title to the Trust Estate and the
rights of the Indenture Trustee and the Noteholders in such Trust
Estate against the claims of all persons and parties. The Issuer
hereby designates the Indenture Trustee, and hereby authorizes
the Indenture Trustee as its agent and attorney-in-fact, to
execute any financing statement, continuation statement or other
instrument required by the Indenture Trustee pursuant to this
Section.
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SECTION 3.6 Opinions as to Trust Estate.
(a) On the Closing Date, the Issuer shall furnish to the
Indenture Trustee an Opinion of Counsel either stating that, in the opinion of
such counsel, such action has been taken with respect to the recording and
filing of this Indenture, any indentures supplemental hereto, and other
requisite documents, and with respect to the execution and filing of any
financing statements and continuation statements, as are necessary to perfect
and make effective the lien and security interest of this Indenture and reciting
the details of such action, or stating that, in the opinion of such counsel, no
such action is necessary to make such lien and security interest effective.
(b) On or before [February 28] in each calendar year, beginning
in 199_, the Issuer shall furnish to the Indenture Trustee an Opinion of Counsel
either stating that, in the opinion of such counsel, such action has been taken
with respect to the recording, filing, re-recording and refiling of this
Indenture, any indentures supplemental hereto and any other requisite documents
and with respect to the execution and filing of any financing statements and
continuation statements as is necessary to maintain the lien and security
interest created by this Indenture and reciting the details of such action or
stating that in the opinion of such counsel no such action is necessary to
maintain such lien and security interest. Such Opinion of Counsel shall also
describe the recording, filing, re-recording and refiling of this Indenture, any
indentures supplemental hereto and any other requisite documents and the
execution and filing of any financing statements and continuation statements
that will, in the opinion of such counsel, be required to maintain the lien and
security interest of this Indenture until [February 28] in the following
calendar year.
SECTION 3.7 Performance of Obligations; Servicing of
Mortgage Loans.
(a) The Issuer will not take any action and will use its best
efforts not to permit any action to be taken by others that would release any
Person from any of such Person's material covenants or obligations under any
instrument or agreement included in the Trust Estate or that would result in the
amendment, hypothecation, subordination, termination or discharge of, or impair
the validity or effectiveness of, any such instrument or agreement, except as
expressly provided in this Indenture, the Pooling and Servicing Agreement or
such other instrument or agreement.
(b) The Issuer may contract with other Persons to assist it in
performing its duties under this Indenture, and any performance of such duties
by a Person identified to the Indenture Trustee in an Officers' Certificate of
the Issuer shall
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be deemed to be action taken by the Issuer. Initially, the Issuer has contracted
with the Servicer to assist the Issuer in performing its duties under this
Indenture.
(c) The Issuer will punctually perform and observe all of its
obligations and agreements contained in this Indenture, the Basic Documents and
in the instruments and agreements included in the Trust Estate, including but
not limited to filing or causing to be filed all UCC financing statements and
continuation statements required to be filed by the terms of this Indenture and
the Pooling and Servicing Agreement in accordance with and within the time
periods provided for herein and therein. Except as otherwise expressly provided
therein, the Issuer shall not waive, amend, modify, supplement or terminate any
Basic Document or any provision thereof without the consent of the Indenture
Trustee or the Holders of at least a majority of the Outstanding Amount of the
Notes.
(d) If the Issuer shall have knowledge of the occurrence of a
Servicer Default under the Pooling and Servicing Agreement, the Issuer shall
promptly notify the Indenture Trustee and the Rating Agencies thereof, and shall
specify in such notice the action, if any, the Issuer is taking with respect to
such default. If a Servicer Default shall arise from the failure of the Servicer
to perform any of its duties or obligations under the Pooling and Servicing
Agreement with respect to the Mortgage Loans, the Issuer shall take all
reasonable steps available to it to remedy such failure.
(e) As promptly as possible after the giving of notice of
termination to the Servicer of the Servicer's rights and powers pursuant to
Section ____ of the Pooling and Servicing Agreement, the Issuer shall appoint a
successor servicer (the "Successor Servicer"), and such Successor Servicer shall
accept its appointment by a written assumption in a form acceptable to the
Indenture Trustee. In the event that a Successor Servicer has not been appointed
and accepted its appointment at the time when the Servicer ceases to act as
Servicer, the Indenture Trustee without further action shall automatically be
appointed the Successor Servicer, subject to Section ____ of the Pooling and
Servicing Agreement. The Indenture Trustee may resign as the Servicer by giving
written notice of such resignation to the Issuer and in such event will be
released from such duties and obligations, such release not to be effective
until the date a new servicer enters into a servicing agreement with the Issuer
as provided below. Upon delivery of any such notice to the Issuer, the Issuer
shall obtain a new servicer as the Successor Servicer under the Pooling and
Servicing Agreement. Any Successor Servicer other than the Indenture Trustee
shall (i) be an established financial institution having a net worth of not less
than $_______________ and whose regular business includes the servicing of
equipment receivables and (ii) enter into a servicing agreement with the Issuer
having substantially the same provisions as the provisions of the Pooling and
Servicing Agreement applicable to the Servicer. If within [30] days after
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the delivery of the notice referred to above, the Issuer shall not have obtained
such a new servicer, the Indenture Trustee may appoint, or may petition a court
of competent jurisdiction to appoint, a Successor Servicer. In connection with
any such appointment, the Indenture Trustee may make such arrangements for the
compensation of such successor as it and such successor shall agree, subject to
the limitations set forth below and in the Pooling and Servicing Agreement, and
in accordance with Section ____ of the Pooling and Servicing Agreement, the
Issuer shall enter into an agreement with such successor for the servicing of
the Mortgage Loans (such agreement to be in form and substance satisfactory to
the Indenture Trustee). If the Indenture Trustee shall succeed to the Servicer's
duties as servicer of the Mortgage Loans as provided herein, it shall do so in
its capacity as servicer and not in its capacity as Indenture Trustee and,
accordingly, the provisions of Article VI hereof shall be inapplicable to the
Indenture Trustee in its duties as the successor to the Servicer and the
servicing of the Mortgage Loans. In case the Indenture Trustee shall become
successor to the Servicer under the Pooling and Servicing Agreement, the
Indenture Trustee shall be entitled to appoint as Servicer any one of its
affiliates, provided that it shall be fully liable for the actions and omissions
of such affiliate in such capacity as Successor Servicer.
(f) Upon any termination of the Servicer's rights and powers
pursuant to the Pooling and Servicing Agreement, the Issuer shall promptly
notify the Indenture Trustee. As soon as a Successor Servicer is appointed, the
Issuer shall notify the Indenture Trustee of such appointment, specifying in
such notice the name and address of such Successor Servicer.
(g) Without derogating from the absolute nature of the assignment
granted to the Indenture Trustee under this Indenture or the rights of the
Indenture Trustee hereunder, the Issuer agrees that it will not, without the
prior written consent of the Indenture Trustee or the Holders of a least a
majority in Outstanding Amount of the Notes, amend, modify, waive, supplement,
terminate or surrender, or agree to any amendment, modification, supplement,
termination, waiver or surrender of, the terms of any Collateral (except to the
extent otherwise provided in the Pooling and Servicing Agreement) or the Basic
Documents, or waive timely performance or observance by the Servicer or the
Sponsor under the Pooling and Servicing Agreement or the Company under the
Contribution Agreement; provided, however, that no such amendment shall (i)
increase or reduce in any manner the amount of, or accelerate or delay the
timing of, collections of payments on Mortgage Loans or distributions that are
required to be made for the benefit of the Noteholders or (ii) reduce the
aforesaid percentage of the Notes which are required to consent to any such
amendment, without the consent of the holders of all the outstanding Notes. If
any such amendment, modification, supplement or waiver shall be so consented to
by the Indenture Trustee or such Holders, the Issuer agrees, promptly following
a request by the Indenture Trustee to do so,
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to execute and deliver, in its own name and at its own expense, such agreements,
instruments, consents and other documents as the Indenture Trustee may
reasonably deem necessary or appropriate in the circumstances.
SECTION 3.8 Negative Covenants. So long as any Notes are
Outstanding, the Issuer shall not:
(i) except as expressly permitted by this Indenture, the
Contribution Agreement or the Pooling and Servicing Agreement,
sell, transfer, exchange or otherwise dispose of any of the
properties or assets of the Issuer, including those included in
the Trust Estate, unless directed to do so by the Indenture
Trustee;
(ii) claim any credit on, or make any deduction from the
principal or interest payable in respect of, the Notes (other
than amounts properly withheld from such payments under the Code)
or assert any claim against any present or former Noteholder by
reason of the payment of the taxes levied or assessed upon any
part of the Trust Estate;
(iii) dissolve or liquidate in whole or in part;
or
(iv) (A) permit the validity or effectiveness of this
Indenture to be impaired, or permit the lien of this Indenture to
be amended, hypothecated, subordinated, terminated or discharged,
or permit any Person to be released from any covenants or
obligations with respect to the Notes under this Indenture except
as may be expressly permitted hereby, (B) permit any lien,
charge, excise, claim, security interest, mortgage or other
encumbrance (other than the lien of this Indenture) to be created
on or extend to or otherwise arise upon or burden the Trust
Estate or any part thereof or any interest therein or the
proceeds thereof (other than tax liens, mechanics' liens and
other liens that arise by operation of law, in each case on a
Mortgage Loans and arising solely as a result of an action or
omission of the related Obligor) or (C) permit the lien of this
Indenture not to constitute a valid first priority (other than
with respect to any such tax, mechanics' or other lien) security
interest in the Trust Estate.
SECTION 3.9 Annual Statement as to Compliance. The Issuer will
deliver to the Indenture Trustee, within 120 days after the end of each fiscal
year of the Issuer (commencing with the fiscal year 199_), an Officers'
Certificate stating, as to the Authorized Officer signing such Officer's
Certificate, that
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(i) a review of the activities of the Issuer during the
12-month period ending at the end of such fiscal year (or in the
case of the fiscal year ending [October 31, 199_,] the period
from the Closing Date to [October 31, 199_)] and of performance
under this Indenture has been made under such Authorized
Officer's supervision; and
(ii) to the best of such Authorized Officer's knowledge,
based on such review, the Issuer has complied with all conditions
and covenants under this Indenture throughout such year, or, if
there has been a default in the compliance of any such condition
or covenant, specifying each such default known to such
Authorized Officer and the nature and status thereof.
SECTION 3.10 Issuer May Consolidate, etc., Only on Certain Term.
(a) The Issuer shall not consolidate or merge with or into any other Person,
unless
(i) the Person (if other than the Issuer) formed by or
surviving such consolidation or merger shall be a Person
organized and existing under the laws of the United States of
America or any State and shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Indenture
Trustee, in form satisfactory to the Indenture Trustee, the due
and punctual payment of the principal of and interest on all
Notes and the performance or observance of every agreement and
covenant of this Indenture on the part of the Issuer to be
performed or observed, all as provided herein;
(ii) immediately after giving effect to such transaction,
no Default or Event of Default shall have occurred and be
continuing;
(iii) the Rating Agency Condition shall have been
satisfied with respect to such transaction;
(iv) the Issuer shall have received an Opinion of Counsel
(and shall have delivered copies thereof to the Indenture
Trustee) to the effect that such transaction will not have any
material adverse tax consequence to the Trust, any Noteholder or
any Certificateholder;
(v) any action as is necessary to maintain the
lien and security interest created by this Indenture
shall have been taken; and
(vi) the Issuer shall have delivered to the Indenture
Trustee an Officers' Certificate and an Opinion of Counsel each
stating that such consolidation or merger and such supplemental
indenture comply with this Article III and that all conditions
precedent
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herein provided for relating to such transaction have been
complied with (including any filing required by the Exchange
Act).
(b) The Issuer shall not convey or transfer any of its properties
or assets, including those included in the Trust Estate, to any Person, unless
(i) the Person that acquires by conveyance or transfer the
properties and assets of the Issuer the conveyance or transfer of
which is hereby restricted shall (A) be a United States citizen
or a Person organized and existing under the laws of the United
States of America or any State, (B) expressly assumes, by an
indenture supplemental hereto, executed and delivered to the
Indenture Trustee, in form satisfactory to the Indenture Trustee,
the due and punctual payment of the principal of and interest on
all Notes and the performance or observance of every agreement
and covenant of this Indenture on the part of the Issuer to be
performed or observed, all as provided herein, (C) expressly
agrees by means of such supplemental indenture that all right,
title and interest so conveyed or transferred shall be subject
and subordinate to the rights of Holders of the Notes, (D) unless
otherwise provided in such supplemental indenture, expressly
agrees to indemnify, defend and hold harmless the Issuer against
and from any loss, liability or expense arising under or related
to this Indenture and the Notes and (E) expressly agrees by means
of such supplemental indenture that such Person (or if a group of
Persons, then one specified Person) shall make all filings with
the Commission (and any other appropriate Person) required by the
Exchange Act in connection with the Notes;
(ii) immediately after giving effect to such transaction,
no Default or Event of Default shall have occurred and be
continuing;
(iii) the Rating Agency Condition shall have been
satisfied with respect to such transaction;
(iv) the Issuer shall have received an Opinion of Counsel
(and shall have delivered copies thereof to the Indenture
Trustee) to the effect that such transaction will not have any
material adverse tax consequence to the Trust, any Noteholder or
any Certificateholder;
(v) any action as is necessary to maintain the
lien and security interest created by this Indenture
shall have been taken; and
(vi) the Issuer shall have delivered to the
Indenture Trustee an Officer's Certificate and an
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Opinion of Counsel each stating that such conveyance or transfer
and such supplemental indenture comply with this Article III and
that all conditions precedent herein provided for relating to
such transaction have been complied with (including any filing
required by the Exchange Act).
SECTION 3.11 Successor or Transferee.
(a) Upon any consolidation or merger of the Issuer in accordance
with Section 3.10(a), the Person formed by or surviving such consolidation or
merger (if other than the Issuer) shall succeed to, and be substituted for, and
may exercise every right and power of, the Issuer under this Indenture with the
same effect as if such Person had been named as the Issuer herein.
(b) Upon a conveyance or transfer of all the assets and
properties of the Issuer pursuant to Section 3.10(b), the Issuer will be
released from every covenant and agreement of this Indenture to be observed or
performed on the part of the Issuer with respect to the Notes immediately upon
the delivery to and acceptance by the Indenture Trustee of the Officer's
Certificate and Opinion of Counsel specified in Section 3.10(b)(vi) stating that
the Issuer is to be so released.
SECTION 3.12 No Other Business. The Issuer shall not engage in
any business other than financing, purchasing, owning, selling and managing the
Mortgage Loans in the manner contemplated by this Indenture and the Basic
Documents, issuing the Notes and Certificates and activities incidental thereto.
SECTION 3.13 No Borrowing. The Issuer shall not issue, incur,
assume, guarantee or otherwise become liable, directly or indirectly, for any
indebtedness except for the Notes.
SECTION 3.14 Servicer's Obligations. The Issuer shall cause the
Servicer to comply with Sections 4.9, 4.10, 4.11 and 5.06 of the Pooling and
Servicing Agreement.
SECTION 3.15 Guarantees, Loans, Advances and Other Liabilities.
Except as contemplated by the Pooling and Servicing Agreement or this Indenture,
the Issuer shall not make any loan or advance or credit to, or guarantee
(directly or indirectly another's payment or performance on any obligation or
capability of so doing or otherwise), endorse or otherwise become contingently
liable, directly or indirectly, in connection with the obligations, stocks or
dividends of, or own, purchase, repurchase or acquire (or agree contingently to
do so) any stock, obligations, assets or securities of, or any other interest
in, or make any capital contribution to, any other Person.
SECTION 3.16 Capital Expenditures. The Issuer shall not make any
expenditure (by long-term or operating lease or otherwise) for capital assets
(either realty or personalty).
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SECTION 3.17 Removal of Administrator. So long as any Notes are
Outstanding, the Issuer shall not remove the Administrator without cause unless
the Rating Agency Condition shall have been satisfied in connection with such
removal.
SECTION 3.18 Restricted Payments. The Issuer shall not, directly
or indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to the Owner Trustee or any owner of a beneficial interest in the
Issuer or otherwise with respect to any ownership or equity interest or security
in or of the Issuer or to the Servicer, (ii) redeem, purchase, retire or
otherwise acquire for value any such ownership or equity interest or security or
(iii) set aside or otherwise segregate any amounts for any such purpose;
provided, however, that the Issuer may make, or cause to be made, distributions
to the Servicer, the Owner Trustee and the Certificateholders as permitted by,
and to the extent funds are available for such purpose under, the Pooling and
Servicing Agreement. The Issuer will not, directly or indirectly, make payments
to or distributions from the Collection Account except in accordance with this
Indenture and the Basic Documents.
SECTION 3.19 Notice of Events of Default. The Issuer agrees to
give the Indenture Trustee and the Rating Agencies prompt written notice of each
Event of Default hereunder and, within [five] days after obtaining knowledge of
any of the following occurrences, written notice of each default on the part of
the Servicer or the Sponsor of its obligations under the Pooling and Servicing
Agreement and each default on the part of the Company of its obligations under
the Contribution Agreement.
SECTION 3.20 Further Instruments and Acts. Upon request of the
Indenture Trustee, the Issuer will execute and deliver such further instruments
and do such further acts as may be reasonably necessary or proper to carry out
more effectively the purpose of this Indenture.
ARTICLE IV
Satisfaction and Discharge
SECTION 4.1 Satisfaction and Discharge of Indenture. This
Indenture shall cease to be of further effect with respect to the Notes except
as to (i) rights of registration of transfer and exchange, (ii) substitution of
mutilated, destroyed, lost or stolen Notes, (iii) rights of Noteholders to
receive payments of principal thereof and interest thereon, (iv) Sections 3.3,
3.4, 3.5, 3.8, 3.10, 3.12 and 3.13, (v) the rights, obligations and immunities
of the Indenture Trustee hereunder (including the rights of the Indenture
Trustee under Section 6.7 and the obligations of the Indenture Trustee under
Section 4.2) and (vi) the rights of Noteholders as beneficiaries hereof with
respect to the property so deposited with the Indenture Trustee payable to
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all or any of them, and the Indenture Trustee, on demand of and at the expense
of the Issuer, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture with respect to the Notes, when
(A) either
(1) all Notes theretofore authenticated and delivered
(other than (i) Notes that have been destroyed, lost or stolen
and that have been replaced or paid as provided in Section 2.5
and (ii) Notes for whose payment money has theretofore been
deposited in trust or segregated and held in trust or discharged
form such trust, as provided in Section 3.3) have been delivered
to the Indenture Trustee for cancellation; or
(2) all Notes not theretofore delivered to the
Indenture Trustee for cancellation
(i) have become due and payable.
(ii) will become due and payable at the
[Class A-2] Final Schedule Payment Date within one
year, or
(iii) are to be called for redemption within one
year under arrangements satisfactory to the Indenture
Trustee for the giving of notice of redemption by the
Indenture Trustee in the name, and at the expense, of the
Issuer,
and the Issuer, in the case of (i), (ii) or (iii) and the Issuer,
in the case of (i), (ii) or (iii) above, has irrevocably
deposited or caused to be irrevocably deposited with the
Indenture Trustee cash or direct obligations of or obligations
guaranteed by the United States of America (which will mature
prior to the date such amounts are payable), in trust for such
purpose, in an amount sufficient to pay and discharge the entire
indebtedness on such Notes not theretofore delivered to the
Indenture Trustee for cancellation when due on the [Class A-2]
Final Scheduled Payment Date or Redemption Date (if Notes shall
have been called for redemption pursuant to Section 10.1(a)), as
the case may be;
(B) The Issuer has paid or caused to be paid all other
sums payable hereunder by the Issuer; and
(C) the Issuer has delivered to the Indenture Trustee an
Officers' Certificate, an Opinion of Counsel and (if required by the
TIA) an Independent Certificate from a firm of certified public
accountants, each meeting the applicable requirements of Section 11.1(a)
and each stating that all conditions precedent herein provided for
relating to the
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satisfaction and discharge of this Indenture have been
complied with.
SECTION 4.2 Application of Trust Money. All moneys deposited with
the Indenture Trustee pursuant to Section 4.1 hereof shall be held in trust and
applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent, as the
Indenture Trustee may determine, to the Holders of the particular Notes for the
payment or redemption of which such moneys have been deposited with the
Indenture Trustee, of all sums due and to become due thereon for principal and
interest; but such moneys need not be segregated from other funds except to the
extent required herein or in the Pooling and Servicing Agreement or required by
law.
SECTION 4.3 Repayment of Moneys Held by Paying Agent. In
connection with the satisfaction and discharge of this Indenture with respect to
the Notes, all moneys then held by any Paying Agent other than the Indenture
Trustee under the provisions of this Indenture with respect to such Notes shall,
upon demand of the Issuer, be paid to the Indenture Trustee to be held and
applied according to Section 3.3 and thereupon such Paying Agent shall be
released from all further liability with respect to such moneys.
ARTICLE V
Remedies
SECTION 5.1 Events of Default. "Event of Default", wherever used
herein, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(i) default in the payment of any interest on any Note
when the same becomes due and payable, and such default shall
continue for a period of [five] days; or
(ii) default in the payment of the principal of or
any installment of the principal of any Note when the
same becomes due and payable; or
(iii) default in the observance or performance of any
covenant or agreement of the Issuer made in this Indenture (other
than a covenant or agreement, a default in the observance or
performance of which is elsewhere in this Section specifically
dealt with), or any representation or warranty of the Issuer made
in this Indenture or in any certificate or other writing
delivered pursuant hereto or in connection herewith
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proving to have been incorrect in any material respect as of the
time when the same shall have been made, and such default shall
continue or not be cured, or the circumstance or condition in
respect of which such representation or warranty was incorrect
shall not have been eliminated or otherwise cured, for a period
of [30] days after there shall have been given, by registered or
certified mail, to the Issuer by the Indenture Trustee or to the
Issuer and the Indenture Trustee by the Holders of at least
[____%] of the Outstanding Amount of the Notes, a written notice
specifying such default or incorrect representation or warranty
and requiring it to be remedied and stating that such notice is a
"Notice of Default" hereunder; or
(iv) the filing of a decree or order for relief by a court
having jurisdiction in the premises in respect of the Issuer or
any substantial part of the Trust Estate in an involuntary case
under any applicable Federal or state bankruptcy, insolvency or
other similar law now or hereafter in effect, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator
or similar official for the Issuer or for any substantial part of
the Trust Estate, or ordering the winding-up or liquidation of
the Issuer's affairs, and such decree or order shall remain
unstayed and in effect for a period of [90] consecutive days; or
(v) the commencement by the Issuer of a voluntary case
under any applicable federal or state bankruptcy, insolvency or
other similar law now or hereafter in effect, or the consent by
the Issuer to the entry of an order for relief in an involuntary
case under any such law, or the consent by the Issuer to the
appointment or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of
the Issuer or for any substantial part of the Trust Estate, or
the making by the Issuer of any general assignment for the
benefit of creditors, or the failure by the Issuer generally to
pay its debts as such debts become due, or the taking of action
by the Issuer in furtherance of any of the foregoing.
The Issuer shall deliver to the Indenture Trustee, within [five]
days after the occurrence thereof, written notice in the form of an Officers'
Certificate of any event which with the giving of notice and the lapse of time
would become an Event of Default under clause (iii), its status and what action
the Issuer is taking or proposes to take with respect thereto.
SECTION 5.2 Acceleration of Maturity; Rescission and Annulment.
If an Event of Default should occur and be continuing, then and in every such
case the Indenture Trustee or the Holders of Notes representing a majority of
the Outstanding Amount of the Notes may declare all the Notes to be immediately
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due and payable, by a notice in writing to the Issuer (and to the Indenture
Trustee if given by Noteholders), and upon any such declaration the unpaid
principal amount of the Notes, together with accrued and unpaid interest thereon
through the date of acceleration, shall become immediately due and payable.
At any time after such declaration of acceleration of maturity
has been made and before a judgment or decree for payment of the money due has
been obtained by the Indenture Trustee as hereinafter in this Article V
provided, the Holders of Notes representing a majority of the Outstanding Amount
of the Notes, by written notice to the Issuer and the Indenture Trustee, may
rescind and annul such declaration and its consequences if:
(i) the Issuer has paid or deposited with the
Indenture Trustee a sum sufficient to pay
(A) all payment of principal of and interest on all
Notes and all other amounts that would then be due
hereunder or upon such Notes if the Event of Default
giving rise to such acceleration had not occurred; and
(B) all sums paid or advanced by the Indenture
Trustee hereunder and the reasonable compensation,
expenses, disbursements and advances of the Indenture
Trustee and its agents and counsel; and
(ii) all Events of Default, other than the nonpayment of
the principal of the Notes that has become due solely by such
acceleration, have been cured or waived as provided in Section
5.12.
No such rescission shall affect any subsequent default or impair
any right consequent thereto.
SECTION 5.3 Collection of Indebtedness and Suits for Enforcement
by Indenture Trustee.
(a) The Issuer covenants that if (i) default is made in the
payment of any interest on any Note when the same becomes due and payable, and
such default continues for a period of [five] days, or (ii) default is made in
the payment of the principal of or any installment of the principal of any Note
when the same becomes due and payable, the Issuer will, upon demand of the
Indenture Trustee, pay to it, for the benefit of the Holders of the Notes, the
whole amount then due and payable on such Notes for principal and interest, with
interest upon the overdue principal, and, to the extent payment at such rate of
interest shall be legally enforceable, upon overdue installments of interest, at
the respective Note Interest Rate borne by the Notes and in addition thereto
such further amount as shall be sufficient to cover the costs and expenses of
collection,
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including the reasonable compensation, expenses, disbursements and advances of
the Indenture Trustee and its agents and counsel.
(b) In case the Issuer shall fail forthwith to pay such amounts
upon such demand, the Indenture Trustee, in its own name and as trustee of an
express trust, may institute a Proceeding for the collection of the sums so due
and unpaid, and may prosecute such Proceeding to judgment or final decree, and
may enforce the same against the Issuer or other obligor upon such Notes and
collect in the manner provided by law out of the property of the Issuer or other
obligor upon such Notes, wherever situated, the moneys adjudged or decreed to be
payable.
(c) If an Event of Default occurs and is continuing, the
Indenture may, as more particularly provided in Section 5.4, in its discretion,
proceed to protect and enforce its rights and the rights of the Noteholders, by
such appropriate Proceedings as the Indenture Trustee shall deem most effective
to protect and enforce any such rights, whether for the specific enforcement of
any covenant or agreement in this Indenture or in aid of the exercise of any
power granted herein, or to enforce any other proper remedy or legal or
equitable right vested in the Indenture Trustee by this Indenture or by law.
(d) In case there shall be pending, relative to the Issuer or any
other obligor upon the Notes or any Person having or claiming an ownership
interest in the Trust Estate, Proceedings under Title 11 of the United States
Code or any other applicable Federal or state bankruptcy, insolvency or other
similar law, or in case a receiver, assignee or trustee in bankruptcy or
reorganization, liquidator, sequestrator or similar official shall have been
appointed for or taken possession of the Issuer or its property or such other
obligor or Person, or in case of any other comparable judicial Proceedings
relative to the Issuer or other obligor upon the Notes, or to the creditors or
property of the Issuer or such other obligor, the Indenture Trustee,
irrespective of whether the principal of any Notes shall then be due and payable
as therein expressed or by declaration or otherwise and irrespective of whether
the Indenture Trustee shall have made any demand pursuant to the provisions of
this Section, shall be entitled and empowered, by intervention in such
Proceedings or otherwise:
(i) to file and prove a claim or claims for the whole
amount of principal and interest owing and unpaid in respect of
the Notes and to file such other papers or documents as may be
necessary or advisable in order to have the claims of the
Indenture Trustee (including any claim for reasonable
compensation to the Indenture Trustee and each predecessor
Indenture Trustee, and their respective agents, attorneys and
counsel, and for reimbursement of all expenses and liabilities
incurred, and all advances made, by the Indenture Trustee and
each predecessor Indenture Trustee, except as a result
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of negligence or bad faith) and of the Noteholders
allowed in such Proceedings;
(ii) unless prohibited by applicable law and regulations,
to vote on behalf of the Holders of Notes in any election of a
trustee, a standby trustee or Person performing similar functions
in any such Proceedings;
(iii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute all
amounts received with respect to the claims of the Noteholders
and of the Indenture Trustee on their behalf; and
(iv) to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the
claims of the Indenture Trustee or the Holders of Notes allowed
in any judicial proceedings relative to the Issuer, its creditors
and its property;
and any trustee, receiver, liquidator, custodian or other similar official in
any such Proceeding is hereby authorized by each of such Noteholders to make
payments to the Indenture Trustee, and, in the event that the Indenture Trustee
shall consent to the making of payments directly to such Noteholders, to pay to
the Indenture Trustee such amounts as shall be sufficient to cover reasonable
compensation to the Indenture Trustee, each predecessor Indenture Trustee and
their respective agents, attorneys and counsel, and all other expenses and
liabilities incurred, and all advances made, by the Indenture Trustee and each
predecessor Indenture Trustee except as a result of negligence or bad faith.
(e) Nothing herein contained shall be deemed to authorize the
Indenture Trustee to authorize or consent to or vote for or accept or adopt on
behalf of any Noteholder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof or to
authorize the Indenture Trustee to vote in respect of the claim of any
Noteholder in any such proceeding except, as aforesaid, to vote for the election
of a trustee in bankruptcy or similar Person.
(f) All rights of action and of asserting claims under this
Indenture, or under any of the Notes, may be enforced by the Indenture Trustee
without the possession of any of the Notes or the production thereof in any
trial of other Proceedings relative thereto, and any such action or Proceedings
instituted by the Indenture Trustee shall be brought in its own name as trustee
of an express trust, and any recovery of judgment, subject to the payment of the
expenses, disbursements and compensation of the Indenture Trustee, each
predecessor Indenture Trustee and their respective agents and attorneys, shall
be for the ratable benefit of the Holders of the Notes.
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(g) In any Proceedings brought by the Indenture Trustee (and also
any Proceedings involving the interpretation of any provision of this Indenture
to which the Indenture Trustee shall be a party), the Indenture Trustee shall be
held to represent all the Holders of the Notes, and it shall not be necessary to
make any Noteholder a party to any such Proceedings.
SECTION 5.4 Remedies; Priorities. (a) If an Event of Default
shall have occurred and be continuing, the Indenture Trustee may do one or more
of the following (subject to Section 5.5):
(i) institute Proceedings in its own name and as trustee
of an express trust for the collection of all amounts then
payable on the Notes or under this Indenture with respect
thereto, whether by declaration or otherwise, enforce any
judgment obtained, and collect from the Issuer and any other
obligor upon such Notes moneys adjudged due;
(ii) institute Proceedings from time to time for the
complete or partial foreclosure of this Indenture with respect to
the Trust Estate;
(iii) exercise any remedies of a secured party under the
UCC and take any other appropriate action to protect and enforce
the rights and remedies of the Indenture Trustee and the Holders
of the Notes; and
(iv) sell the Trust Estate or any portion thereof or
rights or interest therein, at one or more public or private
sales called and conducted in any manner permitted by law;
provided, however, that the Indenture Trustee may not sell or
otherwise liquidate the Trust Estate following an Event of
Default, other than an Event of Default described in Section
5.01(i) or (ii), unless (A) the Holders of 100% of the
Outstanding Amount of the Notes consent thereto, (B) the proceeds
of such sale or liquidation distributable to the Noteholders are
sufficient to discharge in full all amounts then due and unpaid
upon such Notes for principal and interest or (C) the Indenture
Trustee determines that the Trust Estate will not continue to
provide sufficient funds for the payment of principal of and
interest on the Notes as they would have become due if the Notes
had not been declared due and payable, and the Indenture Trustee
obtains the consent of Holders of [66-2/3%] of the Outstanding
Amount of the Notes. In determining such sufficiency or
insufficiency with respect to clause (B) and (C), the Indenture
Trustee may, but need not, obtain and rely upon an opinion of an
independent investment banking or accounting firm of national
reputation as to the feasibility of such proposed
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action and as to the sufficiency of the Trust Estate
for such purpose.
(b) If the Indenture Trustee collects any money or property
pursuant to this Article V, it shall pay out the money or property in the
following order:
FIRST: to the Indenture Trustee for amounts due under
Section 6.7;
SECOND: to Noteholders for amounts due and unpaid on
the Notes for principal and interest, ratably, without
preference or priority of any kind, according to the amounts
due and payable on the Notes for principal and interest,
respectably; and
THIRD: to the Issuer for distribution to the
Certificateholders.
The Indenture Trustee may fix a record date and payment date for
any payment to Noteholders pursuant to this Section. At least [15] days before
such record date, the Issuer shall mail to each Noteholder and the Indenture
Trustee a notice that states the record date, the payment date and the amount to
be paid.
SECTION 5.5 Optional Preservation of the Mortgage Loans. If the
Notes have been declared to be due and payable under Section 5.2 following an
Event of Default and such declaration and its consequences have not been
rescinded and annulled, the Indenture Trustee may, but need not, elect to
maintain possession of the Trust Estate. It is the desire of the parties hereto
and the Noteholders that there be at all times sufficient funds for the payment
of principal of and interest on the Notes, and the Indenture Trustee shall take
such desire into account when determining whether or not to maintain possession
of the Trust Estate, the Indenture Trustee may, but need not, obtain and rely
upon an opinion of an Independent investment banking or accounting firm of
national reputation as to the feasibility of such for such purpose.
SECTION 5.6 Limitation of Suits. No Holder of any Note shall have
any right to institute any Proceeding, judicial or otherwise, with respect to
this Indenture, or for the appointment of a receiver or trustee, or for any
other remedy hereunder, unless:
(i) such Holder has previously given written
notice to the Indenture Trustee of a continuing Event
of Default;
(ii) the Holders of not less than [____%] of the
Outstanding Amount of the Notes have made written request to the
Indenture Trustee to institute such Proceeding in respect of such
Event of Default in its own name as Indenture Trustee hereunder;
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(iii) such Holder or Holders have offered to the Indenture
Trustee indemnity against the costs, expenses and liabilities to
be incurred in complying with such request;
(iv) the Indenture Trustee for [60] days after its receipt
of such notice, request and offer of indemnity has failed to
institute such Proceedings; and
(v) no direction inconsistent with such written request
has been given to the Indenture Trustee during such [60-day]
period by the Holders of a majority of the Outstanding Amount of
the Notes;
it being understood and intended that no one or more Holders of Notes shall have
any right in any manner whatsoever by virtue of, or by availing of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Holders of Notes or to obtain or seek to obtain priority or preference
over any other Holders or to enforce any right under this Indenture, except in
the manner herein provided.
In the event the Indenture Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Holders of Notes,
each representing less than a majority of the Outstanding Amount of the Notes,
the Indenture Trustee in its sole discretion may determine what action, if any,
shall be taken, notwithstanding any other provisions of this Indenture, and
shall have no liability to any person for such action or inaction.
SECTION 5.7 Unconditional Rights of Noteholders To Receive
Principal and Interest. Notwithstanding any other provisions in this Indenture,
the Holder of any Note shall have the right, which is absolute and
unconditional, to receive payment of the principal of the interest, if any, on
such Note on or after the respective due dates thereof expressed in such Note or
in this Indenture (or, in the case of redemption, on or after the Redemption
Date) and to institute suit for the enforcement of any such payment, and such
right shall not be impaired without the consent of such Holder.
SECTION 5.8 Restoration of Rights and Remedies. If the Indenture
Trustee or any Noteholder has instituted any Proceeding to enforce any right or
remedy under this Indenture and such Proceeding has been discontinued or
abandoned for any reason or has been determined adversely to the Indenture
Trustee or to such Noteholder, then and in every such case the Issuer, the
Indenture Trustee and the Noteholders shall, subject to any determination in
such Proceeding, be restored severally and respectively to their former
positions hereunder, and thereafter all rights and remedies of the Indenture
Trustee and the Noteholders shall continue as though no such Proceeding had been
instituted.
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SECTION 5.9 Rights and Remedies Cumulative. No right or remedy
herein conferred upon or reserved to the Indenture Trustee or to the Noteholders
is intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 5.10 Delay or Omission Not a Waiver. No delay or omission
of the Indenture Trustee or any Holder of any Note to exercise any right or
remedy accruing upon any Default or Event of Default shall impair any such right
or remedy or constitute a waiver of any such Default or Event of Default or an
acquiescence therein. Every right and remedy given by this Article V or by law
to the Indenture Trustee or to the Noteholders may be exercised from time to
time, and as often as may be deemed expedient, by the Indenture Trustee or by
the Noteholders, as the case may be.
SECTION 5.11 Control by Noteholders. The Holders of a majority of
the Outstanding Amount of the Notes shall have the right to direct the time,
method and place of conducting any Proceeding for any remedy available to the
Indenture Trustee with respect to the Notes or exercising any trust or power
conferred on the Indenture Trustee; provided that
(i) such direction shall not be in conflict with
any rule of law or with this Indenture;
(ii) subject to the express terms of Section 5.4, any
direction to the Indenture Trustee to sell or liquidate the Trust
Estate shall be by the Holders of Notes representing not less
than [____%] of the Outstanding Amount of the Notes;
(iii) if the conditions set forth in Section 5.5 have been
satisfied and the Indenture Trustee elects to retain the Trust
Estate pursuant to such Section, then any direction to the
Indenture Trustee by Holders of Notes representing less than
[____%] of the Outstanding Amount of the Notes to sell or
liquidate the Trust Estate shall be of no force and effect; and
(iv) the Indenture Trustee may take any other action
deemed proper by the Indenture Trustee that is not inconsistent
with such direction;
provided, however, that, subject to Section 6.1, the Indenture Trustee need not
take any action that it determines might involve it in liability or might
materially adversely affect the rights of any Noteholders not consenting to such
action.
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SECTION 5.12 Waiver of Past Defaults. Prior to the declaration of
the acceleration of the maturity of the Notes as provided in Section 5.2, the
Holders of Notes of not less than a majority of the Outstanding Amount of the
Notes may waive any past Default or Event of Default and its consequences except
a Default (a) in payment of principal of or interest on any of the Notes or (b)
in respect of a covenant or provision hereof which cannot be modified or amended
without the consent of the Holder of each Note. In the case of any such waiver,
the Issuer, the Indenture Trustee and the Holders of the Notes shall be restored
to their former positions and rights hereunder, respectively; but no such waiver
shall extend to any subsequent or other Default or impair any right consequent
thereto.
Upon any such waiver, such Default shall cease to exist and be
deemed to have been cured and not to have occurred, and any Event of Default
arising therefrom shall be deemed to have been cured and not to have occurred,
for every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other Default or Event of Default or impair any right consequent
thereto.
SECTION 5.13 Undertaking for Costs. All parties to this Indenture
agree, and each Holder of any Note by such Holder's acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture, or in any suit
against the Indenture Trustee for any action taken, suffered or omitted by it as
Indenture Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to (a) any suit instituted by the
Indenture Trustee, (b) any suit instituted by any Noteholder, or group of
Noteholders, in each case holding in the aggregate more than [____%] of the
Outstanding Amount of the Notes or (c) any suit instituted by any Noteholder for
the enforcement of the payment of principal of or interest on any Note on or
after the respective due dates expressed in such Note and in this Indenture (or,
in the case of redemption, on or after the Redemption Date).
SECTION 5.14 Waiver of Stay or Extension Laws. The Issuer
covenants (to the extent it may lawfully do so) that it will not at any time
insist upon, or plead or in any manner whatsoever, claim or take the benefit or
advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, that may affect the covenants or the performance of this
Indenture; and the Issuer (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Indenture
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Trustee, but will suffer and permit the execution of every such power as though
no such law has been enacted.
SECTION 5.15 Action on Notes. The Indenture Trustee's right to
seek and recover judgment on the Notes or under this Indenture shall not be
affected by the seeking, obtaining or application of any other relief under or
with respect to this Indenture. Neither the lien of this Indenture nor any
rights or remedies of the Indenture Trustee or the Noteholders shall be impaired
by the recovery of any judgment by the Indenture Trustee against the Issuer or
by the levy of any execution under such judgment upon any portion of the Trust
Estate or upon any of the assets of the Issuer. Any money or property collected
by the Indenture Trustee shall be applied in accordance with Section 5.4(b).
SECTION 5.16 Performance and Enforcement of Certain Obligations.
(a) Promptly following a request from the Indenture Trustee to do so, the Issuer
agrees to take all such lawful action as the Indenture Trustee may request to
compel or secure the performance and observance by the Sponsor and the Servicer,
as applicable, of each of their obligations to the Issuer under or in connection
with the Pooling and Servicing Agreement or to the Company under or in
connection with the Contribution Agreement in accordance with the terms thereof,
and to exercise any and all rights, remedies, powers and privileges lawfully
available to the Issuer under or in connection with the Pooling and Servicing
Agreement to the extent and in the manner directed by the Indenture Trustee,
including the transmission of notices of default on the part of the Sponsor or
the Servicer thereunder and the institution of legal or administrative actions
or proceedings to compel or secure performance by the Sponsor or the Servicer of
each of their obligations under the Pooling and Servicing Agreement.
(b) If an Event of Default has occurred and is continuing, the
Indenture Trustee at the direction (which direction shall be in writing or by
telephone (confirmed in writing promptly thereafter)) of the Holders of [___%]
of the Outstanding Amount of the Notes shall exercise all rights, remedies,
powers, privileges and claims of the Issuer against the Sponsor or the Servicer
under or in connection with the Pooling and Servicing Agreement, including the
right or power to take any action to compel or secure performance or observance
by the Sponsor or the Servicer of each of their obligations to the Issuer
thereunder and to give any consent, request, notice, direction, approval,
extension or waiver under the Pooling and Servicing Agreement, and any right of
the Issuer to take such action shall be suspended.
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(c) Promptly following a request from the Indenture Trustee to do
so, the Issuer agrees to take all such lawful action as the Indenture Trustee
may request to compel or secure the performance and observance by the Company of
each of its obligations to the Sponsor under or in connection with the
Contribution Agreement in accordance with the terms thereof, and to exercise any
and all rights, remedies, powers and privileges lawfully available to the Issuer
under or in connection with the Contribution Agreement to the extent and in the
manner directed by the Indenture Trustee, including the transmission of notices
of default on the part of the Sponsor thereunder and the institution of legal or
administrative actions or proceedings to compel or secure performance by the
Company of each of its obligations under the Contribution Agreement.
(d) If an Event of Default has occurred and is continuing, the
Indenture Trustee at the direction (which direction shall be in writing or by
telephone (confirmed in writing promptly thereafter)) of the Holders of [___%]
of the Outstanding Amount of the Notes shall exercise all rights, remedies,
powers, privileges and claims of the Sponsor against the Company under or in
connection with the Contribution Agreement, including the right or power to take
any action to compel or secure performance or observance by the Company of each
of its obligations to the Sponsor thereunder and to give any consent, request,
notice, direction, approval, extension or waiver under the Contribution
Agreement, and any right of the Sponsor to take such action shall be suspended.
ARTICLE VI
Indenture Trustee
SECTION 6.1 Duties of Indenture Trustee.
(a) If an Event of Default has occurred and is continuing, the
Indenture Trustee shall exercise the rights and powers vested in it by this
Indenture and use the same degree of care and skill in their exercise as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
(b) Except during continuance of an Event of Default:
(i) the Indenture Trustee undertakes to perform such
duties and only such duties as are specifically set forth in this
Indenture and no implied covenants or obligations shall be read
into this Indenture against the Indenture Trustee; and
(ii) in the absence of bad faith on its part, the
Indenture Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein,
upon certificates or
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opinions furnished to the Indenture Trustee and conforming to the
requirements of this Indenture; however, the Indenture Trustee
shall examine the certificates and opinions to determine whether
or not they conform on their face to the requirements of this
Indenture.
Except for its calculation of LIBO, the Indenture Trustee shall not be required
to determine, confirm or recalculate the information contained in the Servicer's
Certificate delivered to it pursuant to the Pooling and Servicing Agreement.
(c) the Indenture Trustee may not be relieved from liability for
its own negligent action, its own negligent failure to act or its own wilful
misconduct, except that:
(i) this paragraph does not limit the effect of
paragraph (b) of this Section;
(ii) the Indenture Trustee shall not be liable for any
error of judgment made in good faith by a Responsible Officer
unless it is proved that the Indenture Trustee was negligent in
ascertaining the pertinent facts; and
(iii) the Indenture Trustee shall not be liable with
respect to any action it takes or omits to take in good faith in
accordance with a direction received by it pursuant to Section
5.11 or otherwise from Holders under the Indenture.
(d) Every provision of this Indenture that in any way relates to
the Indenture Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Indenture Trustee shall not be liable for interest on any
money received by it except as the Indenture Trustee may agree in writing with
the Issuer.
(f) Money held in trust by the Indenture Trustee need not be
segregated from other funds except to the extent required by law or the terms of
this Indenture or the Pooling and Servicing Agreement.
(g) No provision of this Indenture shall require the Indenture
Trustee to expend or risk its own funds or otherwise incur financial liability
in the performance of any of its duties hereunder or in the exercise of any of
its rights or powers, if it shall have reasonable grounds to believe that
repayments of such funds or adequate indemnity satisfactory to it against such
loss, liability or expense is not reasonably assured to it.
(h) Every provision of this Indenture relating to the
conduct or affecting the liability of or affording protection to
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the Indenture Trustee shall be subject to the provisions of this Section and to
the provisions of the TIA.
SECTION 6.2 Rights of Indenture Trustee.
(a) The Indenture Trustee may rely on any document believed by it
to be genuine and to have been signed or presented by the proper person. The
Indenture Trustee need not investigate any fact or matter stated in the
document.
(b) Before the Indenture Trustee acts or refrains from acting, it
may require an Officers' Certificate or an Opinion of Counsel. The Indenture
Trustee shall not be liable for any action it takes or omits to take in good
faith in reliance on the Officers' Certificate or Opinion of Counsel.
(c) The Indenture Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a custodian or nominee, and the Indenture Trustee shall
not be responsible for any misconduct or negligence on the part of, or for the
supervision of, any such agent, attorney, custodian or nominee appointed with
due care by it hereunder.
(d) The Indenture Trustee shall not be liable for any action it
takes or omits to take in good faith which it believes to be authorized or
within its rights or powers; provided, however, that the Indenture Trustee's
conduct does not constitute wilful misconduct, negligence or bad faith.
(e) The Indenture Trustee may consult with counsel, and the
advice or opinion of counsel with respect to legal matters relating to this
Indenture and the Notes shall be full and complete authorization and protection
from liability in respect to any action taken, omitted or suffered by it
hereunder in good faith and in accordance with the advice or opinion of such
counsel.
SECTION 6.3 Individual Rights of Indenture Trustee. The Indenture
Trustee in its individual or any other capacity may become the owner or pledgee
of Notes and may otherwise deal with the Issuer or its affiliates with the same
rights it would have if it were not Indenture Trustee. Any Paying Agent, Note
Registrar, co-registrar or co-paying agent may do the same with like rights.
However, the Indenture Trustee must comply with Sections 6.10 and 6.11.
SECTION 6.4 Indenture Trustee's Disclaimer. The Indenture Trustee
shall not be responsible for and makes no representation as to the validity or
adequacy of the Trust Estate, this Indenture or the Notes, it shall not be
accountable for the Issuer's use of the proceeds from the Notes, and it shall
not be responsible for any statement of the Issuer in the Indenture or in any
document issued in connection with the sale
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of the Notes or in the Notes other than the Indenture Trustee's certificate of
authentication.
SECTION 6.5 Notice of Defaults. If a Default occurs and is
continuing and if it is actually known to a Responsible Officer of the Indenture
Trustee, the Indenture Trustee shall mail to each Noteholder notice of the
Default within 90 days after it occurs. Except in the case of a Default in
payment of principal of or interest on any Note (including payments pursuant to
the mandatory redemption provision of such Note), the Indenture Trustee may
withhold the notice if and so long as a committee of its Responsible Officers in
good faith determines that withholding the notice is in the interests of
Noteholders; and provided that in the case of any default of the character
specified in Section 5.1(iii), no such notice to Holders shall be given until at
least [30] days after the occurrence thereof.
SECTION 6.6 Reports by Indenture Trustee to Holders. The
Indenture Trustee shall deliver to each Noteholder such information as may be
required to enable such holder to prepare its Federal and state income tax
returns. The Indenture Trustee shall only be required to provide to the
Noteholders the information given to it by the Servicer. The Indenture Trustee
shall not be required to determine, confirm or recompute any such information.
SECTION 6.7 Compensation and Indemnity. The Issuer shall or shall
cause the Servicer to pay to the Indenture Trustee from time to time reasonable
compensation for its services. The Indenture Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The Issuer
shall or shall cause the Servicer to reimburse the Indenture Trustee for all
reasonable out-of-pocket expenses incurred or made by it, including costs of
collection, in addition to the compensation for its services. Such expenses
shall include the reasonable compensation and expenses, disbursements and
advances of the Indenture Trustee's agents, counsel, accountants and experts.
The Issuer shall or shall cause the Servicer to indemnify the Indenture Trustee
against any and all loss, liability or expense (including the fees of either
in-house counsel or outside counsel, but not both) incurred by it in connection
with the administration of this trust and the performance of its duties
hereunder. The Indenture Trustee shall notify the Issuer and the Servicer
promptly of any claim for which it may seek indemnity. Failure by the Indenture
Trustee to so notify the Issuer and the Servicer shall not relieve the Issuer or
the Servicer of its obligations hereunder. The Issuer shall or shall cause the
Servicer to defend the claim and the Indenture Trustee may have separate counsel
and the Issuer shall or shall cause the Servicer to pay the fees and expenses of
such counsel. Neither the Issuer nor the Servicer need reimburse any expense or
indemnify against any loss, liability or expense incurred by the Indenture
Trustee through the Indenture Trustee's own wilful misconduct, negligence or bad
faith.
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The Issuer's payment obligations to the Indenture Trustee
pursuant to this Section shall survive the discharge of this Indenture. When the
Indenture Trustee incurs expenses after the occurrence of a Default specified in
Section 5.1(iv) or (v) with respect to the Issuer, the expenses are intended to
constitute expenses of administration under Title 11 of the United States Code
or any other applicable Federal or state bankruptcy, insolvency or similar law.
SECTION 6.8 Replacement of Indenture Trustee. No resignation or
removal of the Indenture Trustee and no appointment of a successor Indenture
Trustee shall become effective until the acceptance of appointment by the
successor Indenture Trustee pursuant to this Section 6.8. The Indenture Trustee
may resign at any time by so notifying the Issuer. The Holders of a majority in
Outstanding Amount of the Notes may remove the Indenture Trustee by so notifying
the Indenture Trustee and may appoint a successor Indenture Trustee. The Issuer
shall remove the Indenture Trustee if:
(i) the Indenture Trustee fails to comply with
Section 6.11;
(ii) the Indenture Trustee is adjudged a bankrupt
or insolvent;
(iii) a receiver or other public officer takes
charge of the Indenture Trustee or its property; or
(iv) the Indenture Trustee otherwise becomes
incapable of acting.
If the Indenture Trustee resigns or is removed or if a vacancy
exists in the office of Indenture Trustee for any reason (the Indenture Trustee
in such event being referred to herein as the retiring Indenture Trustee), the
Issuer shall promptly appoint a successor Indenture Trustee, which successor
shall be, if The Company is the Servicer, reasonably acceptable to the Sponsor.
A successor Indenture Trustee shall deliver a written acceptance
of its appointment to the retiring Indenture Trustee and to the Issuer.
Thereupon the resignation or removal of the retiring Indenture Trustee shall
become effective, and the successor Indenture Trustee shall have all the rights,
powers and duties of the Indenture Trustee under this Indenture. The successor
Indenture Trustee shall mail a notice of its succession to Noteholders. The
retiring Indenture Trustee shall promptly transfer all property held by it as
Indenture Trustee to the successor Indenture Trustee.
If a successor Indenture Trustee does not take office within [60]
days after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the Issuer or the Holders of a majority in Outstanding Amount
of the Notes may
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petition any court of competent jurisdiction for the appointment of a successor
Indenture Trustee.
If the Indenture Trustee fails to comply with Section 6.11, any
Noteholder may petition any court of competent jurisdiction for the removal of
the Indenture Trustee and the appointment of a successor Indenture Trustee.
Notwithstanding the replacement of the Indenture Trustee pursuant
to this Section, the Issuer's obligations under Section 6.7 shall continue for
the benefit of the retiring Indenture Trustee.
SECTION 6.9 Successor Indenture Trustee by Merger. If the
Indenture Trustee consolidates with, merges or converts into, or transfers all
or substantially all its corporate trust business or assets to, another
corporation or banking association, the resulting, surviving or transferee
corporation or banking association without any further act shall be the
successor Indenture Trustee. The Indenture Trustee shall provide the Rating
Agencies prior written notice of any such transaction, provided that such
corporation or banking association shall be otherwise qualified and eligible
under Section 6.11.
In case at the time such successor or successors by merger,
conversion or consolidation to the Indenture Trustee shall succeed to the trusts
created by this Indenture any of the Notes shall have been authenticated but not
delivered, any such successor to the Indenture Trustee may adopt the certificate
of authentication of any predecessor trustee, and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Indenture Trustee may authenticate such
Notes either in the name of any predecessor hereunder or in the name of the
successor to the Indenture Trustee; and in all such cases such certificates
shall have the full force which it is anywhere in the Notes or in this Indenture
provided that the certificate of the Indenture Trustee shall have.
SECTION 6.10 Appointment of Co-Trustee or Separate
Trustee.
(a) Notwithstanding any other provisions of this Indenture, at
any time, for the purpose of meeting any legal requirement of any jurisdiction
in which any part of the Trust may at the time be located, the Indenture Trustee
shall have the power and may execute and deliver all instruments to appoint one
or more Persons reasonably acceptable to the Sponsor to act as a co-trustee or
co-trustees, or separate trustee or separate trustees, of all or any part of the
Trust, and to vest in such Person or Persons, in such capacity and for the
benefit of the Noteholders, such title to the Trust, or any part hereof, and,
subject to the other provisions of this Section, such powers, duties,
obligations, rights and trusts as the Indenture Trustee may consider necessary
or desirable. No co-trustee or separate
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trustee hereunder shall be required to meet the terms of eligibility as a
successor trustee under Section 6.11 and no notice to Noteholders of the
appointment of any co-trustee or separate trustee shall be required under
Section 6.8 hereof.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred
or imposed upon the Indenture Trustee shall be conferred or
imposed upon and exercised or performed by the Indenture Trustee
and such separate trustee or co-trustee jointly (it being
understood that such separate trustee or co-trustee is not
authorized to act separately without the Indenture Trustee
joining in such act), except to the extent that under any law of
any jurisdiction in which any particular act or acts are to be
performed the Indenture Trustee shall be incompetent or
unqualified to perform such act or acts, in which event such
rights, powers, duties and obligations (including the holding of
title to the Trust or any portion thereof in any such
jurisdiction) shall be exercised and performed singly by such
separate trustee or co-trustee, but solely at the direction of
the Indenture Trustee;
(ii) no trustee hereunder shall be personally
liable by reason of any act or omission of any other
trustee hereunder; and
(iii) the Indenture Trustee may at any time accept
the resignation of or remove any separate trustee or
co-trustee.
(c) Any notice, request or other writing given to the Indenture
Trustee shall be deemed to have been given to each of the then separate trustees
and co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article VI. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Indenture Trustee or separately, as may be provided therein, subject to all the
provisions of this Indenture, specifically including every provision of this
Indenture relating to the conduct of, affecting the liability of, or affording
protection to, the Indenture Trustee. Every such instrument shall be filed with
the Indenture Trustee.
(d) Any separate trustee or co-trustee may at any time constitute
the Indenture Trustee, its agent or attorney-in-fact with full power and
authority, to the extent not prohibited by law, to do any lawful act under or in
respect of this Agreement
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on its behalf and in its name. If any separate trustee or co-trustee shall die,
become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Indenture Trustee, to the extent permitted by law, without the appointment of a
new or successor trustee.
SECTION 6.11 Eligibility; Disqualification. The Indenture Trustee
shall at all times satisfy the requirements of TIA ss. 310(a). The Indenture
Trustee shall have a combined capital and surplus of at least $__________ as set
forth in its most recent published annual report of condition and its long- term
unsecured debt shall be rated at least [Baa3] by [Moody's.] The Indenture
Trustee shall comply with TIA ss. 310(b), including the optional provision
permitted by the second sentence of TIA ss. 310(b)(9); provided, however, that
there shall be excluded from the operation of TIA ss. 310(b)(1) any indenture or
indentures under which other securities of the issuer are outstanding if the
requirements for such exclusion set forth in TIA ss. 310(b)(1) are met.
SECTION 6.12 Preferential Collection of Claims Against Issuer.
The Indenture Trustee shall comply with TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). An indenture trustee who has resigned or
been removed shall be subject to TIA ss. 311(a) to the extent indicated.
ARTICLE VII
Noteholders' Lists and Reports
SECTION 7.1 Issuer to Furnish Indenture Trustee Names and
Addresses to Noteholders. The Issuer will furnish or cause to be furnished to
the Indenture trustee (a) not more than [five] days after the earlier of (i)
each Record Date and (ii) [three] months after the last Record Date, a list, in
such form as the Indenture Trustee may reasonably require, of the names and
addresses of the Holders of Notes as of such Record Date, (b) at such other
times as the Indenture Trustee may request in writing, within [30] days after
receipt by the Issuer of any such request, a list of similar form and content as
of a date not more than [10] days prior to the time such list is furnished;
provided, however, that so long as the Indenture Trustee is the Note Registrar,
no such list shall be required to be furnished.
SECTION 7.2 Preservation of Information;
Communications to Noteholders.
(a) The Indenture Trustee shall preserve, in as current a form as
is reasonably practicable, the names and addresses of the Holders of Notes
contained in the most recent list furnished to the Indenture Trustee as provided
in Section 7.1 and the names and addresses of Holders of Notes
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received by the Indenture Trustee in its capacity as Note Registrar. The
Indenture Trustee may destroy any list furnished to it as provided in such
Section 7.1 upon receipt of a new list so furnished.
(b) Noteholders may communicate pursuant to TIA ss. 312(b) with
other Noteholders with respect to their rights under this Indenture or under the
Notes.
(c) The Issuer, the Indenture Trustee and the Note Registrar
shall have the protection of TIA ss. 312(c).
SECTION 7.3 Reports by Issuer.
(a) The Issuer shall:
(i) file with the Indenture Trustee, within [15] days
after the Issuer is required to file the same with the
Commission, copies of the annual reports and of the information,
documents and other reports (or copies of such portions of any of
the foregoing as the Commission may from time to time by rules
and regulations prescribe) which the Issuer may be required to
file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act;
(ii) file with the Indenture Trustee and the Commission in
accordance with rules and regulations prescribed from time to
time by the Commission such additional information, documents and
reports with respect to compliance by the Issuer with the
conditions and covenants of this Indenture as may be required
from time to time by such rules and regulations; and
(iii) supply to the Indenture Trustee (and the Indenture
Trustee shall transmit by mail to all Noteholders described in
TIA ss. 313(c)) such summaries of any information, documents and
reports required to be filed by the Issuer pursuant to clauses
(i) and (ii) of this Section 7.3(a) as may be required by rules
and regulations prescribed from time to time by the Commission.
(b) Unless the Issuer otherwise determines, the fiscal year of
the Issuer shall end on __________ of each year.
SECTION 7.4 Reports by Indenture Trustee. If required by TIA ss.
313(a), within [60] days after each [February 1] beginning with [February 1,
199__,] the Indenture Trustee shall mail to each Noteholder as required by TIA
ss. 313(c) a brief report dated as of such date that complies with TIA ss.
313(a). The Indenture Trustee also shall comply with TIA ss. 313(b).
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A copy of each report at the time of its mailing to Noteholders
shall be filed by the Indenture Trustee with the Commission and each stock
exchange, if any, on which the Notes are listed. The Issuer shall notify the
Indenture Trustee if and when the Notes are listed on any stock exchange.
ARTICLE VIII
Accounts, Disbursements and Releases
SECTION 8.1 Collection of Money. Except as otherwise expressly
provided herein, the Indenture Trustee may demand payment or delivery of, and
shall receive and collect, directly and without intervention or assistance of
any fiscal agent or other intermediary, all money and other property payable to
or receivable by the Indenture Trustee pursuant to this Indenture. The Indenture
Trustee shall apply all such money received by it as provided in this Indenture.
Except as otherwise expressly provided in this Indenture, if any default occurs
in the making of any payment or performance under any agreement or instrument
that is part of the Trust Estate, the Indenture Trustee may take such action as
may be appropriate to enforce such payment or performance, including the
institution and prosecution of appropriate Proceedings. Any such action shall be
without prejudice to any right to claim a Default or Event of Default under this
Indenture and any right to proceed thereafter as provided in Article V.
SECTION 8.2 Trust Accounts.
(a) On or prior to the Closing Date, the Issuer shall cause the
Servicer to establish and maintain, in the name of the Indenture Trustee, for
the benefit of the Noteholders and the Certificateholders, the Trust Accounts as
provided in Section [5.01] of the Pooling and Servicing Agreement.
(b) Not less than [two] Business Days prior to each Payment Date,
the Total Distribution Amount with respect to the preceding Collection Period
will be deposited in the Collection Account as provided in Section [5.02] of the
Pooling and Servicing Agreement. On or before each Payment Date, the
Noteholders' Distributable Amount with respect to the preceding Collection
Period will be transferred from the Collection Account and/or the Reserve
Account to the Note Distribution Account as provided in Sections [5.04] and
[5.05] of the Pooling and Servicing Agreement.
(c) On each Payment Date and Redemption Date, the Indenture
Trustee shall distribute all amounts on deposit in the Note Distribution Account
to Noteholders in respect of the Notes to the extent of amounts due and unpaid
on the Notes for
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principal and interest in the following amounts and in the following order of
priority (except as otherwise provided in Section 5.4(b)):
(i) accrued and unpaid interest on the Notes; provided
that if there are not sufficient funds in the Note Distribution
Account to pay the entire amount of accrued and unpaid interest
then due on the Notes, the amount in Note Distribution Account
shall be applied to the payment of such interest on the Notes pro
rata on the basis of the total such interest due on the Notes;
(ii) to the [Class A-1] Noteholders until the
Outstanding Amount of the [Class A-1] Notes is reduced
to zero; and
(iii) to the [Class A-2] Noteholders until the
Outstanding Amount of the [Class A-2] Notes is reduced
to zero.
(d) The Indenture Trustee shall calculate LIBO for each Payment
Date (other than the first Payment Date) as soon as such calculation can be
made. Upon telephone request, the Indenture Trustee shall inform, by telephone
(confirmed in writing), a representative of each of the Issuer, [and Prudential
Securities, Incorporated] of LIBO for a Payment Date.
SECTION 8.3 General Provisions Regarding Accounts.
(a) So long as no Default or Event of Default shall have occurred
and be continuing, all or a portion of the funds in the Trust Accounts shall be
invested in Eligible Investments and reinvested by the Indenture Trustee upon
Issuer Order, subject to the provisions of Section [5.01(b)] of the Pooling and
Servicing Agreement. All income or other gain from investments of monies
deposited in the Trust Accounts net of any investment expenses and any losses
resulting from such investments shall be deposited by the Indenture Trustee in
the Collection Account. The Issuer will not direct the Indenture Trustee to make
any investment of any funds or to sell any investment held in any of the Trust
Accounts unless the security interest granted and perfected in such account will
continue to be perfected in such investment or the proceeds of such sale, in
either case without any further action by any Person, and, in connection with
any direction to the Indenture Trustee to make any such investment or sale, if
requested by the Indenture Trustee, the Issuer shall deliver to the Indenture
Trustee an Opinion of Counsel, acceptable to the Indenture Trustee, to such
effect.
(b) Subject to Section 6.1(c), the Indenture Trustee shall not in
any way be held liable by reason of any insufficiency in any of the Trust
Accounts resulting from any loss on any Eligible Investment included therein
except for losses attributable to the Indenture Trustee's failure to make
payments on such Eligible Investments issued by the Indenture
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Trustee, in its commercial capacity as principal obligor and not as Indenture
Trustee, in accordance with their terms.
(c) If (i) the issuer shall have failed to give investment
directions for any funds on deposit in the Trust Accounts to the Indenture
Trustee by [12:00 noon New York Time] (or such other time as may be agreed by
the Issuer and Indenture Trustee) on any Business Day; or (ii) a Default or
Event of Default shall have occurred and be continuing with respect to the Notes
but the Notes shall not have been declared due and payable pursuant to Section
5.2, or, if such Notes shall have been declared due and payable following an
Event of Default, amounts collected or receivable from the Trust Estate are
being applied in accordance with Section 5.3 as if there had not been such a
declaration; then the Indenture Trustee shall, to the fullest extent
practicable, invest and reinvest funds in the Trust Accounts in one or more
Eligible Investments.
SECTION 8.4 Release of Trust Estate.
(a) Subject to the payment of its fees and expenses pursuant to
Section 6.7, the Indenture Trustee may, and when required by the provisions of
this Indenture shall, execute instruments to release property from the lien of
this Indenture, or convey the Indenture Trustee's interest in the same, in a
manner and under circumstances that are not inconsistent with the provisions of
this Indenture. No party relying upon an instrument executed by the Indenture
Trustee as provided in this Article VIII shall be bound to ascertain the
Indenture Trustee's authority, inquire into the satisfaction of any conditions
precedent or see to the application of any monies.
(b) The Indenture Trustee shall, at such time as there are no
Notes Outstanding and all sums due the Indenture Trustee pursuant to Section 6.7
have been paid, release any remaining portion of the Trust Estate that secured
the Notes from the lien of this Indenture and release to the Issuer or any other
Person entitled thereto any funds then on deposit in the Trust Accounts. The
Indenture Trustee shall release property from the lien of this Indenture
pursuant to this Section 8.4(b) only upon receipt of an Issuer Request
accompanied by an Officers' Certificate, an Opinion of Counsel and (if required
by the TIA) Independent Certificates in accordance with TIA ss.ss. 314(c) and
314(d)(1) meeting the applicable requirements of Section 11.1.
SECTION 8.5 Opinion of Counsel. The Indenture Trustee shall
receive at least [seven] days' notice when requested by the Issuer to take any
action pursuant to Section 8.4(a), accompanied by copies of any instruments
involved, and the Indenture Trustee shall also require as a condition to such
action, an Opinion of Counsel, in form and substance satisfactory to the
Indenture Trustee, stating the legal effect of any such action, outlining the
steps required to complete the same, and concluding that all conditions
precedent to the taking of such action have been complied with and such
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action will not materially and adversely impair the security for the Notes or
the rights of the Noteholders in contravention of the provisions of this
Indenture; provided, however, that such Opinion of Counsel shall not be required
to express an opinion as to the fair value of the Trust Estate. Counsel
rendering any such opinion may rely, without independent investigation, on the
accuracy and validity of any certificate or other instrument delivered to the
Indenture Trustee in connection with any such action.
ARTICLE IX
Supplemental Indentures
SECTION 9.1 Supplemental Indentures Without Consent
of Noteholders.
(a) Without the consent of the Holders of any Notes but with
prior notice to the Rating Agencies, the Issuer and the Indenture Trustee, when
authorized by an Issuer Order, at any time and from time to time, may enter into
one or more indentures supplemental hereto, in form satisfactory to the
Indenture Trustee, for any of the following purposes:
(i) to correct or amplify the description of any property
at any time subject to the lien of this Indenture, or better to
assure, convey and confirm unto the Indenture Trustee any
property subject or required to be subjected to the lien of this
Indenture, or to subject to the lien of this Indenture additional
property;
(ii) to evidence the succession, in compliance with the
applicable provisions hereof, of another person to the Issuer,
and the assumption by any such successor of the covenants of the
Issuer herein and in the Notes contained;
(iii) to add to the covenants of the Issuer, for
the benefit of the Holders of the Notes, or to
surrender any right or power herein conferred upon the
Issuer;
(iv) to convey, transfer, assign, mortgage or
pledge any property to or with the Indenture Trustee;
(v) to cure any ambiguity, to correct or supplement any
provision herein or in any supplemental indenture which may be
inconsistent with any other provision herein or in any
supplemental indenture or to make any other provisions with
respect to matters or questions arising under this Indenture or
in any supplemental indenture; provided that such action shall
not, as evidenced by an Opinion of Counsel, adversely
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affect in any material respect the interests of the Holders of
the Notes;
(vi) to evidence and provide for the acceptance of the
appointment hereunder by a successor trustee with respect to the
Notes and to add to or change any of the provisions of this
Indenture as shall be necessary to facilitate the administration
of the trusts hereunder by more than one trustee, pursuant to the
requirements of Article VI; or
(vii) to modify, eliminate or add to the provisions of
this Indenture to such extent as shall be necessary to effect the
qualification of this Indenture under the TIA or under any
similar Federal statute hereafter enacted and to add to this
Indenture such other provisions as may be expressly required by
the TIA.
The Indenture Trustee is hereby authorized to join in the
execution of any such supplemental indenture and to make any further appropriate
agreements and stipulations that may be therein contained.
(b) The Issuer and the Indenture Trustee, when authorized by an
Issuer Order, may, also without the consent of any of the Holders of the Notes
but with prior notice to the Rating Agencies, enter into an indenture or
indentures supplemental hereto for the purpose of adding any provisions to, or
changing in any manner or eliminating any of the provisions of, this Indenture
or of modifying in any manner the rights of the Holders of the Notes under this
Indenture; provided, however, that such action shall not, as evidenced by an
Opinion of Counsel, adversely affect in any material respect the interests of
any Noteholder.
SECTION 9.2 Supplemental Indentures with Consent of Noteholders.
The Issuer and the Indenture Trustee, when authorized by an Issuer Order, also
may, with prior notice to the Rating Agencies and with the consent of the
Holders of not less than a majority of the Outstanding Amount of the Notes, by
Act of such Holders delivered to the Issuer and the Indenture Trustee, enter
into an indenture or indentures supplemental hereto for the purpose of adding
any provisions to, or changing in any manner or eliminating any of the
provisions of, this Indenture or of modifying in any manner the right of the
Holders of the Notes under this Indenture; provided, however, that no such
supplemental indenture shall, without the consent of the Holder of each
Outstanding Note affected thereby:
(i) change the date of payment of any installment of
principal amount thereof, the interest rate thereon or the
Redemption Price with respect thereto, change the provision of
this Indenture relating to the application of collections on, or
the
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proceeds of the sale of, the Trust Estate to payment of principal
of or interest on the Notes, or change any place of payment
where, or the coin or currency in which, any Note or the interest
thereon is payable, or impair the right to institute suit for the
enforcement of the provisions of this Indenture requiring the
application of funds available therefor, as provided in Article
V, to the payment of any such amount due on the Notes on or after
the respective due dates thereof (or, in the case of redemption,
on or after the Redemption Date);
(ii) reduce the percentage of the Outstanding Amount of
the Notes, the consent of the Holders of which is required for
any such supplemental indenture, or the consent of the Holders of
which is required for any waiver of compliance with certain
provisions of this Indenture or certain defaults hereunder and
their consequences provided for in this Indenture;
(iii) modify or alter the provisions of the proviso to
the definition of the term "Outstanding";
(iv) reduce the percentage of the Outstanding Amount of
the Notes required to direct the Indenture Trustee to direct the
Issuer to sell or liquidate the Trust Estate pursuant to Section
5.04;
(v) modify any provision of this Section except to
increase any percentage specified herein or to provide that
certain additional provisions of this Indenture or the Basic
Documents cannot be modified or waived without the consent of the
Holder of each Outstanding Note affected thereby;
(vi) modify any of the provisions of this Indenture in
such manner as to affect the calculation of the amount of any
payment of interest or principal due on any Note on any Payment
Date (including the calculation of any of the individual
components of such calculation) or to affect the rights of the
Holders of Notes to the benefit of any provisions for the
mandatory redemption of the Notes contained herein; or
(vii) permit the creation of any lien ranking prior to or
on a parity with the lien of this Indenture with respect to any
part of the Trust Estate or, except as otherwise permitted or
contemplated herein, terminate the lien of this Indenture on any
property at any time subject hereto or deprive the Holder of any
Note of the security provided by the lien of this Indenture.
The Indenture Trustee may in its discretion determine
whether or not any Notes would be affected by any supplemental
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indenture and any such determination shall be conclusive upon the Holders of all
Notes, whether theretofore or thereafter authenticated and delivered hereunder.
The Indenture Trustee shall not be liable for any such determination made in
good faith.
It shall not be necessary for any Act of Noteholders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
Promptly after the execution by the Issuer and the Indenture
Trustee of any supplemental indenture pursuant to this Section, the Indenture
Trustee shall mail to the Holders of the Notes to which such amendment or
supplemental indenture relates a notice setting forth in general terms the
substance of such supplemental indenture. Any failure of the Indenture Trustee
to mail such notice, or any defect therein, shall not, however, in any way
impair or affect the validity of any such supplemental indenture.
SECTION 9.3 Execution of Supplemental Indentures. In executing,
or permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modifications thereby of the trusts created
by this Indenture, the Indenture Trustee shall be entitled to receive, and
subject to Sections 6.01 and 6.02, shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Indenture Trustee may, but shall
not be obligated to, enter into any such supplemental indenture that affects the
Indenture Trustee's own rights, duties, liabilities or immunities under this
Indenture or otherwise.
SECTION 9.4 Effect of Supplemental Indenture. Upon the execution
of any supplemental indenture pursuant to the provisions hereof, this Indenture
shall be and be deemed to be modified and amended in accordance therewith with
respect to the notes affected thereby, and the respective rights, limitations of
rights, obligations, duties, liabilities and immunities under this Indenture of
the Indenture Trustee, the Issuer and the Holders of the Notes shall thereafter
be determined, exercised and enforced hereunder subject in all respects to such
modifications and amendments, and all the terms and conditions of any such
supplemental indenture shall be and be deemed to be part of the terms and
conditions of this Indenture for any and all purposes.
SECTION 9.5 Conformity with Trust Indenture Act. Every amendment
of this Indenture and every supplemental indenture executed pursuant to this
Article IX shall conform to the requirements of the Trust Indenture Act as then
in effect so long as this Indenture shall then be qualified under the Trust
Indenture Act.
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SECTION 9.6 Reference in Notes to Supplemental Indentures. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Indenture Trustee shall,
bear a notation in form approved by the Indenture Trustee as to any matter
provided for in such supplemental indenture. If the Issuer or the Indenture
Trustee shall so determine, new Notes so modified as to conform, in the opinion
of the Indenture Trustee and the Issuer, to any such supplemental indenture may
be prepared and executed by the Issuer and authenticated and delivered by the
Indenture Trustee in exchange for Outstanding Notes.
ARTICLE X
Redemption of Notes
SECTION 10.1 Redemption. (a) The Notes are subject to redemption
in whole, but not in part, at the written direction of the Servicer pursuant to
Section [9.01(a)] of the Pooling and Servicing Agreement, on any Payment Date,
if the then outstanding Pool Balance is [___%] or less of the Original Pool
Balance, for a purchase price equal to the Redemption Price; provided, however,
that the Issuer has available funds sufficient to pay the Redemption Price. The
Servicer or the Issuer shall furnish the Rating Agencies notice of such
redemption. If the Notes are to be redeemed pursuant to this Section 10.01(a),
the Servicer or the Issuer shall furnish notice of such election to the
Indenture Trustee not later than [25] days prior to the Redemption Date and the
Issuer shall deposit with the Indenture Trustee in the Note Distribution Account
the Redemption Price of the Notes to be redeemed whereupon all such Notes shall
be due and payable on the Redemption Date upon the furnishing of a notice
complying with Section 10.2 to each Holder of the Notes.
(b) In the event that the assets of the Trust are sold pursuant
to Section 9.2 of the Trust Agreement, all amounts on deposit in the Note
Distribution Account shall be paid to the Noteholders up to the Outstanding
Amount of the Notes and all accrued and unpaid interest thereon. If amounts are
to be paid to Noteholders pursuant to this Section 10.1(b), the Servicer or the
Issuer shall, to the extent practicable, furnish notice of such event to the
Indenture Trustee not later than [25] days prior to the Redemption Date
whereupon all such amounts shall be payable on the Redemption Date.
SECTION 10.2 Form of Redemption Notice.
(a) Notice of redemption under Section 10.1(a) shall be given by
the Indenture Trustee by first-class mail, postage prepaid, mailed not less than
[five] days prior to the applicable Redemption Date to each Holder of Notes, as
of the close of business on the Record Date preceding the applicable Redemption
Date, at such Holder's address appearing in the Note Register.
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All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the place where such Notes are to be surrendered for
payment of the Redemption Price (which shall be the office or
agency of the Issuer to be maintained as provided in Section
3.2); and
(iv) CUSIP number.
Notice of redemption of the Notes shall be given by the Indenture
Trustee in the name and at the expense of the Issuer. Failure to give notice of
redemption, or any defect therein, to any Holder of any Note shall not impair or
affect the validity of the redemption of any other Note.
(b) Prior notice of redemption under Section 10.1(b)
is not required to be given to Noteholders.
SECTION 10.3 Notes Payable on Redemption Date: The Notes or
portions thereof to be redeemed shall, following notice of redemption as
required by Section 10.02 (in the case of redemption pursuant to Section
10.1(a)), on the Redemption Date become due and payable at the Redemption Price
and (unless the Issuer shall default in the payment of the Redemption Price) no
interest shall accrue on the Redemption Price for any period after the date to
which accrued interest is calculated for purposes of calculating the Redemption
Price.
ARTICLE XI
Miscellaneous
SECTION 11.1 Compliance Certificates and Opinions, etc.
(a) Upon any application or request by the Issuer to the
Indenture Trustee to take any action under any provision of this Indenture, the
Issuer shall furnish to the Indenture Trustee (i) an Officers' Certificate
stating that all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with, (ii) an Opinion of
Counsel stating that in the opinion of such counsel all such conditions
precedent, if any, have been complied with and (iii) (if required by the TIA) an
Independent Certificate from a firm of certified public accountants meeting the
applicable requirements of this Section, except that, in the case of any such
application or request as to which the furnishing of such documents is
specifically required by any provision of this Indenture, no additional
certificate or opinion need be furnished.
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Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(i) a statement that each signatory of such certificate or
opinion has read or has caused to be read such covenant or
condition and the definitions herein relating thereto;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or
opinions contained in such certificate or opinion are based;
(iii) a statement that, in the opinion of each such
signatory, such signatory has made such examination or
investigation as is necessary to enable such signatory to express
an informed opinion as to whether or not such covenant or
condition has been complied with; and
(iv) a statement as to whether, in the opinion of each
such signatory, such condition or covenant has been complied
with.
(b) (i) Prior to the deposit of any Collateral or other property
or securities with the Indenture Trustee that is to be made the basis for the
release of any property or securities subject to the lien of this Indenture, the
Issuer shall, in addition to any obligation imposed in Section 11.1(a) or
elsewhere in this Indenture, furnish to the Indenture Trustee an Officers'
Certificate certifying or stating the opinion of each person signing such
certificate as to the fair value (within [90] days of such deposit) to the
Issuer of the Collateral or other property or securities to be so deposited.
(ii) Whenever the Issuer is required to furnish
to the Indenture Trustee an Officers' Certificate certifying or stating the
opinion of any signer thereof as to the matters described in clause (i) above,
the Issuer shall also deliver to the Indenture Trustee an Independent
Certificate as to the same matters, if the fair value to the Issuer of the
securities to be so deposited and of all other such securities made the basis of
any such withdrawal or release since the commencement of the then-current fiscal
year of the Issuer, as set forth in the certificates delivered pursuant to
clause (i) above and this clause (ii), is [___%] or more of the Outstanding
Amount of the Notes, but such a certificate need not be furnished with respect
to any securities so deposited, if the fair value thereof to the Issuer as set
forth in the related Officers' Certificate is less than $________ or less than
[one] percent of the Outstanding Amount of the Notes.
(iii) Other than with respect to the release of
any Purchased Mortgage Loans or Defaulted Mortgage Loans,
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whenever any property or securities are to be released from the lien of this
Indenture, the Issuer shall also furnish to the Indenture Trustee an Officers'
Certificate certifying or stating the opinion of each person signing such
certificate as to the fair value (within [90] days of such release) of the
property or securities proposed to be released and stating that in the opinion
of such person the proposed release will not impair the security under this
Indenture in contravention of the provisions hereof.
(iv) Whenever the Issuer is required to furnish to
the Indenture Trustee an Officers' Certificate certifying or stating the opinion
of any signer thereof as to the matters described in clause (iii) above, the
Issuer shall also furnish to the Indenture Trustee an Independent Certificate as
to the same matters if the fair value of the property or securities and of all
other property other than Purchased Mortgage Loans and Defaulted Mortgage Loans,
or securities released from the lien of this Indenture since the commencement of
the then current calendar year, as set forth in the certificates required by
clause (iii) above and this clause (iv), equals [___%] or more of the
Outstanding Amount of the Notes, but such certificate need not be furnished in
the case of any release of property or securities if the fair value thereof as
set forth in the related Officers' Certificate is less than $________ or less
than [one] percent of the then Outstanding Amount of the Notes.
(v) Notwithstanding Section 2.9 or any other
provision of this Section, the Issuer may (A) collect, liquidate, sell or
otherwise dispose of Mortgage Loans as and to the extent permitted or required
by the Basic Documents and (B) make cash payments out of the Trust Accounts as
and to the extent permitted or required by the Basic Documents.
SECTION 11.2 Form of Documents Delivered to Indenture Trustee. In
any case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may certify
or give an opinion with respect to some matters and one or more other such
Persons as to other matters, and any such Person may certify or give an opinion
as to such matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the Issuer
may be based, insofar as it relates to legal matters, upon a certificate or
opinion of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such certificate of an Authorized Officer or
Opinion of Counsel may be based, insofar as it relates to factual matters, upon
a certificate or opinion of, or representations by, an officer or officers of
the Servicer, the
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Sponsor or the Issuer, stating that the information with respect to such factual
matters is in the possession of the Servicer, the Sponsor or the Issuer, unless
such counsel knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to such matters are
erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Issuer
shall deliver any document as a condition of the grating of such application, or
as evidence of the Issuer's compliance with any term hereof, it is intended that
the truth and accuracy, at the time of the grating of such application or at the
effective date of such certificate or report (as the case may be), of the facts
and opinions stated in such document shall in such case be conditions precedent
to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Indenture Trustee's right to rely upon the truth and
accuracy of any statement or opinion contained in any such document as provided
in Article VI.
SECTION 11.3 Acts of Noteholders.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or taken
by Noteholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Noteholders in person or by agents
duly appointed in writing; and except as herein otherwise expressly provided
such action shall become effective when such instrument or instruments are
deliver to the Indenture Trustee, and, where it is hereby expressly required, to
the Issuer. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the
Noteholders signing of such instrument or instruments. Proof of execution of any
such instrument or of a writing appointing any such agent shall be sufficient
for any purpose of this Indenture and (subject to Section 6.1) conclusive in
favor of the Indenture Trustee and the Issuer, if made in the manner provided in
this Section.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any manner that the Indenture Trustee
deems sufficient.
(c) The ownership of Notes shall be provided by the
Note Register.
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(d) Any request, demand, authorization, direction, notice,
consent, waiver or other action by the Holder of any Notes shall bind the Holder
of every Note issued upon the registration thereof or in exchange therefor or in
lieu thereof, in respect of anything done, omitted or suffered to be done by the
Indenture Trustee or the Issuer in reliance thereon, whether or not notation of
such action is made upon such Note.
SECTION 11.4 Notices, etc., to Indenture Trustee, Issuer and
Rating Agencies. Any request, demand, authorization, direction, notice, consent,
waiver or Act of Noteholders or other documents provided or permitted by this
Indenture to be made upon, given or furnished to or filed with:
(a) The Indenture Trustee by any Noteholder or by the Issuer
shall be sufficient for every purpose hereunder if made, given,
furnished or filed in writing to or with the Indenture Trustee and
received at its Corporate Trust Office, or
(b) the Issuer by the Indenture Trustee or by any Noteholder
shall be sufficient for every purpose hereunder if in writing and
mailed, first-class, postage prepaid, to the Issuer addressed to: Access
Financial Mortgage Loan Trust, 199_-_, ______________________,
Attention: Corporate Trustee Administration Department, or at any other
address previously furnished in writing to the Indenture Trustee by
Issuer. The Issuer shall promptly transmit any notice received by it
from the Noteholders to the Indenture Trustee.
Notices required to be given to the Rating Agencies by the
Issuer, the Indenture Trustee or the Owner Trustee shall be in writing,
personally delivered or mailed by certified mail, return receipt requested to
(i) in the case of [Moody's,] at the following address: [Moody's Investors
Service, Inc., ABS Monitoring Department, 99 Church Street, New York, new York
10007], (ii) in the case of [Standard & Poor's,] at the following address:
[Standard & Poor's Corporation, 26 Broadway (20th Floor), New York, New York
10004, Attention of Mortgage Backed Surveillance Department,] (iii) in the case
of [Fitch,] at the following address: [Fitch Investors Service, Inc., One State
Street Plaza, New York, New York 10004, Attention: Structured Finance
Surveillance] [and (iv) in the case of Duff & Phelps, at the following address:
Duff & Phelps Credit Rating Co., 55 east Monroe Street (35th Floor), Chicago,
Illinois 60603, Attention: ________]; or as to each of the foregoing, at such
other address as shall be designated by written notice to the other parties.
SECTION 11.5 Notices to Noteholders; Waiver. Where this Indenture
provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class, postage prepaid to each Noteholder affected by such
event, at his address as it appears on the Note Register, not later than the
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latest date, and not earlier than the earliest date, prescribed for the giving
of such notice. In any case where notice to Noteholders is given by mail,
neither the failure to mail such notice nor any defect in any notice so mailed
to any particular Noteholder shall affect the sufficiency of such notice with
respect to other Noteholders, and any notice that is mailed in the manner herein
provided shall conclusively be presumed to have been duly given.
Where this Indenture provides for notice in any manner, such
notice may be waived in writing by any Person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent of
such notice. Waivers of notice by Noteholders shall be filed with the Indenture
Trustee but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Noteholders when such notice is required to be
given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be satisfactory to the Indenture Trustee shall be deemed to
be a sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies,
failure to give such notice shall not affect any other rights or obligations
created hereunder, and shall not under any circumstance constitute a Default or
Event of Default.
SECTION 11.6 Alternate Payment and Notice Provisions.
Notwithstanding any provision of this Indenture or any of the Notes to the
contrary, to the extent satisfactory to the Indenture Trustee, the Issuer may
enter into any agreement with any Holder of a Note providing for a method of
payment, or notice by the Indenture Trustee or any Paying Agent to such Holder,
that is different from the methods provided for in this Indenture for such
payments or notices. The Issuer will furnish to the Indenture Trustee a copy of
each such agreement and the Indenture Trustee will cause payments to be made and
notices to be given in accordance with such agreements.
SECTION 11.7 Conflict with Trust Indenture Act. If any provision
hereof limits, qualifies or conflict with another provision hereof that is
required to be included in this Indenture by any of the provisions of the Trust
Indenture Act, such required provision shall control.
The provisions of TIA ss.ss. 310 through 317 that impose duties
on any person (including the provisions automatically deemed included herein
unless expressly excluded by this Indenture) are a part of and govern this
Indenture, whether or not physically contained herein.
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SECTION 11.8 Effect of Headings and Table of Contents. The
Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 11.9 Successors and Assigns. All covenants and agreements
in this Indenture and the Notes by the Issuer shall bind its successors and
assigns, whether so expressed or not.
All agreements of the Indenture Trustee in this Indenture shall
bind its successors, co-trustees and agents of the Indenture Trustee.
SECTION 11.10 Separability. In case any provision in this
Indenture or in the Notes shall be invalid, illegal or unenforceable, the
validity, legality, and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
SECTION 11.11 Benefits of Indenture. Nothing in this Indenture or
in the Notes, express or implied, shall give to any Person, other than the
parties hereto and their successors hereunder, and the Noteholders, and any
other party secured hereunder, and any other Person with an ownership interest
in any part of the Trust Estate, any benefit or any legal or equitable right,
remedy or claim under this Indenture.
SECTION 11.12 Legal Holidays. In any case where the date on which
any payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the date on which nominally due.
SECTION 11.13 GOVERNING LAW. THIS INDENTURE SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF [NEW YORK.]
SECTION 11.14 Counterparts. This Indenture may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
SECTION 11.15 Recording of Indenture. If this Indenture is
subject to recording in any appropriate public recording offices, such recording
is to be effected by the Issuer and at its expense accompanied by an Opinion of
Counsel (which may be counsel to the Indenture Trustee or any other counsel
reasonably acceptable to the Indenture Trustee) to the effect that such
recording is necessary either for the protection of the Noteholders or any other
Person secured hereunder or for the enforcement of any right or remedy granted
to the Indenture Trustee under this Indenture.
66
<PAGE>
<PAGE>
SECTION 11.16 Trust Obligation. No recourse may be taken,
directly or indirectly, with respect to the obligations of the Issuer, the Owner
Trustee or the Indenture Trustee on the Notes or under this Indenture or any
certificate or other writing delivered in connection herewith or therewith,
against (i) the Indenture Trustee or the Owner Trustee in its individual
capacity, (ii) any owner of a beneficial interest in the Issuer or (iii) any
partner, owner, beneficiary, agent, officer, director, employee or agent of the
Indenture Trustee or the Owner Trustee in its individual capacity, any holder of
a beneficial interest in the Issuer, the Owner Trustee or the Indenture Trustee
or of any successor or assign of the Indenture Trustee or the Owner Trustee in
its individual capacity, except as any such Person may have expressly agreed (it
being understood that the Indenture Trustee and the Owner Trustee have no such
obligations in their individual capacity) and except that any such partner,
owner or beneficiary shall be fully liable, to the extent provided by applicable
law, for any unpaid consideration for stock, unpaid capital contribution or
failure to pay any installment or call owing to such entity. For all purposes of
this Indenture, in the performance of any duties or obligations of the Issuer
hereunder, the Owner Trustee shall be subject to, and entitled to the benefits
of, the terms and provisions of Articles VI, VII and VIII of the Trust
Agreement.
SECTION 11.17 No Petition. The Indenture Trustee, by entering
into this Indenture, and each Noteholder, by accepting a Note, hereby covenant
and agree that they will not at any time institute against the Sponsor or the
Trust, or join in any institution against the Sponsor or the Trust of, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,
or other proceedings under any United States Federal or state bankruptcy or
similar law in connection with any obligations relating to the Notes, this
Indenture or any of the Basic Documents.
SECTION 11.18 Inspection. The Issuer agrees that, on reasonable
prior notice, it will permit any representative of the Indenture Trustee, during
the issuer's normal business hours, to examine all the books of account,
records, reports, and other papers of the Issuer, to make copies and extracts
therefrom, to cause such books to be audited by independent certified public
accountants, and to discuss the Issuer's affairs, finances and accounts with the
Issuer's officers, employees, and independent certified public accountants, and
at such reasonable times and as often as may be reasonably requested. The
Indenture Trustee shall and shall cause its representatives to hold in
confidence all such information except to the extent disclosure may be required
by law (and all reasonable applications for confidential treatment are
unavailing) and except to the extent that the Indenture Trustee may reasonably
determine that such disclosure is consistent with its obligations hereunder.
67
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have
caused this Indenture to be duly executed by their respective officers,
thereunto duly authorized, all as of the day and year first above written.
ACCESS FINANCIAL MORTGAGE LOAN
TRUST 199_ -__,
By:___________________, not in
its individual capacity but
solely as Owner Trustee,
By: ____________________
Name:
Title
_____________________, not in
its individual capacity but
solely as Indenture Trustee,
By: _____________________
Name:
Title:
68
<PAGE>
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
BEFORE ME, the undersigned authority, a Notary Public in and for
said County and State, on this day personally appeared _______________, known to
me to be the person and officer whose name is subscribed to the foregoing
instrument and acknowledged to me that the same was the act of the said Access
Financial Mortgage Loan Trust 19_-_, a Delaware business trust, and that he
executed the same as the act of the said business trust for the purpose and
consideration therein expressed, and in the capacities therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the day of ________,
199_.
_____________________
Notary Public
My commission expires:
___________________________
<PAGE>
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
BEFORE ME, the undersigned authority, a Notary Public in and for
said County and State, on this day personally appeared _______________, known to
me to be the person and officer whose name is subscribed to the foregoing
instrument and acknowledged to me that the same was the act of the said bank and
that he executed the same as the corporation for the purposes and consideration
therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the day of ________,
199_.
_____________________
Notary Public
My commission expires:
__________________________
<PAGE>
<PAGE>
EXHIBIT A
Schedule of Mortgage Loans
[To be delivered to the Trust at Closing]
<PAGE>
<PAGE>
EXHIBIT B
[Form of Pooling and Servicing Agreement]
<PAGE>
<PAGE>
EXHIBIT C
[Form of Depository Agreement]
<PAGE>
<PAGE>
EXHIBIT D
REGISTERED $_______________
No. R
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP NO.
[Unless this Note is presented by an authorized representative of
The Depository Trust company, a New York corporation ("DTC"), to the issuer or
its agent for registration of transfer, exchange or payment, and any note issued
is registered in the name of Cede & Co. or in such other name as is requested by
an authorized representative of DTC (and any payment is made to Cede & Co. or to
such other entity as is requested by an authorized representative of DTC) - ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IN WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.]
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET
FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY
TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
ACCESS FINANCIAL MORTGAGE LOAN TRUST 199_-_
[FLOATING RATE] Mortgage Backed NOTES,
[CLASS A-1]
Access Financial Mortgage Loan Trust 199_, - a business trust
organized and existing under the laws of the State of Delaware (herein referred
to as the "Issuer"), for value received, hereby promises to pay to
[_________________], or registered assigns, the principal sum of
[_______________] DOLLARS payable on each Payment Date in an amount equal to the
result obtained by multiplying (i) a fraction the numerator of which is $[INSERT
INITIAL PRINCIPAL AMOUNT OF NOTE] and the denominator of which is
[$________________________] by (ii) the aggregate amount, if any, payable from
the Note Distribution Account in respect of principal on the [Class A-1] Notes
pursuant to Section 8.2(c) of the Indenture; provided, however, that the entire
unpaid principal amount of this Note shall be due and payable on the earlier of
____________, 199_ and the Redemption Date, if any, pursuant to Section 10.1(a)
of the Indenture. No payments of principal of the [Class A-2] Notes shall be
made until the principal of the [Class A-1] Notes has been paid in its entirety.
The Issuer will pay interest on this Note at the [Class A-1] Note Interest Rate
on each Payment Date until principal of this Note is paid or made available for
payment, on the principal amount of this Note outstanding on the preceding
<PAGE>
<PAGE>
Payment Date after giving effect to all payments of principal made on such
preceding Payment Date (or in the case of the first Payment Date, on the initial
principal amount of this Note). Interest on this Note will accrue for each
Payment Date from and including the most recent Payment Date on which interest
has been paid to but excluding such Payment Date or, if no interest has yet been
paid, from ________, 199_. Interest will be computed on the basis of a 360-day
year for the actual number of days in the period for which such interest is
payable. Such principal of and interest on this Note shall be paid in the manner
specified on the reverse hereof.
The principal of and interest on this Note are payable in such
coin or currency of the United States of America as at the time of Payment is
legal tender for payment of public and private debts. All payments made by the
Issuer with respect to this Note shall be applied first to interest due and
payable on this Note as provided above and then to the unpaid principal of this
Note.
Reference is made to the further provisions of this Note set
forth o the reverse hereof, which shall have the same effect as though fully set
forth on the face of this Note.
Unless the certificate of authentication hereon has been executed
by the Indenture Trustee whose name appears below by manual signature, this Note
shall not be entitled to any benefit under the indenture referred to on the
reverse hereof, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be
signed, manually or in facsimile, by its Authorized Officer.
Date: _______________ ACCESS FINANCIAL MORTGAGE LOAN
TRUST 199_-_,
By: [Owner Trustee] not in
its individual capacity
but solely as Owner
Trustee,
By: __________________
Name:
Title
<PAGE>
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the
within-mentioned Indenture.
____________________, not
in its individual
capacity but solely as
Indenture Trustee,
By: ____________________
Authorized Signatory
<PAGE>
<PAGE>
[REVERSE OF NOTE]
This Note is one of the [Class A-1] Notes of a duly authorized
issue of Notes of the Issuer, designated as its [Floating Rate] Mortgage Backed
Notes (herein called the "Notes"), all issued under an Indenture dated as of
_______________, 199_ (such indenture, as supplemented or amended, is herein
called the "Indenture"), between the Issuer and ____________________, as
indenture trustee (the "Indenture Trustee", which term includes any successor
indenture trustee under the Indenture), to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the respective
rights and obligations thereunder of the Issuer, the Indenture Trustee and the
Holders of the Notes. The Notes are subject to all terms of the Indentures. All
terms used in this Note that are defined in the Indenture, as supplemented or
amended, shall have the meanings assigned to them in or pursuant to the
Indenture, as so supplemented or amended.
The Notes are and will be equally and ratably secured by the
collateral pledged as security therefor as provided in the Indenture.
Principal of the Notes will be payable on each Payment Date in an
amount described on the face hereof. "Payment Date" means the __th day of each
________, ________, ________ and ________ or, if any such date is not a Business
Day, the next succeeding Business Day, commencing ________, 199_.
As described above, the entire unpaid principal amount of this
Note shall be due and payable on the earlier of ________, 199_ and the
Redemption Date, if any, pursuant to Section 10.1(a) of the Indenture.
Notwithstanding the foregoing, the entire unpaid principal amount of the Notes
shall be due and payable on the date on which an Event of Default shall have
occurred and be continuing and the Indenture Trustee or the Holders of the Notes
representing not less than a majority of the Outstanding Amount of the Notes
have declared the Notes to be immediately due and payable in the manner provided
in Section 5.2 of the Indenture. All principal payments on the Notes of a Class
shall be made pro rata to the Noteholders of such Class entitled thereto.
Payments of interest on this Note due and payable on each Payment
Date, together with the installment of principal, if any, to the extent not in
full payment of this Note, shall be made by check mailed to the Person whose
name appears as the Registered Holder of this Note (or one or more Predecessor
Notes) on the Note Register as of the close of business on each Record Date,
except that with respect to Notes registered on the Record Date in the name of
the nominee of the Clearing Agency (initially, such nominee to be Cede & Co.),
payments will be made by wire transferring immediately available funds to the
account designated by such nominee. Such checks shall be mailed to the Person
entitled thereof at the address of such Person as it
<PAGE>
<PAGE>
appears on the Note Register as of the applicable Record Date without requiring
that this Note be submitted for notation of payment. Any reduction in the
principal amount of this Note (or any one or more Predecessor Notes) effected by
any payments made on any Payment Date shall be binding upon all future Holders
of this Note and of any Note issued upon the registration of transfer hereof or
in exchanged hereof or in lieu hereof, whether or not noted hereon. If funds are
expected to be available, as provided in the Indenture, for payment in full of
the then remaining unpaid principal amount of this Note on a Payment Date, then
the Indenture Trustee, in the name of and on behalf of the Issuer, will notify
the Person who was the Registered Holder hereof as of the Record Date preceding
such Payment Date by notice mailed within [five] days of such Payment Date and
the amount then due and payable shall be payable only upon presentation and
surrender of this Note at the Indenture Trustee's principal Corporate Trust
Office or at the office of the Indenture Trustee's agent appointed for such
purposes located in ______________________.
The Issuer shall pay interest on overdue installments of interest
at the [Class A-1] Note Interest Rate to the extent lawful.
As provided in the Indenture, the Notes may be redeemed in whole,
but not in part, at the option of the Servicer, on any Payment Date on or after
the date on which the Pool Balance is less than or equal to ten percent of the
Initial Pool Balance.
As provided in the Indenture and subject to certain limitations
set forth therein, the transfer of this Note may be registered on the Note
Register upon surrender of this Note for registration of transfer at the office
or agency designated by the issuer pursuant to the Indenture, duly endorsed by,
or accompanied by a written instrument of transfer in form satisfactory to the
Indenture Trustee duly authorized in writing, with such signature guaranteed by
a commercial bank or trust company located, or having a correspondent located,
in The City of New York or the city in which the Corporate Trust Office is
located, or a member firm of a national securities exchange, and such other
documents as the Indenture Trustee may require, and thereupon one or more new
Notes of authorized denominations and in the same aggregate principal amount
will be issued to the designated transferee or transferees. No service charge
will be charged for any registration of transfer or exchange of this Note, but
the transferor may be required to pay a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any such registration
of transfer or exchange.
Each Noteholder or Note Owner, by acceptance of a Note or, in the
case of a Note Owner, a beneficial interest in a Note covenants and agrees that
no recourse may be taken, directly or indirectly, with respect to the
obligations of the Issuer, the Owner Trustee or the Indenture Trustee on the
Notes or under the
<PAGE>
<PAGE>
Indenture or any certificate or other writing delivered in connection therewith,
against (i) the Indenture Trustee or the Owner Trustee in its individual
capacity, (ii) any owner of a beneficial interest in the Issuer or (iii) any
partner, owner, beneficiary, agent, officer, director or employee of the
Indenture Trustee or the Owner Trustee in its individual capacity, any holder of
a beneficial interest in the Issuer, the Owner Trustee or the Indenture Trustee
or of any successor or assign of the Indenture Trustee or the Owner Trustee in
its individual capacity, except as any such Person my have expressly agreed and
except that any such partner, owner or beneficiary shall be fully liable, to the
extent provided by applicable law, for any unpaid consideration for stock,
unpaid capital contribution or failure to pay any installment or call owing to
such entity.
Each Noteholder or Note Owner, by acceptance of a Note or, in the
case of a Note Owner, a beneficial interest in a Note covenants and agrees that
by accepting the benefits of the indenture that such Noteholder will not at any
time institute against the Depositor of, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings under any United States
Federal or state bankruptcy or similar law in connection with any obligations
relating to the Notes, the indenture or the Basic Documents.
Prior to the due presentment for registration of transfer of this
Note, the Issuer, the Indenture Trustee and any agent of the Issuer or the
Indenture Trustee may treat the Person in whose name this Note (as of the day of
determination or as of such other date as may be specified in the Indenture) is
registered as the owner hereof for all purposes, whether or not this Note be
overdue, and neither the Issuer, the Indenture Trustee nor any such agent shall
be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Issuer and the rights of the Holders of the Notes under the
Indenture at any time by the Issuer with the consent of the Holders of Notes
representing a majority of the Outstanding Amount of all Notes at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
Notes representing specified percentages of the Outstanding Amount of the Notes,
on behalf of this Note (or any one or more Predecessor Notes) shall be
conclusive and binding upon such Holder and upon all future Holders of this Note
and of any Note issued upon the registration of transfer hereof or in exchange
hereof or in lieu hereof whether or not notation of such consent or waiver is
made upon this Note. the Indenture also permits the Indenture Trustee to amend
or waive certain terms and conditions set forth in the Indenture without the
consent of Holders of the Note issued thereunder.
<PAGE>
<PAGE>
The term "Issuer" as used in this Note includes any successor to
the Issuer under the Indenture.
The Issuer is permitted by the Indenture, under certain
circumstances, to merge or consolidate, subject to the rights of the Indenture
Trustee and the Holders of Notes under the Indenture.
The Notes are issuable only in registered form in denominations
as provided in the Indenture, subject to certain limitations therein set forth.
The Note and the Indenture shall be construed in accordance with
the laws of the State of [New York], without reference to its conflict of law
provisions, and the obligations, rights and remedies of the parties hereunder
and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this
Note or of the Indenture shall alter or impair the obligation of the issuer,
which is absolute and unconditional, to pay the principal of and interest on
this Note at the time, place, and rate, and in the coin or currency herein
prescribed.
Anything herein to the contrary notwithstanding, except as
expressly provided in the Basic Documents, neither [Owner Trustee] in its
individual capacity, [Indenture Trustee], in its individual capacity, any owner
of a beneficial in the Issuer, nor any of their respective partners,
beneficiaries, agents, officers, directors, employees or successors or assigns
shall be personally liable for, nor shall recourse be had to any of them for,
the payment of principal of or interest on, or performance of, or omission to
perform, any of the covenants, obligations or indemnifications contained in this
Note or the Indenture, it being expressly understood that said covenants,
obligations and indemnifications have been made by the Owner Trustee for the
sole purposes of binding the interests of the Owner Trustee in the assets of the
Issuer. The Holder of this Note by the acceptance hereof agrees that except as
expressly provided in the Basic Documents, in the case of an Event of Default
under the Indenture, the Holder shall have no claim against any of the foregoing
for any deficiency loss or claim therefrom; provided, however, that nothing
contained herein shall be taken to prevent recourse to, and enforcement against,
the assets of the Issuer for any and all liabilities, obligations and
undertakings contained in the Indenture or in this Note.
<PAGE>
<PAGE>
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee
__________________________
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto ________________________________________
________________________________________________________
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints attorney, to transfer said Note on the books kept for registration
thereof, with full power of substitution in the premises.
Dated: ______________ ________________________NOTE: The
signature to this assignment must
correspond with the name of the
registered owner as it appears on
the face of the within Note in
every particular, without
alteration, enlargement or any
change whatsoever.
Signature Guaranteed:
_______________________
Signatures must be guaranteed by an
"eligible guarantor institution"
meeting the requirements of the
Indenture Trustee which requirements
will include membership or
participation in STAMP or such other
"signature guarantee program" as may
be determined by the Indenture
Trustee in addition to, or in
substitution for, STAMP, all in
accordance with the Securities Act
of 1934, as amended.
___________________
<PAGE>
<PAGE>
EXHIBIT E
REGISTERED $_________
No. R
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP NO.
[Unless this note is presented by an authorized representative of
The Depository Trust Company, a New York corporation ("DTC"), to the issuer or
its agent for registration of transfer, exchange or payment, and any Note issued
is registered in the name of Cede & Co. or in such other name as is requested by
an authorized representative of DTC (and any payment is made to Cede & Co. or to
such other entity as is requested by an authorized representative of DTC) - ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.]
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET
FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY
TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
ACCESS FINANCIAL MORTGAGE LOAN TRUST 199_-_
[FLOATING RATE] Mortgage BACKED NOTES,
[Class A-2]
Access Financial Mortgage Loan Trust 199_, - a business trust
organized and existing under the laws of the State of Delaware (herein referred
to as the "Issuer"), for value received, hereby promises to pay to
[_____________________], or registered assigns, the principal sum of
[____________] DOLLARS payable on each Payment Day in an amount equal to the
result obtained by multiplying (i) a fraction the numerator of which is $[INSERT
INITIAL PRINCIPAL AMOUNT OF NOTE] and the denominator of which is
[$_____________] by (ii) the aggregate amount, if any, payable from the Note
Distribution Account in respect of principal on the [Class A-2] Notes pursuant
to Section 8.02(c) of the Indenture; provided, however, that the entire unpaid
principal amount of this Note shall be due and payable on the earlier of
___________, 199_ and the Redemption Date, if any, pursuant to Section 10.1(a)
of the Indenture. No payments of principal of the [Class A-2] Notes shall be
made until the principal of the [Class A-1] Notes has been paid in its entirety.
The Issuer will pay interest on this Note at the [Class A-2] Note Interest Rate
on each Payment Date until the principal of this Note is paid or made available
for payment, on the principal
<PAGE>
<PAGE>
amount of this Note outstanding on the preceding Payment Date after giving
effect to all payments of principal made on such preceding Payment Date (or in
the case of the first Payment Date, on the initial principal amount of this
Note). Interest on this Note will accrue for each Payment Date from and
including the most recent Payment Date on which interest has been paid to but
excluding such Payment Date or, if no interest has yet been paid, from ________,
199_. Interest will be computed on the basis of a 360-day year for the actual
number of days in the period for which such interest is payable. Such principal
of and interest on this Note shall be paid in the manner specified on the
reverse hereof.
The principal of and interest on this Note are payable in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts. All payments made by the
Issuer with respect to this Note shall be applied first to interest due and
payable on this Note as provided above and then to the unpaid principal of this
Note.
Reference is made to the further provisions of this Note set
forth on the reverse hereof, which shall have the same effect as though fully
set forth on the face of this Note.
Unless the certificate of authentication hereof has been executed
by the Indenture Trustee whose name appears below by manual signature, this Note
shall not be entitled to any benefit under the indenture referred to on the
reverse hereof, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be
signed, manually or in facsimile, by its Authorized Officer.
Date: ACCESS FINANCIAL MORTGAGE LOAN
TRUST 199_-_,
By: [OWNER TRUSTEE],
not in its individual
capacity but solely as
Owner Trustee under the
Trust Agreement,
By:___________________
Name:
Title:
<PAGE>
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the
within-mentioned Indenture.
By: _____________________,
not in its individual
capacity but solely as
Trustee,
By:______________________
Authorized Signatory
<PAGE>
<PAGE>
[REVERSE OF NOTE]
This Note is one of the [Class A-2] Notes of a duly authorized
issue of Notes of the Issuer, designated as its [Floating Rate] Mortgage Backed
Notes (herein called the "Notes"), all issued under an Indenture dated as of
_____________, 199_ (such indenture, as supplemented or amended, is herein
called the "Indenture"), between the Issuer and The Bank of New York, as
indenture trustee (the "Indenture Trustee", which term includes any successor
indenture trustee under the Indenture), to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the respective
rights and obligations thereunder of the Issuer, the Indenture Trustee and the
Holders of the Notes. The Notes are subject to all terms of the Indenture. All
terms used in this Note that are defined in the Indenture, as supplemented or
amended, shall have the meanings assigned to them in or pursuant to the
Indenture, as so supplemented or amended.
The Notes are and will be equally and ratably secured by the
collateral pledged as security therefor as provided in the Indenture.
Principal of the Notes will be payable on each Payment Date in an
amount described on the face hereof. "Payment Date" means the __th day of each
______, ______, ______ and ______ or, if any such date is not a Business Day,
the next succeeding Business Day, commencing _____________, 1993.
As described above, the entire unpaid principal amount of this
Note shall be due and payable on the earlier of _______, 199_ and the Redemption
Date, if any, pursuant to Section 10.01(a) of the Indenture. Notwithstanding the
foregoing, the entire unpaid principal amount of the Notes shall be due and
payable on the date on which an Event of Default shall have occurred and be
continuing and the Indenture Trustee or the Holders of the Notes representing
not less than a majority of the Outstanding Amount of the Notes have declared
the Notes to be immediately due and payable in the manner provided in Section
5.02 of the Indenture. All principal payments on the Notes of a Class shall be
made pro rata to the Noteholders of such Class entitled thereto.
Payments of interest on this Note due and payable on each Payment
Date, together with the installment of principal, if any, to the extent not in
full payment of this Note, shall be made by check mailed to the Person whose
name appears as the Registered Holder of this Note (or one or more Predecessor
Notes) on the Note Register as of the close of business on each Record Date,
except that with respect to Note registered on the Record
<PAGE>
<PAGE>
Date in the name of the nominee of the Clearing Agency (initially, such nominee
to be Cede & Co.), payments will be made by wire transfer in immediately
available funds to the account designated by such nominee. Such checks shall be
mailed to the Person entitled thereto at the address of such Person as it
appears on the Note Register as of the applicable Record Date without requiring
that this Note be submitted for notation of payment. Any reduction in the
principal amount of this Note (or any one or more Predecessor Notes) effected by
any payments made on any Payment Date shall be binding upon all future Holders
of this Note and of any Note issued upon the registration of transfer hereof or
in exchange hereof or in lieu hereof, whether or not noted hereon. If funds are
expected to be available, as provided in the Indenture, for payment in full of
the then remaining unpaid principal amount of this Note on a Payment Date, then
the Indenture Trustee, in the name of and on behalf of the Issuer, will notify
the Person who was the Registered Holder hereof as of the Record Date preceding
such Payment Date and the amount then due and payable shall be payable only upon
presentation and surrender of this Note at the Indenture Trustee's principal
Corporate Trust Office or at the office of the Indenture Trustee's agent
appointed for such purposes located in ____________________.
The Issuer shall pay interest on overdue installments of interest
at the [Class A-2] Note Interest Rate to the extent lawful.
As provided in the Indenture, the Notes may be redeemed in while,
but not in part, at the option of the Servicer, or any Payment Date on or after
the date on which the Pool Balance is less than or equal to ten percent of the
Initial Pool Balance.
As provided in the Indenture and subject to certain limitations
set forth therein, the transfer of this Note may be registered on the Note
Register upon surrender of this Note for registration of transfer at the office
or agency designated by the issuer pursuant to the Indenture, duly endorsed by,
or accompanied by a written instrument of transfer in form satisfactory to the
Indenture Trustee duly executed by, the Holder hereof or his attorney duly
authorized in writing, with such signature guaranteed by a commercial bank or
trust company located, or having a correspondent located, in The City of New
York or the city in which the Corporate Trust Office is located, or a member
firm of a national securities exchange, and such other documents as the
Indenture Trustee may require, and thereupon one or more new Notes of authorized
denominations and in the same aggregate principal amount will be issued to the
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designated transferee or transferees. No service charge will be charged for any
registration of transfer or exchange of this Note, but the transferor may be
required to pay a sum sufficient to cover any tax or other governmental charge
that may be imposed in connection with any such registration of transfer or
exchange.
Each Noteholder or Note owner, by acceptance of a Note or, in the
case of a Note Owner, a beneficial interest in a Note covenants and agrees that
no recourse may be taken, directly or indirectly, with respect to the
obligations of the Issuer, the Owner Trustee or the Indenture Trustee on the
Notes or under the Indenture or any certificate or other writing delivered in
connection therewith, against (i) the Indenture Trustee or the Owner Trustee in
its individual capacity, (ii) any owner of a beneficial interest in the Issuer
or (iii) any partner, owner, beneficiary, agent, officer, director or employee
of the Indenture Trustee or the Owner Trustee in its individual capacity, any
holder of a beneficial interest in the Issuer, the Owner Trustee or the
Indenture Trustee or the Owner Trustee or its individual capacity, except as any
such Person may have expressly agreed and except that any such partner, owner or
beneficiary shall be fully liable, to the extent provided by applicable law, for
any unpaid consideration for stock, unpaid capital contribution or failure to
pay any installment or call owing to such entity.
Each Noteholder or Note Owner, by acceptance of a Note or, in the
case of a Note Owner, a beneficial interest in a Note covenants and agrees that
by accepting the benefits of the indenture that such Noteholder will not at any
time institute against the Depositor, or join in any institution against the
Depositor of, any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings under any United States Federal or state bankruptcy or
similar law in connection with any obligations relating to the Notes, the
indenture or the Basic Documents.
Prior to the due presentment for registration of transfer of this
Note, the Issuer, the Indenture Trustee and any agent of the Issuer or the
Indenture Trustee may treat the Person in whose name this Note (as of the day of
determination or as of such other date as may be specified in the Indenture) is
registered as the owner hereof for all purposes, whether or not this Note be
overdue, and neither the Issuer, the Indenture Trustee nor any such agent shall
be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Issuer and the rights of the
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Holders of the Notes under the Indenture at any time by the Issuer with the
consent of the Holders of Notes representing a majority of the Outstanding
amount of all Notes at the time Outstanding. The Indenture also contains
provisions permitting the Holders of Notes representing specified percentages of
the Outstanding Amount of the Notes, on behalf of the Holders of Notes
representing specified percentages of the Outstanding Amount of the Notes, on
behalf of the Holders of all the Notes, to waive compliance by the Issuer with
certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Note (or any one or more Predecessor Notes) shall be conclusive and binding
upon such Holder and upon all future Holders of this Note and of any Note issued
upon the registration of transfer hereof or in exchange hereof or in lieu hereof
whether or not notation of such consent or waiver is made upon this Note. The
Indenture also permits the Indenture Trustee to amend or waive certain terms and
conditions set forth in the Indenture without the consent of Holders of the
Notes issued thereunder.
The term "Issuer" as used in this Note includes any successor to the
Issuer under the Indenture.
The Issuer is permitted by the Indenture, under certain circumstances,
to merge or consolidate, subject to the rights of the Indenture Trustee and the
Holders of Notes under the Indenture.
The Notes are issuable only in registered form in denominations as
provided in the Indenture, subject to certain limitations therein set forth.
This Note and the Indenture shall be construed in accordance with the
laws of the State of [New York,] without reference to its conflict of law
provisions, and the obligations, rights and remedies of the parties hereunder
and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place, and rate, and i the coin or currency herein prescribed.
Anything herein to the contrary notwithstanding, except as expressly
provided in the Basic Documents, neither [Owner Trustee] in its individual
capacity, [Indenture Trustee], in its individual capacity, any owner of a
beneficial interest in the Issuer, nor any of their respective partners,
beneficiaries, agents, officers, directors, employees or successors or assigns
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shall be personally liable for, nor shall recourse be had to any of them for,
the payment of principal of or interest on, or performance of, or omission to
perform, any of the covenants, obligations or indemnifications contained in this
Note or the Indenture, it being expressly understood that said covenants,
obligations and indemnifications have been made by the Owner Trustee for the
sole purposes of binding the interests of the Owner Trustee in the assets of the
Issuer. The Holder of this Note by the acceptance hereof agrees that except as
expressly provided in the Basic Documents, in the case of an Event of Default
under the Indenture, the Holder shall have no claim against any of the foregoing
for any deficiency, loss or claim therefrom; provided, however, that nothing
contained herein shall be taken to prevent recourse to, and enforcement against,
the assets of the Issuer for any and all liabilities, obligations and
undertakings contained in the Indenture or in this Note.
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ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee
____________________________
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _____________________________________________
_______________________________________________________________________________
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints attorney, to transfer said Note on the books kept for registration
thereof, with full power of substitution in the premises.
Dated: _______________ ________________________NOTE:
The signature to this assignment
must correspond with the name of
the registered owner as it appears
on the face of the within Note in
every particular, without
alteration, enlargement or any
change whatsoever.
Signature Guaranteed:
_________________________
Signatures must be guaranteed by an
"eligible guarantor institution"
meeting the requirements of the
Indenture Trustee which requirements
will include membership or
participation in STAMP or such other
"signature guarantee program" as may
be determined by the Indenture
Trustee in addition to, or in
substitution for, STAMP, all in
accordance with the Securities
Exchange Act of 1934, as amended.
_________________________
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EXHIBIT F
[Form of Transferee Certificate]
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September 12, 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.
We hereby confirm our opinion with respect to the federal income
tax characterization of the investor securities and the federal income tax
treatment of the issuance of such Securities set forth under the caption
"Federal Income Tax Consequences" subject to the limitations expressed therein.
Moreover, it is our opinion that, subject to the limitations expressed therein,
the discussion of certain federal tax matters within the prospectus is an
accurate description of the material tax aspects of owning (including the
purchase and sale of) Securities.
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 "Federal Income
Tax Considerations."
Very truly yours,
DEWEY BALLANTINE
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