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Registration No. 333-8439
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM S-3
AMENDMENT NO. 1 TO
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
______________
ICIFC SECURED ASSETS CORP.
(Exact name of registrant as specified in its charter)
______________
California
(State or other jurisdiction of Incorporation or organization)
33-0715871
(I.R.S. Employer Identification Number)
20371 Irvine Avenue, Suite 200
Santa Ana Heights, California 92707
714-556-0122
(Address including zip code, and telephone number,
including area code, of registrant's executive offices)
William Ashmore
Imperial Credit Secured Assets Corp.
20371 Irvine Avenue, Suite 200
Santa Ana Heights, California 92707
714-556-0122
(Name, address, including zip code, and telephone number
including area code, of agent for service)
______________
Copies to:
Thomas J. Poletti, Esq.
Freshman, Marantz, Orlanski, Cooper & Klein
Eighth Floor, East Tower
9100 Wilshire Boulevard
Beverly Hills, California 90212-3480
Telephone (310) 273-1870
Facsimile (310) 274-8357
==========================================
Approximate date of commencement of proposed sale to the public: From time
to time on or after the effective date of this Registration Statement, as
determined by market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If the only securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE AMOUNT OF
AMOUNT TO BE PRICE OFFERING REGISTRATION
TITLE OF SECURITIES TO BE REGISTERED REGISTERED (1) PER UNIT (2) PRICE (2) FEE (3)
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<S> <C> <C> <C> <C>
Pass-Through Certificates, issued in series $500,000,000 100% $500,000,000 $172,413.79
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</TABLE>
(1) $1,000,000 was registered with the initial filing of the Registration
Statement. An additional $499,000,000 is being registered in connection with
this Amendment No. 1.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) This amount represents the total filing fee being paid in connection with
this Registration Statement. A filing fee of $344.83 was previously paid in
connection with the initial filing. An additional $172,068.96 is being paid in
connection with this Amendment No. 1 to the Registration Statement.
_____________________
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a),
may determine.
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EXPLANATORY NOTE
This Registration Statement includes (i) a basic prospectus, (ii) an
illustrative form of prospectus supplement for use in an offering of Mortgage
Pass-Through Certificates consisting of senior and subordinate certificate
classes ("Version 1") and (iii) an illustrati ve form of prospectus supplement
for use in an offering of Mortgage Pass-Through Certificates which provides for
credit support in the form of a letter of credit ("Version 2").
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This preliminary prospectus supplement shall not constitute an offer
to sell or the solicitation of an offer to buy nor shall there be any sale of
these securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such State.
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VERSION 1
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SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED OCTOBER , 1996
--
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED _______________________, 19__)
$_______________
ICIFC SECURED ASSETS CORP.
COMPANY
[NAME OF MASTER SERVICER] [ICI FUNDING CORPORATION]
MASTER SERVICER
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 19_-_
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<S> <C> <C>
$__________ ____% Class A-1 Certificates
$__________ ____% Class A-2 Certificates
$__________ ____% Class A-3 Certificates
$__________ ____% Class A-4 Certificates
$ 0 ____%* Class A-5 Certificates
$__________ ____% Class A-6 Certificates
$ 0 Variable Rate* Class A-7 Certificates
</TABLE>
*Accrual of interest based on the related Notional Amount as described herein
under "Description of the Certificates."
The Series 19__-__ Mortgage Pass-Through Certificates will include the
following seven classes (the "Senior Certificates"): (i) Class A-1
Certificates, Class A-2 Certificates, Class A-3 Certificates, Class A-4
Certificates, (ii) Class A-5 Certificates (the "Fixed Strip Certificates"),
(iii) Class A-6 Certificates and (iv) Class A-7 Certificates (the "Variable
Strip Certificates"). In addition to the Senior Certificates, the Series
19__-__ Mortgage Pass-Through Certificates will also consist of one class of
subordinate certificates which is designated as the Class B Certificates (the
"Subordinate Certificates") and one class of residual certificates which is
designated as the Class R Certificates (the "Residual Certificates" and,
collectively with the Senior Certificates and the Subordinate Certificates,
the "Certificates"). Only the Senior Certificates (the "Offered
Certificates") are offered hereby.
The Senior Certificates in the aggregate will evidence an initial
undivided interest of approximately __% in a trust fund (the "Trust Fund")
consisting primarily of a pool of certain conventional fixed-rate one- to
four-family first lien mortgage loans (the "Mortgage Loans") to be deposited
by ICIFC Secured Assets Corp. (the "Company") into the Trust Fund for the
benefit of the Certificateholders. Certain characteristics of the Mortgage
Loans are described herein under "Description of the Mortgage Pool."
The Prospectus contains an "Index of Principal Definitions" at the end of the
Prospectus.
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Distributions on the Senior Certificates will be made on the 25th day of
each month or, if such day is not a business day, then on the next business day,
commencing on __________, 19__ (each, a "Distribution Date"). As more fully
described herein under "Description of the Certificates-Interest Distributions,"
interest distributions on the Senior Certificates will be based on the
Certificate Principal Balance thereof (or the Notional Amount (as defined
herein) in the case of the Fixed Strip Certificates and Variable Strip
Certificates) and the then applicable Pass-Through Rate thereof, which will be
variable for the Variable Strip Certificates and fixed for all other classes of
Certificates. Distributions in respect of principal of the Senior Certificates
will be allocated among the various classes of the Senior Certificates as
described herein under "Description of the Certificates-Principal
Distributions." The rights of the holders of the Subordinate Certificates to
receive distributions with respect to the Mortgage Loans will be subordinate to
the rights of the holders of the Senior Certificates. Certain losses incurred
due to defaults on the Mortgage Loans and not covered by the Subordinate
Certificates will be allocated on a pro rata basis between the Class A-1, Class
A-5 and Class A-6 Certificates (collectively, the "Tiered Certificates"), on the
one hand, and the Class A-2, Class A-3, Class A-4 and Variable Strip
Certificates, on the other, as more particularly described herein under
"Description of the Certificates-Allocation of Losses; Subordination." Any such
losses so allocated to the Tiered Certificates will be allocated first to the
Class A-6 Certificates until the Certificate Principal Balance thereof is
reduced to zero, and then on a pro rata basis to the Class A-1 Certificates and
Class A-5 Certificates, as more particularly described herein under "Description
of the Certificates-Allocation of Losses; Subordination."
There is currently no secondary market for the Senior Certificates.
___________________ (the "Underwriter") intends to make a secondary market in
the Senior Certificates, but is not obligated to do so. There can be no
assurance that a secondary market for the Senior Certificates will develop or,
if it does develop, that it will continue. The Senior Certificates will not be
listed on any securities exchange.
It is a condition of the issuance of the Senior Certificates that they be
rated "___" by __________________________________________________ and "___" by
___________________________.
As described herein, a "real estate mortgage investment conduit"
("REMIC") election will be made in connection with the Trust Fund for federal
income tax purposes. Each class of Senior Certificates will constitute "regular
interests" in the REMIC. See "Federal Income Tax Consequences" herein and in
the Prospectus.
SEE "RISK FACTORS" BEGINNING ON PAGE S- HEREIN AND ON PAGE 11 OF
--
THE PROSPECTUS FOR A DISCUSSION OF SIGNIFICANT MATTERS AFFECTING AN INVESTMENT
IN THE CERTIFICATES.
THE YIELD TO MATURITY ON THE SENIOR CERTIFICATES WILL DEPEND ON THE RATE
AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING AS A RESULT OF PREPAYMENTS, DEFAULTS
AND LIQUIDATIONS) ON THE MORTGAGE LOANS. THE MORTGAGE LOANS GENERALLY MAY BE
PREPAID IN FULL OR IN PART AT
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ANY TIME WITHOUT PENALTY. THE YIELD TO INVESTORS ON THE SENIOR CERTIFICATES MAY
BE ADVERSELY AFFECTED BY ANY SHORTFALLS IN INTEREST COLLECTED ON THE MORTGAGE
LOANS DUE TO PREPAYMENTS, LIQUIDATIONS OR OTHERWISE. THE YIELD TO INVESTORS ON
THE FIXED STRIP CERTIFICATES AND THE VARIABLE STRIP CERTIFICATES WILL BE
EXTREMELY SENSITIVE TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING
PREPAYMENTS) AND DEFAULTS ON THE MORTGAGE LOANS, WHICH RATE MAY FLUCTUATE
SIGNIFICANTLY OVER TIME. A RAPID RATE OF PRINCIPAL PAYMENTS ON THE MORTGAGE
LOANS COULD RESULT IN THE FAILURE OF INVESTORS IN SUCH CERTIFICATES TO RECOVER
THEIR INITIAL INVESTMENTS. SEE "CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS"
HEREIN AND "YIELD CONSIDERATIONS" IN THE PROSPECTUS.
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF PAYMENTS
ON THE OFFERED CERTIFICATES. THE OFFERED CERTIFICATES DO NOT REPRESENT AN
INTEREST IN OR OBLIGATION OF THE COMPANY, THE MASTER SERVICER OR ANY OF THEIR
AFFILIATES. NEITHER THE OFFERED CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS
ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY
THE COMPANY, THE MASTER SERVICER OFFERED OR ANY OF THEIR AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
The Offered Certificates will be purchased from the Company by the
Underwriter and will be offered by the Underwriter from time to time to the
public in negotiated transactions or otherwise at varying prices to be
determined at the time of sale. The proceeds to the Company from the sale of
the Offered Certificates will be equal to ____% of the initial aggregate
principal balance of the Offered Certificates, plus accrued interest thereon
from ___________________________ 1, 19__ (the "Cut-off Date"), net of any
expenses payable by the Company.
The Offered Certificates are offered by the Underwriter subject to prior
sale, when, as and if delivered to and accepted by the Underwriter and subject
to certain other conditions. The Underwriter reserves the right to withdraw,
cancel or modify such offer and to reject any order in whole or in part. It is
expected that delivery of the Offered Certificates will be made on or about
____________________, 19__ at the office of ________________________,
____________________________________________ against payment therefor in
immediately available funds.
[Name of Underwriter]
[Date of Prospectus Supplement]
<PAGE>
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THE CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE PART OF
A SEPARATE SERIES OF CERTIFICATES BEING OFFERED BY THE COMPANY PURSUANT TO ITS
PROSPECTUS DATED ____________, 19__, OF WHICH THIS PROSPECTUS SUPPLEMENT IS A
PART AND WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE PROSPECTUS CONTAINS
IMPORTANT INFORMATION REGARDING THIS OFFERING WHICH IS NOT CONTAINED HEREIN,
AND PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS AND THIS PROSPECTUS
SUPPLEMENT IN FULL. SALES OF THE OFFERED CERTIFICATES MAY NOT BE CONSUMMATED
UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS.
UNTIL ____________________, 19__, ALL DEALERS EFFECTING TRANSACTIONS IN
THE OFFERED CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION,
MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO WHICH
IT RELATES. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
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SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus.
Capitalized terms used herein and not otherwise defined herein have the meanings
assigned in the Prospectus. An "Index of Principal Definitions" indicating
where certain capitalized terms used herein and in the Prospectus are defined
appears at the end of the Prospectus.
Title of Securities...... Mortgage Pass-Through Certificates, Series 19__-__.
Company.................. ICIFC Secured Assets Corp. (the "Company"), a wholly-
owned subsidiary of ICI Funding Corporation ("ICI
Funding"). See "The Company" and "ICI Funding
Corporation" in the Prospectus.
Seller................... [Name of Seller][ICI Funding Corporation] (the
"Seller" or ["ICI Funding"])[, a non-consolidating
subsidiary of Imperial Credit Mortgage Holdings, Inc.
("ICMH")]. See "Description of the Mortgage Pool-The
Seller" herein [and "ICI Funding Corporation" and
"Imperial Credit Mortgage Holdings, Inc." in the
Prospectus].
Master Servicer.......... [Name of Master Servicer] [ICI Funding Corporation]
(the "Master Servicer" [or "ICI Funding"])[, a non-
consolidating subsidiary of Imperial Credit Mortgage
Holdings, Inc. ("ICMH")]. The Mortgage Loans will be
subserviced by _________________ (the "Sub-
Servicer"). See "Pooling and Servicing Agreement-The
Master Servicer; the Sub-Servicer" herein [and "ICI
Funding Corporation" and "Imperial Credit Mortgage
Holdings, Inc." in the Prospectus].
Trustee.................. _____________, _____________________________________
________________________________(the "Trustee").
Cut-off Date............. _________________ 1, 19__ (the "Cut-off Date").
Delivery Date............ On or about ___________, 19__ (the "Delivery Date") .
Denominations............ The Senior Certificates will be issued in registered,
certificated form, in minimum denominations of $_____
(or in minimum Notional Amounts of $_____ in the case
of the Fixed Strip Certificates_____ or
<PAGE>
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Variable Strip Certificates) and integral multiples
of $_____ in excess thereof.
The Mortgage Pool........ The Mortgage Pool will consist of a pool of
conventional, fixed-rate, fully amortizing mortgage
loans (the "Mortgage Loans") with an aggregate
principal balance as of the Cut-off Date of
approximately $______________. The Mortgage Loans
are secured by first liens on one- to four-family
residential real properties (each, a "Mortgaged
Property"). The Mortgage Loans have individual
principal balances at origination of at least
$_________ but not more than $___________ with an
average principal balance at origination of
approximately $____________. The Mortgage Loans have
terms to maturity from the date of origination or
modification of not more than ___ years, and a
weighted average remaining term to stated maturity of
approximately ___ months as of the Cut-off Date. The
Mortgage Loans will bear interest at Mortgage Rates
of at least ____% per annum but not more than ____%
per annum, with a weighted average Mortgage Rate of
approximately ____% per annum as of the Cut-off Date.
For a further description of the Mortgage Loans, see
"Description of the Mortgage Pool" herein.
The Senior Certificates.. The Senior Certificates in the aggregate evidence an
initial interest of approximately ____% in a trust
fund (the "Trust Fund") consisting primarily of the
Mortgage Pool. The Senior Certificates will be
issued pursuant to a Pooling and Servicing Agreement,
to be dated as of the Cut-off Date, among the
Company, the Master Servicer, and the Trustee (the
"Pooling and Servicing Agreement"). The Senior
Certificates will have the following Pass-Through
Rates and Certificate Principal Balances as of the
Cut-off Date:
Class A-1 Certificates ____% $_____________
Class A-2 Certificates ____% $_____________
Class A-3 Certificates ____% $_____________
Class A-4 Certificates ____% $_____________
Class A-5 Certificates ____% $ 0
Class A-6 Certificates ____% $_____________
Class A-7 Certificates Variable Rate $ 0
<PAGE>
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The Offered Certificates are subject to various
priorities for payment of interest and principal as
described herein. For a description of the allocation
of interest and principal distributions among the
Senior Certificates, see "Summary-Interest
Distributions," "-Principal Distributions,"
"Description of the Certificates-Interest
Distributions" and "-Principal Distributions on the
Senior Certificates" herein.
Interest Distributions... The Pass-Through Rates on the Senior Certificates
(other than the Variable Strip Certificates) are
fixed and set forth on the cover hereof. The Pass-
Through Rate on the Variable Strip Certificates on
each Distribution Date will equal the weighted
average, as determined on the Due Date in the month
preceding the month in which such Distribution Date
occurs, of the Pool Strip Rates on each of the
Mortgage Loans. The Pool Strip Rate on each Mortgage
Loan is equal to the Net Mortgage Rate thereon minus
____%. The Net Mortgage Rate on each Mortgage Loan is
equal to the Mortgage Rate thereon minus the rate per
annum at which the related master servicing fees
accrue (the "Servicing Fee Rate"). The Pool Strip
Rates on the Mortgage Loans range between ____% and
____%. The initial Pass-Through Rate on the Variable
Strip Certificates is approximately ____%. The Fixed
Strip Certificates and Variable Strip Certificates
have no Certificate Principal Balance and will accrue
interest at the then applicable Pass-Through Rate on
the Notional Amount (as defined herein).
Holders of the Senior Certificates will be entitled
to receive on each Distribution Date, to the extent
of the Available Distribution Amount (as defined
herein) for such Distribution Date, interest
distributions in an amount equal to the aggregate of
all Accrued Certificate Interest (as defined below)
with respect to such Certificates for such
Distribution Date and, to the extent not previously
paid, for all prior Distribution Dates (the "Senior
Interest Distribution Amount").
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With respect to any Distribution Date, the Accrued
Certificate Interest in respect of each class of
Senior Certificates will be equal to one month's
interest accrued at the applicable Pass-Through Rate
on the Certificate Principal Balance (or, in the case
of the Fixed Strip Certificates and Variable Strip
Certificates, the Notional Amount (as defined below))
of the Certificates of such class immediately prior
to such Distribution Date, less any interest
shortfalls not covered by Subordination (as defined
herein) and allocated to the Certificates of such
class as described herein, including any Prepayment
Interest Shortfall (as defined herein), if any, for
such Distribution Date.
If the Senior Interest Distribution Amount for any
Distribution Date is less than the Available
Distribution Amount for such date, then such
shortfall shall be allocated among the respective
classes of Senior Certificates as described herein
under "Description of the Certificates-Allocation of
Losses; Subordination," and the unpaid Accrued
Certificate Interest in respect of the Certificates
of each such class will be payable to the holders
thereof on subsequent Distribution Dates, to the
extent of available funds. The Notional Amount of
the Fixed Strip Certificates and Variable Strip
Certificates as of any date of determination is equal
to the aggregate Certificate Principal Balance of the
Certificates of all classes, including the
Subordinate Certificates, as of such date. See
"Description of the Certificates-Interest
Distributions" herein. References herein to the
Notional Amount of the Fixed Strip Certificates and
Variable Strip Certificates are used solely for
certain calculations and do not represent the right
of the holders of the Fixed Strip Certificates and
Variable Strip Certificates to receive distributions
of such amount.
Principal Distributions.. Holders of the Senior Certificates will be entitled
to receive on each Distribution Date, in the manner
and priority set forth herein, to the extent of the
portion of the Available Distribution Amount
remaining after the Senior Interest Distribution
Amount is distributed to the holders of the Senior
Certificates, a distribution allocable to principal
which will, as more fully
<PAGE>
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described herein under "Description of the
Certificates-Distributions of Principal," include (i)
the Senior Percentage (as defined herein) of
scheduled principal payments due on the Mortgage
Loans and of the principal portion of any unscheduled
collections of principal (other than mortgagor
prepayments and amounts received in connection with a
Final Disposition (as defined herein) of a Mortgage
Loan described in clause (ii) below), including
repurchases of the Mortgage Loans, (ii) in connection
with the Final Disposition of a Mortgage Loan that
did not incur any Excess Special Hazard Losses,
Excess Fraud Losses, Excess Bankruptcy Losses or
Extraordinary Losses (each as defined herein), an
amount equal to the lesser of (a) the Senior
Percentage of the Stated Principal Balance (as
defined herein) of such Mortgage Loan and (b) the
Senior Accelerated Distribution Percentage (as
defined herein) of the related collections, including
any Insurance Proceeds and Liquidation Proceeds, to
the extent applied as recoveries of principal and
(iii) the Senior Accelerated Distribution Percentage
(as defined below) of mortgagor prepayments on each
Mortgage Loan.
Distributions in respect of principal of the Senior
Certificates on any Distribution Date will be
allocated among the classes then entitled to such
distributions, as described herein. See "Summary-
Special Prepayment Considerations" and "-Special
Yield Considerations" and "Certain Yield and
Prepayment Considerations" herein. The Fixed Strip
Certificates and Variable Strip Certificates will not
be entitled to receive any principal distributions.
The Senior Percentage initially will be approximately
____% and will be recalculated after each
Distribution Date as described herein to reflect the
entitlement of the holders of the Senior Certificates
to subsequent distributions allocable to principal.
For each Distribution Date occurring prior to the
Distribution Date in _______________, _____________,
the Senior Accelerated Distribution Percentage will
equal 100%. Thereafter, as further described herein,
during certain periods, subject to certain loss and
delinquency criteria described herein, the Senior
Accelerated Distribution
<PAGE>
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Percentage may be 100% or otherwise
disproportionately large relative to the Senior
Percentage. See "Description of the Certificates-
Principal Distributions on the Senior Certificates"
herein.
Advances................. The Master Servicer is required to make advances
("Advances") in respect of delinquent payments of
principal and interest on the Mortgage Loans, subject
to the limitations described herein. See
"Description of the Certificates-Advances" herein and
in the Prospectus.
Allocation of Losses;
Subordination............ Subject to the limitations set forth below, Realized
Losses (as more particularly described herein) on the
Mortgage Loans will be allocated first to the
Subordinate Certificates and then to the Senior
Certificates. The subordination provided by the
Subordinate Certificates will cover Realized Losses
on the Mortgage Loans that constitute Defaulted
Mortgage Losses, Special Hazard Losses, Fraud Losses
and Bankruptcy Losses (each as defined in the
Prospectus) to the extent described herein under
"Description of the Certificates-Allocation of
Losses; Subordination." The aggregate amounts of
Special Hazard Losses, Fraud Losses and Bankruptcy
Losses which may be allocated to the Subordinate
Certificates are initially limited to $_______,
$_______ and $_______, respectively. All of the
foregoing amounts are subject to periodic reduction
as described herein. In the event the Certificate
Principal Balance of the Subordinate Certificates is
reduced to zero, all additional losses will be borne
by the Senior Certificateholders. In addition, any
Special Hazard Losses, Fraud Losses and Bankruptcy
Losses, in excess of the respective amounts of
coverage therefor will be borne by the holders of
Senior Certificates and Subordinate Certificates on a
pro rata basis. Any Default Losses (as defined
herein) incurred on the Mortgage Loans and not
covered by the Subordinate Certificates will be
allocated on a pro rata basis between the Class A-1,
Class A-5 and Class A-6 Certificates (the "Tiered
Certificates"), on the one hand, and the Class A-2,
Class A-3, Class A-4 and
<PAGE>
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Variable Strip Certificates, on the other, as more
particularly described herein. Any such losses so
allocated to the Tiered Certificates will be
allocated first to the Class A-6 Certificates until
the Certificate Principal Balance thereof is reduced
to zero and then on a pro rata basis between the
Class A-1 Certificates and the Class A-5
Certificates, as more particularly described herein.
Because principal distributions are paid to certain
classes of Senior Certificates before other classes,
holders of classes of Senior Certificates having a
later priority of payment bear a greater risk of such
losses than holders of classes of Senior Certificates
having earlier priorities for distribution of
principal. See "Description of the Certificates-
Allocation of Losses; Subordination" herein.
Subordinate Certificates.. The Class B Certificates (the "Subordinate
Certificates") have an aggregate initial Certificate
Principal Balance of approximately $__________,
evidencing an initial Subordinate Percentage of
approximately ____%, and a Pass-Through Rate of
____%. The Subordinate Certificates are not being
offered hereby.
Optional Termination...... At its option, on any Distribution Date when the
aggregate principal balance of the Mortgage Loans is
less than ____% of the aggregate principal balance of
the Mortgage Loans as of the Cut-off Date, the Master
Servicer or the Company may (i) purchase from the
Trust Fund all remaining Mortgage Loans and other
assets thereof, and thereby effect early retirement
of the Certificates or (ii) purchase in whole, but
not in part, the Certificates. See "Pooling and
Servicing Agreement-Termination" herein and "The
Pooling Agreement-Termination; Retirement of
Certificates" in the Prospectus.
Special Prepayment
Considerations........... The rate and timing of principal payments on the
Senior Certificates will depend on the rate and
timing of principal payments (including by reason of
prepayments, defaults and liquidations) on the
Mortgage Loans. As is the case with mortgage-backed
securities generally, the Senior Certificates are
subject to substantial inherent cash-flow
uncertainties because
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the Mortgage Loans may be prepaid at any time.
Generally, when prevailing interest rates increase,
prepayment rates on mortgage loans tend to decrease,
resulting in a slower return of principal to
investors at a time when reinvestment at such higher
prevailing rates would be desirable. Conversely,
when prevailing interest rates decline, prepayment
rates on mortgage loans tend to increase, resulting
in a faster return of principal to investors at a
time when reinvestment at comparable yields may not
be possible.
[The multiple class structure of the Senior
Certificates results in the allocation of prepayments
among certain classes as follows [TO BE INCLUDED AS
APPROPRIATE]:]
[SEQUENTIALLY PAYING CLASSES: [All] classes of the
Senior Certificates are subject to various priorities
for payment of principal as described herein.
Distributions of principal on classes having an
earlier priority of payment will be affected by the
rates of prepayments of the Mortgage Loans early in
the life of the Mortgage Pool. The timing of
commencement of principal distributions and the
weighted average lives of classes of Certificates
with a later priority of payment will be affected by
the rates of prepayments experienced both before and
after the commencement of principal distributions on
such classes.]
[PAC CERTIFICATES: Principal distributions on the PAC
Certificates generally will be payable in amounts
determined based on schedules as described herein,
assuming that the prepayments on the Mortgage Loans
occur each month at a constant level between
approximately ____% SPA and approximately ____% SPA
and based on certain other assumptions. However, as
discussed herein, actual principal distributions may
be greater or less than the described amounts. If
the prepayments on the Mortgage Loans occur at a
level below or above the PAC Targeted Range, the
amount of principal distributions may deviate from
the described amounts and the weighted average lives
of the remaining PAC Certificates may be extended or
shortened. The classes of PAC Certificates with
later priorities of payment are less likely to
benefit from the stabilization of principal
<PAGE>
-13-
distributions provided by the Companion Certificates
as described herein) than the PAC Certificates with
earlier priorities of payment. Investors in the PAC
Certificates should be aware that the stabilization
provided by the Companion Certificates is limited.]
[TAC CERTIFICATES: Principal distributions on the TAC
Certificates generally will be payable thereon in the
amounts determined by using the schedules described
herein, assuming that prepayments on the Mortgage
Loans occur each month at a constant level of
approximately ____% SPA, and based on certain other
assumptions. However, as discussed herein, actual
principal distributions may be greater or less than
the described amounts, because it is highly unlikely
that the actual prepayment speed of the Mortgage
Loans each month will remain at or near ____% SPA.
If the Companion Certificates are retired before all
of the TAC Certificates are retired, the rate of
principal distributions and the weighted average
lives of the remaining TAC Certificates will become
significantly more sensitive to changes in the
prepayment speed of the Mortgage Loans, and principal
distributions thereon will be more likely to deviate
from the described amounts.]
[COMPANION CERTIFICATES: Because all amounts
available for principal distributions among the
Senior Certificates in any given month will be
applied first to the [PAC] [TAC] Certificates up to
the described amounts and any excess other such
amounts will be applied to the Companion
Certificates, the rate of principal distributions on,
and the weighted average lives of the Companion
Certificates will be more sensitive to changes in the
rates of prepayment of the Mortgage Loans than the
rate of principal distributions on and the weighted
average lives of the [PAC] [TAC] Certificates.]
See "Description of the Certificates-Principal
Distributions on the Senior Certificates," and "
Certain Yield and Prepayment Considerations" herein,
and "Maturity and Prepayment Considerations in the
Prospectus.
<PAGE>
-14-
Special Yield
Considerations........... The yield to maturity on each class of the Senior
Certificates will depend on the rate and timing of
principal payments (including by reason of
prepayments, defaults and liquidations) on the
Mortgage Loans and the allocation thereof to reduce
the Certificate Principal Balance or Notional Amount
of such class. The yield to maturity on each class
of the Senior Certificates will also depend on the
Pass-Through Rate and any adjustments thereto (as
applicable) and the purchase price for such
Certificates. The yield to investors on any class of
Senior Certificates will be adversely affected by any
allocation thereto of Prepayment Interest Shortfalls
on the Mortgage Loans, which are expected to result
from the distribution of interest only to the date of
prepayment (rather than a full month's interest) in
connection with prepayments in full and the lack of
any distribution of interest on the amount of any
partial prepayments. Prepayment Interest Shortfalls
resulting from principal prepayments in full in any
calendar month will not adversely affect the yield to
investors in the Offered Certificates to the extent
such prepayment interest shortfalls are covered by
the Master Servicer as discussed herein.
In general, if a class of Senior Certificates is
purchased at a premium and principal distributions
thereon occur at a rate faster than anticipated at
the time of purchase, the investor's actual yield to
maturity will be lower than that assumed at the time
of purchase. Conversely, if a class of Senior
Certificates is purchased at a discount and principal
distributions thereon occur at a rate slower than
that assumed at the time of purchase, the investor's
actual yield to maturity will be lower than that
assumed at the time of purchase.
The Senior Certificates were structured based on a
number of assumptions, including a prepayment
assumption of ____% SPA and corresponding weighted
average lives as set forth herein under "Special
Prepayment Considerations." The prepayment, yield and
other assumptions for the respective classes
<PAGE>
-15-
that are to be offered hereunder will vary as
determined at the time of sale.
[The multiple class structure of the Senior
Certificates causes the yield of certain classes to
be particularly sensitive to changes in the
prepayment speed of the Mortgage Loans and other
factors, as follows [TO BE INCLUDED AS APPROPRIATE]:]
[INTEREST STRIP AND INVERSE FLOATER CLASSES: The
yield to investors on the [identify classes] will be
extremely sensitive to the rate and timing of
principal payments on the Mortgage Loans (including
by reason of prepayments, defaults and liquidations),
which may fluctuate significantly over time. A rapid
rate of principal payments on the Mortgage Loans
could result in the failure of investors in the
[identify interest strip and inverse floater strip
classes] to recover their initial investments, and a
slower than anticipated rate of principal payments on
the Mortgage Loans could adversely affect the yield
to investors on the [identify non-strip inverse
floater classes].]
[VARIABLE STRIP CERTIFICATES: In addition to the
foregoing, the yield on the Variable Strip
Certificates will be materially adversely affected to
a greater extent than the yields on the other Senior
Certificates if the Mortgage Loans with higher
Mortgage Rates prepay faster than the Mortgage Loans
with lower Mortgage Rates, because holders of the
Variable Strip Certificates generally have rights to
relatively larger portions of interest payments on
the Mortgage Loans with higher Mortgage Rates than on
Mortgage Loans with lower Mortgage Rates.]
[ADJUSTABLE RATE (INCLUDING INVERSE FLOATER) CLASSES:
The yield to investors on the [identify floating rate
classes] will be sensitive, and the yield to
investors on the [identify inverse floater classes]
will be extremely sensitive, to fluctuations in the
level of [the Index]. THE PASS-THROUGH RATE ON THE
[IDENTIFY INVERSE FLOATER CLASSES] WILL VARY
INVERSELY WITH, AND AT A MULTIPLE OF, [THE INDEX].]
<PAGE>
-16-
[INVERSE FLOATER COMPANION CLASSES: In addition to
the foregoing, in the event of relatively low
prevailing interest rates (including [the Index]) and
relatively high rates of principal prepayments over
an extended period, while investors in the [identify
inverse floater companion classes] may then be
experiencing a high current yield on such
Certificates, such yield may be realized only over a
relatively short period, and it is unlikely that such
investors would be able to reinvest such principal
prepayments on such Certificates at a comparable
yield.]
[RESIDUAL CERTIFICATES: Holders of the Residual
Certificates are entitled to receive distributions of
principal and interest as described herein; however,
holders of such Certificates may have tax liabilities
with respect to their Certificates during the early
years of the term of the REMIC that substantially
exceed the principal and interest payable thereon
during such periods. See "Certain Yield and
Prepayment Considerations, " especially "-Additional
Yield Considerations Applicable Solely to the
Residual Certificates " herein, "Federal Income Tax
Consequences" herein and in the Prospectus and "Yield
Considerations" in the Prospectus.]
See "Certain Yield and Prepayment Considerations"
especially -Yield Considerations, -Additional Yield
Considerations Applicable Solely to the Residual
Certificates" and "Federal Income Tax Consequences"]
herein, and "Yield Considerations" in the Prospectus.
Federal Income
Tax Consequences......... An election will be made to treat the Trust Fund as a
real estate mortgage investment conduit ("REMIC") for
federal income tax purposes. Upon the issuance of
the Offered Certificates, ___________ __________,
counsel to the Company, will deliver its opinion
generally to the effect that, assuming compliance
with all provisions of the Pooling and Servicing
Agreement, for federal income tax purposes, the Trust
Fund will qualify as a REMIC within the meaning of
Sections 860A through 86OG of the Internal Revenue
Code of 1986 (the "Code").
<PAGE>
-17-
For federal income tax purposes, the Class R
Certificates will be the sole Class of "residual
interests" in the Trust Fund and the Senior
Certificates and the Subordinate Certificates will
constitute the "regular interests" in the Trust Fund
and will generally be treated as representing
ownership of debt instruments in the Trust Fund.
For federal income tax reporting purposes, the
_________ Certificates will not, and the
__________Certificates will, be treated as having
been issued with original issue discount. The
prepayment assumption that will be used in
determining the rate of accrual of original issue
discount, market discount and premium, if any, for
federal income tax purposes will be ____% SPA (as
defined herein). No representation is made that the
Mortgage Loans will prepay at that rate or at any
other rate.
Investors are advised to consult their tax advisors
as to the tax consequences of an investment in the
Certificates in light of each investor's individual
circumstances and to review "Federal Income Tax
Consequences" herein and in the Prospectus for a
general discussion of material tax matters related to
the Certificates.
Ratings.................. It is a condition of the issuance of the Senior
Certificates that they be rated "____" by
_______________________________ and "____" by
_______________________________. A security rating
is not a recommendation to buy, sell or hold
securities and may be subject to revision or
withdrawal at any time by the assigning rating
organization. A security rating does not address the
frequency of prepayments of Mortgage Loans, or the
corresponding effect on yield to investors. The
ratings of the Fixed Strip Certificates and Variable
Strip Certificates do not address the possibility
that the holders of such Certificates may fail to
fully recover their initial investments. See
"Certain Yield and Prepayment Considerations" and
"Ratings" herein and "Yield Considerations" in the
Prospectus.
<PAGE>
-18-
Legal Investment......... The Senior Certificates will constitute "mortgage
related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 ("SMMEA") for
so long as they are rated in at least the second
highest rating category by one or more nationally
recognized statistical rating agencies. Institutions
whose investment activities are subject to legal
investment laws and regulations, regulatory capital
requirements or review by regulatory authorities may
be subject to restrictions on investment in the
Offered Certificates and should consult with their
legal advisors. See "Legal Investment" herein and
"Legal Investment Matters" in the Prospectus.
Listing Application...... The Company does not currently intend to make an
application to list the Offered Certificates on a
national securities exchange or to quote the Offered
Securities in the automated quotation system of a
registered securities association.
Risk Factors............. There are material risks associated with an
investment in the Certificates. See "Risk Factors"
beginning on page S- herein and on page 11 of the
--
Prospectus for a discussion of significant matters
affecting investments in the Certificates.
<PAGE>
-19-
RISK FACTORS
[Prospective Certificateholders should consider, among other things,
the items discussed under "Risk Factors" in the Prospectus and the following
factors in connection with the purchase of the Certificates:]
[Appropriate Risk Factors as necessary. Possible Risk Factors based on present
disclosure may include the following:
Delinquencies and Potential Delinquencies. Approximately ___% of the
Mortgage Loans (by aggregate principal balance as of the Cut-Off Date) were
thirty days or more but less than sixty days delinquent in their Monthly
Payments (such Mortgage Loans, the "Delinquent Mortgage Loans") as of the Cut-
Off Date. Prospective investors in the Certificates should be aware, however,
that only approximately ____% of the Mortgage Loans (by aggregate principal
balance as of the Cut-Off Date) had a first Monthly Payment due on or before
________, 1996, and therefore, the remaining Mortgage Loans could not have been
Delinquent Mortgage Loans as of the Cut-Off Date.
Approximately ____% of the Mortgage Loans (by aggregate outstanding
principal balance as of the Cut-Off Date) are secured by Mortgaged Properties
located in the State of California. Property values of residential real estate
in California have declined in recent years. If the California residential real
estate market continues to experience an overall decline in property values
after the dates of origination of the Mortgage Loans, the rates of delinquency,
foreclosure, bankruptcy and loss on the Mortgage Loans may increase
substantially, as compared to such rates in a stable or improving real estate
market.
Approximately ___% of the Mortgage Loans are secured by Mortgaged
Properties located in Orange, California. On December 6, 1994, Orange County
filed for protection under Chapter 9 of the United States Bankruptcy Code. If
public services are curtailed as a result of Orange County's financial
difficulties, property values in the related market area may be adversely
affected.
Underwriting. Approximately ____% of the Mortgage Loans (measured by
Cut-Off Date Balance) were underwritten in accordance with underwriting
standards that are intended to provide one- to-four family mortgage loans to
borrowers whose creditworthiness and credit histories do not satisfy the
requirements of typical "A" credit borrowers. The Mortgagors with respect to
such Mortgage Loans may have records of major derogatory credit such as credit
write-offs, outstanding judgments and prior bankruptcies. Such Mortgage Loans
generally bear higher rates of interest than mortgage loans made to "A" credit
borrowers. Such Mortgage Loans are likely to experience rates of delinquency,
foreclosure and loss that are higher, and may be substantially higher, than
mortgage loans made to "A" credit borrowers.]
<PAGE>
-20-
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The Mortgage Pool will consist of Mortgage Loans with an aggregate
principal balance outstanding as of the Cut-off Date of $__________. The
Mortgage Loans will consist of conventional (neither insured by the Federal
Housing Administration ("FHA") nor guaranteed by the Veterans' Administration
("VA")), fixed-rate, fully-amortizing, level monthly payment first lien Mortgage
Loans with terms to maturity of not more than __ years from the due date of the
first monthly payment. On or before the Delivery Date, the Company will acquire
the Mortgage Loans to be included in the Mortgage Pool from [ICI Funding] (the
"Seller)." The Mortgage Loans were acquired by the Seller from [various third
party correspondents]. The Seller will make certain representations and
warranties with respect to the Mortgage Loans and, as more particularly
described in the Prospectus, will have certain repurchase or substitution
obligations in connection with a breach of any such representation and warranty,
as well as in connection with an omission or defect in respect of certain
constituent documents required to be delivered with respect to the Mortgage
Loans, in any event if such breach, omission or defect cannot be cured and it
materially and adversely affects the interests of Certificateholders. Neither
the Company nor any other entity or person will have any responsibility to
purchase or replace any Mortgage Loan if the Seller is obligated but fails to do
so. See "Description of the Mortgage Pool-Representations by Sellers" and
"Description of the Certificates-Assignment of Trust Fund Assets" in the
Prospectus. The Mortgage Loans will have been originated or acquired by the
Seller in accordance with the underwriting criteria described herein. See "-
Underwriting" below. All percentages of the Mortgage Loans described herein are
approximate percentages (except as otherwise indicated) by aggregate principal
balance as of the Cut-off Date.
None of the Mortgage Loans will have been originated prior to
____________________ or will have a maturity date later than ________________.
No Mortgage Loan will have a remaining term to maturity as of the Cut-off Date
of less than ___ months. The weighted average remaining term to maturity of the
Mortgage Loans as of the Cut-off Date will be approximately ___ months. The
weighted average original term to maturity of the Mortgage Loans as of the Cut-
off Date will be approximately ___ months.
As of the Cut-off Date, no Mortgage Loan will be one month or more
delinquent in payment of principal and interest.
Approximately ____% of the Mortgage Loans in the Mortgage Pool will
have been purchased from _______________, and each other Seller sold no more
than ____% but less than ____% of the Mortgage Loans to the Company. Except as
indicated in the preceding sentence, no Seller sold more than ____% of the
Mortgage Loans to the Company.
No Mortgage Loan provides for deferred interest or negative
amortization.
<PAGE>
-21-
None of the Mortgage Loans in the Mortgage Pool will be Buydown
Mortgage Loans.
Set forth below is a description of certain additional characteristics
of the Mortgage Loans as of the Cut-Off Date (except as otherwise indicated).
All percentages of the Mortgage Loans are approximate percentages by aggregate
principal balance as of the Cut-Off Date.
MORTGAGE RATES
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PERCENTAGE
MORTGAGE RATES(%) MORTGAGE LOANS PRINCIPAL BALANCE OF MORTGAGE POOL
- ----------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
.................. $ %
..................
..................
..................
..................
..................
..................
..................
..................
..................
-------------- ----------------- -----------------
Total.......... $ %
============== ================= =================
</TABLE>
As of the Cut-off Date, the weighted average Mortgage Rate of the Mortgage Loans
was approximately ____% per annum.
<PAGE>
-22-
CUT-OFF DATE MORTGAGE LOAN PRINCIPAL BALANCES
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PERCENTAGE
PRINCIPAL BALANCE MORTGAGE LOANS PRINCIPAL BALANCE OF MORTGAGE POOL
- ----------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
.................. $ %
..................
..................
..................
..................
..................
..................
..................
..................
..................
-------------- ----------------- -----------------
Total.......... $ %
============== ================= =================
</TABLE>
As of the Cut-off Date, the average unpaid principal balance of the
Mortgage Loans will be approximately $
ORIGINAL LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PERCENTAGE
LOAN-TO VALUE RATIO MORTGAGE LOANS PRINCIPAL BALANCE OF MORTGAGE POOL
- ------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
.................. $ %
..................
..................
..................
..................
..................
..................
..................
..................
..................
-------------- ----------------- -----------------
Total.......... $ %
============== ================= =================
</TABLE>
The weighted average Loan-to-Value Ratio at origination of the
Mortgage Loans will have been approximately ____%.
<PAGE>
-23-
GEOGRAPHIC DISTRIBUTIONS OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PERCENTAGE
STATE MORTGAGE LOANS PRINCIPAL BALANCE OF MORTGAGE POOL
----- -------------- ----------------- -----------------
<S> <C> <C> <C>
[NAME OF STATE].... $ %
[NAME OF STATE]....
[NAME OF STATE]....
[NAME OF STATE]....
[NAME OF STATE]....
[NAME OF STATE]....
Other(1)...........
-------------- ----------------- -----------------
Total.......... $ %
============== ================= =================
</TABLE>
(1) "Other" includes states and the District of Columbia with less than ____%
concentrations individually.
[No more than____% of the Mortgage Loans will be secured by Mortgaged
Properties located in any one zip code area].
MORTGAGED PROPERTY TYPES
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PERCENTAGE
PROPERTY MORTGAGE LOANS PRINCIPAL BALANCE OF MORTGAGE POOL
-------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Single-family detached $ %
Planned Unit Development (detached)....
Two-to four-family units...............
Condo Low-Rise (less than 5 stories)...
Condo Mid-Rise (5 to 8 stories)........
Condo High-Rise (9 stories or more)....
Townhouse..............................
Planned Unit Developments (attached)...
Leasehold..............................
------------- ----------------- -----------------
Total............................. $ %
============= ================= =================
</TABLE>
<PAGE>
-24-
MORTGAGE LOAN PURPOSES
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PERCENTAGE
LOAN PURPOSE MORTGAGE LOANS PRINCIPAL BALANCE OF MORTGAGE POOL
------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
$ %
Purchase....................
Rate/Term Refinance.........
Equity Refinance............
-------------- ----------------- -----------------
Total................... $ %
============== ================= =================
</TABLE>
The weighted average Loan-to-Value Ratio at origination of equity
refinance Mortgage Loans will have been____%. The weighted average Loan-to-Value
Ratio at origination of rate and term refinance Mortgage Loans will have
been____%.
MORTGAGE LOAN DOCUMENTATION
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PERCENTAGE
TYPE OF PROGRAM MORTGAGE LOANS PRINCIPAL BALANCE OF MORTGAGE POOL
---------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Full................... $ %
Alternative............
Reduced................
No Income/No Asset.....
-------------- ----------------- -----------------
Total............. $ %
============== ================= =================
</TABLE>
The weighted average Loan-to-Value Ratio at origination of the
Mortgage Loans which were underwritten under a reduced loan documentation
program will have been ____%. No more than____% of such reduced loan
documentation Mortgage Loans will be secured by Mortgaged Properties located in
California.
OCCUPANCY TYPES
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PERCENTAGE
OCCUPANCY MORTGAGE LOANS PRINCIPAL BALANCE OF MORTGAGE POOL
--------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Primary Residence...... $ %
Second/Vacation........
Non Owner-occupied.....
-------------- ----------------- -----------------
Total............. $ %
============== ================= =================
</TABLE>
[Specific information with respect to the Mortgage Loans will be
available to purchasers of the Certificates on or before the time of issuance of
such Certificates. If not included in the Prospectus Supplement, such
information will be included in the Form 8-K.]
<PAGE>
-25-
THE SELLER
[Description of Seller as appropriate. The following disclosure is
for ICI Funding but will be similar if the Seller is an entity other than ICI
Funding:
ICI Funding Corporation ("ICI Funding" or the "Seller"), the Company's
parent, is a mortgage banking conduit that acquires conventional one- to four-
family residential mortgage loans nationwide. ICI Funding is a non-consolidating
subsidiary of Imperial Credit Mortgage Holdings, Inc., a publicly traded Real
Estate Investment Trust. ICI Funding primarily acquires mortgage loans from
approved correspondents.
Prior to November 1995, ICI Funding was a division of Imperial Credit
Industries, Inc. ("ICII"). In November 1995, ICII restructured its operations
pursuant to which ICI Funding became a separate corporation and ICII
contributed, among other things, all of the outstanding nonvoting preferred
stock of ICI Funding, which represents 99% of the economic interest in ICI
Funding, to Imperial Credit Mortgage Holdings, Inc., in exchange for
approximately 10% of Imperial Credit Mortgage Holdings, Inc.'s common stock.
All of the outstanding shares of common stock of ICI Funding were retained by
ICII.
At __________________, 199__, ICI Funding had approximately ___
employees. ICI Funding's executive offices are located at 20371 Irvine Avenue,
Santa Ana Heights, California, 92707, and its telephone number is (714) 556-
0122.]
The information set forth in the preceding paragraphs regarding the
Seller has been provided by the Seller.
UNDERWRITING STANDARDS
[Underwriting standards as appropriate. The following underwriters
standards are those presently applicable for ICI Funding:]
All of the Mortgage Loans were acquired by ICI Funding and were
underwritten in accordance with ICI Funding's underwriting criteria as described
herein. ICI Funding commenced acquiring mortgage loans underwritten pursuant to
the Progressive Series Program in November 1995.
Approximately ___% of the Mortgage Loans (by Cut-off Date Scheduled
Principal Balance) were underwritten pursuant to, or in accordance with, the
Progressive Series I Program, ___% pursuant to, or in accordance with, the
Progressive Series II Program, ___% pursuant to, or in accordance with, the
Progressive Series III Program, ___% pursuant to, or in accordance with, the
Progressive Series III+ Program, ___% pursuant to, or in accordance with, the
Progressive Series IV Program, and ___% pursuant to, or in accordance with, the
Progressive Series V Program.
<PAGE>
-26-
The Progressive Program Underwriting Guidelines
General. The underwriting guidelines utilized in the Progressive
Series Program, as developed by ICI Funding, are intended to assess the
borrower's ability and willingness to repay the mortgage loan obligation and to
assess the adequacy of the mortgaged property as collateral for the mortgage
loan. The Progressive Series Program is designed to meet the needs of borrowers
with excellent credit, as well as those whose credit has been adversely
affected. The Progressive Series Program consists of six mortgage loan programs.
Each program has different credit criteria, reserve requirements, qualifying
ratios and Loan-to-Value Ratio restrictions. Series I is designed for credit
history and income requirements typical of "A" credit borrowers. In the event a
borrower does not fit the Series I criteria, the borrower's mortgage loan is
placed into either Series II, III, III+, IV, or V, depending on which series'
mortgage loan parameters meets the borrower's unique credit profile. Series II,
III, III+, IV and V allow for less restrictive standards because of certain
compensating or offsetting factors such as a lower Loan-to-Value Ratio, verified
liquid assets, job stability, pride of ownership and, in the case of refinance
mortgage loans, length of time owning the mortgaged property. The philosophy of
the Progressive Series Program is that no single borrower characteristic should
automatically determine whether an application for a mortgage loan should be
approved or disapproved. Lending decisions are based on a risk analysis
assessment after the review of the entire mortgage loan file. Each mortgage loan
is individually underwritten with emphasis placed on the overall quality of the
mortgage loan. The Progressive Series I Program utilizes an average annual
salary to calculate the debt service-to-income ratio. Salaried borrowers are
evaluated based on a 12 month salary history, and self-employed and commission
borrowers are evaluated on a 24 month basis. The debt service-to-income ratio
for Series I borrowers is required to be within the range of 36% to 50%. The
debt service-to-income ratios for Series II, III, III+, IV and V borrowers is
required to be within the range of 45% to 60%, calculated on the basis of
monthly income and depending on the Loan-to-Value Ratio of the mortgage loan.
Under the Progressive Series Program, ICI Funding underwrites one- to
four-family mortgage loans with Loan-to-Value Ratios at origination of up to
95%, depending on, among other things, a borrower's credit history, repayment
ability and debt service-to-income ratio, as well as the type and use of the
mortgaged property. Second lien financing of the mortgaged properties may be
provided by lenders other than ICI Funding at origination; however, the Combined
Loan-to-Value Ratio ("CLTV") generally may not exceed 95% for mortgage loan
amounts up to $400,000 and 90% for mortgage loan amounts above $400,000. In
certain circumstances, ICI Funding may allow second lien financing with CLTVs of
up to 100%. The mortgage loans in the Progressive Series Program generally bear
rates of interest that are greater than those which are originated in accordance
with FHLMC and FNMA standards. In general, the maximum amount for mortgage loans
originated under the Progressive Series Program is $750,000; however, ICI
Funding may approve mortgage loans in excess of such amount on a case-by-case
basis.
All of the mortgage loans originated under the Progressive I Series
Program are underwritten by employees of ICI Funding or by contracted mortgage
insurance companies
<PAGE>
-27-
or delegated conduit sellers. All mortgage loans originated under the Series II
and III Programs are underwritten by employees of ICI Funding and/or
Commonwealth Mortgage Assurance Company. All mortgage loans originated under the
Series III, III+, IV and V Programs are underwritten by employees of ICI
Funding. Substantially all of the Series I Program mortgage loans and all of the
Series II and III Program mortgage loans with Loan-to-Value Ratios at
origination in excess of 80% are insured by a Primary Insurance Policy. In
general, none of the Series III+ Program Mortgage Loans with Loan-to-Value
Ratios at origination in excess of 80% will be insured by a Primary Insurance
Policy. In general, all Series IV and Series V Program Mortgage Loans have
Loan-to-Value Ratios at origination that are less than 80% and do not require a
Primary Insurance Policy. ICI Funding receives verbal verification of
employment prior to funding or acquiring each Progressive Series Program
mortgage loan.
Full/Alternative Documentation and Reduced Documentation Progressive
Series Programs. Each prospective borrower completes a mortgage loan
application which includes information with respect to the applicant's
liabilities, income, credit history, employment history and personal
information. ICI Funding requires a credit report on each applicant from a
credit reporting company. The report typically contains information relating to
credit history with local and national merchants and lenders, installment debt
payments and any record of defaults, bankruptcies, repossessions or judgments.
The Progressive Series Program allows for approval of an application
pursuant to the Full/Alternative Documentation Program or (b) the Limited
Documentation Program, the Lite Documentation Program, the "No Ratio" Program or
the "No Income, No Assets" Program (any of the foregoing, a "Reduced
Documentation Program"). The Full/Alternative Documentation Program requires the
following documents: (i) Uniform Residential Loan Application (FNMA Form 1003 or
FHLMC Form 65), (ii) Statement of Assets and Liabilities (FNMA Form 1003A or
FHLMC 65A), (iii) Residential Mortgage Credit Report with records obtained from
at least two separate repositories, (iv) Verification of Employment Form
providing a complete two year employment history, (v) Verification of Deposit
Form for all liquid assets, verifying minimum cash reserves based upon the Loan-
to Value Ratio and borrower's income, and (vi) a Uniform Residential Appraisal
Report (FNMA Form 1004 or FHLMC Form 70). The Full Documentation Progressive
Program allows for the use of certain alternative documents in lieu of the
Verification of Deposit Form and Verification of Employment Form. These include
W-2 Statements, tax returns and one pay check from the most recent full month
for verification of income and the most recent three months personal bank
statements for verification of liquid assets. In addition, self-employed
borrowers must provide federal tax returns for the previous two to three years,
including K-1's, federal business tax returns for two years, year-to-date
financial statements, a business credit report and a signed IRS Form 4506
(Request for Copy of Tax Returns).
Under the Limited Documentation Progressive Series Program, which is
available to borrowers in every Progressive Series Program, ICI Funding obtains
from prospective borrowers either a verification of deposits or bank statements
for the most recent
<PAGE>
-28-
two-month period preceding the mortgage loan application. In addition, the Lite
Documentation Program is available to Series III+, IV and V self-employed
borrowers where the previous 12 months bank statements are utilized in lieu of
tax returns. Under these programs the borrower provides income information on
the mortgage loan application, and the debt service-to-income ratio is
calculated. However, income is not verified. Permitted maximum Loan-to-Value
Ratios (including secondary financing) under the Limited Documentation and Lite
Documentation Programs generally are limited to 80%.
The Progressive Series Program also allows for approval of
applications pursuant to the "No Ratio" Program and "No Income, No Assets"
Program. The "No Ratio" Program is designed for a mortgage loan which requires a
minimum 20% down payment from the borrower with employment information, but no
income information, stated on the application (and, therefore, the debt service-
to-income ratio is not calculated). The certification of assets is confirmed by
written verification of deposits and supported by bank statements. With respect
to the "No Ratio" Program, a mortgage loan with a Loan-to-Value Ratio at
origination in excess of 80% is not eligible.
The "No Income, No Assets" Program, available to borrowers in the
Series I Program, requires a much larger down payment than under the "No Ratio"
Program. Under this program, the borrower provides no income information, but
provides employment and unverified asset information on the mortgage loan
application. With respect to the "No Income, No Assets" Program, a mortgage loan
with a Loan-to-Value Ratio at origination in excess of 70% is generally not
eligible.
Under all Progressive Series Programs, ICI Funding verbally verifies
the borrower's employment prior to closing. Credit history, collateral quality
and the amount of the down payment are important factors in evaluating a
mortgage loan submitted under one of the Reduced Documentation Programs. In
addition, in order to qualify for a Reduced Documentation Program, a mortgage
loan must conform to certain criteria regarding maximum loan amount, property
type and occupancy status. Mortgage loans having a Loan-to-Value Ratio at
origination in excess of 80% for Series I, II and III and mortgage loans on
mortgaged property used as a second or vacation home by the prospective
borrowers are not eligible for a Reduced Documentation Program. In general, the
maximum loan amount for mortgage loans underwritten in accordance with Series I,
II and III Reduced Documentation Programs is $750,000 for purchase transactions
and rate-term transactions and a maximum loan amount of $650,000 for cash out
refinance transactions. The maximum Loan amount for mortgage loans underwritten
in accordance with Series III+, IV and V Reduced Documentation Programs is
$400,000. Secondary financing is allowed in the origination of the Limited
Documentation Program but must meet the CLTV requirements described above and
certain other requirements for subordinate financing. Secondary financing is not
allowed in the case of the "No Ratio" or the "No Income, No Assets" Programs. In
all cases, liquid assets must support the level of income of the borrower as
stated in proportion to the type of employment of the borrower. Full
Documentation is requested by the underwriter if it is the judgment of the
underwriter that the compensating factors are insufficient for loan approval.
<PAGE>
-29-
Credit History. The Progressive Series Program defines an acceptable
credit history in each of the Series I, II and III Programs. The Series I
Program defines an acceptable credit history as a borrower who has "A" credit,
meaning a minimum of five trade accounts, with 24 months credit history, no 30-
day delinquent mortgage payments in the past 24 months, a maximum of two 30-day
delinquent payments on any installment credit within the past 24 months. No
bankruptcies or foreclosures are allowed in the past 24 months. No judgments,
suits, liens, collections or charge-offs are allowed within the past 24 months.
With respect to Series II Program, a borrower must have a minimum of
five trade accounts with no late mortgage payments within the past 12 months and
may have one 30-day delinquent payment on a previous mortgage within the past
13th through 24th months. A borrower may not have more than three 30-day
delinquent payments on any revolving credit account and a maximum of three 30-
day delinquent payments within the past 24 months on any installment credit
account. Any bankruptcies must be at least 24 months old, fully discharged and
the borrower must have re-established a satisfactory credit history.
Foreclosures are not allowed in the past 24 months.
With respect to Series III Program, a borrower may not have more than
two 30-day delinquent mortgage payments within the past 24 months. The borrower
may not have more than three 30-day delinquent payments and one 60-day
delinquent payment on revolving debt in the past 24 months and may not have more
than three 30-day delinquent and one 60-day delinquent payment on any
installment credit in the past 24 months. Any open judgment, suit, lien,
collection or charge-off must be paid prior to closing. Any bankruptcies must be
at least 24 months old, fully discharged and the borrower must have re-
established a satisfactory credit history. No late mortgage payments are
permitted on equity take-out refinances under the Limited Documentation Program
offered under the Progressive Series Program.
With respect to the Series III+ Program, a borrower may not have more
than two 30-day delinquent mortgage payments within the past 12 months. The
borrower may not have more than two 30-day delinquent payments and one 60-day
delinquent payment on revolving debt in the past 12 months and may not have more
than two 30-day delinquent payments and one 60-day delinquent payment on any
installment credit account in the past 12 months. Any open judgments, suits,
liens, collections, charge-offs not to exceed $500 must be paid in full at
closing. Any bankruptcies must be at least 24 months old, fully discharged and
the borrower must have re-established a satisfactory credit history.
Foreclosures are not allowed in the past 24 months.
With respect to the Series IV Program, a borrower may not have more
than four 30-day delinquent mortgage payments or three 30-day delinquent
mortgage payments and one 60-day delinquent mortgage payment within the past 12
months. The borrower may not have more than four 30-day delinquent payments or
two 60-day delinquent payments or one 90-day delinquent payment on revolving
debt in the past 12 months and may not have more than four 30-day delinquent
payments or two 60-day delinquent payments or one 90-day delinquent payment on
any installment credit account in the past 12 months. Any open
<PAGE>
-30-
judgments, suits, liens, collections, charge-offs not to exceed $1,000 must be
paid in full at closing. Any bankruptcies must be at least 24 months old, fully
discharged and the borrower must have re-established a satisfactory credit
history. Foreclosures are not allowed in the past 18 months.
With respect to the Series V Program, a borrower may not have more
than five 30-day delinquent mortgage payments or two 60-day delinquent mortgage
payments and one 90-day delinquent mortgage payment within the past 12 months.
The borrower may not have more than six 30-day delinquent payments or three 60-
day delinquent payments or two 90-day delinquent payments on revolving debt in
the past 12 months and may not have more than six 30-day delinquent payments or
three 60-day delinquent payments or two 90-day delinquent payment on any
installment credit account in the past 12 months. Any open judgments, suits,
liens, collections, charge-offs not to exceed $4,000 must be paid in full at
closing. Any bankruptcies must be at least 12 months old, fully discharged and
the borrower must have re-established a satisfactory credit history.
Foreclosures are not allowed in the past 12 months.
Quality Control. ICI Funding generally performs a pre-funding audit on
each Progressive Series Program mortgage loan. This audit includes a review for
compliance with Progressive Series Program parameters and accuracy of the legal
documents. ICI Funding performs a quality control review on a minimum of 25% of
the mortgage loans originated or acquired under the Progressive Series Program
for complete re-verification of employment, income and liquid assets used to
qualify for such mortgage loan. Such review also includes procedures intended to
detect evidence of fraudulent documentation and/or imprudent activity during the
processing, funding, servicing or selling of the mortgage loan. Verification of
occupancy and applicable information is made by regular mail.
Appraisals. One- to four-family residential properties that are to
secure Progressive Series Program mortgage loans are appraised by qualified
independent appraisers who are approved by ICI Funding's correspondents. Such
appraisers inspect and appraise the subject property and verify that such
property is in acceptable condition. Following each appraisal, the appraiser
prepares a report which includes a market value analysis based on recent sales
of comparable homes in the area and, when deemed appropriate, replacement cost
analysis based on the current cost of constructing a similar home. All
appraisals are required to conform to the Uniform Standards of Professional
Appraisal Practice adopted by the Appraisal Standards Board of the Appraisal
Foundation and must be on forms acceptable to FNMA and FHLMC. As part of ICI
Funding's quality control procedures, either field or desk appraisal reviews are
obtained on 10% of all mortgage loans originated under the Progressive Series
Program. Selected mortgage loans will also be reviewed for compliance and
document accuracy. Desk and/or field appraisal reviews are required on all
mortgage loans originated under the Progressive Series Program with Loan-to-
Value Ratios in excess of 65% on mortgaged properties located in the State of
California, Loan-to-Value Ratios in excess of 70% on any properties in all other
states, loan amounts in excess of $350,000, non-owner occupied properties,
second home properties, cash-out refinance mortgage loans
<PAGE>
-31-
and whenever in the underwriter's judgment it is necessary to reverify the
appraised value of the property.
There can be no assurance that the delinquency experience of the
servicing portfolio as described herein will correspond to the delinquency
experience of the Mortgage Loans underwritten pursuant to the Progressive Series
Program. It is contemplated that all of the Progressive Series Program mortgage
loans acquired by ICI Funding will also be underwritten with a view toward the
resale thereof in the secondary mortgage market.
Variations. ICI Funding uses the foregoing parameters as guidelines
only. On a case-by-case basis, ICI Funding may determine that the prospective
mortgagor warrants an exception outside the standard Progressive Series Program
guidelines. An exception may be allowed if the loan application reflects certain
compensating factors, including (i) the prospective mortgagor has demonstrated
an ability to save and devote a greater portion of income to basic housing
needs; (ii) the prospective mortgagor may have a potential for increased
earnings and advancement because of education or special job training, even if
the prospective mortgagor has just entered the job market; (iii) the prospective
mortgagor has demonstrated an ability to maintain a debt free position; (iv) the
prospective mortgagor may have short term income that is verifiable but could
not be counted as stable income because it does not meet the remaining term
requirements; and (v) the prospective mortgagor's net worth is substantial
enough to suggest that repayment of the loan is within the prospective
mortgagor's ability.]
See "The Mortgage Pools-Underwriting Standards" in the Prospectus.
[The following table sets forth the number and dollar value of ICI
Funding's mortgage loan acquisitions using the standards described herein for
the periods indicated.
MORTGAGE LOAN ACQUISITIONS
<TABLE>
<CAPTION>
__ MONTHS ENDED __ MONTHS ENDED
___________, 19__ ____________, 19__
<S> <C> <C>
Total Loans
Number of Loans
Volume of Loans $ $
Average Loan Balance $ $
</TABLE>
<PAGE>
-32-
DELINQUENCY AND FORECLOSURE EXPERIENCE
[Delinquency and foreclosure experience as appropriate. The following
disclosure is presently applicable for ICI Funding:
ICI Funding commenced acquiring mortgage loans pursuant to its acquisition
program only in November 1995. Accordingly, ICI Funding does not have
sufficient historical delinquency, bankruptcy, foreclosure or default experience
that may be referred to for purposes of estimating the future delinquency and
loss experience of mortgage loans similar to the Mortgage Loans included in the
Trust Fund. The following disclosure is an example of such disclosure once such
delinquency and foreclosure experience is acquired:
Loan Delinquency, Forbearance, Foreclosure, Bankruptcy and REO Properly Status
- ------------------------------------------------------------------------------
Based solely upon information provided by the Master Servicer, the
following tables summarize, for the respective dates indicated, the delinquency,
forbearance, foreclosure, bankruptcy and REO property status with respect to all
mortgage loans originated or acquired by the Seller that were originated as of
the date three months prior to the date indicated. The indicated periods of
delinquency are based on the number of days past due on a contractual basis.
The monthly payments under all of such mortgage loans are due on the first day
of each calendar month.
<PAGE>
-33-
<TABLE>
<CAPTION>
AT DECEMBER 31, 199__ AT DECEMBER 31, 199__
---------------------- -----------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL
OF LOANS AMOUNT OF LOANS AMOUNT
---------- --------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Total Loans Outstanding.................... $ $
DELINQUENCY(1)
Period of Delinquency:
31-60 Days....................... $ $
61-90 Days.......................
91-120 Days or More.............. _________ _________ _________ _________
Total Delinquencies.................... $ $
========= ========= ========= =========
Delinquencies as a Percentage of
Total Loans Outstanding.................... % %
<CAPTION>
AT DECEMBER 31, 199__ AT DECEMBER 31, 199__
---------------------- ----------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL
OF LOANS AMOUNT OF LOANS AMOUNT
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
FOREBEARANCE LOANS(2)...................... $ $
Forbearance Loans as a Percentage of
Total Loans Outstanding................... % %
FORECLOSURES PENDING(3).................... $ $
Foreclosures Pending as a Percentage of
Total Loans Outstanding................... % %
BANKRUPTCIES PENDING(4).................... $ $
Bankruptcies Pending as a Percentage of
Total Loans Outstanding................... %
Total Delinquencies plus Forbearance
Loans, Foreclosures Pending and
Bankruptcies Pending...................... %
Total Delinquencies plus Forbearance
Loans, Foreclosures Pending and
Bankruptcies Pending as a Percentage of
Total Loans Outstanding................... % %
REO PROPERTIES(5).......................... $ $
REO Properties as a Percentage of Total
Loans Outstanding......................... % %
- --------------
</TABLE>
<PAGE>
-34-
(1) The delinquency balances, percentages and numbers set forth under this
heading exclude (a) delinquent mortgage loans that were subject to
forbearance agreements with the related mortgagors at the respective dates
indicated ("Forbearance Loans"), (b) delinquent mortgage loans that were in
foreclosure at the respective dates indicated ("Foreclosure Loans"), (c)
delinquent mortgage loans as to which the related mortgagor was in
bankruptcy proceedings at the respective dates indicated ("Bankruptcy
Loans") and (d) REO properties that have been purchased upon foreclosure of
the related mortgage loans. All Forbearance Loans, Foreclosure Loans,
Bankruptcy Loans and REO properties have been segregated into the sections
of the table entitled " Forbearance Loans, " " Foreclosures Pending, " "
Bankruptcies Pending " and " REO Properties, " respectively, and are not
included in the "31-60 Days," "61-90 Days," "91-120 Days or More" and
"Total Delinquencies" sections of the table. See the section of the table
entitled "Total Delinquencies plus Forbearance Loans, Foreclosures Pending
and Bankruptcies Pending" for total delinquency balances, percentages and
numbers which include Forbearance Loans, Foreclosure Loans and Bankruptcy
Loans, and see the section of the table entitled "REO Properties" for
delinquency balances, percentages and numbers related to REO properties
that have been purchased upon foreclosure of the related mortgage loans.
(2) For each of the Forbearance Loans, the Master Servicer has entered into a
written forbearance agreement with the related mortgagor, based on the
Master Servicer's determination that the mortgagor is temporarily unable to
make the scheduled monthly payment on such mortgage loan. Prior to entering
into each forbearance agreement, the Master Servicer confirmed the
continued employment status of the mortgagor and found the payment history
of such mortgagor to be satisfactory. There can be no assurance that the
mortgagor will be able to make the payments as required by the forbearance
agreement, and any failure to make such payments will constitute a
delinquency. None of the Mortgage Loans included in the Mortgage Pool are
Forbearance Loans.
(3) Mortgage loans that are in foreclosure but as to which the mortgaged
property has not been liquidated at the respective dates indicated. It is
generally the Master Servicer's policy, with respect to mortgage loans
originated by the Seller, to commence foreclosure proceedings when a
mortgage loan is between 31 and 60 days delinquent.
(4) Mortgage loans as to which the related mortgagor is in bankruptcy
proceedings at the respective dates indicated.
(5) REO properties that have been purchased upon foreclosure of the related
mortgage loans, including mortgaged properties that were purchased by the
Seller after the respective dates indicated.
The above data on delinquency, forbearance, foreclosure, bankruptcy and REO
property status are calculated on the basis of the total mortgage loans
originated or acquired by the Seller that were originated as of the date three
months prior to the date indicated. However, the total amount of mortgage loans
on which the above data are based includes many mortgage loans which were not,
as of the respective dates indicated, outstanding long enough to give rise to
some of the indicated periods of delinquency or to foreclosure or bankruptcy
proceedings or REO property status. In the absence of such mortgage loans, the
delinquency, forbearance, foreclosure, bankruptcy and REO property percentages
indicated above would be higher and could be substantially higher. Because the
Mortgage Pool will consist of a fixed group of Mortgage Loans, the actual
delinquency, forbearance, foreclosure, bankruptcy and REO property percentages
with respect to the Mortgage Pool may therefore be expected to be higher, and
may be substantially higher, than the percentages indicated above.
<PAGE>
-35-
Based solely on information provided by the Seller, the following table
presents the changes in the Company's charge-offs and recoveries for the years
indicated.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
19__ 19__ 19__ 19__ 19__
<S> <C> <C> <C> <C> <C>
Charge-offs:
Single family....................
Multi-family.....................
Commercial and industrial real
estate..........................
Credit cards.....................
----- ----- ----- ----- -----
Recoveries:
Single family....................
Multi-family.....................
Commercial and industrial real
estate.......................... ----- ----- ----- ----- -----
Net charge-offs............. ----- ----- ----- ----- -----
Balance at the end of the year........ ===== ===== ===== ===== =====
Ratio of net charge-offs to average
loans and
MBS outstanding during the year.... ===== ===== ===== ===== =====
</TABLE>
The above data on charge-offs and recoveries are calculated on the basis of
the total mortgage loans originated or acquired by the Seller that were
originated as of the date three months prior to the date indicated. However,
the total amount of mortgage loans on which the above data are based includes
many mortgage loans which were not, as of the respective dates indicated,
outstanding long enough to give rise to some of the indicated charge-offs. In
the absence of such mortgage loans, the charge-off percentages indicated above
would be higher and could be substantially higher. Because the Mortgage Pool
will consist of a fixed group of Mortgage Loans, the actual charge-off
percentages with respect to the Mortgage Pool may therefore be expected to be
higher, and may be substantially higher, than the percentages indicated above.
<PAGE>
-36-
The information set forth in the preceding paragraphs concerning ICI
Funding has been provided by ICI Funding.]
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Mortgage Pool and the
Mortgaged Properties is based upon the Mortgage Pool as constituted at the close
of business on the Cut-off Date, as adjusted for the scheduled principal
payments due on or before such date. Prior to the issuance of the Senior
Certificates, Mortgage Loans may be removed from the Mortgage Pool as a result
of incomplete documentation or otherwise, if the Company deems such removal
necessary or appropriate. A limited number of other mortgage loans may be added
to the Mortgage Pool prior to the issuance of the Senior Certificates. The
Company believes that the information set forth herein will be substantially
representative of the characteristics of the Mortgage Pool as it will be
constituted at the time the Senior Certificates are issued although the range of
Mortgage Rates and maturities and certain other characteristics of the Mortgage
Loans in the Mortgage Pool may vary.
A Current Report on Form 8-K will be available to purchasers of the Senior
Certificates and will be filed, together with the Pooling and Servicing
Agreement, with the Securities and Exchange Commission within fifteen days after
the initial issuance of the Senior Certificates. In the event Mortgage Loans
are removed from or added to the Mortgage Pool as set forth in the preceding
paragraph, such removal or addition will be noted in the Current Report on Form
8-K.
See "The Mortgage Pools" and "Certain Legal Aspects of Mortgage Loans" in
the Prospectus.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Series 19__-__ Mortgage Pass-Through Certificates will include the
following seven classes (the "Senior Certificates"): (i) Class A-1 Certificates,
Class A-2 Certificates, Class A-3 Certificates and Class A-4 Certificates, (ii)
Class A-5 Certificates (the "Fixed Strip Certificates"), (iii) Class A-6
Certificates and (iv) Class A-7 Certificates (the "Variable Strip
Certificates"). In addition to the Senior Certificates, the Series 19__-__
Mortgage Pass-Through Certificates will also consist of one class of subordinate
certificates which is designated as the Class B Certificates (the "Subordinate
Certificates") and one class of residual certificates which is designated as the
Class R Certificates (the "Residual Certificates"). Only the Senior
Certificates (the "Offered Certificates") are offered hereby.
The Senior Certificates (together with the Subordinate Certificates and
Residual Certificates) will evidence the entire beneficial ownership interest in
the Trust Fund. The
<PAGE>
-37-
Trust Fund will consist of (i) the Mortgage Loans; (ii) such assets as from time
to time are identified as deposited in respect of the Mortgage Loans in the
Certificate Account (as described in the Prospectus) and belonging to the Trust
Fund; (iii) property acquired by foreclosure of such Mortgage Loans or deed in
lieu of foreclosure; and (iv) any applicable insurance policies and all proceeds
thereof.
AVAILABLE DISTRIBUTION AMOUNT
The "Available Distribution Amount" for any Distribution Date will
generally consist of (i) the aggregate amount of scheduled payments on the
Mortgage Loans due on the related Due Date and received on or prior to the
related Determination Date, after deduction of the related master servicing fees
(the "Servicing Fees"), (ii) certain unscheduled payments, including Mortgagor
prepayments on the Mortgage Loans, Insurance Proceeds, Liquidation Proceeds and
proceeds from repurchases of and substitutions for the Mortgage Loans occurring
during the preceding calendar month and (iii) all Advances made for such
Distribution Date, in each case net of amounts reimbursable therefrom to the
Master Servicer. In addition to the foregoing amounts, with respect to
unscheduled collections, not including Mortgagor prepayments, the Master
Servicer may elect to treat such amounts as included in the Available
Distribution Amount for the Distribution Date in the month of receipt, but is
not obligated to do so. With respect to any Distribution Date, (i) the "Due
Date" is the first day of the month in which such Distribution Date occurs and
(ii) the "Determination Date" is the ____th day of the month in which such
Distribution Date occurs or, if such day is not a business day, the immediately
succeeding business day. See "Description of the Certificates-Distributions" in
the Prospectus.
INTEREST DISTRIBUTIONS
Holders of the Senior Certificates will be entitled to receive on each
Distribution Date, to the extent of the Available Distribution Amount for such
Distribution Date, interest distributions in an amount equal to the aggregate of
all Accrued Certificate Interest with respect to such Certificates for such
Distribution Date and, to the extent not previously paid, for all prior
Distribution Dates (the "Senior Interest Distribution Amount"). On each
Distribution Date, the Available Distribution Amount for such Distribution Date
will be applied to make interest distributions on the various classes of Senior
Certificates pro rata in accordance with the respective amounts of Accrued
Certificate Interest then payable with respect thereto, provided, however, that,
in the case of the Tiered Certificates, following the Credit Support Depletion
Date, such distributions shall be made in the priority set forth in the __th
paragraph under the heading "Principal Distributions". With respect to any
Distribution Date, the Accrued Certificate Interest in respect of each class of
Senior Certificates will be equal to one month's interest accrued at the
applicable Pass-Through Rate on the Certificate Principal Balance (or, in the
case of the Fixed Strip Certificates and Variable Strip Certificates, the
Notional Amount) of the Certificates of such class immediately prior to such
Distribution Date; in each case less interest shortfalls, if any, for such
Distribution Date not covered by the Subordination provided by the Subordinate
Certificates, including in each case (i) any Prepayment Interest Shortfall (as
defined below),
<PAGE>
-38-
(ii) the interest portions (in each case, adjusted to the related Net Mortgage
Rate) of Realized Losses (including Special Hazard Losses, in excess of the
Special Hazard Amount ("Excess Special Hazard Losses"), Fraud Losses in excess
of the Fraud Loss Amount ("Excess Fraud Losses"), Bankruptcy Losses in excess of
the Bankruptcy Amount ("Excess Bankruptcy Losses") and losses occasioned by war,
civil insurrection, certain governmental actions, nuclear reaction and certain
other risks ("Extraordinary Losses")) not covered by the Subordination (which,
with respect to the pro rata portion thereof allocated to the Tiered
Certificates, to the extent such losses are Default Losses, will be allocated
first to the Class A-6 Certificates and second to the Class A-1 Certificates and
Class A-5 Certificates), (iii) the interest portion of any Advances that were
made with respect to delinquencies that were ultimately determined to be Excess
Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or
Extraordinary Losses and (iv) any other interest shortfalls not covered by
Subordination, including interest shortfalls relating to the Relief Act (as
defined in the Prospectus) or similar legislating on or regulations, all
allocated as described below. Accrued Certificate Interest is calculated on the
basis of a 360-day year consisting of twelve 30-day months.
The Prepayment Interest Shortfall for any Distribution Date is equal to the
aggregate shortfall, if any, in collections of interest (adjusted to the related
Net Mortgage Rates) resulting from mortgagor prepayments on the Mortgage Loans
during the preceding calendar month, to the extent not offset by the Master
Servicer's application of servicing compensation as described below. Such
shortfalls will result because interest on prepayments in full is collected only
to the date of prepayment, and because no interest is collected on prepayments
in part, as such prepayments are applied to reduce the outstanding principal
balance of the related Mortgage Loan as of the Due Date in the month of
prepayment.
If the Available Distribution Amount for any Distribution Date is less than
the Accrued Certificate Interest payable on the Senior Certificates for such
Distribution Date, the shortfall will be allocated among the holders of all
classes of Senior Certificates in proportion to the respective amounts of
Accrued Certificate Interest for such Distribution Date on each such class, and
will be distributable to holders of the Certificates of such classes, on
subsequent Distribution Dates, to the extent of available funds, provided,
however, that following the Credit Support Depletion Date, distributions will be
made to the Tiered Certificates in the priority set forth in the paragraph under
the heading "-Principal Distributions on the Senior Certificates" and therefore
the pro rata portion of such shortfall that is allocated to the Tiered
Certificates will be allocated first to the Class A-6 Certificates. Any such
amounts so carried forward will not bear interest.
The Pass-Through Rates on each class of Senior Certificates, other than the
Variable Strip Certificates, are fixed and are set forth on the cover hereof.
The Pass-Through Rate on the Variable Strip Certificates for each Distribution
Date will equal the weighted average, as determined as of the Due Date in the
month preceding the month in which such Distribution Date occurs, of the Pool
Strip Rates on each of the Mortgage Loans in the Mortgage Pool. The "Pool Strip
Rate" on any Mortgage Loan is equal to the Net Mortgage
<PAGE>
-39-
Rate thereon minus ____%. The "Net Mortgage Rate" on each Mortgage Loan is equal
to the Mortgage Rate thereon minus the Servicing Fee Rate. The initial Pass-
Through Rate on the Variable Strip Certificates is approximately ____% per
annum.
As described herein, the Accrued Certificate Interest allocable to each
class of Senior Certificates is based on the Certificate Principal Balance
thereof or, in the case of the Variable Strip Certificates, on the Notional
Amount. The Certificate Principal Balance of any Senior Certificate as of any
date of determination is equal to the initial Certificate Principal Balance
thereof reduced by the aggregate of (a) all amounts allocable to principal
previously distributed with respect to such Certificate and (b) any reductions
in the Certificate Principal Balance thereof deemed to have occurred in
connection with allocations of Realized Losses (as defined herein) in the manner
described herein. The Notional Amount of the Fixed Strip Certificates and
Variable Strip Certificates as of any date of determination is equal to the
aggregate Certificate Principal Balance of the Certificates of all classes
(including the Subordinate Certificates) as of such date. Reference to the
Notional Amount of the Fixed Strip Certificates or Variable Strip Certificates
is solely for convenience in certain calculations and does not represent the
right to receive any distributions allocable to principal.
PRINCIPAL DISTRIBUTIONS ON THE SENIOR CERTIFICATES
Holders of the Senior Certificates will be entitled to receive on each
Distribution Date, to the extent of the portion of the Available Distribution
Amount remaining after the Senior Interest Distribution Amount is distributed to
such holders, a distribution allocable to principal in the following amount (the
"Senior Principal Distribution Amount"):
(i) the product of (A) the then applicable Senior Percentage and (B)
the aggregate of the following amounts:
(1) the principal portion of all scheduled monthly payments on
the Mortgage Loans due on the related Due Date, whether or not
received on or prior to the related Determination Date, less the
principal portion of Debt Service Reductions (as defined below) which
together with other Bankruptcy Losses are in excess of the Bankruptcy
Amount;
(2) the principal portion of all proceeds of the repurchase of
any Mortgage Loan (or, in the case of a substitution, certain amounts
representing a principal adjustment) as required by the Pooling and
Servicing Agreement during the preceding calendar month;
(3) the principal portion of all other unscheduled collections
received during the preceding calendar month (other than full and
partial principal prepayments made by the respective mortgagors and
any amounts received in connection with a Final Disposition (as
defined below) of a Mortgage Loan described in clause (ii) below), to
the extent applied as recoveries of principal;
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(ii) in connection with the Final Disposition of a Mortgage Loan (x)
that occurred in the preceding calendar month and (y) that did not result
in any Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy
Losses or Extraordinary Losses, an amount equal to the lesser of (a) the
then-applicable Senior Percentage of the Stated Principal Balance of such
Mortgage Loan immediately prior to such Distribution Date and (b) the then-
applicable Senior Accelerated Distribution Percentage (as defined below) of
the related collections, including Insurance Proceeds and Liquidation
Proceeds, to the extent applied as recoveries of principal;
(iii) the then applicable Senior Accelerated Distribution Percentage
of the aggregate of all full and partial principal prepayments made by the
respective mortgagors during the preceding calendar month; and
(iv) any amounts allocable to principal for any previous Distribution
Date (calculated pursuant to clauses (i) through (iii) above) that remain
undistributed to the extent that any such amounts are not attributable to
Realized Losses which were allocated to the Subordinate Certificates.
A "Final Disposition" of a defaulted Mortgage Loan is deemed to have
occurred upon a determination by the Master Servicer that it has received all
Insurance Proceeds, Liquidation Proceeds and other payments or cash recoveries
which the Master Servicer reasonably and in good faith expects to be finally
recoverable with respect to such Mortgage Loan.
The "Stated Principal Balance" of any Mortgage Loan as of any date of
determination is equal to the principal balance thereof as of the Cut-off Date,
after application of all scheduled principal payments due on or before the Cut-
off Date, whether or not received, reduced by all amounts allocable to principal
that have been distributed to Certificateholders with respect to such Mortgage
Loan on or before such date, and as further reduced to the extent that the
principal portion of any Realized Loss thereon has been allocated to one or more
classes of Certificates on or before the date of determination.
The "Senior Percentage," which initially will equal approximately ____% and
will in no event exceed 100%, will be adjusted for each Distribution Date to be
the percentage equal to the aggregate Certificate Principal Balance of the
Senior Certificates immediately prior to such Distribution Date divided by the
aggregate Stated Principal Balance of all of the Mortgage Loans immediately
prior to such Distribution Date. The Subordinate Percentage as of any date of
determination is equal to 100% minus the Senior Percentage as of such date.
The "Senior Accelerated Distribution Percentage" for any Distribution Date
occurring prior to the Distribution Date in ______________, ______________ will
be 100%. The Senior Accelerated Distribution Percentage for any Distribution
Date occurring after __________, __________ will be as follows: for any
Distribution Date during in the sixth year
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after the Delivery Date, the Senior Percentage for such Distribution Date plus
70% of the Subordinate Percentage for such Distribution Date; for any
Distribution Date during the seventh year after the Delivery Date, the Senior
Percentage for such Distribution Date plus 60% of the Subordinate Percentage for
such Distribution Date; for any Distribution Date during the eighth year after
the Delivery Date, the Senior Percentage for such Distribution Date plus 40% of
the Subordinate Percentage for such Distribution Date; for any Distribution Date
during the ninth year after the Delivery Date, the Senior Percentage for such
Distribution Date plus 20% of the Subordinate Percentage for such Distribution
Date; and for any Distribution Date thereafter, the Senior Percentage for such
Distribution Date (unless on any such Distribution Date the Senior Percentage
exceeds the initial Senior Percentage, in which case the Senior Accelerated
Distribution Percentage for such Distribution Date will once again equal 100%).
Any scheduled reduction to the Senior Prepayment Percentage described above
shall not be made as of any Distribution Date unless either (a)(i) the
outstanding principal balance of the Mortgage Loans delinquent ___ days or more
(including foreclosure and REO Property) averaged over the last ___ months, as a
percentage of the aggregate outstanding principal balance of all Mortgage Loans
averaged over the last ___ months, does not exceed____% and (ii) Realized Losses
on the Mortgage Loans to date for such Distribution Date, if occurring during
the sixth, seventh, eighth, ninth or tenth year (or any year thereafter) after
_________________ 19__, are less than____%,____%,____%,____% or____%,
respectively, of the initial Certificate Principal Balance of the Subordinate
Certificates or (b)(i) the aggregate outstanding principal balance of the
Mortgage Loans delinquent __ days or more (including foreclosure and REO
Property) averaged over the last ___ months, as a percentage of the aggregate
outstanding principal balance of all Mortgage Loans averaged over the last ___
months, does not exceed____% and (ii) Realized Losses on the Mortgage Loans to
date are less than____% of the initial Certificate Principal Balance of the
Subordinate Certificates.]
Distributions of the Senior Principal Distribution Amount to the Senior
Certificates (other than the Fixed Strip Certificates and Variable Strip
Certificates) will be made (to the extent of the Available Distribution Amount
remaining after distributions of the Senior Interest Distribution Amount as
described under "-Interest Distributions"), as follows:
(a) prior to the occurrence of the Credit Support Depletion Date (as
defined below):
(i) first, concurrently, to the Class A-1 and Class A-6
Certificates, with the amount to be distributed allocated as between
such classes on a pro rata basis in proportion to the respective
Certificate Principal Balances thereof, until the Certificate
Principal Balance of each such class is reduced to zero;
(ii) second, to the Class A-2 Certificates until the Certificate
Principal Balance thereof is reduced to zero;
(iii) third, to the Class A-3 Certificates until the Certificate
Principal Balance thereof is reduced to zero; and
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(iv) fourth, to the Class A-4 Certificates until the Certificate
Principal Balance thereof is reduced to zero.
(b) On each Distribution Date occurring on or after the Credit Support
Depletion Date, all priorities relating to sequential distributions in
respect of principal among the various classes of Senior Certificates will
be disregarded, and the Senior Principal Distribution Amount will be
distributed to all classes of Senior Certificates pro rata in accordance
with their respective outstanding Certificate Principal Balances; provided,
that the aggregate amount distributable to the Class A-1, Class A-5 and
Class A-6 Certificates (the "Tiered Certificates") in respect of Accrued
Certificate Interest thereon and in respect of their pro rata portion of
the Senior Principal Distribution Amount shall be distributed among the
Tiered Certificates in the amounts and priority as follows: first, to the
Class A-1 Certificates and the Class A-5 Certificates, up to an amount
equal to, and pro rata based on, the Accrued Certificate Interest thereon;
second to the Class A-1 Certificates, up to an amount equal to the Optimal
Principal Distribution Amount thereof (as defined below), in reduction of
the Certificate Principal Balances thereof; third to the Class A-6
Certificates, up to an amount equal to the Accrued Certificate Interest
thereon; and fourth to the Class A-6 Certificates the remainder of the
amount so distributable among the Tiered Certificates.
(c) The "Optimal Principal Distribution Amount" is equal to the
product of (i) the then applicable Optimal Percentage and (ii) the Senior
Principal Distribution Amount. The "Optimal Percentage" is equal to a
fraction, expressed as a percentage, the numerator of which is the
aggregate Certificate Principal Balance of the Class A-1 Certificates
immediately prior to the applicable Distribution Date and the denominator
of which is the aggregate Certificate Principal Balance of all of the
Senior Certificates immediately prior to such Distribution Date.
The "Credit Support Depletion Date" is the first Distribution Date on which
the Senior Percentage equals 100%.
The Master Servicer may elect to treat Insurance Proceeds, Liquidation
Proceeds and other unscheduled collections (not including prepayments by the
Mortgagors) received in any calendar month as included in the Available
Distribution Amount and the Senior Principal Distribution Amount for the
Distribution Date in the month of receipt, but is not obligated to do so. If
the Master Servicer so elects, such amounts will be deemed to have been received
(and any related Realized Loss shall be deemed to have occurred) on the last day
of the month prior to the receipt thereof.
ALLOCATION OF LOSSES; SUBORDINATION
The Subordination provided to the Senior Certificates by the Subordinate
Certificates will cover Realized Losses on the Mortgage Loans that are Defaulted
Mortgage Losses, Fraud Losses, Bankruptcy Losses (each as defined in the
Prospectus) and Special Hazard
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Losses (as defined herein) to the extent described herein. Any such Realized
Losses which do not constitute Excess Special Hazard Losses, Excess Fraud
Losses, Excess Bankruptcy Losses or Extraordinary Losses will be allocated first
to the Subordinate Certificates until the Certificate Principal Balance of the
Subordinate Certificates has been reduced to zero, and then except as provided
below on a pro rata basis to the Senior Certificates based on their then
outstanding Certificate Principal Balance or the Accrued Certificate Interest
thereon, as applicable. Any allocation of a Realized Loss (other than a Debt
Service Reduction) to a Senior Certificate will be made by reducing the
Certificate Principal Balance thereof, in the case of the principal portion of
such Realized Loss, and the Accrued Certificate Interest thereon, in the case of
the interest portion of such Realized Loss, by the amount so allocated as of the
Distribution Date occurring in the month following the calendar month in which
such Realized Loss was incurred. Allocations of Realized Losses which are
Default Losses (as defined below) to Senior Certificates will be made on a pro
rata basis, based on their then outstanding Certificate Principal Balances, or
the Accrued Certificate Interest thereon, as applicable, between the Tiered
Certificates, on the one hand, and the Class A-2, Class A-3, Class A-4 and
Variable Strip Certificates, on the other. Any such Realized Losses so
allocated to the Tiered Certificates will be allocated first to the Class A-6
Certificates until the Certificate Principal Balance thereof or the Accrued
Certificate Interest thereon, as appropriate, is reduced to zero and then to the
Class A-1 Certificates and Class A-5 Certificates on a pro rata basis. "Default
Losses" are Realized Losses that are attributable to the mortgagor's failure to
make any payment of principal or interest as required under the Mortgage Note,
and do not include Special Hazard Losses (or any other loss resulting from
damage to a Mortgaged Property), Bankruptcy Losses, Fraud Losses, or other
losses of a type not covered by the Subordination. Allocations of Debt Service
Reductions to the Subordinate Certificates will result from the priority of
distributions to the Senior Certificateholders of the Available Distribution
Amount as described under the captions "-Interest Distributions" and "-Principal
Distributions on the Senior Certificates" herein. Any Excess Special Hazard
Losses, Excess Fraud Losses, Excess Bankruptcy Losses or Extraordinary Losses
will be allocated on a pro rata basis between the Senior Certificates and the
Subordinate Certificates (any such Realized Losses so allocated to the Senior
Certificates, as well as any Realized Losses that are not Default Losses which
are allocated to the Senior Certificates, will be allocated without priority
among the various classes of Senior Certificates).
With respect to any defaulted Mortgage Loan that is finally liquidated,
through foreclosure sale, disposition of the related Mortgaged Property if
acquired on behalf of the Certificateholders by deed in lieu of foreclosure, or
otherwise, the amount of loss realized, if any, will generally equal the portion
of the unpaid principal balance remaining, if any, plus interest thereon through
the last day of the month in which such Mortgage Loan was finally liquidated,
after application of all amounts recovered (net of amounts reimbursable to the
Master Servicer for Advances and certain expenses, including attorneys' fees)
towards interest and principal owing on the Mortgage Loan. Such amount of loss
realized and any Special Hazard Losses, Fraud Losses and Bankruptcy Losses are
referred to herein as "Realized Losses." As used herein, "Debt Service
Reductions" means reductions in the
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amount of monthly payments due to certain bankruptcy proceedings, but does not
include any forgiveness of principal.
In order to maximize the likelihood of distribution in full of the Senior
Interest Distribution Amount and the Senior Principal Distribution Amount,
holders of Senior Certificates will have a prior right, on each Distribution
Date, to the Available Distribution Amount, to the extent necessary to satisfy
the Senior Interest Distribution Amount and the Senior Principal Distribution
Amount. The Senior Principal Distribution Amount is subject to adjustment on
each Distribution Date to reflect the then applicable Senior Percentage and the
Senior Accelerated Distribution Percentage, as described herein under "-
Principal Distributions" on the Senior Certificates, each of which may be
increased (to not more than 100%) in the event of delinquencies or Realized
Losses on the Mortgage Loans. The application of the Senior Accelerated
Distribution Percentage (when it exceeds the Senior Percentage) to determine the
Senior Principal Distribution Amount will accelerate the amortization of the
Senior Certificates relative to the actual amortization of the Mortgage Loans.
To the extent that the Senior Certificates are amortized faster than the
Mortgage Loans, the percentage interest evidenced by the Senior Certificates in
the Trust Fund will be decreased (with a corresponding increase in the interest
in the Trust Fund evidenced by the Subordinate Certificates), thereby
increasing, as a relative matter, the Subordination afforded by the Subordinate
Certificates. Similarly, holders of Class A-1 Certificates and Class A-5
Certificates will have a prior right, on each Distribution Date occurring on or
after the Credit Support Depletion Date, to that portion of the Available
Distribution Amount allocated to the Tiered Certificates, to the extent
necessary to satisfy the Accrued Certificate Interest on the Class A-I
Certificates and Class A-5 Certificates. Therefore, any shortfalls in the
amounts that would otherwise be distributable to Class A-1 Certificateholders
and Class A-5 Certificateholders, whether resulting from Mortgage Loan
delinquencies or Realized Losses, will be home by the holders of the Class A-6
Certificates for so long as the Class A-6 Certificates are outstanding.
The aggregate amount of Realized Losses which may be allocated in
connection with Special Hazard Losses (the "Special Hazard Amount") through
Subordination shall initially be equal to $____________. As of any date of
determination following the Cut-off Date, the Special Hazard Amount shall equal
$_____________________ less the sum of (i) any amounts allocated through
Subordination in respect of Special Hazard Losses and (ii) the Adjustment
Amount. The Adjustment Amount will be equal to an amount calculated pursuant to
the terms of the Pooling and Servicing Agreement. As used in this Prospectus
Supplement, "Special Hazard Losses" has the same meaning set forth in the
Prospectus, except that Special Hazard Losses will not include and the
Subordination will not cover Extraordinary Losses, and Special Hazard Losses
will not exceed the lesser of the cost of repair or replacement of the related
Mortgaged Properties.
The aggregate amount of Realized Losses which may be allocated to the
Subordinate Certificates in connection with Fraud Losses (the "Fraud Loss
Amount") through Subordination shall initially be equal to $___________. As of
any date of determination after the Cut-off Date the Fraud Loss Amount shall
equal (i) up to and including the [first]
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anniversary of the Cut-off Date, an amount equal to____% of the aggregate
principal balance of all of the Mortgage Loans as of the Cut-off Date minus the
aggregate amounts allocated solely to the Subordinate Certificates through
Subordination with respect to Fraud Losses up to such date of determination, and
(ii) from the [first] through [fifth] anniversary of the Cut-off Date, an amount
equal to (a) the lesser of (1) the Fraud Loss Amount as of the most recent
anniversary of the Cut-off Date and (2)____% of the aggregate principal balance
of all of the Mortgage Loans as of the most recent anniversary of the Cut-off
Date minus (b) the aggregate amounts allocated solely to the Subordinate
Certificates through Subordination with respect to Fraud Losses since the most
recent anniversary of the Cut-off Date up to such date of determination. On or
after the fifth anniversary of the Cut-off Date, the Fraud Loss Amount shall be
zero and Fraud Losses shall not be allocated through Subordination.
The aggregate amount of Realized Losses which may be allocated solely to
the Subordinate Certificates in connection with Bankruptcy Losses (the
"Bankruptcy Amount") Subordination will initially be equal to $__________. As
of any day of determination on or after the [first] anniversary of the Cut-off
Date, the Bankruptcy Amount will equal the excess, if any, of (i) the lesser of
(a) the Bankruptcy Amount as of the business day next preceding the most recent
anniversary of the Cut-off Date (the "Relevant Anniversary") and (b) an amount
calculated pursuant to the terms of the Pooling and Servicing Agreement, which
amount as calculated will provide for a reduction in the Bankruptcy Amount, over
(ii) the aggregate amount of Bankruptcy Losses allocated solely to the
Subordinate Certificates through Subordination since the Relevant Anniversary.
Notwithstanding the foregoing, the provisions relating to Subordination
will not be applicable in connection with a Bankruptcy Loss so long as the
Master Servicer has notified the Trustee in writing that the Master Servicer is
diligently pursuing any remedies that may exist in connection with the
representations and warranties made regarding the related Mortgage Loan and
either (i) the related Mortgage Loan is not in default with regard to payments
due thereunder or (ii) delinquent payments of principal and interest under the
related Mortgage Loan and any premiums on any applicable Primary Hazard
Insurance Policy and any related escrow payments in respect of such Mortgage
Loan are being advanced on a current basis by the Master Servicer, in either
case without giving effect to the particular Bankruptcy Loss.
The Special Hazard Amount, Fraud Amount and Bankruptcy Amount are subject
to further reduction with the consent of the Rating Agencies.
ADVANCES
Prior to each Distribution Date, the Master Servicer is required to make
advances (each an "Advance") for the benefit of Certificateholders (out of its
own funds or funds held in the Certificate Account (as described in the
Prospectus) for future distribution or withdrawal) with respect to any payments
of principal and interest (net of the related
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Servicing Fees) which were due on the Mortgage Loans on the immediately
preceding Due Date and delinquent on the business day next preceding the related
Determination Date.
Such Advances are required to be made only to the extent they are deemed by
the Master Servicer to be recoverable from related late collections, Insurance
Proceeds, Liquidation Proceeds or amounts otherwise payable to the holders of
the Subordinate Certificates as described below. The purpose of making such
Advances is to maintain a regular cash flow to the Certificateholders, rather
than to guarantee or insure against losses. The Master Servicer will not be
required to make any Advances with respect to reductions in the amount of the
monthly payments on the Mortgage Loans due to Debt Service Reductions or the
application of the Relief Act or similar legislation or regulations. Any
failure by the Master Servicer to make an Advance as required under the Pooling
and Servicing Agreement will constitute an Event of Default thereunder, in which
case the Trustee, as successor Master Servicer, will be obligated to make any
such Advance, in accordance with the terms of the Pooling and Servicing
Agreement.
All Advances will be reimbursable to the Master Servicer on a first
priority basis from either (a) late collections, Insurance Proceeds and
Liquidation Proceeds from the Mortgage Loan as to which such unreimbursed
Advance was made or (b) as to any Advance that remains unreimbursed in whole or
in part following the final liquidation of the related Mortgage Loan, from any
amounts otherwise distributable on the Subordinate Certificates; provided,
however, that only the Subordinate Percentage of such Advances are reimbursable
from amounts otherwise distributable on the Subordinate Certificates in the
event that such Advances were made with respect to delinquencies which
ultimately were determined to be Excess Special Hazard Losses, Excess Fraud
Losses, Excess Bankruptcy Losses or Extraordinary Losses and the Senior
Percentage of such Advances which may not be so reimbursed from amounts
otherwise distributable on the Subordinate Certificates may be reimbursed to the
Master Servicer out of any funds in the related Certificate Account prior to
distributions on the Senior Certificates. In the latter event, the aggregate
amount otherwise distributable on the Senior Certificates will be reduced by an
amount equal to the Senior Percentage of such Advances. In addition, if the
Certificate Principal Balance of the Subordinate Certificates has been reduced
to zero, any Advances previously made which are deemed by the Master Servicer to
be nonrecoverable from related late collections, Insurance Proceeds and
Liquidation Proceeds may be reimbursed to the Master Servicer out of any funds
in the related Certificate Account prior to distributions on the Senior
Certificates.
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
GENERAL
The effective yield to the holders of the Offered Certificates will be
lower than the yield otherwise produced by the applicable Pass-Through Rate and
purchase price because monthly distributions will not be made to such holders
until the 25th day (or if such day is not a business day, then on the next
succeeding business day) of the month following the month in which interest
accrues on the Mortgage Loans (without any additional
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distributions of interest or earnings thereon in respect of such delay). See
"Yield Considerations" in the Prospectus.
The yields to maturity and the aggregate amount of distributions on the
Offered Certificates will be affected by the rate and timing of principal
payments on the Mortgage Loans and the amount and timing of mortgagor defaults
resulting in Realized Losses. Such yields may be adversely affected by a higher
or lower than anticipated rate of principal payments on the Mortgage Loans in
the Trust Fund. The rate of principal payments on such Mortgage Loans will in
turn be affected by the amortization schedules of the Mortgage Loans, the rate
and timing of principal prepayments thereon by the mortgagors, liquidations of
defaulted Mortgage Loans and purchases of Mortgage Loans due to certain breaches
of representations and warranties. The timing of changes in the rate of
prepayments, liquidations and purchases of the Mortgage Loans may, and the
timing of Realized Losses will, significantly affect the yield to an investor,
even if the average rate of principal payments experienced over time is
consistent with an investor's expectation. Since the rate and timing of
principal payments on the Mortgage Loans will depend on future events and on a
variety of factors (as described herein and in the Prospectus under "Yield
Considerations" and "Maturity and Prepayment Considerations"), no assurance can
be given as to such rate or the timing of principal payments on the Offered
Certificates.
The Mortgage Loans generally may be prepaid by the Mortgagors at any time
without payment of any prepayment fee or penalty. The Mortgage Loans generally
contain due-on-sale clauses. As described under "Description of the
Certificates-Principal Distributions on the Senior Certificates" herein, during
certain periods all or a disproportionately large percentage of principal
prepayments on the Mortgage Loans will be allocated among the Senior
Certificates. Prepayments, liquidations and purchases of the Mortgage Loans
will result in distributions to holders of the Offered Certificates of principal
amounts which would otherwise be distributed over the remaining terms of the
Mortgage Loans. Factors affecting prepayment (including defaults and
liquidations) of mortgage loans include changes in mortgagors' housing needs,
job transfers, unemployment, mortgagors' net equity in the mortgaged properties,
changes in the value of the mortgaged properties, mortgage market interest
rates, solicitations and servicing decisions. In addition, if prevailing
mortgage rates fell significantly below the Mortgage Rates on the Mortgage
Loans, the rate of prepayments (including refinancings) would be expected to
increase. Conversely, if prevailing mortgage rates rose significantly above the
Mortgage Rates on the Mortgage Loans, the rate of prepayments on the Mortgage
Loans would be expected to decrease.
The rate of defaults on the Mortgage Loans will also affect the rate and
timing of principal payments on the Mortgage Loans. In general, defaults on
mortgage loans are expected to occur with greater frequency in their early
years. The rate of default on Mortgage Loans which are refinance or limited
documentation mortgage loans, and on Mortgage Loans with high Loan-to-Value
Ratios, may be higher than for other types of Mortgage Loans. Furthermore, the
rate and timing of prepayments, defaults and liquidations on the Mortgage Loans
will be affected by the general economic condition of
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the region of the country in which the related Mortgaged Properties are located.
The risk of delinquencies and loss is greater and prepayments are less likely in
regions where a weak or deteriorating economy exists, as may be evidenced by,
among other factors, increasing unemployment or falling property values. See
"Maturity and Prepayment Considerations" in the Prospectus.
Because the Mortgage Rates on the Mortgage Loans and the Pass-Through Rates
on the Senior Certificates (other than the Variable Strip Certificates) are
fixed, such rates will not change in response to changes in market interest
rates. The Pass-Through Rate on the Variable Strip Certificates is based on the
weighted average of the Pool Strip Rates on the Mortgage Loans, and such rates
will also not change in response to changes in market interest rates.
Accordingly, if market interest rates or market yields for securities similar to
the Senior Certificates were to rise, the market value of the Senior
Certificates may decline. In addition, if prevailing mortgage rates fell
significantly below the Mortgage Rates on the Mortgage Loans, the rate of
prepayments (including refinancings) would be expected to increase. Conversely,
if prevailing mortgage rates rose significantly above the Mortgage Rates on the
Mortgage Loans, the rate of prepayment on the Mortgage Loans would be expected
to decrease.
The amount of interest otherwise payable to holders of the Senior
Certificates will be reduced by any interest shortfalls not covered by
Subordination, including Prepayment Interest Shortfalls. Such shortfalls will
not be offset by a reduction in the Servicing Fees payable to the Master
Servicer or otherwise. See "Yield Considerations" in the Prospectus and
"Description of the Certificates-Interest Distributions" herein for a discussion
of the effect that principal prepayments on the Mortgage Loans may have on the
yield to maturity of the Senior Certificates and certain possible shortfalls in
the collection of interest.
The timing of changes in the rate of prepayments, liquidations and
repurchases of the Mortgage Loans may significantly affect an investor's actual
yield to maturity, even if the average rate of principal payments experienced
over time is consistent with an investor's expectation. Because all or a
disproportionate percentage of principal prepayments will be allocated to the
Senior Certificates during not less than the first nine years after the Delivery
Date, the rate of prepayments on the Mortgage Loans during this period may
significantly affect the yield to maturity of the Senior Certificates.
In addition, the yield to maturity of the Senior Certificates will depend
on the price paid by the holders of the Senior Certificates and the related
Pass-Through Rate. The extent to which the yield to maturity of a Senior
Certificate may vary from the anticipated yield thereon will depend upon the
degree to which it is purchased at a discount or premium and the degree to which
the timing of payments thereon is sensitive to prepayments.
Because principal distributions are paid to certain classes of Senior
Certificates before other classes, holders of classes of Senior Certificates
having a later priority of payment bear a greater risk of losses than holders of
classes of Senior Certificates having
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earlier priorities for distribution of principal. In addition, the Class A-6
Certificates bear a greater risk of losses than the other Tiered Certificates
because Default Losses on the Mortgage Loans not covered by the Subordination
which are allocated to the Tiered Certificates are allocated first to the Class
A-6 Certificates prior to allocation to the Class A- 1 and Class A-5
Certificates to the extent described herein. For additional considerations
relating to the yield on the Certificates, see "Yield Considerations" and
"Maturity and Prepayment Considerations" in the Prospectus.
The assumed final Distribution Date with respect to each class of Senior
Certificates is __________ __, 20__. The assumed final Distribution Date is the
Distribution Date immediately following the latest scheduled maturity date of
any Mortgage Loan in the Mortgage Pool.
Weighted average life refers to the average amount of time that will elapse
from the date of issuance of a security until a dollar amount in payment of
principal equal to the original principal balance of such security (less losses)
is distributed to the investor. The weighted average life of the Senior
Certificates will be influenced by among other things, the rate at which
principal of the Mortgage Loans is paid, which may be in the form of scheduled
amortization, prepayments or liquidations.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement, the
standard prepayment assumption ("SPA"), represents an assumed rate of prepayment
each month relative to the then outstanding principal balance of a pool of new
mortgage loans. A prepayment assumption of 100% SPA assumes constant prepayment
rates of 0.2% per annum of the then outstanding principal balance of such
mortgage loans in the first month of the life of the mortgage loans and an
additional 0.2% per annum in each month thereafter until the thirtieth month.
Beginning in the thirtieth month and in each month thereafter during the life of
the mortgage loans, 100% SPA assumes a constant prepayment rate of 6% per annum
each month. As used in the table below, "0% SPA" assumes prepayment rates equal
to 0% of SPA (no prepayments). Correspondingly, "__% SPA" assumes prepayment
rates equal to____% of SPA, and so forth. SPA does not purport to be a
historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of mortgage loans, including the
Mortgage Loans.
The table set forth below has been prepared on the basis of certain
assumptions as described below regarding the weighted average characteristics of
the Mortgage Loans that are expected to be included in the Trust Fund as
described under "Description of the Mortgage Pool" herein and the performance
thereof. The table assumes, among other things, that: (i) as of the date of
issuance of the Senior Certificates, the aggregate principal balance of the
Mortgage Loans is approximately $__________ and each Mortgage Loan has a
Mortgage Rate of____% per annum, an original term of ___ months, a remaining
term to maturity of ___ months and a related Servicing Fee calculated at____%
per annum, (ii) the scheduled monthly payment for each Mortgage Loan has been
based on its outstanding balance, Mortgage Rate and remaining term to maturity,
such that the Mortgage Loan will
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amortize in amounts sufficient for repayment thereof over its remaining term to
maturity, (iii) none of the Seller, the Master Servicer or the Company will
repurchase any Mortgage Loan, as described under "The Mortgage Loan Pools-
Representations by Sellers " and "Description of the Certificates-Assignment of
the Trust Fund Assets" in the Prospectus, and the Master Servicer will not
exercise its option to purchase the Mortgage Loans and thereby cause a
termination of the Trust Fund, (iv) there are no delinquencies or Realized
Losses on the Mortgage Loans, and scheduled monthly payments on the Mortgage
Loans will be timely received together with prepayments, if any, at the
respective constant percentages of SPA set forth in the table, (v) there is no
Prepayment Interest Shortfall or any other interest shortfall in any month, (vi)
payments on the Mortgage Loans earn no reinvestment return; (vii) there are no
additional ongoing Trust Fund expenses payable out of the Trust Fund; and (viii)
the Certificates will be purchased on _______________ __, 199__.
The actual characteristics and performance of the Mortgage Loans will
differ from the assumptions used in constructing the table set forth below,
which is hypothetical in nature and is provided only to give a general sense of
how the principal cash flows might behave under varying prepayment scenarios.
For example, it is very unlikely that the Mortgage Loans will prepay at a
constant level of SPA until maturity or that all of the Mortgage Loans will
prepay at the same level of SPA. Moreover, the diverse remaining terms to
maturity of the Mortgage Loans could produce slower or faster principal
distributions than indicated in the table at the various constant percentages of
SPA specified, even if the weighted average remaining term to maturity of the
Mortgage Loans is as assumed. Any difference between such assumptions and the
actual characteristics and performance of the Mortgage Loans, or actual
prepayment or loss experience, will affect the percentages of initial
Certificate Principal Balances outstanding over time and the weighted average
lives of the classes of Offered Certificates.
Subject to the foregoing discussion and assumptions, the following table
indicates the weighted average life of each class of Offered Certificates (other
than the Fixed Strip Certificates and Variable Strip Certificates), and sets
forth the percentages of the initial Certificate Principal Balance of each such
class of Offered Certificates that would be outstanding after each of the dates
shown at various percentages of SPA.
<PAGE>
-51-
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
AT THE FOLLOWING PERCENTAGES OF SPA
<TABLE>
<CAPTION>
Class A-1 Class A-2 Class A-3
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DISTRIBUTION DATE % % % % % % % % % % % % %
--- --- --- --- --- --- --- --- --- --- --- --- ---
Initial Percentage
</TABLE>
Weighted Average Life in Years(**)
_______________
* Indicates a number that is greater than zero but less than .5%.
** The weighted average life of a Certificate of any class is determined by
(i) multiplying the amount of each net distribution in reduction of
Certificate Principal Balance by the number of years from the date of
issuance of the Certificate to the related Distribution Date, (ii) adding
the results, and (iii) dividing the sum by the aggregate of the net
distributions described in (i) above.
THIS TABLE HAS BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED IN THE
THIRD PARAGRAPH PRECEDING THIS TABLE (INCLUDING THE ASSUMPTIONS REGARDING THE
CHARACTERISTICS AND PERFORMANCE OF THE MORTGAGE LOANS WHICH DIFFER FROM THE
ACTUAL CHARACTERISTICS AND PERFORMANCE THEREOF) AND SHOULD BE READ IN
CONJUNCTION THEREWITH.
<PAGE>
-52-
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
AT THE FOLLOWING PERCENTAGES OF SPA
<TABLE>
<CAPTION>
Class A-4 Class A-6
--------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DISTRIBUTION DATE % % % % % % % % % %
--- --- --- --- --- --- --- --- --- ---
Initial Percentage
Weighted Average Life in Years(**)
</TABLE>
_______________
* Indicates a number that is greater than zero but less than .5%.
** The weighted average life of a Certificate of any class is determined by
(i) multiplying the amount of each net distribution in reduction of
Certificate Principal Balance by the number of years from the date of
issuance of the Certificate to the related Distribution Date, (ii) adding
the results, and (iii) dividing the sum by the aggregate of the net
distributions described in (i) above.
THIS TABLE HAS BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED IN THE
THIRD PARAGRAPH PRECEDING THIS TABLE (INCLUDING THE ASSUMPTIONS REGARDING THE
CHARACTERISTICS AND PERFORMANCE OF THE MORTGAGE LOANS WHICH DIFFER FROM THE
ACTUAL CHARACTERISTICS AND PERFORMANCE THEREOF) AND SHOULD BE READ IN
CONJUNCTION THEREWITH.
(TABLE CONTINUED FROM PREVIOUS PAGE.)
<PAGE>
-53-
FIXED STRIP CERTIFICATES AND VARIABLE STRIP CERTIFICATES YIELD CONSIDERATIONS
The following tables indicate the sensitivity of the pre-tax yield to
maturity on the Fixed Strip Certificates and Variable Strip Certificates to
various rates of prepayment on the Mortgage Loans by projecting the monthly
aggregate payments of interest on the Fixed Strip Certificates and Variable
Strip Certificates and the corresponding pre-tax yields on a corporate bond
equivalent basis, based on distributions being made with respect to the Mortgage
Loans that are assumed to be included in the Trust Fund, as described in the
assumptions stated in clauses (i) through (viii) of the third paragraph
preceding the table entitled "Percent of Initial Certificate Principal Balance
Outstanding at the Following Percentages of SPA" under the heading "Certain
Yield and Prepayment Considerations-General" herein, including the assumptions
regarding the characteristics and performance of the Mortgage Loans which differ
from the actual characteristics and performance thereof and assuming the
aggregate purchase prices set forth below and assuming further that the Pass-
Through Rate and Notional Amount of the Fixed Strip Certificates and Variable
Strip Certificates are as set forth herein. Any differences between such
assumptions and the actual characteristics and performance of the Mortgage Loans
and of the Certificates may result in yields being different from those shown in
such tables. Discrepancies between assumed and actual characteristics and
performance underscore the hypothetical nature of the tables, which are provided
only to give a general sense of the sensitivity of yields in varying prepayment
scenarios.
PRE-TAX YIELD TO MATURITY ON THE FIXED
STRIP CERTIFICATES AND THE VARIABLE STRIP CERTIFICATES
AT THE FOLLOWING PERCENTAGES OF SPA
<TABLE>
<CAPTION>
Fixed Strip Certificates
--------------------------------
<S> <C> <C> <C> <C> <C>
Assumed
Purchase
Price*
- ----------- ___% ___% ___% ___% ___%
</TABLE>
*Expressed as a percentage of the Initial Notional Amount
<PAGE>
-54-
<TABLE>
Variable Strip Certificates
-------------------------------
<S> <C> <C> <C> <C> <C>
Assumed
Purchase
Price*
- ----------- ___% ___% ___% ___% ___%
</TABLE>
*Expressed as a percentage of the Initial Notional Amount
The pre-tax yields set forth in the preceding tables were calculated by
determining the monthly discount rates which, when applied to the assumed
streams of cash flows to be paid on the Fixed Strip Certificates and Variable
Strip Certificates, would cause the discounted present value of such assumed
streams of cash flows to equal the assumed purchase prices listed as percentages
of the initial Notional Amounts in the table for the Fixed Strip Certificates
and Variable Strip Certificates, respectively. Yields shown are corporate bond
equivalent and are based on the assumed prices given in the tables. The prices
shown do not include accrued interest but an amount of accrued interest
consistent with the assumptions was computed and was used to arrive at these
yields. Implicit in the use of any discounted present value or internal rate of
return calculation such as these is the assumption that cash flows are
reinvested at the discount rate or internal rate of return. Thus these
calculations do not take into account the different interest rates at which
investors may be able to reinvest funds received by them as distributed on the
Fixed Strip Certificates or Variable Strip Certificates. Consequently these
yields do not purport to reflect the return on any investment in the Fixed Strip
Certificates or Variable Strip Certificates when such reinvestment rates are
considered.
The preceding tables are based on a set of assumptions that vary from other
information provided herein. The differences between such assumptions and the
actual characteristics of the Mortgage Loans and of the Certificates may result
in actual yields being different from those shown in such tables. For example,
the Pass-Through Rate on the Variable Strip Certificates, which is assumed to be
fixed throughout the life of the Certificates, will actually be likely to change
from one period to the next, and the rate assumed may be different from the
actual initial Pass-Through Rate on the Variable Strip Certificates. Such
discrepancies between assumed and actual characteristics underscore the
hypothetical nature of the tables, which are provided to give a general sense of
the sensitivity of yields in varying prepayment scenarios.
Notwithstanding the assumed prepayment rates reflected in the preceding
tables, it is highly unlikely that the Mortgage Loans will prepay at a constant
rate until maturity or
<PAGE>
-55-
that all of the Mortgage Loans will be prepaid according to one particular
pattern. For this reason, and because the timing of cash flows is critical to
determining yields, the pre-tax yields on the Fixed Strip Certificates and
Variable Strip Certificates are likely to differ from those shown in such table,
even if all of the Mortgage Loans prepay at the indicated percentages of SPA
over any given time period or over the entire life of the Certificates. No
representation is made as to the actual rate of principal payment on the
Mortgage Loans for any period or over the life of the Senior Certificates or as
to the yield on the Senior Certificates. In addition, the various remaining
terms to maturity of the Mortgage Loans could produce slower or faster principal
distributions than indicated in the preceding tables at the various constant
percentages of SPA specified, even if the weighted average remaining term to
maturity of the Mortgage Loans is months. Investors are urged to make their
investment decisions based on their determinations as to anticipated rates of
prepayment under a variety of scenarios.
For additional considerations relating to the yield on the Certificates,
see "Yield Considerations" and "Maturity and Prepayment Considerations" in the
Prospectus.
POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued, and the Mortgage Loans serviced and
administered, pursuant to a Pooling and Servicing Agreement (the "Pooling and
Servicing Agreement") dated as of __________ 1, 19__, among the Company, the
Master Servicer, and _________________, as trustee (the "Trustee"). Reference
is made to the Prospectus for important information in addition to that set
forth herein regarding the terms and conditions of the Pooling and Servicing
Agreement and the Senior Certificates. The Trustee will appoint
____________________ to serve as Custodian in connection with the Certificates.
The Senior Certificates will be transferable and exchangeable at the corporate
trust office of the Trustee, which will serve as Certificate Registrar and will
be responsible for making distributions on the Senior Certificates and
forwarding monthly reports with respect thereto to the holders of such
Certificates. In addition to the circumstances described in the Prospectus, the
Company may terminate the Trustee for cause under certain circumstances. The
fees payable to the Trustee will be payable directly from the Certificate
Account. The Company will provide a prospective or actual Certificateholder
without charge, on written request, a copy (without exhibits) of the Pooling and
Servicing Agreement. Requests should be addressed to the President, ICIFC
Secured Assets Corp., 20371 Irvine Avenue, Suite 200, Santa Ana Heights,
California 92707. See " Description of the Certificates, Servicing of Mortgage
Loans " and " The Pooling Agreement" in the Prospectus.
<PAGE>
-56-
THE MASTER SERVICER; THE SUB-SERVICER
[ICI Funding] (in its capacity as master servicer, the "Master Servicer")
will act as master servicer for the Mortgage Loans pursuant to the Agreement.
[Further disclosure as appropriate. The following disclosure is for ICI
Funding Corporation but will be similar to the disclosure if the Master Servicer
is a different entity.]
ICI Funding is a mortgage banking conduit that acquires conventional one-to
four-family residential mortgage loans nationwide. ICI Funding is a non-
consolidating subsidiary of Imperial Credit Mortgage Holdings, Inc., a publicly
traded Real Estate Investment Trust. ICI Funding primarily acquires mortgage
loans from approved correspondents.
Prior to November 1995, ICI Funding was a division of Imperial Credit
Industries, Inc. ("ICII"). In November 1995, ICII restructured its operations
pursuant to which ICI Funding became a separate corporation and ICII
contributed, among other things, all of the outstanding nonvoting preferred
stock of ICI Funding, which represents 99% of the economic interest in ICI
Funding, to Imperial Credit Mortgage Holdings, Inc., in exchange for
approximately 10% of Imperial Credit Mortgage Holdings, Inc.'s common stock.
All of the outstanding shares of common stock of ICI Funding were retained by
ICII.
At __________________, 199__, ICI Funding had approximately ___ employees.
ICI Funding's executive offices are located at 20371 Irvine Avenue, Santa Ana
Heights, California, 92707, and its telephone number is (714) 556-0122.
ICI Funding has sub-contracted with the Sub-Servicer to perform its
mortgage loan servicing, which includes the processing and administration of
mortgage loan payments in return for a sub-servicing fee.
The Sub-Servicer. The Sub-Servicer is a subservicer of residential,
________ and __________ mortgage loans in ___ states. Additionally, the Sub-
Servicer provides master contract servicing for residential mortgage loans,
____________________, and _____________ loans. As of _____________, 199__, the
Sub-Servicer employed ____ employees. The Sub-Servicer is located in
____________________. The Sub-Servicer is an approved servicer in good standing
with FNMA and FHLMC.
The following table sets forth certain information concerning delinquency
experience including bankruptcies and foreclosures in progress on one- to four-
family residential mortgage, ___________________, and _________________ loans
included in the Sub-Servicer's portfolio at the dates indicated. As of December
31, 199__, 199__ and 199__, and _________, 199__, the total principal balance of
loans being serviced by the Sub-Servicer was (in millions) $____________,
$_______________, $________________ and $______________, respectively. The
indicated periods of delinquency are based on the number of days past due on a
contractual basis. No residential, ______________, or __________ mortgage loan
<PAGE>
-57-
is considered delinquent for these purposes until it is one month past due on a
contractual basis.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------------------
199 199 199 AT 31, 199
--------------------- --------------------- --------------------- -------------------
PERCENT PERCENT PERCENT PERCENT
OF OF OF NUMBER OF
NUMBER SERVICING NUMBER SERVICING NUMBER SERVICING OF SERVICING
OF LOANS PORTFOLIO OF LOANS PORTFOLIO OF LOANS PORTFOLIO LOANS PORTFOLIO
-------- --------- -------- --------- -------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Portfolio(1) 100% 100% 100% 100%
====== ========== ======= ========== ======== ========== ======= ==========
Period of Delinquency:
30-59 days............. % % % %
60-89 days % % % %
90 days or more........ % % % %
------ ---------- ------- ---------- ------- ---------- ------- ----------
Total Delinquencies
(excluding Foreclosures) % % %
====== ========== ------- ========== ------- ========== ------- ----------
Foreclosures Pending % % %
</TABLE>
_______________
(1) Includes purchased mortgage servicing rights owned by the Sub-Servicer
totalling _________ loans for __________ million unpaid principal balance
and ____________ loans for ____________ million unpaid principal balance as
of December 31, 199____ and _________ 199____, respectively.
There can be no assurance that the delinquency and foreclosure experience
of the Mortgage Loans will correspond to the delinquency and foreclosure
experience of the Sub-Servicer's servicing portfolio set forth in the foregoing
tables. The statistics shown above represent the delinquency and foreclosure
experience for the Sub-Servicer's servicing portfolio only for the periods
presented, whereas the aggregate delinquency and foreclosure experience on the
Mortgage Loans will depend on the results obtained over the life of the Trust.
The Sub-Servicer's servicing portfolio includes mortgage loans with a variety of
payment and other characteristics (including geographic location) which are not
necessarily representative of the payment and other characteristics of the
Mortgage Loans. The Sub-Servicer's servicing portfolio includes mortgage loans
underwritten pursuant to guidelines not necessarily representative of those
applicable to the Mortgage Loans. It should be noted that if the residential
real estate market should experience an overall decline in
<PAGE>
-58-
property values, the actual rates of delinquencies and foreclosures could be
higher than those previously experienced by the Sub-Servicer. In addition,
adverse economic conditions may affect the timely payment by mortgagors of
scheduled payments of principal and interest on the Mortgage Loans and,
accordingly, the actual rates of delinquencies and foreclosures with respect to
the Mortgage Loans.
The information set forth in this section concerning the Master Servicer
and the Sub-Servicer has been provided by the Master Servicer and the Sub-
Servicer, respectively.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The Servicing Fees for each Mortgage Loan are payable out of the interest
payments on such Mortgage Loan. The Servicing Fees in respect of each Mortgage
Loan will accrue at____% per annum (the "Servicing Fee Rate") on the outstanding
principal balance of each Mortgage Loan. The Master Servicer is obligated to
pay certain ongoing expenses associated with the Trust Fund and incurred by the
Master Servicer in connection with its responsibilities under the Pooling and
Servicing Agreement. See "Servicing of Mortgage Loans-Servicing and Other
Compensation and Payment of Expenses; Spread" in the Prospectus for information
regarding other possible compensation to the Master Servicer and for information
regarding expenses payable by the Master Servicer.
VOTING RIGHTS
Certain actions specified in the Prospectus that may be taken by holders of
Certificates evidencing a specified percentage of all undivided interests in the
Trust Fund may be taken by holders of Certificates entitled in the aggregate to
such percentage of the Voting Rights.____% of all Voting Rights will be
allocated among all holders of the Certificates (other than the Fixed Strip
Certificates, Variable Strip Certificates and Residual Certificates) in
proportion to their then outstanding Certificate Principal Balances, and
____%,____% and____% of all Voting Rights will be allocated among holders of the
Fixed Strip Certificates, Variable Strip Certificates and Class R Certificates,
respectively, in proportion to the percentage interests evidenced by their
respective Certificates. The Pooling and Servicing Agreement will be subject to
amendment without the consent of the holders of the Residual Certificates in
certain circumstances.
TERMINATION
The circumstances under which the obligations created by the Pooling and
Servicing Agreement will terminate in respect of the Senior Certificates are
described in "The Pooling Agreement-Termination; Retirement of Certificates" in
the Prospectus. The Master Servicer or the Company will have the option on any
Distribution Date on which the aggregate principal balance of the Mortgage Loans
is less than____% of the aggregate principal balance of the Mortgage Loans as of
the Cut-off Date either (i) to purchase all remaining Mortgage Loans and other
assets in the Trust Fund, thereby effecting early retirement of the Senior
Certificates or (ii) purchase in whole, but not in part, the Certificates other
than
<PAGE>
-59-
the Residual Certificates. Any such purchase of Mortgage Loans and other assets
of the Trust Fund shall be made at a price equal to the sum of (a) 100% of the
unpaid principal balance of each Mortgage Loan (or, the fair market value of the
related underlying Mortgaged Properties with respect to defaulted Mortgage Loans
as to which title to such underlying Mortgaged Properties has been acquired if
such fair market value is less than such unpaid principal balance) (net of any
unreimbursed Advance attributable to principal) as of the Distribution Date on
which the purchase proceeds are to be distributed plus (b) accrued interest
thereon at the Net Mortgage Rate to, but not including, the first day of the
month of repurchase.
Upon presentation and surrender of the Senior Certificates in connection
with the termination of the Trust Fund or a purchase of Certificates under the
circumstances described above, the holders of the Senior Certificates will
receive an amount equal to the Certificate Principal Balance of such class plus
one month's interest thereon (or with respect to the Variable Strip
Certificates, one month's interest on the Notional Amount) at the applicable
Pass-Through Rate plus any previously unpaid Accrued Certificate Interest
subject to the priority in "Description of the Certificates-Interest
Distributions" and "-Principal Distributions on the Senior Certificates".
FEDERAL INCOME TAX CONSEQUENCES
The following discussion should be read in conjunction with "Federal Income
Tax Consequences" in the Prospectus. Taken together, this discussion and the
referenced discussion in the Prospectus, to the extent they relate to matters of
law or legal conclusions with respect to the anticipated material federal income
tax consequences of the purchase, ownership and disposition of the Certificates
offered hereunder, represent the opinion of counsel to the Company with respect
to that series on the material matters associated with such consequences,
subject to any qualifications set forth herein. The discussions have been
prepared with the advice of Freshman, Marantz, Orlanski, Cooper & Klein, counsel
to the Company. Prospective investors should note that no rulings have been or
will be sought from the Internal Revenue Service (the "IRS") with respect to any
of the federal income tax consequences discussed below, and no assurance can be
given the IRS will not take a contrary position. Accordingly, taxpayers should
consult their own tax advisors and tax return preparers regarding the
preparation of any item on a tax return, even where the anticipated tax
treatment has been discussed herein and in the Prospectus. In addition to the
federal income tax consequences described herein and in the Prospectus,
potential investors should consider the state and local tax consequences, if
any, of the purchase, ownership and disposition of the Certificates. See "State
and Other Tax Consequences" in the Prospectus. Certificateholders are advised
to consult their own tax advisors concerning the federal, state, local or other
tax consequences to them of the purchase, ownership and disposition of the
Certificates offered hereunder.
Prior to the sale of the Offered Certificates, Freshman, Marantz, Orlanski,
Cooper & Klein, counsel to the Depositor, will have delivered its opinion to the
effect that,
<PAGE>
-60-
assuming compliance with all provisions of the Pooling and Servicing Agreement,
for federal income tax purposes, the Trust Fund will qualify as a REMIC under
Sections 860A through 86OG (the "REMIC Provisions") of the Internal Revenue Code
of 1986 (the "Code"). Such opinion will be filed with the Commission either as
an exhibit to the Registration Statement of which this Prospectus Supplement is
a part or in a Current Report on Form 8-K. For federal income tax purposes, (i)
the Residual Certificates are the sole Class of "residual interests" in the
Trust Fund; and (ii) the Certificates constitute the "regular interests" in the
Trust Fund. See "Federal Income Tax Consequences-REMICs" in the
Prospectus.
For federal income tax reporting purposes, the _______ Certificates will
not and the _______ Certificates will be treated as having been issued with
original issue discount. The prepayment assumption that will be used in
determining the rate of accrual of original issue discount, market discount and
premium, if any, for federal income tax purposes will be based on the assumption
that subsequent to the date of any determination the Mortgage Loans will prepay
at a rate equal to____% SPA. No representation is made that the Mortgage Loans
will prepay at that rate or at any other rate. See "Federal Income Tax
Consequences-REMICs-Taxation of Owners of REMIC Regular Certificates-Original
Issue Discount," "--Market Discount" and "-Premium" in the Prospectus.
The Internal Revenue Service (the "IRS") has issued regulations (the "OID
Regulations") under Sections 1271 to 1275 of the Code generally addressing the
treatment of debt instruments issued with original issue discount. Purchasers
of the Offered Certificates should be aware that the OID Regulations and Section
1272(a)(6) of the Code do not adequately address certain issues relevant to, or
are not applicable to, securities such as the Offered Certificates. In
addition, there is considerable uncertainty concerning the application of the
OID Regulations to REMIC Regular Certificates that provide for payments based on
an adjustable rate such as the Offered Certificates. Because of the
uncertainties concerning the application of Section 1272(a)(6) of the Code to
such Certificates and because the rules of the OID Regulations relating to debt
instruments having an adjustable rate of interest are limited in their
application in ways that could preclude their application to such Certificates
even in the absence of Section 1272(a)(6) of the Code, the IRS could assert that
the _______ Certificates should be treated as having been issued with original
issue discount or that one or more of such Class of Certificates should be
governed by the rules applicable to debt instruments having contingent payments
or by some other method not yet set forth in regulations. Prospective
purchasers of the Offered Certificates are advised to consult their tax advisors
concerning the tax treatment of such Certificates.
It appears that a reasonable method of reporting original issue discount
with respect to the Offered Certificates generally would be to report all income
with respect to such Certificates as original issue discount for each period,
computing such original issue discount (i) by assuming that the value of the
Index will remain constant for purposes of determining the original yield to
maturity of, and projecting future distributions on, each class of such
Certificates, thereby treating such Certificates as fixed rate instruments to
which the original issue discount computation rules described herein can be
applied, and (ii) by accounting for
<PAGE>
-61-
any positive or negative variation in the actual value of the Index in any
period from its assumed value as a current adjustment to original issue discount
with respect to such period.
If the rules of the OID Regulations were applied literally to the Offered
Certificates, it appears that such rules would (i) require that the weighted
average interest rate paid on such Certificates be modified and treated as if it
were an adjustable rate based on the Index (plus or minus a fixed number of
basis points) rather than a fixed rate prior to the first adjustment date of
each Mortgage Loan, with the adjustable rate being such that the fair market
value of such Certificates would not be affected by the substitution of the
adjustable rate for the fixed rate, (ii) accrue original discount, if any, on
the Certificates as so modified by assuming that the Index will remain constant
for purposes of determining the constant yield to maturity of, and the cash flow
projections on, the Certificates as so modified and (iii) make a positive (or
negative) adjustment to interest income in any period in which the actual
interest paid on such Certificates (including interest paid at a fixed rate
prior to the first adjustment date of each Mortgage Loan) were greater or less
than the interest assumed to be paid thereon (including the interest assumed to
be paid thereon at an adjustable rate prior to the first adjustment date).
The OID Regulations appear to permit in some circumstances the holder of a
debt instrument to recognize original issue discount under a method that differs
from that of the issuer. Accordingly, it is possible that holders of the
Offered Certificates may be able to select a method for recognizing original
issue discount that differs from that used in preparing reports to holders of
Offered Certificates and the IRS. Prospective purchasers of Offered
Certificates issued with original issue discount are advised to consult their
tax advisors concerning the tax treatment of such Certificates in this regard.
Under Section 166 of the Code, both corporate holders of the Offered
Certificates and noncorporate holders of the Offered Certificates that acquire
such Certificates in connection with a trade or business should be allowed to
deduct, as ordinary losses, any losses sustained during a taxable year in which
their Certificates become wholly or partially worthless as the result of one or
more realized losses or distribution shortfalls on the Mortgage Loans that are
allocable to such Offered Certificates. However, it appears that a noncorporate
holder that does not acquire an Offered Certificate in connection with its trade
or business will not be entitled to deduct a loss under Section 166 of the Code
until such holder's Certificate becomes demonstrably wholly worthless and that
the loss will be characterized as a short-term capital loss.
Each holder of an Offered Certificate will be required to accrue original
issue discount with respect to such Certificate without giving effect to any
reductions in distributions attributable to a default or delinquency on the
Mortgage Loans until it can be established that any such reduction ultimately
will not be recoverable. As a result, the amount of income required to be
reported for tax purposes in any period by the holder of such a Certificate
could exceed the amount of economic income actually realized by the holder in
such period. Although the holder of such a Certificate eventually will
recognize a loss or a reduction in income attributable to previously accrued and
included income that
<PAGE>
-62-
as the result of a realized loss ultimately will not be realized, the law is
unclear with respect to the timing and character of such loss or reduction in
income.
The Offered Certificates will be treated as "qualifying real property
loans" within the meaning of Section 593(d) of the Code, assets described in
Section 7701(a)(19)(C) of the Code and "real estate assets" within the meaning
of Section 856(c)(5)(A) of the Code. In addition, interest (including original
issue discount, if any) on the Offered Certificates will be interest described
in Section 856(c)(3)(B) of the Code to the extent that such Certificates are
treated as "real estate assets" within the meaning of Section 856(c)(5)(A) of
the Code. Moreover, the Offered Certificates (other than the Residual
Certificates) will be "qualified mortgages" within the meaning of Section
86OG(a)(3) of the Code. See "Federal Income Tax Consequences-REMICs-
Characterization of Investments in REMIC Certificates" in the Prospectus.
To the extent permitted by then applicable law, any "prohibited
transactions tax," "contributions tax," tax on "net income from foreclosure
property" or state or local income or franchise tax that may be imposed on the
Trust Fund will be borne by the Master Servicer or Trustee in either case out of
its own funds, provided that the Master Servicer or the Trustee, as the case may
be, has sufficient assets to do so, and provided further that such tax arises
out of a breach of the Master Servicer's or the Trustee's obligations, as the
case may be, under the Pooling and Servicing Agreement and in respect of
compliance with then applicable law. Any such tax not borne by the Master
Servicer or the Trustee will be payable out of the Trust Fund which may reduce
the amounts otherwise payable to holders of the Offered Certificates. See
"Federal Income Tax Considerations-REMICs-Prohibited Transactions Tax and Other
Taxes" in the Prospectus.
For further information regarding the federal income tax consequences of
investing in the Subordinate Certificates, see "Federal Income Tax Consequences-
REMICs" in the Prospectus.
[SPECIAL TAX CONSIDERATIONS APPLICABLE TO RESIDUAL CERTIFICATES
--------------------------------------------------------------
The Residual Certificates will be subject to tax rules that differ
significantly from those that would apply if the Residual Certificates were
treated for federal income tax purposes as direct ownership interest in the
Mortgage Loans or as debt instruments issued by the Trust Fund. For further
information regarding the federal income tax consequences of investing in the
Residual Certificates, see "Federal Income Tax Consequences-REMICS-Taxation of
Owners of REMIC Residual Certificates" in the Prospectus.
The IRS has issued regulations under the provisions of the Code related to
REMICs (the "REMIC Regulations") that significantly affect holders of the
Residual Certificates. The REMIC Regulations impose restrictions on the
transfer or acquisition of certain residual interests, including the Residual
Certificates. The REMIC Regulations include restrictions that apply to: (i)
thrift institutions holding residual interests lacking "significant value" and
(ii) the transfer of "noneconomic" residual interests to United States persons.
<PAGE>
-63-
Pursuant to the Pooling and Servicing Agreement, the Residual Certificates may
not be transferred to non-United States persons.
The REMIC Regulations provide for the determination of whether a residual
interest has "significant value" for purposes of applying the rules relating to
"excess inclusions" with respect to residual interests. Based on the REMIC
Regulations, the Residual Certificates do not have significant value and,
accordingly, thrift institutions and their affiliates will be prevented from
using their unrelated losses or loss carryovers to offset any excess inclusions
with respect to the Residual Certificates, which will be in an amount equal to
all or virtually all of the taxable income includible by holders of the Residual
Certificates. See "Federal Income Tax Consequences-Taxation of Owners of REMIC
Residual Certificates-Excess Inclusions" in the Prospectus.
The REMIC Regulations also provide that a transfer to a United States
person of "noneconomic" residual interests will be disregarded for all federal
income tax purposes, and that the purported transferor of "noneconomic" residual
interests will continue to remain liable for any taxes due with respect to the
taxable income on such residual interests, if "a significant purpose of the
transfer was to enable the transferor to impede the assessment or collection of
tax." Based on the REMIC Regulations, the Residual Certificates will constitute
"noneconomic" residual interests during some or all of their term for purposes
of the REMIC Regulations and, accordingly, unless no significant purpose of a
transfer is to enable the transferor to impede the assessment or collection of
tax, transfers of the Residual Certificates may be disregarded and purported
transferors may remain liable for any taxes due with respect to the income on
the Residual Certificates. All transfers of the Residual Certificates will be
subject to certain restrictions under the terms of the Pooling and Servicing
Agreement that are intended to reduce the possibility of any such transfer being
disregarded to the extent that the Residual Certificates constitute noneconomic
residual interests. Such transfers are prohibited under the Pooling and
Servicing Agreement. See "Federal Income Tax Consequences-Taxation of Owners of
REMIC Residual Certificates-Noneconomic REMIC Residual Certificates" in the
Prospectus.
As discussed above and in the Prospectus, the rules for accrual of original
issue discount with respect to the Senior and Subordinate Certificates are
subject to significant complexity and uncertainty. See "Federal Income Tax
Consequences" in the Prospectus. Because original issue discount on such
classes of Certificates will be deducted by the Trust Fund in determining its
taxable income, any changes required by the IRS in the application of those
rules to such Certificates may significantly affect the timing of original issue
discount deductions to the Trust Fund and therefore the amount of the Trust
Fund's taxable income allocable to holders of the Residual Certificates.
The Residual Certificateholders will be required to report an amount of
taxable income with respect to the earlier accrual periods of the term of the
REMIC that significantly exceeds the amount of cash distributions received by
such Residual Certificateholders from the REMIC with respect to such periods.
Furthermore, the tax on such income will exceed the cash distributions with
respect to such periods. Consequently,
<PAGE>
-64-
Residual Certificateholders should have other sources of funds sufficient to pay
any federal income taxes due as a result of their ownership of Residual
Certificates. In addition, the required inclusion of this amount of income
during the REMIC's earlier accrual periods and the deferral of corresponding tax
losses or deductions until later accrual periods or until the ultimate sale or
disposition of a Residual Certificate (or possibly later under the "wash sale"
rules of Section 1091 of the Code) may cause the Residual Certificateholders'
after-tax rate of return to be zero or negative even if the Residual
Certificateholder's pre-tax rate of return is positive. That is, on a present
value basis, the Residual Certificateholders' resulting tax liabilities could
substantially exceed the sum of any tax benefits and the amount of any cash
distributions on such Residual Certificates over their life.
An individual, trust or estate that holds (whether directly or indirectly
through certain pass-through entities) a Residual Certificate, particularly a
Residual Certificate, may have significant additional gross income with respect
to, but may be subject to limitations on the deductibility of, servicing and
trustee's fees and other administrative expenses properly allocable to the REMIC
in computing such Certificateholder's regular tax liability and will not be able
to deduct such fees or expenses to any extent in computing such
Certificateholder's alternative minimum tax liability. Such expenses will be
allocated for federal income tax information reporting purposes entirely to the
REMIC Regular Certificates. However, it is possible that the IRS may require
all or some portion of such fees and expense to be allocable to the Residual
Certificates. Recently enacted provisions governing the relationship between
excess inclusions and the alternative minimum tax provide that (i) the
alternative minimum taxable income of a taxpayer is based on the taxpayer's
regular taxable income computed without regard to the rule that taxable income
cannot be less than tthe amount of excess inclusions, (ii) the alternative
minimum taxable income of a taxpayer for a taxable year cannot be less than the
amount of excess inclusions for that year, and (iii) the amount of any
alternative minimum tax net operating loss is computed without regard to any
excess inclusions. While these provisions are generally effective for tax years
beginning after December 31, 1996, a taxpayer may elect to have these provisions
apply only with respect to tax years beginning after August 20, 1996. See
"Federal Income Tax Consequences-REMICs-Taxation of Owners of REMIC Residual
Certificates-Possible Pass-Through of Miscellaneous Itemized Deductions" in the
Prospectus.
The Trustee will be designated as the "tax matters person" as defined in
Treasury Regulation Section 301.6231(a)(7)-lT with respect to the Trust Fund,
and in connection therewith will be required to hold not less than a 0.01%
Percentage Interest of the Residual Certificates.
Purchasers of the Residual Certificates are strongly advised to consult
their own tax advisors as to the economic and tax consequences of investment in
such Residual Certificates.
For further information regarding the federal income tax consequences of
investing in the Residual Certificates, see "Yield Considerations-Additional
Yield Considerations Applicable Solely to the Residual Certificates" herein and
"Federal Income Tax
<PAGE>
-65-
Consequences-REMICs-Taxation of Owners of REMIC Residual Certificates" in the
Prospectus.]
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting Agreement
dated _____________, 19__, the Underwriter has agreed to purchase and the
Company has agreed to sell to the Underwriter each class of Senior Certificates.
The Underwriting Agreement provides that the obligation of the Underwriter
to pay for and accept delivery of the Senior Certificates is subject to, among
other things, the receipt of certain legal opinions and to the conditions, among
others, that no stop order suspending the effectiveness of the Company's
Registration Statement shall be in effect, and that no proceedings for such
purpose shall be pending before or threatened by the Securities and Exchange
Commission.
The distribution of the Senior Certificates by the Underwriter may be
effected from time to time in one or more negotiated transactions, or otherwise,
at varying prices to be determined at the time of sale. Proceeds to the Company
from the sale of the Senior Certificates, before deducting expenses payable by
the Company, will be ____% of the aggregate Certificate Principal Balance of
the Senior Certificates plus accrued interest thereon from the Cut-off Date.
The Underwriter may effect such transactions by selling the Senior Certificates
to or through dealers, and such dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from the Underwriter for whom
they act as agent. In connection with the sale of the Senior Certificates, the
Underwriter may be deemed to have received compensation from the Company in the
form of underwriting compensation. The Underwriter and any dealers that
participate with the Underwriter in the distribution of the Senior Certificates
may be deemed to be underwriters and any profit on the resale of the Senior
Certificates positioned by them may be deemed to be underwriting discounts and
commissions under the Securities Act of 1933.
The Underwriting Agreement provides that the Company will indemnify the
Underwriter, and that under limited circumstances the Underwriter will indemnify
the Company, against certain civil liabilities under the Securities Act of 1933,
or contribute to payments required to be made in respect thereof.
There can be no assurance that a secondary market for the Senior
Certificates will develop or, if it does develop, that it will continue. The
primary source of information available to investors concerning the Senior
Certificates will be the monthly statements discussed in the Prospectus under
"Description of the Certificates - Reports to Certificateholders, " which will
include information as to the outstanding principal balance of the Senior
Certificates and the status of the applicable form of credit enhancement. There
can be no assurance that any additional information regarding the Senior
Certificates will be available through any other source. In addition, the
Company is not aware of any
<PAGE>
-66-
source through which price information about the Senior Certificates will be
generally available on an ongoing basis. The limited nature of such information
regarding the Senior Certificates may adversely affect the liquidity of the
Senior Certificates, even if a secondary market for the Senior Certificates
becomes available.
LEGAL OPINIONS
Certain legal matters relating to the Certificates will be passed upon for
the Company by Freshman, Marantz, Orlanski, Cooper & Klein and for the
Underwriter by ______________________________________________.
RATINGS
It is a condition to the issuance of the Senior Certificates that they be
rated not lower than "___" by ______________________________________
("__________________") and "___" by ________________________ ("________").
The ratings of _______ on mortgage pass-through certificates address the
likelihood of the receipt by Certificateholders of all distributions on the
underlying mortgage loans to which they are entitled. _______ ratings on pass-
through certificates do not represent any assessment such prepayments might
differ from that originally anticipated. The rating does not address the
possibility that Certificateholders might suffer a lower than anticipated yield.
___________________________ ratings on mortgage pass-through
certificates also address the likelihood of the receipt by Certificateholders of
payments required under the Pooling and Servicing Agreement.
_________________________ ratings take into consideration the credit quality of
the mortgage pool, structural and legal aspects associated with the
Certificates, and the extent to which the payment stream in the mortgage pool is
adequate to make payments required under the Certificates. ___________________
rating on the Certificates does not, however, constitute a statement regarding
frequency of prepayments on the mortgages. See "Certain Yield and Prepayment
Considerations" herein.
The Company has not requested a rating on the Senior Certificates by any
rating agency other than ___________________ and ___________________________.
However, there can be no assurance as to whether any other rating agency will
rate the Senior Certificates, or, if it does, what rating would be assigned by
any such other rating agency. A rating on the Certificates by another rating
agency, if assigned at all, may be lower than the ratings assigned to the Senior
Certificates by ___________ and ______________________.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating. The rating of the Fixed Strip Certificates or Variable
Strip Certificates does not address the possibility
<PAGE>
-67-
that the holders of such Certificates may fail to fully recover their initial
investment. In the event that the rating initially assigned to the Senior
Certificates is subsequently lowered for any reason, no person or entity is
obligated to provide any additional support or credit enhancement with respect
to the Senior Certificates.
LEGAL INVESTMENT
The Senior Certificates 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 one of
the Rating Agencies, and, as such, are legal investments for certain entities to
the extent provided in SMMEA. SMMEA provides, however, that states could
override its provisions on legal investment and restrict or condition investment
in mortgage related securities by taking statutory action on or prior to October
3, 1991. Certain states have enacted legislation which overrides the preemption
provisions of SMMEA.
The Company makes no representations as to the proper characterization of
any class of the Offered Certificates for legal investment or other purposes, or
as to the ability of particular investors to purchase any class of the Offered
Certificates under applicable legal investment restrictions. These
uncertainties may adversely affect the liquidity of any class of Offered
Certificates. Accordingly, all institutions whose investment activities are
subject to legal investment laws and regulations, regulatory capital
requirements or review by regulatory authorities should consult with their legal
advisors in determining whether and to what extent any class of the Offered
Certificates constitutes a legal investment or is subject to investment, capital
or other restrictions.
See "Legal Investment Matters" in the Prospectus.
<PAGE>
==============================================
NO DEALER, SALESMAN OR OTHER PERSON
HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS
NOT CONTAINED IN THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY THE
UNDERWRITER. THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS DO NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, THE SECURITIES OFFERED HEREBY
TO ANYONE IN ANY JURISDICTION IN WHICH THE
PERSON MAKING SUCH OFFER OR SOLICITATION
IS NOT QUALIFIED TO DO SO OR TO ANYONE TO
WHOM IT IS UNLAWFUL TO MAKE ANY SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT
INFORMATION HEREIN OR THEREIN IS CORRECT AS
OF ANY TIME SINCE THE DATE OF THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Summary............................... S-
Risk Factors.......................... S-
Description of the Mortgage Pool...... S-
Certain Yield and Prepayment
Considerations...................... S-
Pooling and Servicing Agreement....... S-
Federal Income Tax Consequences....... S-
Method of Distribution................ S-
Legal Opinions........................ S-
Ratings............................... S-
Legal Investment...................... S-
PROSPECTUS
Summary of Prospectus.................
Risk Factors..........................
The Mortgage Pools....................
Servicing of Mortgage Loans...........
Description of the Certificates.......
Subordination.........................
Description of Credit Enhancement.....
Purchase Obligations..................
Primary Mortgage Insurance, Hazard
Insurance; Claims Thereunder........
The Company...........................
ICI Funding Corporation...............
Imperial Credit Mortgage
Holdings, Inc.......................
The Pooling Agreement.................
Yield Considerations..................
Maturity and Prepayment
Considerations......................
Certain Legal Aspects of Mortgage
Loans...............................
Federal Income Tax Consequences.......
State and Other Tax Consequences......
ERISA Considerations..................
Legal Investment Matters..............
Use of Proceeds.......................
Methods of Distribution...............
Legal Matters.........................
Financial Information.................
Rating................................
Index of Principal Definitions........
</TABLE>
==========================================
ICIFC SECURED
ASSETS CORP.
$_______________
MORTGAGE PASS-THROUGH
CERTIFICATES
Series 19__-__
<TABLE>
<S> <C>
$ ____% Class A-1 Certificates
$ ____% Class A-2 Certificates
$ ____% Class A-3 Certificates
$ ____% Class A-4 Certificates
$ ____% Class A-5 Certificates
$ ____% Class A-6 Certificates
$ Variable Rate Class A-7 Certificates
</TABLE>
_______________
PROSPECTUS SUPPLEMENT
_______________
-------------------------------
_________, 19__
==========================================
<PAGE>
VERSION 2
=========
- --------------------------------------------------------------------------------
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This preliminary prospectus supplement shall not constitute an offer
to sell or the solicitation of an offer to buy nor shall there be any sale of
these securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such State.
- --------------------------------------------------------------------------------
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED OCTOBER , 1996
--
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED __________________, 19 ___)
$_____________
ICIFC SECURED ASSETS CORP.
COMPANY
[NAME OF MASTER SERVICER] [ICI FUNDING CORPORATION]
MASTER SERVICER
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 19__-__
WEIGHTED AVERAGE ADJUSTABLE PASS-THROUGH RATE
The Series 19__-__ Mortgage Pass-Through Certificates (the
"Certificates") will evidence the entire beneficial ownership interest in a
trust fund (the "Trust Fund") consisting primarily of a pool of conventional
adjustable-rate one- to four-family first lien mortgage loans (the "Mortgage
Loans"), exclusive of the Spread (as defined herein), to be deposited by ICIFC
Secured Assets Corp. (the "Company") into the Trust Fund for the benefit of the
Certificateholders. Certain characteristics of the Mortgage Loans are described
herein under "Description of the Mortgage Pool."
A limited amount of losses on the Mortgage Loans will initially be
covered by an irrevocable letter of credit (the "Letter of Credit") to be issued
by ___________________ (the "Letter of Credit Bank"). The maximum amount
available to be drawn under the Letter of Credit will initially be equal to
approximately _____% of the aggregate principal balance of the Mortgage Loans as
of____________________, 19__ (the "Cut-off Date").
The interest rates on the Mortgage Loans (each, a "Mortgage Rate") will
change semi-annually based on the Index (as defined herein) and the respective
Note Margins described herein under "Description of the Mortgage Pool-General,"
subject to certain periodic and lifetime limitations as described more fully
herein. Distributions on the Certificates will be made on the 25th day of each
month or, if such day is not a business day, then on the next succeeding
business day commencing on _______________, 19__ (each, a "Distribution Date").
As more fully described herein under "Description of the Certificates-
Distributions," interest distributions on the Certificates will be based on the
principal balance of the Mortgage Loans and the then applicable Weighted Average
Adjustable Pass-Through Rate, which will equal the weighted average of the Net
Mortgage Rates on the Mortgage Loans for the month preceding such Distribution
Date, as described more fully herein. The "Net Mortgage Rate" for each
<PAGE>
Mortgage Loan is generally equal the Mortgage Rate thereon from time to time,
net of the per annum rates applicable to the calculation of the related
servicing fee and Spread. The initial Weighted Average Adjustable Pass-Through
Rate for the Certificates will be ________% per annum. The Weighted Average
Adjustable Pass-Through Rate on the Certificates may increase or decrease from
month to month. Distributions in respect of principal of the Certificates will
be made as described herein under "Description of the Certificates-
Distributions."
Certain Mortgage Loans provide that, at the option of the related Mortgagors,
the adjustable rate on such Mortgage Loans may be converted to a fixed rate (the
"Convertible Mortgage Loans"), provided that certain conditions have been
satisfied. Upon notification from a Mortgagor of such Mortgagor's intent to
convert from an adjustable rate to a fixed rate and prior to the conversion of
any such Mortgage Loan (a "Converting Mortgage Loan"), the Master Servicer [or
the related Subservicer] will be obligated to purchase the Converting Mortgage
Loan at a net price of par plus accrued interest thereon (the "Conversion
Price"). [In the event of a failure by a Subservicer to purchase a Converting
Mortgage Loan, the Master Servicer shall use its best efforts to purchase any
Converted Mortgage Loan (as defined herein) from the Mortgage Pool at the
Conversion Price during the one month period following the date of conversion to
a Converted Mortgage Loan.] In the event that neither the Master Servicer [nor
the related Subservicer] purchases a Converting or Converted Mortgage Loan, the
Mortgage Pool will thereafter include both fixed rate and adjustable rate
Mortgage Loans. See "Certain Yield and Prepayment Considerations" herein.
Except as set forth herein, the Master Servicer's only obligations with respect
to the Certificates are its contractual obligations as Master Servicer under the
terms of the Pooling and Servicing Agreement (as defined herein).
As described herein, the Trust Fund will be treated as a grantor trust for
federal income tax purposes. See "Federal Income Tax Consequences."
The Prospectus contains in "Index of Principal Definitions" at the end of the
Prospectus.
SEE "RISK FACTORS" BEGINNING ON PAGE S- HEREIN AND ON PAGE 11 OF THE
--
PROSPECTUS FOR A DISCUSSION OF SIGNIFICANT MATTERS AFFECTING AN INVESTMENT IN
THE CERTIFICATES.
The yield to maturity on the Certificates will depend on the rate of payment
of principal (including as a result of prepayments, defaults, liquidations and
purchases of Converting Mortgage Loans and Converted Mortgage Loans) on the
Mortgage Loans. The Mortgage Loans may be prepaid in full or in part at any
time without penalty. The yield to investors on the Certificates will be
adversely affected by any shortfalls in interest collected on the Mortgage Loans
due to prepayments, liquidations or otherwise. See "Certain Yield and
Prepayment Considerations" herein and "Yield Considerations" in the Prospectus.
-2-
<PAGE>
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF PAYMENTS ON
THE CERTIFICATES. THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR
OBLIGATION OF THE COMPANY, THE MASTER SERVICER OR ANY OF THEIR AFFILIATES.
NEITHER THE CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS ARE INSURED OR
GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE COMPANY, THE
MASTER SERVICER OFFERED OR ANY OF THEIR AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The Certificates will be purchased from the Company by the Underwriter and
will be offered by the Underwriter from time to time to the public in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. The proceeds to the Company from the sale of the Certificates will be
equal to __________% of the initial aggregate principal balance of the
Certificates, plus accrued interest thereon from ___________ 1, 19__ (the "Cut-
off Date"), net of any expenses payable by the Company.
The Certificates are offered by the Underwriter subject to prior sale, when,
as and if delivered to and accepted by the Underwriter and subject to certain
other conditions. The Underwriter reserves the right to withdraw, cancel or
modify such offer and to reject any order in whole or in part. It is expected
that delivery of the Certificates will be made on or about 19- at the office of
_________________________________, _____________, _____________________ against
payment therefor in immediately available funds.
[Name of Underwriter]
[Date of Prospectus Supplement]
-3-
<PAGE>
THE CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE A SEPARATE
SERIES OF CERTIFICATES BEING OFFERED BY THE COMPANY PURSUANT TO ITS PROSPECTUS
DATED ___________, 19__, OF WHICH THIS PROSPECTUS SUPPLEMENT IS A PART AND WHICH
ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE PROSPECTUS CONTAINS IMPORTANT
INFORMATION REGARDING THIS OFFERING WHICH IS NOT CONTAINED HEREIN, AND
PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS AND THIS PROSPECTUS
SUPPLEMENT IN FULL. SALES OF THE CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE
PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
UNTIL __________________, 19__, ALL DEALERS EFFECTING TRANSACTIONS IN THE
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO WHICH IT RELATES. THIS
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>
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus.
Capitalized terms used herein and not otherwise defined herein have the meanings
assigned in the Prospectus. An "Index of Principal Definitions" indicating
where certain capitalized terms used herein and in the Prospectus are defined
appears at the end of the Prospectus.
Title of Securities ...... Mortgage Pass-Through Certificates, Weighted
Average Adjustable Pass-Through Rate, Series
19__-__.
Company .................. ICIFC Secured Assets Corp. (the "Company"), a
wholly-owned subsidiary of ICI Funding Corporation
("ICI Funding"). See "The Company" and "ICI Funding
Corporation" in the Prospectus.
Seller ................... [Name of Seller] [ICI Funding Corporation] (the
"Seller" [or "ICI Funding"])[,a non-consolidating
subsidiary of Imperial Credit Mortgage Holdings,
Inc. ("ICMH")]. See "Description of the Mortgage
Pool-The Seller" herein [and "ICI Funding
Corporation" and "Imperial Credit Mortgage
Holdings, Inc." in the Prospectus].
Master Servicer .......... [Name of Master Servicer] [ICI Funding Corporation]
(the "Master Servicer" [or "ICI Funding"])[, a non-
consolidating subsidiary of Imperial Credit
Mortgage Holdings, Inc ("ICMH")]. The Mortgage
Loans will be subserviced by _______________ (the
"Sub-Servicer"). See "Pooling and Servicing
Agreement-The Master Servicer; the Sub-Servicer"
herein [and "ICI Funding Corporation" and "Imperial
Credit Mortgage Holdings, Inc." in the Prospectus].
Trustee .................. _____________, _______________ (the "Trustee").
Cut-off Date ............. _____________, 19__ (the "Cut-off Date").
Delivery Date ............ On or about ___________, 19__ (the "Delivery
Date").
Denominations ............ The Certificates will be issued in registered,
certificated form, in minimum denominations of $
_________ and integral multiples of $___________ in
excess thereof.
-5-
<PAGE>
The Mortgage Pool ........ The Mortgage Pool will consist of a pool of
adjustable rate, fully-amortizing mortgage loans
(the "Mortgage Loans"), exclusive of the Spread (as
defined herein). The aggregate principal balance of
the Mortgage Loans as of the Cut-off Date will be
approximately $ ___________________.
The Mortgage Loans are secured by first liens on
one-to four-family residential real properties
(each, a "Mortgaged Property"). The Mortgage Loans
have individual principal balances at origination
of at least $_____________ but not more than
$__________ with an average principal balance at
origination of approximately $___________. The
Mortgage Loans have terms to maturity of __ years
from the date of origination and a weighted average
remaining term to stated maturity of approximately
__ years and __ months as of the Cut-off Date. The
Mortgage Rate on each Mortgage Loan will adjust
semi-annually on its Adjustment Date (as defined
herein), with corresponding adjustments in the
amount of monthly payments, to equal the sum
(rounded as described herein) of the Index
described below and a fixed percentage set forth in
the related Mortgage Note (the "Note Margin").
However, (i) on any Adjustment Date such Mortgage
Rate may not increase or decrease by more than 1%
(the "Periodic Rate Cap"), (ii) over the life of
such Mortgage Loan, such Mortgage Rate may not
exceed the related maximum Mortgage Rate (such
maximum Mortgage Rate is equal to the Mortgage Rate
at origination plus a lifetime rate cap (the
"Lifetime Rate Cap")), which maximum Mortgage Rates
will range from _____% to _____% and (iii) with
respect to approximately _______% of the Mortgage
Loans, by aggregate principal balances of the Cut-
off Date, over the life of such Mortgage Loan, such
Mortgage Rate may not be lower than the minimum
Mortgage Rate. The difference between the Mortgage
Rate on each Mortgage Loan at origination and the
minimum Mortgage Rate on such Mortgage Loan will
equal the lifetime rate floor (the "Lifetime Rate
Floor"). The minimum Mortgage Rates will range from
_______% to _______% per annum.
-6-
<PAGE>
Accordingly, changes in the Weighted Average
Adjustable Pass-Through Rate will not necessarily
correspond to changes in the Index or other
prevailing interest rates. Additionally, the
initial Mortgage Rates in effect on the Mortgage
Loans will likely be lower than the sum of the
Index and related Note Margin that would have been
applicable at origination. Because the maximum
Mortgage Rate on any Mortgage Loan is determined by
adding the Lifetime Rate Cap to the Mortgage Rate
at origination, the maximum rate on a Mortgage Loan
will likely be less than the sum of the Index and
the Note Margin that would have been applicable at
origination plus the Lifetime Rate Cap. No Mortgage
Loan provides for payment caps on any Adjustment
Date which would result in deferred interest or
negative amortization. The Mortgage Loans will bear
interest at Mortgage Rates of at least ______% per
annum but not more than ______% per annum, as of
the Cut-off Date. For a further description of the
Mortgage Loans, see "Description of the Mortgage
Pool" herein.
The Index ................ As of any Adjustment Date with respect to any
Mortgage Loan, the Index applicable to the
determination of the related Mortgage Rate will be
a rate equal to the monthly weighted average cost
of funds for members of the Federal Home Loan Bank
of San Francisco as most recently available 45 days
prior to the Adjustment Date (the "Cost of Funds
Index" or "Index").
Conversion of Mortgage
Loans ................... Approximately __________% of the Mortgage Loans, by
aggregate principal balance as of the Cut-off Date,
are Convertible Mortgage Loans. Upon notification
from a Mortgagor of such Mortgagor's intent to
convert from an adjustable rate to a fixed rate and
prior to the conversion thereof, the Master
Servicer [or the related Subservicer] will be
obligated to purchase the Converting Mortgage Loan
at a net price of par plus accrued interest thereon
(the "Conversion Price"). [In the event of a
failure by a Subservicer to purchase a Converting
Mortgage Loan, the Master Servicer shall use its
best efforts to purchase any Converted Mortgage
Loan (as defined herein) from the Mortgage Pool at
the
-7-
<PAGE>
Conversion Price during the one month period
following the date of conversion to a Converted
Mortgage Loan.] In the event that neither the
Master Servicer [nor the related Subservicer]
purchases a Converting or Converted Mortgage Loan,
the Mortgage Pool will thereafter include both
fixed-rate and adjustable rate Mortgage Loans. See
"Certain Yield and Prepayment Considerations"
herein.
The Certificates ......... The Certificates evidence the entire beneficial
ownership interest in a trust fund (the "Trust
Fund") consisting primarily of the Mortgage Pool,
exclusive of the Spread. The Certificates will be
issued pursuant to a Pooling and Servicing
Agreement, to be dated as of the Cut-off Date,
among the Company, the Master Servicer, and the
Trustee (the "Pooling and Servicing Agreement").
Interest Distributions ... The Weighted Average Adjustable Pass-Through Rate
applicable to the Certificates in respect of each
Distribution Date will equal the weighted average
of the Net Mortgage Rates on the Mortgage Loans for
the month preceding such Distribution Date. The
initial Weighted Average Adjustable Pass-Through
Rate will be ________% per annum. The Net Mortgage
Rate on each Mortgage Loan is generally equal to
the Mortgage Rate thereon minus the rate per annum
at which the related servicing fee accrues (the
"Servicing Fee Rate") and the per annum rate at
which the Spread referred to below under "Pooling
and Servicing Agreement-Servicing and Other
Compensation and Payment of Expenses; Spread"
accrues.
Holders of the Certificates will be entitled to
receive distributions allocable to interest in
proportion to their respective Percentage Interests
(as defined herein) on each Distribution Date, to
the extent of available funds, in an aggregate
amount equal to one month's interest, at the then
applicable Weighted Average Adjustable Pass-Through
Rate, on the principal balance of the Certificates
outstanding as of the close of business on the
immediately preceding Distribution Date, subject to
reduction in the event of any full and partial
prepayments or any interest shortfalls not covered
by the Letter of Credit (as defined herein) as well
as certain
-8-
<PAGE>
losses and delinquencies on the Mortgage Loans as
described herein. See "Description of the
Certificates-Distributions" herein and in the
Prospectus.
Principal
Distributions ........... Principal payments (including prepayments) received
on the Mortgage Loans will be passed through on
each Distribution Date to holders of the
Certificates in proportion to their respective
Percentage Interests. See "Description of the
Certificates-Distributions" herein and in the
Prospectus.
Advances ................. The Master Servicer is required to make advances
("Advances") to holders of the Certificates in
respect of delinquent payments of principal and
interest on the Mortgage Loans, subject to the
limitations described herein. See "Description of
the Certificates-Advances" herein and in the
Prospectus.
Credit
Enhancement ............. Neither the Certificates nor the Mortgage Loans are
insured or guaranteed by any governmental agency or
instrumentality or by the Company, the Master
Servicer or any affiliate thereof. However, a
limited amount of losses on the Mortgage Loans will
be covered initially by an irrevocable letter of
credit (the "Letter of Credit") to be issued by
__________________ (the "Letter of Credit Bank") in
favor of the Trustee for the benefit of the holders
of the Certificates. The maximum amount available
under the Letter of Credit to cover losses with
respect to the Mortgage Loans will initially equal
$___________ (the initial "Available Amount") which
is equal to approximately ______% of the aggregate
principal balance of the Mortgage Loans as of the
Cut-off Date. The Available Amount is subject to
periodic reduction as described herein. See
"Description of the Certificates-Distributions."
The Letter of Credit will cover losses on the
Mortgage Loans that constitute Defaulted Mortgage
Losses, Special Hazard Losses, Fraud Losses and
Bankruptcy Losses (each as defined in the
Prospectus), to the extent described herein.
Amounts that may be drawn under
-9-
<PAGE>
the Letter of Credit to cover Special Hazard
Losses, Fraud Losses and Bankruptcy Losses are
initially limited to $____________________,
$_____________________ and $_______________,
respectively. All of the foregoing amounts are
subject to periodic reduction as described herein.
Any draws under the Letter of Credit, including
draws for Special Hazard Losses, Fraud Losses and
Bankruptcy Losses, will reduce the Available
Amount. The Letter of Credit will expire on
_______________, 19__, unless earlier terminated or
extended in accordance with its terms or replaced
in a manner as herein described. See "Description
of the Credit Enhancement-Letter of Credit."
In the event losses on Mortgage Loans occur which
are not covered by the Letter of Credit or any
replacement credit enhancement, such losses will be
borne by the Certificateholders. See "Description
of Credit Enhancement" herein.
Optional
Termination ............. At its option, on any Distribution Date when the
principal balance of the Mortgage Loans is less
than [___]% of the aggregate principal balance of
the Mortgage Loans as of the Cut-off Date, the
Master Servicer or the Company may (i) purchase
from the Trust Fund all remaining Mortgage Loans
and other assets thereof and thereby effect early
retirement of the Certificates or (ii) purchase in
whole, but not in part, the Certificates. See
"Pooling and Servicing Agreement-Termination"
herein and "The Pooling Agreement-Termination;
Retirement of Certificates" in the Prospectus.
Special Prepayment
Considerations .......... The rate of principal payments on the Certificates
collectively will depend on the rate and timing of
principal payments (including by reason of
prepayments, defaults and liquidations) on the
Mortgage Loans. As is the case with mortgage-backed
securities generally, the Certificates are subject
to substantial inherent cash-flow uncertainties
because the Mortgage Loans may be prepaid at any
time. Generally, when prevailing interest rates are
increasing, prepayment rates on mortgage loans
-10-
<PAGE>
tend to decrease, resulting in a reduced return of
principal to investors at a time when reinvestment
at such higher prevailing rates would be desirable.
Conversely, when prevailing interest rates are
declining, prepayment rates on mortgage loans tend
to increase, resulting in a greater return of
principal to investors at a time when reinvestment
at comparable yields may not be possible.
See "Description of the Certificates-Distributions"
and "Certain Yield and Prepayment Considerations"
herein, and "Maturity and Prepayment
Considerations" in the Prospectus.
Special Yield
Considerations .......... The yield to maturity on the Certificates will
depend on the rate and timing of principal payments
(including by reason of prepayments, defaults,
liquidations [and purchases of Mortgage Loans
converting to a fixed rate]) on the Mortgage Loans,
as well as other factors such as changes in the
Index, provisions of the Mortgage Loans limiting
changes in the Mortgage Rates and the purchase
price for such Certificates. The Weighted Average
Adjustable Pass-Through Rate will be reduced to the
extent that prepayments, liquidations and purchases
occur at a faster rate for Mortgage Loans having
higher Net Mortgage Rates than for Mortgage Loans
having lower Net Mortgage Rates. The yield to
investors on the Certificates will be adversely
affected by any allocation thereto of prepayment
interest shortfalls on the Mortgage Loans, which
are expected to result from the distribution of
interest only to the date of prepayment (rather
than a full month's interest) in connection with
prepayments in full, and the lack of any
distribution of interest on the amount of any
partial prepayments. See "Certain Yield and
Prepayment Considerations" herein, and "Yield
Considerations" in the Prospectus.
Federal Income Tax
Consequences ............ No election will be made to treat the Trust Fund as
a real estate mortgage investment conduit for
federal income tax purposes.
________________________, counsel to the Depositor,
will deliver its opinion
-11-
<PAGE>
generally to the effect that, assuming compliance
with all provisions of the Pooling and Servicing
Agreement, for federal income tax purposes the
Trust Fund will be classified as a grantor trust
under the Internal Revenue Code of 1986 (the
"Code"), and not as a partnership or an association
taxable as a corporation.
For further information regarding the federal
income tax consequences of investing in the
Certificates see "Federal Income Tax Consequences"
herein.
Rating ................... It is a condition of the issuance of the
Certificates that they be rated at least "____" by
_____________________. ______________ RATING OF THE
CERTIFICATES WILL NOT REPRESENT ANY ASSESSMENT OF
THE MASTER SERVICER'S [NOR THE RELATED
SUBSERVICER'S] ABILITY TO PURCHASE CONVERTING
MORTGAGE LOANS, OR THE REMARKETING AGENT'S ABILITY
TO ARRANGE FOR THE PURCHASE OF CONVERTED MORTGAGE
LOANS. In the event that neither the Master
Servicer [nor the related Subservicer] purchases a
Converting or Converted Mortgage Loan, investors in
the Certificates might suffer a lower than
anticipated yield. A security rating is not a
recommendation to buy, sell or hold securities and
may be subject to revision or withdrawal at any
time by the assigning rating organization. A
security rating does not address the frequency of
prepayments of Mortgage Loans, or the corresponding
effect on yield to investors. See "Certain Yield
and Prepayment Considerations" and "Rating" herein
and "Yield Considerations" in the Prospectus.
Legal Investment ......... The Certificates will constitute "mortgage related
securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 ("SMMEA") for so
long as they are rated in at least the second
highest rating category by one or more nationally
recognized statistical rating agencies.
Institutions whose investment activities are
subject to legal investment laws and regulations,
regulatory capital requirements or review by
regulatory authorities may be subject to
restrictions on investment in the Certificates and
should consult with
-12-
<PAGE>
their legal advisors. See "Legal Investment" herein
and "Legal Investment Matters" in the Prospectus.
Listing Application ...... The Company does not currently intend to make an
application to list the Offered Certificates on a
national securities exchange or to quote the
Offered Securities in the automated quotation
system of a registered securities association.
Risk Factors ............. There are material risks associated with an
investment in the Certificates. See "Risk Factors"
beginning on page ___ herein and on page ___ of the
Prospectus for a discussion of significant matters
affecting investments in the Certificates.
-13-
<PAGE>
RISK FACTORS
[Prospective Certificateholders should consider, among other things, the
items discussed under "Risk Factors" in the Prospectus and the following factors
in connection with the purchase of the Certificates:]
[Appropriate Risk Factors as necessary. Possible Risk Factors based on present
disclosure may include the following:
Delinquencies and Potential Delinquencies. Approximately ___% of the
Mortgage Loans (by aggregate principal balance as of the Cut-Off Date) were
thirty days or more but less than sixty days delinquent in their Monthly
Payments (such Mortgage Loans, the "Delinquent Mortgage Loans") as of the Cut-
Off Date. Prospective investors in the Certificates should be aware, however,
that only approximately ____% of the Mortgage Loans (by aggregate principal
balance as of the Cut-Off Date) had a first Monthly Payment due on or before
________, 1996, and therefore, the remaining Mortgage Loans could not have been
Delinquent Mortgage Loans as of the Cut-Off Date.
Approximately ____% of the Mortgage Loans (by aggregate outstanding principal
balance as of the Cut-Off Date) are secured by Mortgaged Properties located in
the State of California. Property values of residential real estate in
California have declined in recent years. If the California residential real
estate market continues to experience an overall decline in property values
after the dates of origination of the Mortgage Loans, the rates of delinquency,
foreclosure, bankruptcy and loss on the Mortgage Loans may increase
substantially, as compared to such rates in a stable or improving real estate
market.
Approximately ___% of the Mortgage Loans are secured by Mortgaged Properties
located in Orange, California. On December 6, 1994, Orange County filed for
protection under Chapter 9 of the United States Bankruptcy Code. If public
services are curtailed as a result of Orange County's financial difficulties,
property values in the related market area may be adversely affected.
Underwriting. Approximately ____% of the Mortgage Loans (measured by Cut-Off
Date Balance) were underwritten in accordance with underwriting standards that
are intended to provide one- to-four family mortgage loans to borrowers whose
creditworthiness and credit histories do not satisfy the requirements of typical
"A" credit borrowers. The Mortgagors with respect to such Mortgage Loans may
have records of major derogatory credit such as credit write-offs, outstanding
judgments and prior bankruptcies. Such Mortgage Loans generally bear higher
rates of interest than mortgage loans made to "A" credit borrowers. Such
Mortgage Loans are likely to experience rates of delinquency, foreclosure and
loss that are higher, and may be substantially higher, than mortgage loans made
to "A" credit borrowers.]
-14-
<PAGE>
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The Mortgage Pool will consist of Mortgage Loans with an aggregate principal
balance outstanding as of the Cut-off Date of approximately $____________. The
Mortgage Pool will consist of conventional, adjustable-rate, fully-amortizing
Mortgage Loans with terms to maturity of not more than 30 years from the due
date of the first monthly payment. On or before the Delivery Date, the Company
will acquire the Mortgage Loans to be included in Mortgage Pool from [ICI
Funding] (in such capacity, the "Seller"). The Seller will make certain
representations and warranties with respect to the Mortgage Loans and, as more
particularly described in the Prospectus, will have certain repurchase or
substitution obligations in connection with a breach of any such representation
and warranty, as well as in connection with an omission or defect in respect of
certain constituent documents required to be delivered with respect to the
Mortgage Loans, in any event if such breach, omission or defect cannot be cured
and it materially and adversely affects the interests of Certificateholders.
Neither the Company nor any other entity or person will have any responsibility
to purchase or replace any Mortgage Loan if the Seller is obligated but fails to
do so. See "Description of the Mortgage Pool-Representations by Sellers" and
"Description of the Certificates-Assignment of Trust Fund Assets" in the
Prospectus and "-The Seller" below. The Mortgage Loans will have been
originated or acquired by the Seller in accordance with the underwriting
criteria described herein. See "-Underwriting" below. All percentages of the
Mortgage Loans described herein are approximate percentages (except as otherwise
indicated) by aggregate principal balance as of the Cut-off Date.
The Mortgage Rate on each Mortgage Loan will adjust semi-annually on a date
specified in the related Mortgage Note (the "Adjustment Date"). For
approximately ______% of the Mortgage Loans, by aggregate principal balance as
of the Cut-off Date, the first Adjustment Date occurred prior to the Cut-off
Date.
On each Adjustment Date, the Mortgage Rate on a Mortgage Loan will be
adjusted to equal the sum (rounded to either the nearest or next highest
multiple of _____%) of (a) a rate per annum equal to the monthly weighted
average cost of funds for members of the Federal Home Loan Bank of San Francisco
(the "FHLB of San Francisco") as published by the FHLB of San Francisco (the
"Cost of Funds Index" or "Index") and as most recently available as of the day
45 days prior to such Adjustment Date or, in the event that such Index is no
longer available, an index selected by the Master Servicer and reasonably
acceptable to the Trustee that is based on comparable information, and (b) the
related Note Margin, subject to the following limitations. The Mortgage Rate on
the Mortgage Loan on any Adjustment Date may not increase or decrease by more
than the Periodic Rate Cap applicable to such Mortgage Loan and, over the life
of such Mortgage Loan, generally may not exceed the Mortgage Rate at origination
plus the Lifetime Rate Cap, or be less than the Mortgage Rate at origination
minus any Lifetime Rate Floor, applicable to such Mortgage Loan. No Mortgage
Loan provides for payment caps on any Adjustment Date which would result in
deferred interest or negative amortization. Effective with the first
-15-
<PAGE>
payment due date on a Mortgage Loan after an Adjustment Date therefor, the
monthly principal and interest payment will be adjusted to an amount that will
fully amortize the then outstanding principal balance of such Mortgage Loan at
its stated maturity and pay interest at the adjusted Mortgage Rate. Because the
amortization schedule of each Mortgage Loan will be recalculated semi-annually,
any partial prepayments thereof will not reduce the term to maturity of such
Mortgage Loan. An increase in the Mortgage Rate on a Mortgage Loan will result
in a larger monthly payment and in a larger percentage of such monthly payment
being allocated to interest and a smaller percentage being allocated to
principal, and conversely, a decrease in the Mortgage Rate on the Mortgage Loan
will result in a lower monthly payment and in a larger percentage of each
monthly payment being allocated to principal and a smaller percentage being
allocated to interest.
The Cost of Funds Index reflects the monthly weighted average cost of funds
of savings and loan associations and savings banks, the home offices of which
are located in Arizona, California and Nevada, that are member institutions of
the FHLB of San Francisco, as computed from statistics tabulated and published
by the FHLB of San Francisco. The FHLB of San Francisco normally announces the
Cost of Funds Index on or near the last working day of the month following the
month in which the cost of funds was incurred. The Index is available through a
variety of sources, including, without limitation, Telerate, The Wall Street
===============
Journal and USA Today.
======= =========
Listed below are the historical values of the Cost of Funds Index since 1991.
Such values may fluctuate significantly over time and may not increase or
decrease in a constant pattern from period to period. The following does not
purport to be representative of future values of the Index. No assurance can be
given as to the Index value to be applied on any future Adjustment Date.
-16-
<PAGE>
COST OF FUNDS INDEX
<TABLE>
<CAPTION>
Month 1991 1992 1993 1994 1995 1996
===== ==== ==== ==== ==== ==== ====
<S> <C> <C> <C> <C> <C> <C>
January ...
February ..
March .....
April .....
May .......
June ......
July ......
August ....
September .
October ...
November ..
December ..
</TABLE>
The initial Mortgage Rate in effect on a Mortgage Loan generally will be
lower than the sum of the Index that would have been applicable at origination
and the Note Margin. Absent a decline in the Index subsequent to origination of
a Mortgage Loan, the related Mortgage Rate will generally increase on the first
Adjustment Date following origination of such Mortgage Loan. The repayment of
such Mortgage Loans will be dependent on the ability of the Mortgagor to make
larger Monthly Payments following adjustments of the Mortgage Rate. Moreover,
because the maximum Mortgage Rate on any Mortgage Loan is determined by adding
the Lifetime Rate Cap to the Mortgage Rate at origination, irrespective of the
Index that would have been applicable at origination, the maximum Mortgage Rate
on a Mortgage Loan will generally be less than the sum of the Index and the Note
Margin that would have been applicable at origination plus the Lifetime Rate
Cap. Mortgage Loans that have the same initial Mortgage Rate may not always
bear interest at the same Mortgage Rate because the Mortgage Loans may have
different Adjustment Dates (and the Mortgage Rate therefore may reflect
different Index values), different Note Margins, different Lifetime Rate Caps
and different Lifetime Rate Floors, if any.
Approximately ______% of the Mortgage Loans, by aggregate principal balance
as of the Cut-off Date, are Convertible Mortgage Loans. The first month in
which any of the Mortgage Loans could convert is _______, 19__ and the last
month in which any of the Mortgage Loans may convert is ___________ 1, 19__.
Upon conversion, the monthly payments of principal and interest will be adjusted
to provide for full amortization at scheduled maturity. Upon notification from
a Mortgagor of such Mortgagor's intent to convert from an adjustable rate to a
fixed rate and prior to the conversion thereof, the Master Servicer [or the
related Subservicer] will be obligated to purchase the Converting Mortgage Loan
at the Conversion Price. [In the event of a failure by a Subservicer to purchase
a Converting Mortgage Loan, the Master Servicer shall use its best efforts to
purchase such Mortgage Loan following its conversion (a "Converted Mortgage
Loan") at
-17-
<PAGE>
the Conversion Price during the one-month period following the date of
conversion to a Converted Mortgage Loan.]
In the event that the Master Servicer [nor the related Subservicer] fails to
purchase a Converting Mortgage Loan and the Master Servicer does not purchase a
Converted Mortgage Loan, neither the Company nor any of its affiliates nor any
other entity is obligated to purchase or arrange for the purchase of any
Converted Mortgage Loan. Any such Converted Mortgage Loan will remain in the
Mortgage Pool as a fixed-rate Mortgage Loan and will result in the Mortgage Pool
having both fixed rate and adjustable rate Mortgage Loans. See "Certain Yield
and Prepayment Considerations" herein.
Following the purchase of any Converted Mortgage Loan as described above, the
purchaser will be entitled to receive an assignment from the Trustee of such
Mortgage Loan and the purchaser will thereafter own such Mortgage Loan free of
any further obligation to the Trustee or the Certificateholders with respect
thereto.
The Principal Balance of any Mortgage Loan as of any time of determination is
the principal balance of such Mortgage Loan remaining to be paid by the
Mortgagor at the close of business on the Cut-off Date, after deduction of all
payments due on or before the Cut-off Date whether or not paid, reduced by all
amounts distributed to Certificateholders with respect to such Mortgage Loan and
reported to them as allocable to principal, including the principal components
of any Advances (as described below under "Description of the Certificates-
Advances ").
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<PAGE>
The Mortgage Loans will have approximately the following characteristics as
of the Cut-off Date:
Number of Mortgage Loans
Weighted Average Adjustable Pass-Through Rate(1).
Mortgage Rates:
Weighted Average . . . . . . . . . .
Range . . . . . . . . . . . . . . .
Range of Net Mortgage Rates . . . . . .
Note Margins:
Weighted Average . . . . . . . . . .
Range . . . . . . . . . . . . . . .
Net Note Margin(2)
Maximum Mortgage Rates:
Weighted Average . . . . . . . . . .
Range . . . . . . . . . . . . . . .
Maximum Net Mortgage Rates (3):
Weighted Average . . . . . . . . . .
Range . . . . . . . . . . . . . . .
Weighted Average Months to Next
Adjustment Date after ______________, 19__ (4)
- -------------
(1) The Weighted Average Adjustable Pass-Through Rate is equal to the weighted
average of the Net Mortgage Rates on the Mortgage Loans.
(2) The Net Note Margin is the Note Margin on each Mortgage Loan minus the
Servicing Fee Rate and the rate at which the Spread accrues.
(3) The difference between the maximum Net Mortgage Rate and the Net Mortgage
Rate as of the Cut-off Date may be less than the Lifetime Rate Cap.
(4) The Weighted Average Months to the next Adjustment Date is equal to the
weighted average of the number of months until the Adjustment Date next
following ____________, 19__.
The Mortgage Loans in the Mortgage Pool will have the following
characteristics as of the Cut-off Date (expressed as a percentage of the
aggregate principal balance of the Mortgage Loans having such characteristics
relative to the aggregate principal balance of all Mortgage Loans in the
Mortgage Pool):
The Mortgage Loans will have had individual principal balances at origination
of at least $___________ but not more than $___________.
-19-
<PAGE>
None of the Mortgage Loans in the Mortgage Pool will have been originated
prior to _____________, 19__ or will have a scheduled maturity later than
____________. No Mortgage Loan in the Mortgage Pool will have an unexpired term
to stated maturity as of the Cut-off Date of less than __ years and __ months.
The weighted average remaining term to stated maturity of the Mortgage Loans in
the Mortgage Pool as of the Cut-off Date will be approximately ____ years and
____ months. The weighted average Adjustment Date of the Mortgage Loans in the
Mortgage Pool next following the Cut-off Date is _______________, 19__.
Approximately ______% of the Mortgage Loans will have Loan-to-Value Ratios
at origination exceeding 80% but less than or equal to 90%, and approximately
______% of the Mortgage Loans will have Loan-to-Value Ratios exceeding 90%. The
weighted average Loan-to-Value Ratio at origination, as of the Cut-off Date, is
approximately ______%.
At least ______% of such Mortgage Loans will be secured by fee simple
interests in detached one- to four-family dwelling units with the remaining
units being secured by fee simple interests in attached planned unit
developments, condominiums or townhouses.
Approximately _______ of the Mortgage Loans in the Mortgage Pool will be
secured by Mortgaged Properties located in California.
No more than ______% of the Mortgage Loans in the Mortgage Pool will be
secured by Mortgaged Properties located in any one zip code area in California,
and no more than ______% will be secured by Mortgaged Properties located in any
one zip code area outside California.
No more than ______% of the Mortgage Loans were equity refinance mortgage
loans made to mortgagors who used less than the entire amount of the proceeds to
refinance an existing mortgage loan. The weighted average Loan-to-Value Ratio
at origination of such Mortgage Loans, as of the Cut-off Date, is approximately
_______%. Approximately ______% of the Mortgage Loans were made to Mortgagors
who used the entire proceeds to refinance an existing Mortgage Loan.
No Mortgage Loan provides for deferred interest or negative amortization.
Approximately ______% of the Mortgage Loans in the Mortgage Pool will have
been underwritten under a reduced loan documentation program. The weighted
average Loan-to-Value Ratio at origination of the Mortgage Loans in the Mortgage
Pool which were underwritten under such reduced loan documentation program will
be approximately _______% and no more than approximately _____% of such Mortgage
Loans will be secured by Mortgaged Properties located in California. See
"Pooling and Servicing Agreement-The Master Servicer" herein.
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<PAGE>
No more than _______% of the Mortgage Loans will be secured by vacation or
second homes. No more than ______% of the Mortgage Loans will be secured by
one- to four-story condominium units. No Mortgage Loans will be secured by
condominium units in buildings of five or more stories.
None of the Mortgage Loans in the Mortgage Pool will be Buydown Mortgage
Loans.
The following table sets forth the number and aggregate principal balance as
of the Cut-off Date of Mortgage Loans having their next Adjustment Dates in the
month described therein. The table also indicates the approximate percentage of
Mortgage Loans in the Mortgage Pool with an Adjustment Date in each such month.
<TABLE>
<CAPTION>
MONTH OF NUMBER OF AGGREGATE PERCENTAGE OF
ADJUSTMENT DATE MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
=============== ============== ================= =============
<S> <C> <C> <C>
Total ......
</TABLE>
The following table sets forth the number and aggregate principal balance of
Mortgage Loans having unpaid principal balances in the ranges described therein
as of the Cut-off Date. The table also indicates the approximate weighted
average Mortgage Rate and the approximate weighted average Loan-to-Value Ratio
at origination of the Mortgage Loans in each given range, as of the Cut-off
Date.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER WEIGHTED ORIGINAL
OF AGGREGATE AVERAGE LOAN-TO-
MORTGAGE PRINCIPAL MORTGAGE VALUE
PRINCIPAL BALANCE LOANS BALANCE RATE RATIO
- ----------------- -------- --------- -------- --------
<S> <C> <C> <C> <C>
$ % %
Total, Average or Weighted Average... _______ $________ ________% ________%
</TABLE>
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<PAGE>
THE SELLER
[Additional disclosure as necessary. See Version 1 for sample disclosure for
this section.]
The information set forth in the preceding paragraphs concerning the Seller
has been provided by the Seller.
UNDERWRITING STANDARDS
[Additional disclosure as necessary. See Version 1 for underwriting
disclosure for ICI Funding.]
DELINQUENCY AND FORECLOSURE EXPERIENCE
[Additional disclosure as necessary. See Version 1 for sample disclosure for
this section.]
The information set forth in the preceding paragraphs concerning [ICI
Funding] has been provided by [ICI Funding].
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Mortgage Pool and the
Mortgaged Properties is based upon the Mortgage Pool as constituted at the close
of business on the Cut-off Date, as adjusted for the scheduled principal
payments due before such date. Prior to the issuance of the Certificates,
Mortgage Loans may be removed from the Mortgage Pool as a result of incomplete
documentation or otherwise, if the Company deems such removal necessary or
appropriate. A limited number of other mortgage loans may be included in the
Mortgage Pool prior to the issuance of the Certificates. The Company believes
that the information set forth herein will be substantially representative of
the characteristics of the Mortgage Pool as they will be constituted at the time
the Certificates are issued although the range of Mortgage Rates and maturities
and certain other characteristics of the Mortgage Loans in the Mortgage Pool may
vary.
A Current Report on Form 8-K containing a detailed description of the
Mortgage Loans will be available to purchasers of the Certificates and will be
filed, together with the Pooling and Servicing Agreement, with the Securities
and Exchange Commission within fifteen days after initial issuance. The Current
Report on Form 8-K will specify the aggregate principal balance of the Mortgage
Loans in the Mortgage Pool outstanding as of the Cut-off Date and will set forth
the other approximate information presented in this Prospectus Supplement.
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See also "The Mortgage Pools" and "Certain Legal Aspects of Mortgage Loans"
in the Prospectus.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates evidence in the aggregate the entire beneficial ownership of
the Trust Fund. The Trust Fund will consist of (i) the Mortgage Loans,
exclusive of the Company's rights in and to the Spread with respect to each
Mortgage Loan; (ii) such assets as from time to time are identified as deposited
in respect of the Mortgage Loans in the Certificate Account (as described in the
Prospectus) and belonging to the Trust Fund; (iii) property acquired by
foreclosure of such Mortgage Loans or deed in lieu of foreclosure; (iv) any
applicable insurance policies and all proceeds thereof; and (v) the Letter of
Credit (or any alternate form of credit support substituted therefor) and all
proceeds thereof, other than any amount drawn thereunder and deposited in a
reserve fund.
DISTRIBUTIONS
Distributions to holders of Certificates will be made on each Distribution
Date based on their respective Percentage Interests. The undivided Percentage
Interest of a Certificate will be equal to the percentage obtained by dividing
the initial principal balance of such Certificate by the aggregate initial
principal balance of all Certificates, which will equal the aggregate principal
balance of the Mortgage Loans as of the Cut-off Date.
The "Available Distribution Amount" for any Distribution Date will generally
consist of (i) the aggregate amount of scheduled payments on the Mortgage Loans
due on the related Due Date and received on or prior to the related
Determination Date, after deduction of the related master servicing fees (the
"Servicing Fees"), (ii) certain unscheduled payments, including Mortgagor
prepayments on the Mortgage Loans, Insurance Proceeds, Liquidation Proceeds and
proceeds from repurchases of and substitutions for the Mortgage Loans occurring
during the preceding calendar month and (iii) all Advances made for such
Distribution Date, in each case net of amounts reimbursable therefrom to the
Master Servicer. In addition to the foregoing amounts, with respect to
unscheduled collections, not including Mortgagor prepayments, the Master
Servicer may elect to treat such amounts as included in the Available
Distribution Amount for the Distribution Date in the month of receipt, but is
not obligated to do so. With respect to any Distribution Date, (i) the "Due
Date" is the first day of the month in which such Distribution Date occurs and
(ii) the "Determination Date" is the [__th] day of the month in which such
Distribution Date occurs or, if such day is not a business day, the immediately
succeeding business day. See "Description of the Certificates-Distributions" in
the Prospectus.
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Holders of Certificates will be entitled to receive distributions of interest
on each Distribution Date, to the extent of the Available Distribution Amount
for such Distribution Date, in an aggregate amount equal to one month's
interest, at the then applicable Weighted Average Adjustable Pass-Through Rate
on the principal balance of the Mortgage Loans outstanding as of the close of
business on the immediately preceding Distribution Date (or, in the case of the
first Distribution Date, outstanding as of the Delivery Date), subject to
reduction in the event of any interest shortfalls not covered by the Letter of
Credit, including any Prepayment Interest Shortfalls (as defined below)
resulting from full and partial prepayments, as well as certain losses and
delinquencies on the Mortgage Loans as described below. The Weighted Average
Adjustable Pass-Through Rate for any Distribution Date will equal the average of
the Net Mortgage Rates on the Mortgage Loans (weighted by the principal balances
of such Mortgage Loans as of the Due Date occurring in the preceding month).
Subject to the following limitations, for each period beginning on the related
Adjustment Date therefor, the Net Mortgage Rate on a Mortgage Loan will equal
the sum of the Cost of Funds Index (rounded to the nearest multiple of
________%) and the Net Note Margin. The Net Note Margin for each Mortgage Loan
will be _______%. The Net Mortgage Rate on any Mortgage Loan on any Adjustment
Date may not increase or decrease by more than the Periodic Rate Cap, and the
Net Mortgage Rate on any Mortgage Loan will not exceed the maximum Net Mortgage
Rate (the "Maximum Net Mortgage Rate") applicable to such Mortgage Loan as
specified in the Pooling and Servicing Agreement. The difference between the
Net Mortgage Rate as of the Cut-off Date and the Maximum Net Mortgage Rate will
not exceed, and may be less than, the Lifetime Rate Cap. With respect to each
Mortgage Loan, the Net Mortgage Rate is the rate per annum equal to the Mortgage
Rate for such Mortgage Loan, net of the Servicing Fee Rate and the per annum
rate at which the Spread accrues. See "Description of the Mortgage Pool" and
"Pooling and Servicing Agreement-Servicing and Other Compensation and Payment of
Expenses; Spread" herein.
Holders of the Certificates will be entitled to receive on each Distribution
Date, to the extent of the Available Distribution Amount for such Distribution
Date after distributions of interest as set forth above, an amount equal to the
"Principal Distribution Amount" for such Distribution Date, which will equal the
sum of: (a) the principal portion of any Advances for such Distribution Date;
(b) any amount required to be paid by the Master Servicer due to the operation
of a deductible clause in any blanket policy maintained by it to cover hazard
losses on the Mortgage Loans as described in the Prospectus under "Primary
Mortgage Insurance, Hazard Insurance; Claims Thereunder"; (c) all payments in
respect of the Mortgage Loans on account of principal (including, without
limitation, principal prepayments, the principal portion of any Liquidation
Proceeds and Insurance Proceeds, the principal portion of proceeds from
repurchased Mortgage Loans and the principal portion of proceeds from the
purchase of Converting Mortgage Loans and the sale of Converted Mortgage Loans)
on deposit in the Certificate Account on the Determination Date immediately
preceding such Distribution Date, exclusive or net of (i) Liquidation Proceeds,
Insurance Proceeds and principal prepayments received during the month in which
such Distribution Date occurs (unless such amounts are deemed to have been
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received in the prior month pursuant to the Pooling and Servicing Agreement as
described below), (ii) scheduled payments of principal due on a date or dates
subsequent to the first day of the month in which such Distribution Date occurs,
(iii) late payments of principal which have been the subject of a previous
Advance or Advances that have not been reimbursed to the Master Servicer and
(iv) an amount equal to liquidation expenses incurred by the Master Servicer to
the extent not reimbursed from related Liquidation Proceeds; and (d) all amounts
required to be deposited in the Certificate Account on the Business Day
immediately preceding such Distribution Date, with respect to draws or payments
under the Letter of Credit which are allocable to payments on account of
principal of the Mortgage Loans, except for payments of principal which have
been the subject of a previous Advance or Advances and which are eligible for
withdrawal in reimbursement to the Master Servicer.
The Prepayment Interest Shortfall for any Distribution Date is equal to the
aggregate shortfall, if any, in collections of interest (adjusted to the related
Net Mortgage Rates) resulting from mortgagor prepayments on the Mortgage Loans
during the preceding calendar month. Such shortfalls will result because
interest on prepayments in full is collected only to the date of prepayment, and
no interest is collected on prepayments in part, as such prepayments are applied
to reduce the outstanding principal balance of the related Mortgage Loan as of
the Due Date in the month of prepayment. The Prepayment Interest Shortfall and
other interest shortfalls (such as those resulting from the application of the
Relief Act (as defined herein)) not covered by the Letter of Credit on any
Distribution Date will be allocated to the holders of the Certificates pro rata
based on distributions of interest to be made on such Distribution Date, before
taking into account any such reduction. Prepayment Interest Shortfalls and
other interest shortfalls will not be offset by a reduction of the servicing
compensation of the Master Servicer or otherwise.
Distributions for any Distribution Date will also be reduced if net
Liquidation Proceeds or net Insurance Proceeds (together with any net amounts
payable as described below under "Description of Credit Enhancement") received
on a defaulted Mortgage Loan liquidated during the month preceding the month in
which such Distribution Date occurs are less than the outstanding principal
balance of such Mortgage Loan, plus interest thereon at the related Net Mortgage
Rate. If an Advance by the Master Servicer was previously made in respect
thereof, late payments of principal and interest, if any, remitted to the Master
Servicer for deposit into the Certificate Account will not be passed through to
Certificateholders but rather will be subject to withdrawal by the Master
Servicer from the Certificate Account in reimbursement to itself for such
Advance. To the extent that an Advance is not made, the distributions for such
Distribution Date will be reduced accordingly. Reimbursement of the Master
Servicer or the Company for any other advances or expenses reimbursable to
either as described in the Prospectus, out of amounts otherwise distributable to
the Certificateholders, will also reduce the distributions for the related
Distribution Date. Distributions for any Distribution Date will be reduced to
the extent that losses on any Mortgage Loans in the Mortgage Pool are not
covered by the Letter of Credit or any substitute form of credit enhancement.
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With respect to Insurance Proceeds, Liquidation Proceeds and other
unscheduled collections (not including prepayments by the mortgagors) received
in any calendar month, the Master Servicer may elect to treat such amounts as
part of the distribution to be made on the Distribution Date in the month of
receipt, but is not obligated to do so. If the Master Servicer so elects, such
amounts will be deemed to have been received (and any related loss which
requires a draw on the Letter of Credit shall be deemed to have occurred) on the
last day of the month prior to the receipt thereof.
ADVANCES
Prior to each Distribution Date, the Master Servicer is required to make
Advances for the benefit of the Certificateholders (out of its own funds or
funds held in the Custodial Account (as described in the Prospectus) for future
distribution or withdrawal) with respect to any payments of principal and
interest (net of the related Servicing Fees and the Spread) which were due on
the Mortgage Loans on the immediately preceding Due Date and delinquent on the
business day next preceding the related Determination Date.
Such Advances are required to be made only to the extent they are deemed by
the Master Servicer to be recoverable from related late collections, Insurance
Proceeds, Liquidation Proceeds or draws on the Letter of Credit. The purpose of
making such Advances is to maintain a regular cash flow to the
Certificateholders, rather than to guarantee or insure against losses. The
Master Servicer will not be required to make any Advances with respect to
reductions in the amount of the monthly payments on the Mortgage Loans due to
bankruptcy proceedings or the application of the Relief Act or similar
legislation or regulations.
All Advances will be reimbursable to the Master Servicer on a first priority
basis from late collections, Insurance Proceeds, Liquidation Proceeds and draws
on the Letter of Credit on or in respect of the Mortgage Loan as to which such
unreimbursed Advance was made. In addition, any Advances previously made which
are deemed by the Master Servicer to be nonrecoverable from related late
collections, Insurance Proceeds, Liquidation Proceeds or draws on the Letter of
Credit may be reimbursed to the Master Servicer out of any funds in the
Custodial Account or Certificate Account prior to distributions on the
Certificates.
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
The effective yield to the holders of Certificates will be lower than the
yield otherwise produced by the applicable Weighted Average Adjustable Pass-
Through Rate and purchase price because monthly distributions will not be made
to such holders until the 25th day (or if such day is not a business day, then
on the next succeeding business day) of the month following the month in which
interest accrues on the Mortgage Loans (without any
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additional distributions of interest or earnings thereon in respect of such
delay). See "Yield Considerations" in the Prospectus.
The yield to maturity and the aggregate amount of distributions on the
Certificates will be directly related to the rate of payment of principal on the
Mortgage Loans. Such yield may be adversely affected by a higher or lower than
anticipated rate of payment of principal on the Mortgage Loans in the Trust
Fund. The rate of payment of principal on such Mortgage Loans will in turn be
affected by the amortization schedules of the Mortgage Loans (which will change
periodically as described above), the rate of principal prepayments thereon by
the Mortgagors, liquidations of defaulted Mortgage Loans and purchases of
Mortgage Loans due to certain breaches of representations or the conversion of
Convertible Mortgage Loans. The principal component of the monthly payments on
the Mortgage Loans may change on each related Adjustment Date. In addition, the
amortization schedule of a Mortgage Loan may be changed in connection with the
receipt of a partial prepayment thereon, provided however that such changes will
not include a change in the maturity date of the related Mortgage Loan. See
"Description of the Mortgage Pool-General" herein.
Other factors affecting prepayment of mortgage loans include changes in
mortgagors' housing needs, job transfers, mortgage market interest rates,
unemployment, mortgagors' net equity in the mortgaged properties, changes in the
value of the mortgaged properties and servicing decisions. If prevailing
mortgage rates fell significantly below the Mortgage Rates on the Mortgage
Loans, the rate of prepayment (and refinancing) would be expected to increase.
Conversely, if prevailing mortgage rates rose significantly above the Mortgage
Rates on the Mortgage Loans, the rate of prepayment on the Mortgage Loans would
be expected to decrease. There can be no certainty as to the rate of
prepayments on, or conversions of, the Mortgage Loans during any period or over
the life of the Certificates. However, in the event that substantial numbers of
Mortgagors exercise their conversion rights, and [the related Subservicers and]
the Master Servicer purchase the Converting and Converted Mortgage Loans, the
Mortgage Pool will experience substantial prepayment of principal.
The Mortgage Loans may be prepaid by the Mortgagors at any time without
payment of any prepayment fee or penalty. In addition, certain of the Mortgage
Loans provide that the Mortgagors may, during a specified period of time,
convert the adjustable rate of such Mortgage Loans to a fixed rate. The Company
is not aware of any publicly available statistics that set forth principal
prepayment or conversion experience or prepayment or conversion forecasts of
comparable adjustable rate mortgage loans over an extended period of time, and
its experience with respect to comparable adjustable rate mortgages is
insufficient to draw any conclusions with respect to the expected prepayment or
conversion rates on the Mortgage Loans included in the Mortgage Pool. The rate
of payments (including prepayments) on pools of mortgage loans is influenced by
a variety of economic, geographic and social. As is the case with conventional
fixed rate mortgage loans, adjustable rate mortgage loans may be subject to a
greater rate of principal prepayments or purchases due to their conversion to
fixed interest rate loans in a low interest rate
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environment. For example, if prevailing interest rates fall significantly,
adjustable rate mortgage loans could be subject to higher prepayment and
conversion rates than if prevailing interest rates remain constant because the
availability of fixed rate or other adjustable rate mortgage loans at
competitive interest rates may encourage Mortgagors to refinance their
adjustable rate mortgages to "lock in" a lower fixed interest rate or take
advantage of the availability of such other adjustable rate mortgage loans, or,
in the case of convertible adjustable rate mortgage loans, to exercise their
option to convert the adjustable interest rates to fixed interest rates. The
conversion feature may also be exercised in a rising interest rate environment
as Mortgagors attempt to limit their risk of higher rates. Such a rising
interest rate environment may also result in an increase in the rate of defaults
on the Mortgage Loans. In the event that [the Subservicers or] the Master
Servicer purchases Converting or Converted Mortgage Loans, a Mortgagor's
exercise of the conversion option will result in a pro rata distribution of the
principal portion thereof to the Certificateholders, as described herein.
Alternatively, to the extent Subservicers fail in their obligation to purchase
Converting Mortgage Loans and the Master Servicer does not purchase Converted
Mortgage Loans, as described herein, the Mortgage Pool will include fixed rate
Mortgage Loans, which will have the effect of limiting the extent to which the
Weighted Average Adjustable Pass-Through Rate can increase or decrease in
accordance with changes in the Index and accordingly may affect the yield to
Certificateholders.
The existence of Periodic Rate Caps, Lifetime Rate Caps and any Lifetime Rate
Floors also will affect the likelihood of prepayments resulting from refinancing
and the exercise of the conversion option. Although the Mortgage Rates on the
Mortgage Loans will adjust periodically, such increases and decreases will be
limited by the Periodic Rate Caps, Lifetime Rate Caps and any Lifetime Rate
Floors on each Mortgage Loan and will be based on the Index (which may not rise
and fall consistently with mortgage interest rates) plus the related Note
Margins (which may be different from the prevailing margins on other mortgage
loans). As a result, the Mortgage Rates on the Mortgage Loans at any time may
not equal the prevailing rates for other adjustable rate loans and accordingly,
the rate of prepayment may be lower or higher than would otherwise be
anticipated.
With respect to those Mortgage Loans having Lifetime Rate Floors, if
prevailing mortgage rates were to fall below the minimum Mortgage Rates, the
rate of prepayment on such Mortgage Loans may be expected to increase and such
Mortgage Loans may prepay at a rate higher than would otherwise be anticipated
for adjustable rate mortgage loans.
All of the Mortgage Loans are assumable under certain circumstances if, in
the sole judgment of the Master Servicer, the prospective purchaser of a
Mortgaged Property is creditworthy and the security for such Mortgage Loan is
not impaired by the assumption. The extent to which the Mortgage Loans are
assumed by purchasers of the Mortgaged Properties rather than prepaid by the
related mortgagors in connection with the sales of the Mortgaged Properties will
affect the weighted average life of the Certificates and may result in a
prepayment experience on the Mortgage Loans that differs from that on other
conventional mortgage loans.
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The yield to maturity of the Certificates will depend on the rate of payment
of principal (including by reason of principal prepayments, purchases of
Mortgage Loans in the Mortgage Pool which are Converting Mortgage Loans or
Converted Mortgage Loans or in respect of which a breach of a representation or
warranty has occurred, and liquidation of defaulted Mortgage Loans) on the
Mortgage Loans, the price paid by the holders of Certificates and the Weighted
Average Adjustable Pass-Through Rate in effect from time to time. Such yield
may be adversely affected by a higher or lower than anticipated rate of
prepayments on the Mortgage Loans. Because the Weighted Average Adjustable
Pass-Through Rate at any time is the weighted average of the Net Mortgage Rates
on the Mortgage Loans, the Weighted Average Adjustable Pass Through Rate (and
the yield on the Certificates) will be reduced as a result of prepayments,
liquidations and purchases at a faster rate for Mortgage Loans having higher Net
Mortgage Rates as opposed to Mortgage Loans having lower Net Mortgage Rates.
Because Mortgage Loans having higher Net Mortgage Rates generally have higher
Mortgage Rates, such Mortgage Loans are generally more likely to be prepaid at a
faster rate under most circumstances than are Mortgage Loans having lower Net
Mortgage Rates.
The rate of default on the Mortgage Loans will also affect the rate of
payment of principal on the Mortgage Loans. In general, defaults on mortgage
loans are expected to occur with greater frequency in their early years,
although little data is available with respect to the rate of default on
adjustable rate mortgage loans. Increases in the monthly payments to an amount
in excess of the preceding monthly payment required at the time of origination
may result in a default rate higher than that on level payment mortgage loans.
Furthermore, the Mortgagor under each Mortgage Loan was qualified on the basis
of the Mortgage Rate in effect at origination. The repayment of such Mortgage
Loans will be dependent on the ability of the Mortgagor to make larger monthly
payments following adjustments of the Mortgage Rate. The rate of default on
Mortgage Loans which are equity refinance or limited documentation mortgage
loans may be higher than for other types of Mortgage Loans.
Prepayments, liquidations and purchases of the Mortgage Loans will result in
distributions to Certificateholders of principal amounts which would otherwise
be distributed over the remaining terms of the Mortgage Loans. Furthermore, the
rate of prepayments, defaults and liquidations on, or conversions of, the
Mortgage Loans will be affected by the general economic condition of the region
of the country where the related Mortgaged Properties are located. The risk of
delinquencies and loss is greater and prepayments are less likely in regions
where a weak or deteriorating economy exists, as may be evidenced by increasing
unemployment or falling property values. See "Maturity and Prepayment
Considerations" in the Prospectus. Since the rates of payment of principal on
the Mortgage Loans will depend on future events and a variety of factors (as
described more fully herein and in the Prospectus under "Yield Considerations"
and "Maturity and Prepayment Considerations"), no assurance can be given as to
such rate or the rate of principal prepayments on the Certificates.
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The amount of interest passed through to holders of the Certificates will be
reduced by shortfalls in collections of interest resulting from full or partial
principal prepayments or otherwise, which will not be offset by a reduction in
the Servicing Fees payable to the Master Servicer or otherwise. See "Yield
Considerations" in the Prospectus and "Description of the Certificates-
Distributions" herein for a discussion of the effect of principal prepayments on
the Mortgage Loans on the yield to maturity of the Certificates.
The timing of changes in the rate of prepayments, liquidations and purchases
of the Mortgage Loans may significantly affect an investor's actual yield to
maturity, even if the average rate of principal payments experienced over time
is consistent with an investor's expectation.
In addition, the yield to maturity of the Certificates will depend on the
price paid by holders of the Certificates. If any Certificate is purchased at
initial issuance at a discount and the rate of prepayments on the Mortgage Loans
is lower than that originally anticipated, the purchaser's yield to maturity
will be lower than that assumed at the time of purchase. Conversely, if any
Certificate is purchased at initial issuance at a premium and the rate of
prepayments on the Mortgage Loans is higher than that originally anticipated,
the purchaser's yield to maturity will be lower than that assumed at the time of
purchase.
The first distribution on the Certificates reflecting an adjustment to the
scheduled monthly payments on a related Mortgage Loan will be passed through to
holders of Certificates on the second Distribution Date following the date on
which the adjustment to such Mortgage Rate was made. Furthermore, adjustments
in the Net Mortgage Rates are based on the Index as reported 45 days prior to
the Adjustment Date. Accordingly, the yield to Certificateholders will be
adjusted on a delayed basis relative to movements in the Index. Although the
Net Mortgage Rate of each Mortgage Loan will be adjusted pursuant to the Index,
such rate is subject to the Periodic Rate Cap and is also limited by the
Lifetime Rate Cap and any Lifetime Rate Floor applicable to such Mortgage Loan.
With respect to certain Mortgage Loans the difference between the Net Mortgage
Rate as of the Cut-off Date and the maximum Net Mortgage Rate will be less than
the Lifetime Rate Cap. Therefore, if the Index changes substantially between
Adjustment Dates, the Net Mortgage Rate may be lower than if the Net Mortgage
Rate could be adjusted based on the Index without such caps.
A number of factors affect the performance of the Index and may cause the
Index to move in a manner different from other indices. To the extent that the
Index may reflect changes in the general level of interest rates less quickly
than other indices, in a period of rising interest rates, increases in the yield
to Certificateholders due to such rising interest rates may occur later than
that which would be produced by other indices, and in a period of declining
rates, the Index may remain higher than other market interest rates which may
result in a higher level of prepayments of Mortgage Loans which adjust in
accordance with the Index than mortgage loans which adjust in accordance with
other indices.
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For additional considerations relating to the yield on the Certificates, see
"Yield Considerations" and "Maturity and Prepayment Considerations" in the
Prospectus.
POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued, and the Mortgage Loans serviced and
administered, pursuant to a Pooling and Servicing Agreement (the "Pooling and
Servicing Agreement") dated as of ___________ 1, 19__, among the Company, the
Master Servicer, and _________________, as trustee (the "Trustee"). Reference
is made to the Prospectus for important information in addition to that set
forth herein regarding the terms and conditions of the Pooling and Servicing
Agreement and the Certificates. The Trustee will appoint _________________ to
serve as Custodian in connection with the Certificates. The Certificates will
be transferable and exchangeable at the corporate trust office of the Trustee,
which will serve as Certificate Registrar and will be responsible for making
distributions on the Certificates and forwarding monthly reports with respect
thereto to the holders thereof. In addition to the circumstances described in
the Prospectus, the Company may terminate the Trustee for cause under certain
circumstances. The Company will provide a prospective or actual
Certificateholder without charge, on written request, a copy (without exhibits)
of the Pooling and Servicing Agreement. Requests should be addressed to the
President, ICIFC Secured Assets Corp., 20371 Irvine Avenue, Santa Ana Heights,
California 92707. See " Description of the Certificates, Servicing of Mortgage
Loans " and " The Pooling Agreement in the Prospectus.
THE MASTER SERVICER
[Name of Master Servicer] [ICI Funding Corporation ("ICI Funding")], will act
as master servicer (in such capacity, the "Master Servicer") for the
Certificates pursuant to the Pooling and Servicing Agreement.
[Further disclosure as appropriate. See Version 1 for disclosure for ICI
Funding.]
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES; SPREAD
The Servicing Fees for each Mortgage Loan are payable out of the interest
payments on such Mortgage Loan. The Servicing Fees in respect of each Mortgage
Loan will accrue at _____% per annum (the "Servicing Fee Rate") on the
outstanding principal balance of each Mortgage Loan. The Master Servicer is
obligated to pay certain ongoing expenses associated with the Trust Fund and
incurred by the Master Servicer in connection with its responsibilities under
the Pooling and Servicing Agreement, including the expenses of the Letter of
Credit and any substitute credit support and the fees of the Trustee. See
"Servicing of Mortgage Loans Servicing and Other Compensation and Payment of
Expenses;
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Spread" in the Prospectus for information regarding other possible compensation
to the Master Servicer and for information regarding expenses payable by the
Master Servicer.
Pursuant to the terms of the Pooling and Servicing Agreement, the Master
Servicer will be obligated to remit to the Company or its designee, a portion of
the interest collected on each Mortgage Loan (the "Spread"). The rate at which
the Spread on each Mortgage Loan accrues will be equal to ______% per annum.
TERMINATION
The circumstances under which the obligations created by the Pooling and
Servicing Agreement will terminate in respect of the Certificates are described
in "Description of the Certificates-Termination; Retirement of Certificates" in
the Prospectus. The Master Servicer or the Company will have the option (i) to
purchase all remaining Mortgage Loans and other assets in the Trust Fund,
thereby effecting early retirement of the Certificates or (ii) to purchase in
whole, but not in part, the Certificates, but either such option will not be
exercisable until such time as the aggregate principal balance of the Mortgage
Loans as of the Distribution Date on which the purchase proceeds are to be
distributed to the Certificateholders is less than ____% of the aggregate
principal balance of the Mortgage Loans as of the Cut-off Date. Any such
purchase of Mortgage Loans and other assets of the Trust Fund shall be made at a
price equal to the aggregate principal balance of all the Mortgage Loans (or the
fair market value of the related underlying Mortgaged Properties with respect to
defaulted Mortgage Loans as to which title to such Mortgaged Properties has been
acquired if such fair market value is less than such unpaid principal balance)
(net of any unreimbursed Advance attributable to principal), together with one
month's interest on such aggregate amount at the then applicable Weighted
Average Adjustable Pass-Through Rate.
Upon presentation and surrender of the Certificates in connection with the
termination of the Trust Fund or a purchase of Certificates under the
circumstances described above, the holders of the Certificates will receive, in
proportion to their respective Percentage Interests, an amount equal to the sum
of the principal balances of the Mortgage Loans plus one month's accrued
interest thereon at the then applicable Weighted Average Adjustable Pass-Through
Rate.
DESCRIPTION OF CREDIT ENHANCEMENT
GENERAL
All of the Mortgage Loans are the subject of credit support coverage provided
by the Letter of Credit. In addition, each Mortgage Loan is covered by a
Primary Hazard Insurance Policy as described under "Primary Mortgage Insurance,
Hazard Insurance;
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Claims Thereunder" in the Prospectus. See also "Description of the Mortgage
Pool-Primary Mortgage Insurance" herein.
LETTER OF CREDIT
The Letter of Credit Bank will issue the Letter of Credit to the Trustee for
the benefit of the holders of the Certificates. Subject to the limitations
described below, the Letter of Credit will be available to cover Defaulted
Mortgage Losses, Special Hazard Losses, Fraud Losses and Bankruptcy Losses. The
maximum amount available to be drawn under the Letter of Credit with respect to
all losses will initially be equal to $_________ (the initial "Available
Amount") which is equal to approximately _____% of the aggregate principal
balance of the Mortgage Loans as of the Cut-off Date. The Available Amount at
any time will be reduced by any amounts previously drawn under the Letter of
Credit (net of any amounts received or collected by the Master Servicer
following each respective draw as subsequent recoveries on the Mortgage Loans
with respect to which such draws were made and, if appropriate, such draws were
reimbursed to the Letter of Credit Bank). The Available Amount will be
reinstated with respect to the subsequent recoveries described in the preceding
sentence, however in no event will the Available Amount be reinstated to an
amount in excess of the initial Available Amount. The Available Amount under
the Letter of Credit (if the Letter of Credit is extended in accordance with its
terms) is also subject to reduction pursuant to the terms of the Pooling and
Servicing Agreement annually beginning on the tenth anniversary of the Cut-off
Date and each anniversary thereafter, such that, beginning with the fourteenth
anniversary of the Cut-off Date and on each anniversary thereafter, the
Available Amount will not exceed ______% of the aggregate outstanding principal
balance of the Mortgage Loans, provided that such scheduled reductions will not
reduce the Available Amount below three times the principal balance of the
largest single Mortgage Loan outstanding on such anniversary, and further
provided that the Available Amount will not be reduced in accordance with the
preceding sentence if delinquency rates and losses on the Mortgage Loans exceed
certain levels as specified by the Rating Agency as set forth in the Pooling and
Servicing Agreement. The Amount Available may be further reduced from time to
time by such amounts as the Master Servicer may determine and direct the
Trustee, provided the then current rating of the Certificates is not adversely
affected.
Notwithstanding the foregoing, the maximum amount available under the Letter
of Credit in connection with Fraud Losses (the "Fraud Loss Amount") shall
initially be equal to $___________. As of any date of determination after the
Cut-off Date the Fraud Loss Amount shall equal (X) prior to the first
anniversary of the Cut-off Date an amount equal to ______% of the aggregate
principal balance of all of the Mortgage Loans as of the Cut-off Date minus the
aggregate amount of draws made under the Letter of Credit with respect to Fraud
Losses up to such date of determination, and (Y) from the first through fifth
anniversary of the Cut-off Date, an amount equal to (1) the lesser of (a) the
Fraud Loss Amount as of the most recent anniversary of the Cut-off Date and (b)
_____% of the aggregate principal balance of all of the Mortgage Loans as of the
most recent anniversary
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of the Cut-off Date minus (2) the aggregate amount of draws made under the
Letter of Credit with respect to Fraud Losses since the most recent anniversary
of the Cut-off Date up to such date of determination. After the fifth
anniversary of the Cut-off Date the Fraud Loss Amount shall be zero and no draws
shall be made under the Letter of Credit with respect to Fraud Losses.
The maximum amount available under the Letter of Credit in respect of Special
Hazard Losses (the "Special Hazard Amount") will equal $___________ less the sum
of (A) any amounts drawn under the Letter of Credit in respect of Special Hazard
Losses (to the extent that such amounts do not exceed the lesser of the cost of
repair or replacement of the related Mortgaged Properties) and (B) the
Adjustment Amount. The Adjustment Amount on each anniversary of the Cut-off
Date will be equal to the amount, if any, by which the Special Hazard Amount,
without giving effect to the deduction of the Adjustment Amount for such
anniversary, exceeds the greater of (i) 1% (or, if greater than 1%, the highest
percentage of Mortgage Loans by principal balance in any California zip code
area) times the aggregate principal balance of all of the Mortgage Loans in the
Mortgage Pool on such anniversary and (ii) twice the principal balance of the
single Mortgage Loan in the Mortgage Pool having the largest principal balance.
As used in this Prospectus Supplement, "Special Hazard Losses" has the same
meaning set forth in the Prospectus except that Special Hazard Losses will not
include and the Letter of Credit will not cover losses occasioned by war, civil
insurrection, certain governmental actions and nuclear reaction.
As of any date of determination prior to the first anniversary of the Cut-off
Date, the maximum amount available under the Letter of Credit in respect of
Bankruptcy Losses (the "Bankruptcy Amount") will equal $_____________ less the
sum of any amounts drawn under the Letter of Credit for such losses up to such
date of determination. As of any day of determination on or after the first
anniversary of the Cut-off Date, the Bankruptcy Amount will equal the excess, if
any, of (1) the lesser of (a) the Bankruptcy Amount as of the business day next
preceding the most recent anniversary of the Cut-off Date (the "Relevant
Anniversary") and (b) an amount calculated pursuant to the terms of the Pooling
and Servicing Agreement, which amount as calculated will provide for a reduction
in the Bankruptcy Amount, provided that delinquency rates and losses on all of
the Mortgage Loans do not exceed certain levels as set forth in the Pooling and
Servicing Agreement, over (2) the aggregate amount of draws made under the
Letter of Credit since the Relevant Anniversary in connection with Bankruptcy
Losses. The Bankruptcy Amount and the related automatic reductions described
above may be reduced or modified upon written confirmation from the Rating
Agency that such reduction or modification will not adversely affect the then
current rating assigned to the Certificates by such Rating Agency. Such a
reduction or modification may adversely affect the coverage provided by the
Letter of Credit with respect to Bankruptcy Losses.
[Described manner in which payments will be made under the Letter of Credit.]
See "Description of Credit Enhancement-Letter of Credit" in the Prospectus.
However, the Trustee shall not make such draws under the Letter of Credit in
connection with a
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Bankruptcy Loss so long as the Master Servicer has notified the Trustee in
writing that the Master Servicer is diligently pursuing any remedies that may
exist in connection with the representations and warranties made regarding the
related Mortgage Loan and either (A) the related Mortgage Loan is not in default
with regard to payments due thereunder or (B) delinquent payments of principal
and interest under the related Mortgage Loan and any premiums on any applicable
Primary Hazard Insurance Policy and any related escrow payments in respect of
such Mortgage Loan are being advanced on a current basis by the Master Servicer
[or a Subservicer].
Any Mortgage Loan the unpaid principal balance of which is paid pursuant to a
draw under the Letter of Credit will be assigned to the Company and will no
longer be subject to the Pooling and Servicing Agreement. Any subsequent
recoveries with respect to such Mortgage Loans will be paid to the Company and,
following notice and, if appropriate, reimbursement of such draw to the Letter
of Credit Bank, the Available Amount under the Letter of Credit (and the Special
Hazard Amount, Fraud Loss Amount or Bankruptcy Amount, if applicable) will be
reinstated to the extent of such recovery.
The Master Servicer, in lieu of maintaining the Letter of Credit, may reduce
the coverage thereunder (including accelerating the manner in which such
coverage is reduced pursuant to the related automatic reductions), terminate
such coverage or obtain and maintain alternate forms of credit support
(including, but not limited to, other letters of credit, insurance policies,
surety bonds, reserve funds, and secured or unsecured corporate guaranties),
with respect to Defaulted Mortgage Losses, Special Hazard Losses, Fraud Losses
and Bankruptcy Losses, provided that prior to any such reduction, termination or
substitution the Master Servicer shall have obtained written confirmation from
the Rating Agency that such reduction, termination or substitution will not
adversely affect the then current rating assigned to the Certificates by such
Rating Agency and shall provide a copy of each confirmation to the Trustee. In
the event that the long-term debt obligations of the Letter of Credit Bank are
at any time downgraded by the Rating Agency, the Company may request the Master
Servicer to obtain alternate forms of credit support, in accordance with the
preceding sentence, but the Master Servicer is under no obligation to do so. In
lieu of making a draw under the Letter of Credit for Defaulted Mortgage Losses,
Special Hazard Losses, Fraud Losses or Bankruptcy Losses as provided above, the
Master Servicer, at its sole option, may pay the amount otherwise required to be
drawn, in which case the amount so paid will reduce the related coverage under
the Letter of Credit.
As to any Mortgage Loan which is delinquent in payment by 90 days or more,
the Master Servicer may, at its sole option, purchase such Mortgage Loan at a
price equal to 100% of the unpaid principal balance thereof plus all accrued and
unpaid interest thereon through the last day of the month in which such purchase
occurs. To the extent that the Master Servicer subsequently experiences losses
with respect to such purchased Mortgage Loans which would have been covered by
the Letter of Credit had such Mortgage Loans remained in the Trust Fund, the
Available Amount (and the Special Hazard Amount, Fraud Loss Amount or Bankruptcy
Amount, to the extent that such losses constitute Special
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Hazard Losses, Fraud Losses or Bankruptcy Losses) will be reduced by an amount
equal to the entire amount of such losses.
The Letter of Credit will expire on ________________, 19__ unless earlier
terminated or extended in accordance with its terms. The Letter of Credit
contains provisions to the effect that on or before the first day of the sixth
month immediately preceding the expiration date a request may be made to extend
the expiration date. It is within the Letter of Credit Bank's sole discretion
whether to agree to such an extension. If, as of the date 30 days prior to the
expiration date, or the expiration date thereof as so extended, a replacement
Letter of Credit or alternate form of credit support has not been delivered to
the Trustee, then, pursuant to the terms of the Pooling and Servicing Agreement,
the entire remaining amount of the Letter of Credit will be drawn by the Trustee
prior to such expiration date. In that event, the amount so paid will be held
by the Trustee in the form of a reserve fund held outside of the Trust Fund (but
pledged to the Trustee and held by it in trust for the benefit of the
Certificateholders), pending the substitution of any other form of credit
support therefor, and will be applied in the same manner as described herein
regarding draws under the Letter of Credit.
LETTER OF CREDIT BANK
The Letter of Credit will be issued by the Letter of Credit Bank, which will
be the ____________________, a _____________________. _____________ principal
executive offices are located at ____________________.
___________________ is engaged in a broad range of banking and financial
services activities, including deposit-taking, lending and leasing, securities
brokerage services, investment management, investment banking, capital markets
activities and foreign exchange transactions.
[Additional disclosure as appropriate with respect to matters material to
investors in the Certificates, including asset size and regulatory ratings.]
The information set forth in the preceding paragraphs concerning the Letter
of Credit Bank has been provided by the Letter of Credit Bank as of the date
hereof.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following general discussion of the anticipated material federal income
tax consequences of the purchase, ownership and disposition of Certificates, to
the extent it relates to matters of law or legal conclusions with respect
thereto, represents the opinion of counsel to the Company with respect to that
series on the material matters associated
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with such consequences, subject to any qualifications set forth herein and in
the Prospectus. This discussion has been prepared with the advice of Freshman,
Marantz, Orlanski, Cooper & Klein, counsel to the Company. This discussion is
directed solely to a holder of a Certificate as a capital asset within the
meaning of Section 1221 of the Internal Revenue Code of 1986 (the "Code") and
does not purport to discuss all federal income tax consequences that may be
applicable to particular categories of investors, some of which (such as banks,
insurance companies and foreign investors) may be subject to special rules.
Further, the authorities on which this discussion, and the opinion referred to
below, are based are subject to change or differing interpretations, which could
apply retroactively. Prospective investors should note that no rulings have
been or will be sought from the Internal Revenue Service (the "IRS") with
respect to any of the federal income tax consequences discussed below, and no
assurance can be given the IRS will not take a contrary position. Taxpayers and
preparers of tax returns should be aware that under applicable Treasury
regulations a provider of advice on specific issues of law is not considered an
income tax return preparer unless the advice (i) is given with respect to events
that have occurred at the time the advice is rendered and is not given with
respect to the consequences of contemplated actions, and (ii) is directly
relevant to the determination of an entry on a tax return. Accordingly,
taxpayers should consult their own tax advisors and tax return preparers
regarding the preparation of any item on a tax return, even where the
anticipated tax treatment has been discussed herein. A holder of a Certificate
is advised to consult its own tax advisors concerning the federal, state, local
or other tax consequences to it of the purchase, ownership and disposition of a
Certificate.
GRANTOR TRUST
CLASSIFICATION OF THE TRUST FUND
Prior to the issuance of the Certificates, Freshman, Marantz, Orlanski,
Cooper & Klein, counsel to the Company, will have delivered its opinion to the
effect that, assuming compliance with all provisions of the Pooling and
Servicing Agreement, the Trust Fund will be classified as a grantor trust under
subpart E, part I of subchapter J of the Code and not as an association taxable
as a corporation or as a partnership. Accordingly, a holder of a Certificate
generally will be treated as the owner of an undivided interest in the Mortgage
Loans and other assets held as part of the trust fund in which the Certificates
evidence an undivided interest. The opinion referenced above will be filed with
the Commission either as an exhibit to the Registration Statement of which this
Prospectus Supplement is a part or in a Current Report on Form 8-K.
CHARACTERIZATION OF THE INVESTMENT IN THE CERTIFICATES
The Certificates 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)(1 9)(C) of
the Code; (iii) " obligations (including any participation or certificate of
beneficial ownership therein) which . . . are
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principally secured by an interest in real property" within the meaning of
Section 86OG(a)(3)(A) of the Code; and (iv) "real estate assets" within the
meaning of Section 856(c)(5)(A) of the Code generally in the same proportion
that the assets of the Trust Fund would be so treated. In addition, interest on
the Certificates will to the same extent 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.
TAXATION OF OWNERS OF THE CERTIFICATES
A holder of a Certificate generally will be required to report on its federal
income tax returns its share of the entire income from the Mortgage Loans
(including amounts used to pay reasonable servicing fees and other expenses) in
accordance with the holder's normal method of accounting and will be entitled to
deduct its share of any such reasonable servicing fees and other expenses.
Because of market discount or premium, the amount includible in income on
account of the Certificate may differ significantly from the amount
distributable thereon representing interest on the Mortgage Loans. Under
Section 67 of the Code, an individual, estate or trust holding a Certificate
directly or through certain pass-through entities will be allowed a deduction
for such reasonable servicing fees and expenses only to the extent that the
aggregate of such holder's miscellaneous itemized deductions exceeds two percent
of such holder's adjusted gross income. In addition, Section 68 of the Code
provides that the amount of itemized deductions otherwise allowable for an
individual whose adjusted gross income exceeds a specified amount will be
reduced by the lesser of (i) 3% of the excess of the individual's adjusted gross
income over such amount or (ii) 80% of the amount of itemized deductions
otherwise allowable for the taxable year. The amount of additional taxable
income reportable by a holder of a Certificate that is subject to the
limitations of either Section 67 or Section 68 of the Code may be substantial.
Further, a holder of a Certificate (other than corporations) subject to the
alternative minimum tax may not deduct miscellaneous itemized deductions in
determining such holder's alternative minimum taxable income.
Market Discount. A holder of a Certificate may be subject to the market
discount rules of Sections 1276 through 1278 of the Code to the extent an
interest in the Mortgage Loans is considered to have been purchased at a "market
discount", that is, at a purchase price less than its adjusted issue price. If
market discount is in excess of a de minimis amount (as described below), the
holder generally will be required to include in income in each month the amount
of such discount that has accrued through such month that has not previously
been included in income, but limited, in the case of the portion of such
discount that is allocable to any Mortgage Loan, to the payment of stated
redemption price on the Mortgage Loans that is received by (or, in the case of
an accrual basis holder of a Certificate, due to) the Trust Fund in that month.
A holder of a Certificate may elect to include market discount in income
currently as it accrues (under a constant yield method
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based on the yield of the Certificate to such holder) rather than including it
on a deferred basis in accordance with the foregoing. If made, such election
will apply to all market discount bonds acquired by such holder during or after
the first taxable year to which such election applies. In the absence of such
an election, it may be necessary to accrue such discount under a proportionate
method. In addition, Sections 1271 to 1275 of the Code addressing the treatment
of debt instruments issued with original issue discount (the "OID Regulations")
would permit a holder of a Certificate to elect to accrue all interest, discount
(including de minimis market or original issue discount) and premium in income
as interest, based on a constant yield method. If such an election were made
with respect to the Mortgage Loans with market discount, such holder would be
deemed to have made an election to include currently market discount in income
with respect to all other debt instruments having market discount that such
holder acquires during the taxable year of the election or thereafter, and
possibly previously acquired instruments. Similarly, a holder that made this
election for a Certificate acquired at a premium would be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such holder owns or acquires. Each of these
elections to accrue interest, discount and premium with respect to a Certificate
on a constant yield method or as interest is irrevocable.
Section 1276(b)(3) of the Code authorized the Treasury Department to issue
regulations providing for the method for accruing market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury Department, certain
rules described in the Conference Committee Report (the "Committee Report")
accompanying the Tax Reform Act of 1986 will apply. Under those rules, in each
accrual period market discount on the Mortgage Loans should accrue, at the
holder's option: (i) on the basis of a constant yield method, or (ii) in an
amount that bears the same ratio to the total remaining market discount as the
original issue discount accrued in the accrual period bears to the total
original issue discount remaining at the beginning of the accrual period.
Because the regulations referred to in this paragraph have not been issued, it
is not possible to predict what effect such regulations might have on the tax
treatment of the Mortgage Loans purchased at a discount in the secondary market.
Market discount with respect to the Mortgage Loans generally will be
considered to exceed a de minimis amount if it is greater than 0.25% of the
stated redemption price of the Mortgage Loans multiplied by the number of
complete years to maturity remaining after the date of their purchase. In
interpreting a similar rule with respect to original issue discount on
obligations payable in installments, the OID Regulations refer to the weighted
average maturity of obligations, and it is likely that the same rule will be
applied with respect to market discount, presumably taking into account the
prepayment assumption used, if any. If market discount is treated as de minimis
under the foregoing rule, it appears that such market discount will be included
in income as each payment of stated principal is made, based on the product of
the total amount of such de minimis market discount and
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a fraction, the numerator of which is the amount of such principal payment and
the denominator of which is the outstanding stated principal amount of the
Mortgage Loans.
Further, any discount that is not original issue discount and exceeds a de
minimis amount may require the deferral of interest expense deductions
attributable to accrued market discount not yet includible in income, unless an
election has been made to report market discount currently as it accrues.
Premium. If a holder of a Certificate is treated as acquiring the Mortgage
Loans at a premium, that is, at a price in excess of their principal amount,
such holder may elect under Section 171 of the Code to amortize using a constant
yield method the portion of such premium allocable to the Mortgage Loans that
were originated after September 27, 1985. Amortizable premium is treated as an
offset to interest income on the related debt instrument, rather than as a
separate interest deduction. However, premium allocable to Mortgage Loans
originated before September 28, 1985 or to the Mortgage Loans if an amortization
election is not made should be allowed as a deduction when a principal payment
is made (or, for a holder using the accrual method of accounting, when such
payments of stated redemption price are due). A significant portion of the
Mortgage Loans were originated prior to September 28, 1985. Accordingly, such
an election shall not be available for premium attributable to such Mortgage
Loans.
SALES OF CERTIFICATES
Except as described below, any gain or loss, recognized on the sale or
exchange of a Certificate, generally will be capital gain or loss, and will be
equal to the difference between the amount realized on the sale of a Certificate
and its adjusted basis. The adjusted basis of a Certificate generally will
equal its cost, increased by any income (including original issue discount and
market discount income) recognized by the seller and reduced (but not below
zero) by any previously reported losses, amortized premium and distributions
with respect to the Certificate. The Code as of the date of this Private
Placement Memorandum provides for a top marginal tax rate applicable to ordinary
income of individuals of 39.6% while maintaining a maximum marginal rate for the
long-term gains of individuals of 28%. There is no such rate differential for
corporations. In addition, the distinction between a capital gain or loss and
ordinary income or loss may be relevant for other purposes.
Gain or loss from the sale of a Certificate may be partially or wholly
ordinary and not capital in certain circumstances. Gain attributable to accrued
and unrecognized market discount will be treated as ordinary income, as will
gain or loss recognized by banks and other financial institutions subject to
Section 582(c) of the Code. Furthermore, a portion of any gain that might
otherwise be capital gain may be treated as ordinary income to the extent that
any Certificate is held as part of a "conversion transaction" within the meaning
of Section 1258 of the Code. A conversion transaction generally is one in which
the taxpayer has taken two or more positions in any Certificate or similar
property that reduce
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or eliminate market risk, if substantially all of the taxpayer's return is
attributable to the time value of the taxpayer's net investment in such
transaction. The amount of gain so realized in a conversion transaction that is
recharacterized as ordinary income generally will not exceed the amount of
interest that would have accrued on the taxpayer's net investment at 120% of the
appropriate "applicable Federal rate," which rate is computed and published
monthly by the Internal Revenue Service (the "IRS"), at the time the taxpayer
enters into the conversion transaction, subject to appropriate reduction for
prior inclusion of interest and other ordinary income rates rather than capital
gains rates in order to include such net capital gain in total net investment
income for that taxable year, for purposes of the limitation on the deduction of
interest on indebtedness incurred to purchase or carry property held for
investment to a taxpayer's net investment income.
GRANTOR TRUST REPORTING
The Trustee will furnish to the holders of the Certificates with each
distribution a statement setting forth the amount of such distribution allocable
to principal on the Mortgage Loans and to interest thereon at the Pass-Through
Rate. In addition, the Trustee will furnish, within a reasonable time after the
end of each calendar year, to each person who was a holder of a Certificate at
any time during such year, information regarding the amount of servicing
compensation received by the Master Servicer and Trustee and such other
customary factual information as it deems necessary or desirable to enable each
such person to prepare its tax returns and will furnish comparable information
to the IRS as and when required by law to do so. There is no assurance the IRS
will agree with the Trustee's information reports of such items of income and
expense. Neither the Depositor nor its affiliates will have any responsibility
with respect to the foregoing.
BACKUP WITHHOLDING
Payments of interest and principal, as well as payments of proceeds from the
sale of a Certificate, may be subject to the "backup withholding tax" under
Section 3406 of the Code at a rate of 31% if recipients of such payments fail to
furnish to the payor certain information, including their taxpayer
identification numbers, or otherwise fail to establish an exemption from such
tax. Any amounts deducted and withheld from a distribution to a recipient would
be allowed as a credit against such recipient's federal income tax.
Furthermore, certain penalties may be imposed by the IRS on a recipient of
payments that is required to supply information but that does not do so in the
proper manner.
FOREIGN INVESTORS
A holder of a Certificate that is not a "United States person" (as defined
below) and is not subject to federal income tax as a result of any direct or
indirect connection to the United States in addition to its ownership of a
Certificate will not be subject to United States federal income or withholding
tax in respect of a distribution on the Certificate
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attributable to Mortgage Loans originated after July 18, 1984, provided that
such holder complies to the extent necessary with certain identification
requirements (including delivery of a statement, signed by such holder under
penalties of perjury, certifying that such holder is not a United States person
and providing the name and address of such holder). However, such a holder of a
Certificate will be subject to United States federal income or withholding tax
in respect of distributions of interest on the Certificate attributable to
Mortgage Loans were originated prior to July 18, 1984. A significant portion of
the Mortgage Loans were originated prior to that date and will be subject
generally to United States withholding tax in the absence of an applicable tax
treaty exemption. Accordingly, an investment in Certificates may not be
suitable for certain foreign investors.
For these purposes, "United States 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 or trust whose income from sources without the United
States is includible in gross income for United States federal income tax
purposes regardless of its connection with the conduct of a trade or business
within the United States and a trust for which one or more United States
fiduciaries have the authority to control all substantial decisions and for
which a court of the United States can exercise primary supervision over the
trust's administration. For years beginning before January 1, 1997, the term
"United States person" shall include a trust whose income is includible in gross
income for United States federal income taxation regardless of source, in lieu
of trusts just described, unless the trust elects to have its United States
status determined under the criteria described in the previous sentence for tax
years ending after August 20, 1996. To the extent such holder does not qualify
for exemption, distributions of interest, including distributions in respect of
accrued original issue discount, to such holder may be subject to a tax rate of
30%, subject to reduction under any applicable tax treaty.
In addition, the foregoing rules will not apply to exempt a United States
shareholder of a controlled foreign corporation from taxation on such United
States shareholder's allocable portion of the interest income received by such
controlled foreign corporation.
To the extent that interest on the Certificates would be exempt under Section
871(h)(1) of the Code from U.S. withholding tax, and a Certificate is not held
in connection with a holder's trade or business in the United States, a
Certificate will not be subject to U.S. estate taxes in the estate of non-
resident alien individual.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting Agreement
dated ______________, 19__ the Underwriter has agreed to purchase and the
Company has agreed to sell to the Underwriter the Certificates.
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The Underwriting Agreement provides that the obligation of the Underwriter to
pay for and accept delivery of the Certificates is subject to, among other
things, the receipt of certain legal opinions and to the conditions, among
others, that no stop order suspending the effectiveness of the Company's
Registration Statement shall be in effect, and that no proceedings for such
purpose shall be pending before or threatened by the Securities and Exchange
Commission.
The distribution of the Certificates by the Underwriter may be effected from
time to time in one or more negotiated transactions, or otherwise, at varying
prices to be determined at the time of sale. Proceeds to the Company from the
sale of the Certificates, before deducting expenses payable by the Company, will
be _______% of the aggregate principal balance of the Certificates plus accrued
interest thereon from the Cut-off Date. The Underwriter may effect such
transactions by selling the Certificates to or through dealers, and such dealers
may receive compensation in the form of underwriting discounts, concessions or
commissions from the Underwriter for whom they act as agent. In connection with
the sale of the Certificates, the Underwriter may be deemed to have received
compensation from the Company in the form of underwriting compensation. The
Underwriter and any dealers that participate with the Underwriter in the
distribution of the Certificates may be deemed to be underwriters and any profit
on the resale of the Certificates positioned by them may be deemed to be
underwriting discounts and commissions under the Securities Act of 1933.
The Underwriting Agreement provides that the Company will indemnify the
Underwriter, and under limited circumstances the Underwriter will indemnify the
Company, against certain civil liabilities under the Securities Act of 1933, or
contribute to payments required to be made in respect thereof.
There can be no assurance that a secondary market for the Certificates will
develop or, if it does develop, that it will continue. The primary source of
information available to investors concerning the Certificates will be the
monthly statements discussed in the Prospectus under "Description of the
Certificates-Reports to Certificateholders, " which will include information as
to the outstanding principal balance of the Certificates and the status of the
applicable form of credit enhancement. There can be no assurance that any
additional information regarding the Certificates will be available through any
other source. In addition, the Company is not aware of any source through which
price information about the Certificates will be generally available on an
ongoing basis. The limited nature of such information regarding the
Certificates may adversely affect the liquidity of the Certificates, even if a
secondary market for the Certificates becomes available.
LEGAL OPINIONS
Certain legal matters relating to the Certificates will be passed upon for
the Company by __________________ and for the Underwriter by
____________________.
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RATING
It is a condition to the issuance of the Certificates that they be rated not
lower than "____" by ___________________________ _________________.
The ratings of ________ on mortgage pass-through certificates address the
likelihood of the receipt by certificateholders of all distributions on the
underlying mortgage loans to which they are entitled. ____________ ratings on
pass-through certificates do not represent any assessment of the likelihood that
principal prepayments will be made by mortgagors or the degree to which such
prepayments might differ from that originally anticipated. ________________
ratings on pass-through certificates do not represent any assessment of the
Master Servicer's [or the related Subservicer's] ability to purchase Converting
Mortgage Loans, or the Master Servicer's ability to purchase Converted Mortgage
Loans. In the event that neither the related Subservicer nor the Master
Servicer purchases a Converting or Converted Mortgage Loan, investors might
suffer a lower than anticipated yield. The rating does not address the
possibility that Certificateholders might suffer a lower than anticipated yield.
The Company has not requested a rating on the Certificates by any rating
agency other than _______. However, there can be no assurance as to whether any
other rating agency will rate the Certificates, or, if it does, what rating
would be assigned by any such other rating agency. A rating on the Certificates
by another rating agency, if assigned at all, may be lower than the rating
assigned to the Certificates by ___________.
A security rating is not a recommendation to buy, sell or hold securities and
may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating. In the event that the rating initially assigned to the
Certificates is subsequently lowered for any reason, no person or entity is
obligated to provide any additional support or credit enhancement with respect
to the Certificates.
LEGAL INVESTMENT
The Certificates 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 one of the
Rating Agencies, and, as such, are legal investments for certain entities to the
extent provided in SMMEA. SMMEA provides, however, that states could override
its provisions on legal investment and restrict or condition investment in
mortgage related securities by taking statutory action on or prior to October 3,
1991. Certain states have enacted legislation which overrides the preemption
provisions of SMMEA.
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The Company makes no representations as to the proper characterization of the
Certificates for legal investment or other purposes, or as to the ability of
particular investors to purchase the Certificates under applicable legal
investment restrictions. These uncertainties may adversely affect the liquidity
of the Certificates. Accordingly, all institutions whose investment activities
are subject to legal investment laws and regulations, regulatory capital
requirements or review by regulatory authorities should consult with their legal
advisors in determining whether and to what extent the Certificates constitutes
a legal investment or is subject to investment, capital or other restrictions.
See "Legal Investment Matters" in the Prospectus.
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NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR BY THE UNDERWRITER. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
SECURITIES OFFERED HEREBY TO ANYONE IN ANY JURISDICTION IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM
IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT INFORMATION HEREIN OR
THEREIN IS CORRECT AS OF ANY TIME SINCE THE DATE OF THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Summary...................................................................... S-
Risk Factors................................................................. S-
Description of the Mortgage Pool............................................. S-
Description of the Certificates.............................................. S-
Certain Yield and Prepayment Considerations.................................. S-
Pooling and Servicing Agreement.............................................. S-
Description of Credit Enhancement............................................ S-
Federal Income Tax Consequences.............................................. S-
Method of Distribution....................................................... S-
Legal Opinions............................................................... S-
Rating....................................................................... S-
Legal Investment............................................................. S-
PROSPECTUS
Summary of Prospectus........................................................
Risk Factors.................................................................
The Mortgage Pools...........................................................
Servicing of Mortgage Loans..................................................
Description of the Certificates..............................................
Subordination................................................................
Description of Credit Enhancement............................................
Purchase Obligations.........................................................
Primary Mortgage Insurance, Hazard Insurance; Claims Thereunder..............
The Company..................................................................
ICI Funding Corporation......................................................
Imperial Credit Mortgage Holdings, Inc.......................................
The Pooling Agreement........................................................
Yield Considerations.........................................................
Maturity and Prepayment Considerations.......................................
Certain Legal Aspects of Mortgage Loans......................................
Certain Federal Income Tax Consequences......................................
State and Other Tax Consequences.............................................
ERISA Considerations.........................................................
Legal Investment Matters.....................................................
Use of Proceeds..............................................................
Methods of Distribution......................................................
Legal Matters................................................................
Financial Information........................................................
Rating.......................................................................
Index of Principal Definitions...............................................
</TABLE>
================================================================================
================================================================================
ICIFC SECURED
ASSETS CORP.
$_______________
MORTGAGE PASS-THROUGH
CERTIFICATES
Series 199_-__
_______________
PROSPECTUS SUPPLEMENT
_______________
--------------------------------------
_________, 19__
================================================================================
<PAGE>
================================================================================
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This preliminary prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such State.
================================================================================
Subject to Completion, Dated October 9, 1996
PROSPECTUS
Mortgage Pass-Through Certificates
ICIFC Secured Assets Corp.
The mortgage pass-through certificates (the "Offered Certificates") offered
hereby and by the supplements hereto (each, a "Prospectus Supplement") will be
offered from time to time in series. The Offered Certificates of each series,
together with any other mortgage pass-through certificates of such series, are
collectively referred to herein as the "Certificates."
Each series of Certificates will represent in the aggregate the entire
beneficial ownership interest in a trust fund (with respect to any series, the
"Trust Fund") to be established by ICIFC Secured Assets Corp. (the "Company").
Each Trust Fund will consist primarily of a segregated pool (a "Mortgage Pool")
of one- to four-family and/or multifamily residential first and/or junior
mortgage loans or manufactured housing conditional sales contracts and
installment loan agreements (collectively, the "Mortgage Loans") or interests
therein (which may include Mortgage Securities as defined herein), acquired by
the Company from one or more affiliated or unaffiliated institutions (the
"Sellers"). See "The Company" and "The Mortgage Pools." The Mortgage Loans and
other assets in each Trust Fund will be held in trust for the benefit of the
holders of the related series of Certificates (the "Certificateholders")
pursuant to a pooling and servicing or other agreement (in either case, a
"Pooling Agreement") as more fully described herein under "Description of the
Certificates" and in the related Prospectus Supplement. Information regarding
the Offered Certificates of a series, and the general characteristics of the
Mortgage Loans and other assets in the related Trust Fund, will be set forth in
the related Prospectus Supplement.
Each series of Certificates will include one or more classes. Each class of
Certificates of any series will represent the right, which right may be senior
or subordinate to the rights of one or more of the other classes of the
Certificates, to receive a specified portion of payments of principal or
interest (or both) on the Mortgage Loans and other assets in the related Trust
Fund in the manner described herein under "Description of the Certificates" and
in the related Prospectus Supplement. A series may include one or more classes
of Certificates entitled to principal distributions, with disproportionate,
nominal or no interest distributions, or to interest distributions, with
disproportionate, nominal or no principal distributions. A series may include
two or more classes of Certificates which differ as to the timing, sequential
order, priority of payment, pass-through rate or amount of distributions of
principal or interest or both. See "Description of the Certificates."
THE COMPANY'S ONLY OBLIGATIONS WITH RESPECT TO A SERIES OF CERTIFICATES WILL BE
PURSUANT TO CERTAIN REPRESENTATIONS AND WARRANTIES MADE BY THE COMPANY, EXCEPT
AS PROVIDED IN THE RELATED PROSPECTUS SUPPLEMENT. THE MASTER SERVICER (THE
"MASTER SERVICER") FOR ANY SERIES OF CERTIFICATES WILL BE NAMED IN THE RELATED
PROSPECTUS SUPPLEMENT. THE PRINCIPAL OBLIGATIONS OF THE MASTER SERVICER WILL BE
PURSUANT TO ITS CONTRACTUAL SERVICING OBLIGATIONS (WHICH INCLUDE ITS LIMITED
OBLIGATION TO MAKE CERTAIN ADVANCES IN THE EVENT OF DELINQUENCIES IN PAYMENTS ON
THE RELATED MORTGAGE LOANS). SEE "DESCRIPTION OF THE CERTIFICATES."
If so specified in the related Prospectus Supplement, the Trust Fund for a
series of Certificates may include any one or any combination of a mortgage pool
insurance policy, letter of credit, bankruptcy bond, special hazard insurance
policy, reserve fund or other form of credit support. In addition to or in lieu
of the foregoing, credit enhancement may be provided by means of subordination
of one or more classes of Certificates. See "Description of Credit
Enhancement."
The rate of payment of principal of each class of Certificates entitled to a
portion of principal payments on the Mortgage Loans and other assets in the
related Mortgage Pool will depend on the priority of payment of such class and
the rate and timing of principal payments (including by reason of prepayments,
defaults, liquidations and repurchases of Mortgage Loans) on such Mortgage Loans
and other assets. A rate of principal payment slower or faster than that
anticipated may affect the yield on a class of Certificates in the manner
described herein under "Yield Considerations" and in the related Prospectus
Supplement.
One or more separate elections may be made to treat a Trust Fund or a
designated portion thereof as a real estate mortgage investment conduit
("REMIC") for federal income tax purposes. If applicable, the Prospectus
Supplement for a series of Certificates will specify which class or classes of
the related series of Certificates will be considered to be regular interests in
the related REMIC and which class of Certificates or other interests will be
designated as the residual interest in the related REMIC. See "Federal Income
Tax Consequences" herein.
SEE "RISK FACTORS" BEGINNING ON PAGE 11 HEREIN AND ON PAGE S-__ OF THE RELATED
PROSPECTUS SUPPLEMENT FOR A DISCUSSION OF SIGNIFICANT MATTERS AFFECTING
INVESTMENTS IN THE CERTIFICATES.
PROCEEDS OF THE ASSETS IN THE RELATED TRUST FUND ARE THE SOLE SOURCE OF
PAYMENTS ON THE CERTIFICATES. THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN
OR OBLIGATION OF THE COMPANY, THE MASTER SERVICER OR ANY OF THEIR RESPECTIVE
AFFILIATES. NEITHER THE CERTIFICATES OF ANY SERIES NOR THE UNDERLYING MORTGAGE
LOANS OR MORTGAGE SECURITIES WILL BE GUARANTEED OR INSURED BY ANY GOVERNMENTAL
AGENCY OR INSTRUMENTALITY OR BY THE COMPANY, THE MASTER SERVICER OR ANY OF THEIR
RESPECTIVE AFFILIATES, UNLESS OTHERWISE SPECIFIED IN THE RELATED PROSPECTUS
SUPPLEMENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The Offered Certificates may be offered through one or more different methods,
including offerings through underwriters, as more fully described herein under
"Methods of Distribution" and in the related Prospectus Supplement.
There will be no secondary market for the Offered Certificates of any series
prior to the offering thereof. There can be no assurance that a secondary
market for any of the Offered Certificates will develop or, if it does develop,
that it will continue. The Offered Certificates will not be listed on any
securities exchange.
Retain this Prospectus for future reference. This Prospectus may not be used
to consummate sales of securities offered hereby unless accompanied by a
Prospectus Supplement. This Prospectus contains in "Index of Principal
Definitions" beginning on page 111 herein.
The date of this Prospectus is October 9, 1996.
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND ANY PROSPECTUS
SUPPLEMENT WITH RESPECT HERETO AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON. THIS PROSPECTUS AND ANY PROSPECTUS
SUPPLEMENT WITH RESPECT HERETO DO NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE CERTIFICATES
OFFERED HEREBY AND THEREBY OR AN OFFER OF SUCH CERTIFICATES TO ANY PERSON IN ANY
STATE OR OTHER JURISDICTION IN WHICH SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY
OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT INFORMATION HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO ITS DATE; HOWEVER, IF ANY MATERIAL CHANGE OCCURS
WHILE THIS PROSPECTUS IS REQUIRED BY LAW TO BE DELIVERED, THIS PROSPECTUS WILL
BE AMENDED OR SUPPLEMENTED ACCORDINGLY.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C> <C>
SUMMARY OF PROSPECTUS................................. 5 IMPERIAL CREDIT MORTGAGE HOLDINGS, INC................ 59
RISK FACTORS.......................................... 11 THE POOLING AGREEMENT................................. 60
General............................................ 60
THE MORTGAGE POOLS.................................... 17 Certain Matters Regarding the Master
General............................................ 17 Servicer and the Company......................... 60
The Mortgage Loans................................. 19 Events of Default.................................. 61
Underwriting Standards............................. 23 Rights Upon Event of Default....................... 61
Federal Home Loan Mortgage Corporation Amendment.......................................... 62
("Freddie Mac").................................. 24 Termination; Retirement of Certificates............ 63
Qualifications of Originators and Sellers.......... 25 The Trustee........................................ 64
Representations by Sellers......................... 25 Limitations on the Duties of the Trustee........... 64
Certain Matters Regarding the Trustee.............. 64
SERVICING OF MORTGAGE LOANS........................... 28 Resignation and Removal of the Trustee............. 64
General............................................ 28
The Master Servicer................................ 28 YIELD CONSIDERATIONS.................................. 65
Collection and Other Servicing Procedures;
Mortgage Loan Modifications...................... 29 MATURITY AND PREPAYMENT
Subservicers....................................... 31 CONSIDERATIONS..................................... 67
Special Servicers.................................. 31
Realization Upon or Sale of Defaulted CERTAIN LEGAL ASPECTS OF MORTGAGE
Mortgage Loans................................... 31 LOANS.............................................. 68
Servicing and Other Compensation and Single Family Loans and Multifamily Loans.......... 68
Payment of Expenses; Spread...................... 33 Contracts.......................................... 69
Evidence as to Compliance.......................... 34 Foreclosure on Mortgages........................... 70
Repossession with respect to Contracts............. 72
DESCRIPTION OF THE CERTIFICATES....................... 35 Rights of Redemption............................... 73
General............................................ 35 Anti-Deficiency Legislation and Other
Form of Certificates............................... 37 Limitations on Lenders........................... 73
Assignment of Trust Fund Assets.................... 38 Junior Mortgages................................... 75
Certificate Account................................ 40 Consumer Protection Laws with respect to
Distributions...................................... 43 Contracts........................................ 75
Distributions of Interest and Principal on the Environmental Legislation.......................... 76
Certificates..................................... 44 Enforceability of Certain Provisions............... 76
Distributions on the Certificates in Respect of Subordinate Financing.............................. 77
Prepayment Premiums or in Applicability of Usury Laws........................ 77
Respect of Equity Participations................. 45 Alternative Mortgage Instruments................... 78
Allocation of Losses and Shortfalls................ 45 Formaldehyde Litigation with respect to
Advances........................................... 45 Contracts........................................ 78
Reports to Certificateholders...................... 46 Soldiers' and Sailors' Civil Relief Act of 1940.... 79
DESCRIPTION OF CREDIT ENHANCEMENT..................... 48 FEDERAL INCOME TAX CONSEQUENCES....................... 79
General............................................ 48 General............................................ 79
Subordinate Certificates........................... 49 REMICS............................................. 80
Letter of Credit................................... 49 Grantor Trust Funds................................ 95
Mortgage Pool Insurance Policies................... 49
Special Hazard Insurance Policies.................. 51 STATE AND OTHER TAX CONSEQUENCES...................... 104
Bankruptcy Bonds................................... 52
Reserve Funds...................................... 52 ERISA CONSIDERATIONS.................................. 104
Maintenance of Credit Enhancement.................. 53 Plan Asset Regulations............................. 105
Reduction or Substitution of Credit Tax Exempt Investors............................... 107
Enhancement...................................... 55 Consultation With Counsel.......................... 107
PURCHASE OBLIGATIONS.................................. 55 LEGAL INVESTMENT MATTERS.............................. 107
PRIMARY MORTGAGE INSURANCE, HAZARD USE OF PROCEEDS....................................... 108
INSURANCE;
CLAIMS THEREUNDER................................ 56 METHODS OF DISTRIBUTION............................... 109
General............................................ 56
Primary Mortgage Insurance Policies................ 56 LEGAL MATTERS......................................... 110
Hazard Insurance Policies.......................... 57
FHA Insurance...................................... 58 FINANCIAL INFORMATION................................. 110
THE COMPANY........................................... 59 RATING................................................ 110
ICI FUNDING CORPORATION............................... 59 INDEX OF PRINCIPAL DEFINITIONS........................ 111
</TABLE>
2
<PAGE>
UNTIL 90 DAYS AFTER THE DATE OF EACH PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE RELATED OFFERED CERTIFICATES, WHETHER OR NOT
PARTICIPATING IN THE DISTRIBUTION THEREOF, MAY BE REQUIRED TO DELIVER THIS
PROSPECTUS AND THE RELATED PROSPECTUS SUPPLEMENT. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT
AND PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information filed by
the Company can be inspected and copied at the public reference facilities
maintained by the Commission at its Public Reference Section, 450 Fifth
Street, N.W., Washington, D.C. 20549, and its Regional Offices located as
follows: Chicago Regional Office, 500 West Madison, 14th Floor, Chicago,
Illinois 60661; New York Regional Office, Seven World Trade Center, New York,
New York 10048. Copies of such material can also be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates and electronically through the Commission's
Electronic Data Gathering, Analysis and Retrieval System at the Commission's
Web Site (http://www.sec.gov.). The Company does not intend to send any
financial reports to Certificateholders.
This Prospectus does not contain all of the information set forth in the
Registration Statement (of which this Prospectus forms a part) and exhibits
thereto which the Company has filed with the Commission under the Securities
Act of 1933 (the "Securities Act") and to which reference is hereby made.
REPORTS TO CERTIFICATEHOLDERS
The Master Servicer or other designated person will be required to
provide periodic unaudited reports concerning each Trust Fund to all
registered holders of Offered Certificates. Such information will be provided
in accordance with the requirements of recent SEC No-Action Letters. Such
information will include, among other things, the following: (i) with respect
to each series of Offered Certificates, a form 8-K will be filed within
fifteen days after the issuance of such series and will include the relevant
Pooling Agreement for such series; (ii) pursuant to the Pooling Agreement for
the related series, concurrently with each distribution on each distribution
date, the holders of each class of Registered Certificates will receive a
monthly statement setting forth material information pertaining to each
distribution, as required by the Pooling Agreement; (iii) for so long as the
Pool Insurer, if any, is eligible to use Form S-3 and is making reports
pursuant to the Exchange Act, incorporated by reference into the appropriate
Monthly Statements, on a quarterly and annual basis, the current financial
statements of the Pool Insurer, if any, for such series; (iv) for so long as
the Company has a duty to file periodic reports with respect to any Trust Fund
and series pursuant to the Exchange Act, a form 8-K will be filed with the
Commission within fifteen days after the related distribution to
Certificateholders of any series is made containing the Monthly Statement; (v)
if any monthly (or other periodic) distribution to Certificateholders of a
series is not made as required by the related Pooling Agreement, or in the
event of any material change in the procedures or forms described above for
the reports to the Certificateholders or Trustee, the Company will file within
fifteen days of the due date for such distribution, a Form 8-K responding to
Item 5 thereof, to the extent applicable to the related Trust Fund the
Registered Certificates of such series, describing such failure to make
payment or such change in reporting; (vi) within fifteen days under Item 5 of
Form 8-K, any matters that have occurred during any month that would be
reportable under Item 1, 2, 4 or 5 of Part II of Form 10-Q, to the extent
applicable; (vii) on or prior to 90 days following the Company's fiscal year
end, an annual report on Form 10-K containing information required under Items
2, 3, 4, 5, 9, 12, 13 and 14 thereof, to the extent material to the operations
of the Trust Fund and required by recent SEC No-Action Letters. The Company
will not provide Quarterly Reports on Form 10-Q since pertinent information
will be covered in the Form 8-Ks to be filed with the Commission as described
above. See "Description of the Certificates-Reports to Certificateholders."
3
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein and in the related Prospectus Supplement by
reference all documents and reports filed or caused to be filed by the Company
with respect to a Trust Fund pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act, prior to the termination of the offering of the Offered
Certificates of the related series. The Company will provide or cause to be
provided without charge to each person to whom this Prospectus is delivered in
connection with the offering of one or more classes of Offered Certificates,
upon written or oral request of such person, a copy of any or all such reports
incorporated herein by reference, in each case to the extent such reports
relate to one or more of such classes of such Offered Certificates, other than
the exhibits to such documents, unless such exhibits are specifically
incorporated by reference in such documents. Requests should be directed in
writing to ICIFC Secured Assets Corp., 20371 Irvine Avenue, Suite 200, Santa
Ana Heights, California 92707, or by telephone at (714) 556-0122. The Company
has determined that its financial statements will not be material to the
offering of any Offered Certificates.
4
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF PROSPECTUS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to each series of Certificates contained in the
Prospectus Supplement to be prepared and delivered in connection with the
offering of Offered Certificates of such series. Capitalized terms used in this
summary that are not otherwise defined shall have the meanings ascribed thereto
elsewhere in this Prospectus. An "Index of Principal Definitions" indicating
where certain capitalized terms used herein are defined appears in this
Prospectus beginning on page ___.
Securities Offered........ Mortgage pass-through certificates. The mortgage
pass-through certificates (the "Offered
Certificates") offered hereby and by the various
Prospectus Supplements with respect hereto will be
offered from time to time in series. The Offered
Certificates of each series, together with any
other mortgage pass-through certificates of such
series, are collectively referred to herein as the
"Certificates."
Company .................. ICIFC Secured Assets Corp. (the "Company"), a
wholly-owned subsidiary of ICI Funding Corporation
("ICI Funding"). See "The Company" and "ICI Funding
Corporation."
Master Servicer........... The master servicer (the "Master Servicer"), if
any, for a series of Certificates will be specified
in the related Prospectus Supplement and may either
be an entity not affiliated with the Company or an
affiliate of the Company, including ICI Funding,
the Company's parent and a non-consolidating
subsidiary of Imperial Credit Mortgage Holdings,
Inc. ("ICMH"). See "ICI Funding Corporation,"
"Imperial Credit Mortgage Holdings, Inc." and
"Servicing of Mortgage Loans-The Master Servicer."
Special Servicer.......... The special servicer (the "Special Servicer"), if
any, for a series of Certificates will be
specified, or the circumstances under which a
Special Servicer will be appointed will be
described, in the related Prospectus Supplement.
Any Special Servicer may either be an entity
unaffiliated with the Company or an affiliate of
the Company. See "Servicing of Mortgage Loans-
Special Servicers."
Trustee................... The trustee (the "Trustee") for each series of
Certificates will be specified in the related
Prospectus Supplement. See "The Pooling Agreement-
The Trustee."
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
The Certificates.......... Each series of Certificates will include one or
more classes of Certificates which will represent
in the aggregate the entire beneficial ownership
interest in a segregated pool of Mortgage Loans
(exclusive of any portion of interest payments (the
"Spread") relating to each Mortgage Loan retained
by the Company or any of its affiliates) or
interests therein (which may include Mortgage
Securities as defined herein), and certain other
assets as described below (collectively, a "Trust
Fund"), and will be issued pursuant to a pooling
and servicing agreement or other agreement
specified in the related Prospectus Supplement (in
either case, a "Pooling Agreement"). Except for
certain Strip Certificates and REMIC Residual
Certificates (each as hereinafter described), each
series of Certificates, or class of Certificates in
the case of a series consisting of two or more
classes, will have a stated principal balance and
will be entitled to distributions of interest based
on a specified interest rate or rates (each, a
"Pass-Through Rate"). Each series or class of
Certificates may have a different Pass-Through
Rate, which may be a fixed, variable or adjustable
Pass-Through Rate, or any combination of two or
more such Pass-Through Rates. The related
Prospectus Supplement will specify the Pass-Through
Rate or Rates for each series or class of
Certificates, or the initial Pass-Through Rate or
Rates and the method for determining subsequent
changes to the Pass-Through Rate or Rates.
A series may include one or more classes of
Certificates ("Strip Certificates") 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
Certificates which differ as to timing, sequential
order, priority of payment, pass-through rate or
amount of distributions of principal or interest or
both, or as to which distributions of principal or
interest or both on any class may be made upon the
occurrence of specified events, in accordance with
a schedule or formula, or on the basis of
collections from designated portions of the
Mortgage Pool, which series may include one or more
classes of Certificates ("Accrual Certificates"),
as to which certain accrued interest will not be
distributed but rather will be added to the
principal balance thereof on each Distribution
Date, as hereinafter defined, in the manner
described in the related Prospectus Supplement.
If so provided in the related Prospectus
Supplement, a series of Certificates may include
one or more classes of Certificates (collectively,
the "Senior Certificates") which are senior to one
or more classes of Certificates (collectively, the
"Subordinate Certificates") in respect of certain
distributions of principal and interest and
allocations of losses on Mortgage Loans. In
addition, certain classes of Senior (or
Subordinate) Certificates may be senior to other
classes of Senior (or Subordinate) Certificates in
respect of such distributions or losses. As to each
series, one or more elections may be made to treat
the related Trust Fund or a designated portion
thereof as a "real estate mortgage investment
conduit" or "REMIC" as defined in the Internal
Revenue Code of 1986, as amended (the "Code"). See
"Description of the Certificates."
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
The Certificates will not be guaranteed or insured
by any governmental agency or instrumentality, by
the Company, the Master Servicer or any of their
respective affiliates or by any other person,
unless otherwise specified in the related
Prospectus Supplement.
The Mortgage Pools........ Each Trust Fund will consist primarily of a
segregated pool (a "Mortgage Pool") of
mortgage loans and/or manufactured housing
conditional sales and installment loan
agreements (collectively, the "Mortgage
Loans"). Each Mortgage Loan will be secured by
a first or junior lien on or security interest
in (i) a one- to four-family residential
property, (ii) a residential property
consisting of five or more rental or
cooperatively owned dwelling units or (iii) a
new or used manufactured home (each, a
"Mortgaged Property"). The Mortgaged
Properties may be located in any one of the 50
states, the District of Columbia or the
Commonwealth of Puerto Rico. For a description
of the types of Mortgage Loans that may be
included in the Mortgage Pools, see "The
Mortgage Pools-The Mortgage Loans." The
Mortgage Loans will not be guaranteed or
insured by the Company, any of its affiliates
or, unless otherwise specified in the related
Prospectus Supplement, by any governmental
agency or instrumentality or any other
person.
If specified in the related Prospectus Supplement,
Mortgage Loans which are converting or converted
from an adjustable-rate to a fixed-rate or certain
Mortgage Loans for which the Mortgage Rate has been
reset may be repurchased by the Company or
purchased by the related Master Servicer, the
applicable Seller or another party, or a designated
remarketing agent will use its best efforts to
arrange the sale thereof as further described
herein under "The Mortgage Pools-The Mortgage
Loans."
If so specified in the related Prospectus
Supplement, some Mortgage Loans may be delinquent
or non-performing as of the date of their deposit
in the related Trust Fund.
If specified in the related Prospectus Supplement,
a Trust Fund may include or consist solely of
mortgage participations or pass-through
certificates evidencing interests in Mortgage Loans
("Mortgage Securities"), as described herein. See
"The Mortgage Pools-General" herein.
Each Mortgage Loan and Mortgage Security included
in a Trust Fund will have been selected by the
Company from among those purchased, either directly
or indirectly, from a prior holder thereof (a
"Seller"), which prior holder may or may not be the
originator of such Mortgage Loan or the issuer of
such Mortgage Security and may be an affiliate of
the Company. A Mortgage Security included in a
Trust Fund, however, may also have been issued
previously by the Company or an affiliate thereof.
A Current Report on Form 8-K will be available upon
request to purchasers of the Offered Certificates
of the related series and will be filed, together
with the related Pooling Agreement, with the
Securities and Exchange Commission within fifteen
days after such initial issuance.
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
Interest Distributions.... Except as otherwise specified in the related
Prospectus Supplement, interest on each class of
Offered Certificates of each series, other than
Strip Certificates or Accrual Certificates (prior
to the time when accrued interest becomes payable
thereon), will accrue at the applicable Pass-
Through Rate (which may be a fixed, variable or
adjustable rate or any combination thereof) on such
class's principal balance outstanding from time to
time and will be remitted on the 25th day (or, if
such day is not a business day, on the next
succeeding business day) of each month, commencing
with the month following the month in which the
Cut-off Date (as defined in the applicable
Prospectus Supplement) occurs (each, a
"Distribution Date"). Distributions, if any, with
respect to interest on Strip Certificates will be
calculated and made on each Distribution Date as
described herein under "Description of the
Certificates-Distribution of Interest and Principal
on the Certificates" and in the related Prospectus
Supplement. Interest that has accrued but is not
yet payable on any Accrual Certificates will be
added to the principal balance of such class on
each Distribution Date, and will thereafter bear
interest. Distributions of interest with respect to
one or more classes of Offered Certificates (or, in
the case of a class of Accrual Certificates,
accrued interest to be added to the principal
balance thereof) may be reduced as a result of the
occurrence of certain delinquencies not covered by
advances, losses, prepayments and other
contingencies described herein and in the related
Prospectus Supplement. See "Yield Considerations"
and "Description of the Certificates-Distributions
of Interest and Principal on the Certificates."
Principal Distributions... Except as otherwise specified in the related
Prospectus Supplement, principal distributions on
the Certificates of each series will be payable on
each Distribution Date, commencing with the
Distribution Date in the month following the month
in which the Cut-off Date occurs, to the holders of
the Certificates of such series, or of the class or
classes of Certificates then entitled thereto, on a
pro rata basis among all such Certificates or among
the Certificates of any such class, in proportion
to their respective outstanding principal balances,
or in the priority and manner otherwise specified
in the related Prospectus Supplement. Strip
Certificates with no principal balance will not
receive distributions in respect of principal.
Distributions of principal with respect to any
series of Certificates, or with respect to one or
more classes included therein, may be reduced to
the extent of certain delinquencies not covered by
advances or losses not covered by the applicable
form of credit enhancement. See "The Mortgage
Pools," "Maturity and Prepayment Considerations"
and "Description of the Certificates."
Credit Enhancement........ If so specified in the Prospectus Supplement, the
Trust Fund with respect to any series of
Certificates may include any one or any combination
of a letter of credit, mortgage pool insurance
policy, special hazard insurance policy, bankruptcy
bond or reserve fund to provide partial coverage
for certain defaults and losses relating to the
Mortgage Loans. Credit support also may be provided
in the form of subordination of one or more classes
of Certificates in a series under which losses are
first allocated to any Subordinate Certificates up
to a specified limit. Any form of credit
enhancement will have certain limitations and
exclusions from coverage thereunder, which will be
described in the related Prospectus Supplement.
Losses not covered by any form of credit
enhancement will be borne by the
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holders of the related Certificates (or certain
classes thereof). 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
Certificates. See "Description of Credit
Enhancement."
Advances.................. If and to the extent described in the related
Prospectus Supplement, and subject to any
limitations specified therein, the Master Servicer
for any Trust Fund will be obligated to make, or
have the option of making, certain advances with
respect to delinquent scheduled payments on the
Mortgage Loans in such Trust Fund. Any such advance
made by the Master Servicer with respect to a
Mortgage Loan is recoverable by it as described
herein under "Description of the Certificates-
Advances" either from recoveries on or in respect
of the specific Mortgage Loan or, with respect to
any advance subsequently determined to be
nonrecoverable from recoveries on or in respect of
the specific Mortgage Loan, out of funds otherwise
distributable to the holders of the related series
of Certificates, which may include the holders of
any Senior Certificates of such series. If and to
the extent provided in the Prospectus Supplement
for a series of Certificates, the Master Servicer
will be entitled to receive interest on its
advances for the period that they are outstanding
payable from amounts in the related Trust Fund. As
specified in the Prospectus Supplement with respect
to any series of Certificates as to which the Trust
Fund includes Mortgage Securities, the advancing
obligations in respect of the underlying Mortgage
Loans will be pursuant to the terms of such
Mortgage Securities, as may be supplemented by the
terms of the applicable Pooling Agreement, and may
differ from the provisions described herein.
Optional Termination...... The Master Servicer, the Company or, if specified
in the related Prospectus Supplement, the holder of
the residual interest in a REMIC may at its option
either (i) effect early retirement of a series of
Certificates through the purchase of the assets in
the related Trust Fund or (ii) purchase, in whole
but not in part, the Certificates specified in the
related Prospectus Supplement; in each case under
the circumstances and in the manner set forth
herein under "The Pooling Agreement-Termination;
Retirement of Certificates" and in the related
Prospectus Supplement.
Legal Investment.......... At the date of issuance, as to each series, each
class of Offered Certificates will be rated at the
request of the Company in one of the four highest
rating categories by one or more nationally
recognized statistical rating agencies (each, a
"Rating Agency"). Unless otherwise specified in the
related Prospectus Supplement, each class of
Offered Certificates that is rated in one of the
two highest rating categories by at least one
Rating Agency will constitute "mortgage related
securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 ("SMMEA"). Investors
whose investment authority is subject to legal
restrictions should consult their own legal
advisors to determine whether and to what extent
the Offered Certificates of any series constitute
legal investments for them. See "Legal Investment
Matters."
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9
<PAGE>
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ERISA Considerations...... A fiduciary of an employee benefit plan and certain
other retirement plans and arrangements, including
individual retirement accounts and annuities, Keogh
plans, and collective investment funds and separate
accounts in which such plans, accounts, annuities
or arrangements are invested, that is subject to
the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or Section 4975 of the
Code (each, a "Plan") should carefully review with
its legal advisors whether the purchase or holding
of Offered Certificates could give rise to a
transaction that is prohibited or is not otherwise
permissible either under ERISA or Section 4975 of
the Code. Investors are advised to consult their
counsel and to review "ERISA Considerations" herein
and in the related Prospectus Supplement.
Federal Income Tax
Consequences.............. Offered Certificates of each series will constitute
either (i) interests ("Grantor Trust Certificates")
in a Trust Fund treated as a grantor trust under
applicable provisions of the Code, or (ii) "regular
interests" ("REMIC Regular Certificates") or
"residual interests" ("REMIC Residual
Certificates") in a Trust Fund, or a portion
thereof, treated as a REMIC under Sections 860A
through 86OG of the Code.
Investors are advised to consult their tax advisors
as to the tax consequences of an investment in the
Certificates in light of each investor's individual
circumstances and to review "Federal Income Tax
Consequences" herein and in the related Prospectus
Supplement for a general discussion of material tax
matters related to the Certificates. Such
discussion, to the extent it relates to matters of
law or legal conclusions with respect thereto,
represents the opinion of counsel to the Company,
subject to any qualifications set forth therein.
See "Federal Income Tax Consequences."
Ratings................... It is a condition to the issuance of any class of
Offered Certificates that they shall have been
rated not lower than investment grade, that is, in
one of the four highest rating categories, by at
least one Rating Agency. Ratings on mortgage pass-
through certificates address the likelihood of
receipt by the holders thereof of all collections
on the underlying mortgage assets to which such
holders are entitled. These ratings address the
structural, legal and issuer-related aspects
associated with such certificates, the nature of
the underlying mortgage assets and the credit
quality of the guarantor, if any. Ratings on
mortgage pass-through certificates do not represent
any assessment of the likelihood of principal
prepayments by borrowers or of the degree by which
such prepayments might differ from those originally
anticipated. As a result, Certificateholders might
suffer a lower than anticipated yield, and, in
addition, holders of stripped interest certificates
in extreme cases might fail to recoup their initial
investments.
Listing Application....... The Company does not currently intend to make an
application to list the Offered Certificates on a
national securities exchange or to quote the
Offered Securities in the automated quotation
system of a registered securities association.
Risk Factors.............. There are material risks associated with an
investment in the Certificates. See "Risk Factors"
beginning on page 12 herein and on page S-___ of
the Prospectus Supplement for a discussion of
significant matters affecting investments in the
Certificates.
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10
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RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of the Offered Certificates:
Limited Liquidity. There can be no assurance that a secondary market for
the Offered Certificates of any series will develop or, if it does develop,
that it will provide Certificateholders with liquidity of investment or that
it will continue for the life of the Offered Certificates of any series. The
Prospectus Supplement for any series of Offered Certificates may indicate that
an underwriter specified therein intends to establish a secondary market in
such Certificates, however no underwriter will be obligated to do so. The
Offered Certificates will not be listed on any securities exchange.
Limited Obligations. The Offered Certificates will not represent an
interest in or obligation of the Company, the Master Servicer or any of their
respective affiliates. The only obligations of the foregoing entities with
respect to the Certificates, the Mortgage Loans or any Mortgage Securities
will be the obligations (if any) of the Company pursuant to certain limited
representations and warranties made with respect to the Mortgage Loans or
Mortgage Securities, the Master Servicer's servicing obligations under the
related Pooling Agreement (including, if and to the extent described in the
related Prospectus Supplement, its limited obligation to make certain advances
in the event of delinquencies on the Mortgage Loans) and pursuant to the terms
of any Mortgage Securities, and, if and to the extent expressly described in
the related Prospectus Supplement, certain limited obligations of the Master
Servicer in connection with a Purchase Obligation or an agreement to purchase
or act as remarketing agent with respect to a Convertible Mortgage Loan upon
conversion to a fixed rate. Unless otherwise specified in the related
Prospectus Supplement, neither the Certificates nor the underlying Mortgage
Loans or Mortgage Securities will be guaranteed or insured by any governmental
agency or instrumentality, by the Company, the Master Servicer or any of their
respective affiliates or by any other person. Proceeds of the assets included
in the related Trust Fund for each series of Certificates (including the
Mortgage Loans or Mortgage Securities and any form of credit enhancement) will
be the sole source of payments on the Certificates, and there will be no
recourse to the Company, the Master Servicer or any other entity in the event
that such proceeds are insufficient or otherwise unavailable to make all
payments provided for under the Certificates.
Limitations, Reduction and Substitution of Credit Enhancement. With
respect to each series of Certificates, credit enhancement will be provided in
limited amounts to cover certain types of losses on the underlying Mortgage
Loans. Credit enhancement will be provided in one or more of the forms
referred to herein, including, but not limited to: subordination of other
classes of Certificates of the same series; a Letter of Credit; a Purchase
Obligation; a Mortgage Pool Insurance Policy; a Special Hazard Insurance
Policy; a Bankruptcy Bond; a Reserve Fund; or any combination thereof. See
"Description of Credit Enhancement" herein. Regardless of the form of credit
enhancement provided, the amount of coverage will be limited in amount and in
most cases will be subject to periodic reduction in accordance with a schedule
or formula. Furthermore, such credit enhancements may provide only very
limited coverage as to certain types of losses or risks, and may provide no
coverage as to certain other types of losses or risks. In the event losses
exceed the amount of coverage provided by any credit enhancement or losses of
a type not covered by any credit enhancement occur, such losses will be borne
by the holders of the related Certificates (or certain classes thereof). The
Company, the Master Servicer or other specified person will generally be
permitted to reduce, terminate or substitute all or a portion of the credit
enhancement for any series of Certificates, if each applicable Rating Agency
indicates that the then-current rating(s) thereof will not be adversely
affected. The rating(s) of any series of Certificates by any applicable
Rating Agency may be lowered following the initial issuance thereof as a
result of the downgrading of the obligations of any applicable credit support
provider, or as a result of losses on the related Mortgage Loans in excess of
the levels contemplated by such Rating Agency at the time of its initial
rating analysis. Neither the Company, the Master Servicer nor any of their
respective affiliates will have any obligation to replace or supplement any
credit enhancement, or to take any other action to maintain any rating(s) of
any series of Certificates. See "Description of Credit Enhancement-Reduction
of Substitution of Credit Enhancement" herein.
Risks of Declining Property Values and High Loan-to-Value Ratios. An
investment in securities such as the Certificates which generally represent
interests in mortgage loans and/or manufactured housing
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<PAGE>
conditional sales contracts and installment loan agreements may be affected
by, among other things, a decline in real estate values and changes in the
borrowers' financial condition. No assurance can be given that values of the
Mortgaged Properties have remained or will remain at their levels on the dates
of origination of the related Mortgage Loans. If the residential real estate
market should experience an overall decline in property values such that the
outstanding balances of the Mortgage Loans, and any secondary financing on the
Mortgaged Properties, in a particular Mortgage Pool become equal to or greater
than the value of the Mortgaged Properties, the actual rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced
in the mortgage lending industry. Mortgaged Properties subject to high Loan-
to-Value Ratios are at greater risk since such properties initially have less
equity than Mortgaged Properties with low Loan-to-Value ratios and therefore a
decline in property values could dissipate equity more quickly. Delinquencies,
foreclosures and losses due to declining values of Mortgaged Properties,
especially those with high Loan-to-Value Ratios, would cause losses to the
Trust and, to the extent not covered by credit enhancement, would adversely
affect the yield to maturity on the Certificates.
Risks of Negatively Amortizing Loans. In the case of Mortgage Loans that
are subject to negative amortization, due to the addition to principal balance
of Deferred Interest, the principal balances of such Mortgage Loans could be
increased to an amount equal to or in excess of the value of the underlying
Mortgaged Properties, thereby increasing the likelihood of default. To the
extent that such losses are not covered by any reserve fund or instrument of
credit enhancement in the related Trust Fund, holders of Certificates of the
series evidencing interests in the related Mortgage Pool will bear all risk of
loss resulting from default by Mortgagors and will have to look primarily to
the value of the Mortgaged Properties for recovery of the outstanding
principal and unpaid interest on the defaulted Mortgage Loans. Certain of the
types of loans which may be included in the Mortgage Pools may involve
additional uncertainties not present in traditional types of loans.
Risks of Buydown Mortgage Loans. Certain of the Mortgage Loans contained
in a Mortgage Pool may be subject to temporary buydown plans ("Buydown
Mortgage Loans") pursuant to which the monthly payments made by the Mortgagor
during the early years of the Mortgage Loan (the "Buydown Period") will be
less than the scheduled monthly payments on the Mortgage Loan, the resulting
difference to be made up from (i) an amount (such amount, exclusive of
investment earnings thereon, being hereinafter referred to as "Buydown Funds")
contributed by the seller of the Mortgaged Property or another source and
placed in a custodial account (the "Buydown Account"), (ii) if the Buydown
Funds are contributed on a present value basis, investment earnings on such
Buydown Funds or (iii) additional buydown funds to be contributed over time by
the Mortgagor's employer or another source. See "Description of the
Certificates-Certificate Account." Generally, the Mortgagor under each
Buydown Mortgage Loan will be qualified at the applicable lower monthly
payment. Accordingly, the repayment of a Buydown Mortgage Loan is dependent
on the ability of the Mortgagor to make larger level monthly payments after
the Buydown Funds have been depleted and, for certain Buydown Mortgage Loans,
during the Buydown Period. The inability of a Mortgagor to make such larger
monthly payments could lead to losses on the Mortgage Loans, and to the extent
not covered by credit enhancement, may adversely affect the yield to maturity
on the Certificates.
Geographic Concentration of Mortgaged Properties. Certain geographic
regions of the United States from time to time will experience weaker regional
economic conditions and housing markets, and, consequently, will experience
higher rates of loss and delinquency than will be experienced on mortgage
loans generally. For example, a region's economic condition and housing
market may be directly, or indirectly, adversely affected by natural disasters
or civil disturbances such as earthquakes, hurricanes, floods, eruptions or
riots. The economic impact of any of these types of events may also be felt
in areas beyond the region immediately affected by the disaster or
disturbance. The Mortgage Loans underlying certain series of Certificates may
be concentrated in these regions, and such concentration may present risk
considerations in addition to those generally present for similar mortgage-
backed securities without such concentration. Moreover, as described below,
any Mortgage Loan for which a breach of a representation or warranty exists
will remain in the related Trust Fund in the event that a Seller is unable, or
disputes its obligation, to repurchase such Mortgage Loan and such a breach
does not also constitute a breach of any representation made by any other
person. In such event, any resulting losses will be borne by the related form
of credit enhancement, to the extent available.
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<PAGE>
Risks of Loans With Balloon Payments. Certain of the Mortgage Loans
included in a Trust Fund, particularly those secured by Multifamily
Properties, may not be fully amortizing (or may not amortize at all) over
their terms to maturity and, thus, will require substantial payments of
principal and interest (that is, balloon payments) at their stated maturity.
Mortgage Loans of this type involve a greater degree of risk than self-
amortizing loans because the ability of a Mortgagor to make a balloon payment
typically will depend upon its ability either to fully refinance the loan or
to sell the related Mortgaged Property at a price sufficient to permit the
Mortgagor to make the balloon payment. The ability of a Mortgagor to
accomplish either of these goals will be affected by a number of factors,
including the value of the related Mortgaged Property, the level of available
mortgage rates at the time of sale or refinancing, the Mortgagor's equity in
the related Mortgaged Property, prevailing general economic conditions, the
availability of credit for loans secured by comparable real properties and, in
the case of Multifamily Properties, the financial condition and operating
history of the Mortgagor and the related Mortgaged Property, tax laws and rent
control laws.
Risks of Lending on Non-Owner Occupied Properties. It is anticipated
that some or all of the Mortgage Loans included in any Trust Fund,
particularly Mortgage Loans secured by Multifamily Properties, will be
nonrecourse loans or loans for which recourse may be restricted or
unenforceable. As to those Mortgage Loans, recourse in the event of Mortgagor
default will be limited to the specific real property and other assets, if
any, that were pledged to secure the Mortgage Loan. However, even with
respect to those Mortgage Loans that provide for recourse against the
Mortgagor and its assets generally, there can be no assurance that enforcement
of such recourse provisions will be practicable, or that the other assets of
the Mortgagor will be sufficient to permit a recovery in respect of a
defaulted Mortgage Loan in excess of the liquidation value of the related
Mortgaged Property.
Mortgage Loans made on the security of Multifamily Properties may entail
risks of delinquency and foreclosure, and risks of loss in the event thereof,
that are greater than similar risks associated with loans made on the security
of Single Family Properties. The ability of a borrower to repay a loan
secured by an income-producing property typically is dependent primarily upon
the successful operation of such property rather than upon the existence of
independent income or assets of the borrower; thus, the value of an income-
producing property is directly related to the net operating income derived
from such property. If the net operating income of the property is reduced
(for example, if rental or occupancy rates decline or real estate tax rates or
other operating expenses increase), the borrower's ability to repay the loan
may be impaired. In addition, the concentration of default, foreclosure and
loss risk for a pool of Mortgage Loans secured by Multifamily Properties may
be greater than for a pool of Mortgage Loans secured by Single Family
Properties of comparable aggregate unpaid principal balance because the pool
of Mortgage Loans secured by Multifamily Properties is likely to consist of a
smaller number of higher balance loans.
Risks of Non-Conforming Loans. Mortgage Loans to be included in a
Mortgage Pool may be non-conforming Mortgage Loans. Non-conforming Mortgage
Loans are Mortgage Loans that do not qualify for purchase by government
sponsored agencies such as Fannie Mae and Freddie Mac due to credit
characteristics that to not satisfy such Fannie Mae and Freddie Mac
guidelines, including mortgagors whose creditworthiness and repayment ability
do not satisfy such Fannie Mae and Freddie Mac underwriting guidelines and
mortgagors who may have a record of credit write-offs, outstanding judgments,
prior bankruptcies and other derogatory credit items. Accordingly, non-
conforming Mortgage Loans are likely to experience rates of delinquency,
foreclosure and loss that are higher, and that may be substantially higher,
than mortgage loans originated in accordance with Fannie Mae or Freddie Mac
underwriting guidelines. The principal differences between conforming
Mortgage Loans and non-conforming Mortgage Loans include the applicable Loan-
to-Value Ratios, the credit and income histories of the related Mortgagors,
the documentation required for approval of the related Mortgage Loans, the
types of properties securing the Mortgage Loans, the loan sizes and the
Mortgagors' occupancy status with respect to the Mortgaged Properties. As a
result of these and other factors, the interest rates charged on non-
conforming Mortgage Loans are often higher than those charged for conforming
Mortgage Loans. The combination of different underwriting criteria and higher
rates of interest may also lead to higher delinquency, foreclosure and losses
on non-conforming Mortgage Loans as compared to conforming Mortgage Loans.
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<PAGE>
Risks of Underwriting Standards of Unaffiliated Sellers. Mortgage Loans
to be included in a Mortgage Pool will have been purchased by the Company,
either directly or indirectly from Sellers. Such Mortgage Loans will
generally have been originated in accordance with underwriting standards
acceptable to the Company and generally described herein under "The Mortgage
Pools-Underwriting Standards" as more particularly described in the
underwriting criteria included in the related Prospectus Supplement.
Nevertheless, in some cases, particularly those involving Unaffiliated
Sellers, the Company may not be able to establish the underwriting standards
used in the origination of the related Mortgage Loans. In those cases, the
related Prospectus Supplement will include a statement to such effect and will
reflect what, if any, re-underwriting of the related Mortgage Loans was
completed by the Company or any of its affiliates. To the extent the Mortgage
Loans cannot be re-underwritten or the underwriting criteria cannot be
verified, the Mortgage Loans might suffer losses greater than they would had
they been directly underwritten by the Company or an affiliate thereof. Any
such losses, to the extent not covered by credit enhancement, may adversely
affect the yield to maturity of the Certificates.
Risks Associated With Limited or No Documentation Loans. Mortgage Loans
to be included in a Mortgage Pool may have been originated in accordance with
underwriting standards that require documentation from Mortgagors that is more
limited than that required under standard loan underwriting programs or that
require no documentation from Mortgagors. Such programs rely on a combination
of independent credit ratings, asset evaluations, collateral value, work
history, and lower Loan-to Value Ratios. Such Mortgage Loans could experience
rates of delinquency, foreclosure and loss that are higher, and may be
substantially higher, than Mortgage Loans originated in accordance with
underwriting standards that require full documentation.
Risks Associated with Junior Lien Mortgage Loans. Certain of the
Mortgage Pools may contain Mortgage Loans secured by junior liens and the
related senior liens may not be included in the Mortgage Pool. An overall
decline in the residential real estate market could adversely affect the
values of the Mortgaged Properties securing the Mortgage Loans with junior
liens such that the outstanding principal balances, together with any senior
financing thereon, exceeds the value of the Mortgaged Properties. Since
Mortgage Loans secured by junior (i.e., second, third, etc.) lines are
subordinate to the rights of the beneficiaries under the related senior deeds
of trust or senior mortgages, such a decline would adversely affect the
position of the related junior beneficiary or junior mortgagee before having
such an effect on the position of the related senior beneficiaries or senior
mortgagees. A rise in interest rates over a period of time, the general
condition of the Mortgaged Property and other factors may also have the effect
of reducing the value of the Mortgaged Property from the value oat the time
the junior lien Mortgage Loan was originated. As a result, the Loan-to-Value
Ratio may exceed the ratio in effect at the time the Mortgage Loan was
originated. Such an increase may reduce the likelihood that, in the event of
a default by the related Mortgagor, liquidation or other proceeds will be
sufficient to satisfy the junior lien Mortgage Loan after satisfaction of any
senior liens and the payment of any liquidation expenses.
Other factors may affect the prepayment rate of junior lien Mortgage
Loans, such as the amounts of, and interest on, the related senior mortgage
loans and the use of senior lien mortgage loans as long-term financing for
home purchases and junior lien mortgage loans as shorter-term financing for a
variety of purposes, such as home improvement, educational expenses and
purchases of consumer durable such as automobiles. Accordingly, junior lien
Mortgage Loans may experience a higher rate of prepayments that traditional
senior lien mortgage loans. In addition, any future limitations on the rights
of borrowers to deduct interest payments on junior lien Mortgage Loans for
federal income tax purposes may further increase the rate of prepayments on
such junior lien Mortgage Loans.
Risks of Nonperfection of Security Interests. Any Contract included in a
Mortgage Pool will be secured by a security interest in a Manufactured Home.
Perfection of security interests in 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
UCC as adopted in each state and each state's certificate of title statutes.
The steps necessary to perfect the security interest in a Manufactured Home
will vary from state to state. In the event the Master Servicer fails, due to
clerical errors or otherwise, to take the appropriate steps to perfect such a
security interest, the Trustee may not have a first priority security interest
in the Manufactured Home securing a Contract. Additionally, courts in many
states have held that
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<PAGE>
manufactured homes may, under certain circumstances, become subject to real
estate title and recording laws. As a result, a security interest in a
manufactured home could be rendered subordinate to the interests of other
parties claiming an interest in the home under applicable state real estate
law. The failure to properly perfect a valid, first priority security
interest in a Manufactured Home securing a Contract could lead to losses that
may adversely affect the yield to maturity of the Certificates.
Risks Relating to Liquidation of Mortgaged Properties. Substantial
delays can be encountered in connection with the liquidation of defaulted
Mortgage Loans and corresponding delays in the receipt of related proceeds by
the Certificateholders could occur. An action to foreclose on a Mortgaged
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
Mortgaged Property. In the event of a default by a Mortgagor, these
restrictions, among other things, may impede the ability of the Master
Servicer to foreclose on or sell the Mortgaged Property or to obtain
Liquidation Proceeds sufficient to repay all amounts due on the related
Mortgage Loan. The Master 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 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 Mortgaged Properties fail to provide adequate security for the
related Mortgage Loans and insufficient funds are available from any
applicable credit enhancement, Certificateholders 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 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 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 loan.
Environmental Risks. The Mortgaged Properties are subject to certain
environmental risks. Under various federal, state and local environmental
laws, ordinances and regulations, a current or previous owner of real property
may be liable for the costs of removal or remediation of hazardous or toxic
substances on, under or in such property. Such laws often impose liability
whether or not the owner or operation knew of, or was responsible for, the
presence of such hazardous or toxic substances. A lender also risks such
liability on foreclosure of the mortgage on such property. In addition, the
presence of hazardous or toxic substances, or the failure to properly
remediate such property, may adversely affect the owner's or operator's
ability to sell such property. Although the incidence of environmental
contamination of residential properties is less common than that for
commercial properties, Mortgage Loans contained in a Mortgage Pool may be
secured by Mortgaged Properties in violation of environmental laws, ordinances
or regulations. The Master Servicer is generally prohibited from foreclosing
on a Mortgaged Property unless it has taken adequate steps to ensure
environmental compliance with respect to such Mortgaged Property. However, to
the extent the Master Servicer errs and forecloses on Mortgaged Property that
is subject to environmental law violations, and to the extent a Seller does
not provide adequate representations and warranties against such violations,
or is unable to honor such obligations, including the obligation to repurchase
a Mortgage Loan upon the breach of a representation or warranty, a Mortgage
Pool could experience losses.
Limited Nature of Ratings. It is a condition to the issuance of the
Certificates that each series of Certificates be rated in one of the four
highest rating categories by a nationally recognized statistical rating
agency. A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time. No
person is obligated to maintain the rating on any Certificate, and
accordingly, there can be no assurance that the ratings assigned to any
Certificate on the date on which such Certificate is originally issued will
not be lowered or withdrawn by a Rating Agency at any time thereafter. in the
event any rating is revised or withdrawn, the liquidity or the market value of
the related Certificate may be adversely affected. See "Rating" herein.
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Limited Representations by and Against the Seller. Each Seller will
have made representations and warranties in respect of the Mortgage Loans
and/or Mortgage Securities sold by such Seller and evidenced by a series of
Certificates. In the event of a breach of a Seller's representation or
warranty that materially adversely affects the interests of the
Certificateholders in a Mortgage Loan or Mortgage Security, unless otherwise
specified in the related Prospectus Supplement, the related Seller will be
obligated to cure the breach or repurchase or, if permitted, replace such
Mortgage Loan or Mortgage Security as described below. However, there can be
no assurance that a Seller will honor its obligation to cure, repurchase or,
if permitted, replace any Mortgage Loan or Mortgage Security as to which such
a breach of a representation or warranty arises. A Seller's failure or
refusal to honor its repurchase obligation could lead to losses that, to the
extent not covered by credit enhancement, may adversely affect the yield to
maturity of the Certificates.
In instances where a Seller is unable, or disputes its obligation, to
purchase affected Mortgage Loans and/or Mortgage Securities, the Master
Servicer may negotiate and enter into one or more settlement agreements with
such Seller that could provide for, among other things, the purchase of only a
portion of the affected Mortgage Loans and/or Mortgage Securities. Any such
settlement could lead to losses on the Mortgage Loans and/or Mortgage
Securities which would be borne by the related Certificates. Neither the
Company nor the Master Servicer will be obligated to purchase a Mortgage Loan
or Mortgage Security if a Seller defaults on its obligation to do so, and no
assurance can be given that the Sellers will carry out such purchase
obligations. Such a default by a Seller is not a default by the Company or by
the Master Servicer. Any Mortgage Loan or Mortgage Security not so purchased
or substituted for shall remain in the related Trust Fund and any losses
related thereto shall be allocated to the related credit enhancement, to the
extent available, and otherwise to one or more classes of the related series
of Certificates.
All of the representations and warranties of a Seller in respect of a
Mortgage Loan or Mortgage Security will have been made as of the date on which
such Mortgage Loan or Mortgage Security was purchased from the Seller by or on
behalf of the Company; the date as of which such representations and
warranties were made will be a date prior to the date of initial issuance of
the related series of Certificates or, in the case of a Designated Seller
Transaction, will be the date of closing of the related sale by the applicable
Seller. A substantial period of time may have elapsed between the date as of
which the representations and warranties were made and the later date of
initial issuance of the related series of Certificates. Accordingly, the
Seller's purchase obligation (or, if specified in the related Prospectus
Supplement, limited replacement option) will not arise if, during the period
commencing on the date of sale of a Mortgage Loan or Mortgage Security by the
Seller, an event occurs that would have given rise to such an obligation had
the event occurred prior to sale of the affected Mortgage Loan or Mortgage
Security, as the case may be. The occurrence of events during this period
that are not covered by a Seller's purchase obligation could lead to losses
that, to the extent not covered by credit enhancement, may adversely affect
the yield to maturity of the Certificates.
Subordination of Certain Classes of Certificates. Credit support for a
particular series of Certificates may be provided in the form of subordination
of one or more classes of Certificates in a series under which losses are
first allocated to any Subordinate Certificates up to a specified limit.
Losses not covered by any form of credit enhancement will be borne by the
holders of the related Certificates (or certain classes thereof). Therefore,
in the event of substantial losses in any Mortgage Pool, such losses may be
borne by such holders.
Book Entry Registration May Affect Liquidity. Because transfers and
pledges of DTC Registered Securities can be effected only through book entries
at DTC through Participants, the liquidity of the secondary market for DTC
Registered Securities may be reduced to the extent that some investors are
unwilling to hold Certificates in book entry form in the name of DTC and the
ability to pledge DTC Registered Securities may be limited due to the lack of
a physical certificate. Beneficial Owners of DTC Registered Securities may,
in certain cases experience delay in the receipt of payments of principal and
interest such payments will be forwarded by the related Trustee to DTC who
will then forward payment to the Participants who will thereafter forward
payment to Beneficial Owners. In the event of the insolvency of DTC or a
Participant in whose name DTC Registered Securities are recorded, the ability
of Beneficial Owners to obtain timely payment and (if the limits of applicable
insurance coverage is otherwise unavailable) ultimate payment of principal and
interest on DTC Registered Securities may be impaired.
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Yield to Maturity May Vary. The yield to maturity of the Offered
Certificates of each series will depend on, among other things, the rate and
timing of principal payments (including prepayments, liquidations due to
defaults, and repurchases due to conversion of ARM Loans to fixed interest
rate loans or breaches of representations and warranties) on the related
Mortgage Loans and the price paid by Certificateholders. Such yield may be
adversely affected by a higher or lower than anticipated rate of prepayments
on the related Mortgage Loans. The yield to maturity on Strip Certificates
will be extremely sensitive to the rate of prepayments on the related Mortgage
Loans. In addition, the yield to maturity on certain other types of classes
of Certificates, including Accrual Certificates, Certificates with a Pass-
Through Rate which fluctuates inversely with an index or certain other classes
in a series including more than one class of Certificates, may be relatively
more sensitive to the rate of prepayment on the related Mortgage Loans than
other classes of Certificates. Prepayments are influenced by a number of
factors, including prevailing mortgage market interest rates, local and
regional economic conditions and homeowner mobility. In addition, to the
extent amounts in any Pre-Funding Account have not been used to purchase
additional Mortgage Loans, holders of the Certificates may receive an
additional prepayment. See "Yield Considerations" and "Maturity and
Prepayment Considerations" herein.
ERISA Considerations. Generally, ERISA applies to investments made by
employee benefit plans and transactions involving the assets of such plans.
Due to the complexity of regulations that govern such plans, prospective
investors that are subject to ERISA are urged to consult their own counsel
regarding consequences under ERISA of acquisition, ownership and disposition
of the Offered Certificates of any series. See "ERISA Considerations".
Federal Tax Considerations Regarding REMIC Residual Certificates.
Holders of REMIC Residual Certificates will be required to report on their
federal income tax returns as ordinary income their pro rata share of the
taxable income of the REMIC, regardless of the amount or timing of their
receipt of cash payments, as described under "Federal Income Tax Consequences-
REMICs". Accordingly, under certain circumstances, holders of Offered
Certificates that constitute REMIC Residual Certificates may have taxable
income and tax liabilities arising from such investment during a taxable year
in excess of the cash received during such period. The requirement that
holders of REMIC Residual Certificates report their pro rata share of the
taxable income and net loss of the REMIC will continue until the principal
balances of all classes of Certificates of the related series have been
reduced to zero, even though holders of REMIC Residual Certificates have
received full payment of their stated interest and principal. A portion (or,
in certain circumstances, all) of such Certificateholder's share of the REMIC
taxable income may be treated as "excess inclusion" income to such holder,
which (i) generally will not be subject to offset by losses from other
activities, (ii) for a tax-exempt holder, will be treated as unrelated
business taxable income and (iii) for a foreign holder, will not qualify for
exemption from withholding tax. Individual holders of REMIC Residual
Certificates may be limited in their ability to deduct servicing fees and
other expenses of the REMIC. In addition, REMIC Residual Certificates are
subject to certain restrictions on transfer. Because of the special tax
treatment of REMIC Residual Certificates, the taxable income arising in a
given year on a REMIC Residual Certificate will not be equal to the taxable
income associated with investment in a corporate bond or stripped instrument
having similar cash flow characteristics and pre-tax yield. Therefore, the
after-tax yield on a REMIC Residual Certificate may be significantly less than
that of a corporate bond or stripped instrument having similar cash flow
characteristics.
THE MORTGAGE POOLS
GENERAL
Each Mortgage Pool will consist primarily of Mortgage Loans, minus the
Spread, if any, or any other interest retained by the Company or any affiliate
of the Company. The Mortgage Loans may consist of Single Family Loans,
Multifamily Loans and Contracts, each as described below.
The Mortgage Loans (other than the Contracts) will be evidenced by
promissory notes ("Mortgage Notes") and secured by mortgages, deeds of trust
or other similar security instruments ("Mortgages") that, in each case, create
a first or junior lien on the related Mortgagor's fee or leasehold interest in
the related
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Mortgaged Property. The Mortgaged Properties for such loans may consist of
attached or detached one-family dwelling units, two- to four-family dwelling
units, condominiums, townhouses, row houses, individual units in planned-unit
developments and certain other individual dwelling units (a "Single Family
Property" and the related loans, "Single Family Loans"), which in each case
may be owner-occupied or may be a vacation, second or non-owner-occupied home.
The Mortgaged Properties for such loans may also consist of residential
properties consisting of five or more rental or cooperatively owned dwelling
units in high-rise, mid-rise or garden apartment buildings or projects
("Multifamily Properties" and the related loans, "Multifamily Loans").
The "Contracts" will consist of manufactured housing conditional sales
contracts and installment loan agreements each secured by a Manufactured Home.
Unless otherwise specified in the related Prospectus Supplement, each Contract
will be fully amortizing and will bear interest at its Mortgage Rate. Unless
specified otherwise in the related Prospectus Supplement, Contracts will all
have individual principal balances at origination of not less than $10,000 and
not more than $1,000,000 and original terms to maturity of 5 to 40 years. 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 Fund, among other things, the date of
origination of the Contracts; the Mortgage Rate 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
Fund; and the original maturities of the Contracts and the last maturity date
of any Contract.
Mortgaged Properties may be located in any one of the 50 states, the
District of Columbia or the Commonwealth of Puerto Rico.
The Mortgage Loans will not be guaranteed or insured by the Company, any
of its affiliates or, unless otherwise specified in the related Prospectus
Supplement, by any governmental agency or instrumentality or other person.
However, if so specified in the related Prospectus Supplement, the Mortgage
Loans may be insured by the Federal Housing Administration (the "FHA" and such
loans, FHA Loans"). See "Primary Mortgage Insurance, Hazard Insurance; Claims
Thereunder-FHA Insurance."
A Mortgage Pool may include Mortgage Loans that are delinquent or non-
performing as of the date the related series of Certificates is issued. In
that case, the related Prospectus Supplement will set forth, as to each such
Mortgage Loan, available information as to the period of such delinquency or
nonperformance and any other information relevant for a prospective purchaser
to make an investment decision.
Each Mortgage Loan will be selected by the Company for inclusion in a
Mortgage Pool from among those purchased by the Company, either directly or
through its affiliates, from banks, savings and loan associations, mortgage
bankers, investment banking firms, the Resolution Trust Corporation (the
"RTC"), the Federal Deposit Insurance Corporation (the "FDIC") and other
mortgage loan originators or sellers not affiliated with the Company
("Unaffiliated Sellers") or from affiliates of the Company, including ICI
Funding and ICMH (collectively "Affiliated Sellers"; Unaffiliated Sellers and
Affiliated Sellers are collectively referred to herein as "Sellers"). If a
Mortgage Pool is composed of Mortgage Loans acquired by the Company directly
from Unaffiliated Sellers, the related Prospectus Supplement will specify the
extent of Mortgage Loans so acquired. The characteristics of the Mortgage
Loans are as described in the related Prospectus Supplement. Other mortgage
loans available for purchase by the Company may have characteristics which
would make them eligible for inclusion in a Mortgage Pool but were not
selected for inclusion in such Mortgage Pool.
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Under certain circumstances, the Mortgage Loans to be included in a
Mortgage Pool will be delivered either directly or indirectly to the Company
by one or more Sellers identified in the related Prospectus Supplement,
concurrently with the issuance of the related series of Certificates (a
"Designated Seller Transaction"). Such Certificates may be sold in whole or
in part to any such Seller in exchange for the related Mortgage Loans, or may
be offered under any of the other methods described herein under "Methods of
Distribution." The related Prospectus Supplement for a Mortgage Pool composed
of Mortgage Loans acquired by the Company pursuant to a Designated Seller
Transaction will generally include information, provided by the related
Seller, about the Seller, the Mortgage Loans and the underwriting standards
applicable to the Mortgage Loans. None of the Company or, unless it is the
Seller, ICI Funding or any of their affiliates will make any representation or
warranty with respect to such Mortgage Loans, or any representation as to the
accuracy or completeness of such information provided by the Seller.
If specified in the related Prospectus Supplement, the Trust Fund for a
series of Certificates may include mortgage participations and pass-through
certificates evidencing interests in Mortgage Loans ("Mortgage Securities"),
as described herein. The Mortgage Securities may have been issued previously
by the Company or an affiliate thereof, a financial institution or other
entity engaged generally in the business of mortgage lending or a limited
purpose corporation organized for the purpose of, among other things,
acquiring and depositing mortgage loans into such trusts, and selling
beneficial interests in such trusts. Except as otherwise set forth in the
related Prospectus Supplement, such Mortgage Securities will be generally
similar to Certificates offered hereunder. As to any such series of
Certificates, the related Prospectus Supplement will include a description of
such Mortgage Securities and any related credit enhancement, and the Mortgage
Loans underlying such Mortgage Securities will be described together with any
other Mortgage Loans included in the Mortgage Pool relating to such series.
To the extent the issuance of such Mortgage Securities has been registered
under the Exchange Act, the underlying securities will be registered and the
underlying issuer will be a reporting entity pursuant to Sections 12 or 15(d)
of the Exchange Act. Additionally, the material terms of such underlying
securities will be disclosed in the related Prospectus Supplement.
Furthermore, the Company will include only Mortgage Securities acquired in the
secondary market and not in a public offering of such securities.
THE MORTGAGE LOANS
Each of the Mortgage Loans will be a type of mortgage loan described or
referred to in paragraphs numbered (1) through (8) below, with any variations
thereto described in the related Prospectus Supplement:
(1) Fixed-rate, fully-amortizing mortgage loans (which may include
mortgage loans converted from adjustable-rate mortgage loans or otherwise
modified) providing for level monthly payments of principal and interest
and terms at origination or modification of not more than approximately
15 years;
(2) Fixed-rate, fully-amortizing mortgage loans (which may include
mortgage loans converted from adjustable-rate mortgage loans or otherwise
modified) providing for level monthly payments of principal and interest
and terms at origination or modification of more than 15 years, but not
more than approximately 25 or 30 years;
(3) Fully-amortizing adjustable-rate mortgage loans ("ARM Loans")
having an original or modified term to maturity of not more than
approximately 25 or 30 years with a related interest rate (a "Mortgage
Rate") which generally adjusts initially either three months, six months
or one, three, five or seven years subsequent to the initial payment
date, and thereafter at either three-month, six-month, one-year or other
intervals (with corresponding adjustments in the amount of monthly
payments) over the term of the mortgage loan to equal the sum of a fixed
percentage set forth in the related Mortgage Note (the "Note Margin") and
an index./1/ The related Prospectus Supplement will
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/1/ The index (the "Index") for a particular Mortgage Pool will be
specified in the related Prospectus Supplement and may include one of the
following indexes: (i) the weekly average yield on U.S. Treasury securities
adjusted to a constant maturity of either six months or one year, (ii) the
weekly auction average
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set forth the relevant index and the highest, lowest and weighted average
Note Margin with respect to the ARM Loans in the related Mortgage Pool.
The related Prospectus Supplement will also indicate any periodic or
lifetime limitations on changes in any per annum Mortgage Rate at the
time of any adjustment. If specified in the related Prospectus
Supplement, an ARM Loan may include a provision that allows the Mortgagor
to convert the adjustable Mortgage Rate to a fixed rate at some point
during the term of such ARM Loan generally not later than six to ten
years subsequent to the initial payment date;
(4) Negatively-amortizing ARM Loans having original or modified
terms to maturity of not more than approximately 25 or 30 years with
Mortgage Rates which generally adjust initially on the payment date
referred to in the related Prospectus Supplement, and on each of certain
periodic payment dates thereafter, to equal the sum of the Note Margin
and the index. The scheduled monthly payment will be adjusted as and
when described in the related Prospectus Supplement to an amount that
would fully amortize the Mortgage Loan over its remaining term on a level
debt service basis; provided that increases in the scheduled monthly
payment may be subject to certain limitations as specified in the related
Prospectus Supplement. If an adjustment to the Mortgage Rate on a
Mortgage Loan causes the amount of interest accrued thereon in any month
to exceed the scheduled monthly payment on such mortgage loan, the
resulting amount of interest that has accrued but is not then payable
("Deferred Interest") will be added to the principal balance of such
Mortgage Loan;
(5) Fixed-rate, graduated payment mortgage loans having original or
modified terms to maturity of not more than approximately 15 years with
monthly payments during the first year calculated on the basis of an
assumed interest rate which is a specified percentage below the Mortgage
Rate on such mortgage loan. Such monthly payments increase at the
beginning of the second year by a specified percentage of the monthly
payment during the preceding year and each year thereafter to the extent
necessary to amortize the mortgage loan over the remainder of its
approximately 15-year term. Deferred Interest, if any, will be added to
the principal balance of such mortgage loans;
(6) Fixed-rate, graduated payment mortgage loans having original or
modified terms to maturity of not more than approximately 25 or 30 years
with monthly payments during the first year calculated on the basis of an
assumed interest rate which is a specified percentage below the Mortgage
Rate. Such monthly payments increase at the beginning of the second year
by a specified percentage of the monthly payment during the preceding
year and each year thereafter to the extent necessary to fully amortize
the mortgage loan within its approximately 25- or 30-year term. Deferred
Interest, if any, will be added to the principal balance of such mortgage
loan;
(7) Mortgage loans ("Balloon Loans") having payment terms similar to
those described in one of the preceding paragraphs numbered (1) through
(6), calculated on the basis of an assumed amortization term, but
providing for a payment (a "Balloon Payment") of all outstanding
principal and interest to be made at the end of a specified term that is
shorter than such assumed amortization term; or
(8) Another type of mortgage loan having terms substantially similar
to those described in one or more of the preceding paragraphs numbered
(1) through (7) as described in the related Prospectus Supplement.
If provided in the related Prospectus Supplement, certain of the Mortgage
Pools may contain Single Family and Multifamily Loans secured by junior liens,
and the related senior liens ("Senior Liens") may not
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investment yield of U.S. Treasury bills of six months, (iii) the daily Bank
Prime Loan rate made available by the Federal Reserve Board, (iv) the cost of
funds of member institutions for the Federal Home Loan Bank of San Francisco,
(v) the interbank offered rates for U.S. dollar deposits in the London market,
each calculated as of a date prior to each scheduled interest rate adjustment
date which will be specified in the related Prospectus Supplement or (vi)
another index substantially similar to the indexes described in (i) through
(v) above as described in the related Prospectus Supplement.
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be included in the Mortgage Pool. The primary risk to holders of such
Mortgage Loans secured by junior liens is the possibility that adequate funds
will not be received in connection with a foreclosure of the related Senior
Liens to satisfy fully both the Senior Liens and the Mortgage Loan. In the
event that a holder of a Senior Lien forecloses on a Mortgaged Property, the
proceeds of the foreclosure or similar sale will be applied first to the
payment of court costs and fees in connection with the foreclosure, second to
real estate taxes, third in satisfaction of all principal, interest,
prepayment or acceleration penalties, if any, and any other sums due and owing
to the holder of the Senior Liens. The claims of the holders of the Senior
Liens will be satisfied in full out of proceeds of the liquidation of the
related Mortgaged Property, if such proceeds are sufficient, before the Trust
Fund as holder of the junior lien receives any payments in respect of the
Mortgage Loan. If the Master Servicer were to foreclose on any such Mortgage
Loan, it would do so subject to any related Senior Liens. In order for the
debt related to the Mortgage Loan to be paid in full at such sale, a bidder at
the foreclosure sale of such Mortgage Loan would have to bid an amount
sufficient to pay off all sums due under the Mortgage Loan and the Senior
Liens or purchase the Mortgaged Property subject to the Senior Liens. In the
event that such proceeds from a foreclosure or similar sale of the related
Mortgaged Property are insufficient to satisfy all Senior Liens and the
Mortgage Loan in the aggregate, the Trust Fund, as the holder of the junior
lien, and, accordingly, holders of one or more classes of the Certificates of
the related series bear (i) the risk of delay in distributions while a
deficiency judgment against the borrower is obtained and (ii) the risk of loss
if the deficiency judgment is not realized upon. Moreover, deficiency
judgments may not be available in certain jurisdictions or the Mortgage Loan
may be nonrecourse. In addition, a junior mortgagee may not foreclose on the
property securing a junior mortgage unless it forecloses subject to the senior
mortgages.
If so specified in the related Prospectus Supplement, a Mortgage Loan may
contain a prohibition on prepayment (the period of such prohibition, a "Lock-
out Period" and its date of expiration, a "Lock-out Expiration Date") or
require payment of a premium or a yield maintenance penalty (a "Prepayment
Penalty"). A Multifamily Loan may also contain a provision that entitles the
lender to a share of profits realized from the operation or disposition of the
related Mortgaged Property (an "Equity Participation"). If the holders of any
class or classes of Offered Certificates of a series will be entitled to all
or a portion of an Equity Participation, the related Prospectus Supplement
will describe the Equity Participation and the method or methods by which
distributions in respect thereof will be made to such holders.
Certain information, including information regarding loan-to-value ratios
(each, a "Loan-to-Value Ratio") at origination of the Mortgage Loans
underlying each series of Certificates, will be supplied in the related
Prospectus Supplement. In the case of most Mortgage Loans, the "Loan-to-Value
Ratio" at origination is defined generally as the ratio, expressed as a
percentage, of the principal amount of the Mortgage Loan at origination (or,
if appropriate, at the time of an appraisal subsequent to origination), plus,
in the case of a Mortgage Loan secured by a junior lien, the outstanding
principal balance of the related Senior Liens, to the Value of the related
Mortgaged Property. Unless otherwise specified in the related Prospectus
Supplement, the "Value" of a Mortgaged Property securing a Single Family or
Multifamily Mortgage Loan will generally be equal to the lesser of (x) the
appraised value determined in an appraisal obtained at origination of such
Mortgage Loan, if any, or, if the related Mortgaged Property has been
appraised subsequent to origination, the value determined in such subsequent
appraisal and (y) the sales price for the related Mortgaged Property (except
in certain circumstances in which there has been a subsequent appraisal). In
the case of certain refinanced, modified or converted Single Family or
Multifamily Loans, unless otherwise specified in the related Prospectus
Supplement, the "Value" of the related Mortgaged Property will be equal to the
lesser of (x) the appraised value of the related Mortgaged Property determined
at origination or in an appraisal, if any, obtained at the time of
refinancing, modification or conversion and (y) the sales price of the related
Mortgage Property or, if the Mortgage Loan is not a rate and term refinance
Mortgage Loan and if the Mortgaged Property was owned for a relatively short
period of time prior to refinancing, modification or conversion, the sum of
the sales price of the related Mortgaged Property plus the added value of any
improvements. Certain Mortgage Loans which are subject to negative
amortization will have Loan-to-Value Ratios which will increase after
origination as a result of such negative amortization. Unless otherwise
specified in the related Prospectus Supplement, for purposes of calculating
the Loan-to-Value Ratio of a Contract relating to a new Manufactured Home, the
"Value" is 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
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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. Unless otherwise specified in the related
Prospectus Supplement, with respect to a used Manufactured Home, the "Value"
is the least of the sale price, the appraised value, and the National
Automobile Dealer's Association book value plus prepaid taxes and hazard
insurance premiums. The appraised value of a Manufactured Home is based upon
the age and condition of the manufactured housing unit and the quality and
condition of the mobile home park in which it is situated, if applicable.
Manufactured Homes are less likely to experience appreciation in value and
more likely to experience depreciation in value over time than other types of
housing.
The Mortgage Loans may be "equity refinance" Mortgage Loans, as to which
a portion of the proceeds are used to refinance an existing mortgage loan, and
the remaining proceeds may be retained by the Mortgagor or used for purposes
unrelated to the Mortgaged Property. Alternatively, the Mortgage Loans may be
"rate and term refinance" Mortgage Loans, as to which substantially all of the
proceeds (net of related costs incurred by the Mortgagor) are used to
refinance an existing mortgage loan or loans (which may include a junior lien)
primarily in order to change the interest rate or other terms thereof. The
Mortgage Loans may be mortgage loans which have been consolidated and/or have
had various terms changed, mortgage loans which have been converted from
adjustable rate mortgage loans to fixed rate mortgage loans, or construction
loans which have been converted to permanent mortgage loans. In addition, a
Mortgaged Property may be subject to secondary financing at the time of
origination of the Mortgage Loan or thereafter.
If provided for in the related Prospectus Supplement, a Mortgage Pool may
contain ARM Loans which allow the Mortgagors to convert the adjustable rates
on such Mortgage Loans to a fixed rate at some point during the life of such
Mortgage Loans (each such Mortgage Loan, a "Convertible Mortgage Loan"),
generally not later than six to ten years subsequent to the date of
origination, depending upon the length of the initial adjustment period. If
specified in the related Prospectus Supplement, upon any conversion, the
Company, the related Master Servicer, the applicable Seller or a third party
will purchase the converted Mortgage Loan as and to the extent set forth in
the related Prospectus Supplement. Alternatively, if specified in the related
Prospectus Supplement, the Company or the related Master Servicer (or another
party specified therein) may agree to act as remarketing agent with respect to
such converted Mortgage Loans and, in such capacity, to use its best efforts
to arrange for the sale of converted Mortgage Loans under specified
conditions. Upon the failure of any party so obligated to purchase any such
converted Mortgage Loan, the inability of any remarketing agent to arrange for
the sale of the converted Mortgage Loan and the unwillingness of such
remarketing agent to exercise any election to purchase the converted Mortgage
Loan for its own account, the related Mortgage Pool will thereafter include
both fixed rate and adjustable rate Mortgage Loans.
If provided for in the related Prospectus Supplement, certain of the
Mortgage Loans may be subject to temporary buydown plans ("Buydown Mortgage
Loans") pursuant to which the monthly payments made by the Mortgagor during
the early years of the Mortgage Loan (the "Buydown Period") will be less than
the scheduled monthly payments on the Mortgage Loan, the resulting difference
to be made up from (i) an amount (such amount, exclusive of investment
earnings thereon, being hereinafter referred to as "Buydown Funds")
contributed by the seller of the Mortgaged Property or another source and
placed in a custodial account (the "Buydown Account"), (ii) if the Buydown
Funds are contributed on a present value basis, investment earnings on such
Buydown Funds or (iii) additional buydown funds to be contributed over time by
the Mortgagor's employer or another source. See "Description of the
Certificates-Certificate Account." Generally, the Mortgagor under each
Buydown Mortgage Loan will be qualified at the applicable lower monthly
payment. Accordingly, the repayment of a Buydown Mortgage Loan is dependent
on the ability of the Mortgagor to make larger level monthly payments after
the Buydown Funds have been depleted and, for certain Buydown Mortgage Loans,
during the Buydown Period.
The Prospectus Supplement for each series of Certificates will contain
information as to the type of Mortgage Loans that will be included in the
related Mortgage Pool. Each Prospectus Supplement applicable to a series of
Certificates will include certain information, generally as of the Cut-off
Date and to the extent then available to the Company, on an approximate basis,
as to (i) the aggregate principal balance of the Mortgage Loans, (ii) the type
of property securing the Mortgage Loans, (iii) the original or modified terms
to maturity of the Mortgage Loans, (iv) the range of principal balances of the
Mortgage Loans at origination or modification, (v) the earliest origination or
modification date and latest maturity date of the Mortgage
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Loans, (vi) the Loan-to-Value Ratios of the Mortgage Loans, (vii) the Mortgage
Rate or range of Mortgage Rates borne by the Mortgage Loans, (viii) if any of
the Mortgage Loans are ARM Loans, the applicable Index, the range of Note
Margins and the weighted average Note Margin, (ix) the geographical
distribution of the Mortgage Loans, (x) the number of Buydown Mortgage Loans,
if applicable, and (xi) the percent of ARM Loans which are convertible to
fixed-rate mortgage loans, if applicable. A Current Report on Form 8-K will
be available upon request to holders of the related series of Certificates and
will be filed, together with the related Pooling Agreement, with the
Securities and Exchange Commission within fifteen days after the initial
issuance of such Certificates. In the event that Mortgage Loans are added to
or deleted from the Trust Fund after the date of the related Prospectus
Supplement, such addition or deletion will be noted in the Current Report on
Form 8-K.
The Company will cause the Mortgage Loans constituting each Mortgage Pool
(or Mortgage Securities evidencing interests therein) to be assigned, without
recourse, to the Trustee named in the related Prospectus Supplement, for the
benefit of the holders of all of the Certificates of a series. Except to the
extent that servicing of any Mortgage Loan is to be transferred to a Special
Servicer, the Master Servicer named in the related Prospectus Supplement will
service the Mortgage Loans, directly or through other mortgage servicing
institutions ("Subservicers"), pursuant to a Pooling Agreement and will
receive a fee for such services. See "Servicing of Mortgage Loans,"
"Description of the Certificates" and "The Pooling Agreement." With respect
to those Mortgage Loans serviced by the Master Servicer through a Subservicer,
the Master Servicer will remain liable for its servicing obligations under the
related Pooling Agreement as if the Master Servicer alone were servicing such
Mortgage Loans. The Master Servicer's obligations with respect to the
Mortgage Loans will consist principally of its contractual servicing
obligations under the related Pooling Agreement (including its obligation to
enforce certain purchase and other obligations of Subservicers and Sellers, as
more fully described herein under "-Representations by Sellers" below,
"Servicing of Mortgage Loans-Subservicers," and "Description of the
Certificates-Assignment of Trust Fund Assets," and, if and to the extent set
forth in the related Prospectus Supplement, its obligation to make certain
cash advances in the event of delinquencies in payments on or with respect to
the Mortgage Loans as described herein under "Description of the Certificates-
Advances") or pursuant to the terms of any Mortgage Securities.
UNDERWRITING STANDARDS
Mortgage Loans to be included in a Mortgage Pool will have been purchased
by the Company, either directly or indirectly from Sellers. Such Mortgage
Loans, as well as Mortgage Loans underlying Mortgage Securities, will
generally have been originated or acquired in accordance with underwriting
standards acceptable to the Company or alternative underwriting criteria. The
underwriting standards for the Mortgage Loans included in each Mortgage Pool
are described below and in the related Prospectus Supplement. However, in
some cases, particularly those involving Unaffiliated Sellers, the Company may
not be able to establish the underwriting standards used in the origination of
the related Mortgage Loans. In those cases, the related Prospectus Supplement
will include a statement to such effect and will reflect what, if any, re-
underwriting of the related Mortgage Loans was done by the Company or any of
its affiliates.
Unless otherwise specified in the related Prospectus Supplement, the
underwriting standards to be used in originating the Mortgage Loans are
primarily intended to assess the creditworthiness of the Mortgagor, the value
of the Mortgaged Property and the adequacy of such property as collateral for
the Mortgage Loan.
The primary considerations in underwriting a Single Family Loan or
Contract are the Mortgagor's employment stability and whether the Mortgagor
has sufficient monthly income available (i) to meet the Mortgagor's monthly
obligations on the proposed Mortgage Loan (generally determined on the basis
of the monthly payments due in the year of origination) and other expenses
related to the home (such as property taxes and hazard insurance) and (ii) to
meet monthly housing expenses and other financial obligations and monthly
living expenses. However, the Loan-to-Value Ratio of the Mortgage Loan is
another critical factor. In addition, a Mortgagor's credit history and
repayment ability, as well as the type and use of the Mortgaged Property, are
also considerations.
In the case of the Multifamily Loans, lenders typically look to the Debt
Service Coverage Ratio of a loan as an important measure of the risk of
default on such a loan. Unless otherwise defined in the related
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Prospectus Supplement, the "Debt Service Coverage Ratio" of a Multifamily Loan
at any given time is the ratio of (i) the Net Operating Income of the related
Mortgaged Property for a twelve-month period to (ii) the annualized scheduled
payments on the Mortgage Loan and on any other loan that is secured by a lien
on the Mortgaged Property prior to the lien of the related Mortgage. Unless
otherwise defined in the related Prospectus Supplement, "Net Operating Income"
means, for any given period, the total operating revenues derived from a
Multifamily Property during such period, minus the total operating expenses
incurred in respect of such property during such period other than (i) non-
cash items such as depreciation and amortization, (ii) capital expenditures
and (iii) debt service on loans (including the related Mortgage Loan) secured
by liens on such property. The Net Operating Income of a Multifamily Property
will fluctuate over time and may or may not be sufficient to cover debt
service on the related Mortgage Loan at any given time. As the primary source
of the operating revenues of a Multifamily Property, rental income (and
maintenance payments from tenant-stockholders of a cooperatively owned
Multifamily Property) may be affected by the condition of the applicable real
estate market and/or area economy. Increases in operating expenses due to the
general economic climate or economic conditions in a locality or industry
segment, such as increases in interest rates, real estate tax rates, energy
costs, labor costs and other operating expenses, and/or to changes in
governmental rules, regulations and fiscal policies, may also affect the risk
of default on a Multifamily Loan. Lenders also look to the Loan-to-Value
Ratio of a Multifamily Loan as a measure of risk of loss if a property must be
liquidated following a default.
It is expected that each prospective Mortgagor will complete a mortgage
loan application that includes information with respect to the applicant's
liabilities, income, credit history, employment history and personal
information. One or more credit reports on each applicant from national
credit reporting companies will generally be required. The report typically
contains information relating to such matters as credit history with local and
national merchants and lenders, installment debt payments and any record of
defaults, bankruptcies, repossessions, or judgments. In the case of a
Multifamily Loan, the Mortgagor will also be required to provide certain
information regarding the related Multifamily Property, including a current
rent roll and operating income statements (which may be pro forma and
unaudited). In addition, the originator will generally also consider the
location of the Multifamily Property, the availability of competitive lease
space and rental income of comparable properties in the relevant market area,
the overall economy and demographic features of the geographic area and the
Mortgagor's prior experience in owning and operating properties similar to the
Multifamily Properties.
Unless otherwise specified in the related Prospectus Supplement,
Mortgaged Properties will be appraised by licensed appraisers. The appraiser
will generally address neighborhood conditions, site and zoning status and
condition and valuation of improvements. In the case of Single Family
Properties, the appraisal report will generally include a reproduction cost
analysis (when appropriate) based on the current cost of constructing a
similar home and a market value analysis based on recent sales of comparable
homes in the area. With respect to Multifamily Properties, the appraisal must
specify whether an income analysis, a market analysis or a cost analysis was
used. An appraisal employing the income approach to value analyzes a
property's projected net cash flow, capitalization and other operational
information in determining the property's value. The market approach to value
analyzes the prices paid for the purchase of similar properties in the
property's area, with adjustments made for variations between those other
properties and the property being appraised. The cost approach to value
requires the appraiser to make an estimate of land value and then determine
the current cost of reproducing the improvements less any accrued
depreciation. In any case, the value of the property being financed, as
indicated by the appraisal, must be such that it currently supports, and is
anticipated to support in the future, the outstanding loan balance. Unless
otherwise specified in the related Prospectus Supplement, all appraisals are
required to conform to the Uniform Standards of Professional Appraisal
Practice and the Financial Institutions Reform, Recovery and Enforcement Act
of 1989 ("FIRREA") and must be on forms acceptable to the Federal National
Mortgage Association ("Fannie Mae") and/or the Federal.
FEDERAL HOME LOAN MORTGAGE CORPORATION ("FREDDIE MAC")
Notwithstanding the foregoing, Loan-to-Value Ratios will not necessarily
constitute an accurate measure of the risk of liquidation loss in a pool of
Mortgage Loans. For example, the value of a Mortgaged Property as of the date
of initial issuance of the related series of Certificates may be less than the
Value
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determined at loan origination, and will likely continue to fluctuate from
time to time based upon changes in economic conditions and the real estate
market. Moreover, even when current, an appraisal is not necessarily a
reliable estimate of value for a Multifamily Property. As stated above,
appraised values of Multifamily Properties are generally based on the market
analysis, the cost analysis, the income analysis, or upon a selection from or
interpolation of the values derived from such approaches. Each of these
appraisal methods can present analytical difficulties. It is often difficult
to find truly comparable properties that have recently been sold; the
replacement cost of a property may have little to do with its current market
value; and income capitalization is inherently based on inexact projections of
income and expenses and the selection of an appropriate capitalization rate.
Where more than one of these appraisal methods are used and provide
significantly different results, an accurate determination of value and,
correspondingly, a reliable analysis of default and loss risks, is even more
difficult.
If so specified in the related Prospectus Supplement, the underwriting of
a Multifamily Loan may also include environmental testing. Under the laws of
certain states, contamination of real property may give rise to a lien on the
property to assure the costs of cleanup. In several states, such a lien has
priority over an existing mortgage lien on such property. In addition, under
the laws of some states and under the federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"), a lender may be
liable, as an "owner" or "operator", for costs of addressing releases or
threatened releases of hazardous substances at a property, if agents or
employees of the lender have become sufficiently involved in the operations of
the borrower, regardless of whether or not the environmental damage or threat
was caused by the borrower or a prior owner. A lender also risks such
liability on foreclosure of the mortgage. See "Certain Legal Aspects of
Mortgage Loans-Environmental Legislation".
With respect to any FHA Loan the Mortgage Loan Seller will be required to
represent that it has complied with the applicable underwriting policies of
the FHA. See "Primary Mortgage Insurance, Hazard Insurance; Claims
Thereunder-FHA Insurance".
To the extent available, the related Prospectus Supplement will include
delinquency and foreclosure experience for the applicable Seller(s) and/or
Master Servicer.
QUALIFICATIONS OF ORIGINATORS AND SELLERS
Unless otherwise specified in the related Prospectus Supplement, each
Mortgage Loan will be originated, directly or through mortgage brokers and
correspondents, by a savings and loan association, savings bank, commercial
bank, credit union, insurance company, or similar institution which is
supervised and examined by a federal or state authority, or by a mortgagee
approved by the Secretary of Housing and Urban Development pursuant to
sections 203 and 211 of the National Housing Act of 1934, as amended (the
"Housing Act"). Except with respect to Designated Seller Transactions or
unless otherwise specified in the related Prospectus Supplement, each Seller
must satisfy certain criteria as to financial stability evaluated on a case-
by-case basis by the Company. These criteria include, but are not limited to
requirements that each Seller must (i) be properly licensed to originate and
sell loans; (ii) have been conducting business for a pre-determined time
period; (iii) meet minimum net worth standards; (iv) maintain insurance at
pre-determined levels of coverage; and (v) be in "good standing" with
governmental licensing and revenue collection agencies.
REPRESENTATIONS BY SELLERS
Unless otherwise specified in the related Prospectus Supplement, each
Seller will have made representations and warranties in respect of the
Mortgage Loans and/or Mortgage Securities sold by such Seller and evidenced by
a series of Certificates. In the case of Mortgage Loans, such representations
and warranties will generally include, among other things, that as to each
such Mortgage Loan: (i) any required hazard and primary mortgage insurance
policies were effective at the origination of such Mortgage Loan, and each
such policy remained in effect on the date of purchase of such Mortgage Loan
from the Seller by or on behalf of the Company; (ii) with respect to each
Mortgage Loan other than a Contract, either (A) a title insurance policy
insuring (subject only to permissible title insurance exceptions) the lien
status of the Mortgage was effective at the origination of such Mortgage Loan
and such policy remained in effect on the date of purchase of the Mortgage
Loan from the Seller by or on behalf of the Company or (B) if the Mortgaged
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Property securing such Mortgage Loan is located in an area where such policies
are generally not available, there is in the related mortgage file an
attorney's certificate of title indicating (subject to such permissible
exceptions set forth therein) the first lien status of the mortgage; (iii) the
Seller has good title to such Mortgage Loan and such Mortgage Loan was subject
to no offsets, defenses or counterclaims except as may be provided under the
Relief Act and except to the extent that any buydown agreement exists for a
Buydown Mortgage Loan; (iv) there are no mechanics' liens or claims for work,
labor or material affecting the related Mortgaged Property which are, or may
be a lien prior to, or equal with, the lien of the related Mortgage (subject
only to permissible title insurance exceptions); (v) the related Mortgaged
Property is free from damage and in good repair; (vi) there are no delinquent
tax or assessment liens against the related Mortgaged Property; (vii) such
Mortgage Loan is not more than 30 days' delinquent as to any scheduled payment
of principal and/or interest; (viii) if a Primary Insurance Policy is required
with respect to such Mortgage Loan, such Mortgage Loan is the subject of such
a policy; and (ix) such Mortgage Loan was made in compliance with, and is
enforceable under, all applicable local, state and federal laws in all
material respects. In the case of Mortgage Securities, such representations
and warranties will generally include, among other things, that as to each
such Mortgage Security: (i) such Mortgage Security is validly issued and
outstanding and entitled to the benefits of the agreement pursuant to which it
was issued; and (ii) the Seller has good title to such Mortgage Security. In
the event of a breach of a Seller's representation or warranty that materially
adversely affects the interests of the Certificateholders in a Mortgage Loan
or Mortgage Security, unless otherwise specified in the related Prospectus
Supplement, the related Seller will be obligated to cure the breach or
repurchase or, if permitted, replace such Mortgage Loan or Mortgage Security
as described below. However, there can be no assurance that a Seller will
honor its obligation to repurchase or, if permitted, replace any Mortgage Loan
or Mortgage Security as to which such a breach of a representation or warranty
arises.
All of the representations and warranties of a Seller in respect of a
Mortgage Loan or Mortgage Security will have been made as of the date on which
such Mortgage Loan or Mortgage Security was purchased from the Seller by or on
behalf of the Company; the date as of which such representations and
warranties were made will be a date prior to the date of initial issuance of
the related series of Certificates or, in the case of a Designated Seller
Transaction, will be the date of closing of the related sale by the applicable
Seller. A substantial period of time may have elapsed between the date as of
which the representations and warranties were made and the later date of
initial issuance of the related series of Certificates. Accordingly, the
Seller's purchase obligation (or, if specified in the related Prospectus
Supplement, limited replacement option) described below will not arise if,
during the period commencing on the date of sale of a Mortgage Loan or
Mortgage Security by the Seller, an event occurs that would have given rise to
such an obligation had the event occurred prior to sale of the affected
Mortgage Loan or Mortgage Security, as the case may be. Unless otherwise
specified in the related Prospectus Supplement, the only representations and
warranties to be made for the benefit of holders of Certificates in respect of
any related Mortgage Loan or Mortgage Security relating to the period
commencing on the date of sale of such Mortgage Loan or Mortgage Security by
the Seller to or on behalf of the Company will be certain limited
representations of the Company and the Master Servicer described under
"Description of the Certificates-Assignment of Trust Fund Assets" below.
The Company will assign to the Trustee for the benefit of the holders of
the related series of Certificates all of its right, title and interest in
each agreement by which it purchased a Mortgage Loan or Mortgage Security from
a Seller insofar as such agreement relates to the representations and
warranties made by such Seller in respect of such Mortgage Loan or Mortgage
Security and any remedies provided for with respect to any breach of such
representations and warranties. If a Seller cannot cure a breach of any
representation or warranty made by it in respect of a Mortgage Loan or
Mortgage Security which materially and adversely affects the interests of the
Certificateholders therein within a specified period after having discovered
or received notice of such breach, then, unless otherwise specified in the
related Prospectus Supplement, such Seller will be obligated to purchase such
Mortgage Loan or Mortgage Security at a price (the "Purchase Price") set forth
in the related Pooling Agreement which Purchase Price will generally be equal
to the principal balance thereof as of the date of purchase plus accrued and
unpaid interest through or about the date of purchase at the related Mortgage
Rate or pass-through rate, as applicable (net of any portion of such interest
payable to such Seller in respect of master servicing compensation, special
servicing compensation or subservicing compensation, as applicable, and the
Spread, if any).
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Unless otherwise specified in the related Prospectus Supplement, as to
any Mortgage Loan required to be purchased by an Affiliated Seller as provided
above, rather than repurchase the Mortgage Loan, the Seller will be entitled,
at its sole option, to remove such Mortgage Loan (a "Deleted Mortgage Loan")
from the Trust Fund and substitute in its place another Mortgage Loan of like
kind (a "Qualified Substitute Mortgage Loan"); however, such substitution must
be effected within 120 days of the date of the initial issuance of the related
series of Certificates with respect to a Trust Fund for which no REMIC
election is to be made. With respect to a Trust Fund for which a REMIC
election is to be made, except as otherwise provided in the related Prospectus
Supplement, such substitution of a defective Mortgage Loan must be effected
within two years of the date of the initial issuance of the related series of
Certificates, and may not be made if such substitution would cause the Trust
Fund, or any portion thereof, to fail to qualify as a REMIC or result in a
prohibited transaction tax under the Code. Except as otherwise provided in
the related Prospectus Supplement, any Qualified Substitute Mortgage Loan
generally will, on the date of substitution, (i) have an outstanding principal
balance, after deduction of the principal portion of the monthly payment due
in the month of substitution, not in excess of the outstanding principal
balance of the Deleted Mortgage Loan (the amount of any shortfall to be
deposited in the Certificate Account by the Master Servicer in the month of
substitution for distribution to the Certificateholders), (ii) have a Mortgage
Rate and a Net Mortgage Rate not less than (and not more than one percentage
point greater than) the Mortgage Rate and Net Mortgage Rate, respectively, of
the Deleted Mortgage Loan as of the date of substitution, (iii) have a Loan-
to-Value Ratio at the time of substitution no higher than that of the Deleted
Mortgage Loan at the time of substitution, (iv) have a remaining term to
maturity not greater than (and not more than one year less than) that of the
Deleted Mortgage Loan, (v) comply with all of the representations and
warranties made by such Affiliated Seller as of the date of substitution, and
(vi) be covered under a primary insurance policy if such Mortgage Loan has a
Loan-to-Value Ratio greater than 80%. The related purchase agreement may
include additional requirements relating to ARM Loans or other specific types
of Mortgage Loans, or additional provisions relating to meeting the foregoing
requirements on an aggregate basis where a number of substitutions occur
contemporaneously. Unless otherwise specified in the related Prospectus
Supplement, an Unaffiliated Seller will have no option to substitute for a
Mortgage Loan that it is obligated to repurchase in connection with a breach
of a representation and warranty, and neither an Affiliated Seller nor an
Unaffiliated Seller will have any option to substitute for a Mortgage Security
that it is obligated to repurchase in connection with a breach of a
representation and warranty.
The Master Servicer will be required under the applicable Pooling
Agreement to use reasonable efforts to enforce this purchase or substitution
obligation for the benefit of the Trustee and the Certificateholders,
following such practices it would employ in its good faith business judgment
and which are normal and usual in its general mortgage servicing activities;
provided, however, that this purchase or substitution obligation will not
become an obligation of the Master Servicer in the event the applicable Seller
fails to honor such obligation. In instances where a Seller is unable, or
disputes its obligation, to purchase affected Mortgage Loans and/or Mortgage
Securities, the Master Servicer, employing the standards set forth in the
preceding sentence, may negotiate and enter into one or more settlement
agreements with such Seller that could provide for, among other things, the
purchase of only a portion of the affected Mortgage Loans and/or Mortgage
Securities. Any such settlement could lead to losses on the Mortgage Loans
and/or Mortgage Securities which would be borne by the related Certificates.
In accordance with the above described practices, the Master Servicer will not
be required to enforce any purchase obligation of a Seller arising from any
misrepresentation by the Seller, if the Master Servicer determines in the
reasonable exercise of its business judgment that the matters related to such
misrepresentation did not directly cause or are not likely to directly cause a
loss on the related Mortgage Loan or Mortgage Security. If the Seller fails
to repurchase and no breach of any other party's representations has occurred,
the Seller's purchase obligation will not become an obligation of the Company
or any other party. In the case of a Designated Seller Transaction where the
Seller fails to repurchase a Mortgage Loan or Mortgage Security and neither
the Company nor any other entity has assumed the representations and
warranties, such repurchase obligation of the Seller will not become an
obligation of the Company or any other party. Unless otherwise specified in
the related Prospectus Supplement, the foregoing obligations will constitute
the sole remedies available to Certificateholders or the Trustee for a breach
of any representation by a Seller or for any other event giving rise to such
obligations as described above.
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Neither the Company nor the Master Servicer will be obligated to purchase
a Mortgage Loan or Mortgage Security if a Seller defaults on its obligation to
do so, and no assurance can be given that the Sellers will carry out such
purchase obligations. Such a default by a Seller is not a default by the
Company or by the Master Servicer. However, to the extent that a breach of
the representations and warranties of a Seller also constitutes a breach of a
representation made by the Company or the Master Servicer, as described below
under "Description of the Certificates-Assignment of Trust Fund Assets," the
Company or the Master Servicer may have a purchase or substitution obligation.
Any Mortgage Loan or Mortgage Security not so purchased or substituted for
shall remain in the related Trust Fund and any losses related thereto shall be
allocated to the related credit enhancement, to the extent available, and
otherwise to one or more classes of the related series of Certificates.
If a person other than a Seller makes the representations and warranties
referred to in the first paragraph of this "-Representations by Sellers"
section, or a person other than a Seller is responsible for repurchasing or
replacing any Mortgage Loan or Mortgage Security in connection with a breach
of such representations and warranties, the identity of such person will be
specified in the related Prospectus Supplement.
SERVICING OF MORTGAGE LOANS
GENERAL
The Mortgage Loans and Mortgage Securities included in each Mortgage Pool
will be serviced and administered pursuant to a Pooling Agreement. Forms of
Pooling Agreements have been filed as an exhibit to the Registration Statement
of which this Prospectus is a part. However, the provisions of each Pooling
Agreement will vary depending upon the nature of the related Mortgage Pool.
The following summaries describe the material servicing-related provisions
that may appear in a Pooling Agreement for a Mortgage Pool that includes
Mortgage Loans. The related Prospectus Supplement will describe any
servicing-related provision of such a Pooling Agreement that materially
differs from the description thereof contained in this Prospectus and, if the
related Mortgage Pool includes Mortgage Securities, will summarize all of the
material provisions of the related Pooling Agreement that govern the
administration of such Mortgage Securities and identify the party responsible
for such administration. The summaries herein do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all
of the provisions of the related Pooling Agreement and the description of such
provisions in the related Prospectus Supplement.
With respect to any series of Certificates as to which the related
Mortgage Pool includes Mortgage Securities, the servicing and administration
of the Mortgage Loans underlying such Mortgage Securities will be pursuant to
the terms of such Mortgage Securities. It is expected that Mortgage Loans
underlying any Mortgage Securities in a Mortgage Pool would be serviced and
administered generally in the same manner as Mortgage Loans included in a
Mortgage Pool, however, there can be no assurance that such will be the case,
particularly if such Mortgage Securities are issued by an entity other than
the Company or any of its affiliates. The related Prospectus Supplement will
describe any material differences between the servicing described below and
the servicing of Mortgage Loans underlying the Mortgage Securities in any
Mortgage Pool.
THE MASTER SERVICER
The master servicer (the "Master Servicer"), if any, for a series of
Certificates will be named in the related Prospectus Supplement and may be ICI
Funding or another affiliate of the Company. The Master Servicer is generally
required to maintain a fidelity bond and errors and omissions policy with
respect to its officers and employees and other persons acting on behalf of
the Master Servicer in connection with its activities under a Pooling
Agreement.
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COLLECTION AND OTHER SERVICING PROCEDURES; MORTGAGE LOAN MODIFICATIONS
Unless otherwise specified in the related Prospectus Supplement, the
Master Servicer for any Mortgage Pool, directly or through Subservicers, will
be obligated under the Pooling Agreement to service and administer the
Mortgage Loans in such Mortgage Pool for the benefit of the related
Certificateholders, in accordance with applicable law and the terms of such
Pooling Agreement, such Mortgage Loans and any instrument of credit
enhancement included in the related Trust Fund, and, to the extent consistent
with the foregoing, in the same manner as would prudent institutional mortgage
lenders servicing comparable mortgage loans for their own account in the
jurisdictions where the related Mortgaged Properties are located. Subject to
the foregoing, the Master Servicer will have full power and authority to do
any and all things in connection with such servicing and administration that
it may deem necessary and desirable.
As part of its servicing duties, a Master Servicer will be required to
make reasonable efforts to collect all payments called for under the terms and
provisions of the Mortgage Loans that it services and will be obligated to
follow such collection procedures as it would follow with respect to mortgage
loans that are comparable to such Mortgage Loans and held for its own account,
provided such procedures are consistent with the terms of the related Pooling
Agreement, including the servicing standard specified therein and generally
described in the preceding paragraph (as such may be more particularly
described in the related Prospectus Supplement, the "Servicing Standard"), and
do not impair recovery under any instrument of credit enhancement included in
the related Trust Fund. Consistent with the foregoing, the Master Servicer
will be permitted, in its discretion, to waive any Prepayment Premium, late
payment charge or other charge in connection with any Mortgage Loan.
Under a Pooling Agreement, a Master Servicer will be granted certain
discretion to extend relief to Mortgagors whose payments become delinquent.
In the case of Single Family Loans and Contracts, a Master Servicer may, among
other things, grant a period of temporary indulgence (generally up to four
months) to a Mortgagor or may enter into a liquidating plan providing for
repayment by such Mortgagor of delinquent amounts within a specified period
(generally up to one year) from the date of execution of the plan. However,
unless otherwise specified in the related Prospectus Supplement, the Master
Servicer must first determine that any such waiver or extension will not
impair the coverage of any related insurance policy or materially adversely
affect the security for such Mortgage Loan. In addition, unless otherwise
specified in the related Prospectus Supplement, if a material default occurs
or a payment default is reasonably foreseeable with respect to a Multifamily
Loan, the Master Servicer will be permitted, subject to any specific
limitations set forth in the related Pooling Agreement and described in the
related Prospectus Supplement, to modify, waive or amend any term of such
Mortgage Loan, including deferring payments, extending the stated maturity
date or otherwise adjusting the payment schedule, provided that such
modification, waiver or amendment (i) is reasonably likely to produce a
greater recovery with respect to such Mortgage Loan on a present value basis
than would liquidation and (ii) will not adversely affect the coverage under
any applicable instrument of credit enhancement.
In the case of Multifamily Loans, a Mortgagor's failure to make required
Mortgage Loan payments may mean that operating income is insufficient to
service the mortgage debt, or may reflect the diversion of that income from
the servicing of the mortgage debt. In addition, a Mortgagor under a
Multifamily Loan that is unable to make Mortgage Loan payments may also be
unable to make timely payment of taxes and otherwise to maintain and insure
the related Mortgaged Property. In general, the related Master Servicer will
be required to monitor any Multifamily Loan that is in default, evaluate
whether the causes of the default can be corrected over a reasonable period
without significant impairment of the value of the related Mortgaged Property,
initiate corrective action in cooperation with the Mortgagor if cure is
likely, inspect the related Mortgaged Property and take such other actions as
are consistent with the Servicing Standard. A significant period of time may
elapse before the Master Servicer is able to assess the success of any such
corrective action or the need for additional initiatives. The time within
which the Master Servicer can make the initial determination of appropriate
action, evaluate the success of corrective action, develop additional
initiatives, institute foreclosure proceedings and actually foreclose (or
accept a deed to a Mortgaged Property in lieu of foreclosure) on behalf of the
Certificateholders of the related series may vary considerably depending on
the particular Multifamily Loan, the Mortgaged Property, the Mortgagor, the
presence of an acceptable party to assume the Multifamily Loan and the laws of
the jurisdiction in which the Mortgaged Property is located. If
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a Mortgagor files a bankruptcy petition, the Master Servicer may not be
permitted to accelerate the maturity of the related Multifamily Loan or to
foreclose on the Mortgaged Property for a considerable period of time. See
"Certain Legal Aspects of Mortgage Loans."
Certain of the Mortgage Loans in a Mortgage Pool may contain a due-on-
sale clause that entitles the lender to accelerate payment of the Mortgage
Loan upon any sale or other transfer of the related Mortgaged Property made
without the lender's consent. Certain of the Multifamily Loans in a Mortgage
Pool may also contain a due-on-encumbrance clause that entitles the lender to
accelerate the maturity of the Mortgage Loan upon the creation of any other
lien or encumbrance upon the Mortgaged Property. In any case in which
property subject to a Single Family Loan or Contract is being conveyed by the
Mortgagor, unless the related Prospectus Supplement provides otherwise, the
Master Servicer will in general be obligated, to the extent it has knowledge
of such conveyance, to exercise its rights to accelerate the maturity of such
Mortgage Loan under any due-on-sale clause applicable thereto, but only if the
exercise of such rights is permitted by applicable law and only to the extent
it would not adversely affect or jeopardize coverage under any Primary
Insurance Policy or applicable credit enhancement arrangements. If the Master
Servicer is prevented from enforcing such due-on-sale clause under applicable
law or if the Master Servicer determines that it is reasonably likely that a
legal action would be instituted by the related Mortgagor to avoid enforcement
of such due-on-sale clause, the Master Servicer will enter into an assumption
and modification agreement with the person to whom such property has been or
is about to be conveyed, pursuant to which such person becomes liable under
the Mortgage Loan subject to certain specified conditions. The original
Mortgagor may be released from liability on a Single Family Loan or Contract
if the Master Servicer shall have determined in good faith that such release
will not adversely affect the collectability of the Mortgage Loan. Unless
otherwise provided in the related Prospectus Supplement, the Master Servicer
will determine whether to exercise any right the Trustee may have under any
due-on-sale or due-on-encumbrance provision in a Multifamily Loan in a manner
consistent with the Servicing Standard. Unless otherwise specified in the
related Prospectus Supplement, the Master Servicer will be entitled to retain
as additional servicing compensation any fee collected in connection with the
permitted transfer of a Mortgaged Property. See "Certain Legal Aspects of
Mortgage Loans-Enforceability of Certain Provisions." FHA Loans contain no
such clause and may be assumed by the purchaser of the mortgaged property.
Mortgagors may, from time to time, request partial releases of the
Mortgaged Properties, easements, consents to alteration or demolition and
other similar matters. The Master Servicer may approve such a request if it
has determined, exercising its good faith business judgment in the same manner
as it would if it were the owner of the related Mortgage Loan, that such
approval will not adversely affect the security for, or the timely and full
collectability of, the related Mortgage Loan. Any fee collected by the Master
Servicer for processing such request will be retained by the Master Servicer
as additional servicing compensation.
In the case of Single Family and Multifamily Loans secured by junior
liens on the related Mortgaged Properties, unless otherwise provided in the
related Prospectus Supplement, the Master Servicer will be required to file
(or cause to be filed) of record a request for notice of any action by a
superior lienholder under the Senior Lien for the protection of the related
Trustee's interest, where permitted by local law and whenever applicable state
law does not require that a junior lienholder be named as a party defendant in
foreclosure proceedings in order to foreclose such junior lienholder's equity
of redemption. Unless otherwise specified in the related Prospectus
Supplement, the Master Servicer also will be required to notify any superior
lienholder in writing of the existence of the Mortgage Loan and request
notification of any action (as described below) to be taken against the
Mortgagor or the Mortgaged Property by the superior lienholder. If the Master
Servicer is notified that any superior lienholder has accelerated or intends
to accelerate the obligations secured by the related Senior Lien, or has
declared or intends to declare a default under the mortgage or the promissory
note secured thereby, or has filed or intends to file an election to have the
related Mortgaged Property sold or foreclosed, then, unless otherwise
specified in the related Prospectus Supplement, the Master Servicer will be
required to take, on behalf of the related Trust Fund, whatever actions are
necessary to protect the interests of the related Certificateholders, and/or
to preserve the security of the related Mortgage Loan, subject to the
application of the REMIC Provisions. Unless otherwise specified in the
related Prospectus Supplement, the Master Servicer will be required to advance
the necessary funds to cure the default or reinstate the superior lien, if
such advance is in the best interests of the related
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Certificateholders and the Master Servicer determines such advances are
recoverable out of payments on or proceeds of the related Mortgage Loan.
The Master Servicer for any Mortgage Pool will also be required to
perform other customary functions of a servicer of comparable loans, including
maintaining escrow or impound accounts for payment of taxes, insurance
premiums and similar items, or otherwise monitoring the timely payment of
those items; adjusting Mortgage Rates on ARM Loans; maintaining Buydown
Accounts; supervising foreclosures and similar proceedings; managing Mortgage
Properties acquired through or in lieu of foreclosure (each, an "REO
Property"); and maintaining servicing records relating to the Mortgage Loans
in such Mortgage Pool. Unless otherwise specified in the related Prospectus
Supplement, the Master Servicer will be responsible for filing and settling
claims in respect of particular Mortgage Loans under any applicable instrument
of credit enhancement. See "Description of Credit Enhancement."
SUBSERVICERS
A Master Servicer may delegate its servicing obligations in respect of
the Mortgage Loans serviced by it to one or more third-party servicers (each,
a "Subservicer"), but the Master Servicer will remain liable for such
obligations under the related Pooling Agreement unless otherwise provided in
the related Prospectus Supplement. Unless otherwise provided in the related
Prospectus Supplement, the Master Servicer will be solely liable for all fees
owed by it to any Subservicer, irrespective of whether the Master Servicer's
compensation pursuant to the related Pooling Agreement is sufficient to pay
such fees. Each Subservicer will be entitled to reimbursement for certain
expenditures which it makes, generally to the same extent as would the Master
Servicer for making the same expenditures. See "-Servicing and Other
Compensation and Payment of Expenses; Spread" below and "Description of the
Certificates-Certificate Account."
SPECIAL SERVICERS
If and to the extent specified in the related Prospectus Supplement, a
special servicer (a "Special Servicer") may be a party to the related Pooling
Agreement or may be appointed by the Master Servicer or another specified
party to perform certain specified duties in respect of servicing the related
Mortgage Loans that would otherwise be performed by the Master Servicer (for
example, the workout and/or foreclosure of defaulted Mortgage Loans). The
rights and obligations of any Special Servicer will be specified in the
related Prospectus Supplement, and the Master Servicer will be liable for the
performance of a Special Servicer only if, and to the extent, set forth in
such Prospectus Supplement.
REALIZATION UPON OR SALE OF DEFAULTED MORTGAGE LOANS
Except as described below or in the related Prospectus Supplement, the
Master Servicer will be required, in a manner consistent with the Servicing
Standard, to foreclose upon or otherwise comparably convert the ownership of
properties securing such of the Mortgage Loans in the related Mortgage Pool as
come into and continue in default and as to which no satisfactory arrangements
can be made for collection of delinquent payments. In connection therewith,
the Master Servicer will be authorized to institute foreclosure proceedings,
exercise any power of sale contained in the related Mortgage, obtain a deed in
lieu of foreclosure, or otherwise acquire title to the related Mortgaged
Property, by operation of law or otherwise, if such action is consistent with
the Servicing Standard. The Master Servicer's actions in this regard must be
conducted, however, in a manner that will permit recovery under any instrument
of credit enhancement included in the related Trust Fund. In addition, the
Master Servicer will not be required to expend its own funds in connection
with any foreclosure or to restore any damaged property unless it shall
determine that (i) such foreclosure and/or restoration will increase the
proceeds of liquidation of the Mortgage Loan to the related Certificateholders
after reimbursement to itself for such expenses and (ii) such expenses will be
recoverable to it from related Insurance Proceeds, Liquidation Proceeds or
amounts drawn out of any fund or under any instrument constituting credit
enhancement (respecting which it shall have priority for purposes of
withdrawal from the Certificate Account in accordance with the Pooling
Agreement).
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Notwithstanding the foregoing, unless otherwise specified in the related
Prospectus Supplement, the Master Servicer may not acquire title to any
Multifamily Property securing a Mortgage Loan or take any other action that
would cause the related Trustee, for the benefit of Certificateholders of the
related series, or any other specified person to be considered to hold title
to, to be a "mortgagee-in-possession" of, or to be an "owner" or an "operator"
of such Mortgaged Property within the meaning of certain federal environmental
laws, unless the Master Servicer has previously determined, based on a report
prepared by a person who regularly conducts environmental audits (which report
will be an expense of the Trust Fund), that either:
(i) the Mortgaged Property is in compliance with applicable
environmental laws and regulations or, if not, that taking such actions as are
necessary to bring the Mortgaged Property into compliance therewith is
reasonably likely to produce a greater recovery on a present value basis than
not taking such actions; and
(ii) there are no circumstances or conditions present at the Mortgaged
Property that have resulted in any contamination for which investigation,
testing, monitoring, containment, clean-up or remediation could be required
under any applicable environmental laws and regulations or, if such
circumstances or conditions are present for which any such action could be
required, taking such actions with respect to the Mortgaged Property is
reasonably likely to produce a greater recovery on a present value basis than
not taking such actions. See "Certain Legal Aspects of Mortgage Loans-
Environmental Legislation."
In addition, unless otherwise specified in the related Prospectus
Supplement, the Master Servicer will not be obligated to foreclose upon or
otherwise convert the ownership of any Single Family Property securing a
Mortgage Loan if it has received notice or has actual knowledge that such
property may be contaminated with or affected by hazardous wastes or hazardous
substances; however, no environmental testing will generally be required. The
Master Servicer will not be liable to the Certificateholders of the related
series if, based on its belief that no such contamination or effect exists,
the Master Servicer forecloses on a Mortgaged Property and takes title to such
Mortgaged Property, and thereafter such Mortgaged Property is determined to be
so contaminated or affected.
With respect to a Mortgage Loan in default, the Master Servicer may
pursue foreclosure (or similar remedies) concurrently with pursuing any remedy
for a breach of a representation and warranty. However, the Master Servicer
is not required to continue to pursue both such remedies if it determines that
one such remedy is more likely to result in a greater recovery. Upon the
first to occur of final liquidation (by foreclosure or otherwise) and a
repurchase or substitution pursuant to a breach of a representation and
warranty, such Mortgage Loan will be removed from the related Trust Fund if it
has not been removed previously. The Master Servicer may elect to treat a
defaulted Mortgage Loan as having been finally liquidated if substantially all
amounts expected to be received in connection therewith have been received.
Any additional liquidation expenses relating to such Mortgage Loan thereafter
incurred will be reimbursable to the Master Servicer (or any Subservicer) from
any amounts otherwise distributable to holders of Certificates of the related
series, or may be offset by any subsequent recovery related to such Mortgage
Loan. Alternatively, for purposes of determining the amount of related
Liquidation Proceeds to be distributed to Certificateholders, the amount of
any Realized Loss or the amount required to be drawn under any applicable form
of credit support, the Master Servicer may take into account minimal amounts
of additional receipts expected to be received, as well as estimated
additional liquidation expenses expected to be incurred in connection with
such defaulted Mortgage Loan. With respect to certain series of Certificates,
if so provided in the related Prospectus Supplement, the applicable form of
credit enhancement may provide, to the extent of coverage thereunder, that a
defaulted Mortgage Loan will be removed from the Trust Fund prior to the final
liquidation thereof. In addition, a Pooling Agreement may grant to the Master
Servicer, a Special Servicer, a provider of credit enhancement and/or the
holder or holders of certain classes of Certificates of the related series a
right of first refusal to purchase from the Trust Fund, at a predetermined
purchase price (which, if insufficient to fully fund the entitlements of
Certificateholders to principal and interest thereon, will be specified in the
related Prospectus Supplement), any Mortgage Loan as to which a specified
number of scheduled payments are delinquent. Furthermore, a Pooling Agreement
may authorize the Master Servicer to sell any defaulted Mortgage Loan if and
when the Master Servicer determines, consistent with the Servicing Standard,
that such a sale would produce a greater recovery to Certificateholders on a
present value basis than would liquidation of the related Mortgaged Property.
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In the event that title to any Mortgaged Property is acquired in
foreclosure, deed in lieu of foreclosure or otherwise, the deed or certificate
of sale will be issued to the Trustee or to its nominee on behalf of
Certificateholders of the related series. Notwithstanding any such
acquisition of title and cancellation of the related Mortgage Loan, such
Mortgage Loan (an "REO Mortgage Loan") will be considered for most purposes to
be an outstanding Mortgage Loan held in the Trust Fund until such time as the
Mortgaged Property is sold and all recoverable Liquidation Proceeds and
Insurance Proceeds have been received with respect to such defaulted Mortgage
Loan (a "Liquidated Mortgage Loan"). For purposes of calculations of amounts
distributable to Certificateholders in respect of an REO Mortgage Loan, unless
otherwise specified in the related Prospectus Supplement, the amortization
schedule in effect at the time of any such acquisition of title (before any
adjustment thereto by reason of any bankruptcy or any similar proceeding or
any moratorium or similar waiver or grace period) will be deemed to have
continued in effect (and, in the case of an ARM Loan, such amortization
schedule will be deemed to have adjusted in accordance with any interest rate
changes occurring on any adjustment date therefor) so long as such REO
Mortgage Loan is considered to remain in the Trust Fund.
Unless otherwise provided in the related Prospectus Supplement, if title
to any Mortgaged Property is acquired by a Trust Fund as to which a REMIC
election has been made, the Master Servicer, on behalf of the Trust Fund, will
be required to sell the Mortgaged Property within two years of acquisition,
unless (i) the Internal Revenue Service grants an extension of time to sell
such property or (ii) the Trustee receives an opinion of independent counsel
to the effect that the holding of the property by the Trust Fund for more than
two years after its acquisition will not result in the imposition of a tax on
the Trust Fund or cause the Trust Fund to fail to qualify as a REMIC under the
Code at any time that any Certificate is outstanding. Subject to the
foregoing and any other tax-related constraints, the Master Servicer will
generally be required to solicit bids for any Mortgaged Property so acquired
in such a manner as will be reasonably likely to realize a fair price for such
property. Unless otherwise provided in the related Prospectus Supplement, if
title to any Mortgaged Property is acquired by a Trust Fund as to which a
REMIC election has been made, the Master Servicer will also be required to
ensure that the Mortgaged Property is administered so that it constitutes
"foreclosure property" within the meaning of Code Section 86OG(a)(8) at all
times, that the sale of such property does not result in the receipt by the
Trust Fund of any income from non-permitted assets as described in Code
Section 86OF(a)(2)(B), and that the Trust Fund does not derive any "net income
from foreclosure property" within the meaning of Code Section 86OG(c)(2), with
respect to such property.
If Liquidation Proceeds collected with respect to a defaulted Mortgage
Loan are less than the outstanding principal balance of the defaulted Mortgage
Loan plus interest accrued thereon plus the aggregate amount of reimbursable
expenses incurred by the Master Servicer with respect to such Mortgage Loan,
and the shortfall is not covered under any applicable instrument or fund
constituting credit enhancement, the Trust Fund will realize a loss in the
amount of such difference. The Master Servicer will be entitled to reimburse
itself from the Liquidation Proceeds recovered on any defaulted Mortgage Loan,
prior to the distribution of such Liquidation Proceeds to Certificateholders,
amounts that represent unpaid servicing compensation in respect of the
Mortgage Loan, unreimbursed servicing expenses incurred with respect to the
Mortgage Loan and any unreimbursed advances of delinquent payments made with
respect to the Mortgage Loan. If so provided in the related Prospectus
Supplement, the applicable form of credit enhancement may provide for
reinstatement subject to certain conditions in the event that, following the
final liquidation of a Mortgage Loan and a draw under such credit enhancement,
subsequent recoveries are received. In addition, if a gain results from the
final liquidation of a defaulted Mortgage Loan or an REO Mortgage Loan which
is not required by law to be remitted to the related Mortgagor, the Master
Servicer will not be entitled to retain such gain as additional servicing
compensation unless the related Prospectus Supplement provides otherwise. For
a description of the Master Servicer's (or other specified person's)
obligations to maintain and make claims under applicable forms of credit
enhancement and insurance relating to the Mortgage Loans, see "Description of
Credit Enhancement" and "Primary Mortgage Insurance, Hazard Insurance; Claims
Thereunder."
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES; SPREAD
The principal servicing compensation to be paid to the Master Servicer in
respect of its master servicing activities for a series of Certificates will
be equal to the percentage per annum described in the related Prospectus
Supplement (which may vary under certain circumstances) of the outstanding
principal
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balance of each Mortgage Loan, and such compensation will be retained by it on
a monthly or other periodic basis from collections of interest on such
Mortgage Loan in the related Trust Fund at the time such collections are
deposited into the applicable Certificate Account. If so specified in the
related Prospectus Supplement, the Master Servicer will retain all Prepayment
Premiums, assumption fees and late payment charges, to the extent collected
from Mortgagors, and any benefit which may accrue as a result of the
investment of funds in the applicable Certificate Account. Any additional
servicing compensation will be described in the related Prospectus Supplement.
Any Subservicer will receive a portion of the Master Servicer's compensation
as its sub-servicing compensation.
In addition to amounts payable to any Subservicer, the Master Servicer
will pay or cause to be paid certain ongoing expenses associated with each
Trust Fund and incurred by it in connection with its responsibilities under
the Pooling Agreement, including, if so specified in the related Prospectus
Supplement, payment of any fee or other amount payable in respect of any
alternative credit enhancement arrangements, payment of the fees and
disbursements of the Trustee, any custodian appointed by the Trustee and the
Certificate Registrar, and payment of expenses incurred in enforcing the
obligations of Subservicers and Sellers. The Master Servicer will be entitled
to reimbursement of expenses incurred in enforcing the obligations of
Subservicers and Sellers under certain limited circumstances. In addition,
the Master Servicer will be entitled to reimbursements for certain expenses
incurred by it in connection with Liquidated Mortgage Loans and in connection
with the restoration of Mortgaged Properties, such right of reimbursement
being prior to the rights of Certificateholders to receive any related
Liquidation Proceeds or Insurance Proceeds. If and to the extent so provided
in the related Prospectus Supplement, the Master Servicer will be entitled to
receive interest on amounts advanced to cover such reimbursable expenses for
the period that such advances are outstanding at the rate specified in such
Prospectus Supplement, and the Master Servicer will be entitled to payment of
such interest periodically from general collections on the Mortgage Loans in
the related Trust Fund prior to any payment to Certificateholders or as
otherwise provided in the related Pooling Agreement and described in such
Prospectus Supplement.
The Prospectus Supplement for a series of Certificates will specify
whether there will be any Spread retained. Any such Spread will be a
specified portion of the interest payable on each Mortgage Loan in a Mortgage
Pool and will not be part of the related Trust Fund. Any such Spread will be
established on a loan-by-loan basis and the amount thereof with respect to
each Mortgage Loan in a Mortgage Pool will be specified on an exhibit to the
related Pooling Agreement. Any partial recovery of interest in respect of a
Mortgage Loan will be allocated between the owners of any Spread and the
holders of classes of Certificates entitled to payments of interest as
provided in the related Prospectus Supplement and the applicable Pooling
Agreement.
If and to the extent provided in the related Prospectus Supplement, the
Master Servicer may be required to apply a portion of the servicing
compensation otherwise payable to it in respect of any period to any
Prepayment Interest Shortfalls resulting from Mortgagor prepayments during
such period. See "Yield Considerations."
EVIDENCE AS TO COMPLIANCE
Each Pooling Agreement will provide that on or before a specified date in
each year, beginning the first such date that is at least a specified number
of months after the Cut-off Date, a firm of independent public accountants
will furnish a statement to the Company and the Trustee to the effect that, on
the basis of an examination by such firm conducted substantially in compliance
with the Uniform Single Attestation Program for Mortgage Bankers or the Audit
Program for Mortgages serviced for Freddie Mac, the servicing of mortgage
loans under agreements (including the related Pooling Agreement) substantially
similar to each other was conducted in compliance with such agreements except
for such significant exceptions or errors in records that, in the opinion of
the firm, the Uniform Single Attestation Program for Mortgage Bankers or the
Audit Program for Mortgages serviced for Freddie Mac requires it to report.
In rendering its statement such firm may rely, as to the matters relating to
the direct servicing of mortgage loans by Subservicers, upon comparable
statements for examinations conducted substantially in compliance with the
Uniform Single Attestation Program for Mortgage Bankers or the Audit Program
for Mortgages serviced for Freddie Mac
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(rendered within one year of such statement) of firms of independent public
accountants with respect to those Subservicers which also have been the
subject of such an examination.
Each Pooling Agreement will also provide for delivery to the Trustee, on
or before a specified date in each year, of an annual statement signed by one
or more officers of the Master Servicer to the effect that, to the best
knowledge of each such officer, the Master Servicer has fulfilled in all
material respects its obligations under the Pooling Agreement throughout the
preceding year or, if there has been a material default in the fulfillment of
any such obligation, such statement shall specify each such known default and
the nature and status thereof. Such statement may be provided as a single
form making the required statements as to more than one Pooling Agreement.
Unless otherwise specified in the related Prospectus Supplement, copies
of the annual accountants' statement and the annual statement of officers of a
Master Servicer may be obtained by Certificateholders without charge upon
written request to the Master Servicer at the address of the Master Servicer
set forth under "The Master Servicer; the Sub-Servicer" in the Prospectus
Supplement. Such requests should be sent to the attention of the President of
the Master Servicer.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued in series. Each series of Certificates
(or, in certain instances, two or more series of Certificates) will be issued
pursuant to a Pooling Agreement, similar to one of the forms filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
Each Pooling Agreement will be filed with the Securities and Exchange
Commission as an exhibit to a Current Report on Form 8-K. The following
summaries (together with additional summaries under "The Pooling Agreement"
below) describe the material provisions relating to the Certificates common to
each Pooling Agreement. The summaries do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all of the
provisions of the Pooling Agreement for each Trust Fund and the related
Prospectus Supplement. Wherever particular sections or defined terms of the
Pooling Agreement are referred to herein, such sections or defined terms are
thereby incorporated herein by reference.
Unless otherwise specified in the related Prospectus Supplement,
Certificates of each series covered by a particular Pooling Agreement will
evidence specified beneficial ownership interests in a separate Trust Fund
created pursuant to such Pooling Agreement. A Trust Fund will consist of, to
the extent provided in the Pooling Agreement: (i) such Mortgage Loans (and the
related mortgage documents) or interests therein (including any Mortgage
Securities) underlying a particular series of Certificates as from time to
time are subject to the Pooling Agreement, exclusive of, if specified in the
related Prospectus Supplement, any Spread or other interest retained by the
Company or any of its affiliates with respect to each such Mortgage Loan; (ii)
such assets including, without limitation, all payments and collections in
respect of the Mortgage Loans or Mortgage Securities due after the related
Cut-off Date, as from time to time are identified as deposited in respect
thereof in the related Certificate Account as described below; (iii) any
property acquired in respect of Mortgage Loans in the Trust Fund, whether
through foreclosure of such Mortgage Loans or by deed in lieu of foreclosure
or otherwise; (iv) hazard insurance policies, Primary Insurance Policies and
FHA insurance policies, if any, maintained in respect of Mortgage Loans in the
Trust Fund and certain proceeds of such policies; (v) certain rights of the
Company under any Mortgage Loan Purchase Agreement, including in respect of
any representations and warranties therein; and (vi) any combination, as and
to the extent specified in the related Prospectus Supplement, of a Letter of
Credit, Purchase Obligation, Mortgage Pool Insurance Policy, Special Hazard
Insurance Policy or Bankruptcy Bond as described under "Description of Credit
Enhancement." To the extent that any Trust Fund includes certificates of
interest or participations in Mortgage Loans, the related Prospectus
Supplement will describe the material terms and conditions of such
certificates or participations.
If provided in the related Prospectus Supplement, the original principal
amount of a series of Certificates may exceed the principal balance of the
Mortgage Loans or Mortgage Securities initially being
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delivered to the Trustee. Cash in an amount equal to such difference will be
deposited into a separate trust account (the "Pre-Funding Account") maintained
with the Trustee. During the period set forth in the related Prospectus
Supplement, amounts on deposit in the Pre-Funding Account may be used to
purchase additional Mortgage Loans or Mortgage Securities for the related
Trust Fund, which Mortgage Loans will generally be underwritten to the same
standards as the Mortgage Loans initially included in the Trust Fund. Any
amounts remaining in the Pre-Funding Account at the end of such period will be
distributed as a principal prepayment to the holders of the related series of
Certificates at the time and in the manner set forth in the related Prospectus
Supplement. Unless otherwise specified in the related Prospectus Supplement,
a Pre-Funding Account will be required to be maintained as an Eligible
Account, all amounts therein will be required to be invested in Permitted
Investments and the amount held therein shall at no time exceed 25% of the
aggregate outstanding principal of the Certificates. Unless otherwise
specified in the related Prospectus Supplement, the related agreement
providing for the transfer of additional Mortgage Loans will provide that all
such transfers must be made within 9 months (as to amounts representing
proceeds from the sale of the Certificates) or 12 months (as to amounts
representing principal collections on the Mortgage Loans) after the Closing
Date, and that amounts to be set aside to fund such transfers (whether in a
Pre-Funding Account or otherwise) and not so applied within the required
period of time will be deemed to be principal prepayments and applied in the
manner set forth in such Prospectus Supplement.
The Company will be required to provide data regarding any additional
Mortgage Loans or Mortgage Securities to the Rating Agencies and the credit
support provider, if any, sufficiently in advance of the scheduled transfer to
permit review by such parties. Transfer of any additional Mortgage Loans or
Mortgage Securities will be further conditioned upon confirmation by the
Rating Agencies that the addition of such Mortgage Loans to the Trust Fund
will not result in the downgrading of the Certificates or, in the case of a
series guaranteed or supported by a credit support provider, will not
adversely affect the capital requirements of such credit support provider.
Additionally, a legal opinion to the effect that the conditions to the
transfer of the additional Mortgage Loans or Mortgage Securities have been
satisfied will be required. If a Trust Fund includes a Pre-Funding Account
and the principal balance of additional Mortgage Loans delivered to the Trust
Fund during the Pre-Funding Period is less than the Pre-Funded Amount, the
Certificateholders will receive a prepayment of principal as and to the extent
described in the related Prospectus Supplement. Any such principal prepayment
may adversely affect the yield to maturity of the applicable Certificates.
Each series of Certificates may consist of any one or a combination of
the following: (i) a single class of Certificates; (ii) two or more classes of
Certificates, one or more classes of which will be senior ("Senior
Certificates") in right of payment to one or more of the other classes
("Subordinate Certificates"), and as to which certain classes of Senior (or
Subordinate) Certificates may be senior to other classes of Senior (or
Subordinate) Certificates, as described in the respective Prospectus
Supplement (any such series, a "Senior/Subordinate Series"); (iii) two or more
classes of Certificates, one or more classes ("Strip Certificates") of which
will be entitled to (a) principal distributions, with disproportionate,
nominal or no interest distributions or (b) interest distributions, with
disproportionate, nominal or no principal distributions; (iv) two or more
classes of Certificates which differ as to the timing, sequential order, rate,
pass-through rate or amount of distributions of principal or interest or both,
or as to which distributions of principal or interest or both on any such
class may be made upon the occurrence of specified events, in accordance with
a schedule or formula (including "planned amortization classes" and "targeted
amortization classes"), or on the basis of collections from designated
portions of the Mortgage Pool, and which classes may include one or more
classes of Certificates ("Accrual Certificates") with respect to which certain
accrued interest will not be distributed but rather will be added to the
principal balance thereof on each Distribution Date for the period described
in the related Prospectus Supplement; or (v) other types of classes of
Certificates, as described in the related Prospectus Supplement. As to each
series, all Certificates offered hereby (the "Offered Certificates") will be
rated in one of the four highest rating categories by one or more Rating
Agencies. Credit support for the Offered Certificates of each series may be
provided by a Mortgage Pool Insurance Policy, Special Hazard Insurance Policy,
Bankruptcy Bond, Letter of Credit, Purchase Obligation or Reserve Fund as
described under "Description of Credit Enhancement," by the subordination of
one or more other classes of Certificates as described under "Description of
Credit Enhancement-Subordinate Certificates" or by any combination of the
foregoing.
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If so specified in the Prospectus Supplement relating to a series of
Certificates, one or more elections may be made to treat the related Trust
Fund, or a designated portion thereof, as a REMIC. If such an election is
made with respect to a series of Certificates, one of the classes of
Certificates in such series will be designated as evidencing the sole class of
"residual interests" in each related REMIC, as defined in the Code;
alternatively, a separate class of ownership interests will evidence such
residual interests. All other classes of Certificates in such series will
constitute "regular interests" in the related REMIC, as defined in the Code
and will be designated as such. As to each series of Certificates as to which
a REMIC election is to be made, the Master Servicer, Trustee or other
specified person will be obligated to take certain specified actions required
in order to comply with applicable laws and regulations.
FORM OF CERTIFICATES
Unless otherwise specified in the related Prospectus Supplement, the
Offered Certificates of each series will be issued as physical certificates in
fully registered form only in the denominations specified in the related
Prospectus Supplement, and will be transferrable and exchangeable at the
corporate trust office of the registrar (the "Certificate Registrar") named in
the related Prospectus Supplement. No service charge will be made for any
registration of exchange or transfer of Offered Certificates, but the Trustee
may require payment of a sum sufficient to cover any tax or other governmental
charge. The term "Certificateholder" or "Holder" as used herein refers to the
entity whose name appears on the records of the Certificate Registrar
(consisting of or including the "Certificate Register") as the registered
holder of a Certificate, except as otherwise indicated in the related
Prospectus Supplement.
If so specified in the related Prospectus Supplement, specified classes
of a series of Certificates will be initially issued through the book-entry
facilities of The Depository Trust Company ("DTC"). As to any such class of
Certificates ("DTC Registered Certificates"), the record Holder of such
Certificates will be DTC's nominee. DTC is a limited-purpose trust company
organized under the laws of the State of New York, which holds securities for
its participating organizations ("Participants") and facilitates the clearance
and settlement of securities transactions between Participants through
electronic book-entry changes in the accounts of Participants. Participants
include securities brokers and dealers, banks, trust companies and clearing
corporations and may include certain other organizations. Other institutions
that are not Participants but clear through or maintain a custodial
relationship with Participants (such institutions, "Intermediaries") have
indirect access to DTC's clearance system.
Unless otherwise specified in the related Prospectus Supplement, no
person acquiring an interest in any DTC Registered Certificates (each such
person, a "Beneficial Owner") will be entitled to receive a Certificate
representing such interest in registered, certificated form, unless either (i)
DTC ceases to act as depository in respect thereof and a successor depository
is not obtained, or (ii) the Company elects in its sole discretion to
discontinue the registration of such Certificates through DTC. Prior to any
such event, Beneficial Owners will not be recognized by the Trustee or the
Master Servicer as Holders of the related Certificates for purposes of the
related Pooling Agreement, and Beneficial Owners will be able to exercise
their rights as owners of such Certificates only indirectly through DTC,
Participants and Intermediaries. Any Beneficial Owner that desires to
purchase, sell or otherwise transfer any interest in DTC Registered
Certificates may do so only through DTC, either directly if such Beneficial
Owner is a Participant or indirectly through Participants and, if applicable,
Intermediaries. Pursuant to the procedures of DTC, transfers of the
beneficial ownership of any DTC Registered Certificates will be required to be
made in minimum denominations specified in the related Prospectus Supplement.
The ability of a Beneficial Owner to pledge DTC Registered Certificates to
persons or entities that are not Participants in the DTC system, or to
otherwise act with respect to such Certificates, may be limited because of the
lack of physical certificates evidencing such Certificates and because DTC may
act only on behalf of Participants.
Distributions in respect of the DTC Registered Certificates will be
forwarded by the Trustee or other specified person to DTC, and DTC will be
responsible for forwarding such payments to Participants, each of which will
be responsible for disbursing such payments to the Beneficial Owners it
represents or, if applicable, to Intermediaries. Accordingly, Beneficial
Owners may experience delays in the receipt of payments in respect of their
Certificates. Under DTC's procedures, DTC will take actions permitted to be
taken by Holders of any class of DTC Registered Certificates under the Pooling
Agreement only at the direction of one or more
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Participants to whose account the DTC Registered Certificates are credited and
whose aggregate holdings represent no less than any minimum amount of
Percentage Interests or voting rights required therefor. DTC may take
conflicting actions with respect to any action of Holders of Certificates of
any Class to the extent that Participants authorize such actions. None of the
Master Servicer, the Company, the Trustee or any of their respective
affiliates will have any liability for any aspect of the records relating to
or payments made on account of beneficial ownership interests in the DTC
Registered Certificates, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
ASSIGNMENT OF TRUST FUND ASSETS
At the time of issuance of a series of Certificates, the Company will
assign, or cause to be assigned, to the related Trustee (or its nominee),
without recourse, the Mortgage Loans or Mortgage Securities being included in
the related Trust Fund, together with, unless otherwise specified in the
related Prospectus Supplement, all principal and interest received on or with
respect to such Mortgage Loans or Mortgage Securities after the Cut-off Date,
other than principal and interest due on or before the Cut-off Date. If
specified in the related Prospectus Supplement, the Company or any of its
affiliates may retain the Spread, if any, for itself or transfer the same to
others. The Trustee will, concurrently with such assignment, deliver the
Certificates of such series to or at the direction of the Company in exchange
for the Mortgage Loans and/or Mortgage Securities in the related Trust Fund.
Each Mortgage Loan will be identified in a schedule appearing as an exhibit to
the related Pooling Agreement. Such schedule will include, among other
things, information as to the principal balance of each Mortgage Loan in the
related Trust Fund as of the Cut-off Date, as well as information respecting
the Mortgage Rate, the currently scheduled monthly payment of principal and
interest, the maturity of the Mortgage Note and the Loan-to-Value Ratio at
origination or modification (without regard to any secondary financing).
In addition, unless otherwise specified in the related Prospectus
Supplement, the Company will, as to each Mortgage Loan (other than Mortgage
Loans underlying any Mortgage Securities and other than Contracts), deliver,
or cause to be delivered, to the related Trustee (or to the custodian
described below) the Mortgage Note endorsed, without recourse, either in blank
or to the order of such Trustee (or its nominee), the Mortgage with evidence
of recording indicated thereon (except for any Mortgage not returned from the
public recording office), an assignment of the Mortgage in blank or to the
Trustee (or its nominee) in recordable form, together with any intervening
assignments of the Mortgage with evidence of recording thereon (except for any
such assignment not returned from the public recording office), and, if
applicable, any riders or modifications to such Mortgage Note and Mortgage,
together with certain other documents at such times as set forth in the
related Pooling Agreement. Such assignments may be blanket assignments
covering Mortgages on Mortgaged Properties located in the same county, if
permitted by law. Notwithstanding the foregoing, a Trust Fund may include
Mortgage Loans where the original Mortgage Note is not delivered to the
Trustee if the Company delivers, or causes to be delivered, to the related
Trustee (or the custodian) a copy or a duplicate original of the Mortgage
Note, together with an affidavit certifying that the original thereof has been
lost or destroyed. In addition, if the Company cannot deliver, with respect
to any Mortgage Loan, the Mortgage or any intervening assignment with evidence
of recording thereon concurrently with the execution and delivery of the
related Pooling Agreement because of a delay caused by the public recording
office, the Company will deliver, or cause to be delivered, to the related
Trustee (or the custodian) a true and correct photocopy of such Mortgage or
assignment as submitted for recording. The Company will deliver, or cause to
be delivered, to the related Trustee (or the custodian) such Mortgage or
assignment with evidence of recording indicated thereon after receipt thereof
from the public recording office. If the Company cannot deliver, with respect
to any Mortgage Loan, the Mortgage or any intervening assignment with evidence
of recording thereon concurrently with the execution and delivery of the
related Pooling Agreement because such Mortgage or assignment has been lost,
the Company will deliver, or cause to be delivered, to the related Trustee (or
the custodian) a true and correct photocopy of such Mortgage or assignment
with evidence of recording thereon. Assignments of the Mortgage Loans to the
Trustee (or its nominee) will be recorded in the appropriate public recording
office, except in states where, in the opinion of counsel acceptable to the
Trustee, such recording is not required to protect the Trustee's interests in
the Mortgage Loan against the claim of any subsequent transferee or any
successor to or creditor of the Company or the originator of such Mortgage
Loan, or except as otherwise specified in the related Prospectus Supplement as
to any series of Certificates. In addition, unless specified in the related
Prospectus Supplement, the Company will, as to each
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Contract, deliver, or cause to be delivered, the original Contract endorsed,
without recourse, to the order of the Trustee and copies of documents and
instruments related to the Contract and the security interest in the
Manufactured Home securing the Contract, together with a blanket assignment to
the Trustee of all Contracts in the related Trust Fund and such documents and
instruments. In order to give notice of the right, title and interest of the
Certificateholders to the Contracts, the Company will cause to be executed and
delivered to the Trustee a UCC-1 financing statement identifying the Trustee
as the secured party and identifying all Contracts as collateral. Unless
otherwise specified in the related Prospectus Supplement, the Company will, as
to each Mortgage Security included in a Mortgage Pool, deliver, or cause to be
delivered, to the related Trustee (or the custodian) a physical certificate
evidencing such Mortgage Security, registered in the name of the related
Trustee (or its nominee), or endorsed in blank or to the related Trustee (or
its nominee), or accompanied by transfer documents sufficient to effect a
transfer to the Trustee (or its nominee).
The Trustee (or the custodian hereinafter referred to) will hold such
documents in trust for the benefit of the related Certificateholders, and
generally will review such documents within 90 days after receipt thereof in
the case of documents delivered concurrently with the execution and delivery
of the related Pooling Agreement, and within the time period specified in the
related Pooling Agreement in the case of all other documents delivered.
Unless otherwise specified in the related Prospectus Supplement, if any such
document is found to be missing or defective in any material respect, the
Trustee (or such custodian) will be required to promptly so notify the Master
Servicer, the Company, and the related Seller. If the related Seller does not
cure the omission or defect within a specified period after notice is given
thereto by the Trustee, and such omission or defect materially and adversely
affects the interests of Certificateholders in the affected Mortgage Loan or
Mortgage Security, then, unless otherwise specified in the related Prospectus
Supplement, the related Seller will be obligated to purchase such Mortgage
Loan or Mortgage Security from the Trustee at its Purchase Price (or, if and
to the extent it would otherwise be permitted to do so for a breach of
representation and warranty as described under "The Mortgage Pools-
Representations of Sellers," to substitute for such Mortgage Loan or Mortgage
Security). The Trustee will be obligated to enforce this obligation of the
Seller to the extent described above under "The Mortgage Pools-Representations
by Sellers," but there can be no assurance that the applicable Seller will
fulfill its obligation to purchase (or substitute for) the affected Mortgage
Loan or Mortgage Security as described above. Unless otherwise specified in
the related Prospectus Supplement, neither the Master Servicer nor the Company
will be obligated to purchase or substitute for such Mortgage Loan or Mortgage
Security if the Seller defaults on its obligation to do so. Unless otherwise
specified in the related Prospectus Supplement, this purchase or substitution
obligation constitutes the sole remedy available to the related
Certificateholders and the related Trustee for omission of, or a material
defect in, a constituent document. Any affected Mortgage Loan or Mortgage
Security not so purchased or substituted for shall remain in the related Trust
Fund.
The Trustee will be authorized at any time to appoint one or more
custodians pursuant to a custodial agreement to hold title to the Mortgage
Loans and/or Mortgage Securities in any Mortgage Pool, and to maintain
possession of and, if applicable, to review, the documents relating to such
Mortgage Loans and/or Mortgage Securities, in any case as the agent of the
Trustee. The identity of any such custodian to be appointed on the date of
initial issuance of the Certificates will be set forth in the related
Prospectus Supplement. Any such custodian may be an affiliate of the Company
or the Master Servicer.
With respect to the Mortgage Loans in a Mortgage Pool, except in the case
of a Designated Seller Transaction or as to Mortgage Loans underlying any
Mortgage Securities or unless otherwise specified in the related Prospectus
Supplement, the Company will make certain representations and warranties as to
the types and geographical concentrations of such Mortgage Loans and as to the
accuracy, in all material respects, of certain identifying information
furnished to the related Trustee in respect of each such Mortgage Loan (e.g.,
original Loan-to-Value Ratio, principal balance as of the Cut-off Date,
Mortgage Rate and maturity). Upon a breach of any such representation which
materially and adversely affects the interests of the Certificateholders in a
Mortgage Loan, the Company will be obligated to cure the breach in all
material respects, to purchase the Mortgage Loan at its Purchase Price or,
unless otherwise specified in the related Prospectus Supplement, to substitute
for such Mortgage Loan a Qualified Substitute Mortgage Loan in accordance with
the provisions for such substitution by Affiliated Sellers as described above
under "The Mortgage Pools-Representations by Sellers." However, the Company
will not be required to repurchase or substitute for any Mortgage Loan in
connection with a breach of a representation and warranty if the
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substance of any such breach also constitutes fraud in the origination of the
related Mortgage Loan. Unless otherwise specified in the related Prospectus
Supplement, this purchase or substitution obligation constitutes the sole
remedy available to Certificateholders or the Trustee for such a breach of
representation by the Company. Any Mortgage Loan not so purchased or
substituted for shall remain in the related Trust Fund.
Pursuant to the related Pooling Agreement, the Master Servicer for any
Mortgage Pool, either directly or through Subservicers, will service and
administer the Mortgage Loans included in such Mortgage Pool and assigned to
the related Trustee as more fully set forth under "Servicing of Mortgage
Loans." The Master Servicer will make certain representations and warranties
regarding its authority to enter into, and its ability to perform its
obligations under, the Pooling Agreement.
CERTIFICATE ACCOUNT
General. The Master Servicer and/or the Trustee will, as to each Trust
Fund, establish and maintain or cause to be established and maintained one or
more separate accounts for the collection of payments on the related Mortgage
Loans and/or Mortgage Securities constituting such Trust Fund (collectively,
the "Certificate Account"), which will be established so as to comply with the
standards of each Rating Agency that has rated any one or more classes of
Certificates of the related series. A Certificate Account may be maintained
either as an interest-bearing or a non-interest-bearing account, and the funds
held therein may be held as cash or invested in United States government
securities and other investment grade obligations specified in the related
Pooling Agreement ("Permitted Investments"). Such Permitted Investments will,
however, consist of investments only to the extent that such investments would
not require registration of a Trust Fund as an investment company under the
Investment Company Act of 1940, as amended. Unless otherwise provided in the
related Prospectus Supplement, any interest or other income earned on funds in
the Certificate Account will be paid to the related Master Servicer or Trustee
as additional compensation. If permitted by such Rating Agency or Agencies
and so specified in the related Prospectus Supplement, a Certificate Account
may contain funds relating to more than one series of mortgage pass-through
certificates and may contain other funds representing payments on mortgage
loans owned by the related Master Servicer or serviced by it on behalf of
others.
Deposits. Unless otherwise provided in the related Pooling Agreement and
described in the related Prospectus Supplement, the related Master Servicer,
Trustee or Special Servicer will be required to deposit or cause to be
deposited in the Certificate Account for each Trust Fund within a certain
period following receipt (in the case of collections and payments), the
following payments and collections received, or advances made, by the Master
Servicer, the Trustee or any Special Servicer subsequent to the Cut-off Date
with respect to the Mortgage Loans and/or Mortgage Securities in such Trust
Fund (other than payments due on or before the Cut-off Date):
(i) all payments on account of principal, including principal
prepayments, on the Mortgage Loans;
(ii) all payments on account of interest on the Mortgage Loans,
including any default interest collected, in each case net of any portion
thereof retained by the Master Servicer, any Special Servicer or Sub-
Servicer as its servicing compensation or as compensation to the Trustee,
and further net of any Spread;
(iii) all payments on the Mortgage Securities;
(iv) all proceeds received under any hazard, title, primary
mortgage, FHA or other insurance policy that provides coverage with
respect to a particular Mortgaged Property or the related Mortgage Loan
(other than proceeds applied to the restoration of the property or
released to the related borrower in accordance with the customary
servicing practices of the Master Servicer (or, if applicable, a Special
Servicer) and/or the terms and conditions of the related Mortgage
(collectively, "Insurance Proceeds") and all other amounts received and
retained in connection with the liquidation of defaulted Mortgage Loans
or property acquired in respect thereof, by foreclosure or otherwise
("Liquidation Proceeds"), together with the net operating income (less
reasonable reserves for future
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expenses) derived from the operation of any Mortgaged Properties acquired
by the Trust Fund through foreclosure or otherwise;
(v) any amounts paid under any instrument or drawn from any fund
that constitutes credit enhancement for the related series of
Certificates as described under "Description of Credit Enhancement";
(vi) any advances made as described under "-Advances" below;
(vii) any Buydown Funds (and, if applicable, investment earnings
thereon) required to be paid to Certificateholders, as described below;
(viii) all proceeds of any Mortgage Loan or Mortgage Security
purchased (or, in the case of a substitution, certain amounts
representing a principal adjustment) by the Master Servicer, the Company,
a Seller or any other person pursuant to the terms of the related Pooling
Agreement as described under "The Mortgage Pools-Representations by
Sellers," "Servicing of Mortgage Loans-Realization Upon and Sale of
Defaulted Mortgage Loans," "-Assignment of Trust Fund Assets" above, "The
Pooling Agreement-Termination; Retirement of Certificates" and "Purchase
Obligations" (all of the foregoing, also "Liquidation Proceeds");
(ix) any amounts paid by the Master Servicer to cover Prepayment
Interest Shortfalls arising out of the prepayment of Mortgage Loans as
described under "Servicing of Mortgage Loans-Servicing and Other
Compensation and Payment of Expenses; Spread";
(x) to the extent that any such item does not constitute
additional servicing compensation to the Master Servicer or a Special
Servicer, any payments on account of modification or assumption fees,
late payment charges, Prepayment Premiums or Equity Participations on the
Mortgage Loans;
(xi) any amount required to be deposited by the Master Servicer or
the Trustee in connection with losses realized on investments for the
benefit of the Master Servicer or the Trustee, as the case may be, of
funds held in the Certificate Account; and
(xii) any other amounts required to be deposited in the Certificate
Account as provided in the related Pooling Agreement and described herein
or in the related Prospectus Supplement.
With respect to each Buydown Mortgage Loan, the Master Servicer will be
required to deposit the related Buydown Funds provided to it in a Buydown
Account which will comply with the requirements set forth herein with respect
to the Certificate Account. Unless otherwise specified in the related
Prospectus Supplement, the terms of all Buydown Mortgage Loans provide for the
contribution of Buydown Funds in an amount equal to or exceeding either (i)
the total payments to be made from such funds pursuant to the related buydown
plan or (ii) if such Buydown Funds are to be deposited on a discounted basis,
that amount of Buydown Funds which, together with investment earnings thereon
at a rate as will support the scheduled level of payments due under the
Buydown Mortgage Loan. Neither the Master Servicer nor the Company will be
obligated to add to any such discounted Buydown Funds any of its own funds
should investment earnings prove insufficient to maintain the scheduled level
of payments. To the extent that any such insufficiency is not recoverable
from the Mortgagor or, in an appropriate case, from the Seller, distributions
to Certificateholders may be affected. With respect to each Buydown Mortgage
Loan, the Master Servicer will be required monthly to withdraw from the
Buydown Account and deposit in the Certificate Account as described above the
amount, if any, of the Buydown Funds (and, if applicable, investment earnings
thereon) for each Buydown Mortgage Loan that, when added to the amount due
from the Mortgagor on such Buydown Mortgage Loan, equals the full monthly
payment which would be due on the Buydown Mortgage Loan if it were not subject
to the buydown plan. The Buydown Funds will in no event be a part of the
related Trust Fund.
If the Mortgagor on a Buydown Mortgage Loan prepays such Mortgage Loan in
its entirety during the Buydown Period, the Master Servicer will be required
to withdraw from the Buydown Account and remit
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to the Mortgagor or such other designated party in accordance with the related
buydown plan any Buydown Funds remaining in the Buydown Account. If a
prepayment by a Mortgagor during the Buydown Period together with Buydown
Funds will result in full prepayment of a Buydown Mortgage Loan, the Master
Servicer will generally be required to withdraw from the Buydown Account and
deposit in the Certificate Account the Buydown Funds and investment earnings
thereon, if any, which together with such prepayment will result in a
prepayment in full; provided that Buydown Funds may not be available to cover
a prepayment under certain Mortgage Loan programs. Any Buydown Funds so
remitted to the Master Servicer in connection with a prepayment described in
the preceding sentence will be deemed to reduce the amount that would be
required to be paid by the Mortgagor to repay fully the related Mortgage Loan
if the Mortgage Loan were not subject to the buydown plan. Any investment
earnings remaining in the Buydown Account after prepayment or after
termination of the Buydown Period will be remitted to the related Mortgagor or
such other designated party pursuant to the agreement relating to each Buydown
Mortgage Loan (the "Buydown Agreement"). If the Mortgagor defaults during the
Buydown Period with respect to a Buydown Mortgage Loan and the property
securing such Buydown Mortgage Loan is sold in liquidation (either by the
Master Servicer, the Primary Insurer, the insurer under the Mortgage Pool
Insurance Policy (the "Pool Insurer") or any other insurer), the Master
Servicer will be required to withdraw from the Buydown Account the Buydown
Funds and all investment earnings thereon, if any, and either deposit the same
in the Certificate Account or, alternatively, pay the same to the Primary
Insurer or the Pool Insurer, as the case may be, if the Mortgaged Property is
transferred to such insurer and such insurer pays all of the loss incurred in
respect of such default.
Withdrawals. Unless otherwise provided in the related Pooling Agreement
and described in the related Prospectus Supplement, a Master Servicer, Trustee
or Special Servicer may make withdrawals from the Certificate Account for each
Trust Fund for any of the following purposes:
(i) to make distributions to the related Certificateholders on
each Distribution Date;
(ii) to reimburse the Master Servicer or any other specified
person for unreimbursed amounts advanced by it as described under "-
Advances" below in respect of Mortgage Loans in the Trust Fund, such
reimbursement to be made out of amounts received which were identified
and applied by the Master Servicer as late collections of interest (net
of related servicing fees) on and principal of the particular Mortgage
Loans with respect to which the advances were made or out of amounts
drawn under any form of credit enhancement with respect to such Mortgage
Loans;
(iii) to reimburse the Master Servicer or a Special Servicer for
unpaid servicing fees earned by it and certain unreimbursed servicing
expenses incurred by it with respect to Mortgage Loans in the Trust Fund
and properties acquired in respect thereof, such reimbursement to be made
out of amounts that represent Liquidation Proceeds and Insurance Proceeds
collected on the particular Mortgage Loans and properties, and net income
collected on the particular properties, with respect to which such fees
were earned or such expenses were incurred or out of amounts drawn under
any form of credit enhancement with respect to such Mortgage Loans and
properties;
(iv) to reimburse the Master Servicer or any other specified
person for any advances described in clause (ii) above made by it and any
servicing expenses referred to in clause (iii) above incurred by it
which, in the good faith judgment of the Master Servicer or such other
person, will not be recoverable from the amounts described in clauses
(ii) and (iii), respectively, such reimbursement to be made from amounts
collected on other Mortgage Loans in the Trust Fund or, if and to the
extent so provided by the related Pooling Agreement and described in the
related Prospectus Supplement, only from that portion of amounts
collected on such other Mortgage Loans that is otherwise distributable on
one or more classes of Subordinate Certificates of the related series;
(v) if and to the extent described in the related Prospectus
Supplement, to pay the Master Servicer, a Special Servicer or another
specified entity (including a provider of credit enhancement) interest
accrued on the advances described in clause (ii) above made by it and the
servicing expenses described in clause (iii) above incurred by it while
such remain outstanding and unreimbursed;
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(vi) to pay for costs and expenses incurred by the Trust Fund for
environmental site assessments performed with respect to Multifamily
Properties that constitute security for defaulted Mortgage Loans, and for
any containment, clean-up or remediation of hazardous wastes and
materials present on such Mortgaged Properties, as described under
"Servicing of Mortgage Loans-Realization Upon or Sale of Defaulted
Mortgage Loans";
(vii) to reimburse the Master Servicer, the Company, or any of
their respective directors, officers, employees and agents, as the case
may be, for certain expenses, costs and liabilities incurred thereby, as
and to the extent described under "The Pooling Agreement-Certain Matters
Regarding the Master Servicer and the Company";
(viii) if and to the extent described in the related Prospectus
Supplement, to pay the fees of the Trustee;
(ix) to reimburse he Trustee or any of its directors, officers,
employees and agents, as the case may be, for certain expenses, costs and
liabilities incurred thereby, as and to the extent described under "The
Pooling Agreement-Certain Matters Regarding the Trustee";
(x) to pay the Master Servicer or the Trustee, as additional
compensation, interest and investment income earned in respect of amounts
held in the Certificate Account;
(xi) to pay (generally from related income) for costs incurred in
connection with the operation, management and maintenance of any
Mortgaged Property acquired by the Trust Fund by foreclosure or
otherwise;
(xii) if one or more elections have been made to treat the Trust
Fund or designated portions thereof as a REMIC, to pay any federal, state
or local taxes imposed on the Trust Fund or its assets or transactions,
as and to the extent described under "Federal Income Tax Consequences-
REMICS-Prohibited Transactions and Other Possible REMIC Taxes";
(xiii) to pay for the cost of an independent appraiser or other
expert in real estate matters retained to determine a fair sale price for
a defaulted Mortgage Loan or a property acquired in respect thereof in
connection with the liquidation of such Mortgage Loan or property;
(xiv) to pay for the cost of various opinions of counsel obtained
pursuant to the related Pooling Agreement for the benefit of the related
Certificateholders;
(xv) to pay to itself, the Company, a Seller or any other
appropriate person all amounts received with respect to each Mortgage
Loan purchased, repurchased or removed from the Trust Fund pursuant to
the terms of the related Pooling Agreement and not required to be
distributed as of the date on which the related Purchase Price is
determined;
(xvi) to make any other withdrawals permitted by the related
Pooling Agreement and described in the related Prospectus Supplement; and
(xvii) to clear and terminate the Certificate Account upon the
termination of the Trust Fund.
DISTRIBUTIONS
Distributions on the Certificates of each series will be made by or
on behalf of the related Trustee or Master Servicer on each Distribution
Date as specified in the related Prospectus Supplement from the Available
Distribution Amount for such series and such Distribution Date. Unless
otherwise provided in the related Prospectus Supplement, the "Available
Distribution Amount" for any series of Certificates and any Distribution
Date will refer to the total of all payments or other collections (or
advances in lieu thereof) on, under or in respect of the Mortgage Loans
and/or Mortgage Securities and any other assets included in the
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related Trust Fund that are available for distribution to the
Certificateholders of such series on such date. The particular
components of the Available Distribution Amount for any series on each
Distribution Date will be more specifically described in the related
Prospectus Supplement.
Except as otherwise specified in the related Prospectus Supplement,
distributions on the Certificates of each series (other than the final
distribution in retirement of any such Certificate) will be made to the
persons in whose names such Certificates are registered at the close of
business on the last business day of the month preceding the month in
which the applicable Distribution Date occurs (the "Record Date"), and
the amount of each distribution will be determined as of the close of
business on the date (the "Determination Date") specified in the related
Prospectus Supplement. All distributions with respect to each class of
Certificates on each Distribution Date will be allocated pro rata among
the outstanding Certificates in such class, Payments will be made either
by wire transfer in immediately available funds to the account of a
Certificateholder at a bank or other entity having appropriate facilities
therefor, if such Certificateholder has provided the Trustee or other
person required to make such payments with wiring instructions no later
than five business days prior to the related Record Date or such other
date specified in the related Prospectus Supplement (and, if so provided
in the related Prospectus Supplement, such Certificateholder holds
Certificates in the requisite amount or denomination specified therein),
or by check mailed to the address of such Certificateholder as it appears
on the Certificate Register; provided, however, that the final
distribution in retirement of any class of Certificates will be made only
upon presentation and surrender of such Certificates at the location
specified in the notice to Certificateholders of such final distribution.
DISTRIBUTIONS OF INTEREST AND PRINCIPAL ON THE CERTIFICATES
Each class of Certificates of each series (other than certain
classes of Strip Certificates and certain REMIC Residual Certificates
that have no Pass-Through Rate) may have a different Pass-Through Rate,
which may be fixed, variable or adjustable, or any combination of two or
more such rates. The related Prospectus Supplement will specify the
Pass-Through Rate or, in the case of a variable or adjustable Pass-
Through Rate, the method for determining the Pass-Through Rate, for each
class. Unless otherwise specified in the related Prospectus Supplement,
interest on the Certificates of each series will be calculated on the
basis of a 360-day year consisting of twelve 30-day months.
Distributions of interest in respect of the Certificates of any
class (other than any class of Certificates that will be entitled to
distributions of accrued interest commencing only on the Distribution
Date, or under the circumstances, specified in the related Prospectus
Supplement ("Accrual Certificates"), and other than any class of Strip
Certificates or REMIC Residual Certificates that is not entitled to any
distributions of interest) will be made on each Distribution Date based
on the Accrued Certificate Interest for such class and such Distribution
Date, subject to the sufficiency of the portion of the Available
Distribution Amount allocable to such class on such Distribution Date.
Prior to the time interest is distributable on any class of Accrual
Certificates, the amount of Accrued Certificate Interest otherwise
distributable on such class will be added to the principal balance
thereof on each Distribution Date. With respect to each class of
Certificates (other than certain classes of Strip Certificates and REMIC
Residual Certificates), "Accrued Certificate Interest" for each
Distribution Date will be equal to interest at the applicable Pass-
Through Rate accrued for a specified period (generally one month) on the
outstanding principal balance thereof immediately prior to such
Distribution Date. Unless otherwise provided in the related Prospectus
Supplement, Accrued Certificate Interest for each Distribution Date on
Strip Certificates entitled to distributions of interest will be
similarly calculated except that it will accrue on a notional amount that
is either (i) based on the principal balances of some or all of the
Mortgage Loans and/or Mortgage Securities in the related Trust Fund or
(ii) equal to the principal balances of one or more other classes of
Certificates of the same series. Reference to such a notional amount
with respect to a class of Strip Certificates is solely for convenience
in making certain calculations and does not represent the right to
receive any distribution of principal. If so specified in the related
Prospectus Supplement, the amount of Accrued Certificate Interest that is
otherwise distributable on (or, in the case of Accrual Certificates, that
may otherwise be added to the principal balance of) one or more classes
of the Certificates of a series will be reduced to the extent that any
Prepayment Interest Shortfalls, as described under "Yield
Considerations", exceed the amount of any sums (including, if and to the
extent specified in the related Prospectus Supplement, the Master
Servicer's servicing compensation) that are applied to offset such
shortfalls. The particular manner in which such shortfalls will be
allocated among some or all
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of the classes of Certificates of that series will be specified in the
related Prospectus Supplement. The related Prospectus Supplement will
also describe the extent to which the amount of Accrued Certificate
Interest that is otherwise distributable on (or, in the case of Accrual
Certificates, that may otherwise be added to the principal balance of) a
class of Offered Certificates may be reduced as a result of any other
contingencies, including delinquencies, losses and Deferred Interest on
or in respect of the related Mortgage Loans or application of the Relief
Act with respect to such Mortgage Loans. Unless otherwise provided in
the related Prospectus Supplement, any reduction in the amount of Accrued
Certificate Interest otherwise distributable on a class of Certificates
by reason of the allocation to such class of a portion of any Deferred
Interest on or in respect of the related Mortgage Loans will result in a
corresponding increase in the principal balance of such class.
As and to the extent described in the related Prospectus Supplement,
distributions of principal with respect to a series of Certificates will
be made on each Distribution Date to the holders of the class or classes
of Certificates of such series entitled thereto until the principal
balance(s) of such Certificates have been reduced to zero. In the case
of a series of Certificates which includes two or more classes of
Certificates, 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 Certificates or
Subordinate Certificates), shall be as set forth in the related
Prospectus Supplement. Distributions of principal with respect to one or
more classes of Certificates may be made at a rate that is faster (and,
in some cases, substantially faster) than the rate at which payments or
other collections of principal are received on the Mortgage Loans and/or
Mortgage Securities in the related Trust Fund, may not commence until the
occurrence of certain events, such as the retirement of one or more other
classes of Certificates of the same series, or may be made at a rate that
is slower (and, in some cases, substantially slower) than the rate at
which payments or other collections of principal are received on such
Mortgage Loans and/or Mortgage Securities. In addition, distributions of
principal with respect to one or more classes of Certificates may be
made, subject to available funds, based on a specified principal payment
schedule and, with respect to one or more classes of Certificates, may be
contingent on the specified principal payment schedule for another class
of the same series and the rate at which payments and other collections
of principal on the Mortgage Loans and/or Mortgage Securities in the
related Trust Fund are received.
DISTRIBUTIONS ON THE CERTIFICATES IN RESPECT OF PREPAYMENT PREMIUMS OR IN
RESPECT OF EQUITY PARTICIPATIONS
If so provided in the related Prospectus Supplement, Prepayment
Premiums or payments in respect of Equity Participations received on or
in connection with the Mortgage Assets in any Trust Fund will be
distributed on each Distribution Date to the holders of the class of
Certificates of the related series entitled thereto in accordance with
the provisions described in such Prospectus Supplement. "Equity
Participations" are financial participations in the equity portions of
mortgage pools.
ALLOCATION OF LOSSES AND SHORTFALLS
The amount of any losses or shortfalls in collections on the
Mortgage Loans and/or Mortgage Securities in any Trust Fund (to the
extent not covered or offset by draws on any reserve fund or under any
instrument of credit enhancement) will be allocated among the respective
classes of Certificates of the related series in the priority and manner,
and subject to the limitations, specified in the related Prospectus
Supplement. As described in the related Prospectus Supplement, such
allocations may result in reductions in the entitlements to interest
and/or principal balances of one or more such classes of Certificates, or
may be effected simply by a prioritization of payments among such classes
of Certificates.
ADVANCES
If and to the extent provided in the related Prospectus Supplement,
and subject to any limitations specified therein, the related Master
Servicer may be obligated to advance, or have the option of advancing, on
or before each Distribution Date, from its or their own funds or from
excess funds held in the related Certificate Account that are not part of
the Available Distribution Amount for the related series of Certificates
for such Distribution Date, an amount up to the aggregate of any payments
of principal (other than the principal portion of any Balloon Payments)
and interest that were due on or in respect of such
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Mortgage Loans during the related Due Period and were delinquent on the
related Determination Date. Unless otherwise provided in the related
Prospectus Supplement, a "Due Period" is the period between Distribution
Dates, and scheduled payments on the Mortgage Loans in any Trust Fund
that became due during a given Due Period will, to the extent received by
the related Determination Date or advanced by the related Master Servicer
or other specified person, be distributed on the Distribution Date next
succeeding such Determination Date.
Advances are intended to maintain a regular flow of scheduled
interest and principal payments to holders of the class or classes of
Certificates entitled thereto, rather than to guarantee or insure against
losses. Accordingly, all advances made from the Master Servicer's own
funds will be reimbursable out of related recoveries on the Mortgage
Loans (including amounts received under any fund or instrument
constituting credit enhancement) respecting which such advances were made
(as to any Mortgage Loan, "Related Proceeds") and such other specific
sources as may be identified in the related Prospectus Supplement,
including in the case of a series that includes one or more classes of
Subordinate Certificates, collections on other Mortgage Loans in the
related Trust Fund that would otherwise be distributable to the holders
of one or more classes of such Subordinate Certificates. No advance will
be required to be made by the Master Servicer if, in the good faith
judgment of the Master Servicer, such advance would not be recoverable
from Related Proceeds or another specifically identified source (any such
advance, a "Nonrecoverable Advance"); and, if previously made by a Master
Servicer, a Nonrecoverable Advance will be reimbursable from any amounts
in the related Certificate Account prior to any distributions being made
to the related series of Certificateholders.
If advances have been made from excess funds in a Certificate
Account, the Master Servicer that advanced such funds will be required to
replace such funds in the Certificate Account on any future Distribution
Date to the extent that funds then in the Certificate Account are
insufficient to permit full distributions to Certificateholders on such
date. If so specified in the related Prospectus Supplement, the
obligation of a Master Servicer to make advances may be secured by a cash
advance reserve fund or a surety bond. If applicable, information
regarding the characteristics of, and the identity of any obligor on, any
such surety bond, will be set forth in the related Prospectus Supplement.
If any person other than the Master Servicer has any obligation to
make advances as described above, the related Prospectus Supplement will
identify such person.
If and to the extent so provided in the related Prospectus
Supplement, any entity making advances will be entitled to receive
interest thereon for the period that such advances are outstanding at the
rate specified in such Prospectus Supplement, and such entity will be
entitled to payment of such interest periodically from general
collections on the Mortgage Loans in the related Trust Fund prior to any
payment to Certificateholders or as otherwise provided in the related
Pooling Agreement and described in such Prospectus Supplement.
As specified in the related Prospectus Supplement with respect to
any series of Certificates as to which the Trust Fund includes Mortgage
Securities, the advancing obligations with respect to the underlying
Mortgage Loans will be pursuant to the terms of such Mortgage Securities,
as may be supplemented by the terms of the applicable Pooling Agreement,
and may differ from the provisions described above.
REPORTS TO CERTIFICATEHOLDERS
With each distribution to Certificateholders of a particular class
of Offered Certificates, the related Master Servicer or Trustee will
forward or cause to be forwarded to each holder of record of such class
of Certificates a statement or statements with respect to the related
Trust Fund setting forth the information specifically described in the
related Pooling Agreement, which generally will include the following as
applicable except as otherwise provided therein:
(i) the amount, if any, of such distribution allocable to
principal;
(ii) the amount, if any, of such distribution allocable to
interest;
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(iii) the amount, if any, of such distribution allocable to (A)
Prepayment Premiums and (B) payments on account of Equity Participations;
(iv) with respect to a series consisting of two or more classes,
the outstanding principal balance or notional amount of each class after
giving effect to the distribution of principal on such Distribution Date;
(v) the amount of servicing compensation received by the related
Master Servicer (and, if payable directly out of the related Trust Fund,
by any Special Servicer and any Sub-Servicer);
(vi) the aggregate amount of advances included in the
distributions on such Distribution Date, and the aggregate amount of
unreimbursed advances at the close of business on such Distribution Date;
(vii) the aggregate principal balance of the Mortgage Loans in the
related Mortgage Pool on, or as of a specified date shortly prior to,
such Distribution Date;
(viii) the number and aggregate principal balance of any Mortgage
Loans in the related Mortgage Pool in respect of which (A) one scheduled
payment is delinquent, (B) two scheduled payments are delinquent, (C)
three or more scheduled payments are delinquent and (D) foreclosure
proceedings have been commenced;
(ix) the book value of any real estate acquired by such Trust Fund
through foreclosure or grant of a deed in lieu of foreclosure;
(x) the balance of the Reserve Fund, if any, at the close of
business on such Distribution Date;
(xi) the amount of coverage under any Letter of Credit or Mortgage
Pool Insurance Policy covering default risk as of the close of business
on the applicable Determination Date and a description of any credit
enhancement substituted therefor;
(xii) the Special Hazard Amount, Fraud Loss Amount and Bankruptcy
Amount as of the close of business on the applicable Distribution Date
and a description of any change in the calculation of such amounts;
(xiii) in the case of Certificates benefiting from alternative
credit enhancement arrangements described in a Prospectus Supplement, the
amount of coverage under such alternative arrangements as of the close of
business on the applicable Determination Date; and
(xiv) with respect to any series of Certificates as to which the
Trust Fund includes Mortgage Securities, certain additional information
as required under the related Pooling Agreement and specified in the
related Prospectus Supplement.
In the case of information furnished pursuant to subclauses (i)-(iii)
above, the amounts will be expressed as a dollar amount per minimum
denomination of the relevant class of Offered Certificates or per a specified
portion of such minimum denomination. In addition to the information
described above, reports to Certificateholders will contain such other
information as is set forth in the applicable Pooling Agreement, which may
include, without limitation, prepayments, reimbursements to Subservicers and
the Master Servicer and losses borne by the related Trust Fund.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer or Trustee will furnish a report to each
holder of record of a class of Offered Certificates at any time during such
calendar year which, among other things, will include information as to the
aggregate of amounts reported pursuant to subclauses (i)-(iii) above for such
calendar year or, in the event such person was a holder
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of record of a class of Certificates during a portion of such calendar year,
for the applicable portion of such a year.
DESCRIPTION OF CREDIT ENHANCEMENT
GENERAL
Unless otherwise provided in the applicable Prospectus Supplement, credit
support with respect to the Offered Certificates of each series may be
comprised of one or more of the following components. Each component will
have a dollar limit and, unless otherwise specified in the related Prospectus
Supplement, will provide coverage with respect to certain losses on the
related Mortgage Loans (as more particularly described in the related
Prospectus Supplement, "Realized Losses") that are (i) attributable to the
Mortgagor's failure to make any payment of principal or interest as required
under the Mortgage Note, but not including Special Hazard Losses,
Extraordinary Losses or other losses resulting from damage to a Mortgaged
Property, Bankruptcy Losses or Fraud Losses (any such loss, a "Defaulted
Mortgage Loss"); (ii) of a type generally covered by a Special Hazard
Insurance Policy (as defined below) (any such loss, a "Special Hazard Loss");
(iii) attributable to certain actions which may be taken by a bankruptcy court
in connection with a Mortgage Loan, including a reduction by a bankruptcy
court of the principal balance of or the Mortgage Rate on a Mortgage Loan or
an extension of its maturity (any such loss, a "Bankruptcy Loss"); and (iv)
incurred on defaulted Mortgage Loans as to which there was fraud in the
origination of such Mortgage Loans (any such loss, a "Fraud Loss"). Unless
otherwise specified in the related Prospectus Supplement, Defaulted Mortgage
Losses, Special Hazard Losses, Bankruptcy Losses and Fraud Losses in excess of
the amount of coverage provided therefor and losses occasioned by war, civil
insurrection, certain governmental actions, nuclear reaction and certain other
risks ("Extraordinary Losses") will not be covered. To the extent that the
credit support for the Offered Certificates of any series is exhausted, the
holders thereof will bear all further risks of loss not otherwise insured
against.
As set forth below and in the applicable Prospectus Supplement, (i)
coverage with respect to Defaulted Mortgage Losses may be provided by one or
more of a Letter of Credit or a Mortgage Pool Insurance Policy, (ii) coverage
with respect to Special Hazard Losses may be provided by one or more of a
Letter of Credit or a Special Hazard Insurance Policy (any instrument, to the
extent providing such coverage, a "Special Hazard Instrument"), (iii) coverage
with respect to Bankruptcy Losses may be provided by one or more of a Letter
of Credit or a Bankruptcy Bond and (iv) coverage with respect to Fraud Losses
may be provided by one or more of a Letter of Credit, Mortgage Pool Insurance
Policy or mortgage repurchase bond. In addition, if provided in the
applicable Prospectus Supplement, in lieu of or in addition to any or all of
the foregoing arrangements, credit enhancement may be in the form of a Reserve
Fund to cover such losses, in the form of subordination of one or more classes
of Subordinate Certificates to provide credit support to one or more classes
of Senior Certificates, or in the form of a specified entity's agreement to
repurchase certain Mortgage Loans or fund certain losses pursuant to a
Purchase Obligation, which obligations may be supported by a Letter of Credit,
surety bonds or other types of insurance policies, certain other secured or
unsecured corporate guarantees or in such other form as may be described in
the related Prospectus Supplement, or in the form of a combination of two or
more of the foregoing. The credit support may be provided by an assignment of
the right to receive certain cash amounts, a deposit of cash into a Reserve
Fund or other pledged assets, or by banks, insurance companies, guarantees or
any combination thereof identified in the applicable Prospectus Supplement.
The amounts and type of credit enhancement arrangement as well as the
provider thereof, if applicable, with respect to the Offered Certificates of
each series will be set forth in the related Prospectus Supplement. To the
extent provided in the applicable Prospectus Supplement and the Pooling
Agreement, the credit enhancement arrangements may be periodically modified,
reduced and substituted for based on the aggregate outstanding principal
balance of the Mortgage Loans covered thereby. See "Description of Credit
Enhancement-Reduction or Substitution of Credit Enhancement." If specified in
the applicable Prospectus Supplement, credit support for the Offered
Certificates of one series may cover the Offered Certificates of one or more
other series.
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The descriptions of any insurance policies or bonds described in this
Prospectus or any Prospectus Supplement and the coverage thereunder, while
setting forth the material terms thereof, 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.
In general, references to "Mortgage Loans" under this "Description of
Credit Enhancement" section are to Mortgage Loans in a Trust Fund. However,
if so provided in the Prospectus Supplement for a series of Certificates, any
Mortgage Securities included in the related Trust Fund and/or the related
underlying Mortgage Loans may be covered by one or more of the types of credit
support described herein. The related Prospectus Supplement will specify, as
to each such form of credit support, the information indicated below with
respect thereto.
SUBORDINATE CERTIFICATES
If so specified in the related Prospectus Supplement, one or more classes
of Certificates of a series may be Subordinate Certificates. To the extent
specified in the related Prospectus Supplement, the rights of the holders of
Subordinate Certificates to receive distributions from the Certificate Account
on any Distribution Date will be subordinated to the corresponding rights of
the holders of Senior Certificates. If so provided in the related Prospectus
Supplement, the subordination of a class may apply only in the event of (or
may be limited to) certain types of losses or shortfalls. The related
Prospectus Supplement will set forth information concerning the manner and
amount of subordination provided by a class or classes of Subordinate
Certificates in a series and the circumstances under which such subordination
will be available. The Offered Certificates of any series may include one or
more classes of Subordinate Certificates.
If the Mortgage Loans and/or Mortgage Securities in any Trust Fund are
divided into separate groups, each supporting a separate class or classes of
Certificates of the related series, credit enhancement may be provided by
cross-support provisions requiring that distributions be made on Senior
Certificates evidencing interests in one group of Mortgage Loans and/or
Mortgage Securities prior to distributions on Subordinate Certificates
evidencing interests in a different group of Mortgage Loans and/or Mortgage
Securities within the Trust Fund. The Prospectus Supplement for a series that
includes a cross-support provision will describe the manner and conditions for
applying such provisions.
LETTER OF CREDIT
If any component of credit enhancement as to the Offered Certificates of
any series is to be provided by a letter of credit (the "Letter of Credit"), a
bank (the "Letter of Credit Bank") will deliver to the related Trustee an
irrevocable Letter of Credit. The Letter of Credit may provide direct
coverage with respect to the Mortgage Loans or, if specified in the related
Prospectus Supplement, support an entity's obligation pursuant to a Purchase
Obligation to make certain payments to the related Trustee with respect to one
or more components of credit enhancement. The Letter of Credit Bank, as well
as the amount available under the Letter of Credit with respect to each
component of credit enhancement, will be specified in the applicable
Prospectus Supplement. If so specified in the related Prospectus Supplement,
the Letter of Credit may permit draws only in the event of certain types of
losses and shortfalls. The Letter of Credit may also provide for the payment
of advances which the Master Servicer would be obligated to make with respect
to delinquent monthly mortgage payments. The amount available under the
Letter of Credit will, in all cases, be reduced to the extent of the
unreimbursed payments thereunder and may otherwise be reduced as described in
the related Prospectus Supplement. The Letter of Credit will expire on the
expiration date set forth in the related Prospectus Supplement, unless earlier
terminated or extended in accordance with its terms.
MORTGAGE POOL INSURANCE POLICIES
Any mortgage pool insurance policy (a "Mortgage Pool Insurance Policy")
obtained by the Company for each Trust Fund will be issued by the Pool Insurer
named in the applicable Prospectus Supplement. Each Mortgage Pool Insurance
Policy will, subject to the limitations described below, cover Defaulted
Mortgage Losses in an amount equal to a percentage specified in the applicable
Prospectus Supplement of the aggregate principal balance of the Mortgage Loans
on the Cut-off Date. As set forth under "-Maintenance of Credit
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Enhancement," the Master Servicer will use reasonable efforts to maintain the
Mortgage Pool Insurance Policy and to present claims thereunder to the Pool
Insurer on behalf of itself, the related Trustee and the related
Certificateholders. The Mortgage Pool Insurance Policies, however, are not
blanket policies against loss, since claims thereunder may only be made
respecting particular defaulted Mortgage Loans and only upon satisfaction of
certain conditions precedent described below. Unless specified in the related
Prospectus Supplement, the Mortgage Pool Insurance Policies may not cover
losses due to a failure to pay or denial of a claim under a Primary Insurance
Policy, irrespective of the reason therefor.
Each Mortgage Pool Insurance Policy will generally provide that no claims
may be validly presented thereunder unless, among other things, (i) any
required Primary Insurance Policy is in effect for the defaulted Mortgage Loan
and a claim thereunder has been submitted and settled, (ii) hazard insurance
on the property securing such Mortgage Loan has been kept in force and real
estate taxes and other protection and preservation expenses have been paid by
the Master Servicer, (iii) if there has been physical loss or damage to the
Mortgaged Property, it has been restored to its condition (reasonable wear and
tear excepted) at the Cut-off Date and (iv) the insured has acquired good and
merchantable title to the Mortgaged Property free and clear of liens except
certain permitted encumbrances. Upon satisfaction of these conditions, the
Pool Insurer will have the option either (a) to purchase the property securing
the defaulted Mortgage Loan at a price equal to the principal balance thereof
plus accrued and unpaid interest at the applicable Mortgage Rate to the date
of purchase and certain expenses incurred by the Master Servicer, Special
Servicer or Subservicer on behalf of the related Trustee and
Certificateholders, or (b) to pay the amount by which the sum of the principal
balance of the defaulted Mortgage Loan plus accrued and unpaid interest at the
Mortgage Rate to the date of payment of the claim and the aforementioned
expenses exceeds the proceeds received from an approved sale of the Mortgaged
Property, in either case net of certain amounts paid or assumed to have been
paid under any related Primary Insurance Policy. Certificateholders will
experience a shortfall in the amount of interest payable on the related
Certificates in connection with the payment of claims under a Mortgage Pool
Insurance Policy because the Pool Insurer is only required to remit unpaid
interest through the date a claim is paid rather than through the end of the
month in which such claim is paid. In addition, the Certificateholders will
also experience losses with respect to the related Certificates in connection
with payments made under a Mortgage Pool Insurance Policy to the extent that
the Master Servicer expends funds to cover unpaid real estate taxes or to
repair the related Mortgaged Property in order to make a claim under a
Mortgage Pool Insurance Policy, as those amounts will not be covered by
payments under such policy and will be reimbursable to the Master Servicer
from funds otherwise payable to the Certificateholders. If any Mortgaged
Property securing a defaulted Mortgage Loan is damaged and proceeds, if any
(see "-Special Hazard Insurance Policies" below for risks which are not
covered by such policies), from the related hazard insurance policy or
applicable Special Hazard Instrument are insufficient to restore the damaged
property to a condition sufficient to permit recovery under the Mortgage Pool
Insurance Policy, the Master Servicer is not required to expend its own funds
to restore the damaged property unless it determines (x) that such restoration
will increase the proceeds to one or more classes of Certificateholders on
liquidation of the Mortgage Loan after reimbursement of the Master Servicer
for its expenses and (y) that such expenses will be recoverable by it through
Liquidation Proceeds or Insurance Proceeds.
Unless otherwise specified in the related Prospectus Supplement, a
Mortgage Pool Insurance Policy (and certain Primary Insurance Policies) will
likely not insure against loss sustained by reason of a default arising from,
among other things, (i) fraud or negligence in the origination or servicing of
a Mortgage Loan, including misrepresentation by the Mortgagor, the Seller or
other persons involved in the origination thereof, or (ii) failure to
construct a Mortgaged Property in accordance with plans and specifications.
Depending upon the nature of the event, a breach of representation made by a
Seller may also have occurred. Such a breach, if it materially and adversely
affects the interests of Certificateholders and cannot be cured, would give
rise to a purchase obligation on the part of the Seller, as more fully
described under "The Mortgage Pools-Representations by Sellers." However,
such an event would not give rise to a breach of a representation and warranty
or a purchase obligation on the part of the Company or Master Servicer.
The original amount of coverage under each Mortgage Pool Insurance Policy
will be reduced over the life of the related series of Certificates by the
aggregate dollar amount of claims paid less the aggregate of the net amounts
realized by the Pool Insurer upon disposition of all foreclosed properties.
The amount of claims paid includes certain expenses incurred by the Master
Servicer, Special Servicer or Subservicer as
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well as accrued interest on delinquent Mortgage Loans to the date of payment
of the claim. Accordingly, if aggregate net claims paid under any Mortgage
Pool Insurance Policy reach the original policy limit, coverage under that
Mortgage Pool Insurance Policy will be exhausted and any further losses will
be borne by holders of the related series of Certificates. In addition,
unless the Master Servicer could determine that an advance in respect of a
delinquent Mortgage Loan would be recoverable to it from the proceeds of the
liquidation of such Mortgage Loan or otherwise, the Master Servicer would not
be obligated to make an advance respecting any such delinquency since the
advance would not be ultimately recoverable to it from either the Mortgage
Pool Insurance Policy or from any other related source. See "Description of
the Certificates-Advances."
Since each Mortgage Pool Insurance Policy will require that the property
subject to a defaulted Mortgage Loan be restored to its original condition
prior to claiming against the Pool Insurer, such policy will not provide
coverage against hazard losses. As set forth under "Primary Mortgage
Insurance, Hazard Insurance; Claims Thereunder," the hazard policies covering
the Mortgage Loans typically exclude from coverage physical damage resulting
from a number of causes and, even when the damage is covered, may afford
recoveries which are significantly less than full replacement cost of such
losses. Further, no coverage in respect of Special Hazard Losses, Fraud
Losses or Bankruptcy Losses will cover all risks, and the amount of any such
coverage will be limited. See "-Special Hazard Insurance Policies" below. As
a result, certain hazard risks will not be insured against and will therefore
be borne by the related Certificateholders.
SPECIAL HAZARD INSURANCE POLICIES
Any insurance policy covering Special Hazard Losses (a "Special Hazard
Insurance Policy") obtained by the Company for a Trust Fund will be issued by
the insurer named in the applicable Prospectus Supplement. Each Special
Hazard Insurance Policy will, subject to limitations described below, protect
holders of the related series of Certificates from (i) losses due to direct
physical damage to a Mortgaged Property other than any loss of a type covered
by a hazard insurance policy or a flood insurance policy, if applicable, and
(ii) losses from partial damage caused by reason of the application of the co-
insurance clauses contained in hazard insurance policies ("Special Hazard
Losses"). See "Primary Mortgage Insurance, Hazard Insurance; Claims
Thereunder." However, a Special Hazard Insurance Policy will not cover losses
occasioned by war, civil insurrection, certain governmental actions, errors in
design, faulty workmanship or materials (except under certain circumstances),
nuclear reaction, chemical contamination, waste by the Mortgagor and certain
other risks. Aggregate claims under a Special Hazard Insurance Policy will be
limited to the amount set forth in the related Prospectus Supplement and will
be subject to reduction as described in such related Prospectus Supplement. A
Special Hazard Insurance Policy will provide that no claim may be paid unless
hazard and, if applicable, flood insurance on the property securing the
Mortgage Loan has been kept in force and other protection and preservation
expenses have been paid by the Master Servicer.
Subject to the foregoing limitations, a Special Hazard Insurance Policy
will provide that, where there has been damage to property securing a
foreclosed Mortgage Loan (title to which has been acquired by the insured) and
to the extent such damage is not covered by the hazard insurance policy or
flood insurance policy, if any, maintained by the Mortgagor or the Master
Servicer, Special Servicer or the Subservicer, the insurer will pay the lesser
of (i) the cost of repair or replacement of such property or (ii) upon
transfer of the property to the insurer, the unpaid principal balance of such
Mortgage Loan at the time of acquisition of such property by foreclosure or
deed in lieu of foreclosure, plus accrued interest at the Mortgage Rate to the
date of claim settlement and certain expenses incurred by the Master Servicer,
Special Servicer or Subservicer with respect to such property. If the
property is transferred to a third party in a sale approved by the issuer of
the Special Hazard Insurance Policy (the "Special Hazard Insurer"), the amount
that the Special Hazard Insurer will pay will be the amount under (ii) above
reduced by the net proceeds of the sale of the property. No claim may be
validly presented under the Special Hazard Insurance Policy unless hazard
insurance on the property securing a defaulted Mortgage Loan has been kept in
force and other reimbursable protection, preservation and foreclosure expenses
have been paid (all of which must be approved in advance by the Special Hazard
Insurer). If the unpaid principal balance plus accrued interest and certain
expenses is paid by the insurer, the amount of further coverage under the
related Special Hazard Insurance Policy will be reduced by such amount less
any net proceeds from the sale of the property. Any amount paid as the cost
of repair of the property will further reduce coverage by such amount.
Restoration of the property with the proceeds described under (i) above will
satisfy the condition under each Mortgage Pool Insurance Policy that the
property be restored
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before a claim under such Mortgage Pool Insurance Policy may be validly
presented with respect to the defaulted Mortgage Loan secured by such
property. The payment described under (ii) above will render presentation of
a claim in respect of such Mortgage Loan under the related Mortgage Pool
Insurance Policy unnecessary. Therefore, so long as a Mortgage Pool Insurance
Policy remains in effect, the payment by the insurer under a Special Hazard
Insurance Policy of the cost of repair or of the unpaid principal balance of
the related Mortgage Loan plus accrued interest and certain expenses will not
affect the total Insurance Proceeds paid to Certificateholders, but will
affect the relative amounts of coverage remaining under the related Special
Hazard Insurance Policy and Mortgage Pool Insurance Policy.
As and to the extent set forth in the applicable Prospectus Supplement,
coverage in respect of Special Hazard Losses for a series of Certificates may
be provided, in whole or in part, by a type of Special Hazard Instrument other
than a Special Hazard Insurance Policy or by means of the special hazard
representation of the Company.
BANKRUPTCY BONDS
In the event of a personal bankruptcy of a Mortgagor, it is possible that
the bankruptcy court may establish the value of the Mortgaged Property of such
Mortgagor at an amount less than the then outstanding principal balance of the
Mortgage Loan secured by such Mortgaged Property (a "Deficient Valuation").
The amount of the secured debt could then be reduced to such value, and, thus,
the holder of such Mortgage Loan would become an unsecured creditor to the
extent the outstanding principal balance of such Mortgage Loan exceeds the
value assigned to the Mortgaged Property by the bankruptcy court. In
addition, certain other modifications of the terms of a Mortgage Loan can
result from a bankruptcy proceeding, including a reduction in the amount of
the Monthly Payment on the related Mortgage Loan (a "Debt Service Reduction";
Debt Service Reductions and Deficient Valuations, collectively referred to
herein as Bankruptcy Losses). See "Certain Legal Aspects of Mortgage Loans
and Related Matters-Anti-Deficiency Legislation and Other Limitations on
Lenders." Any Bankruptcy Bond to provide coverage for Bankruptcy Losses for
proceedings under the Federal Bankruptcy Code obtained by the Company for a
Trust Fund will be issued by an insurer named in the applicable Prospectus
Supplement. The level of coverage under each Bankruptcy Bond will be set
forth in the applicable Prospectus Supplement.
RESERVE FUNDS
If so provided in the related Prospectus Supplement, the Company will
deposit or cause to be deposited in an account (a "Reserve Fund") any
combination of cash, one or more irrevocable letters of credit or one or more
Permitted Investments in specified amounts, or any other instrument
satisfactory to the relevant Rating Agency or Agencies, which will be applied
and maintained in the manner and under the conditions specified in such
Prospectus Supplement. In the alternative or in addition to such deposit, to
the extent described in the related Prospectus Supplement, a Reserve Fund may
be funded through application of all or a portion of amounts otherwise payable
on any related Subordinate Certificates, from the Spread or otherwise. To the
extent that the funding of the Reserve Fund is dependent on amounts otherwise
payable on related Subordinate Certificates, Spread or other cash flows
attributable to the related Mortgage Loans or on reinvestment income, the
Reserve Fund may provide less coverage than initially expected if the cash
flows or reinvestment income on which such funding is dependent are lower than
anticipated. In addition, with respect to any series of Certificates 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
Certificateholders, or applied to reimburse the Master Servicer for
outstanding advances, or may be used for other purposes, in the manner and to
the extent specified in the related Prospectus Supplement. Unless otherwise
provided in the related Prospectus Supplement, any such Reserve Fund will not
be deemed to be part of the related Trust Fund. If set forth in the related
Prospectus Supplement, a Reserve Fund may provide coverage to more than one
series of Certificates.
In connection with the establishment of any Reserve Fund, unless
otherwise specified in the related Prospectus Supplement, the Reserve Fund
will be structured so that the Trustee will have a perfected security interest
for the benefit of the Certificateholders in the assets in the Reserve Fund.
However, to the extent
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that the Company, any affiliate thereof or any other entity has an interest in
any Reserve Fund, in the event of the bankruptcy, receivership or insolvency
of such entity, there could be delays in withdrawals from the Reserve Fund and
corresponding payments to the Certificateholders which could adversely affect
the yield to investors on the related Certificates.
Amounts deposited in any Reserve Fund for a series will be invested in
Permitted Investments by, or at the direction of, and for the benefit of the
Master Servicer or any other person named in the related Prospectus
Supplement.
MAINTENANCE OF CREDIT ENHANCEMENT
To the extent that the applicable Prospectus Supplement does not
expressly provide for alternative credit enhancement arrangements in lieu of
some or all of the arrangements mentioned below, the following paragraphs
shall apply.
If a Letter of Credit or alternate form of credit enhancement has been
obtained for a series of Certificates, the Master Servicer will be obligated
to exercise reasonable efforts to keep or cause to be kept such Letter of
Credit (or an alternate form of credit support) in full force and effect
throughout the term of the applicable Pooling 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." Unless otherwise specified in the
applicable Prospectus Supplement, if a Letter of Credit obtained for a series
of Certificates is scheduled to expire prior to the date the final
distribution on such Certificates is made and coverage under such Letter of
Credit has not been exhausted and no substitution has occurred, the Trustee
will draw the amount available under the Letter of Credit and maintain such
amount in trust for such Certificateholders.
If a Mortgage Pool Insurance Policy has been obtained for a series of
Certificates, the Master Servicer will be obligated to exercise reasonable
efforts to keep such Mortgage Pool Insurance Policy (or an alternate form of
credit support) in full force and effect throughout the term of the applicable
Pooling Agreement, unless coverage thereunder has been exhausted through
payment of claims or until such Mortgage Pool Insurance Policy is replaced in
accordance with the terms of the applicable Pooling Agreement. Unless
otherwise provided in the related Prospectus Supplement, the Master Servicer
will agree to pay the premiums for each Mortgage Pool Insurance Policy on a
timely basis. In the event the Pool Insurer ceases to be a Qualified Insurer
(such term being defined to mean a private mortgage guaranty insurance company
duly qualified as such under the laws of the state of its incorporation and
each state having jurisdiction over the insurer in connection with the
Mortgage Pool Insurance Policy and approved as an insurer by Freddie Mac,
Fannie Mae or any successor entity) because it ceases to be qualified under
any such law to transact such insurance business or coverage is terminated for
any reason other than exhaustion of such coverage, the Master Servicer will
use reasonable efforts to obtain from another Qualified Insurer a replacement
insurance policy comparable to the Mortgage Pool Insurance Policy with a total
coverage equal to the then outstanding coverage of such Mortgage Pool
Insurance Policy, provided that, if the cost of the replacement policy is
greater than the cost of such Mortgage Pool Insurance Policy, the coverage of
the replacement policy will, unless otherwise agreed to by the Company, be
reduced to a level such that its premium rate does not exceed the premium rate
on such Mortgage Pool Insurance Policy. In the event that the Pool Insurer
ceases to be a Qualified Insurer because it ceases to be approved as an
insurer by Freddie Mac, Fannie Mae or any successor entity, the Master
Servicer will be obligated to review, not less often than monthly, the
financial condition of the Pool Insurer with a view toward determining whether
recoveries under the Mortgage Pool Insurance Policy are jeopardized for
reasons related to the financial condition of the Pool Insurer. If the Master
Servicer determines that recoveries are so jeopardized, it will be obligated
to exercise its best reasonable efforts to obtain from another Qualified
Insurer a replacement insurance policy as described above, subject to the same
cost limit. Any losses associated with any reduction or withdrawal in rating
by an applicable Rating Agency shall be borne by the related
Certificateholders.
In lieu of the Master Servicer's obligation to maintain a Letter of
Credit or Mortgage Pool Insurance Policy as provided above, the Master
Servicer may obtain a substitute Letter of Credit, Mortgage Pool Insurance
Policy or an alternate form of credit enhancement. If the Master Servicer
obtains such a substitute
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Letter of Credit or Mortgage Pool Insurance Policy, it will maintain and keep
such Letter of Credit, Mortgage Pool Insurance Policy or alternate form of
credit enhancement in full force and effect as provided herein. Prior to its
obtaining any substitute Letter of Credit, Mortgage Pool Insurance Policy or
alternate form of credit enhancement, the Master Servicer will obtain written
confirmation from the Rating Agency or Agencies that rated the related series
of Certificates that the substitution of such Mortgage Pool Insurance Policy,
Letter of Credit, or alternate form of credit enhancement for the existing
credit enhancement will not adversely affect the then-current ratings assigned
to such Certificates by such Rating Agency or Agencies,
If a Special Hazard Instrument has been obtained for a series of
Certificates, the Master Servicer will also be obligated to exercise
reasonable efforts to maintain and keep such Special Hazard Instrument in full
force and effect throughout the term of the applicable Pooling 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." If the Special Hazard
Instrument takes the form of a Special Hazard Insurance Policy, such policy
will provide coverage against risks of the type described herein under
"Description of Credit Enhancement-Special Hazard Insurance Policies." The
Master Servicer may obtain a substitute Special Hazard Instrument for the
existing Special Hazard Instrument if prior to such substitution the Master
Servicer obtains written confirmation from the Rating Agency or Agencies that
rated the related Certificates that such substitution shall not adversely
affect the then-current ratings assigned to such Certificates by such Rating
Agency or Agencies.
If a Bankruptcy Bond has been obtained for a series of Certificates, the
Master Servicer will be obligated to exercise reasonable efforts to maintain
and keep such Bankruptcy Bond in full force and effect throughout the term of
the Pooling Agreement, unless coverage thereunder has been exhausted through
payment of claims or substitution therefor is made as described below under "-
Reduction or Substitution of Credit Enhancement." The Master Servicer may
obtain a substitute Bankruptcy Bond or other credit enhancement for the
existing Bankruptcy Bond if prior to such substitution the Master Servicer
obtains written confirmation from the Rating Agency or Agencies that rated the
related Certificates that such substitution shall not adversely affect the
then-current ratings assigned to such Certificates by such Rating Agency or
Agencies. See "-Bankruptcy Bonds" above.
The Master Servicer, on behalf of itself, the Trustee and
Certificateholders, will provide the Trustee information required for the
Trustee to draw under the Letter of Credit and will present claims to the
provider of any Purchase Obligation, to each Pool Insurer, to the issuer of
each Special Hazard Insurance Policy or other Special Hazard Instrument, to
the issuer of each Bankruptcy Bond and, in respect of defaulted Mortgage Loans
for which there is no Subservicer, to each Primary Insurer and take such
reasonable steps as are necessary to permit recovery under such Letter of
Credit, Purchase Obligation, insurance policies or comparable coverage
respecting defaulted Mortgage Loans or Mortgage Loans which are the subject of
a bankruptcy proceeding. Additionally, the Master Servicer will present such
claims and take such steps as are reasonably necessary to provide for the
performance by the provider of the Purchase Obligation of its Purchase
Obligation. As set forth above, all collections by the Master Servicer under
any Purchase Obligation, any Mortgage Pool Insurance Policy, any Primary
Insurance Policy or any Bankruptcy Bond and, where the related property has
not been restored, any Special Hazard Instrument, are to be deposited in the
related Certificate Account, subject to withdrawal as described above. All
draws under any Letter of Credit are also to be deposited in the related
Certificate Account. In those cases in which a Mortgage Loan is serviced by a
Subservicer, the Subservicer, on behalf of itself, the Trustee and the
Certificateholders will present claims to the Primary Insurer, and all
collections thereunder shall initially be deposited in a subservicing account
that generally meets the requirements for the Certificate Account prior to
being delivered to the Master Servicer for deposit in the related Certificate
Account.
If any property securing a defaulted Mortgage Loan is damaged and
proceeds, if any, from the related hazard insurance policy or any applicable
Special Hazard Instrument are insufficient to restore the damaged property to
a condition sufficient to permit recovery under any Letter of Credit, Mortgage
Pool Insurance Policy or any related Primary Insurance Policy, the Master
Servicer is not required to expend its own funds to restore the damaged
property unless it determines (i) that such restoration will increase the
proceeds to one or more classes of Certificateholders on liquidation of the
Mortgage Loan after reimbursement of the Master Servicer for its expenses and
(ii) that such expenses will be recoverable by it through Liquidation
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Proceeds or Insurance Proceeds. If recovery under any Letter of Credit,
Mortgage Pool Insurance Policy, other credit enhancement or any related
Primary Insurance Policy is not available because the Master Servicer has been
unable to make the above determinations, has made such determinations
incorrectly or recovery is not available for any other reason, the Master
Servicer is nevertheless obligated to follow such normal practices and
procedures (subject to the preceding sentence) as it deems necessary or
advisable to realize upon the defaulted Mortgage Loan and in the event such
determination has been incorrectly made, is entitled to reimbursement of its
expenses in connection with such restoration.
REDUCTION OR SUBSTITUTION OF CREDIT ENHANCEMENT
Unless otherwise specified in the Prospectus Supplement, the amount of
credit support provided pursuant to any form of credit enhancements
(including, without limitation, a Mortgage Pool Insurance Policy, Special
Hazard Insurance Policy, Bankruptcy Bond, Letter of Credit, Reserve Fund,
Purchase Obligation, or any alternative form of credit enhancement) may be
reduced under certain specified circumstances. In most cases, the amount
available pursuant to any form of credit enhancement will be subject to
periodic reduction in accordance with a schedule or formula on a
nondiscretionary basis pursuant to the terms of the related Pooling Agreement.
Additionally, in most cases, such form of credit support (and any replacements
therefor) may be replaced, reduced or terminated, and the formula used in
calculating the amount of coverage with respect to Bankruptcy Losses, Special
Hazard Losses or Fraud Losses may be changed, without the consent of the
Certificateholders, upon the written assurance from each applicable Rating
Agency that the then-current rating of the related series of Certificates will
not be adversely affected. Furthermore, in the event that the credit rating
of any obligor under any applicable credit enhancement is downgraded, the
credit rating(s) of the related series of Certificates may be downgraded to a
corresponding level, and, unless otherwise specified in the related Prospectus
Supplement, the Master Servicer will not be obligated to obtain replacement
credit support in order to restore the rating(s) of the related series of
Certificates. The Master Servicer will also be permitted to replace such
credit support with other credit enhancement instruments issued by obligors
whose credit ratings are equivalent to such downgraded level and in lower
amounts which would satisfy such downgraded level, provided that the then-
current rating(s) of the related series of Certificates are maintained. Where
the credit support is in the form of a Reserve Fund, a permitted reduction in
the amount of credit enhancement will result in a release of all or a portion
of the assets in the Reserve Fund to the Company, the Master Servicer or such
other person that is entitled thereto. Any assets so released will not be
available for distributions in future periods.
PURCHASE OBLIGATIONS
With respect to certain types of Mortgage Loans to be included in any
Mortgage Pool, if specified in the related Prospectus Supplement, the Mortgage
Loans may be sold subject to a Purchase Obligation as described below that
would become applicable on a specified date or upon the occurrence of a
specified event. For example, with respect to certain types of ARM Loans as
to which the Mortgage Rate is fixed for the first five years, a Purchase
Obligation may apply on the first date that the Mortgage Rate of such Mortgage
Loan is adjusted, and such obligation may apply to the Mortgage Loans or to
the related Certificates themselves, or to a corresponding Purchase Obligation
of the Company or another person as specified in the related Prospectus
Supplement. With respect to any Purchase Obligation, such obligation will be
an obligation of an entity (which may include a bank or other financial
institution or an insurance company) specified in the related Prospectus
Supplement, and an instrument evidencing such obligation (a "Purchase
Obligation") shall be delivered to the related Trustee for the benefit of the
Certificateholders to the related series.
The specific terms and conditions applicable to any Purchase Obligation
will be described in the related Prospectus Supplement, including the purchase
price, the timing of and any limitations and conditions to any such purchase.
Any Purchase Obligation will be payable solely to the Trustee for the benefit
of the Certificateholders of the related series and will be nontransferable.
Unless otherwise provided in the related Prospectus Supplement, each Purchase
Obligation will be a general unsecured obligation of the provider thereof, and
prospective purchasers of Offered Certificates must look solely to the credit
of such entity for payment under the Purchase Obligation.
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PRIMARY MORTGAGE INSURANCE, HAZARD INSURANCE;
CLAIMS THEREUNDER
GENERAL
Each Mortgage Loan will be required to be covered by a hazard insurance
policy (as described below) and, if required as described below, a Primary
Insurance Policy. The following is only a brief description of certain
insurance policies and does not purport to summarize or describe all of the
provisions of these policies. Such insurance is subject to underwriting and
approval of individual Mortgage Loans by the respective insurers. The
descriptions of any insurance policies described in this Prospectus or any
Prospectus Supplement and the coverage thereunder, while setting forth the
material terms thereof, do not purport to be complete and are qualified in
their entirety by reference to such forms of policies, sample copies of which
are available upon request.
PRIMARY MORTGAGE INSURANCE POLICIES
Unless otherwise specified in the related Prospectus Supplement, (i) each
Single Family Loan having a Loan-to-Value Ratio at origination of over 80% is
required by the Company to be covered by a primary mortgage guaranty insurance
policy (a "Primary Insurance Policy") insuring against default on such
Mortgage Loan as to at least the principal amount thereof exceeding 75 % of
the Value of the related Mortgaged Property at origination of the Mortgage
Loan, unless and until the principal balance of the Mortgage Loan is reduced
to a level that would produce a Loan-to-Value Ratio equal to or less than at
least 80%, and (ii) the Company will represent and warrant that, to the best
of the Company's knowledge, such Mortgage Loans are so covered. However, the
foregoing standard may vary significantly depending on the characteristics of
the Mortgage Loans and the applicable underwriting standards. A Mortgage Loan
will not be considered to be an exception to the foregoing standard if no
Primary Insurance Policy was obtained at origination but the Mortgage Loan has
amortized to below an 80% Loan-to-Value Ratio level as of the applicable Cut-
off Date. Mortgage Loans which are subject to negative amortization will only
be covered by a Primary Insurance Policy if such coverage was so required upon
their origination, notwithstanding that subsequent negative amortization may
cause such Mortgage Loan's Loan-to-Value Ratio (based on the then-current
balance) to subsequently exceed the limits which would have required such
coverage upon their origination. Multifamily Loans will not be covered by a
Primary Insurance Policy, regardless of the related Loan-to-Value Ratio.
While the terms and conditions of the Primary Insurance Policies issued
by one primary mortgage guaranty insurer (a "Primary Insurer") will differ
from those in Primary Insurance Policies issued by other Primary Insurers,
each Primary Insurance Policy will in general provide substantially the
following coverage. The amount of the loss as calculated under a Primary
Insurance Policy covering a Mortgage Loan (herein referred to as the "Loss")
will generally consist of the unpaid principal amount of such Mortgage Loan
and accrued and unpaid interest thereon and reimbursement of certain expenses,
less (i) rents or other payments collected or received by the insured (other
than the proceeds of hazard insurance) that are derived from the related
Mortgaged Property, (ii) hazard insurance proceeds in excess of the amount
required to restore such Mortgaged Property and which have not been applied to
the payment of the Mortgage Loan, (iii) amounts expended but not approved by
the Primary Insurer, (iv) claim payments previously made on such Mortgage Loan
and (v) unpaid premiums and certain other amounts.
The Primary Insurer will generally be required to pay either: (i) the
insured percentage of the Loss; (ii) the entire amount of the Loss, after
receipt by the Primary Insurer of good and merchantable title to, and
possession of, the Mortgaged Property; or (iii) at the option of the Primary
Insurer under certain Primary Insurance Policies, the sum of the delinquent
monthly payments plus any advances made by the insured, both to the date of
the claim payment and, thereafter, monthly payments in the amount that would
have become due under the Mortgage Loan if it had not been discharged plus any
advances made by the insured until the earlier of (a) the date the Mortgage
Loan would have been discharged in full if the default had not occurred or (b)
an approved sale.
As conditions precedent to the filing or payment of a claim under a
Primary Insurance Policy, in the event of default by the Mortgagor, the
insured will typically be required, among other things, to: (i) advance
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or discharge (a) hazard insurance premiums and (b) as necessary and approved
in advance by the Primary Insurer, real estate taxes, protection and
preservation expenses and foreclosure and related costs; (ii) in the event of
any physical loss or damage to the Mortgaged Property, have the Mortgaged
Property restored to at least its condition at the effective date of the
Primary Insurance Policy (ordinary wear and tear excepted); and (iii) tender
to the Primary Insurer good and merchantable title to, and possession of, the
Mortgaged Property.
For any Certificates offered hereunder, the Master Servicer will maintain
or cause each Subservicer to maintain, as the case may be, in full force and
effect and to the extent coverage is available a Primary Insurance Policy with
regard to each Single Family Loan for which such coverage is required under
the standard described above, provided that such Primary Insurance Policy was
in place as of the Cut-off Date and the Company had knowledge of such Primary
Insurance Policy. In the event that the Company gains knowledge that as of
the Closing Date, a Mortgage Loan had a Loan-to-Value Ratio at origination in
excess of 80% and was not the subject of a Primary Insurance Policy (and was
not included in any exception to such standard disclosed in the related
Prospectus Supplement) and that such Mortgage Loan has a then current Loan-to-
Value Ratio in excess of 80%, then the Master Servicer is required to use
reasonable efforts to obtain and maintain a Primary Insurance Policy to the
extent that such a policy is obtainable at a reasonable price. The Master
Servicer or, in the case of a Designated Seller Transaction, the Seller will
not cancel or refuse to renew any such Primary Insurance Policy in effect at
the time of the initial issuance of a series of Certificates that is required
to be kept in force under the applicable Pooling Agreement unless the
replacement Primary Insurance Policy for such cancelled or non-renewed policy
is maintained with an insurer whose claims-paying ability is acceptable to the
Rating Agency or Agencies that rated such series of Certificates for mortgage
pass-through certificates having a rating equal to or better than the highest
then-current rating of any class of such series of Certificates. For further
information regarding the extent of coverage under any Mortgage Pool Insurance
Policy or Primary Insurance Policy, see "Description of Credit Enhancement-
Mortgage Pool Insurance Policies.
HAZARD INSURANCE POLICIES
The terms of the Mortgage Loans require each Mortgagor to maintain a
hazard insurance policy for their Mortgage Loan. Additionally, the Pooling
Agreement will require the Master Servicer to cause to be maintained for each
Mortgage Loan a hazard insurance policy providing for no less than the
coverage of the standard form of fire insurance policy with extended coverage
customary in the state in which the property is located. Unless otherwise
specified in the related Prospectus Supplement, such coverage generally will
be in an amount equal to the lesser of the principal balance owing on such
Mortgage Loan or 100% of the insurable value of the improvements securing the
Mortgage Loan except that, if generally available, such coverage must not be
less than the minimum amount required under the terms thereof to fully
compensate for any damage or loss on a replacement cost basis. The ability of
the Master Servicer to ensure that hazard insurance proceeds are appropriately
applied may be dependent on its being named as an additional insured under any
hazard insurance policy and under any flood insurance policy referred to
below, or upon the extent to which information in this regard is furnished to
the Master Servicer by Mortgagors or Subservicers.
As set forth above, all amounts collected by the Master Servicer under
any hazard policy (except for amounts to be applied to the restoration or
repair of the Mortgaged Property or released to the Mortgagor in accordance
with the Master Servicer's normal servicing procedures) will be deposited in
the related Certificate Account. The Pooling Agreement will provide that the
Master Servicer may satisfy its obligation to cause hazard policies to be
maintained by maintaining a blanket policy insuring against losses on the
Mortgage Loans. If such blanket policy contains a deductible clause, the
Master Servicer will deposit in the applicable Certificate Account all sums
which would have been deposited therein but for such clause.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements on the property by fire,
lightning, explosion, smoke, windstorm, hail, riot, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies relating to the Mortgage Loans will be underwritten by
different insurers under different state laws in accordance with different
applicable state forms and therefore will not contain identical terms and
conditions, the basic terms thereof are dictated by respective state laws, and
most such policies typically do not cover any physical damage resulting from
the following: war, revolution, governmental actions, floods and
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other water-related causes, earth movement (including earthquakes, landslides
and mudflows), nuclear reactions, wet or dry rot, vermin, rodents, insects or
domestic animals, theft and, in certain cases, vandalism. The foregoing list
is merely indicative of certain kinds of uninsured risks and is not intended
to be all-inclusive. Where the improvements securing a Mortgage Loan are
located in a federally designated flood area at the time of origination of
such Mortgage Loan, the Pooling Agreement requires the Master Servicer to
cause to be maintained for each such Mortgage Loan serviced, flood insurance
(to the extent available) in an amount equal in general to the lesser of the
amount required to compensate for any loss or damage on a replacement cost
basis or the maximum insurance available under the federal flood insurance
program.
The hazard insurance policies covering the Mortgaged Properties typically
contain a co-insurance clause which in effect requires the insured at all
times to carry insurance of a specified percentage (generally 80% to 90%) of
the full replacement value of the improvements on the property in order to
recover the full amount of any partial loss. If the insured's coverage falls
below this specified percentage, such clause generally provides that the
insurer's liability in the event of partial loss does not exceed the greater
of (i) the replacement cost of the improvements damaged or destroyed less
physical depreciation or (ii) such proportion of the loss as the amount of
insurance carried bears to the specified percentage of the full replacement
cost of such improvements.
Since the amount of hazard insurance that Mortgagors are required to
maintain on the improvements securing the Mortgage Loans may decline as the
principal balances owing thereon decrease, and since residential properties
have historically appreciated in value over time, hazard insurance proceeds
could be insufficient to restore fully the damaged property in the event of a
partial loss. See "Description of Credit Enhancement-Special Hazard Insurance
Policies" for a description of the limited protection afforded by any Special
Hazard Insurance Policy against losses occasioned by hazards which are
otherwise uninsured against (including losses caused by the application of the
co-insurance clause described in the preceding paragraph).
Under the terms of the Mortgage Loans, Mortgagors are generally required
to present claims to insurers under hazard insurance policies maintained on
the Mortgaged Properties. The Master Servicer, on behalf of the Trustee and
Certificateholders, is obligated to present claims under any Special Hazard
Insurance Policy or other Special Hazard Instrument and any blanket insurance
policy insuring against hazard losses on the Mortgaged Properties. However,
the ability of the Master Servicer to present such claims is dependent upon
the extent to which information in this regard is furnished to the Master
Servicer or the Subservicers by Mortgagors.
FHA INSURANCE
The FHA is responsible for administering various federal programs,
including mortgage insurance, authorized under The Housing Act and the United
States Housing Act of 1937, as amended.
There are two primary FHA insurance programs that are available for
multifamily mortgage loans. Sections 221(d)(3) and (d)(4) of the Housing Act
allow the Department of Housing and Urban Development ("HUD") to insure
mortgage loans that are secured by newly constructed and substantially
rehabilitated multifamily rental projects. Section 244 of the Housing Act
provides for co-insurance of such mortgage loans made under Sections 221
(d)(3) and (d)(4) by HUD/FHA and a HUD-approved co-insurer. Generally the
term of such a mortgage loan may be up to 40 years and the ratio of the loan
amount to property replacement cost can be up to 90%.
Section 223(f) of the Housing Act allows HUD to insure mortgage loans
made for the purchase or refinancing of existing apartment projects which are
at least three years old. Section 244 also provides for co-insurance of
mortgage loans made under Section 223(f). Under Section 223(f), the loan
proceeds cannot be used for substantial rehabilitation work, but repairs may
be made for up to, in general, the greater of 15 % of the value of the project
or a dollar amount per apartment unit established from time to time by HUD.
In general the loan term may not exceed 35 years and a loan to value ratio of
no more than 85 % is required for the purchase of a project and 70 % for the
refinancing of a project.
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HUD has the option, in most cases, to pay insurance claims in cash or in
debentures issued by HUD. Presently, claims are being paid in cash, and
claims have not been paid in debentures since 1965. HUD debentures issued in
satisfaction of FHA insurance claims bear interest at the applicable HUD
debenture interest rate. Unless otherwise provided in the related Prospectus
Supplement, the Master Servicer will be obligated to purchase any such
debenture issued in satisfaction of a defaulted FHA insured Mortgage Loan
serviced by it for an amount equal to the principal amount of any such
debenture.
The Master Servicer will be required to take such steps as are reasonably
necessary to keep FHA insurance in full force and effect.
THE COMPANY
The Company is a wholly-owned subsidiary of ICI Funding. The Company was
incorporated in the State of California on May 6, 1996. The Company was
organized for the purpose of serving as a private secondary mortgage market
conduit. The Company does not have, nor is it expected in the future to have,
any significant assets.
The Company maintains its principal office at 20371 Irvine Avenue, Suite
200, Santa Ana Heights, California 92707. Its telephone number is (714) 556-
0122.
ICI FUNDING CORPORATION
ICI Funding, the Company's parent, will be a Seller and may act as Master
Servicer with respect to a Mortgage Pool. ICI Funding is a mortgage banking
conduit that acquires conventional one- to four-family residential mortgage
loans nationwide and has, from time to time, acquired condominium conversion
loans. ICI Funding is a non-consolidating subsidiary of ICMH. ICI Funding
primarily acquires mortgage loans from approved correspondents.
Prior to November 1995, ICI Funding was a division of ICII. In November
1995, ICII restructured its operations pursuant to which ICI Funding became a
separate corporation and ICII contributed, among other things, all of the
outstanding nonvoting preferred stock of ICI Funding, which represents 99% of
the economic interest in ICI Funding, to ICMH, in exchange for approximately
10% of the common stock of ICMH. All of the outstanding shares of common
stock of ICI Funding were retained by ICII.
At June 30, 1996, ICI Funding had approximately 81 employees. ICI
Funding's executive offices are located at 20371 Irvine Avenue, Santa Ana
Heights, California, 92707, and its telephone number is (714) 556-0122.
IMPERIAL CREDIT MORTGAGE HOLDINGS, INC.
ICMH is a publicly traded, recently formed specialty finance company
which operates three businesses: (1) long-term-investment operations, (2)
conduit operations, and (3) warehouse lending operations. The long-term
investment operations is a recently-created business that invests primarily in
nonconforming residential mortgage loans and securities backed by such loans.
The conduit operations, conducted by ICI Funding, primarily purchases and
sells or securitizes non-conforming mortgage loans, and the warehouse lending
operations provides short-term lines of credit to originators of mortgage
loans. These two businesses include certain ongoing operations contributed to
the Company by Imperial Credit Industries, Inc. ("ICII"), a leading specialty
finance company, in November 1995. ICMH is organized as a real estate
investment trust for tax purposes, which allows it generally to pass through
earnings to stockholders without federal income tax at the corporate level.
ICMH's day-to-day operations are overseen by Imperial Credit Advisors,
Inc., a wholly-owned subsidiary of ICII ("ICAI") pursuant to a management
agreement between ICMH and ICAI. ICMH's
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executive offices are located at 20371 Irvine Avenue, Santa Ana Heights,
California 92707, and its telephone number is (714) 556-0122.
THE POOLING AGREEMENT
GENERAL
The Certificates of each series will be issued pursuant to a pooling
and servicing agreement or other agreement specified in the related Prospectus
Supplement (in either case, a "Pooling Agreement"). In general, the parties
to a Pooling Agreement will include the Company, the Trustee, the Master
Servicer and, in some cases, a Special Servicer. However, a Pooling Agreement
that relates to a Trust Fund that includes Mortgage Securities may include a
party solely responsible for the administration of such Mortgage Securities,
and a Pooling Agreement that relates to a Trust Fund that consists solely of
Mortgage Securities may not include a Master Servicer, Special Servicer or
other servicer as a party. All parties to each Pooling Agreement under which
Certificates of a series are issued will be identified in the related
Prospectus Supplement.
Forms of Pooling Agreements have been filed as exhibits to the
Registration Statement of which this Prospectus is a part. However, the
provisions of each Pooling Agreement will vary depending upon the nature of
the Certificates to be issued thereunder and the nature of the related Trust
Fund. The following summaries describe certain provisions that may appear in
a Pooling Agreement. The Prospectus Supplement for a series of Certificates
will describe any provision of the related Pooling Agreement that materially
differs from the description thereof set forth below. The summaries herein,
while setting forth the material provisions that may be included in a Pooling
Agreement, do not purport to be complete and are subject to, and are qualified
in their entirety by reference to, all of the provisions of the Pooling
Agreement for each series of Certificates and the description of such
provisions in the related Prospectus Supplement. As used herein with respect
to any series, the term "Certificate" refers to all of the Certificates of
that series, whether or not offered hereby and by the related Prospectus
Supplement, unless the context otherwise requires. The Company will provide a
copy of the Pooling Agreement (without exhibits) that relates to any series of
Certificates without charge upon written request of a holder of a Certificate
of such series addressed to it at its principal executive offices specified
herein under "The Company".
CERTAIN MATTERS REGARDING THE MASTER SERVICER AND THE COMPANY
The Pooling Agreement for each series of Certificates will provide
that the Master Servicer may not resign from its obligations and duties
thereunder except upon a determination that performance of such duties is no
longer permissible under applicable law or except (a) in connection with a
permitted transfer of servicing or (b) upon appointment of a successor
servicer reasonably acceptable to the Trustee and upon receipt by the Trustee
of a letter from each Rating Agency generally to the effect that such
resignation and appointment will not, in and of itself, result in a
downgrading of the Certificates. No such resignation will become effective
until the Trustee or a successor servicer has assumed the Master Servicer's
obligations and duties under the Pooling Agreement.
Each Pooling Agreement will also provide that, except as set forth
below, neither the Master Servicer, the Company, nor any director, officer,
employee or agent of the Master Servicer or the Company will be under any
liability to the Trust Fund or the Certificateholders for any action taken or
for refraining from the taking of any action in good faith pursuant to the
Pooling Agreement, or for errors in judgment; provided, however, that neither
the Master Servicer, the Company, nor any such person will be protected
against any liability which would otherwise be imposed by reason of willful
misfeasance, bad faith or gross negligence in the performance of duties or by
reason of reckless disregard of obligations and duties thereunder. Each
Pooling Agreement will further provide that the Master Servicer, the Company,
and any director, officer, employee or agent of the Master Servicer or the
Company is entitled to indemnification by the Trust Fund and will be held
harmless against any loss, liability or expense incurred in connection with
any legal action relating to the Pooling Agreement or the related series of
Certificates, other than any loss, liability or expense related to any
specific Mortgage Loan or Mortgage Loans (except any such loss, liability or
expense otherwise reimbursable pursuant to the Pooling Agreement) and any
loss, liability or expense incurred by reason of
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willful misfeasance, bad faith or gross negligence in the performance of
duties thereunder or by reason of reckless disregard of obligations and duties
thereunder. In addition, each Pooling Agreement will provide that neither the
Master Servicer nor the Company will be under any obligation to appear in,
prosecute or defend any legal or administrative action that is not incidental
to its respective duties under the Pooling Agreement and which in its opinion
may involve it in any expense or liability. The Master Servicer or the
Company may, however, in its discretion undertake any such action which it may
deem necessary or desirable with respect to the Pooling Agreement and the
rights and duties of the parties thereto and the interests of the
Certificateholders thereunder. In such event, the legal expenses and costs of
such action and any liability resulting therefrom will be expenses, costs and
liabilities of the Trust Fund, and the Master Servicer or the Company, as the
case may be, will be entitled to be reimbursed therefor out of funds otherwise
distributable to Certificateholders.
Any person into which the Master Servicer may be merged or
consolidated, any person resulting from any merger or consolidation to which
the Master Servicer is a party or any person succeeding to the business of the
Master Servicer will be the successor of the Master Servicer under the Pooling
Agreement, provided that (i) such person is qualified to service mortgage
loans on behalf of Fannie Mae or Freddie Mac and (ii) such merger,
consolidation or succession does not adversely affect the then-current ratings
of the classes of Certificates of the related series that have been rated. In
addition, notwithstanding the prohibition on its resignation, the Master
Servicer may assign its rights under a Pooling Agreement to any person to whom
the Master Servicer is transferring a substantial portion of its mortgage
servicing portfolio, provided clauses (i) and (ii) above are satisfied and
such person is reasonably satisfactory to the Company and the Trustee. In the
case of any such assignment, the Master Servicer will be released from its
obligations under such Pooling Agreement, exclusive of liabilities and
obligations incurred by it prior to the time of such assignment.
EVENTS OF DEFAULT
Events of Default under the Pooling Agreement in respect of a series
of Certificates, unless otherwise specified in the Prospectus Supplement, will
include, without limitation, (i) any failure by the Master Servicer to make a
required deposit to the Certificate Account or, if the Master Servicer is so
required, to distribute to the holders of any class of Certificates of such
series any required payment which continues unremedied for five days after the
giving of written notice of such failure to the Master Servicer by the Trustee
or the Company, or to the Master Servicer, the Company and the Trustee by the
holders of Certificates evidencing not less than 25% of the aggregate
undivided interests (or, if applicable, voting rights) in the related Trust
Fund; (ii) any failure by the Master Servicer duly to observe or perform in
any material respect any other of its covenants or agreements in the Pooling
Agreement with respect to such series of Certificates which continues
unremedied for 30 days (15 days in the case of a failure to pay the premium
for any insurance policy which is required to be maintained under the Pooling
Agreement) after the giving of written notice of such failure to the Master
Servicer by the Trustee or the Company, or to the Master Servicer, the Company
and the Trustee by the holders of Certificates evidencing not less than 25% of
the aggregate undivided interests (or, if applicable, voting rights) in the
related Trust Fund; and (iii) certain events of insolvency, readjustment of
debt, marshalling of assets and liabilities or similar proceedings regarding
the Master Servicer and certain actions by the Master Servicer indicating its
insolvency or inability to pay its obligations. A default pursuant to the
terms of any Mortgage Securities included in any Trust Fund will not
constitute an Event of Default under the related Pooling Agreement.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default remains unremedied, either the
Company or the Trustee may, and at the direction of the holders of
Certificates evidencing not less than 51% of the aggregate undivided interests
(or, if applicable, voting rights) in the related Trust Fund the Trustee
shall, by written notification to the Master Servicer and to the Company or
the Trustee, as applicable, terminate all of the rights and obligations of the
Master Servicer under the Pooling Agreement (other than any rights of the
Master Servicer as Certificateholder) covering such Trust Fund and in and to
the Mortgage Loans and the proceeds thereof, whereupon the Trustee or, upon
notice to the Company and with the Company's consent, its designee will
succeed to all responsibilities, duties and liabilities of the Master Servicer
under such Pooling Agreement (other than the obligation to purchase Mortgage
Loans under certain circumstances) and will be entitled to
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similar compensation arrangements. In the event that the Trustee would be
obligated to succeed the Master Servicer but is unwilling so to act, it may
appoint (or if it is unable so to act, it shall appoint) or petition a court
of competent jurisdiction for the appointment of, a Fannie Mae- or Freddie
Mac-approved mortgage servicing institution with a net worth of at least
$10,000,000 to act as successor to the Master Servicer under the Pooling
Agreement (unless otherwise set forth in the Pooling Agreement). Pending such
appointment, the Trustee is obligated to act in such capacity. The Trustee
and such successor may agree upon the servicing compensation to be paid, which
in no event may be greater than the compensation to the initial Master
Servicer under the Pooling Agreement.
No Certificateholder will have any right under a Pooling Agreement
to institute any proceeding with respect to such Pooling Agreement unless such
holder previously has given to the Trustee written notice of default and the
continuance thereof and unless the holders of Certificates evidencing not less
than 25% of the aggregate undivided interests (or, if applicable, voting
rights) in the related Trust Fund have made written request upon the Trustee
to institute such proceeding in its own name as Trustee thereunder and have
offered to the Trustee reasonable indemnity and the Trustee for 60 days after
receipt of such request and indemnity has neglected or refused to institute
any such proceeding. However, the Trustee will be under no obligation to
exercise any of the trusts or powers vested in it by the Pooling Agreement or
to institute, conduct or defend any litigation thereunder or in relation
thereto at the request, order or direction of any of the holders of
Certificates covered by such Pooling Agreement, unless such Certificateholders
have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which may be incurred therein or thereby.
The holders of Certificates representing at least 66% of the
aggregate undivided interests (or, if applicable, voting rights) evidenced by
those Certificates affected by a default or Event of Default may waive such
default or Event of Default (other than a failure by the Master Servicer to
make an advance); provided, however, that (a) a default or Event of Default
under clause (i) under "-Events of Default" above may be waived only by all of
the holders of Certificates affected by such default or Event of Default and
(b) no waiver shall reduce in any manner the amount of, or delay the timing
of, payments received on Mortgage Loans which are required to be distributed
to, or otherwise materially adversely affect, any non-consenting
Certificateholder.
AMENDMENT
Each Pooling Agreement may be amended by the parties thereto,
without the consent of any of the holders of Certificates covered by such
Pooling Agreement, (i) to cure any ambiguity, (ii) to correct or supplement
any provision therein which may be inconsistent with any other provision
therein or to correct any error, (iii) to change the timing and/or nature of
deposits in the Certificate Account, provided that (A) such change would not
adversely affect in any material respect the interests of any
Certificateholder, as evidenced by an opinion of counsel, and (B) such change
would not adversely affect the then-current rating of any rated classes of
Certificates, as evidenced by a letter from each applicable Rating Agency,
(iv) if a REMIC election has been made with respect to the related Trust Fund,
to modify, eliminate or add to any of its provisions (A) to such extent as
shall be necessary to maintain the qualification of the Trust Fund as a REMIC
or to avoid or minimize the risk of imposition of any tax on the related Trust
Fund, provided that the Trustee has received an opinion of counsel to the
effect that (1) such action is necessary or desirable to maintain such
qualification or to avoid or minimize such risk, and (2) such action will not
adversely affect in any material respect the interests of any holder of
Certificates covered by the Pooling Agreement, or (B) to restrict the transfer
of the REMIC Residual Certificates, provided that the Company has determined
that the then-current ratings of the classes of the Certificates that have
been rated will not be adversely affected, as evidenced by a letter from each
applicable Rating Agency, and that any such amendment will not give rise to
any tax with respect to the transfer of the REMIC Residual Certificates to a
non-Permitted Transferee, (v) to make any other provisions with respect to
matters or questions arising under such Pooling Agreement which are not
materially inconsistent with the provisions thereof, provided that such action
will not adversely affect in any material respect the interests of any
Certificateholder, or (vi) to amend specified provisions that are not material
to holders of any class of Certificates offered hereunder.
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The Pooling Agreement may also be amended by the parties thereto
with the consent of the holders of Certificates of each class affected thereby
evidencing, in each case, not less than 66-2/3% of the aggregate Percentage
Interests constituting such class for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of such Pooling
Agreement or of modifying in any manner the rights of the holders of
Certificates covered by such Pooling Agreement, except that no such amendment
may (i) reduce in any manner the amount of, or delay the timing of, payments
received on Mortgage Loans which are required to be distributed on a
Certificate of any class without the consent of the holder of such Certificate
or (ii) reduce the aforesaid percentage of Certificates of any class the
holders of which are required to consent to any such amendment without the
consent of the holders of all Certificates of such class covered by such
Pooling Agreement then outstanding.
Notwithstanding the foregoing, if a REMIC election has been made
with respect to the related Trust Fund, the Trustee will not be entitled to
consent to any amendment to a Pooling Agreement without having first received
an opinion of counsel to the effect that such amendment or the exercise of any
power granted to the Master Servicer, the Company, the Trustee or any other
specified person in accordance with such amendment will not result in the
imposition of a tax on the related Trust Fund or cause such Trust Fund to fail
to qualify as a REMIC.
TERMINATION; RETIREMENT OF CERTIFICATES
The obligations created by the Pooling Agreement for each series of
Certificates (other than certain limited payment and notice obligations of the
Trustee and the Company, respectively) will terminate upon the payment to
Certificateholders of that series of all amounts held in the Certificate
Account or by the Master Servicer and required to be paid to them pursuant to
such Pooling Agreement following the earlier of (i) the final payment or other
liquidation or disposition (or any advance with respect thereto) of the last
Mortgage Loan, REO Property and/or Mortgage Security subject thereto and (ii)
the purchase by the Master Servicer or the Company or, if specified in the
related Prospectus Supplement, by the holder of the REMIC Residual
Certificates (see "Federal Income Tax Consequences" below) from the Trust Fund
for such series of all remaining Mortgage Loans, REO Properties and/or
Mortgage Securities. In addition to the foregoing, the Master Servicer or the
Company will have the option to purchase, in whole but not in part, the
Certificates specified in the related Prospectus Supplement in the manner set
forth in the related Prospectus Supplement. Upon the purchase of such
Certificates or at any time thereafter, at the option of the Master Servicer
or the Company, the assets of the Trust Fund may be sold, thereby effecting a
retirement of the Certificates and the termination of the Trust Fund, or the
Certificates so purchased may be held or resold by the Master Servicer or the
Company. In no event, however, will the trust created by the Pooling
Agreement continue beyond the expiration of 21 years from the death of the
survivor of certain persons named in such Pooling Agreement. Written notice
of termination of the Pooling Agreement will be given to each
Certificateholder, and the final distribution will be made only upon surrender
and cancellation of the Certificates at an office or agency appointed by the
Trustee which will be specified in the notice of termination. If the
Certificateholders are permitted to terminate the trust under the applicable
Pooling Agreement, a penalty may be imposed upon the Certificateholders based
upon the fee that would be foregone by the Master Servicer because of such
termination.
Any such purchase of Mortgage Loans and property acquired in respect
of Mortgage Loans evidenced by a series of Certificates shall be made at the
option of the Master Servicer, the Company or, if applicable, the holder of
the REMIC Residual Certificates at the price specified in the related
Prospectus Supplement. The exercise of such right will effect early
retirement of the Certificates of that series, but the right of the Master
Servicer, the Company or, if applicable, such holder to so purchase is subject
to the aggregate principal balance of the Mortgage Loans and/or Mortgage
Securities in the Trust Fund for that series as of the Distribution Date on
which the purchase proceeds are to be distributed to Certificateholders being
less than the percentage specified in the related Prospectus Supplement of the
aggregate principal balance of such Mortgage Loans and/or Mortgage Securities
at the Cut-off Date for that series. The Prospectus Supplement for each
series of Certificates will set forth the amounts that the holders of such
Certificates will be entitled to receive upon such early retirement. Such
early termination may adversely affect the yield to holders of certain classes
of such Certificates. If a REMIC election has been made, the termination of
the related Trust
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Fund will be effected in a manner consistent with applicable federal income
tax regulations and its status as a REMIC.
THE TRUSTEE
The Trustee under each Pooling Agreement will be named in the
related Prospectus Supplement. The commercial bank, national banking
association, banking corporation or trust company that serves as Trustee may
have typical banking relationships with the Company and its affiliates.
LIMITATIONS ON THE DUTIES OF THE TRUSTEE
The Trustee for each series of Certificates will make no
representation as to the validity or sufficiency of the related Pooling
Agreement, the Certificates or any underlying Mortgage Loan, Mortgage Security
or related document and will not be accountable for the use or application by
or on behalf of any Master Servicer or Special Servicer of any funds paid to
the Master Servicer or Special Servicer in respect of the Certificates or the
underlying Mortgage Loans or Mortgage Securities, or any funds deposited into
or withdrawn from the Certificate Account for such series or any other account
by or on behalf of the Master Servicer or Special Servicer. If no Event of
Default has occurred and is continuing, the Trustee for each series of
Certificates will be required to perform only those duties specifically
required under the related Pooling Agreement. However, upon receipt of any of
the various certificates, reports or other instruments required to be
furnished to it pursuant to the related Pooling Agreement, a Trustee will be
required to examine such documents and to determine whether they conform to
the requirements of such agreement.
CERTAIN MATTERS REGARDING THE TRUSTEE
As and to the extent described in the related Prospectus Supplement,
the fees and normal disbursements of any Trustee may be the expense of the
related Master Servicer or other specified person or may be required to be
borne by the related Trust Fund.
Unless otherwise specified in the related Prospectus Supplement, the
Trustee for each series of Certificates will be entitled to indemnification,
from amounts held in the Certificate Account for such series, for any loss,
liability or expense incurred by the Trustee in connection with the Trustee's
acceptance or administration of its trusts under the related Pooling
Agreement; provided, however, that such indemnification will not extend to any
loss liability or expense incurred by reason of willful misfeasance, bad faith
or gross negligence on the part of the Trustee in the performance of its
obligations and duties thereunder, or by reason of its reckless disregard of
such obligations or duties.
Unless otherwise specified in the related Prospectus Supplement, the
Trustee for each series of Certificates will be entitled to execute any of its
trusts or powers under the related Pooling Agreement or perform any of this
duties thereunder either directly or by or through agents or attorneys, and
the Trustee will not be responsible for any willful misconduct or gross
negligence on the part of any such agent or attorney appointed by it with due
care.
RESIGNATION AND REMOVAL OF THE TRUSTEE
The Trustee may resign at any time, in which event the Company will
be obligated to appoint a successor Trustee. The Company may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Pooling Agreement or if the Trustee becomes insolvent. Upon becoming aware of
such circumstances, the Company will be obligated to appoint a successor
Trustee. The Trustee may also be removed at any time by the holders of
Certificates evidencing not less than 51% of the aggregate undivided interests
(or, if applicable, voting rights) in the related Trust Fund. Any resignation
or removal of the Trustee and appointment of a successor Trustee will not
become effective until acceptance of the appointment by the successor Trustee.
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YIELD CONSIDERATIONS
The yield to maturity of an Offered Certificate will depend on the price
paid by the holder for such Certificate, the Pass-Through Rate on any such
Certificate entitled to payments of interest (which Pass-Through Rate may vary
if so specified in the related Prospectus Supplement) and the rate and timing
of principal payments (including prepayments, defaults, liquidations and
repurchases) on the Mortgage Loans and the allocation thereof to reduce the
principal balance of such Certificate (or notional amount thereof if
applicable) and other factors.
A class of Certificates may be entitled to payments of interest at a
fixed Pass-Through Rate, a variable Pass-Through Rate or adjustable Pass-
Through Rate, or any combination of such Pass-Through Rates, each as specified
in the related Prospectus Supplement. A variable Pass-Through Rate may be
calculated based on the weighted average of the Mortgage Rates (in each case,
net of the per annum rate or rates applicable to the calculation of servicing
and administrative fees and any Spread (each, a "Net Mortgage Rate")) of the
related Mortgage Loans for the month preceding the Distribution Date if so
specified in the related Prospectus Supplement. As will be described in the
related Prospectus Supplement, the aggregate payments of interest on a class
of Certificates, and the yield to maturity thereon, will be affected by the
rate of payment of principal on the Certificates (or the rate of reduction in
the notional balance of Certificates entitled only to payments of interest)
and, in the case of Certificates evidencing interests in ARM Loans, by changes
in the Net Mortgage Rates on the ARM Loans. See "Maturity and Prepayment
Considerations" below. The yield on the Certificates will also be affected by
liquidations of Mortgage Loans following Mortgagor defaults and by purchases
of Mortgage Loans in the event of breaches of representations made in respect
of such Mortgage Loans by the Company, the Master Servicer and others, or
conversions of ARM Loans to a fixed interest rate. See "The Mortgage Pools-
Representations by Sellers" and "Descriptions of the Certificates-Assignment
of Trust Fund Assets" above. Holders of certain Strip Certificates or a class
of Certificates having a Pass-Through Rate that varies based on the weighted
average Mortgage Rate of the underlying Mortgage Loans will be affected by
disproportionate prepayments and repurchases of Mortgage Loans having higher
Net Mortgage Rates or rates applicable to the Strip Certificates, as
applicable.
With respect to any series of Certificates, a period of time will elapse
between the date upon which payments on the related Mortgage Loans are due and
the Distribution Date on which such payments are passed through to
Certificateholders. That delay will effectively reduce the yield that would
otherwise be produced if payments on such Mortgage Loans were distributed to
Certificateholders on or near the date they were due.
In general, if a class of Certificates is purchased at initial issuance
at a premium and payments of principal on the related Mortgage Loans occur at
a rate faster than anticipated at the time of purchase, the purchaser's actual
yield to maturity will be lower than that assumed at the time of purchase.
Conversely, if a class of Certificates is purchased at initial issuance at a
discount and payments of principal on the related Mortgage Loans occur at a
rate slower than that assumed at the time of purchase, the purchaser's actual
yield to maturity will be lower than that originally anticipated. The effect
of principal prepayments, liquidations and purchases on yield will be
particularly significant in the case of a series of Certificates having a
class entitled to payments of interest only or to payments of interest that
are disproportionately high relative to the principal payments to which such
class is entitled. Such a class will likely be sold at a substantial premium
to its principal balance and any faster than anticipated rate of prepayments
will adversely affect the yield to holders thereof. In certain circumstances
extremely rapid prepayments may result in the failure of such holders to
recoup their original investment. In addition, the yield to maturity on
certain other types of classes of Certificates, including Accrual
Certificates, Certificates with a Pass-Through Rate which fluctuates inversely
with or at a multiple of an index or certain other classes in a series
including more than one class of Certificates, may be relatively more
sensitive to the rate of prepayment on the related Mortgage Loans than other
classes of Certificates.
The timing of changes in the rate of principal payments on or repurchases
of the Mortgage Loans may significantly affect an investor's actual yield to
maturity, even if the average rate of principal payments experienced over time
is consistent with an investor's expectation. In general, the earlier a
prepayment of principal on the underlying Mortgage Loans or a repurchase
thereof, the greater will be the effect on an
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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 Certificates would not be fully offset
by a subsequent like reduction (or increase) in the rate of principal
payments.
When a principal prepayment in full is made on a Mortgage Loan, the
borrower is generally charged interest only for the period from the due date
of the preceding scheduled payment up to the date of such prepayment, instead
of for the full accrual period, that is, the period from the due date of the
preceding scheduled payment up to the due date for the next scheduled payment.
In addition, a partial principal prepayment may likewise be applied as of a
date prior to the next scheduled due date (and, accordingly, be accompanied by
interest thereon for less than the full accrual period). However, interest
accrued on any series of Certificates and distributable thereon on any
Distribution Date will generally correspond to interest accrued on the
principal balance of Mortgage Loans for their respective full accrual periods.
Consequently, if a prepayment on any Mortgage Loan is distributable to
Certificateholders on a particular Distribution Date, but such prepayment is
not accompanied by interest thereon for the full accrual period, the interest
charged to the borrower (net of servicing and administrative fees and any
Spread) may be less (such shortfall, a "Prepayment Interest Shortfall") than
the corresponding amount of interest accrued and otherwise payable on the
Certificates of the related series. If and to the extent that any such
shortfall is allocated to a class of Offered Certificates, the yield thereon
will be adversely affected. The Prospectus Supplement for a series of
Certificates will describe the manner in which any such shortfalls will be
allocated among the classes of such Certificates. If so specified in the
related Prospectus Supplement, the Master Servicer will be required to apply
some or all of its servicing compensation for the corresponding period to
offset the amount of any such shortfalls. The related Prospectus Supplement
will also describe any other amounts available to offset such shortfalls. See
"Servicing of Mortgage Loans-Servicing and Other Compensation and Payment of
Expenses; Spread."
The rate of defaults on the Mortgage Loans will also affect the rate and
timing of principal payments on the Mortgage Loans and thus the yield on the
Certificates. In general, defaults on Single Family Loans are expected to
occur with greater frequency in their early years. However, there is a risk
that Mortgage Loans, including Multifamily Loans, that require Balloon
Payments may default at maturity, or that the maturity of such a Mortgage Loan
may be extended in connection with a workout. The rate of default on Single
Family Loans which are refinance or limited documentation mortgage loans, and
on Mortgage Loans, including Multifamily Loans, with high Loan-to-Value
Ratios, may be higher than for other types of Mortgage Loans. Furthermore,
the rate and timing of prepayments, defaults and liquidations on the Mortgage
Loans will be affected by the general economic condition of the region of the
country in which the related Mortgaged Properties are located. The risk of
delinquencies and loss is greater and prepayments are less likely in regions
where a weak or deteriorating economy exists, as may be evidenced by, among
other factors, increasing unemployment or falling property values. See "Risk
Factors."
With respect to certain Mortgage Loans including ARM Loans, the Mortgage
Rate at origination may be below the rate that would result if the index and
margin relating thereto were applied at origination. Under the applicable
underwriting standards, the Mortgagor under each Mortgage Loan generally will
be qualified, or the Mortgage Loan otherwise approved, on the basis of the
Mortgage Rate in effect at origination. The repayment of any such Mortgage
Loan may thus be dependent on the ability of the mortgagor to make larger
level monthly payments following the adjustment of the Mortgage Rate. In
addition, the periodic increase in the amount paid by the Mortgagor of a
Buydown Mortgage Loan during or at the end of the applicable Buydown Period
may create a greater financial burden for the Mortgagor, who might not have
otherwise qualified for a mortgage under applicable underwriting guidelines,
and may accordingly increase the risk of default with respect to the related
Mortgage Loan. The Mortgage Rates on certain ARM Loans subject to negative
amortization generally adjust monthly and their amortization schedules adjust
less frequently. During a period of rising interest rates as well as
immediately after origination (initial Mortgage Rates are generally lower than
the sum of the Indices applicable at origination and the related Note
Margins), the amount of interest accruing on the principal balance of such
Mortgage Loans may exceed the amount of the minimum scheduled monthly payment
thereon. As a result, a portion of the accrued interest on negatively
amortizing Mortgage Loans may become Deferred Interest which will be added to
the principal balance thereof and will bear interest at the applicable
Mortgage Rate. The addition of any such Deferred
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Interest to the principal balance of any related class or classes of
Certificates will lengthen the weighted average life thereof and may adversely
affect yield to holders thereof, depending upon the price at which such
Certificates were purchased. In addition, with respect to certain ARM Loans
subject to negative amortization, during a period of declining interest rates,
it might be expected that each minimum scheduled monthly payment on such a
Mortgage Loan would exceed the amount of scheduled principal and accrued
interest on the principal balance thereof, and since such excess will be
applied to reduce the principal balance of the related class or classes of
Certificates, the weighted average life of such Certificates will be reduced
and may adversely affect yield to holders thereof, depending upon the price at
which such Certificates were purchased.
MATURITY AND PREPAYMENT CONSIDERATIONS
As indicated above under "The Mortgage Pools," the original terms to
maturity of the Mortgage Loans in a given Mortgage Pool will vary depending
upon the type of Mortgage Loans included in such Mortgage Pool. The
Prospectus Supplement for a series of Certificates will contain information
with respect to the types and maturities of the Mortgage Loans in the related
Mortgage Pool. Unless otherwise specified in the related Prospectus
Supplement, all of the Mortgage Loans may be prepaid without penalty in full
or in part at any time. The prepayment experience with respect to the
Mortgage Loans in a Mortgage Pool will affect the life and yield of the
related series of Certificates.
With respect to Balloon Loans, payment of the Balloon Payment (which,
based on the amortization schedule of such Mortgage Loans, is expected to be a
substantial amount) will generally depend on the Mortgagor's ability to obtain
refinancing of such Mortgage Loans or to sell the Mortgaged Property prior to
the maturity of the Balloon Loan. The ability to obtain refinancing will
depend on a number of factors prevailing at the time refinancing or sale is
required, including, without limitation, real estate values, the Mortgagor's
financial situation, prevailing mortgage loan interest rates, the Mortgagor's
equity in the related Mortgaged Property, tax laws and prevailing general
economic conditions. Unless otherwise specified in the related Prospectus
Supplement, none of the Company, the Master Servicer, or any of their
affiliates will be obligated to refinance or repurchase any Mortgage Loan or
to sell the Mortgaged Property.
The extent of prepayments of principal of the Mortgage Loans may be
affected by a number of factors, including, without limitation, solicitations
and the availability of mortgage credit, the relative economic vitality of the
area in which the Mortgaged Properties are located and, in the case of
Multifamily Loans, the quality of management of the Mortgage Properties, the
servicing of the Mortgage Loans, possible changes in tax laws and other
opportunities for investment. In addition, the rate of principal payments on
the Mortgage Loans may be affected by the existence of Lock-out Periods and
requirements that principal prepayments be accompanied by Prepayment Premiums,
as well as due-on-sale and due-on-encumbrance provisions, and by the extent to
which such provisions may be practicably enforced. See "Servicing of Mortgage
Loans-Collection and Other Servicing Procedures; Mortgage Loan Modifications"
and "Certain Legal Aspects of Mortgage Loans-Enforceability of Certain
Provisions" for a description of certain provisions of the Pooling Agreement
and certain legal developments that may affect the prepayment experience on
the Mortgage Loans.
The rate of prepayment on a pool of mortgage loans is also affected by
prevailing market interest rates for mortgage loans of a comparable type, term
and risk level. When the prevailing market interest rate is below a mortgage
coupon, a borrower may have an increased incentive to refinance its mortgage
loan. In addition, as prevailing market interest rates decline, even
borrowers with ARM Loans that have experienced a corresponding interest rate
decline may have an increased incentive to refinance for purposes of either
(i) converting to a fixed rate loan and thereby "locking in" such rate or (ii)
taking advantage of the initial "teaser rate" (a mortgage interest rate below
what it would otherwise be if the applicable index and gross margin were
applied) on another adjustable rate mortgage loan. Moreover, although the
Mortgage Rates on ARM Loans will be subject to periodic adjustments, such
adjustments generally will, unless otherwise specified in the related
Prospectus Supplement, (i) not increase or decrease such Mortgage Rates by
more than a fixed percentage amount on each adjustment date, (ii) not increase
such Mortgage 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 mortgage interest rates) plus the related Note Margin (which may be
different from margins being used at the time for newly originated adjustable
rate mortgage loans). As a result, the Mortgage Rates
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on the ARM Loans at any time may not equal the prevailing rates for similar,
newly originated adjustable rate mortgage loans. In certain rate
environments, the prevailing rates on fixed-rate mortgage loans may be
sufficiently low in relation to the then-current Mortgage Rates on ARM Loans
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 Mortgage Loans during
any period or over the life of any series of Certificates.
There can be no assurance as to the rate of prepayment of the Mortgage
Loans. The Company is not aware of any publicly available statistics relating
to the principal prepayment experience of diverse portfolios of mortgage loans
such as the Mortgage Loans over an extended period of time. All statistics
known to the Company that have been compiled with respect to prepayment
experience on mortgage loans indicate that while some mortgage loans may
remain outstanding until their stated maturities, a substantial number will be
paid prior to their respective stated maturities. No representation is made
as to the particular factors that will affect the prepayment of the Mortgage
Loans or as to the relative importance of such factors.
Under certain circumstances, the Master Servicer, the Company or, if
specified in the related Prospectus Supplement, the holders of the REMIC
Residual Certificates may have the option to purchase the assets in a Trust
Fund and effect early retirement of the related series of Certificates. See
"The Pooling Agreement-Termination; Retirement of Certificates."
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans that are general in nature. Because such legal aspects are
governed in part by applicable state law (which laws may differ
substantially), the summaries do not purport to be complete nor to reflect the
laws of any particular state nor to encompass the laws of all states in which
the Mortgaged Properties may be situated. The summaries are qualified in
their entirety by reference to the applicable federal and state laws governing
the Mortgage Loans.
SINGLE FAMILY LOANS AND MULTIFAMILY LOANS
General. Each Single Family and Multifamily Loan will be evidenced by a
note or bond and secured by an instrument granting a security interest in real
property, which may be a mortgage, deed of trust or a deed to secure debt,
depending upon the prevailing practice and law in the state in which the
related Mortgaged Property is located. Mortgages, deed of trust and deeds to
secure debt are herein collectively referred to as "mortgages". A mortgage
creates a lien upon, or grants a title interest in, the real property covered
thereby, and represents the security for the repayment of the indebtedness
customarily evidenced by a promissory note. The priority of the lien created
or interest granted will depend on the terms of the mortgage and, in some
cases, on the terms of separate subordination agreements or intercreditor
agreements with others that hold interests in the real property, the knowledge
of the parties to the mortgage and, generally, the order of recordation of the
mortgage in the appropriate public recording office. However, the lien of a
recorded mortgage will generally be subordinate to later arising liens for
real estate taxes and assessments and other charges imposed under governmental
police powers.
Types of Mortgage Instruments. There are two parties to a mortgage: a
mortgagor (the borrower and usually the owner of the subject property) and a
mortgagee (the lender). In contrast, a deed of trust is a three-party
instrument, among a trustor (the equivalent of a borrower), a trustee to whom
the real property is conveyed, and a beneficiary (the lender) for whose
benefit the conveyance is made. Under a deed of trust, the trustor grants the
property, irrevocably until the debt is paid, in trust and generally with a
power of sale, to the trustee to secure repayment of the indebtedness
evidenced by the related note. A deed to secure debt typically has two
parties. The borrower, or grantor, conveys title to the real property to the
grantee, or lender, generally with a power of sale, until such time as the
debt is repaid. In a case where the borrower is a land trust, there would be
an additional party because legal title to the property is held by a land
trustee under a land trust agreement for the benefit of the borrower. At
origination of a mortgage loan involving a land trust, the borrower executes a
separate undertaking to make payments on the mortgage note. The mortgagee's
authority under a mortgage, the trustee's authority under a deed of trust and
the grantee's authority under
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a deed to secure debt are governed by the express provisions of the related
instrument, the law of the state in which the real property is located,
certain federal laws (including, without limitation, the Relief Act) and, in
some deed of trust transactions, the directions of the beneficiary.
Leases and Rents. Mortgages that encumber income-producing multifamily
properties often contain an assignment of rents and leases, pursuant to which
the borrower assigns to the lender the borrower's right, title and interest as
landlord under each lease and the income derived therefrom, while (unless
rents are to be paid directly to the lender) retaining a revocable license to
collect the rents for so long as there is no default. If the borrower
defaults, the license terminates and the lender is entitled to collect the
rents. Local law may require that the lender take possession of the property
and/or obtain a court-appointed receiver before becoming entitled to collect
the rents.
CONTRACTS
Under the laws of most states, manufactured housing constitutes personal
property and is subject to the motor vehicle registration laws of the state or
other jurisdiction in which the unit is located. In a few states, where
certificates of title are not required for manufactured homes, security
interests are perfected by the filing of a financing statement under Article 9
of the UCC which has been adopted by all states. Such financing statements
are effective for five years and must be renewed at the end of each five
years. The certificate of title laws adopted by the majority of states
provide that ownership of motor vehicles and manufactured housing shall be
evidenced by a certificate of title issued by the motor vehicles department
(or a similar entity) of such state. In the states that have enacted
certificate of title laws, a security interest in a unit of manufactured
housing, so long as it is not attached to land in so permanent a fashion as to
become a fixture, is generally perfected by the recording of such interest on
the certificate of title to the unit in the appropriate motor vehicle
registration office or by delivery of the required documents and payment of a
fee to such office, depending on state law.
The Master Servicer will be required under the related Pooling Agreement
to effect such notation or delivery of the required documents and fees, and to
obtain possession of the certificate of title, as appropriate under the laws
of the state in which any Manufactured Home is registered. In the event the
Master Servicer fails, due to clerical errors or otherwise, to effect such
notation or delivery, or files the security interest under the wrong law (for
example, under a motor vehicle title statute rather than under the UCC, in a
few states), the Trustee may not have a first priority security interest in
the Manufactured Home securing a Contract. As manufactured homes have become
larger and often have been attached to their sites without any apparent
intention by the borrowers to move them, courts in many states have held that
manufactured homes may, under certain circumstances, become subject to real
estate title and recording laws. As a result, a security interest in a
manufactured home could be rendered subordinate to the interests of other
parties claiming an interest in the home under applicable state real estate
law. In order to perfect a security interest in a manufactured home under
real estate laws, the holder of the security interest must file either a
"fixture filing" under the provisions of the UCC or a real estate mortgage
under the real estate laws of the state where the home is located. These
filings must be made in the real estate records office of the county where the
home is located. Generally, Contracts will contain provisions prohibiting the
obligor from permanently attaching the Manufactured Home to its site. So long
as the obligor does not violate this agreement, a security interest in the
Manufactured Home will be governed by the certificate of title laws or the
UCC, and the notation of the security interest on the certificate of title or
the filing of a UCC financing statement will be effective to maintain the
priority of the security interest in the Manufactured Home. If, however, a
Manufactured Home is permanently attached to its site, other parties could
obtain an interest in the Manufactured Home that is prior to the security
interest originally retained by the Seller and transferred to the Company.
The Company will assign or cause to be assigned a security interest in
the Manufactured Homes to the Trustee, on behalf of the Certificateholders.
Unless otherwise specified in the related Prospectus Supplement, neither the
Company, the Master Servicer nor the Trustee will amend the certificates of
title to identify the Trustee, on behalf of the Certificateholders, as the new
secured party and, accordingly, the Company or the Seller will continue to be
named as the secured party on the certificates of title relating to the
Manufactured Homes. In most states, such assignment is an effective
conveyance of such security interest without amendment of any lien noted on
the related certificate of title and the new secured party succeeds
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to the Company's rights as the secured party. However, in some states there
exists a risk that, in the absence of an amendment to the certificate of
title, such assignment of the security interest might not be held effective
against creditors of the Company or Seller.
In the absence of fraud, forgery or permanent affixation of the
Manufactured Home to its site by the Manufactured Home owner, or
administrative error by state recording officials, the notation of the lien of
the Company on the certificate of title or delivery of the required documents
and fees will be sufficient to protect the Trustee against the rights of
subsequent purchasers of a Manufactured Home or subsequent lenders who take a
security interest in the Manufactured Home. If there are any Manufactured
Homes as to which the Company has failed to perfect or cause to be perfected
the security interest assigned to the Trust Fund, such security interest would
be subordinate to, among others, subsequent purchasers for value of
Manufactured Homes and holders of perfected security interests. There also
exists a risk in not identifying the Trustee, on behalf of the
Certificateholders, as the new secured party on the certificate of title that,
through fraud or negligence, the security interest of the Trustee could be
released.
In the event that the owner of a Manufactured Home moves it to a state
other than the state in which such Manufactured Home initially is registered,
under the laws of most states the perfected security interest in the
Manufactured Home would continue for four months after such relocation and
thereafter until the owner re-registers the Manufactured Home in such state.
If the owner were to relocate a Manufactured Home to another state and re-
register the Manufactured Home in such state, and if the Company did not take
steps to re-perfect its security interest in such state, the security interest
in the Manufactured Home would cease to be perfected. A majority of states
generally require surrender of a certificate of title to re-register a
Manufactured Home; accordingly, the Company must surrender possession if it
holds the certificate of title to such Manufactured Home or, in the case of
Manufactured Homes registered in states that provide for notation of lien, the
Company would receive notice of surrender if the security interest in the
Manufactured Home is noted on the certificate of title. Accordingly, the
Company would have the opportunity to re-perfect its security interest in the
Manufactured Home in the state of relocation. In states that do not require a
certificate of title for registration of a manufactured home, re-registration
could defeat perfection. Similarly, when an obligor under a manufactured
housing conditional sales contract sells a manufactured home, the obligee must
surrender possession of the certificate of title or it will receive notice as
a result of its lien noted thereon and accordingly will have an opportunity to
require satisfaction of the related manufactured housing conditional sales
contract before release of the lien. Under each related Pooling Agreement,
the Master Servicer will be obligated to take such steps, at the Master
Servicer's expense, as are necessary to maintain perfection of security
interests in the Manufactured Homes.
Under the laws of most states, liens for repairs performed on a
Manufactured Home take priority even over a perfected security interest. The
Company will obtain the representation of the related Seller that it has no
knowledge of any such liens with respect to any Manufactured Home securing a
Contract. However, such liens could arise at any time during the term of a
Contract. No notice will be given to the Trustee or Certificateholders in the
event such a lien arises.
FORECLOSURE ON MORTGAGES
Foreclosure of a deed of trust is generally accomplished by a non-
judicial trustee's sale under a specific provision in the deed of trust which
authorizes the trustee to sell the property upon any default by the borrower
under the terms of the note or deed of trust. In addition to any notice
requirements contained in a deed of trust, in some states, the trustee must
record a notice of default and send a copy to the borrower trustor and to any
person who has recorded a request for a copy of notice of default and notice
of sale. In addition, the trustee must provide notice in some states to any
other individual having an interest of record in the real property, including
any junior lienholders. If the deed of trust is not reinstated within a
specified period, a notice of sale must be posted in a public place and, in
most states, published for a specific period of time in one or more
newspapers. In addition, some state laws require that a copy of the notice of
sale be posted on the property and sent to all parties having an interest of
record in the real property.
Foreclosure of a mortgage is generally accomplished by judicial action.
Generally, the action is initiated by the service of legal pleadings upon all
parties having an interest of record in the real property.
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Delays in completion of the foreclosure may occasionally result from
difficulties in locating necessary parties. Judicial foreclosure proceedings
are often not contested by any of the applicable parties. If the mortgagee's
right to foreclose is contested, the legal proceedings necessary to resolve
the issue can be time-consuming.
In some states, the borrower-trustor has the right to reinstate the loan
at any time following default until shortly before the trustee's sale. In
general, in such states, the borrower, or any other person having a junior
encumbrance on the real estate, may, during a reinstatement period, cure the
default by paying the entire amount in arrears plus the costs and expenses
incurred in enforcing the obligation.
In the case of foreclosure under either a mortgage or a deed of trust,
the sale by the referee or other designated officer or by the trustee is a
public sale. However, because of the difficulty a potential buyer at the sale
would have in determining the exact status of title and because the physical
condition of the property may have deteriorated during the foreclosure
proceedings, it is uncommon for a third party to purchase the property at a
foreclosure sale. Rather, it is common for the lender to purchase the
property from the trustee or referee for a credit bid less than or equal to
the unpaid principal amount of the mortgage or deed of trust, accrued and
unpaid interest and the expense of foreclosure. Generally, state law controls
the amount of foreclosure costs and expenses, including attorneys' fees, which
may be recovered by a lender. Thereafter, subject to the right of the
borrower in some states to remain in possession during the redemption period,
the lender will assume the burdens of ownership, including obtaining hazard
insurance and making such repairs at its own expense as are necessary to
render the property suitable for sale. The lender will commonly obtain the
services of a real estate broker and pay the broker's commission in connection
with the sale of the property. Depending upon market conditions, the ultimate
proceeds of the sale of the property may not equal the lender's investment in
the property and, in some states, subject to the terms of the loan, the lender
may be entitled to a deficiency judgment. Any loss may be reduced by the
receipt of any mortgage insurance proceeds.
A junior mortgagee may not foreclose on the property securing a junior
mortgage unless it forecloses subject to the senior mortgages, in which case
it must either pay the entire amount due on the senior mortgages to the senior
mortgagees prior to or at the time of the foreclosure sale or undertake the
obligation to make payments on the senior mortgages in the event the mortgagor
is in default thereunder, in either event adding the amounts expended to the
balance due on the junior loan, and may be subrogated to the rights of the
senior mortgagees. In addition, in the event that the foreclosure of a junior
mortgage triggers the enforcement of a "due-on-sale" clause, the junior
mortgagee may be required to pay the full amount of the senior mortgages to
the senior mortgagees. Accordingly, with respect to those Single Family and
Multifamily Loans which are junior mortgage loans, if the lender purchases the
property, the lender's title will be subject to all senior liens and claims
and certain governmental liens. The proceeds received by the referee or
trustee from the sale are applied first to the costs, fees and expenses of
sale and then in satisfaction of the indebtedness secured by the mortgage or
deed of trust under which the sale was conducted. Any remaining proceeds are
generally payable to the holders of junior mortgages or deeds of trust and
other liens and claims in order of their priority, whether or not the borrower
is in default. Any additional proceeds are generally payable to the mortgagor
or trustor. The payment of the proceeds to the holders of junior mortgages
may occur in the foreclosure action of the senior mortgagee or may require the
institution of separate legal proceeds.
In foreclosure, courts have imposed general equitable principles. The
equitable principles are generally designed to relieve the borrower from the
legal effect of its defaults under the loan documents. Examples of judicial
remedies that have been fashioned include judicial requirements that the
lender undertake affirmative and expensive actions to determine the causes for
the borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's judgment and have required that lenders reinstate loans or recast
payment schedules in order to accommodate borrowers who are suffering from
temporary financial disability. In other cases, courts have limited the right
of a lender to foreclose if the default under the mortgage instrument is not
monetary, such as the borrower's failure to adequately maintain the property
or the borrower's execution of a second mortgage or deed of trust affecting
the property. Finally, some courts have been faced with the issue of whether
or not federal or state constitutional provisions reflecting due process
concerns for adequate notice require that borrowers under deeds of trust or
mortgages receive notices in addition to the statutorily-
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prescribed minimums. For the most part, these cases have upheld the notice
provisions as being reasonable or have found that the sale by a trustee under
a deed of trust, or under a mortgage having a power of sale, does not involve
sufficient state action to afford constitutional protection to the borrower.
REPOSSESSION WITH RESPECT TO CONTRACTS
General. Repossession of manufactured housing is governed by state law.
A few states have enacted legislation that requires that the debtor be given
an opportunity to cure its default (typically 30 days to bring the account
current) before repossession can commence. So long as a manufactured home has
not become so attached to real estate that it would be treated as a part of
the real estate under the law of the state where it is located, repossession
of such home in the event of a default by the obligor will generally be
governed by the UCC (except in Louisiana). Article 9 of the UCC provides the
statutory framework for the repossession of manufactured housing. While the
UCC as adopted by the various states may vary in certain small particulars,
the general repossession procedure established by the UCC is as follows:
(i) Except in those states where the debtor must receive notice of the
right to cure a default, repossession can commence immediately upon default
without prior notice. Repossession may be effected either through self-help
(peaceable retaking without court order), voluntary repossession or through
judicial process (repossession pursuant to court-issued writ of replevin).
The self-help and/or voluntary repossession methods are more commonly
employed, and are accomplished simply by retaking possession of the
manufactured home. In cases in which the debtor objects or raises a defense
to repossession, a court order must be obtained from the appropriate state
court, and the manufactured home must then be repossessed in accordance with
that order. Whether the method employed is self-help, voluntary repossession
or judicial repossession, the repossession can be accomplished either by an
actual physical removal of the manufactured home to a secure location for
refurbishment and resale or by removing the occupants and their belongings
from the manufactured home and maintaining possession of the manufactured home
on the location where the occupants were residing. Various factors may affect
whether the manufactured home is physically removed or left on location, such
as the nature and term of the lease of the site on which it is located and the
condition of the unit. In many cases, leaving the manufactured home on
location is preferable, in the event that the home is already set up, because
the expenses of retaking and redelivery will be saved. However, in those
cases where the home is left on location, expenses for site rentals will
usually be incurred.
(ii) Once repossession has been achieved, preparation for the subsequent
disposition of the manufactured home can commence. The disposition may be by
public or private sale provided the method, manner, time, place and terms of
the sale are commercially reasonable.
(iii) Sale proceeds are to be applied first to repossession expenses
(expenses incurred in retaking, storage, preparing for sale to include
refurbishing costs and selling) and then to satisfaction of the indebtedness.
While some states impose prohibitions or limitations on deficiency judgments
if the net proceeds from resale do not cover the full amount of the
indebtedness, the remainder may be sought from the debtor in the form of a
deficiency judgement in those states that do not prohibit or limit such
judgments. The deficiency judgment is a personal judgment against the debtor
for the shortfall. Occasionally, after resale of a manufactured home and
payment of all expenses and indebtedness, there is a surplus of funds. In
that case, the UCC requires the party suing for the deficiency judgment to
remit the surplus to the debtor. Because the defaulting owner of a
manufactured home generally has very little capital or income available
following repossession, a deficiency judgment may not be sought in many cases
or, if obtained, will be settled at a significant discount in light of the
defaulting owner's strained financial condition.
Louisiana Law. Any contract secured by a manufactured home located in
Louisiana will be governed by Louisiana law rather than Article 9 of the UCC.
Louisiana laws provide similar mechanisms for perfection and enforcement of
security interests in manufactured housing used as collateral for an
installment sale contract or installment loan agreement.
Under Louisiana law, a manufactured home that has been permanently
affixed to real estate will nevertheless remain subject to the motor vehicle
registration laws unless the obligor and any holder of a security interest in
the property execute and file in the real estate records for the parish in
which the property
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is located a document converting the unit into real property. A manufactured
home that is converted into real property but is then removed from its site
can be converted back to personal property governed by the motor vehicle
registration laws if the obligor executes and files various documents in the
appropriate real estate records and all mortgagees under real estate mortgages
on the property and the land to which it was affixed file releases with the
motor vehicle commission.
So long as a manufactured home remains subject to the Louisiana motor
vehicle laws, liens are recorded on the certificate of title by the motor
vehicle commissioner and repossession can be accomplished by voluntary consent
of the obligor, executory process (repossession proceedings which must be
initiated through the courts but which involve minimal court supervision) or a
civil suit for possession. In connection with a voluntary surrender, the
obligor must be given a full release from liability for all amounts due under
the contract. In executory process repossessions, a sheriff's sale (without
court supervision) is permitted, unless the obligor brings suit to enjoin the
sale, and the lender is prohibited from seeking a deficiency judgment against
the obligor unless the lender obtained an appraisal of the manufactured home
prior to the sale and the property was sold for at least two-thirds of its
appraised value.
RIGHTS OF REDEMPTION
Single Family Properties and Multifamily Properties. The purposes of a
foreclosure action in respect of a Single Family Property or Multifamily
Property are to enable the lender to realize upon its security and to bar the
borrower, and all persons who have interests in the property that are
subordinate to that of the foreclosing lender, from exercise of their "equity
of redemption". The doctrine of equity of redemption provides that, until the
property encumbered by a mortgage has been sold in accordance with a properly
conducted foreclosure and foreclosure sale, those having interests that are
subordinate to that of the foreclosing lender have an equity of redemption and
may redeem the property by paying the entire debt with interest. Those having
an equity of redemption must generally be made parties and joined in the
foreclosure proceeding in order for their equity of redemption to be
terminated.
The equity of redemption is a common-law (non-statutory) right which
should be distinguished from post-sale statutory rights of redemption. In
some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and foreclosed junior lienholders are given a statutory
period in which to redeem the property. In some states, statutory redemption
may occur only upon payment of the foreclosure sale price. In other states,
redemption may be permitted if the former borrower pays only a portion of the
sums due. The effect of a statutory right of redemption is to diminish the
ability of the lender to sell the foreclosed property because the exercise of
a right of redemption would defeat the title of any purchase through a
foreclosure. Consequently, the practical effect of the redemption right is to
force the lender to maintain the property and pay the expenses of ownership
until the redemption period has expired. In some states, a post-sale
statutory right of redemption may exist following a judicial foreclosure, but
not following a trustee's sale under a deed of trust.
Manufactured Homes. While state laws do not usually require notice to be
given to debtors prior to repossession, many states do require delivery of a
notice of default and of the debtor's right to cure defaults before
repossession. The law in most states also requires that the debtor be given
notice of sale prior to the resale of the home so that the owner may redeem at
or before resale. In addition, the sale must comply with the requirements of
the UCC.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Single Family Loans and Multifamily Loans. Certain states have imposed
statutory prohibitions which limit the remedies of a beneficiary under a deed
of trust or a mortgagee under a mortgage. In some states including
California, statutes limit the right of the beneficiary or mortgagee to obtain
a deficiency judgment against the borrower following foreclosure. A
deficiency judgment is a personal judgment against the former borrower equal
in most cases to the difference between the net amount realized upon the
public sale of the real property and the amount due to the lender. In the
case of a Mortgage Loan secured by a property owned by a trust where the
Mortgage Note is executed on behalf of the trust, a deficiency judgment
against the trust following foreclosure or sale under a deed of trust, even if
obtainable under applicable law, may be of little
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value to the mortgagee or beneficiary if there are no trust assets against
which such deficiency judgment may be executed. In the case of a Mortgage
Loan secured by a property owned by a trust where the Mortgage Note is
executed on behalf of the trust, a deficiency judgment against the trust
following foreclosure or sale under a deed of trust, even if obtainable under
applicable law, may be of little value to the mortgagee or beneficiary if
there are no trust assets against which such deficiency judgment may be
executed. Other statutes require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an
attempt to satisfy the full debt before bringing a personal action against the
borrower. In certain other states, the lender has the option of bringing a
personal action against the borrower on the debt without first exhausting such
security; however in some of these states, the lender, following judgment on
such personal action, may be deemed to have elected a remedy and may be
precluded from exercising remedies with respect to the security.
Consequently, the practical effect of the election requirement, in those
states permitting such election, is that lenders will usually proceed against
the security first rather than bringing a personal action against the
borrower. Finally, in certain other states, statutory provisions limit any
deficiency judgment against the former borrower following a foreclosure to the
excess of the outstanding debt over the fair value of the property at the time
of the public sale. The purpose of these statutes is generally to prevent a
beneficiary or mortgagee from obtaining a large deficiency judgment against
the former borrower as a result of low or no bids at the judicial sale.
In addition to laws limiting or prohibiting deficiency judgments,
numerous other federal and state statutory provisions, including the federal
bankruptcy laws and state laws affording relief to debtors, may interfere with
or affect the ability of the secured mortgage lender to realize upon
collateral or enforce a deficiency judgment. For example, under the federal
Bankruptcy Code, as amended from time to time (Title 11 of the United States
Code) (the "Bankruptcy Code"), virtually all actions (including foreclosure
actions and deficiency judgment proceedings) to collect a debt are
automatically stayed upon the filing of the bankruptcy petition and, often, no
interest or principal payments are made during the course of the bankruptcy
case. The delay and the consequences thereof caused by such automatic stay
can be significant. Also, under the Bankruptcy Code, the filing of a petition
in a bankruptcy by or on behalf of a junior lienor may stay the senior lender
from taking action to foreclose out of such junior lien. Moreover, with
respect to federal bankruptcy law, a court with federal bankruptcy
jurisdiction may permit a debtor through his or her Chapter 11 or Chapter 13
rehabilitative plan to cure a monetary default in respect of a mortgage loan
on a debtor's residence by paying arrearage within a reasonable time period
and reinstating the original mortgage loan payment schedule even though the
lender accelerated the mortgage loan and final judgment of foreclosure had
been entered in state court (provided no sale of the residence had yet
occurred) prior to the filing of the debtor's petition. Some courts with
federal bankruptcy jurisdiction have approved plans, based on the particular
facts of the reorganization case, that effected the curing of a mortgage loan
default by paying arrearage over a number of years.
Courts with federal bankruptcy jurisdiction have also indicated that the
terms of a mortgage loan secured by property of the debtor may be modified.
These courts have allowed modifications that include reducing the amount of
each monthly payment, changing the rate of interest, altering the repayment
schedule, forgiving all or a portion of the debt and reducing the lender's
security interest to the value of the residence, thus leaving the lender a
general unsecured creditor for the difference between the value of the
residence and the outstanding balance of the loan. Generally, however, the
terms of a mortgage loan secured only by a mortgage on real property that is
the debtor's principal residence may not be modified pursuant to a plan
confirmed pursuant to Chapter 13 except with respect to mortgage payment
arrears, which may be cured within a reasonable time period.
In the case of income-producing multifamily properties, federal
bankruptcy law may also have the effect of interfering with or affecting the
ability of the secured lender to enforce the borrower's assignment of rents
and leases related to the mortgaged property. Under Section 362 of the
Bankruptcy Code, the lender will be stayed from enforcing the assignment, and
the legal proceedings necessary to resolve the issue could be time-consuming,
with resulting delays in the lender's receipt of the rents.
Certain tax liens arising under the Internal Revenue Code of 1986, as
amended, may in certain circumstances provide priority over the lien of a
mortgage or deed of trust. In addition, substantive requirements are imposed
upon mortgage lenders in connection with the origination and the servicing of
single
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family mortgage loans by numerous federal and some state consumer protection
laws. These laws include the federal Truth-in-Lending Act, Real Estate
Settlement Procedures Act, Equal Credit Opportunity Act, Fair Credit Billing
Act, Fair Credit Reporting Act and related statutes. These federal laws
impose specific statutory liabilities upon lenders who originate mortgage
loans and who fail to comply with the provisions of the law. In some cases,
this liability may affect assignees of the mortgage loans.
Contracts. In addition to the laws limiting or prohibiting deficiency
judgments, numerous other statutory provisions, including federal bankruptcy
laws and related state laws, may interfere with or affect the ability of a
lender to realize upon collateral and/or enforce a deficiency judgment. For
example, in a Chapter 13 proceeding under the federal bankruptcy law, a court
may prevent a lender from repossessing a home, and, as part of the
rehabilitation plan, reduce the amount of the secured indebtedness to the
market value of the home at the time of bankruptcy (as determined by the
court), leaving the party providing financing as a general unsecured creditor
for the remainder of the indebtedness. A bankruptcy court may also reduce the
monthly payments due under a contract or change the rate of interest and time
of repayment of the indebtedness.
JUNIOR MORTGAGES
Some of the Mortgage Loans may be secured by junior mortgages or deeds of
trust, which are junior to senior mortgages or deeds of trust which are not
part of the Trust Fund. The rights of the Certificateholders as the holders
of a junior deed of trust or a junior mortgage are subordinate in lien
priority and in payment priority to those of the holder of the senior mortgage
or deed of trust, including the prior rights of the senior mortgagee or
beneficiary to receive and apply hazard insurance and condemnation proceeds
and, upon default of the mortgagor, to cause a foreclosure on the property.
Upon completion of the foreclosure proceedings by the holder of the senior
mortgage or the sale pursuant to the deed of trust, the junior mortgagee's or
junior beneficiary's lien will be extinguished unless the junior lienholder
satisfies the defaulted senior loan or asserts its subordinate interest in a
property in foreclosure proceedings. See "-Foreclosure on Mortgages" above.
Furthermore, the terms of the junior mortgage or deed of trust are
subordinate to the terms of the senior mortgage or deed of trust. In the
event of a conflict between the terms of the senior mortgage or deed of trust
and the junior mortgage or deed of trust, the terms of the senior mortgage or
deed of trust will govern generally. Upon a failure of the mortgagor or
trustor to perform any of its obligations, the senior mortgagee or
beneficiary, subject to the terms of the senior mortgage or deed of trust, may
have the right to perform the obligation itself. Generally, all sums so
expended by the mortgagee or beneficiary become part of the indebtedness
secured by the mortgage or deed of trust. To the extent a senior mortgagee
expends such sums, such sums will generally have priority over all sums due
under the junior mortgage.
CONSUMER PROTECTION LAWS WITH RESPECT TO CONTRACTS
Numerous federal and state consumer protection laws impose substantial
requirements upon creditors involved in consumer finance. These laws include
the federal Truth-in-Lending Act, Regulation "Z", the Equal Credit Opportunity
Act, Regulation "B", the Fair Credit Reporting Act, and related statutes.
These laws can impose specific statutory liabilities upon creditors who fail
to comply with their provisions. In some cases, this liability may affect an
assignee's ability to enforce a contract.
Manufactured housing contracts often contain provisions obligating the
obligor to pay late charges if payments are not timely made. In certain
cases, federal and state law may specifically limit the amount of late charges
that may be collected. Unless otherwise provided in the related Prospectus
Supplement, under the related Pooling Agreement, late charges will be retained
by the Master Servicer as additional servicing compensation, and any inability
to collect these amounts will not affect payments to Certificateholders.
Courts have imposed general equitable principles upon repossession and
litigation involving deficiency balances. These equitable principles are
generally designed to relieve a consumer from the legal consequences of a
default.
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In several cases, consumers have asserted that the remedies provided to
secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the
United States. For the most part, courts have upheld the notice provisions of
the UCC and related laws as reasonable or have found that the repossession and
resale by the creditor does not involve sufficient state action to afford
constitutional protection to consumers.
The so-called "Holder-in-Due-Course" Rule of the Federal Trade Commission
(the "FTC Rule") has the effect of subjecting a seller (and certain related
creditors and their assignees) in a consumer credit transaction and any
assignee of the creditor to all claims and defenses which the debtor in the
transaction could assert against the seller of the goods. Liability under the
FTC Rule is limited to the amounts paid by a debtor on the contract, and the
holder of the contract may also be unable to collect amounts still due
thereunder. Most of the Contracts in a Trust Fund will be subject to the
requirements of the FTC Rule. Accordingly, the Trust Fund, as holder of the
Contracts, will be subject to any claims or defenses that the purchaser of the
related manufactured home may assert against the seller of the manufactured
home, subject to a maximum liability equal to the amounts paid by the obligor
on the Contract.
ENVIRONMENTAL LEGISLATION
Certain states impose a statutory lien for associated costs on property
that is the subject of a cleanup action by the state on account of hazardous
wastes or hazardous substances released or disposed of on the property. Such
a lien will generally have priority over all subsequent liens on the property
and, in certain of these states, will have priority over prior recorded liens
including the lien of a mortgage. In addition, under federal environmental
legislation and under state law in a number of states, a secured party which
takes a deed in lieu of foreclosure or acquires a mortgaged property at a
foreclosure sale or becomes involved in the operation or management of a
property so as to be deemed an "owner" or "operator" of the property may be
liable for the costs of cleaning up a contaminated site. Although such costs
could be substantial, it is unclear whether they would be imposed on a lender
(such as a Trust Fund) secured by residential real property. In the event
that title to a Mortgaged Property securing a Mortgage Loan in a Trust Fund
was acquired by the Trust Fund and cleanup costs were incurred in respect of
the Mortgaged Property, the holders of the Offered Certificates of the related
series might realize a loss if such costs were required to be paid by the
Trust Fund.
ENFORCEABILITY OF CERTAIN PROVISIONS
Transfer of Single Family Properties and Multifamily Properties. Unless
the related Prospectus Supplement indicates otherwise, the Single Family Loans
and Multifamily Loans generally contain due-on-sale clauses. These clauses
permit the lender to accelerate the maturity of the loan if the borrower
sells, transfers or conveys the property. The enforceability of these clauses
has been the subject of legislation or litigation in many states, and in some
cases the enforceability of these clauses was limited or denied. However, the
Garn-St Germain Depository Institutions Act of 1982 (the "Garn-St Germain
Act") preempts state constitutional, statutory and case law that prohibits the
enforcement of due-on-sale clauses and permits lenders to enforce these
clauses in accordance with their terms, subject to certain limited exceptions.
The Garn-St Germain Act does "encourage" lenders to permit assumption of loans
at the original rate of interest or at some other rate less than the average
of the original rate and the market rate.
The Garn-St Germain Act also sets forth nine specific instances in which
a mortgage lender covered by the Garn-St Germain Act may not exercise a due-
on-sale clause, notwithstanding the fact that a transfer of the property may
have occurred. These include intra-family transfers, certain transfers by
operation of law, leases of fewer than three years and the creation of a
junior encumbrance. Regulations promulgated under the Garn-St Germain Act
also prohibit the imposition of a prepayment penalty upon the acceleration of
a loan pursuant to a due-on-sale clause.
The inability to enforce a due-on-sale clause may result in a mortgage
loan bearing an interest rate below the current market rate being assumed by
the buyer rather than being paid off, which may have an impact upon the
average life of the Mortgage Loans and the number of Mortgage Loans which may
be outstanding until maturity.
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Transfer of Manufactured Homes. Generally, manufactured housing
contracts contain provisions prohibiting the sale or transfer of the related
manufactured homes without the consent of the obligee on the contract and
permitting the acceleration of the maturity of such contracts by the obligee
on the contract upon any such sale or transfer that is not consented to.
Unless otherwise provided in the related Prospectus Supplement, the Master
Servicer will, to the extent it has knowledge of such conveyance or proposed
conveyance, exercise or cause to be exercised its rights to accelerate the
maturity of the related Contracts through enforcement of due-on-sale clauses,
subject to applicable state law. In certain cases, the transfer may be made
by a delinquent obligor in order to avoid a repossession proceeding with
respect to a Manufactured Home.
In the case of a transfer of a Manufactured Home as to which the Master
Servicer desires to accelerate the maturity of the related Contract, the
Master Servicer's ability to do so will depend on the enforceability under
state law of the due-on-sale clause. The Garn-St Germain Act preempts,
subject to certain exceptions and conditions, state laws prohibiting
enforcement of due-on-sale clauses applicable to the Manufactured Homes.
Consequently, in some cases the Master Servicer may be prohibited from
enforcing a due-on-sale clause in respect of certain Manufactured Homes.
Late Payment Charges and Prepayment Restrictions. Notes and mortgages,
as well as manufactured housing conditional sales contracts and installment
loan agreements, may contain provisions that obligate the borrower to pay a
late charge or additional interest if payments are not timely made, and in
some circumstances, may prohibit prepayments for a specified period and/or
condition prepayments upon the borrower's payment of prepayment fees or yield
maintenance penalties. In certain states, there are or may be specific
limitations upon the late charges which a lender may collect from a borrower
for delinquent payments. Certain states also limit the amounts that a lender
may collect from a borrower as an additional charge if the loan is prepaid.
In addition, the enforceability of provisions that provide for prepayment fees
or penalties upon an involuntary prepayment is unclear under the laws of many
states.
SUBORDINATE FINANCING
When the mortgagor encumbers mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the
mortgagor may have difficulty servicing and repaying multiple loans. In
addition, if the junior loan permits recourse to the mortgagor (as junior
loans often do) and the senior loan does not, a mortgagor may be more likely
to repay sums due on the junior loan than those on the senior loan. Second,
acts of the senior lender that prejudice the junior lender or impair the
junior lender's security may create a superior equity in favor of the junior
lender. For example, if the mortgagor and the senior lender agree to an
increase in the principal amount of or the interest rate payable on the senior
loan, the senior lender may lose its priority to the extent an existing junior
lender is harmed or the mortgagor is additionally burdened. Third, if the
mortgagor defaults on the senior loan and/or any junior loan or loans, the
existence of junior loans and actions taken by junior lenders can impair the
security available to the senior lender and can interfere with or delay the
taking of action by the senior lender. Moreover, the bankruptcy of a junior
lender may operate to stay foreclosure or similar proceeds by the senior
lender.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980 ("Title V"), provides that state usury
limitations shall not apply to certain types of residential first mortgage
loans originated by certain lenders after March 31, 1980. A similar federal
statute was in effect with respect to mortgage loans made during the first
three months of 1980. The Office of Thrift Supervision is authorized to issue
rules and regulations and to publish interpretations governing implementation
of Title V. The statute authorized any state to reimpose interest rate limits
by adopting, before April 1, 1983, a law or constitutional provision which
expressly rejects application of the federal law. In addition, even where
Title V is not so rejected, any state is authorized by the law to adopt a
provision limiting discount points or other charges on mortgage loans covered
by Title V, Certain states have taken action to reimpose interest rate limits
or to limit discount points or other charges.
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Title V also provides that, subject to the following conditions, state
usury limitations shall not apply to any loan that is secured by a first lien
on certain kinds of manufactured housing. The Contracts would be covered if
they satisfy certain conditions, among other things, governing the terms of
any prepayments, late charges and deferral fees and requiring a 30-day notice
period prior to instituting any action leading to repossession of or
foreclosure with respect to the related unit. Title V authorized any state to
reimpose limitations on interest rates and finance charges by adopting before
April 1, 1983 a law or constitutional provision which expressly rejects
application of the federal law. Fifteen states adopted such a law prior to
the April 1, 1983 deadline. In addition, even where Title V was not so
rejected, any state is authorized by the law to adopt a provision limiting
discount points or other charges on loans covered by Title V. In any state in
which application of Title V was expressly rejected or a provision limiting
discount points or other charges has been adopted, no Contract which imposes
finance charges or provides for discount points or charges in excess of
permitted levels has been included in the Trust Fund.
As indicated above under "The Mortgage Pools-Representations by Sellers,"
each Seller of a Mortgage Loan will have represented that such Mortgage Loan
was originated in compliance with then applicable state laws, including usury
laws, in all material respects. However, the Mortgage Rates on the Mortgage
Loans will be subject to applicable usury laws as in effect from time to time.
ALTERNATIVE MORTGAGE INSTRUMENTS
Alternative mortgage instruments, including adjustable rate mortgage
loans and early ownership mortgage loans, originated by non-federally
chartered lenders have historically been subjected to a variety of
restrictions. Such restrictions differed from state to state, resulting in
difficulties in determining whether a particular alternative mortgage
instrument originated by a state-chartered lender was in compliance with
applicable law. These difficulties were alleviated substantially as a result
of the enactment of Title VIII of the Garn-St Germain Act ("Title VIII").
Title VIII provides that, notwithstanding any state law to the contrary,
state-chartered banks may originate alternative mortgage instruments in
accordance with regulations promulgated by the Comptroller of the Currency
with respect to origination of alternative mortgage instruments by national
banks, state-chartered credit unions may originate alternative mortgage
instruments in accordance with regulations promulgated by the National Credit
Union Administration with respect to origination of alternative mortgage
instruments by federal credit unions, and all other non-federally chartered
housing creditors, including state-chartered savings and loan associations,
state-chartered savings banks and mutual savings banks and mortgage banking
companies, may originate alternative mortgage instruments in accordance with
the regulations promulgated by the Federal Home Loan Bank Board, predecessor
to the Office of Thrift Supervision, with respect to origination of
alternative mortgage instruments by federal savings and loan associations.
Title VIII provides that any state may reject applicability of the provisions
of Title VIII by adopting, prior to October 15, 1985, a law or constitutional
provision expressly rejecting the applicability of such provisions. Certain
states have taken such action.
FORMALDEHYDE LITIGATION WITH RESPECT TO CONTRACTS
A number of lawsuits are pending in the United States alleging personal
injury from exposure to the chemical formaldehyde, which is present in many
building materials, including such components of manufactured housing as
plywood flooring and wall paneling. Some of these lawsuits are pending
against manufacturers of manufactured housing, suppliers of component parts,
and related persons in the distribution process. The Company is aware of a
limited number of cases in which plaintiffs have won judgments in these
lawsuits.
Under the FTC Rule, which is described above under "Consumer Protection
Laws", the holder of any Contract secured by a Manufactured Home with respect
to which a formaldehyde claim has been successfully asserted may be liable to
the obligor for the amount paid by the obligor on the related Contract and may
be unable to collect amounts still due under the Contract. In the event an
obligor is successful in asserting such a claim, the related
Certificateholders could suffer a loss if (i) the related Seller fails or
cannot be required to repurchase the affected Contract for a breach of
representation and warranty and (ii) the Master Servicer or the Trustee were
unsuccessful in asserting any claim of contribution or subrogation on behalf
of the Certificateholders against the manufacturer or other persons who were
directly liable to the plaintiff for the
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damages. Typical products liability insurance policies held by manufacturers
and component suppliers of manufactured homes may not cover liabilities
arising from formaldehyde in manufactured housing, with the result that
recoveries from such manufacturers, suppliers or other persons may be limited
to their corporate assets without the benefit of insurance.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940,
as amended (the "Relief Act"), a Mortgagor who enters military service after
the origination of such Mortgagor's Mortgage Loan (including a Mortgagor who
was in reserve status and is called to active duty after origination of the
Mortgage Loan), may not be charged interest (including fees and charges) above
an annual rate of 6% during the period of such Mortgagor's active duty status,
unless a court orders otherwise upon application of the lender. The Relief
Act applies to individuals who are members of the Army, Navy, Air Force,
Marines, National Guard, Reserves, Coast Guard, and officers of the U.S.
Public Health Service assigned to duty with the military. Because the Relief
Act applies to Mortgagors who enter military service (including reservists who
are called to active duty) after origination of the related Mortgage Loan, no
information can be provided as to the number of loans that may be affected by
the Relief Act. Application of the Relief Act would adversely affect, for an
indeterminate period of time, the ability of the Master Servicer to collect
full amounts of interest on certain of the Mortgage Loans. Any shortfall in
interest collections resulting from the application of the Relief Act or
similar legislation or regulations, which would not be recoverable from the
related Mortgage Loans, would result in a reduction of the amounts
distributable to the holders of the related Certificates, and would not be
covered by advances or, unless otherwise specified in the related Prospectus
Supplement, by any Letter of Credit or any other form of credit enhancement
provided in connection with the related series of Certificates. In addition,
the Relief Act imposes limitations that would impair the ability of the Master
Servicer to foreclose on an affected Mortgage Loan or enforce rights under a
Contract during the Mortgagor's period of active duty status, and, under
certain circumstances, during an additional three month period thereafter.
Thus, in the event that the Relief Act or similar legislation or regulations
applies to any Mortgage Loan which goes into default, there may be delays in
payment and losses on the related Certificates in connection therewith. Any
other interest shortfalls, deferrals or forgiveness of payments on the
Mortgage Loans resulting from similar legislation or regulations may result in
delays in payments or losses to Certificate holders of the related series.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following general discussion of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of the
Certificates offered hereunder, to the extent it relates to matters of law or
legal conclusions with respect thereto, represents the opinion of counsel to
the Company with respect to that series on the material matters associated
with such consequences, subject to any qualifications set forth herein. This
discussion has been prepared with the advice of Freshman, Marantz, Orlanski,
Cooper & Klein, counsel to the Company. This discussion is directed solely to
Certificateholders that hold the Certificates as capital assets within the
meaning of Section 1221 of the Internal Revenue Code of 1986 (the "Code") and
does not purport to discuss all federal income tax consequences that may be
applicable to particular categories of investors, some of which (such as
banks, insurance companies and foreign investors) may be subject to special
rules. Further, the authorities on which this discussion, and the opinion
referred to below, are based are subject to change or differing
interpretations, which could apply retroactively. Taxpayers and preparers of
tax returns (including those filed by any REMIC or other issuer) should be
aware that under applicable Treasury regulations a provider of advice on
specific issues of law is not considered an income tax return preparer unless
the advice (i) is given with respect to events that have occurred at the time
the advice is rendered and is not given with respect to the consequences of
contemplated actions, and (ii) is directly relevant to the determination of an
entry on a tax return. Prospective investors should note that no rulings have
been or will be sought from the Internal Revenue Service (the "IRS") with
respect to any of the federal income tax consequences discussed below, and no
assurance can be given the IRS will not take a contrary position.
Accordingly, taxpayers should consult their own tax advisors and tax return
preparers regarding the preparation of any item on a tax return, even where
the anticipated tax treatment has been discussed herein.
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In addition to the federal income tax consequences described herein, potential
investors should consider the state and local tax consequences, if any, of the
purchase, ownership and disposition of the Certificates. See "State and Other
Tax Consequences." Certificateholders are advised to consult their own tax
advisors concerning the federal, state, local or other tax consequences to
them of the purchase, ownership and disposition of the Certificates offered
hereunder.
The following discussion addresses securities of two general types: (i)
certificates ("REMIC Certificates") representing interests in a Trust Fund, or
a portion thereof, that the Trustee, the Master Servicer or another specified
party (the "REMIC Administrator") will elect to have treated as a real estate
mortgage investment conduit ("REMIC") under Sections 860A through 86OG (the
"REMIC Provisions") of the Code and (ii) certificates ("Grantor Trust
Certificates") representing interests in a Trust Fund ("Grantor Trust Fund")
as to which no such election will be made. The Prospectus Supplement for each
series of Certificates will indicate whether a REMIC election (or elections)
will be made for the related Trust Fund and, if such an election is to be
made, will identify all "regular interests" and "residual interests" in the
REMIC. For purposes of this tax discussion, references to a
"Certificateholder" or a "holder" are to the beneficial owner of a
Certificate.
The following discussion is based in part upon the rules governing
original issue discount that are set forth in Sections 1271-1273 and 1275 of
the Code and in the Treasury regulations issued thereunder (the "OID
Regulations"), and in part upon the REMIC Provisions and the Treasury
regulations issued thereunder (the "REMIC Regulations"). The OID Regulations
do not adequately address certain issues relevant to, and in some instances
provide that they are not applicable to, securities such as the Certificates.
REMICS
Classification of REMICS. Prior to the sale of each series of REMIC
Certificates, Freshman, Marantz, Orlanski, Cooper & Klein, counsel to the
Company, will have delivered its opinion generally to the effect that,
assuming compliance with all provisions of the related Pooling and Servicing
Agreement, the related Trust Fund (or each applicable portion thereof) will
qualify as a REMIC and the REMIC Certificates offered with respect thereto
will be considered to evidence ownership of "regular interests" ("REMIC
Regular Certificates") or "residual interests" ("REMIC Residual Certificates")
in that REMIC within the meaning of the REMIC Provisions. Such opinion will
be filed with the Commission either as an exhibit to the Registration
Statement of which this Prospectus Supplement is a part or in a Current Report
on Form 8-K.
If an entity electing to be treated as a REMIC fails to comply with one
or more of the ongoing requirements of the Code for such status during any
taxable year, the Code provides that the entity will not be treated as a REMIC
for such year and thereafter. In that event, such entity may be taxable as a
corporation under Treasury regulations, and the related REMIC Certificates may
not be accorded the status or given the tax treatment described below.
Although the Code authorizes the Treasury Department to issue regulations
providing relief in the event of an inadvertent termination of REMIC status,
no such regulations have been issued. Any such relief, moreover, may be
accompanied by sanctions, such as the imposition of a corporate tax on all or
a portion of the Trust Fund's income for the period in which the requirements
for such status are not satisfied. The Pooling and Servicing Agreement with
respect to each REMIC will include provisions designed to maintain the Trust
Fund's status as a REMIC under the REMIC Provisions. It is not anticipated
that the status of any Trust Fund as a REMIC will be terminated.
Characterization of Investments in REMIC Certificates. In general, the
REMIC Certificates will be "qualifying real property loans" within the meaning
of Section 593(d) of the Code, "real estate assets" within the meaning of
Section 856(c)(5)(A) of the Code and assets described in Section
7701(a)(19)(C) of the Code in the same proportion that the assets of the REMIC
underlying such Certificates would be so treated. Moreover, if 95 % or more
of the assets of the REMIC qualify for any of the foregoing treatments at all
times during a calendar year, the REMIC Certificates will qualify for the
corresponding status in their entirety for that calendar year. Interest
(including original issue discount) on the REMIC Regular Certificates and
income allocated to the class of REMIC Residual Certificates will be interest
described in Section 856(c)(3)(B) of the Code to the extent that such
Certificates are treated as areal estate assets" within the meaning of Section
856(c)(5)(A) of the Code. In addition, the REMIC Regular Certificates will be
"qualified mortgages" within
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the meaning of Section 86OG(a)(3) of the Code if transferred to another REMIC
on its startup day in exchange for regular or residual interests therein. The
determination as to the percentage of the REMIC's assets that constitute
assets described in the foregoing sections of the Code will be made with
respect to each calendar quarter based on the average adjusted basis of each
category of the assets held by the REMIC during such calendar quarter. The
REMIC will report those determinations to Certificateholders in the manner and
at the times required by applicable Treasury regulations.
The assets of the REMIC will include, in addition to Mortgage Loans,
payments on Mortgage Loans held pending distribution on the REMIC Certificates
and property acquired by foreclosure held pending sale, and may include
amounts in reserve accounts. It is unclear whether property acquired by
foreclosure held pending sale and amounts in reserve accounts would be
considered to be part of the Mortgage Loans, or whether such assets (to the
extent not invested in assets described in the foregoing sections) otherwise
would receive the same treatment as the Mortgage Loans for purposes of all of
the foregoing sections. In addition, in some instances Mortgage Loans may not
be treated entirely as assets described in the foregoing sections. If so, the
related Prospectus Supplement will describe the Mortgage Loans that may not be
so treated. The REMIC Regulations do provide, however, that payments on
Mortgage Loans held pending distribution are considered part of the Mortgage
Loans for purposes of Sections 593(d) and 856(c)(5)(A) of the Code.
Tiered REMIC Structures. For certain series of REMIC Certificates, two
or more separate elections may be made to treat designated portions of the
related Trust Fund as REMICs ("Tiered REMICs") for federal income tax
purposes. Upon the issuance of any such series of REMIC Certificates,
Freshman, Marantz, Orlanski, Cooper & Klein, counsel to the Company, will
deliver its opinion generally to the effect that, assuming compliance with all
provisions of the related Pooling and Servicing Agreement, the Tiered REMICs
will each qualify as a REMIC and the REMIC Certificates issued by the Tiered
REMICS, respectively, will be considered to evidence ownership of REMIC
Regular Certificates or REMIC Residual Certificates in the related REMIC
within the meaning of the REMIC Provisions.
Solely for purposes of determining whether the REMIC Certificates will be
"qualifying real property loans" under Section 593(d) of the Code, "real
estate assets" within the meaning of Section 856(c)(5)(A) of the Code, and
"loans secured by an interest in real property" under Section 7701(a)(19)(C)
of the Code, and whether the income on such Certificates is interest described
in Section 856(c)(3)(B) of the Code, the Tiered REMICs will be treated as one
REMIC.
Taxation of Owners of REMIC Regular Certificates.
General. Except as otherwise stated in this discussion, REMIC Regular
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Certificates will be treated for federal income tax purposes as debt
instruments issued by the REMIC and not as ownership interests in the REMIC or
its assets. Moreover, holders of REMIC Regular Certificates that otherwise
report income under a cash method of accounting will be required to report
income with respect to REMIC Regular Certificates under an accrual method.
Original Issue Discount. Certain REMIC Regular Certificates may be
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issued with "original issue discount" within the meaning of Section 1273(a) of
the Code. Any holders of REMIC Regular Certificates issued with original
issue discount generally will be required to include original issue discount
in income as it accrues, in accordance with the method described below, in
advance of the receipt of the cash attributable to such income. In addition,
Section 1272(a)(6) of the Code provides special rules applicable to REMIC
Regular Certificates and certain other debt instruments issued with original
issue discount. Regulations have not been issued under that section.
The Code requires that a prepayment assumption be used with respect to
Mortgage Loans held by a REMIC in computing the accrual of original issue
discount on REMIC Regular Certificates issued by that REMIC, and that
adjustments be made in the amount and rate of accrual of such discount to
reflect differences between the actual prepayment rate and the prepayment
assumption. The prepayment assumption is to be determined in a manner
prescribed in Treasury regulations; as noted above, those regulations have not
been issued. The Conference Committee Report accompanying the Tax Reform Act
of 1986 (the "Committee Report") indicates that the regulations will provide
that the prepayment assumption used with
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respect to a REMIC Regular Certificate must be the same as that used in
pricing the initial offering of such REMIC Regular Certificate. The
prepayment assumption (the "Prepayment Assumption") used in reporting original
issue discount for each series of REMIC Regular Certificates will be
consistent with this standard and will be disclosed in the related Prospectus
Supplement. However, neither the Company, the Master Servicer nor the Trustee
will make any representation that the Mortgage Loans will in fact prepay at a
rate conforming to the Prepayment Assumption or at any other rate.
The original issue discount, if any, on a REMIC Regular Certificate will
be the excess of its stated redemption price at maturity over its issue price.
The issue price of a particular class of REMIC Regular Certificates will be
the first cash price at which a substantial amount of REMIC Regular
Certificates of that class is sold (excluding sales to bond houses, brokers
and underwriters). If less than a substantial amount of a particular class of
REMIC Regular Certificates is sold for cash on or prior to the date of their
initial issuance (the "Closing Date"), the issue price for such class will be
the fair market value of such class on the Closing Date. Under the OID
Regulations, the stated redemption price of a REMIC Regular Certificate is
equal to the total of all payments to be made on such Certificate other than
"qualified stated interest." "Qualified stated interest" includes interest
that is unconditionally payable at least annually at a single fixed rate, or
at a "qualified floating rate," an "objective rate," a combination of a single
fixed rate and one or more "qualified floating rates" or one "qualified
inverse floating rate," or a combination of "qualified floating rates" that
does not operate in a manner that accelerates or defers interest payments on
such REMIC Regular Certificate.
In the case of REMIC Regular Certificates bearing adjustable interest
rates, the determination of the total amount of original issue discount and
the timing of the inclusion thereof will vary according to the characteristics
of such REMIC Regular Certificates. If the original issue discount rules
apply to such Certificates, the related Prospectus Supplement will describe
the manner in which such rules will be applied with respect to those
Certificates in preparing information returns to the Certificateholders and
the Internal Revenue Service (the "IRS").
Certain classes of the REMIC Regular Certificates may provide for the
first interest payment with respect to such Certificates to be made more than
one month after the date of issuance, a period which is longer than the
subsequent monthly intervals between interest payments. Assuming the "accrual
period" (as defined below) for original issue discount is each monthly period
that ends on a Distribution Date, in some cases, as a consequence of this
"long first accrual period," some or all interest payments may be required to
be included in the stated redemption price of the REMIC Regular Certificate
and accounted for as original issue discount. Because interest on REMIC
Regular Certificates must in any event be accounted for under an accrual
method, applying this analysis would result in only a slight difference in the
timing of the inclusion in income of the yield on the REMIC Regular
Certificates.
In addition, if the accrued interest to be paid on the first Distribution
Date is computed with respect to a period that begins prior to the Closing
Date, a portion of the purchase price paid for a REMIC Regular Certificate
will reflect such accrued interest. In such cases, information returns to the
Certificateholders and the IRS will be based on the position that the portion
of the purchase price paid for the interest accrued with respect to periods
prior to the Closing Date is treated as part of the overall cost of such REMIC
Regular Certificate (and not as a separate asset the cost of which is
recovered entirely out of interest received on the next Distribution Date) and
that portion of the interest paid on the first Distribution Date in excess of
interest accrued for a number of days corresponding to the number of days from
the Closing Date to the first Distribution Date should be included in the
stated redemption price of such REMIC Regular Certificate. However, the OID
Regulations state that all or some portion of such accrued interest may be
treated as a separate asset the cost of which is recovered entirely out of
interest paid on the first Distribution Date. It is unclear how an election
to do so would be made under the OID Regulations and whether such an election
could be made unilaterally by a Certificateholder.
Notwithstanding the general definition of original issue discount,
original issue discount on a REMIC Regular Certificate will be considered to
be de minimis if it is less than 0.25% of the stated redemption price of the
REMIC Regular Certificate multiplied by its weighted average life. For this
purpose, the weighted average life of the REMIC Regular Certificate is
computed as the sum of the amounts determined, as to each
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payment included in the stated redemption price of such REMIC Regular
Certificate, by multiplying (i) the number of complete years (rounding down
for partial years) from the issue date until such payment is expected to be
made (presumably taking into account the Prepayment Assumption) by (ii) a
fraction, the numerator of which is the amount of the payment, and the
denominator of which is the stated redemption price at maturity of such REMIC
Regular Certificate. Under the OID Regulations, original issue discount of
only a de minimis amount (other than de minimis original issue discount
attributable to a so-called "teaser" interest rate or an initial interest
holiday) will be included in income as each payment of stated principal is
made, based on the product of the total amount of such de minimis original
issue discount and a fraction, the numerator of which is the amount of such
principal payment and the denominator of which is the outstanding stated
principal amount of the REMIC Regular Certificate. The OID Regulations also
would permit a Certificateholder to elect to accrue de minimis original issue
discount into income currently based on a constant yield method. See
"Taxation of Owners of REMIC Regular Certificates-Market Discount" for a
description of such election under the OID Regulations.
If original issue discount on a REMIC Regular Certificate is in excess of
a de minimis amount, the holder of such Certificate must include in ordinary
gross income the sum of the "daily portions" of original issue discount for
each day during its taxable year on which it held such REMIC Regular
Certificate, including the purchase date but excluding the disposition date.
In the case of an original holder of a REMIC Regular Certificate, the daily
portions of original issue discount will be determined as follows.
As to each "accrual period," that is, unless otherwise stated in the
related Prospectus Supplement, each period that ends on a date that
corresponds to a Distribution Date and begins on the first day following the
immediately preceding accrual period (or in the case of the first such period,
begins on the Closing Date), a calculation will be made of the portion of the
original issue discount that accrued during such accrual period. The portion
of original issue discount that accrues in any accrual period will equal the
excess, if any, of (i) the sum of (A) the present value, as of the end of the
accrual period, of all of the distributions remaining to be made on the REMIC
Regular Certificate, if any, in future periods and (B) the distributions made
on such REMIC Regular Certificate during the accrual period of amounts
included in the stated redemption price, over (ii) the adjusted issue price of
such REMIC Regular Certificate at the beginning of the accrual period. The
present value of the remaining distributions referred to in the preceding
sentence will be calculated (i) assuming that distributions on the REMIC
Regular Certificate will be received in future periods based on the Mortgage
Loans being prepaid at a rate equal to the Prepayment Assumption and (ii)
using a discount rate equal to the original yield to maturity of the
Certificate. For these purposes, the original yield to maturity of the
Certificate will be calculated based on its issue price and assuming that
distributions on the Certificate will be made in all accrual periods based on
the Mortgage Loans being prepaid at a rate equal to the Prepayment Assumption.
The adjusted issue price of a REMIC Regular Certificate at the beginning of
any accrual period will equal the issue price of such Certificate, increased
by the aggregate amount of original issue discount that accrued with respect
to such Certificate in prior accrual periods, and reduced by the amount of any
distributions made on such REMIC Regular Certificate in prior accrual periods
of amounts included in the stated redemption price. The original issue
discount accruing during any accrual period, computed as described above, will
be allocated ratably to each day during the accrual period to determine the
daily portion of original issue discount for such day.
A subsequent purchaser of a REMIC Regular Certificate that purchases such
Certificate at a cost (excluding any portion of such cost attributable to
accrued qualified stated interest) less than its remaining stated redemption
price will also be required to include in gross income the daily portions of
any original issue discount with respect to such Certificate. However, each
such daily portion will be reduced, if such cost is in excess of its "adjusted
issue price," in proportion to the ratio such excess bears to the aggregate
original issue discount remaining to be accrued on such REMIC Regular
Certificate. The adjusted issue price of a REMIC Regular Certificate on any
given day equals the sum of (i) the adjusted issue price (or, in the case of
the first accrual period, the issue price) of such Certificate at the
beginning of the accrual period which includes such day and (ii) the daily
portions of original issue discount for all days during such accrual period
prior to such day.
Market Discount. A Certificateholder that purchases a REMIC Regular
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Certificate at a market discount, that is, in the case of a REMIC Regular
Certificate issued without original issue discount, at a
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purchase price less than its remaining stated principal amount, or in the case
of a REMIC Regular Certificate issued with original issue discount, at a
purchase price less than its adjusted issue price will recognize gain upon
receipt of each distribution representing stated redemption price. In
particular, under Section 1276 of the Code such a Certificateholder generally
will be required to allocate the portion of each such distribution
representing stated redemption price first to accrued market discount not
previously included in income, and to recognize ordinary income to that
extent. A Certificateholder may elect to include market discount in income
currently as it accrues rather than including it on a deferred basis in
accordance with the foregoing. If made, such election will apply to all
market discount bonds acquired by such Certificateholder on or after the first
day of the first taxable year to which such election applies. In addition,
the OID Regulations permit a Certificateholder to elect to accrue all
interest, discount (including de minimis market or original issue discount)
and premium in income as interest, based on a constant yield method. If such
an election were made with respect to a REMIC Regular Certificate with market
discount, the Certificateholder would be deemed to have made an election to
include currently market discount in income with respect to all other debt
instruments having market discount that such Certificateholder acquires during
the taxable year of the election or thereafter, and possibly previously
acquired instruments. Similarly, a Certificateholder that made this election
for a Certificate that is acquired at a premium would be deemed to have made
an election to amortize bond premium with respect to all debt instruments
having amortizable bond premium that such Certificateholder owns or acquires.
See "Taxation of Owners of REMIC Regular Certificates-Premium" below. Each of
these elections to accrue interest, discount and premium with respect to a
Certificate on a constant yield method or as interest would be irrevocable.
However, market discount with respect to a REMIC Regular Certificate will
be considered to be de minimis for purposes of Section 1276 of the Code if
such market discount is less than 0.25 % of the remaining stated redemption
price of such REMIC Regular Certificate multiplied by the number of complete
years to maturity remaining after the date of its purchase. In interpreting a
similar rule with respect to original issue discount on obligations payable in
installments, the OID Regulations refer to the weighted average maturity of
obligations, and it is likely that the same rule will be applied with respect
to market discount, presumably taking into account the Prepayment Assumption.
If market discount is treated as de minimis under this rule, it appears that
the actual discount would be treated in a manner similar to original issue
discount of a de minimis amount. See "Taxation of Owners of REMIC Regular
Certificates-Original Issue Discount" above. Such treatment would result in
discount being included in income at a slower rate than discount would be
required to be included in income using the method described above.
Section 1276(b)(3) of the Code specifically authorizes the Treasury
Department to issue regulations providing for the method for accruing market
discount on debt instruments, the principal of which is payable in more than
one installment. Until regulations are issued by the Treasury Department,
certain rules described in the Committee Report apply. The Committee Report
indicates that in each accrual period market discount on REMIC Regular
Certificates should accrue, at the Certificateholder's option: (i) on the
basis of a constant yield method, (ii) in the case of a REMIC Regular
Certificate issued without original issue discount, in an amount that bears
the same ratio to the total remaining market discount as the stated interest
paid in the accrual period bears to the total amount of stated interest
remaining to be paid on the REMIC Regular Certificate as of the beginning of
the accrual period, or (iii) in the case of a REMIC Regular Certificate issued
with original issue discount, in an amount that bears the same ratio to the
total remaining market discount as the original issue discount accrued in the
accrual period bears to the total original issue discount remaining on the
REMIC Regular Certificate at the beginning of the accrual period. Moreover,
the Prepayment Assumption used in calculating the accrual of original issue
discount is also used in calculating the accrual of market discount. Because
the regulations referred to in this paragraph have not been issued, it is not
possible to predict what effect such regulations might have on the tax
treatment of a REMIC Regular Certificate purchased at a discount in the
secondary market.
To the extent that REMIC Regular Certificates provide for monthly or
other periodic distributions throughout their term, the effect of these rules
may be to require market discount to be includible in income at a rate that is
not significantly slower than the rate at which such discount would accrue if
it were original issue discount. Moreover, in any event a holder of a REMIC
Regular Certificate generally will be required to treat a portion of any gain
on the sale or exchange of such Certificate as ordinary income to the extent
of
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the market discount accrued to the date of disposition under one of the
foregoing methods, less any accrued market discount previously reported as
ordinary income.
Further, under Section 1277 of the Code a holder of a REMIC Regular
Certificate may be required to defer a portion of its interest deductions for
the taxable year attributable to any indebtedness incurred or continued to
purchase or carry a REMIC Regular Certificate purchased with market discount.
For these purposes, the de minimis rule referred to above applies. Any such
deferred interest expense would not exceed the market discount that accrues
during such taxable year and is, in general, allowed as a deduction not later
than the year in which such market discount is includible in income. If such
holder elects to include market discount in income currently as it accrues on
all market discount instruments acquired by such holder in that taxable year
or thereafter, the interest deferral rule described above will not apply.
Premium. A REMIC Regular Certificate purchased at a cost (excluding any
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portion of such cost attributable to accrued qualified stated interest)
greater than its remaining stated redemption price will be considered to be
purchased at a premium. The holder of such a REMIC Regular Certificate may
elect under Section 171 of the Code to amortize such premium under the
constant yield method over the life of the Certificate. If made, such an
election will apply to all debt instruments having amortizable bond premium
that the holder owns or subsequently acquires. Amortizable premium will be
treated as an offset to interest income on the related debt instrument, rather
than as a separate interest deduction. The OID Regulations also permit
Certificateholders to elect to include all interest, discount and premium in
income based on a constant yield method, further treating the
Certificateholder as having made the election to amortize premium generally.
See "Taxation of Owners of REMIC Regular Certificates-Market Discount" above.
The Committee Report states that the same rules that apply to accrual of
market discount (which rules will require use of a Prepayment Assumption in
accruing market discount with respect to REMIC Regular Certificates without
regard to whether such Certificates have original issue discount) will also
apply in amortizing bond premium under Section 171 of the Code.
Realized Losses. Under Section 166 of the Code, both corporate holders
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of the REMIC Regular Certificates and noncorporate holders of the REMIC
Regular Certificates that acquire such Certificates in connection with a trade
or business should be allowed to deduct, as ordinary losses, any losses
sustained during a taxable year in which their Certificates become wholly or
partially worthless as the result of one or more realized losses on the
Mortgage Loans. However, it appears that a noncorporate holder that does not
acquire a REMIC Regular Certificate in connection with a trade or business
will not be entitled to deduct a loss under Section 166 of the Code until such
holder's Certificate becomes wholly worthless (i.e., until its outstanding
principal balance has been reduced to zero) and that the loss will be
characterized as a short-term capital loss.
Each holder of a REMIC Regular Certificate will be required to accrue
interest and original issue discount with respect to such Certificate, without
giving effect to any reductions in distributions attributable to defaults or
delinquencies on the Mortgage Loans or the Underlying Certificates until it
can be established that any such reduction ultimately will not be recoverable.
As a result, the amount of taxable income reported in any period by the holder
of a REMIC Regular Certificate could exceed the amount of economic income
actually realized by the holder in such period. Although the holder of a
REMIC Regular Certificate eventually will recognize a loss or reduction in
income attributable to previously accrued and included income that as the
result of a realized loss ultimately will not be realized, the law is unclear
with respect to the timing and character of such loss or reduction in income.
Taxation of Owners of REMIC Residual Certificates
General. As residual interests, the REMIC Residual Certificates will be
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subject to tax rules that differ significantly from those that would apply if
the REMIC Residual Certificates were treated for federal income tax purposes
as direct ownership interests in the Mortgage Loans or as debt instruments
issued by the REMIC.
A holder of a REMIC Residual Certificate generally will be required to
report its daily portion of the taxable income or, subject to the limitations
noted in this discussion, the net loss of the REMIC for each day during a
calendar quarter that such holder owned such REMIC Residual Certificate. For
this purpose, the taxable income or net loss of the REMIC will be allocated to
each day in the calendar quarter ratably using
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a "30 days per month/90 days per quarter/360 days per year" convention unless
otherwise disclosed in the related Prospectus Supplement. The daily amounts
so allocated will then be allocated among the REMIC Residual
Certificateholders in proportion to their respective ownership interests on
such day. Any amount included in the gross income or allowed as a loss of any
REMIC Residual Certificateholder by virtue of this paragraph will be treated
as ordinary income or loss. The taxable income of the REMIC will be
determined under the rules described below in "Taxable Income of the REMIC"
and will be taxable to the REMIC Residual Certificateholders without regard to
the timing or amount of cash distributions by the REMIC. Ordinary income
derived from REMIC Residual Certificates will be "portfolio income" for
purposes of the taxation of taxpayers subject to limitations under Section 469
of the Code on the deductibility of "passive losses."
A holder of a REMIC Residual Certificate that purchased such Certificate
from a prior holder of such Certificate also will be required to report on its
federal income tax return amounts representing its daily share of the taxable
income (or net loss) of the REMIC for each day that it holds such REMIC
Residual Certificate. Those daily amounts generally will equal the amounts of
taxable income or net loss determined as described above. The Committee
Report indicates that certain modifications of the general rules may be made,
by regulations, legislation or otherwise to reduce (or increase) the income of
a REMIC Residual Certificateholder that purchased such REMIC Residual
Certificate from a prior holder of such Certificate at a price greater than
(or less than) the adjusted basis (as defined below) such REMIC Residual
Certificate would have had in the hands of an original holder of such
Certificate. The REMIC Regulations, however, do not provide for any such
modifications.
Any payments received by a holder of a REMIC Residual Certificate in
connection with the acquisition of such REMIC Residual Certificate will be
taken into account in determining the income of such holder for federal income
tax purposes. Although it appears likely that any such payment would be
includible in income immediately upon its receipt, the IRS might assert that
such payment should be included in income over time according to an
amortization schedule or according to some other method. Because of the
uncertainty concerning the treatment of such payments, holders of REMIC
Residual Certificates should consult their tax advisors concerning the
treatment of such payments for income tax purposes.
The amount of income REMIC Residual Certificateholders will be required
to report (or the tax liability associated with such income) may exceed the
amount of cash distributions received from the REMIC for the corresponding
period. Consequently, REMIC Residual Certificateholders should have other
sources of funds sufficient to pay any federal income taxes due as a result of
their ownership of REMIC Residual Certificates or unrelated deductions against
which income may be offset, subject to the rules relating to "excess
inclusions," residual interests without "significant value" and "noneconomic"
residual interests discussed below. The fact that the tax liability
associated with the income allocated to REMIC Residual Certificateholders may
exceed the cash distributions received by such REMIC Residual
Certificateholders for the corresponding period may significantly adversely
affect such REMIC Residual Certificateholders' after-tax rate of return.
Taxable Income of the REMIC. The taxable income of the REMIC will equal
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the income from the Mortgage Loans and other assets of the REMIC plus any
cancellation of indebtedness income due to the allocation of realized losses
to REMIC Regular Certificates, less the deductions allowed to the REMIC for
interest (including original issue discount and reduced by any premium on
issuance) on the REMIC Regular Certificates (and any other class of REMIC
Certificates constituting "regular interests" in the REMIC not offered
hereby), amortization of any premium on the Mortgage Loans, bad debt losses
with respect to the Mortgage Loans and, except as described below, for
servicing, administrative and other expenses.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate basis in its assets equal to the sum of the issue prices of
all REMIC Certificates (or, if a class of REMIC Certificates is not sold
initially, their fair market values). Such aggregate basis will be allocated
among the Mortgage Loans and the other assets of the REMIC in proportion to
their respective fair market values. The issue price of any REMIC
Certificates offered hereby will be determined in the manner described above
under "-Taxation of Owners of REMIC Regular Certificates-Original Issue
Discount." The issue price of a REMIC Certificate received in exchange for an
interest in the Mortgage Loans or other property will equal the fair market
value of such interests in the Mortgage Loans or other property. Accordingly,
if one or more classes of REMIC
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Certificates are retained initially rather than sold, the REMIC Administrator
may be required to estimate the fair market value of such interests in order
to determine the basis of the REMIC in the Mortgage Loans and other property
held by the REMIC.
Subject to possible application of the de minimis rules, the method of
accrual by the REMIC of original issue discount income and market discount
income with respect to Mortgage Loans that it holds will be equivalent to the
method for accruing original issue discount income for holders of REMIC
Regular Certificates (that is, under the constant yield method taking into
account the Prepayment Assumption). However, a REMIC that acquires loans at a
market discount must include such market discount in income currently, as it
accrues, on a constant yield basis. See "-Taxation of Owners of REMIC Regular
Certificates" above, which describes a method for accruing such discount
income that is analogous to that required to be used by a REMIC as to Mortgage
Loans with market discount that it holds.
A Mortgage Loan will be deemed to have been acquired with discount (or
premium) to the extent that the REMIC's basis therein, determined as described
in the preceding paragraph, is less than (or greater than) its stated
redemption price. Any such discount will be includible in the income of the
REMIC as it accrues, in advance of receipt of the cash attributable to such
income, under a method similar to the method described above for accruing
original issue discount on the REMIC Regular Certificates. It is anticipated
that each REMIC will elect under Section 171 of the Code to amortize any
premium on the Mortgage Loans. Premium on any Mortgage Loan to which such
election applies may be amortized under a constant yield method, presumably
taking into account a Prepayment Assumption. Further, such an election would
not apply to any Mortgage Loan originated on or before September 27, 1985.
Instead, premium on such a Mortgage Loan should be allocated among the
principal payments thereon and be deductible by the REMIC as those payments
become due or upon the prepayment of such Mortgage Loan.
A REMIC will be allowed deductions for interest (including original issue
discount) on the REMIC Regular Certificates (including any other class of
REMIC Certificates constituting "regular interests" in the REMIC not offered
hereby) equal to the deductions that would be allowed if the REMIC Regular
Certificates (including any other class of REMIC Certificates constituting
"regular interests" in the REMIC not offered hereby) were indebtedness of the
REMIC. Original issue discount will be considered to accrue for this purpose
as described above under "-Taxation of Owners of REMIC Regular Certificates-
Original Issue Discount," except that the de minimis rule and the adjustments
for subsequent holders of REMIC Regular Certificates (including any other
class of REMIC Certificates constituting "regular interests" in the REMIC not
offered hereby) described therein will not apply.
If a class of REMIC Regular Certificates is issued at a price in excess
of the stated redemption price of such class (such excess "Issue Premium"),
the net amount of interest deductions that are allowed the REMIC in each
taxable year with respect to the REMIC Regular Certificates of such class will
be reduced by an amount equal to the portion of the Issue Premium that is
considered to be amortized or repaid in that year. Although the matter is not
entirely certain, it is likely that Issue Premium would be amortized under a
constant yield method in a manner analogous to the method of accruing original
issue discount described above under "-Taxation of Owners of REMIC Regular
Certificates-Original Issue Discount."
As a general rule, the taxable income of a REMIC will be determined in
the same manner as if the REMIC were an individual having the calendar year as
its taxable year and using the accrual method of accounting. However, no item
of income, gain, loss or deduction allocable to a prohibited transaction will
be taken into account. See "-Prohibited Transactions Tax and Other Taxes"
below. Further, the limitation on miscellaneous itemized deductions imposed
on individuals by Section 67 of the Code (which allows such deductions only to
the extent they exceed in the aggregate two percent of the taxpayer's adjusted
gross income) will not be applied at the REMIC level so that the REMIC will be
allowed deductions for servicing, administrative and other non-interest
expenses in determining its taxable income. All such expenses will be
allocated as a separate item to the holders of REMIC Certificates, subject to
the limitation of Section 67 of the Code. See "-Possible Pass-Through of
Miscellaneous Itemized Deductions" below. If the deductions allowed to the
REMIC exceed its gross income for a calendar quarter, such excess will be the
net loss for the REMIC for that calendar quarter.
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Basis Rules, Net Losses and Distributions. The adjusted basis of a REMIC
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Residual Certificate will be equal to the amount paid for such REMIC Residual
Certificate, increased by amounts included in the income of the REMIC Residual
Certificateholder and decreased (but not below zero) by distributions made,
and by net losses allocated, to such REMIC Residual Certificateholder.
A REMIC Residual Certificateholder is not allowed to take into account
any net loss for any calendar quarter to the extent such net loss exceeds such
REMIC Residual Certificateholder's adjusted basis in its REMIC Residual
Certificate as of the close of such calendar quarter (determined without
regard to such net loss). Any loss that is not currently deductible 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 Certificate. The ability of REMIC Residual
Certificateholders to deduct net losses may be subject to additional
limitations under the Code, as to which REMIC Residual Certificateholders
should consult their tax advisors.
Any distribution on a REMIC Residual Certificate will be treated as a
non-taxable return of capital to the extent it does not exceed the holder's
adjusted basis in such REMIC Residual Certificate. To the extent a
distribution on a REMIC Residual Certificate exceeds such adjusted basis, it
will be treated as gain from the sale of such REMIC Residual Certificate.
Holders of certain REMIC Residual Certificates may be entitled to
distributions early in the term of the related REMIC under circumstances in
which their bases in such REMIC Residual Certificates will not be sufficiently
large that such distributions will be treated as nontaxable returns of
capital. Their bases in such REMIC Residual Certificates will initially equal
the amount paid for such REMIC Residual Certificates and will be increased by
their allocable shares of taxable income of the REMIC. However, such bases
increases may not occur until the end of the calendar quarter, or perhaps the
end of the calendar year, with respect to which such REMIC taxable income is
allocated to the REMIC Residual Certificateholders. To the extent such REMIC
Residual Certificateholders' initial bases are less than the distributions to
such REMIC Residual Certificateholders, and increases in such initial bases
either occur after such distributions or (together with their initial bases)
are less than the amount of such distributions, gain will be recognized to
such REMIC Residual Certificateholders on such distributions and will be
treated as gain from the sale of their REMIC Residual Certificates.
The effect of these rules is that a REMIC Residual Certificateholder may
not amortize its basis in a REMIC Residual Certificate, but may only recover
its basis through distributions, through the deduction of any net losses of
the REMIC or upon the sale of its REMIC Residual Certificate. See "-Sales of
REMIC Certificates" below. For a discussion of possible modifications of
these rules that may require adjustments to income of a holder of a REMIC
Residual Certificate other than an original holder in order to reflect any
difference between the cost of such REMIC Residual Certificate to such REMIC
Residual Certificateholder and the adjusted basis such REMIC Residual
Certificate would have in the hands of an original holder, see "-Taxation of
Owners of REMIC Residual Certificates-General" above.
Excess Inclusions. Any "excess inclusions" with respect to a REMIC
-----------------
Residual Certificate will, with an exception discussed below for certain REMIC
Residual Certificates held by thrift institutions, be subject to federal
income tax in all events.
In general, the "excess inclusions" with respect to a REMIC Residual
Certificate for any calendar quarter will be the excess, if any, of (i) the
daily portions of REMIC taxable income allocable to such REMIC Residual
Certificate over (ii) the sum of the "daily accruals" (as defined below) for
each day during such quarter that such REMIC Residual Certificate was held by
such REMIC Residual Certificateholder. The daily accruals of a REMIC Residual
Certificateholder will be 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 Certificate at the beginning of the calendar
quarter and 120% of the "long-term Federal rate" in effect on the Closing
Date. For this purpose, the adjusted issue price of a REMIC Residual
Certificate as of the beginning of any calendar quarter will be equal to the
issue price of the REMIC Residual Certificate, increased by the sum of the
daily accruals for all prior quarters and decreased (but not below zero) by
any distributions made with respect to such REMIC Residual Certificate before
the beginning of such quarter. The issue price of a REMIC Residual
Certificate is the initial offering price to the public (excluding bond houses
and brokers) at which a substantial amount of the REMIC Residual Certificates
were sold. The "long-term Federal rate"
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is an average of current yields on Treasury securities with a remaining term
of greater than nine years, computed and published monthly by the IRS.
For REMIC Residual Certificateholders, an excess inclusion (i) will not
be permitted to be offset by deductions, losses or loss carryovers from other
activities, (ii) will be treated as "unrelated business taxable income" to an
otherwise tax-exempt organization and (iii) will not be eligible for any rate
reduction or exemption under any applicable tax treaty with respect to the 30%
United States withholding tax imposed on distributions to REMIC Residual
Certificateholders that are foreign investors. See, however, "-Foreign
Investors in REMIC Certificates," below.
Recently enacted provisions governing the relationship between excess
inclusions and the alternative minimum tax provide that (i) the alternative
minimum taxable income of a taxpayer is based on the taxpayer's regular
taxable income computed without regard to the rule that taxable income cannot
be less than the amount of excess inclusions, (ii) the alternative minimum
taxable income of a taxpayer for a taxable year cannot be less than the amount
of excess inclusions for that year, and (iii) the amount of any alternative
minimum tax net operating loss is computed without regard to any excess
inclusions. While these provisions are generally effective for tax years
beginning after December 31, 1996, a taxpayer may elect to have these
provisions apply only with respect to tax years beginning after August 20,
1996.
As an exception to the general rules described above, thrift institutions
are allowed to offset their excess inclusions with unrelated deductions,
losses or loss carryovers, but only if the REMIC Residual Certificates are
considered to have "significant value." The REMIC Regulations provide that in
order to be treated as having significant value, the REMIC Residual
Certificates must have an aggregate issue price at least equal to two percent
of the aggregate issue prices of all of the related REMIC's Regular and
Residual Certificates. In addition, based on the Prepayment Assumption, the
anticipated weighted average life of the REMIC Residual Certificates must
equal or exceed 20 percent of the anticipated weighted average life of the
REMIC, based on the Prepayment Assumption and on any required or permitted
clean up calls or required liquidation provided for in the REMIC's
organizational documents. Although it has not done so, the Treasury also has
authority to issue regulations that would treat the entire amount of income
accruing on a REMIC Residual Certificate as an excess inclusion if the REMIC
Residual Certificates are considered not to have "significant value." The
related Prospectus Supplement will disclose whether offered REMIC Residual
Certificates may be considered to have "significant value" under the REMIC
Regulations; provided, however, that any disclosure that a REMIC Residual
Certificate will have "significant value" will be based upon certain
assumptions, and the Company will make no representation that a REMIC Residual
Certificate will have "significant value" for purposes of the above described
rules. The above-described exception for thrift institutions applies only to
those residual interests held directly by, and deductions, losses and loss
carryovers incurred by, such institutions (and not by other members of an
affiliated group of corporations filing a consolidated income tax return) or
by certain wholly owned direct subsidiaries of such institutions formed or
operated exclusively in connection with the organization and operation of one
or more REMICS.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of 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 Certificate as if held
directly by such shareholder. Treasury regulations yet to be issued could
apply a similar rule to regulated investment companies, common trust funds and
certain cooperatives; the REMIC Regulations currently do not address this
subject.
Noneconomic REMIC Residual Certificates. Under the REMIC Regulations,
---------------------------------------
transfers of "noneconomic" REMIC Residual Certificates will be disregarded for
all federal income tax purposes if "a significant purpose of the transfer was
to enable the transferor to impede the assessment or collection of tax." If
such transfer is disregarded, the purported transferor will continue to remain
liable for any taxes due with respect to the income on such "noneconomic"
REMIC Residual Certificate. The REMIC Regulations provide that a REMIC
Residual Certificate is noneconomic unless, based on the Prepayment Assumption
and on any required or permitted clean up calls, or required liquidation
provided for in the REMIC's organizational
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documents, (1) the present value of the expected future distributions
(discounted using the "applicable Federal rate" for obligations whose term
ends on the close of the last quarter in which excess inclusions are expected
to accrue with respect to the REMIC Residual Certificate, which rate is
computed and published monthly by the IRS) on the REMIC Residual Certificate
equals at least the present value of the expected tax on the anticipated
excess inclusions, and (2) the transferor reasonably expects that the
transferee will receive distributions with respect to the REMIC Residual
Certificate at or after the time the taxes accrue on the anticipated excess
inclusions in an amount sufficient to satisfy the accrued taxes. Accordingly,
all transfers of REMIC Residual Certificates that may constitute noneconomic
residual interests will be subject to certain restrictions under the terms of
the related Pooling and Servicing Agreement that are intended to reduce the
possibility of any such transfer being disregarded. Such restrictions will
require each party to a transfer to provide an affidavit that no purpose of
such transfer is to impede the assessment or collection of tax, including
certain representations as to the financial condition of the prospective
transferee, as to which the transferor is also required to make a reasonable
investigation to determine such transferee's historic payment of its debts and
ability to continue to pay its debts as they come due in the future. Prior to
purchasing a REMIC Residual Certificate, prospective purchasers should
consider the possibility that a purported transfer of such REMIC Residual
Certificate by such a purchaser to another purchaser at some future date may
be disregarded in accordance with the above-described rules which would result
in the retention of tax liability by such purchaser.
The related Prospectus Supplement will disclose whether offered REMIC
Residual Certificates may be considered "noneconomic" residual interests under
the REMIC Regulations; provided, however, that any disclosure that a REMIC
Residual Certificate will not be considered "noneconomic" will be based upon
certain assumptions, and the Company will make no representation that a REMIC
Residual Certificate will not be considered "noneconomic" for purposes of the
above-described rules. See "-Foreign Investors in REMIC Certificates-REMIC
Residual Certificates" below for additional restrictions applicable to
transfers of certain REMIC Residual Certificates to foreign persons.
Mark-to-Market Rules. Prospective purchasers of a REMIC Residual
--------------------
Certificate should be aware that on January 3, 1995, the IRS released proposed
regulations (the "Proposed Mark-to-Market Regulations") relating to the
requirement that a securities dealer mark to market securities held for sale
to customers. This mark-to-market requirement applies to all securities owned
by a dealer, except to the extent that the dealer has specifically identified
a security as held for investment. The Proposed Mark-to-Market Regulations
provide that for purposes of this mark-to-market requirement, a REMIC Residual
Certificate is not treated as a security and thus may not be marked to market.
The Proposed Mark-to-Market Regulations apply to all REMIC Residual
Certificates acquired on or after January 4, 1995.
Possible Pass-Through of Miscellaneous Itemized Deductions. Fees and
----------------------------------------------------------
expenses of a REMIC generally will be allocated to the holders of the related
REMIC Residual Certificates. The applicable Treasury regulations indicate,
however, that in the case of a REMIC that is similar to a single class grantor
trust, all or a portion of such fees and expenses should be allocated to the
holders of the related REMIC Regular Certificates. Unless otherwise stated in
the related Prospectus Supplement, such fees and expenses will be allocated to
holders of the related REMIC Residual Certificates in their entirety and not
to the holders of the related REMIC Regular Certificates.
With respect to REMIC Residual Certificates or REMIC Regular Certificates
the holders of which receive an allocation of fees and expenses in accordance
with the preceding discussion, if any holder thereof is an individual, estate
or trust, or a "pass-through entity" beneficially owned by one or more
individuals, estates or trusts, (i) an amount equal to such individual's,
estate's or trust's share of such fees and expenses will be added to the gross
income of such holder and (ii) such individual's, estate's or trust's share of
such fees and expenses will be treated as a miscellaneous itemized deduction
allowable subject to the limitation of Section 67 of the Code, which permits
such deductions only to the extent they exceed in the aggregate two percent of
a taxpayer's adjusted gross income. In addition, Section 68 of the Code
provides that the amount of itemized deductions otherwise allowable for an
individual whose adjusted gross income exceeds a specified amount will be
reduced by the lesser of (i) 3 % of the excess of the individual's adjusted
gross income over such amount or (ii) 80% of the amount of itemized deductions
otherwise allowable for the taxable year. The amount of additional taxable
income reportable by REMIC Certificateholders that are subject to the
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limitations of either Section 67 or Section 68 of the Code may be substantial.
Furthermore, in determining the alternative minimum taxable income of such a
holder of a REMIC Certificate that is an individual, estate or trust, or a
"pass-through entity" beneficially owned by one or more individuals, estates
or trusts, no deduction will be allowed for such holder's allocable portion of
servicing fees and other miscellaneous itemized deductions of the REMIC, even
though an amount equal to the amount of such fees and other deductions will be
included in such holder's gross income. Accordingly, such REMIC Certificates
may not be appropriate investments for individuals, estates, or trusts, or
pass-through entities beneficially owned by one or more individuals, estates
or trusts. Such prospective investors should carefully consult with their own
tax advisors prior to making an investment in such Certificates.
Sales of REMIC Certificates. If a REMIC Certificate is sold, the selling
Certificateholder will recognize gain or loss equal to the difference between
the amount realized on the sale and its adjusted basis in the REMIC
Certificate. The adjusted basis of a REMIC Regular Certificate generally will
equal the cost of such REMIC Regular Certificate to such Certificateholder,
increased by income reported by such Certificateholder with respect to such
REMIC Regular Certificate (including original issue discount and market
discount income) and reduced (but not below zero) by distributions on such
REMIC Regular Certificate received by such Certificateholder and by any
amortized premium. The adjusted basis of a REMIC Residual Certificate will be
determined as described under "-Taxation of Owners of REMIC Residual
Certificates-Basis Rules, Net Losses and Distributions." Except as provided
in the following two paragraphs, any such gain or loss will be capital gain or
loss, provided such REMIC Certificate is held as a capital asset (generally,
property held for investment) within the meaning of Section 1221 of the Code.
The Code as of the date of this Prospectus provides for a top marginal tax
rate of 39.6% for individuals and a maximum marginal rate for long-term
capital gains of individuals of 28%. No such rate differential exists for
corporations. In addition, the distinction between a capital gain or loss and
ordinary income or loss remains relevant for other purposes.
Gain from the sale of a REMIC Regular Certificate that might otherwise be
capital gain will be treated as ordinary income to the extent such gain does
not exceed the excess, if any, of (i) the amount that would have been
includible in the seller's income with respect to such REMIC Regular
Certificate assuming that income had accrued thereon at a rate equal to 110%
of the "applicable Federal rate" (generally, a rate based on an average of
current yields on Treasury securities having a maturity comparable to that of
the Certificate based on the application of the Prepayment Assumption to such
Certificate, which rate is computed and published monthly by the IRS),
determined as of the date of purchase of such REMIC Regular Certificate, over
(ii) the amount of ordinary income actually includible in the seller's income
prior to such sale. In addition, gain recognized on the sale of a REMIC
Regular Certificate by a seller who purchased such REMIC Regular Certificate
at a market discount will be taxable as ordinary income in an amount not
exceeding the portion of such discount that accrued during the period such
REMIC Certificate was held by such holder, reduced by any market discount
included in income under the rules described above under "-Taxation of Owners
of REMIC Regular Certificates-Market Discount" and "-Premium."
REMIC Certificates will be "evidences of indebtedness" within the meaning
of Section 582(c)(1) of the Code, so that gain or loss recognized from the
sale of a REMIC Certificate by a bank or thrift institution to which such
section applies will be ordinary income or loss.
A portion of any gain from the sale of a REMIC Regular Certificate that
might otherwise be capital gain may be treated as ordinary income to the
extent that such Certificate is held as part of a "conversion transaction"
within the meaning of Section 1258 of the Code. A conversion transaction
generally is one in which the taxpayer has taken two or more positions in the
same or similar property that reduce or eliminate market risk, if
substantially all of the taxpayer's return is attributable to the time value
of the taxpayer's net investment in such transaction. The amount of gain so
realized in a conversion transaction that is recharacterized as ordinary
income generally will not exceed the amount of interest that would have
accrued on the taxpayer's net investment at 120% of the appropriate
"applicable Federal rate" (which rate is computed and published monthly by the
IRS) at the time the taxpayer enters into the conversion transaction, subject
to appropriate reduction for prior inclusion of interest and other ordinary
income items from the transaction.
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Finally, a taxpayer may elect to have net capital gain taxed at ordinary
income rates rather than capital gains rates in order to include such net
capital gain in total net investment income for the taxable year, for purposes
of the rule that limits the deduction of interest on indebtedness incurred to
purchase or carry property held for investment to a taxpayer's net investment
income.
Except as may be provided in Treasury regulations yet to be issued, if
the seller of a REMIC Residual Certificate reacquires such REMIC Residual
Certificate, or acquires any other residual interest in a REMIC or any similar
interest in a "taxable mortgage pool" (as defined in Section 7701(i) of the
Code) during the period beginning six months before, and ending six months
after, the date of such sale, such sale will be subject to the "wash sale"
rules of Section 1091 of the Code. In that event, any loss realized by the
REMIC Residual Certificateholder on the sale will not be deductible, but
instead will be added to such REMIC Residual Certificateholder's adjusted
basis in the newly-acquired asset.
Prohibited Transactions and Other Possible REMIC Taxes. The Code imposes
a tax on REMICs equal to 100% of the net income derived from "prohibited
transactions" (a "Prohibited Transactions Tax"). In general, subject to
certain specified exceptions a prohibited transaction means the disposition of
a Mortgage Loan, the receipt of income from a source other than a Mortgage
Loan or certain other permitted investments, the receipt of compensation for
services, or gain from the disposition of an asset purchased with the payments
on the Mortgage Loans for temporary investment pending distribution on the
REMIC Certificates. It is not anticipated that any REMIC will engage in any
prohibited transactions in which it would recognize a material amount of net
income.
In addition, certain contributions to a REMIC made after the day on which
the REMIC issues all of its interests could result in the imposition of a tax
on the REMIC equal to 100% of the value of the contributed property (a
"Contributions Tax"). Each Pooling and Servicing Agreement will include
provisions designed to prevent the acceptance of any contributions that would
be subject to such tax.
REMICs also are subject to federal income tax at the highest corporate
rate on "net income from foreclosure property," determined by reference to the
rules applicable to real estate investment trusts." Net income from
foreclosure property" generally means gain from the sale of a 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. Unless otherwise disclosed in the related Prospectus
Supplement, it is not anticipated that any REMIC will recognize "net income
from foreclosure property" subject to federal income tax.
Unless otherwise disclosed in the related Prospectus Supplement, it is
not anticipated that any material state or local income or franchise tax will
be imposed on any REMIC.
Unless otherwise stated in the related Prospectus Supplement, and to the
extent permitted by then applicable laws, any Prohibited Transactions Tax,
Contributions Tax, tax on "net income from foreclosure property" or state or
local income or franchise tax that may be imposed on the REMIC will be borne
by the related Master Servicer or Trustee in either case out of its own funds,
provided that the Master Servicer or the Trustee, as the case may be, has
sufficient assets to do so, and provided further that such tax arises out of a
breach of the Master Servicer's or the Trustee's obligations, as the case may
be, under the related Pooling and Servicing Agreement and in respect of
compliance with applicable laws and regulations. Any such tax not borne by
the Master Servicer or the Trustee will be charged against the related Trust
Fund resulting in a reduction in amounts payable to holders of the related
REMIC Certificates.
Tax and Restrictions on Transfers of REMIC Residual Certificates to
Certain Organizations. If a REMIC Residual Certificate is transferred to a
"disqualified organization" (as defined below), a tax would be imposed in an
amount (determined under the REMIC Regulations) equal to the product of (i)
the present value (discounted using the "applicable Federal rate" for
obligations whose term ends on the close of the last quarter in which excess
inclusions are expected to accrue with respect to the REMIC Residual
Certificate, which rate is computed and published monthly by the IRS) of the
total anticipated excess inclusions with respect to such REMIC Residual
Certificate for periods after the transfer and (ii) the highest marginal
federal income tax rate applicable to corporations. The anticipated excess
inclusions must be determined as of the date that the
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REMIC Residual Certificate is transferred and must be based on events that
have occurred up to the time of such transfer, the Prepayment Assumption and
any required or permitted clean up calls or required liquidation provided for
in the REMIC's organizational documents. Such a tax generally would be
imposed on the transferor of the REMIC Residual Certificate, except that where
such transfer is through an agent for a disqualified organization, the tax
would instead be imposed on such agent. However, a transferor of a REMIC
Residual Certificate would in no event be liable for such tax with respect to
a transfer if the transferee furnishes to the transferor an affidavit that the
transferee is not a disqualified organization and, as of the time of the
transfer, the transferor does not have actual knowledge that such affidavit is
false. 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 REMIC Residual Certificates and
certain other provisions that are intended to meet this requirement will be
included in the Pooling and Servicing Agreement, and will be discussed more
fully in any Prospectus Supplement relating to the offering of any REMIC
Residual Certificate.
In addition, if a "pass-through entity" (as defined below) includes in
income excess inclusions with respect to a REMIC Residual Certificate, and a
disqualified organization is the record holder of an interest in such entity,
then a tax will be imposed on such entity equal to the product of (i) the
amount of excess inclusions on the REMIC Residual Certificate that are
allocable to the interest in the pass-through entity held by such disqualified
organization and (ii) the highest marginal federal income tax rate imposed on
corporations. A pass-through entity will not be subject to this tax for any
period, however, if each record holder of an interest in such pass-through
entity furnishes to such pass-through entity (i) such holder's social security
number and a statement under penalties of perjury that such social security
number is that of the record holder or (ii) a statement under penalties of
perjury that such record holder is not a disqualified organization.
For these purposes, a "disqualified organization" means (i) the United
States, any State or political subdivision thereof, any foreign government,
any international organization, or any agency or instrumentality of the
foregoing (but would not include instrumentalities described in Section
168(h)(2)(D) of the Code or the Federal Home Loan Mortgage Corporation), (ii)
any organization (other than a cooperative described in Section 521 of the
Code) that is exempt from federal income tax, unless it is subject to the tax
imposed by Section 511 of the Code or (iii) any organization described in
Section 1381(a)(2)(C) of the Code. For these purposes, a "pass-through
entity" means any regulated investment company, real estate investment trust,
trust, partnership or certain other entities described in Section 860E(e)(6)
of the Code. In addition, a person holding an interest in a pass-through
entity as a nominee for another person will, with respect to such interest, be
treated as a pass-through entity.
Termination. A REMIC will terminate immediately after the Distribution
Date following receipt by the REMIC of the final payment in respect of the
Mortgage Loans or upon a sale of the REMIC's assets following the adoption by
the REMIC of a plan of complete liquidation. The last distribution on a REMIC
Regular Certificate will be treated as a payment in retirement of a debt
instrument. In the case of a REMIC Residual Certificate, if the last
distribution on such REMIC Residual Certificate is less than the REMIC
Residual Certificateholder's adjusted basis in such Certificate, such REMIC
Residual Certificateholder should (but may not) be treated as realizing a loss
equal to the amount of such difference, and such loss may be treated as a
capital loss.
Reporting and Other Administrative Matters. Solely for purposes of the
administrative provisions of the Code, the REMIC will be treated as a
partnership and REMIC Residual Certificateholders will be treated as partners.
Unless otherwise stated in the related Prospectus Supplement, the REMIC
Administrator will file REMIC federal income tax returns on behalf of the
related REMIC, and under the terms of the related Agreement, will either (i)
be irrevocably appointed by the holders of the largest percentage interest in
the related REMIC Residual Certificates as their agent to perform all of the
duties of the "tax matters person" with respect to the REMIC in all respects
or (ii) will be designated as and will act as the "tax matters person" with
respect to the related REMIC in all respects and will hold at least a nominal
amount of REMIC Residual Certificates.
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As the tax matters person or as agent for the tax matters person, the
REMIC Administrator, subject to certain notice requirements and various
restrictions and limitations, generally will have the authority to act on
behalf of the REMIC and the REMIC Residual Certificateholders in connection
with the administrative and judicial review of items of income, deduction,
gain or loss of the REMIC, as well as the REMIC's classification. REMIC
Residual Certificateholders generally will be required to report such REMIC
items consistently with their treatment on the REMIC's tax return and may in
some circumstances be bound by a settlement agreement between the REMIC
Administrator, as either tax matters person or as agent for the tax matters
person, and the Service concerning any such REMIC item. Adjustments made to
the REMIC tax return may require a REMIC Residual Certificateholder to make
corresponding adjustments on its return, and an audit of the REMIC's tax
return, or the adjustments resulting from such an audit, could result in an
audit of a REMIC Residual Certificateholder's return. No REMIC will be
registered as a tax shelter pursuant to Section 6111 of the Code because it is
not anticipated that any REMIC will have a net loss for any of the first five
taxable years of its existence. Any person that holds a REMIC Residual
Certificate as a nominee for another person may be required to furnish the
REMIC, in a manner to be provided in Treasury regulations, with the name and
address of such person and other information.
Reporting of interest income, including any original issue discount, with
respect to REMIC Regular Certificates is required annually, and may be
required more frequently under Treasury regulations. These information
reports generally are required to be sent to individual holders of REMIC
Regular Interests and the Service; holders of REMIC Regular Certificates that
are corporations, trusts, securities dealers and certain other non-individuals
will be provided interest and original issue discount income information and
the information set forth in the following paragraph upon request in
accordance with the requirements of the applicable regulations. The
information must be provided by the later of 30 days after the end of the
quarter for which the information was requested, or two weeks after the
receipt of the request. The REMIC must also comply with rules requiring a
REMIC Regular Certificate issued with original issue discount to disclose on
its face the amount of original issue discount and the issue date, and
requiring such information to be reported to the Service. Reporting with
respect to the REMIC Residual Certificates, including income, excess
inclusions, investment expenses and relevant information regarding
qualification of the REMIC's assets will be made as required under the
Treasury regulations, generally on a quarterly basis.
As applicable, the REMIC Regular Certificate information reports will
include a statement of the adjusted issue price of the REMIC Regular
Certificate at the beginning of each accrual period. In addition, the reports
will include information required by regulations with respect to computing the
accrual of any market discount. Because exact computation of the accrual of
market discount on a constant yield method would require information relating
to the holder's purchase price that the REMIC may not have, such regulations
only require that information pertaining to the appropriate proportionate
method of accruing market discount be provided. See "-Taxation of Owners of
REMIC Regular Certificates-Market Discount."
Backup Withholding With Respect to REMIC Certificates. Payments of
interest and principal, as well as payments of proceeds from the sale of REMIC
Certificates, may be subject to the "backup withholding tax" under Section
3406 of the Code at a rate of 31 % if recipients of such payments fail to
furnish to the payor certain information, including their taxpayer
identification numbers, or otherwise fail to establish an exemption from such
tax. Any amounts deducted and withheld from a distribution to a recipient
would be allowed as a credit against such recipient's federal income tax.
Furthermore, certain penalties may be imposed by the IRS on a recipient of
payments that is required to supply information but that does not do so in the
proper manner.
Foreign Investors in REMIC Certificates. A REMIC Regular
Certificateholder that is not a "United States person" (as defined below) and
is not subject to federal income tax as a result of any direct or indirect
connection to the United States in addition to its ownership of a REMIC
Regular Certificate will not, unless otherwise disclosed in the related
Prospectus Supplement, be subject to United States federal income or
withholding tax in respect of a distribution on a REMIC Regular Certificate,
provided that the holder complies to the extent necessary with certain
identification requirements (including delivery of a statement, signed by the
Certificateholder under penalties of perjury, certifying that such
Certificateholder is not a United States person and providing the name and
address of such Certificateholder). For these purposes, "United States
person" means (i) a citizen or resident of the United States, a corporation,
partnership or other entity
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created or organized in, or under the laws of, the United States or any
political subdivision thereof; or (ii) an estate or trust whose income from
sources without the United States is includible in gross income for United
States federal income tax purposes regardless of its connection with the
conduct of a trade or business within the United States. For years beginning
before January 1, 1997, the term "United States person" shall include a trust
whose income is includible in gross income for United States federal income
taxation regardless of source, in lieu of trusts described in (ii) above,
unless the trust elects to have its United States status determined under
criteria set forth under (ii) above for tax years ending after August 20,
1996. Proposed Treasury regulations, which would be effective with respect to
payments made after December 31, 1997 if adopted in their current form, would
provide alternative certification requirements and means by which a holder of
REMIC Certificates could claim the exemption from federal income and
withholding tax. It is possible that the IRS may assert that the foregoing
tax exemption should not apply with respect to a REMIC Regular Certificate
held by a REMIC Residual Certificateholder that owns directly or indirectly a
10% or greater interest in the REMIC Residual Certificates. If the holder
does not qualify for exemption, distributions of interest, including
distributions in respect of accrued original issue discount, to such holder
may be subject to a tax rate of 30%, subject to reduction under any applicable
tax treaty.
In addition, the foregoing rules will not apply to exempt a United States
shareholder of a controlled foreign corporation from taxation on such United
States shareholder's allocable portion of the interest income received by such
controlled foreign corporation.
Further, it appears that a REMIC Regular Certificate would not be
included in the estate of a nonresident alien individual and would not be
subject to United States estate taxes. However, Certificateholders who are
non-resident alien individuals should consult their tax advisors concerning
this question.
Unless otherwise stated in the related Prospectus Supplement, transfers
of REMIC Residual Certificates to investors that are not United States persons
will be prohibited under the related Pooling and Servicing Agreement.
GRANTOR TRUST FUNDS
Classification of Grantor Trust Funds. With respect to each series of
Grantor Trust Certificates, Freshman, Marantz, Orlanski, Cooper & Klein,
counsel to the Company, will deliver their opinion to the effect that assuming
compliance with all provisions of the related Pooling and Servicing Agreement,
the related Grantor Trust Fund will be classified as a grantor trust under
subpart E, part I of subchapter J of the Code and not as a partnership or an
association taxable as a corporation. Accordingly, each holder of a Grantor
Trust Certificate generally will be treated as the owner of an interest in the
Mortgage Loans included in the Grantor Trust Fund.
For purposes of the following discussion, a Grantor Trust Certificate
representing an undivided equitable ownership interest in the principal of the
Mortgage Loans constituting the related Grantor Trust Fund, together with
interest thereon at a pass-through rate, will be referred to as a "Grantor
Trust Fractional Interest Certificate." A Grantor Trust Certificate
representing ownership of all or a portion of the difference between interest
paid on the Mortgage Loans constituting the related Grantor Trust Fund (net of
normal administration fees and any Spread) and interest paid to the holders of
Grantor Trust Fractional Interest Certificates issued with respect to such
Grantor Trust Fund will be referred to as a "Grantor Trust Strip Certificate."
A Grantor Trust Strip Certificate may also evidence a nominal ownership
interest in the principal of the Mortgage Loans constituting the related
Grantor Trust Fund.
Characterization of Investments in Grantor Trust Certificates
Grantor Trust Fractional Interest Certificates. In the case of Grantor
----------------------------------------------
Trust Fractional Interest Certificates, unless otherwise disclosed in the
related Prospectus Supplement and subject to the discussion below with respect
to Buydown Mortgage Loans, counsel to the Company will deliver an opinion
that, in general, Grantor Trust Fractional Interest Certificates 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;
(iii) "obligation[s] (including any participation
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or Certificate of beneficial ownership therein) which . . . [are] principally
secured by an interest in real property" within the meaning of Section
86OG(a)(3) of the Code; and (iv) "real estate assets" within the meaning of
Section 856(c)(5)(A) of the Code. In addition, counsel to the Company will
deliver an opinion that interest on Grantor Trust Fractional Interest
Certificates will to the same extent 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.
The assets constituting certain Grantor Trust Funds may include Buydown
Mortgage Loans. The characterization of an investment in Buydown Mortgage
Loans will depend upon the precise terms of the related Buydown Agreement, but
to the extent that such Buydown Mortgage Loans are secured by a bank account
or other personal property, they may not be treated in their entirety as
assets described in the foregoing sections of the Code. No directly
applicable precedents exist with respect to the federal income tax treatment
or the characterization of investments in Buydown Mortgage Loans.
Accordingly, holders of Grantor Trust Certificates should consult their own
tax advisors with respect to the characterization of investments in Grantor
Trust Certificates representing an interest in a Grantor Trust Fund that
includes Buydown Mortgage Loans.
Grantor Trust Strip Certificates. Even if Grantor Trust Strip
--------------------------------
Certificates evidence an interest in a Grantor Trust Fund consisting of
Mortgage Loans that are "loans . . . secured by an interest in real property"
within the meaning of Section 7701(a)(19)(C)(v) 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, and the
interest on which is "interest on obligations secured by mortgages on real
property" within the meaning of Section 856(c)(3)(B) of the Code, it is
unclear whether the Grantor Trust Strip Certificates, and the income
therefrom, will be so characterized. However, the policies underlying such
sections (namely, to encourage or require investments in mortgage loans by
thrift institutions and real estate investment trusts) may suggest that such
characterization is appropriate. Counsel to the Company will not deliver any
opinion on these questions. Prospective purchasers to which such
characterization of an investment in Grantor Trust Strip Certificates is
material should consult their tax advisors regarding whether the Grantor Trust
Strip Certificates, and the income therefrom, will be so characterized.
The Grantor Trust Strip Certificates will be "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 86OG(a)(3)(A) of the Code.
Taxation of Owners of Grantor Trust Fractional Interest Certificates.
Holders of a particular series of Grantor Trust Fractional Interest
Certificates generally will be required to report on their federal income tax
returns their shares of the entire income from the Mortgage Loans (including
amounts used to pay reasonable servicing fees and other expenses) and will be
entitled to deduct their shares of any such reasonable servicing fees and
other expenses. Because of stripped interests, market or original issue
discount, or premium, the amount includible in income on account of a Grantor
Trust Fractional Interest Certificate may differ significantly from the amount
distributable thereon representing interest on the Mortgage Loans. Under
Section 67 of the Code, an individual, estate or trust holding a Grantor Trust
Fractional Interest Certificate directly or through certain pass-through
entities will be allowed a deduction for such reasonable servicing fees and
expenses only to the extent that the aggregate of such holder's miscellaneous
itemized deductions exceeds two percent of such holder's adjusted gross
income. In addition, Section 68 of the Code provides that the amount of
itemized deductions otherwise allowable for an individual whose adjusted gross
income exceeds a specified amount will be reduced by the lesser of (i) 3% of
the excess of the individual's adjusted gross income over such amount or (ii)
80% of the amount of itemized deductions otherwise allowable for the taxable
year. The amount of additional taxable income reportable by holders of
Grantor Trust Fractional Interest Certificates who are subject to the
limitations of either Section 67 or Section 68 of the Code may be substantial.
Further, Certificateholders (other than corporations) subject to the
alternative minimum tax may not deduct miscellaneous itemized deductions in
determining such holder's alternative minimum taxable income. Although it is
not entirely clear, it appears that in transactions in which multiple classes
of Grantor Trust Certificates (including Grantor Trust Strip Certificates) are
issued, such fees and expenses should be allocated among the classes of
Grantor Trust Certificates using a method that recognizes that each such class
benefits from the related services. In the absence of statutory or
administrative clarification as to the method
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to be used, it currently is intended to base information returns or reports to
the IRS and Certificateholders on a method that allocates such expenses among
classes of Grantor Trust Certificates with respect to each period based on the
distributions made to each such class during that period.
The federal income tax treatment of Grantor Trust Fractional Interest
Certificates of any series will depend on whether they are subject to the
"stripped bond" rules of Section 1286 of the Code. Grantor Trust Fractional
Interest Certificates may be subject to those rules if (i) a class of Grantor
Trust Strip Certificates is issued as part of the same series of Certificates
or (ii) the Company or any of its affiliates retains (for its own account or
for purposes of resale) a right to receive a specified portion of the interest
payable on the Mortgage Loans. Further, the IRS has ruled that an
unreasonably high servicing fee retained by a seller or servicer will be
treated as a retained ownership interest in mortgages that constitutes a
stripped coupon. For purposes of determining what constitutes reasonable
servicing fees for various types of mortgages the IRS has established certain
"safe harbors." The servicing fees paid with respect to the Mortgage Loans for
certain series of Grantor Trust Certificates may be higher than the "safe
harbors" and, accordingly, may not constitute reasonable servicing
compensation. The related Prospectus Supplement will include information
regarding servicing fees paid to the Master Servicer, any subservicer or their
respective affiliates necessary to determine whether the preceding "safe
harbor" rules apply.
If Stripped Bond Rules Apply. If the stripped bond rules apply, each
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Grantor Trust Fractional Interest Certificate will be treated as having been
issued with "original issue discount" within the meaning of Section 1273(a) of
the Code, subject, however, to the discussion below regarding the treatment of
certain stripped bonds as market discount bonds and the discussion regarding
de minimis market discount. See "-Taxation of Owners of Grantor Trust
Fractional Interest Certificates-Market Discount" below. Under the stripped
bond rules, the holder of a Grantor Trust Fractional Interest Certificate
(whether a cash or accrual method taxpayer) will be required to report
interest income from its Grantor Trust Fractional Interest Certificate for
each month in an amount equal to the income that accrues on such Certificate
in that month calculated under a constant yield method, in accordance with the
rules of the Code relating to original issue discount.
The original issue discount on a Grantor Trust Fractional Interest
Certificate will be the excess of such Certificate's stated redemption price
over its issue price. The issue price of a Grantor Trust Fractional Interest
Certificate as to any purchaser will be equal to the price paid by such
purchaser for the Grantor Trust Fractional Interest Certificate. The stated
redemption price of a Grantor Trust Fractional Interest Certificate will be
the sum of all payments to be made on such Certificate, other than "qualified
stated interest," if any, as well as such Certificate's share of reasonable
servicing fees and other expenses. See "-Taxation of Owners of Grantor Trust
Fractional Interest Certificates-If Stripped Bond Rules Do Not Apply" for a
definition of "qualified stated interest." In general, the amount of such
income that accrues in any month would equal the product of such holder's
adjusted basis in such Grantor Trust Fractional Interest Certificate at the
beginning of such month (see "Sales of Grantor Trust Certificates") and the
yield of such Grantor Trust Fractional Interest Certificate to such holder.
Such yield would be computed at the rate (compounded based on the regular
interval between payment dates) that, if used to discount the holder's share
of future payments on the Mortgage Loans, would cause the present value of
those future payments to equal the price at which the holder purchased such
Certificate. In computing yield under the stripped bond rules, a
Certificateholder's share of future payments on the Mortgage Loans will not
include any payments made in respect of any ownership interest in the Mortgage
Loans retained by the Company, the Master Servicer, any subservicer or their
respective affiliates, but will include such Certificateholder's share of any
reasonable servicing fees and other expenses.
Section 1272(a)(6) of the Code requires (i) the use of a reasonable
prepayment assumption in accruing original issue discount and (ii) adjustments
in the accrual of original issue discount when prepayments do not conform to
the prepayment assumption, with respect to certain categories of debt
instruments, and regulations could be adopted applying those provisions to the
Grantor Trust Fractional Interest Certificates. It is unclear whether those
provisions would be applicable to the Grantor Trust Fractional Interest
Certificates or whether use of a reasonable prepayment assumption may be
required or permitted without reliance on these rules. It is also uncertain,
if a prepayment assumption is used, whether the assumed prepayment rate would
be determined based on conditions at the time of the first sale of the Grantor
Trust Fractional Interest Certificate
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or, with respect to any holder, at the time of purchase of the Grantor Trust
Fractional Interest Certificate by that holder. Certificateholders are
advised to consult their own tax advisors concerning reporting original issue
discount in general and, in particular, whether a prepayment assumption should
be used in reporting original issue discount with respect to Grantor Trust
Fractional Interest Certificates.
In the case of a Grantor Trust Fractional Interest Certificate acquired
at a price equal to the principal amount of the Mortgage Loans allocable to
such Certificate, the use of a prepayment assumption generally would not have
any significant effect on the yield used in calculating accruals of interest
income. In the case, however, of a Grantor Trust Fractional Interest
Certificate acquired at a discount or premium (that is, at a price less than
or greater than such principal amount, respectively), the use of a reasonable
prepayment assumption would increase or decrease such yield, and thus
accelerate or decelerate, respectively, the reporting of income.
If a prepayment assumption is not used, then when a Mortgage Loan prepays
in full, the holder of a Grantor Trust Fractional Interest Certificate
acquired at a discount or a premium generally will recognize ordinary income
or loss equal to the difference between the portion of the prepaid principal
amount of the Mortgage Loan that is allocable to such Certificate and the
portion of the adjusted basis of such Certificate that is allocable to such
Certificateholder's interest in the Mortgage Loan. If a prepayment assumption
is used, it appears that no separate item of income or loss should be
recognized upon a prepayment. Instead, a prepayment should be treated as a
partial payment of the stated redemption price of the Grantor Trust Fractional
Interest Certificate and accounted for under a method similar to that
described for taking account of original issue discount on REMIC Regular
Certificates. See "-REMICs-Taxation of Owners of REMIC Regular Certificates-
Original Issue Discount." It is unclear whether any other adjustments would
be required to reflect differences between an assumed prepayment rate and the
actual rate of prepayments.
In the absence of statutory or administrative clarification, it is
currently intended to base information reports or returns to the IRS and
Certificateholders in transactions subject to the stripped bond rules on a
prepayment assumption (the "Prepayment Assumption") that will be disclosed in
the related Prospectus Supplement and on a constant yield computed using a
representative initial offering price for each class of Certificates.
However, neither the Company, the Master Servicer nor the Trustee will make
any representation that the Mortgage Loans will in fact prepay at a rate
conforming to such Prepayment Assumption or any other rate and
Certificateholders should bear in mind that the use of a representative
initial offering price will mean that such information returns or reports,
even if otherwise accepted as accurate by the IRS, will in any event be
accurate only as to the initial Certificateholders of each series who bought
at that price.
Under Treasury regulation Section 1. 1286-IT, certain stripped bonds are
to be treated as market discount bonds and, accordingly, any purchaser of such
a bond is to account for any discount on the bond as market discount rather
than original issue discount. This treatment only applies, however, if
immediately after the most recent disposition of the bond by a person
stripping one or more coupons from the bond and disposing of the bond or
coupon (i) there is no original issue discount (or only a de minimis amount of
original issue discount) or (ii) the annual stated rate of interest payable on
the original bond is no more than one percentage point lower than the gross
interest rate payable on the original mortgage loan (before subtracting any
servicing fee or any stripped coupon). If interest payable on a Grantor Trust
Fractional Interest Certificate is more than one percentage point lower than
the gross interest rate payable on the Mortgage Loans, the related Prospectus
Supplement will disclose that fact. If the original issue discount or market
discount on a Grantor Trust Fractional Interest Certificate determined under
the stripped bond rules is less than 0.25% of the stated redemption price
multiplied by the weighted average maturity of the Mortgage Loans, then such
original issue discount or market discount will be considered to be de
minimis. Original issue discount or market discount of only a de minimis
amount will be included in income in the same manner as de minimis original
issue and market discount described in "-Taxation of Owners of Grantor Trust
Fractional Interest Certificates-If Stripped Bond Rules Do Not Apply" and "-
Market Discount" below.
If Stripped Bond Rules Do Not Apply. Subject to the discussion below on
-----------------------------------
original issue discount, if the stripped bond rules do not apply to a Grantor
Trust Fractional Interest Certificate, the Certificateholder will be required
to report its share of the interest income on the Mortgage Loans in accordance
with such
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Certificateholder's normal method of accounting. The original issue discount
rules will apply to a Grantor Trust Fractional Interest Certificate to the
extent it evidences an interest in Mortgage Loans issued with original issue
discount.
The original issue discount, if any, on the Mortgage Loans will equal the
difference between the stated redemption price of such Mortgage Loans and
their issue price. Under the OID Regulations, the stated redemption price is
equal to the total of all payments to be made on such Mortgage Loan other than
"qualified stated interest." "Qualified stated interest" includes interest
that is unconditionally payable at least annually at a single fixed rate, or
at a "qualified floating rate," an "objective rate," a combination of a single
fixed rate and one or more "qualified floating rates" or one "qualified
inverse floating rate," or a combination of "qualified floating rates" that
does not operate in a manner that accelerates or defers interest payments on
such Mortgage Loan. In general, the issue price of a Mortgage Loan will be
the amount received by the borrower from the lender under the terms of the
Mortgage Loan, less any "points" paid by the borrower, and the stated
redemption price of a Mortgage Loan will equal its principal amount, unless
the Mortgage Loan provides for an initial below-market rate of interest or the
acceleration or the deferral of interest payments.
In the case of Mortgage Loans bearing adjustable or variable interest
rates, the related Prospectus Supplement will describe the manner in which
such rules will be applied with respect to those Mortgage Loans by the Trustee
in preparing information returns to the Certificateholders and the IRS.
Notwithstanding the general definition of original issue discount,
original issue discount will be considered to be de minimis if such original
issue discount is less than 0.25% of the stated redemption price multiplied by
the weighted average maturity of the Mortgage Loan. For this purpose, the
weighted average maturity of the Mortgage Loan will be computed as the sum of
the amounts determined, as to each payment included in the stated redemption
price of such Mortgage Loan, by multiplying (i) the number of complete years
(rounding down for partial years) from the issue date until such payment is
expected to be made by (ii) a fraction, the numerator of which is the amount
of the payment and the denominator of which is the stated redemption price of
the Mortgage Loan. Under the OID Regulations, original issue discount of only
a de minimis amount (other than de minimis original issue discount
attributable to a so-called "teaser" rate or initial interest holiday) will be
included in income as each payment of stated principal is made, based on the
product of the total amount of such de minimis original issue discount and a
fraction, the numerator of which is the amount of each such payment and the
denominator of which is the outstanding stated principal amount of the
Mortgage Loan. The OID Regulations also permit a Certificateholder to elect
to accrue de minimis original issue discount into income currently based on a
constant yield method. See "-Taxation of Owners of Grantor Trust Fractional
Interest Certificates-Market Discount" below.
If original issue discount is in excess of a de minimis amount, all
original issue discount with respect to a Mortgage Loan will be required to be
accrued and reported in income each month, based on a constant yield. The OID
Regulations suggest that no prepayment assumption is appropriate in computing
the yield on prepayable obligations issued with original issue discount. In
the absence of statutory or administrative clarification, it currently is not
intended to base information reports or returns to the IRS and
Certificateholders on the use of a prepayment assumption in transactions not
subject to the stripped bond rules. However, Section 1272(a)(6) of the Code
may require that a prepayment assumption be made in computing yield with
respect to all mortgage-backed securities. Certificateholders are advised to
consult their own tax advisors concerning whether a prepayment assumption
should be used in reporting original issue discount with respect to Grantor
Trust Fractional Interest Certificates. Certificateholders should refer to
the related Prospectus Supplement with respect to each series to determine
whether and in what manner the original issue discount rules will apply to
Mortgage Loans in such series.
A purchaser of a Grantor Trust Fractional Interest Certificate that
purchases such Grantor Trust Fractional Interest Certificate at a cost less
than such Certificate's allocable portion of the aggregate remaining stated
redemption price of the Mortgage Loans held in the related Trust Fund will
also be required to include in gross income such Certificate's daily portions
of any original issue discount with respect to such Mortgage Loans. However,
each such daily portion will be reduced, if the cost of such Grantor Trust
Fractional Interest Certificate to such purchaser is in excess of such
Certificate's allocable portion of the aggregate "adjusted issue prices" of
the Mortgage Loans held in the related Trust Fund, approximately in proportion
to the ratio such
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excess bears to such Certificate's allocable portion of the aggregate original
issue discount remaining to be accrued on such Mortgage Loans. The adjusted
issue price of a Mortgage Loan on any given day equals the sum of (i) the
adjusted issue price (or, in the case of the first accrual period, the issue
price) of such Mortgage Loan at the beginning of the accrual period that
includes such day and (ii) the daily portions of original issue discount for
all days during such accrual period prior to such day. The adjusted issue
price of a Mortgage Loan at the beginning of any accrual period will equal the
issue price of such Mortgage Loan, increased by the aggregate amount of
original issue discount with respect to such Mortgage Loan that accrued in
prior accrual periods, and reduced by the amount of any payments made on such
Mortgage Loan in prior accrual periods of amounts included in its stated
redemption price.
In addition to its regular reports, the Trustee, unless otherwise
provided in the related Prospectus Supplement, will provide to any holder of a
Grantor Trust Fractional Interest Certificate such information as such holder
may reasonably request from time to time with respect to original issue
discount accruing on Grantor Trust Fractional Interest Certificates. See
"Grantor Trust Reporting" below.
Market Discount. If the stripped bond rules do not apply to the Grantor
---------------
Trust Fractional Interest Certificate, a Certificateholder may be subject to
the market discount rules of Sections 1276 through 1278 of the Code to the
extent an interest in a Mortgage Loan is considered to have been purchased at
a "market discount," that is, in the case of a Mortgage Loan issued without
original issue discount, at a purchase price less than its remaining stated
redemption price (as defined above, or in the case of a Mortgage Loan issued
with original issue discount, at a purchase price less than its adjusted issue
price (as defined above). If market discount is in excess of a de minimis
amount (as described below), the holder generally will be required to include
in income in each month the amount of such discount that has accrued (under
the rules described in the next paragraph) through such month that has not
previously been included in income, but limited, in the case of the portion of
such discount that is allocable to any Mortgage Loan, to the payment of stated
redemption price on such Mortgage Loan that is received by (or, in the case of
accrual basis Certificateholders, due to) the Trust Fund in that month. A
Certificateholder may elect to include market discount in income currently as
it accrues (under a constant yield method based on the yield of the
Certificate to such holder) rather than including it on a deferred basis in
accordance with the foregoing. If made, such election will apply to all
market discount bonds acquired by such Certificateholder during or after the
first taxable year to which such election applies. In addition, the OID
Regulations would permit a Certificateholder to elect to accrue all interest,
discount (including de minimis market or original issue discount) and premium
in income as interest, based on a constant yield method. If such an election
were made with respect to a Mortgage Loan with market discount, the
Certificateholder would be deemed to have made an election to include
currently market discount in income with respect to all other debt instruments
having market discount that such Certificateholder acquires during the taxable
year of the election and thereafter, and possibly previously acquired
instruments. Similarly, a Certificateholder that made this election for a
Certificate acquired at a premium would be deemed to have made an election to
amortize bond premium with respect to all debt instruments having amortizable
bond premium that such Certificateholder owns or acquires. See "-REMICs-
Taxation of Owners of REMIC Regular Certificates-Premium" below. Each of
these elections to accrue interest, discount and premium with respect to a
Certificate on a constant yield method or as interest is irrevocable.
Section 1276(b)(3) of the Code authorized the Treasury Department to
issue regulations providing for the method for accruing market discount on
debt instruments, the principal of which is payable in more than one
installment. Until such time as regulations are issued by the Treasury
Department, certain rules described in the Committee Report will apply. Under
those rules, in each accrual period market discount on the Mortgage Loans
should accrue, at the Certificateholder's option: (i) on the basis of a
constant yield method, (ii) in the case of a Mortgage Loan issued without
original issue discount, in an amount that bears the same ratio to the total
remaining market discount as the stated interest paid in the accrual period
bears to the total stated interest remaining to be paid on the Mortgage Loan
as of the beginning of the accrual period, or (iii) in the case of a Mortgage
Loan issued with original issue discount, in an amount that bears the same
ratio to the total remaining market discount as the original issue discount
accrued in the accrual period bears to the total original issue discount
remaining at the beginning of the accrual period. The prepayment assumption,
if any, used in calculating the accrual of original issue discount is to be
used in calculating the accrual of market discount. The effect of using a
prepayment assumption could be to
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accelerate the reporting of such discount income. Because the regulations
referred to in this paragraph have not been issued, it is not possible to
predict what effect such regulations might have on the tax treatment of a
Mortgage Loan purchased at a discount in the secondary market.
Because the Mortgage Loans will provide for periodic payments of stated
redemption price, such discount may be required to be included in income at a
rate that is not significantly slower than the rate at which such discount
would be included in income if it were original issue discount.
Market discount with respect to Mortgage Loans generally will be
considered to be de minimis if it is less than 0.25% of the stated redemption
price of the Mortgage Loans multiplied by the number of complete years to
maturity remaining after the date of its purchase. In interpreting a similar
rule with respect to original issue discount on obligations payable in
installments, the OID Regulations refer to the weighted average maturity of
obligations, and it is likely that the same rule will be applied with respect
to market discount, presumably taking into account the prepayment assumption
used, if any. The effect of using a prepayment assumption could be to
accelerate the reporting of such discount income. If market discount is
treated as de minimis under the foregoing rule, it appears that actual
discount would be treated in a manner similar to original issue discount of a
de minimis amount. See "-Taxation of Owners of Grantor Trust Fractional
Interest Certificates-If Stripped Bond Rules Do Not Apply."
Further, under the rules described in "-REMICs-Taxation of Owners of
REMIC Regular Certificates-Market Discount," below, any discount that is not
original issue discount and exceeds a de minimis amount may require the
deferral of interest expense deductions attributable to accrued market
discount not yet includible in income, unless an election has been made to
report market discount currently as it accrues. This rule applies without
regard to the origination dates of the Mortgage Loans.
Premium. If a Certificateholder is treated as acquiring the underlying
-------
Mortgage Loans at a premium, that is, at a price in excess of their remaining
stated redemption price, such Certificateholder may elect under Section 171 of
the Code to amortize using a constant yield method the portion of such premium
allocable to Mortgage Loans originated after September 27, 1985. Amortizable
premium is treated as an offset to interest income on the related debt
instrument, rather than as a separate interest deduction. However, premium
allocable to Mortgage Loans originated before September 28, 1985 or to
Mortgage Loans for which an amortization election is not made, should be
allocated among the payments of stated redemption price on the Mortgage Loan
and be allowed as a deduction as such payments are made (or, for a
Certificateholder using the accrual method of accounting, when such payments
of stated redemption price are due).
It is unclear whether a prepayment assumption should be used in computing
amortization of premium allowable under Section 171 of the Code. If premium
is not subject to amortization using a prepayment assumption and a Mortgage
Loan prepays in full, the holder of a Grantor Trust Fractional Interest
Certificate acquired at a premium should recognize a loss, equal to the
difference between the portion of the prepaid principal amount of the Mortgage
Loan that is allocable to the Certificate and the portion of the adjusted
basis of the Certificate that is allocable to the Mortgage Loan. If a
prepayment assumption is used to amortize such premium, it appears that such a
loss would be unavailable. Instead, if a prepayment assumption is used, a
prepayment should be treated as a partial payment of the stated redemption
price of the Grantor Trust Fractional Interest Certificate and accounted for
under a method similar to that described for taking account of original issue
discount on REMIC Regular Certificates. See "REMICs-Taxation of Owners of
REMIC Regular Certificates-Original Issue Discount." It is unclear whether
any other adjustments would be required to reflect differences between the
prepayment assumption used, and the actual rate of prepayments.
Taxation of Owners of Grantor Trust Strip Certificates. The "stripped
coupon" rules of Section 1286 of the Code will apply to the Grantor Trust
Strip Certificates. Except as described above in "-Taxation of Owners of
Grantor Trust Fractional Interest Certificates-If Stripped Bond Rules Apply,"
no regulations or published rulings under Section 1286 of the Code have been
issued and some uncertainty exists as to how it will be applied to securities
such as the Grantor Trust Strip Certificates. Accordingly, holders of Grantor
Trust Strip Certificates should consult their own tax advisors concerning the
method to be used in reporting income or loss with respect to such
Certificates.
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The OID Regulations do not apply to "stripped coupons," although they
provide general guidance as to how the original issue discount sections of the
Code will be applied. In addition, the discussion below is subject to the
discussion under "Possible Application of Proposed Contingent Payment Rules"
and assumes that the holder of a Grantor Trust Strip Certificate will not own
any Grantor Trust Fractional Interest Certificates.
Under the stripped coupon rules, it appears that original issue discount
will be required to be accrued in each month on the Grantor Trust Strip
Certificates based on a constant yield method. In effect, each holder of
Grantor Trust Strip Certificates would include as interest income in each
month an amount equal to the product of such holder's adjusted basis in such
Grantor Trust Strip Certificate at the beginning of such month and the yield
of such Grantor Trust Strip Certificate to such holder. Such yield would be
calculated based on the price paid for that Grantor Trust Strip Certificate by
its holder and the payments remaining to be made thereon at the time of the
purchase, plus an allocable portion of the servicing fees and expenses to be
paid with respect to the Mortgage Loans. See "-Taxation of Owners of Grantor
Trust Fractional Interest Certificates-If Stripped Bond Rules Apply" above.
As noted above, Section 1272(a)(6) of the Code requires that a prepayment
assumption be used in computing the accrual of original issue discount with
respect to certain categories of debt instruments, and that adjustments be
made in the amount and rate of accrual of such discount when prepayments do
not conform to such prepayment assumption. Regulations could be adopted
applying those provisions to the Grantor Trust Strip Certificates. It is
unclear whether those provisions would be applicable to the Grantor Trust
Strip Certificates or whether use of a prepayment assumption may be required
or permitted in the absence of such regulations. It is also uncertain, if a
prepayment assumption is used, whether the assumed prepayment rate would be
determined based on conditions at the time of the first sale of the Grantor
Trust Strip Certificate or, with respect to any subsequent holder, at the time
of purchase of the Grantor Trust Strip Certificate by that holder.
The accrual of income on the Grantor Trust Strip Certificates will be
significantly slower if a prepayment assumption is permitted to be made than
if yield is computed assuming no prepayments. In the absence of statutory or
administrative clarification, it currently is intended to base information
returns or reports to the IRS and Certificateholders on the Prepayment
Assumption disclosed in the related Prospectus Supplement and on a constant
yield computed using a representative initial offering price for each class of
Certificates. However, neither the Company, the Master Servicer nor the
Trustee will make any representation that the Mortgage Loans will in fact
prepay at a rate conforming to the Prepayment Assumption or at any other rate
and Certificateholders should bear in mind that the use of a representative
initial offering price will mean that such information returns or reports,
even if otherwise accepted as accurate by the IRS, will in any event be
accurate only as to the initial Certificateholders of each series who bought
at that price. Prospective purchasers of the Grantor Trust Strip Certificates
should consult their own tax advisors regarding the use of the Prepayment
Assumption.
It is unclear under what circumstances, if any, the prepayment of a
Mortgage Loan will give rise to a loss to the holder of a Grantor Trust Strip
Certificate. If a Grantor Trust Strip Certificate is treated as a single
instrument (rather than an interest in discrete mortgage loans) and the effect
of prepayments is taken into account in computing yield with respect to such
Grantor Trust Strip Certificate, it appears that no loss may be available as a
result of any particular prepayment unless prepayments occur at a rate faster
than the Prepayment Assumption. However, if a Grantor Trust Strip Certificate
is treated as an interest in discrete Mortgage Loans, or if the Prepayment
Assumption is not used, then when a Mortgage Loan is prepaid, the holder of a
Grantor Trust Strip Certificate should be able to recognize a loss equal to
the portion of the adjusted issue price of the Grantor Trust Strip Certificate
that is allocable to such Mortgage Loan.
Possible Application of Proposed Contingent Payment Rules. The coupon
stripping rules' general treatment of stripped coupons is to regard them as
newly issued debt instruments in the hands of each purchaser. To the extent
that payments on the Grantor Trust Strip Certificates would cease if the
Mortgage Loans were prepaid in full, the Grantor Trust Strip Certificates
could be considered to be debt instruments providing for contingent payments.
Under the OID Regulations, debt instruments providing for contingent payments
are not subject to the same rules as debt instruments providing for
noncontingent payments, but no
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final regulations have been promulgated with respect to contingent payment
debt instruments. Proposed regulations were promulgated on December 16, 1994
regarding contingent payment debt instruments. As in the case of the OID
Regulations, such proposed regulations do not specifically address securities,
such as the Grantor Trust Strip Certificates, that are subject to the stripped
bond rules of Section 1286 of the Code.
If the contingent payment rules under the proposed regulations were to
apply, the holder of a Grantor Trust Strip Certificate would be required to
apply a " noncontingent bond method." Under that method, the issuer of a
Grantor Trust Strip Certificate would determine a projected payment schedule
with respect to such Grantor Trust Strip Certificate. Holders of Grantor
Trust Strip Certificates would be bound by the issuer's projected payment
schedule, which would consist of all noncontingent payments and a projected
amount for each contingent payment based on the projected yield (as described
below) of the Grantor Trust Strip Certificate. The projected amount of each
payment would be determined so that the projected payment schedule reflected
the projected yield reasonably expected to be received by the holder of a
Grantor Trust Strip Certificate. The projected yield referred to above would
be a reasonable rate, not less than the "applicable Federal rate" that, as of
the issue date, reflected general market conditions, the credit quality of the
issuer, and the terms and conditions of the Mortgage Loans. The holder of a
Grantor Trust Strip Certificate would be required to include as interest
income in each month the adjusted issue price of the Grantor Trust Strip
Certificate at the beginning of the period multiplied by the projected yield.
Assuming that a prepayment assumption were used, if the proposed
regulations or their principles were applied to Grantor Trust Strip
Certificates, the amount of income reported with respect thereto would be
substantially similar to that described under "Taxation of Owners of Grantor
Trust Strip Certificates". Certificateholders should consult their tax
advisors concerning the possible application of the contingent payment rules
to the Grantor Trust Strip Certificates.
Sales of Grantor Trust Certificates. Any gain or loss equal to the
difference between the amount realized on the sale of a Grantor Trust
Certificate, recognized on the sale or exchange of a Grantor Trust Certificate
by an investor who holds such Grantor Trust Certificate as a capital asset,
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 Certificate
generally will 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 with respect to such Grantor Trust Certificate. The
Code as of the date of this Prospectus provides a top marginal tax rate of
39.6% for individuals and a maximum marginal rate for long-term capital gains
of individuals of 28%. No such rate differential exists for corporations. In
addition, the distinction between a capital gain or loss and ordinary income
or loss remains relevant for other purposes.
Gain or loss from the sale of a Grantor Trust Certificate may be
partially or wholly ordinary and not capital in certain circumstances. Gain
attributable to accrued and unrecognized market discount will be treated as
ordinary income, as will gain or loss recognized by banks and other financial
institutions subject to Section 582(c) of the Code. Furthermore, a portion of
any gain that might otherwise be capital gain may be treated as ordinary
income to the extent that the Grantor Trust Certificate is held as part of a
"conversion transaction" within the meaning of Section 1258 of the Code. A
conversion transaction generally is one in which the taxpayer has taken two or
more positions in the same or similar property that reduce or eliminate market
risk, if substantially all of the taxpayer's return is attributable to the
time value of the taxpayer's net investment in such transaction. The amount
of gain realized in a conversion transaction that is recharacterized as
ordinary income generally will not exceed the amount of interest that would
have accrued on the taxpayer's net investment at 120% of the appropriate
"applicable Federal rate" (which rate is computed and published monthly by the
IRS) at the time the taxpayer enters into the conversion transaction, subject
to appropriate reduction for prior inclusion of interest and other ordinary
income items from the transaction. Finally, a taxpayer may elect to have net
capital gain taxed at ordinary income rates rather than capital gains rates in
order to include such net capital gain in total net investment income for that
taxable year, for purposes of the rule that limits the deduction of interest
on indebtedness incurred to purchase or carry property held for investment to
a taxpayer's net investment income.
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Grantor Trust Reporting. Unless otherwise provided in the related
Prospectus Supplement, the Trustee will furnish to each holder of a Grantor
Trust Fractional Interest Certificate with each distribution a statement
setting forth the amount of such distribution allocable to principal on the
underlying Mortgage Loans and to interest thereon at the related Pass-Through
Rate. In addition, the Trustee will furnish, within a reasonable time after
the end of each calendar year, to each holder of a Grantor Trust Certificate
who was such a holder at any time during such year, information regarding the
amount of servicing compensation received by the Master Servicer and sub-
servicer (if any) and such other customary factual information as the Trustee
deems necessary or desirable to enable holders of Grantor Trust Certificates
to prepare their tax returns and will furnish comparable information to the
Service as and when required by law to do so. Because the rules for accruing
discount and amortizing premium with respect to the Grantor Trust Certificates
are uncertain in various respects, there is no assurance the Service will
agree with the Trustee's information reports of such items of income and
expense. Moreover, such information reports, even if otherwise accepted as
accurate by the Service, will in any event be accurate only as to the initial
Certificateholders that bought their Certificates at the representative
initial offering price used in preparing such reports.
Backup Withholding. In general, the rules described in "-REMICS-Backup
Withholding with Respect to REMIC Certificates" will also apply to Grantor
Trust Certificates.
Foreign Investors. In general, the discussion with respect to REMIC
Regular Certificates in "REMICS-Foreign Investors in REMIC Certificates-REMIC
Regular Certificates" applies to Grantor Trust Certificates except that
Grantor Trust Certificates will, unless otherwise disclosed in the related
Prospectus Supplement, be eligible for exemption from U.S. withholding tax,
subject to the conditions described in such discussion, only to the extent the
related Mortgage Loans were originated after July 18, 1984.
To the extent that interest on a Grantor Trust Certificate would be
exempt under Sections 871(h)(1) and 881(c) of the Code from United States
withholding tax, and the Grantor Trust Certificate is not held in connection
with a Certificateholder's trade or business in the United States, such
Grantor Trust Certificate will not be subject to United States estate taxes in
the estate of a non-resident alien individual.
STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described in "Federal
Income Tax Consequences", potential investors should consider the state and
local tax consequences of the acquisition, ownership, and disposition of the
Certificates offered hereunder. State tax law may differ substantially from
the corresponding federal tax law, and the discussion above does not purport
to describe any aspect of the tax laws of any state or other jurisdiction.
Therefore, prospective investors should consult their own tax advisors with
respect to the various tax consequences of investments in the certificates
offered hereunder.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Code impose certain requirements on employee benefit plans
and on certain other retirement plans and arrangements, including individual
retirement accounts and annuities, Keogh plans and collective investment funds
and separate accounts (and, as applicable, insurance company general accounts)
in which such plans, accounts or arrangements are invested that are subject to
the fiduciary responsibility provisions of ERISA and Section 4975 of the Code
("Plans") and on persons who are fiduciaries with respect to such Plans in
connection with the investment of Plan assets. Certain employee benefit
plans, such as governmental plans (as defined in ERISA Section 3(32)), and, if
no election has been made under Section 410(d) of the Code, church plans (as
defined in Section 3(33) of ERISA) are not subject to ERISA requirements.
Accordingly, assets of such plans may be invested in Offered Certificates
without regard to the ERISA considerations described below, subject to the
provisions of other applicable federal and state law. Any such plan which is
qualified and exempt from taxation under Sections 401(a) and 501(a) of the
Code, however, is subject to the prohibited transaction rules set forth in
Section 503 of the Code.
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ERISA generally imposes on Plan fiduciaries certain general fiduciary
requirements, including those of investment prudence and diversification and
the requirement that a Plan's investments be made in accordance with the
documents governing the Plan. In addition, Section 406 of ERISA and Section
4975 of the Code prohibit a broad range of transactions involving assets of a
Plan and persons ("Parties in Interest") who have certain specified
relationships to the Plan unless a statutory or administrative exemption is
available. Certain Parties in Interest that participate in a prohibited
transaction may be subject to an excise tax imposed pursuant to Section 4975
of the Code or a penalty imposed pursuant to Section 502(i) of ERISA, unless a
statutory or administrative exemption is available. These prohibited
transactions generally are set forth in Section 406 of ERISA and Section 4975
of the Code.
PLAN ASSET REGULATIONS
A Plan's investment in Offered Certificates may cause the underlying
Mortgage Loans, interests therein, Mortgage Securities or Contracts and other
assets included in a related Trust Fund to be deemed assets of such Plan.
Section 2510.3-101 of the regulations of the United States Department of Labor
(the "DOL") provides that when a Plan acquires an equity interest in an
entity, the Plan's assets include both such equity interest and an undivided
interest in each of the underlying assets of the entity, unless certain
exceptions not applicable here apply, or unless the equity participation in
the entity by "benefit plan investors" (i.e., Plans and certain employee
benefit plans not subject to ERISA) is not "significant", both as defined
therein. For this purpose, in general, equity participation by benefit plan
investors will be "significant" on any date if 25% or more of the value of any
class of equity interests in the entity is held by benefit plan investors.
Equity participation in a Trust Fund will be significant on any date if
immediately after the most recent acquisition of any Certificate, 25 % or more
of any class of Certificates is held by benefit plan investors.
Any person who has discretionary authority or control respecting the
management or disposition of Plan assets, and any person who provides
investment advice with respect to such assets for a fee, is a fiduciary of the
investing Plan. If the Mortgage Loans, interests therein, Mortgage Securities
or Contracts and other assets included in a Trust Fund constitute Plan assets,
then any party exercising management or discretionary control regarding those
assets, such as the Master Servicer, any SubServicer, any Special Servicer,
the Trustee, the obligor under any credit enhancement mechanism, or certain
affiliates thereof may be deemed to be a Plan "fiduciary" and thus subject to
the fiduciary responsibility provisions and prohibited transaction provisions
of ERISA and the Code with respect to the investing Plan. In addition, if the
Mortgage Loans and other assets included in a Trust Fund constitute Plan
assets, the purchase of Certificates by a Plan, as well as the operation of
the Trust Fund, may constitute or involve a prohibited transaction under ERISA
or the Code.
The DOL has issued an administrative exemption, Prohibited Transaction
Class Exemption 83-1 ("PTCE 83-1"), which generally exempts from the
prohibited transaction provisions of Section 406(a) of ERISA, and from the
excise taxes imposed by Sections 4975(a) and (b) of the Code by reason of
Section 4975(c)(1)(A), (B), (C) and (D) of the Code, certain transactions
involving residential mortgage pool investment trusts relating to the
purchase, sale and holding of certificates in the initial issuance of
certificates and the servicing and operation of mortgage pools consisting of
mortgage loans secured by first or second mortgages or deeds of trust in
single-family residential property. PTCE 83-1 permits, subject to certain
general and specific conditions, transactions which might otherwise be
prohibited between Plans and Parties in Interest with respect to those Plans,
related to the origination, maintenance and termination of mortgage pools
consisting of mortgage loans secured by first or second mortgages or deeds of
trust on single-family residential property and the acquisition and holding of
certain mortgage pool pass-through certificates representing interests in such
mortgage pools by Plans, whether or not the Plan's assets would be deemed to
include an ownership interest in the mortgage loans in the mortgage pool.
PTCE 83-1 defines the term "mortgage pool" as "an investment pool the corpus
of which (1) is held in trust; and (2) consists solely of (a) interest bearing
obligations secured by either first or second mortgages or deeds of trust on
single-family, non-farm residential property; (b) property which had secured
such obligations and which has been acquired by foreclosure; and (c)
undistributed cash.
The Company anticipates that each pool of Mortgage Loans (other than
pools including MultiFamily Loans, interests in Mortgage Loans, Mortgage
Securities or Contracts) (such Mortgage Loans eligible under PTCE 83-1,
"Eligible Mortgage Loans") will be a "mortgage pool" within the meaning of
PTCE 83-1. The term
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"mortgage pool pass-through certificate" is defined in PTCE 83-1 as "a
certificate representing a beneficial undivided fractional interest in a
mortgage pool and entitling the holder of such certificate to pass-through
payment of principal and interest from the pooled mortgage loans, less any
fees retained by the pool sponsor." The Company believes that, for purposes of
PTCE 83-1, the term "mortgage pool pass-through certificate" would include:
(i) Offered Certificates representing interests in a Trust Fund consisting of
Eligible Mortgage Loans issued in a series consisting of only a single class
of Certificates; (ii) Senior Certificates representing interests in a Trust
Fund consisting of Eligible Mortgage Loans issued in a series in which there
is only one class of Senior Certificates; provided that the Certificates
described in clauses (i) and (ii) evidence the beneficial ownership of a
specified portion of both future interest payments (greater than 0%) and
future principal payments (greater than 0%) on the Eligible Mortgage Loans.
It is not clear whether other types of Offered Certificates that may be
offered hereunder would be "mortgage pass-through certificates" for purposes
of PTCE 83-1, including but not limited to: (a) a class of Offered
Certificates that evidences the beneficial ownership of interest payments only
or principal payments only, or disproportionate interest or principal
payments, or nominal principal or interest payments, such as the Strip
Certificates; or (b) Offered Certificates in a series including classes of
Certificates which differ as to timing, sequential order, pass-through rate or
amount of distributions of principal or interest or both, or as to which
distributions of principal or interest or both on any class may be made upon
the occurrence of specified events, in accordance with a schedule or formula,
or on the basis of collections from designated portions of the Mortgage Pool;
or (c) Accrual Certificates; or (d) Offered Certificates evidencing an
interest in a Trust Fund as to which two or more REMIC elections have been
made; or (e) a series including other types of multiple classes. Accordingly,
until further clarification by the DOL, Plans should not purchase Offered
Certificates representing interests as described in the immediately preceding
sentence based upon the availability of PTCE 83-1. It should be noted that in
promulgating PTCE 83-1 and its predecessor, the DOL did not have under its
consideration interests in pools of the exact nature described herein. PTCE
83-1 is not available for mortgage pools consisting of Multi-Family Loans,
interests in Mortgage Loans, Mortgage Securities or Contracts. PTCE 83-1 is
not available for Certificates that are subordinate to any other class of
Certificates of the same series.
PTCE 83-1 sets forth three general conditions which must be satisfied for
any transaction involving the purchase, sale and holding of "mortgage pool
pass-through certificates" and the servicing and operation of the "mortgage
pool" to be eligible for exemption: (1) the maintenance of a system of
insurance or other protection for the pooled mortgage loans and property
securing such loans, and for indemnifying certificateholders against
reductions in pass-through payments due to property damage or defaults in loan
payments in an amount not less than the greater of one percent of the
aggregate principal balance of all covered pooled mortgages, or the principal
balance of the largest covered mortgage; (2) the pool trustee must not be an
affiliate of the pool sponsor; and (3) the amount of the payment retained by
the pool sponsor together with other funds inuring to its benefit must be
limited to not more than adequate consideration for forming the mortgage pools
plus reasonable compensation for services provided by the pool sponsor to the
mortgage pool. PTCE 83-1 also imposes additional specific conditions for
certain types of transactions involving an investing Plan and for situations
in which the Parties in Interest are fiduciaries.
The Prospectus Supplement with respect to a series will set forth whether
the Trustee in respect of such series is affiliated with the Company. Unless
otherwise provided in the Prospectus Supplement with respect to a series, the
Company believes that it will receive total compensation for forming and
providing services to the Mortgage Pools which will not be more than adequate
consideration. If the credit support with respect to a series of Certificates
constitutes a system of insurance or other protection within the meaning of
PTCE 83-1 and if it is maintained in an amount not less than the greater of
one percent of the aggregate principal balance of the Mortgage Loans or the
principal balance of the largest Mortgage Loan, then the Company believes the
first general condition referred to above will be satisfied. Each Plan
fiduciary responsible for making the investment decision whether to purchase
and to hold Offered Certificates must make its own determination as to whether
(i) the Offered Certificates constitute "mortgage pool pass-through
certificates" for purposes of PTCE 83-1, (ii) the first and third general
conditions will be satisfied, and (iii) the specific conditions not discussed
herein, of PTCE 83-1 have been satisfied.
Any Plan fiduciary which proposes to cause a Plan to purchase Offered
Certificates should consult with its counsel with respect to the potential
applicability of ERISA and the Code to such investment and the availability of
PTCE 83-1 or any other prohibited transaction exemption. In addition, such
fiduciary should
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consider the availability of: PTCE 95-60, regarding investments by insurance
company general accounts; PTCE 90-1, regarding investments by insurance
company polled separate accounts; PTCE 91-38, regarding investments by bank
collective investment funds; and PTCE 84-14, regarding transactions effected
by "qualified professional assets managers." The Plan fiduciary should also
consider its general fiduciary obligations under ERISA in determining whether
to purchase any Offered Certificates on behalf of a Plan. The Prospectus
Supplement with respect to a series of Certificates may contain additional
information regarding the application of PTCE 83-1, or any other exemption,
with respect to the Certificates offered thereby. There can be no assurance
that any of these exemptions will apply with respect to any particular Plan's
investment in the Certificates or, even if an exemption would apply to all
prohibited transactions that may occur in connection with such investment.
TAX EXEMPT INVESTORS
A Plan that is exempt from federal income taxation pursuant to Section
501 of the Code (a "Tax Exempt Investor") nonetheless will be subject to
federal income taxation to the extent that its income is "unrelated business
taxable income" ("UBTI") within the meaning of Section 512 of the Code. All
"excess inclusions" of a REMIC allocated to a REMIC Residual Certificate held
by a Tax-Exempt Investor will be considered UBTI and thus will be subject to
federal income tax. See "Federal Income Tax Consequences-Taxation of Owners
of REMIC Residual Certificates-Excess Inclusions."
CONSULTATION WITH COUNSEL
Any fiduciary or other Plan investor that proposes to acquire or hold
Certificates on behalf of or with Plan Assets of any Plan should consult with
its counsel with respect to the potential applicability of the fiduciary
responsibility provisions of ERISA and the prohibited transaction provisions
of ERISA and the Code to the proposed investment and the availability of PTCE
83-1 or any other prohibited transaction exemption.
LEGAL INVESTMENT MATTERS
Each class of Certificates offered hereby and by the related Prospectus
Supplement will be rated at the date of issuance in one of the four highest
rating categories by at least one Rating Agency. Unless otherwise specified
in the related Prospectus Supplement, each such class that is rated in one of
the two highest rating categories by at least one Rating Agency will
constitute "mortgage related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 ("SMMEA"), and, as such, will be legal
investments for persons, trusts, corporations, partnerships, associations,
business trusts and business entities (including depository institutions, life
insurance companies and pension funds) created pursuant to or existing under
the laws of the United States or of any State whose authorized investments are
subject to state regulation to the same extent that, under applicable law,
obligations issued by or guaranteed as to principal and interest by the United
States or any agency or instrumentality thereof constitute legal investments
for such entities. Under SMMEA, if a State enacted legislation on or prior to
October 3, 1991 specifically limiting the legal investment authority of any
such entities with respect to "mortgage related securities," such securities
will constitute legal investments for entities subject to such legislation
only to the extent provided therein. Certain States have enacted legislation
which overrides the preemption provisions of SMMEA. SMMEA provides, however,
that in no event will the enactment of any such legislation affect the
validity of any contractual commitment to purchase, hold or invest in
"mortgage related securities," or require the sale or other disposition of
such securities, so long as such contractual commitment was made or such
securities acquired prior to the enactment of such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal with "mortgage
related securities" without limitation as to the percentage of their assets
represented thereby, federal credit unions may invest in such securities, and
national banks may purchase such securities for their own account without
regard to the limitations generally applicable to investment securities set
forth in 12 U.S.C. 24 (Seventh), subject in each case to such regulations as
the applicable federal regulatory authority may prescribe.
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The Federal Financial Institutions Examination Council has issued a
supervisory policy statement (the "Policy Statement") applicable to all
depository institutions, setting forth guidelines for and significant
restrictions on investments in "high-risk mortgage securities." The Policy
Statement has been adopted by the Federal Reserve Board, the Office of the
Comptroller of the Currency, the FDIC and the OTS with an effective date of
February 10, 1992. The Policy Statement generally indicates that a mortgage
derivative product will be deemed to be high risk if it exhibits greater price
volatility than a standard fixed rate thirty-year mortgage security.
According to the Policy Statement, prior to purchase, a depository institution
will be required to determine whether a mortgage derivative product that it is
considering acquiring is high-risk, and if so that the proposed acquisition
would reduce the institution's overall interest rate risk. Reliance on
analysis and documentation obtained from a securities dealer or other outside
party without internal analysis by the institution would be unacceptable.
There can be no assurance as to which classes of Offered Certificates will be
treated as high-risk under the Policy Statement.
The predecessor to the Office of Thrift Supervision ("OTS") issued a
bulletin, entitled, "Mortgage Derivative Products and Mortgage Swaps", which
is applicable to thrift institutions regulated by the OTS. The bulletin
established guidelines for the investment by savings institutions in certain
"high-risk" mortgage derivative securities and limitations on the use of such
securities by insolvent, undercapitalized or otherwise "troubled"
institutions. According to the bulletin, such "high-risk" mortgage derivative
securities include securities having certain specified characteristics, which
may include certain classes of Offered Certificates. 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 Offered Certificates.
Similar policy statements have been issued by regulators having jurisdiction
over other types of depository institutions.
Certain classes of Certificates offered hereby, including any class that
is not rated in one of the two highest rating categories by at least one
Rating Agency, will not constitute "mortgage related securities" for purposes
of SMMEA. Any such class of Certificates will be identified in the related
Prospectus Supplement. Prospective investors in such classes of Certificates,
in particular, should consider the matters discussed in the following
paragraph.
There may be other restrictions on the ability of certain investors
either to purchase certain classes of Offered Certificates or to purchase any
class of Offered Certificates 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 Offered Certificates for legal
investment or other purposes, or as to the ability of particular investors to
purchase any class of Certificates under applicable legal investment
restrictions. These uncertainties may adversely affect the liquidity of any
class of Certificates. 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 Offered
Certificates of any class thereof constitute legal investments or are subject
to investment, capital or other restrictions, and, if applicable, whether
SMMEA has been overridden in any jurisdiction relevant to such investor.
USE OF PROCEEDS
Unless otherwise specified in the related Prospectus Supplement,
substantially all of the net proceeds to be received from the sale of
Certificates will be applied by the Company to finance the purchase of, or to
repay short-term loans incurred to finance the purchase of, the Mortgage Loans
and/or Mortgage Securities in the respective Mortgage Pools. The proceeds
will not be used by the Company for general corporate purposes to a material
extent. The Company expects that it will make additional sales of securities
similar to the Offered Certificates from time to time, but the timing and
amount of any such additional offerings will be dependent upon a number of
factors, including the volume of mortgage loans purchased by the Company,
prevailing interest rates, availability of funds and general market
conditions.
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METHODS OF DISTRIBUTION
The Certificates offered hereby and by the related Prospectus Supplements
will be offered in series through one or more of the methods described below.
The Prospectus Supplement prepared for each series will describe the method of
offering being utilized for that series and will state the net proceeds to the
Company from such sale.
The Company intends that Offered Certificates will be offered through the
following methods from time to time and that offerings may be made
concurrently through more than one of these methods or that an offering of the
Offered Certificates of a particular series may be made through a combination
of two or more of these methods. Such methods are as follows:
1. By negotiated firm commitment or best efforts underwriting and
public re-offering by underwriters;
2. By placements by the Company with institutional investors through
dealers; and
3. By direct placements by the Company with institutional investors.
If underwriters are used in a sale of any Offered Certificates (other
than in connection with an underwriting on a best efforts basis), such
Certificates will be acquired by the underwriters for their own account and
may be resold from time to time in one or more transactions, including
negotiated transactions, at fixed public offering prices or at varying prices
to be determined at the time of sale or at the time of commitment therefor.
Such underwriters may be broker-dealers affiliated with the Company whose
identities and relationships to the Company will be as set forth in the
related Prospectus Supplement. The managing underwriter or underwriters with
respect to the offer and sale of the Offered Certificates of a particular
series will be set forth on the cover of the Prospectus Supplement relating to
such series and the members of the underwriting syndicate, if any, will be
named in such Prospectus Supplement.
In connection with the sale of the Offered Certificates, underwriters may
receive compensation from the Company or from purchasers of such Certificates
in the form of discounts, concessions or commissions. Underwriters and
dealers participating in the distribution of the Offered Certificates may be
deemed to be underwriters in connection with such Certificates, and any
discounts or commissions received by them from the Company and any profit on
the resale of Offered Certificates by them may be deemed to be underwriting
discounts and commissions under the Securities Act.
It is anticipated that the underwriting agreement pertaining to the sale
of Offered Certificates of any series will provide that the obligations of the
underwriters will be subject to certain conditions precedent, that the
underwriters will be obligated to purchase all such Certificates if any are
purchased (other than in connection with an underwriting on a best efforts
basis) and that, in limited circumstances, the Company will indemnify the
several underwriters and the underwriters will indemnify the Company against
certain civil liabilities, including liabilities under the Securities Act or
will contribute to payments required to be made in respect thereof.
The Prospectus Supplement with respect to any series offered by
placements through dealers will contain information regarding the nature of
such offering and any agreements to be entered into between the Company and
purchasers of Offered Certificates of such series.
The Company anticipates that the Certificates offered hereby will be sold
primarily to institutional investors or sophisticated non-institutional
investors. Purchasers of Offered Certificates, including dealers, may,
depending on the facts and circumstances of such purchases, be deemed to be 11
underwriters" within the meaning of the Securities Act in connection with
reoffers and sales by them of such Certificates. Holders of Offered
Certificates should consult with their legal advisors in this regard prior to
any such reoffer or sale.
109
<PAGE>
LEGAL MATTERS
Unless otherwise specified in the related Prospectus Supplement, certain
legal matters in connection with the Certificates of each series will be
passed upon for the Company by Freshman, Marantz, Orlanski, Cooper & Klein, a
law corporation, Beverly Hills, California.
FINANCIAL INFORMATION
A new Trust fund will be formed with respect to each series of
Certificates, and no Trust Fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related series of
Certificates. Accordingly, no financial statements with respect to any Trust
Fund will be included in this Prospectus or in the related Prospectus
Supplement.
RATING
It is a condition to the issuance of any class of Offered Certificates
that they shall have been rated not lower than investment grade, that is, in
one of the four highest rating categories, by at least one Rating Agency.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by the holders thereof of all collections on the underlying mortgage
assets to which such holders are entitled. These ratings address the
structural, legal and issuer-related aspects associated with such
certificates, the nature of the underlying mortgage assets and the credit
quality of the guarantor, if any. Ratings on mortgage pass-through
certificates do not represent any assessment of the likelihood of principal
prepayments by borrowers or of the degree by which such prepayments might
differ from those originally anticipated. As a result, Certificateholders
might suffer a lower than anticipated yield, and, in addition, holders of
stripped interest certificates in extreme cases might fail to recoup their
initial investments.
110
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Accrual Certificates................................................ 6,38, 44
Accrued Certificate Interest........................................ 44
Affiliated Sellers.................................................. 18
ARM Loans........................................................... 19
Available Distribution Amount....................................... 43
Balloon Loans....................................................... 20
Balloon Payment..................................................... 20
Bankruptcy Code..................................................... 74
Bankruptcy Loss..................................................... 48
Beneficial Owner.................................................... 37
Buydown Account..................................................... 12, 22
Buydown Agreement................................................... 42
Buydown Funds....................................................... 12, 22
Buydown Mortgage Loans.............................................. 12, 22
Buydown Period...................................................... 12, 22
CERCLA.............................................................. 25
Certificate......................................................... 60
Certificate Account................................................. 40
Certificate Register................................................ 37
Certificate Registrar............................................... 37
Certificateholder................................................... 37
Certificateholders.................................................. 1
Certificates........................................................ 1, 5
Closing Date........................................................ 82
Code................................................................ 6, 79
Commission.......................................................... 3
Committee Report.................................................... 81
Company............................................................. 1, 5
Contracts........................................................... 18
Contributions Tax................................................... 92
Convertible Mortgage Loan........................................... 22
Debt Service Coverage Ratio......................................... 24
Debt Service Reduction.............................................. 52
Defaulted Mortgage Loss............................................. 48
Deferred Interest................................................... 20
Deficient Valuation................................................. 52
Deleted Mortgage Loan............................................... 27
Designated Seller Transaction....................................... 19
Determination Date.................................................. 44
Distribution Date................................................... 8
DOL................................................................. 105
DTC................................................................. 37
DTC Registered Certificates......................................... 37
Due Period.......................................................... 46
Eligible Mortgage Loans............................................. 105
Equity Participation................................................ 21
ERISA............................................................... 10,104
Exchange Act........................................................ 3
Extraordinary Losses................................................ 48
Fannie Mae.......................................................... 13
FDIC................................................................ 18
FHA................................................................. 18
</TABLE>
111
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
FHA Loans........................................................... 18
FHLMC............................................................... 24
FIRREA.............................................................. 24
FNMA................................................................ 24
Fraud Loss.......................................................... 48
Freddie Mac......................................................... 13
FTC Rule............................................................ 76
Garn-St Germain Act................................................. 76
Grantor Trust Certificates.......................................... 10, 80
Grantor Trust Fractional Interest Certificate....................... 95
Grantor Trust Fund.................................................. 80
Grantor Trust Strip Certificate..................................... 95
Holder.............................................................. 37
Housing Act......................................................... 25
HUD................................................................. 58
ICAI................................................................ 59
ICI Funding......................................................... 5, 18
ICII................................................................ 59
ICMH................................................................ 5
Index............................................................... 23
Insurance Proceeds.................................................. 40
Intermediaries...................................................... 37
Internal Revenue Service............................................ 79
Issue Premium....................................................... 87
Letter of Credit.................................................... 49
Letter of Credit Bank............................................... 49
Liquidated Mortgage Loan............................................ 33
Liquidation Proceeds................................................ 40
Loan-to-Value Ratio................................................. 21
Lock-out Expiration Date............................................ 21
Lock-out Period..................................................... 21
Loss................................................................ 56
Manufactured Homes.................................................. 18
Manufacturer's Invoice Price........................................ 21
Master Servicer..................................................... 1, 5
Mortgage Loans...................................................... 1, 7, 49
Mortgage Notes...................................................... 17
Mortgage Pool....................................................... 1, 7
Mortgage Rate....................................................... 19
Mortgage Securities................................................. 7, 19
Mortgaged Property.................................................. 7
Mortgages........................................................... 17
Multifamily Loans................................................... 18
Multifamily Properties.............................................. 18
Net Mortgage Rate................................................... 65
Net Operating Income................................................ 24
Nonrecoverable Advance.............................................. 46
Note Margin......................................................... 19
Offered Certificates................................................ 1, 5, 36
OID Regulations..................................................... 80
OTS................................................................. 108
Participants........................................................ 37
Parties in Interest................................................. 105
Pass-Through Rate................................................... 6
</TABLE>
112
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Permitted Investments............................................... 40
Plan................................................................ 10
Policy Statement.................................................... 108
Pool Insurer........................................................ 42
Pooling Agreement................................................... 1, 6, 60
Pre-Funding Account................................................. 36
Prepayment Assumption............................................... 82, 98
Prepayment Interest Shortfall....................................... 66
Prepayment Penalty.................................................. 21
Primary Insurance Policy............................................ 56
Primary Insurer..................................................... 56
Prohibited Transactions Tax......................................... 92
Proposed Mark-to-Market Regulations................................. 90
Prospectus Supplement............................................... 1
PTCE 83-1........................................................... 105
Purchase Obligation................................................. 55
Purchase Price...................................................... 26
Qualified Substitute Mortgage Loan.................................. 27
Rating Agency....................................................... 9
Realized Losses..................................................... 48
Record Date......................................................... 44
Related Proceeds.................................................... 46
Relief Act.......................................................... 79
REMIC............................................................... 1, 6
REMIC Administrator................................................. 80
REMIC Certificates.................................................. 80
REMIC Provisions.................................................... 80
REMIC Regular Certificates.......................................... 10, 80
REMIC Regulations................................................... 80
REMIC Residual Certificates......................................... 10,80, 90
REO Mortgage Loan................................................... 33
REO Property........................................................ 31
Reports to Certificateholders....................................... 3
Reserve Fund........................................................ 52
RTC................................................................. 18
Securities Act...................................................... 3
Seller.............................................................. 7
Sellers............................................................. 1, 18
Senior Certificates................................................. 6, 36
Senior Liens........................................................ 20
Senior/Subordinate Series........................................... 36
Servicing Standard.................................................. 29
Single Family Loans................................................. 18
Single Family Property.............................................. 18
SMMEA............................................................... 9, 107
Special Hazard Instrument........................................... 48
Special Hazard Insurance Policy..................................... 51
Special Hazard Insurer.............................................. 51
Special Hazard Loss................................................. 48
Special Hazard Losses............................................... 51
Special Servicer.................................................... 5, 31
Spread.............................................................. 6
Strip Certificates.................................................. 6, 36
Subordinate Certificates............................................ 6, 36
</TABLE>
113
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Subservicer......................................................... 31
Subservicers........................................................ 23
Tax Exempt Investor................................................. 107
Tiered REMICs....................................................... 81
Title V............................................................. 77
Title VIII.......................................................... 78
Trust Fund.......................................................... 1, 6
Trustee............................................................. 5
UBTI................................................................ 107
Unaffiliated Sellers................................................ 18
United States person................................................ 94
Value............................................................... 21, 22
</TABLE>
114
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses expected to be incurred in connection with the issuance and
distribution of the Certificates being registered, other than underwriting
compensation, are as set forth below. All such expenses, except for the filing
fee, are estimated.
<TABLE>
<S> <C>
Filing Fee for Registration Statement... $ 172,414
Legal Fees and Expenses................. 375,000
Accounting Fees and Expenses............ 160,000
Trustee's Fees and Expenses
(including counsel fees)........... 75,000
Printing and Engraving Fees............. 125,000
Rating Agency Fees...................... 250,000
Miscellaneous........................... 12,500
----------
Total................................... $1,169,914
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Pooling and Servicing Agreements will provide that no director,
officer, employee or agent of the Registrant is liable to the Trust Fund or the
Certificateholders, except for such person's own willful misfeasance, bad faith
or gross negligence in the performance of duties or reckless disregard of
obligations and duties. The Pooling and Servicing Agreements will further
provide that, with the exceptions stated above, a director, officer, employee or
agent of the Registrant is entitled to be indemnified against any loss,
liability or expense incurred in connection with legal action relating to such
Pooling and Servicing Agreements and related Certificates other than such
expenses related to particular Mortgage Loans.
Any underwriters who execute an Underwriting Agreement in the form filed as
Exhibit 1.1 to this Registration Statement will agree to indemnify the
Registrant's directors and its officers who signed this Registration Statement
against certain liabilities which might arise under the Securities Act of 1933
from certain information furnished to the Registrant by or on behalf of such
indemnifying party.
Section 317 of the California Corporations Code allows for the
indemnification of officers, directors and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended (the "Act"). Article VI of the Registrant's
Articles of Incorporation (Exhibit 3.1 hereto) and Article XI of the
Registrant's Bylaws (Exhibit 3.2 hereto) provide for indemnification of the
Registrant's directors, officers, employees and other agents to the extent and
under the circumstances permitted by the California Corporations Code. The
Registrant has also entered into agreements with its directors and executive
officers that would require the Registrant, among other things, to indemnify
them against certain liabilities that may arise by reason of their status or
service as directors to the fullest extent not prohibited by law. The Registrant
does not maintain liability insurance for its officers or directors.
1
<PAGE>
<TABLE>
<CAPTION>
ITEM 16. EXHIBITS.
Exhibits
<S> <C> <C>
1.1 -- Form of Underwriting Agreement. *
3.1 -- Amended Articles of Incorporation. *
3.2 -- By-Laws. *
4.1 -- Form of Pooling and Servicing Agreement for an
offering of Mortgage Pass-Through Certificates
consisting of senior and subordinated classes. *
4.2 -- Form of Pooling and Servicing Agreement for alternate
forms of credit support (single class). *
5.1 -- Opinion of Freshman, Marantz, Orlanski, Cooper &
Klein with respect to legality. *
8.1 -- Opinion of Freshman, Marantz, Orlanski, Cooper &
Klein with respect to certain tax matters (included with Exhibit 5.1). *
23.1 -- Consent of Freshman, Marantz, Orlanski, Cooper &
Klein (included as part of Exhibit 5. 1 and Exhibit 8. 1). *
24.1 -- Power of Attorney (included in signature page to the Registration
Statement). *
* Previously filed.
</TABLE>
ITEM 17. UNDERTAKINGS.
A. Undertakings Pursuant to Rule 415 and Item 512(a) of Regulation S-K.
The Registrant hereby undertakes:
(a)(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, and (iii) to include
any material information with respect to the plan of distribution not previously
disclosed in this Registration Statement or any material change to such
information in this Registration Statement; provided, however, that subparts (i)
and (ii) of this section do not apply if the information required to be included
in the post-effective amendment by those subparts is contained in periodic
reports filed by the Registrant with the Securities and Exchange Commission
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) That, for the purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in this Registration Statement shall be deemed to be a new
registration statement relating
2
<PAGE>
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.
(f) To provide to the underwriter at the closing specified in the
underwriting agreements, certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
B. Undertakings in Respect of Indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3, reasonably believes that the security
rating requirement contained in Transaction Requirement B.5 of Form S-3 will be
met by the time of the sale of the securities registered hereunder, and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Santa Ana Heights, State
of California, on the 9th day of October, 1996.
ICIFC SECURED ASSETS CORP.
By: /s/ William Ashmore
-----------------------------
William Ashmore
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ William Ashmore Director, Chairman of the Board, October 9, 1996
- ---------------------- Chief Executive Officer
William Ashmore (Principal Executive Officer)
* Director October 9, 1996
______________________
Blaine Ung
* Director and Chief Financial October 9, 1996
______________________ Officer (Principal Financial
Richard Johnson Officer and Principal Accounting
Officer)
*By: /s/ William Ashmore October 9, 1996
--------------------
William Ashmore
Attorney-in-fact pursuant to
a power of attorney filed with
the Registration Statement
4
