<PAGE>
Registration No. _______
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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ICIFC SECURED ASSETS CORP.
(Exact name of registrant as specified in its charter)
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California
(State or other jursdiction 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
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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. [_]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE AMOUNT OF
AMOUNT PRICE OFFERING REGISTRATION
TITLE OF OF SECURITIES TO BE REGISTERED TO BE REGISTERED PER UNIT (1) PRICE (1) FEE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pass-Through Certificates, issued in $1,000,000 100% $1,000,000 $344.83
series
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(a) under the Securities Act of 1933.
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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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<PAGE>
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 illustrative 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").
<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 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.
VERSION 1
=========
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED MAY _, 1996
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED July 19, 1996)
$_______________
ICIFC SECURED ASSETS CORP.
COMPANY
[NAME OF MASTER SERVICER] [ICI FUNDING CORPORATION]
MASTER SERVICER
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 19_-_
$________________ ____% 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
*Accrual of interest based on the related Notional Amount as described herein.
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."
<PAGE>
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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, 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. 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.
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 "Certain Federal Income Tax Consequences" herein and in the
Prospectus.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH UNDER "RISK
FACTORS" ON PAGE S-__ OF THE PROSPECTUS SUPPLEMENT AND THE INFORMATION SET FORTH
UNDER "RISK FACTORS" ON PAGE __ OF THE PROSPECTUS BEFORE PURCHASING ANY OF THE
CLASS A 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 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
<PAGE>
-3-
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>
-4-
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>
-5-
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.
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 Variable
Strip Certificates) and integral multiples of $_____
in excess thereof.
<PAGE>
-6-
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
The Offered Certificates are subject to various
priorities for payment of interest and principal as
<PAGE>
-7-
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").
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
<PAGE>
-8-
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,
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 described herein, 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
<PAGE>
-9-
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 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.
<PAGE>
-10-
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. 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
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.
<PAGE>
-11-
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 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
<PAGE>
-12-
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
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.]
<PAGE>
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[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.
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
<PAGE>
-14-
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 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
<PAGE>
-15-
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].]
[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
<PAGE>
-16-
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, " Certain 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 "Certain Federal Income Tax
Consequences"] herein, and "Yield Considerations" in
the Prospectus.
Certain 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").
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
<PAGE>
-17-
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.
For further information regarding the federal income
tax consequences of investing in the Offered
Certificates see "Certain Federal Income Tax
Consequences" herein and in the Prospectus.
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.
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
<PAGE>
-18-
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.
<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.]
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.
<PAGE>
-20-
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.
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>
-21-
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>
-22-
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>
-23-
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>
-24-
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>
-25-
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>
-26-
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>
-27-
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.
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>
-28-
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>
-29-
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>
-30-
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>
-31-
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.
<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................... % %
</TABLE>
<PAGE>
-32-
<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>
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>
-33-
(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>
-34-
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>
-35-
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>
-36-
(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>
-37-
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;
<PAGE>
-38-
(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
<PAGE>
-39-
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
<PAGE>
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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
<PAGE>
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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
<PAGE>
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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
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after the Cut-off Date the Fraud Loss Amount shall equal (i) up to and including
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 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.
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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> <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>
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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
</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.
(TABLE CONTINUED FROM PREVIOUS PAGE.)
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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>
-52-
<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 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
<PAGE>
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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.
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.
<PAGE>
-54-
[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
is considered delinquent for these purposes until it is one month past due on a
contractual basis.
<PAGE>
-55-
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------------------------
199 199 199 AT 31, 199
------------------- ------------------- ------------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
-------- --------- -------- --------- -------- --------- ----- ---------
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 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.
<PAGE>
-56-
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 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)
<PAGE>
-57-
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".
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Offered Certificates, Freshman, Marantz, Orlanski,
Cooper & Klein, counsel to the Depositor, delivered 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 under Sections 860A through 86OG (the "REMIC Provisions") of
the Internal Revenue Code of 1986 (the "Code"). 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 "Certain 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 "Certain 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
<PAGE>
-58-
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 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
<PAGE>
-59-
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 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 "Certain 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
"Certain 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 "Certain Federal Income Tax
Consequences-REMICs" in the Prospectus.
<PAGE>
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[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 "Certain 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.
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 "Certain 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 "Certain Federal Income Tax Consequences-Taxation of
Owners of
<PAGE>
-61-
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 "Certain 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, 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
Residual 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. See "Certain 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.
<PAGE>
-62-
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
"Certain Federal Income Tax 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.
<PAGE>
-63-
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 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
<PAGE>
-64-
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 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
----
PROSPECTUS SUPPLEMENT
<S> <C>
Summary..................................................................... S-
Risk Factors................................................................ S-
Description of the Mortgage Pool............................................ S-
Certain Yield and Prepayment Considerations................................. S-
Pooling and Servicing Agreement............................................. S-
Certain 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.....................................................................
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 19__-__
$ ____% 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
_______________
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 FEBRUARY___, 1996
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED July 19, 1996)
$_____________
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, 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, 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 Mortgage Loan is generally equal
the Mortgage Rate thereon from
<PAGE>
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.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH UNDER "RISK
FACTORS" ON PAGE S-__ OF THE PROSPECTUS SUPPLEMENT AND THE INFORMATION SET FORTH
UNDER "RISK FACTORS" ON PAGE ___ OF THE PROSPECTUS BEFORE PURCHASING ANY OF THE
CLASS A 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.
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
-2-
<PAGE>
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.
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.
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).
-5-
<PAGE>
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.
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
-6-
<PAGE>
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
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
-7-
<PAGE>
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 losses and delinquencies on the
Mortgage Loans as described herein. See "Description
of the Certificates-Distributions" herein and in the
Prospectus.
-8-
<PAGE>
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.
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 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
-9-
<PAGE>
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.
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 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
-10-
<PAGE>
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, as
described herein. 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.
Certain 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 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
-11-
<PAGE>
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
"Certain 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 their legal advisors. See "Legal
Investment" herein and "Legal Investment Matters" in
the Prospectus.
-12-
<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.]
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
-13-
<PAGE>
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 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.
-14-
<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
-15-
<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").
-16-
<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 $___________.
-17-
<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.
-18-
<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>
-19-
<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.
-20-
<PAGE>
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.
-21-
<PAGE>
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
-22-
<PAGE>
Proceeds, Insurance Proceeds and principal prepayments received during the month
in which such Distribution Date occurs (unless such amounts are deemed to have
been 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
-23-
<PAGE>
losses on any Mortgage Loans in the Mortgage Pool are not covered by the Letter
of Credit or any substitute form of credit enhancement.
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
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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 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, social and other factors. As is the case with
conventional fixed rate mortgage
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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 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
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in a prepayment experience on the Mortgage Loans that differs from that on other
conventional mortgage loans.
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
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Considerations"), no assurance can be given as to such rate or the rate of
principal prepayments on the Certificates.
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
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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.
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
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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; 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
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Insurance Policy as described under "Primary Mortgage Insurance, Hazard
Insurance; 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
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aggregate principal balance of all of the Mortgage Loans as of the most recent
anniversary 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, nuclear reaction and certain other
risks.
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.
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[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 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
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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 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.]
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.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general discussion of certain anticipated material
federal income tax consequences of the purchase, ownership and disposition of
Certificates. This discussion
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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. 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
Upon issuance of the Certificates, Freshman, Marantz, Orlanski, Cooper &
Klein, counsel to the Company, will deliver 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.
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 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.
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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 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
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<PAGE>
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 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
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<PAGE>
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 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.
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<PAGE>
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 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
-39-
<PAGE>
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. 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.
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
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<PAGE>
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 __________________.
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.
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<PAGE>
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.
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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<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 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-
Certain 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>
PROSPECTUS SUPPLEMENT
_______________
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 July 19, 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 agreement or other agreement (in either
case, a "Pooling Agreement") as more fully described herein 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 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.
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 and in the related Prospectus Supplement. See "Yield
Considerations."
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 "Certain Federal Income Tax
Consequences" herein.
Prospective investors should review the information appearing under the caption
"Risk Factors" herein and such information as may be set forth under the caption
"Risk Factors" in the related Prospectus Supplement before purchasing any
Offered Certificate.
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 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.
The date of this Prospectus is July _, 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 OF CONTENTS
<TABLE>
<S> <C>
SUMMARY OF PROSPECTUS............................................................................................ 4
RISK FACTORS..................................................................................................... 10
THE MORTGAGE POOLS............................................................................................... 13
General................................................................................................... 13
The Mortgage Loans........................................................................................ 14
Underwriting Standards.................................................................................... 18
Home Loan Mortgage Corporation ("FHLMC").................................................................. 20
Qualifications of Originators and Sellers................................................................. 20
Representations by Sellers................................................................................ 20
SERVICING OF MORTGAGE LOANS...................................................................................... 23
General................................................................................................... 23
The Master Servicer....................................................................................... 23
Collection and Other Servicing Procedures; Mortgage Loan Modifications.................................... 24
Subservicers.............................................................................................. 26
Special Servicers......................................................................................... 26
Realization Upon or Sale of Defaulted Mortgage Loans...................................................... 26
Servicing and Other Compensation and Payment of Expenses; Spread.......................................... 28
Evidence as to Compliance................................................................................. 29
DESCRIPTION OF THE CERTIFICATES.................................................................................. 30
General................................................................................................... 30
Form of Certificates...................................................................................... 31
Assignment of Trust Fund Assets........................................................................... 32
Certificate Account....................................................................................... 34
Distributions............................................................................................. 38
Distributions of Interest and Principal on the Certificates............................................... 38
Distributions on the Certificates in Respect of Prepayment Premiums or in
Respect of Equity Participations.......................................................................... 40
Allocation of Losses and Shortfalls....................................................................... 40
Advances.................................................................................................. 40
Reports to Certificateholders............................................................................. 41
DESCRIPTION OF CREDIT ENHANCEMENT................................................................................ 42
General................................................................................................... 42
Subordinate Certificates.................................................................................. 43
Letter of Credit.......................................................................................... 44
Mortgage Pool Insurance Policies.......................................................................... 44
Special Hazard Insurance Policies......................................................................... 45
Bankruptcy Bonds.......................................................................................... 46
Reserve Funds............................................................................................. 47
Maintenance of Credit Enhancement......................................................................... 47
Reduction or Substitution of Credit Enhancement........................................................... 49
PURCHASE OBLIGATIONS............................................................................................. 50
PRIMARY MORTGAGE INSURANCE, HAZARD INSURANCE;
CLAIMS THEREUNDER......................................................................................... 50
General................................................................................................... 50
Primary Mortgage Insurance Policies....................................................................... 50
Hazard Insurance Policies................................................................................. 52
FHA Insurance............................................................................................. 53
THE COMPANY...................................................................................................... 53
ICI FUNDING CORPORATION.......................................................................................... 53
IMPERIAL CREDIT MORTGAGE HOLDINGS, INC........................................................................... 54
THE POOLING AGREEMENT............................................................................................ 54
General................................................................................................... 54
Certain Matters Regarding the Master Servicer and the Company............................................. 55
Events of Default......................................................................................... 55
Rights Upon Event of Default.............................................................................. 56
Amendment................................................................................................. 56
Termination; Retirement of Certificates................................................................... 57
The Trustee............................................................................................... 58
Duties of the Trustee..................................................................................... 58
Certain Matters Regarding the Trustee..................................................................... 58
Resignation and Removal of the Trustee.................................................................... 59
YIELD CONSIDERATIONS............................................................................................. 59
MATURITY AND PREPAYMENT CONSIDERATIONS........................................................................... 61
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS.......................................................................... 62
Single Family Loans and Multifamily Loans................................................................. 62
Contracts................................................................................................ 63
Foreclosure on Mortgages.................................................................................. 65
Repossession with respect to Contracts.................................................................... 66
Rights of Redemption...................................................................................... 67
Anti-Deficiency Legislation and Other Limitations on Lenders.............................................. 68
Junior Mortgages.......................................................................................... 69
Consumer Protection Laws with respect to Contracts........................................................ 70
Environmental Legislation................................................................................. 70
Enforceability of Certain Provisions...................................................................... 70
Subordinate Financing..................................................................................... 71
Applicability of Usury Laws............................................................................... 72
Alternative Mortgage Instruments.......................................................................... 72
Formaldehyde Litigation with respect to Contracts......................................................... 73
Soldiers' and Sailors' Civil Relief Act of 1940........................................................... 73
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.......................................................................... 73
General................................................................................................... 73
REMICS.................................................................................................... 74
Grantor Trust Funds....................................................................................... 89
STATE AND OTHER TAX CONSEQUENCES................................................................................. 98
ERISA CONSIDERATIONS............................................................................................. 98
Plan Asset Regulations.................................................................................... 98
Tax Exempt Investors...................................................................................... 100
Consultation With Counsel................................................................................. 101
LEGAL INVESTMENT MATTERS......................................................................................... 101
USE OF PROCEEDS.................................................................................................. 102
METHODS OF DISTRIBUTION.......................................................................................... 102
LEGAL MATTERS.................................................................................................... 103
FINANCIAL INFORMATION............................................................................................ 103
RATING........................................................................................................... 104
INDEX OF PRINCIPAL DEFINITIONS................................................................................... 105
</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.
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 of the related series. See "Description of the
Certificates-Reports to Certificateholders."
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.
3
<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 indicating where certain capitalized
terms used herein are defined appears at the end of this Prospectus.
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 be ICI Funding, the Company's parent and
a non-consolidating subsidiary of Imperial
Credit Mortgage Holdings, Inc. ("ICMH"), or
another affiliate of the Company. 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 be 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."
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
4
<PAGE>
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."
The Certificates will not be guaranteed or
insured by any governmental agency or
instrumentality, by the Company, the Master
5
<PAGE>
Servicer or any of their respective affiliates
or by any other person, unless otherwise
specified in the related Prospectus Supplement.
The Mortgage Pools............ Unless otherwise specified in the related
Prospectus Supplement, 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"). Unless otherwise specified in
the related Prospectus Supplement, 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.
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.
Unless otherwise specified in the related
Prospectus Supplement, 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.
6
<PAGE>
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.
Interest Distributions........ Except as otherwise specified herein or 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 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."
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."
7
<PAGE>
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, reserve fund or other
type of credit support 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. Unless otherwise
specified in the related Prospectus Supplement,
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 holders of the related
Certificates (or certain classes thereof) To the
extent not set forth herein, the amount and
types of coverage, the identification of any
entity providing the coverage, the terms of any
subordination and related information will be
set forth in the Prospectus Supplement relating
to a series of 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
8
<PAGE>
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."
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.
Certain 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 and to review "Certain Federal Income
Tax Consequences" herein and in the related
Prospectus Supplement. See "Certain Federal
Income Tax Consequences."
9
<PAGE>
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."
Investment in the Mortgage Loans. An investment in securities such as the
Certificates which generally represent interests in mortgage loans and/or
manufactured housing conditional sales contracts and installment
10
<PAGE>
loan agreements may be affected by, among other things, a decline in real estate
values and changes in the borrowers' financial condition. No assurance can be
given that values of the Mortgaged Properties have remained or will remain at
their levels on the dates of origination of the related Mortgage Loans. If the
residential real estate market should experience an overall decline in property
values such that the outstanding balances of the Mortgage Loans, and any
secondary financing on the Mortgaged Properties, in a particular Mortgage Pool
become equal to or greater than the value of the Mortgaged Properties, the
actual rates of delinquencies, foreclosures and losses could be higher than
those now generally experienced in the mortgage lending industry. In addition,
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. For example, certain of the Mortgage Loans provide for
escalating or variable payments by the borrower under the Mortgage Loan (the
"Mortgagor"), as to which the Mortgagor is generally qualified on the basis of
the initial payment amount. In some instances, Mortgagors may not be able to
make their loan payments as such payments increase and thus the likelihood of
default will increase. In addition to the foregoing, 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.
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.
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.
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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.
Additional special risks associated with particular types of Mortgage Loans
will be specified in the related Prospectus Supplement.
Yield and Prepayment Considerations. 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. 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".
Certain 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 "Certain 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
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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
Unless otherwise specified in the related Prospectus Supplement, 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 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.
The "Manufactured Homes" securing the Contracts will consist of manufactured
homes within the meaning of 42 United States Code, Section 5402(6), which
defines a "manufactured home" as "a structure, transportable in one or more
sections, which in the traveling mode, is eight body feet or more in width or
forty body feet or more in length, or, when erected on site, is three hundred
twenty or more square feet, and which is built on a permanent chassis and
designed to be used as a dwelling with or without a permanent foundation when
connected to the required utilities, and includes the plumbing, heating, air
conditioning, and electrical systems contained therein; except that such term
shall include any structure which meets all the requirements of this paragraph
except the size requirements and with respect to which the manufacturer
voluntarily files a certification required by the Secretary of Housing and Urban
Development and complies with the standards established under this chapter."
Mortgaged Properties may be located in any one of the 50 states, the
District of Columbia or the Commonwealth of Puerto Rico.
The Mortgage Loans will not be guaranteed or insured by the Company, any of
its affiliates or, 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 ICI Funding, the parent of the Company, and its affiliates ("Affiliated
Sellers"; Unaffiliated Sellers and Affiliated Sellers are collectively referred
to herein as
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"Sellers"). If a Mortgage Pool is composed of Mortgage Loans acquired by the
Company directly from Unaffiliated Sellers, the related Prospectus Supplement
will specify the extent of Mortgage Loans so acquired. The characteristics of
the Mortgage Loans are as described in the related Prospectus Supplement. Other
mortgage loans available for purchase by the Company may have characteristics
which would make them eligible for inclusion in a Mortgage Pool but were not
selected for inclusion in such Mortgage Pool.
Under certain circumstances, the Mortgage Loans to be included in a
Mortgage Pool will be delivered either directly or indirectly to the Company by
one or more Sellers identified in the related Prospectus Supplement,
concurrently with the issuance of the related series of 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.
THE MORTGAGE LOANS
Unless otherwise specified below or in the related Prospectus Supplement,
each of the Mortgage Loans will be a type of mortgage loan described or referred
to in paragraphs numbered (1) through (8) below:
(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
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related Mortgage Note (the "Note Margin") and an index./1/ The related
Prospectus Supplement will set forth the relevant index and the highest,
lowest and weighted average Note Margin with respect to the ARM Loans in
the related Mortgage Pool. The related Prospectus Supplement will also
indicate any periodic or lifetime limitations on changes in any per annum
Mortgage Rate at the time of any adjustment. If specified in the related
Prospectus Supplement, an ARM Loan may include a provision that allows the
Mortgagor to convert the adjustable Mortgage Rate to a fixed rate at some
point during the term of such ARM Loan generally not later than six to ten
years subsequent to the initial payment date;
(4) Negatively-amortizing ARM Loans having original or modified
terms to maturity of not more than approximately 25 or 30 years with
Mortgage Rates which generally adjust initially on the 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 described in the related
Prospectus Supplement.
_______________________
/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 investment yield of U.S. Treasury bills of six months, (iii) the daily
Bank Prime Loan rate made available by the Federal Reserve Board, (iv) the cost
of funds of member institutions for the Federal Home Loan Bank of San Francisco,
(v) the interbank offered rates for U.S. dollar deposits in the London market,
each calculated as of a date prior to each scheduled interest rate adjustment
date which will be specified in the related Prospectus Supplement or (vi) any
other index described in the related Prospectus Supplement.
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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 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 (unless otherwise specified in
the related Prospectus Supplement) 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
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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 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
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Mortgage Loans, (ii) the type of property securing the Mortgage Loans, (iii) the
original or modified terms to maturity of the Mortgage Loans, (iv) the range of
principal balances of the Mortgage Loans at origination or modification, (v) the
earliest origination or modification date and latest maturity date of the
Mortgage Loans, (vi) the Loan-to-Value Ratios of the Mortgage Loans, (vii) the
Mortgage Rate or range of Mortgage Rates borne by the Mortgage Loans, (viii) if
any of the Mortgage Loans are ARM Loans, 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 and generally described below or such alternative
underwriting criteria as may be described in the related Prospectus Supplement.
However, in some cases, particularly those involving Unaffiliated Sellers, the
Company may not be able to establish the underwriting standards used in the
origination of the related Mortgage Loans. In those cases, the related
Prospectus Supplement will include a statement to such effect and will reflect
what, if any, 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.
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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 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 ("FNMA") and/or the Federal.
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HOME LOAN MORTGAGE CORPORATION ("FHLMC")
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 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 relevant and 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.
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
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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 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
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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).
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
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Trustee for a breach of any representation by a Seller or for any other event
giving rise to such obligations as described above.
Neither the Company nor the Master Servicer will be obligated to purchase a
Mortgage Loan 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 certain 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 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. In addition, unless otherwise 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 FHLMC, 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 FHLMC 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
FHLMC (rendered within
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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 or Trustee.
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 certain
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, Bankruptcy Bond
or other type of credit enhancement 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 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
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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. 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.
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, Reserve Fund or other credit enhancement 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.
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
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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 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
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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 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
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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 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"). 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 passthrough
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.
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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
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;
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(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 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
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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;
(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
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its assets or transactions, as and to the extent described under "Certain
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 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-
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Through Rate or, in the case of a variable or adjustable PassThrough 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 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
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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.
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 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
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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;
(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;
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(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, Mortgage
Pool Insurance Policy or other form of credit enhancement covering default
risk as of the close of business on the applicable Determination Date and a
description of any credit enhancement substituted therefor;
(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 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.
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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.
The descriptions of any insurance policies or bonds described in this
Prospectus or any Prospectus Supplement and the coverage thereunder do not
purport to be complete and are qualified in their entirety by reference to the
actual forms of such policies, copies of which are available upon request.
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, to the extent such information is material and available.
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
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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 obtained by the Company for each Trust
Fund will be issued by the Pool Insurer named in the applicable Prospectus
Supplement. Each Mortgage Pool Insurance Policy will, subject to the limitations
described below, cover Defaulted Mortgage Losses in an amount equal to a
percentage specified in the applicable Prospectus Supplement of the aggregate
principal balance of the Mortgage Loans on the Cut-off Date. As set forth under
"-Maintenance of Credit Enhancement," the Master Servicer will use reasonable
efforts to maintain the Mortgage Pool Insurance Policy and to present claims
thereunder to the Pool Insurer on behalf of itself, the related 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
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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 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,
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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 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
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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 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
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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 FHLMC, FNMA 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 FHLMC, FNMA 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,
Mortgage Pool Insurance Policy or other form of credit enhancement as provided
above, the Master Servicer may obtain a substitute Letter of Credit, Mortgage
Pool Insurance Policy or an alternate form of credit enhancement. If the Master
Servicer obtains such a substitute Letter of Credit, Mortgage Pool Insurance
Policy or other form of credit enhancement, 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
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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 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
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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.
PRIMARY MORTGAGE INSURANCE, HAZARD INSURANCE;
CLAIMS THEREUNDER
GENERAL
Each Mortgage Loan will be required to be covered by a hazard insurance
policy (as described below) and, if required as described below, a Primary
Insurance Policy. The following is only a brief description of certain insurance
policies and does not purport to summarize or describe all of the provisions of
these policies. Such insurance is subject to underwriting and approval of
individual Mortgage Loans by the respective insurers. The descriptions of any
insurance policies described in this Prospectus or any Prospectus Supplement and
the coverage thereunder do not purport to be complete and are qualified in their
entirety by reference to such forms of policies, sample copies of which are
available upon request.
PRIMARY MORTGAGE INSURANCE POLICIES
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
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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 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.
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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 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).
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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.
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, may from time to time be a Seller or 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. ICI Funding is a non-consolidating subsidiary of
ICMH. ICI Funding primarily acquires mortgage loans from approved
correspondents.
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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, ICI Funding's parent, 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 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 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".
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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 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 FNMA or FHLMC 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
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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 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
FNMA- or FHLMC-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
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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.
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 "Certain 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
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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 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.
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
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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.
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.
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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 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
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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 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
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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 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
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a promissory note. The priority of the lien created or interest granted will
depend on the terms of the mortgage and, in some cases, on the terms of separate
subordination agreements or intercreditor agreements with others that hold
interests in the real property, the knowledge of the parties to the mortgage
and, generally, the order of recordation of the mortgage in the appropriate
public recording office. However, the lien of a recorded mortgage will generally
be subordinate to later arising liens for real estate taxes and assessments and
other charges imposed under governmental police powers.
Types of Mortgage Instruments. There are two parties to a mortgage: a
mortgagor (the borrower and usually the owner of the subject property) and a
mortgagee (the lender). In contrast, a deed of trust is a three-party
instrument, among a trustor (the equivalent of a borrower), a trustee to whom
the real property is conveyed, and a beneficiary (the lender) for whose benefit
the conveyance is made. Under a deed of trust, the trustor grants the property,
irrevocably until the debt is paid, in trust and generally with a power of sale,
to the trustee to secure repayment of the indebtedness evidenced by the related
note. A deed to secure debt typically has two parties. The borrower, or grantor,
conveys title to the real property to the grantee, or lender, generally with a
power of sale, until such time as the debt is repaid. In a case where the
borrower is a land trust, there would be an additional party because legal title
to the property is held by a land trustee under a land trust agreement for the
benefit of the borrower. At origination of a mortgage loan involving a land
trust, the borrower executes a separate undertaking to make payments on the
mortgage note. The mortgagee's authority under a mortgage, the trustee's
authority under a deed of trust and the grantee's authority under a deed to
secure debt are governed by the express provisions of the related instrument,
the law of the state in which the real property is located, certain federal laws
(including, without limitation, the Relief Act) and, in some deed of trust
transactions, the directions of the beneficiary.
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
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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 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
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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. 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
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indebtedness secured by the mortgage or deed of trust under which the sale was
conducted. Any remaining proceeds are generally payable to the holders of junior
mortgages or deeds of trust and other liens and claims in order of their
priority, whether or not the borrower is in default. Any additional proceeds are
generally payable to the mortgagor or trustor. The payment of the proceeds to
the holders of junior mortgages may occur in the foreclosure action of the
senior mortgagee or may require the institution of separate legal proceeds.
In foreclosure, courts have imposed general equitable principles. The
equitable principles are generally designed to relieve the borrower from the
legal effect of its defaults under the loan documents. Examples of judicial
remedies that have been fashioned include judicial requirements that the lender
undertake affirmative and expensive actions to determine the causes for the
borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's judgment and have required that lenders reinstate loans or recast
payment schedules in order to accommodate borrowers who are suffering from
temporary financial disability. In other cases, courts have limited the right of
a lender to foreclose if the default under the mortgage instrument is not
monetary, such as the borrower's failure to adequately maintain the property or
the borrower's execution of a second mortgage or deed of trust affecting the
property. Finally, some courts have been faced with the issue of whether or not
federal or state constitutional provisions reflecting due process concerns for
adequate notice require that borrowers under deeds of trust or mortgages receive
notices in addition to the statutorily-prescribed minimums. For the most part,
these cases have upheld the notice provisions as being reasonable or have found
that the sale by a trustee under a deed of trust, or under a mortgage having a
power of sale, does not involve sufficient state action to afford constitutional
protection to the borrower.
REPOSSESSION WITH RESPECT TO CONTRACTS
General. Repossession of manufactured housing is governed by state law. A
few states have enacted legislation that requires that the debtor be given an
opportunity to cure its default (typically 30 days to bring the account current)
before repossession can commence. So long as a manufactured home has not become
so attached to real estate that it would be treated as a part of the real estate
under the law of the state where it is located, repossession of such home in the
event of a default by the obligor will generally be governed by the UCC (except
in Louisiana). Article 9 of the UCC provides the statutory framework for the
repossession of manufactured housing. While the UCC as adopted by the various
states may vary in certain small particulars, the general repossession procedure
established by the UCC is as follows:
(i) Except in those states where the debtor must receive notice of the
right to cure a default, repossession can commence immediately upon default
without prior notice. Repossession may be effected either through self-help
(peaceable retaking without court order), voluntary repossession or through
judicial process (repossession pursuant to court-issued writ of replevin). The
self-help and/or voluntary repossession methods are more commonly employed, and
are accomplished simply by retaking possession of the manufactured home. In
cases in which the debtor objects or raises a defense to repossession, a court
order must be obtained from the appropriate state court, and the manufactured
home must then be repossessed in accordance with that order. Whether the method
employed is self-help, voluntary repossession or judicial repossession, the
repossession can be accomplished either by an actual physical removal of the
manufactured home to a secure location for refurbishment and resale or by
removing the occupants and their belongings from the manufactured home and
maintaining possession of the manufactured home on the location where the
occupants were residing. Various factors may affect whether the manufactured
home is physically removed or left on location, such as the nature and term of
the lease of the site on which it is located and the condition of the unit. In
many cases, leaving the manufactured home on location is preferable, in the
event that the home is already set up, because the expenses of retaking and
redelivery will be saved. However, in those cases where the home is left on
location, expenses for site rentals will usually be incurred.
(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.
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(iii) Sale proceeds are to be applied first to repossession expenses
(expenses incurred in retaking, storage, preparing for sale to include
refurbishing costs and selling) and then to satisfaction of the indebtedness.
While some states impose prohibitions or limitations on deficiency judgments if
the net proceeds from resale do not cover the full amount of the indebtedness,
the remainder may be sought from the debtor in the form of a deficiency
judgement in those states that do not prohibit or limit such judgments. The
deficiency judgment is a personal judgment against the debtor for the shortfall.
Occasionally, after resale of a manufactured home and payment of all expenses
and indebtedness, there is a surplus of funds. In that case, the UCC requires
the party suing for the deficiency judgment to remit the surplus to the debtor.
Because the defaulting owner of a manufactured home generally has very little
capital or income available following repossession, a deficiency judgment may
not be sought in many cases or, if obtained, will be settled at a significant
discount in light of the defaulting owner's strained financial condition.
Louisiana Law. Any contract secured by a manufactured home located in
Louisiana will be governed by Louisiana law rather than Article 9 of the UCC.
Louisiana laws provide similar mechanisms for perfection and enforcement of
security interests in manufactured housing used as collateral for an installment
sale contract or installment loan agreement.
Under Louisiana law, a manufactured home that has been permanently affixed
to real estate will nevertheless remain subject to the motor vehicle
registration laws unless the obligor and any holder of a security interest in
the property execute and file in the real estate records for the parish in which
the property is located a document converting the unit into real property. A
manufactured home that is converted into real property but is then removed from
its site can be converted back to personal property governed by the motor
vehicle registration laws if the obligor executes and files various documents in
the appropriate real estate records and all mortgagees under real estate
mortgages on the property and the land to which it was affixed file releases
with the motor vehicle commission.
So long as a manufactured home remains subject to the Louisiana motor
vehicle laws, liens are recorded on the certificate of title by the motor
vehicle commissioner and repossession can be accomplished by voluntary consent
of the obligor, executory process (repossession proceedings which must be
initiated through the courts but which involve minimal court supervision) or a
civil suit for possession. In connection with a voluntary surrender, the obligor
must be given a full release from liability for all amounts due under the
contract. In executory process repossessions, a sheriff's sale (without court
supervision) is permitted, unless the obligor brings suit to enjoin the sale,
and the lender is prohibited from seeking a deficiency judgment against the
obligor unless the lender obtained an appraisal of the manufactured home prior
to the sale and the property was sold for at least two-thirds of its appraised
value.
RIGHTS OF REDEMPTION
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 lienors are given a statutory period in which to
redeem the property. In some states, statutory redemption may occur only upon
payment of the foreclosure sale price. In other states, redemption may be
permitted if the former borrower pays only a portion of the sums due. The effect
of a statutory right of redemption is to diminish the ability of the lender to
sell the foreclosed property because the exercise of a right of redemption would
defeat the title of any purchase through a foreclosure. Consequently, the
practical effect of the redemption right is to force the lender to maintain the
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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 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.
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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 arrearages, 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 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.
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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.
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
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Garn-St Germain Depository Institutions Act of 1982 (the "Garn-St Germain Act")
preempts state constitutional, statutory and case law that prohibits the
enforcement of due-on-sale clauses and permits lenders to enforce these clauses
in accordance with their terms, subject to certain limited exceptions. The Garn-
St Germain Act does "encourage" lenders to permit assumption of loans at the
original rate of interest or at some other rate less than the average of the
original rate and the market rate.
The Garn-St Germain Act also sets forth nine specific instances in which a
mortgage lender covered by the Garn-St Germain Act may not exercise a due-on-
sale clause, notwithstanding the fact that a transfer of the property may have
occurred. These include intra-family transfers, certain transfers by operation
of law, leases of fewer than three years and the creation of a junior
encumbrance. Regulations promulgated under the Garn-St Germain Act also prohibit
the imposition of a prepayment penalty upon the acceleration of a loan pursuant
to a due-on-sale clause.
The inability to enforce a due-on-sale clause may result in a mortgage loan
bearing an interest rate below the current market rate being assumed by the
buyer rather than being paid off, which may have an impact upon the average life
of the Mortgage Loans and the number of Mortgage Loans which may be outstanding
until maturity.
Transfer of Manufactured Homes. Generally, manufactured housing contracts
contain provisions prohibiting the sale or transfer of the related manufactured
homes without the consent of the obligee on the contract and permitting the
acceleration of the maturity of such contracts by the obligee on the contract
upon any such sale or transfer that is not consented to. 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
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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.
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.
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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
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.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general discussion of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of the
Certificates offered hereunder. 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
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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. 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. 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. Upon the issuance of each 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 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.
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.
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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 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 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
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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 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
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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 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
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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
---------------
Certificate at a market discount, that is, in the case of a REMIC Regular
Certificate issued without original issue discount, at a 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
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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 Certi 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 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 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
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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 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
---------------------------
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.
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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 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
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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.
Basis Rules, Net Losses and Distributions. The adjusted basis of a REMIC
-----------------------------------------
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
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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" 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.
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 documents, (1) the present value of the expected
future distributions (discounted using the "applicable Federal
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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
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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 limitations of either Section 67 or Section 68 of the Code
may be substantial. Furthermore, in determining
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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.
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
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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 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
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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.
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
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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 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
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States federal income tax purposes regardless of its connection with the conduct
of a trade or business within the United States. 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
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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 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
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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 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
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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 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
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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 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
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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
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.
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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
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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 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
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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
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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.
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
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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 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
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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.
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
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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 "Certain
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.
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.
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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
"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
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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 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.
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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 "Certain 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.
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.
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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 or will be used by
the Company for general corporate purposes. 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.
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;
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2. By placements by the Company with institutional investors through
dealers; and
3. By direct placements by the Company with institutional investors.
In addition, if specified in the related Prospectus Supplement, the Offered
Certificates of any series may be offered in whole or in part in exchange for
the Mortgage Loans (and other assets, if applicable) that would comprise the
Mortgage Pool in respect of such Certificates.
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.
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
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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.
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INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Accrual Certificates...................................................5, 31, 39
Accrued Certificate Interest..................................................39
Affiliated Sellers............................................................13
ARM Loans.....................................................................14
Available Distribution Amount.................................................38
Balloon Loans.................................................................15
Balloon Payment...............................................................15
Bankruptcy Code...............................................................68
Bankruptcy Loss...............................................................42
Beneficial Owner..............................................................32
Buydown Account...............................................................17
Buydown Agreement.............................................................36
Buydown Funds.................................................................17
Buydown Mortgage Loans........................................................17
Buydown Period................................................................17
CERCLA........................................................................20
Certificate...................................................................54
Certificate Account...........................................................34
Certificate Register..........................................................31
Certificate Registrar.........................................................31
Certificateholder.............................................................31
Certificateholders.............................................................1
Certificates................................................................1, 4
Closing Date..................................................................76
Code.......................................................................5, 73
Commission.....................................................................3
Committee Report..............................................................76
Company.....................................................................1, 4
Contracts.....................................................................13
Contributions Tax.............................................................86
Convertible Mortgage Loan.....................................................17
Debt Service Coverage Ratio...................................................19
Debt Service Reduction........................................................46
Defaulted Mortgage Loss.......................................................42
Deferred Interest.............................................................15
Deficient Valuation...........................................................46
Deleted Mortgage Loan.........................................................22
Designated Seller Transaction.................................................14
Determination Date............................................................38
Distribution Date..............................................................7
DOL...........................................................................99
DTC...........................................................................31
DTC Registered Certificates...................................................31
Due Period....................................................................40
Eligible Mortgage Loans.......................................................99
Equity Participation..........................................................16
ERISA......................................................................9, 98
Exchange Act...................................................................3
Extraordinary Losses..........................................................42
FDIC..........................................................................13
FHA...........................................................................13
FHA Loans.....................................................................13
</TABLE>
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<TABLE>
<CAPTION>
Page
----
<S> <C>
FHLMC.........................................................................20
FIRREA........................................................................19
FNMA..........................................................................19
Fraud Loss....................................................................42
FTC Rule......................................................................70
Garn-St Germain Act...........................................................71
Grantor Trust Certificates.................................................9, 74
Grantor Trust Fractional Interest Certificate.................................89
Grantor Trust Fund............................................................74
Grantor Trust Strip Certificate...............................................89
Holder........................................................................31
Housing Act...................................................................20
HUD...........................................................................53
ICAI..........................................................................54
ICI Funding................................................................4, 13
ICII..........................................................................54
ICMH...........................................................................4
Index.........................................................................18
Insurance Proceeds............................................................35
Intermediaries................................................................32
IRS...........................................................................76
Issue Premium.................................................................81
Letter of Credit..............................................................44
Letter of Credit Bank.........................................................44
Liquidated Mortgage Loan......................................................28
Liquidation Proceeds..........................................................35
Loan-to-Value Ratio...........................................................16
Lock-out Expiration Date......................................................16
Lock-out Period...............................................................16
Loss..........................................................................51
Manufactured Homes............................................................13
Manufacturer's Invoice Price..................................................17
Master Servicer.............................................................1, 4
Mortgage Loans..........................................................1, 6, 43
Mortgage Notes................................................................13
Mortgage Pool...............................................................1, 6
Mortgage Rate.................................................................14
Mortgage Securities........................................................6, 14
Mortgaged Property.............................................................6
Mortgages.....................................................................13
Mortgagor.....................................................................11
Multifamily Loans.............................................................13
Multifamily Properties........................................................13
Net Mortgage Rate.............................................................59
Net Operating Income..........................................................19
Nonrecoverable Advance........................................................40
Note Margin...................................................................15
Offered Certificates....................................................1, 4, 31
OID Regulations...............................................................74
OTS..........................................................................102
Participants..................................................................31
Parties in Interest...........................................................98
Pass-Through Rate..............................................................5
Permitted Investments.........................................................34
</TABLE>
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<TABLE>
<CAPTION>
Page
----
<S> <C>
Plan...........................................................................9
Policy Statement.............................................................101
Pool Insurer..................................................................36
Pooling Agreement.......................................................1, 5, 54
Pre-Funding Account...........................................................30
Prepayment Assumption.....................................................76, 92
Prepayment Interest Shortfall.................................................60
Prepayment Penalty............................................................16
Primary Insurance Policy......................................................50
Primary Insurer...............................................................51
Prohibited Transactions Tax...................................................86
Proposed Mark-to-Market Regulations...........................................84
Prospectus Supplement..........................................................1
PTCE 83-1.....................................................................99
Purchase Obligation...........................................................50
Purchase Price................................................................21
Qualified Substitute Mortgage Loan............................................22
Rating Agency..................................................................9
Realized Losses...............................................................42
Record Date...................................................................38
Related Proceeds..............................................................40
Relief Act....................................................................73
REMIC.......................................................................1, 5
REMIC Administrator...........................................................74
REMIC Certificates............................................................74
REMIC Provisions..............................................................74
REMIC Regular Certificates.................................................9, 74
REMIC Regulations.............................................................74
REMIC Residual Certificates............................................9, 74, 84
REO Mortgage Loan.............................................................28
REO Property..................................................................26
Reports to Certificateholders..................................................3
Reserve Fund..................................................................47
RTC...........................................................................13
Securities Act.................................................................3
Seller.........................................................................6
Sellers....................................................................1, 14
Senior Certificates........................................................5, 31
Senior Liens..................................................................16
Senior/Subordinate Series.....................................................31
Servicing Standard............................................................24
Single Family Loans...........................................................13
Single Family Property........................................................13
SMMEA.....................................................................9, 101
Special Hazard Instrument.....................................................43
Special Hazard Insurance Policy...............................................45
Special Hazard Insurer........................................................46
Special Hazard Loss...........................................................42
Special Hazard Losses.........................................................45
Special Servicer...........................................................4, 26
SPFC..........................................................................13
Spread.........................................................................4
SPTL..........................................................................13
Strip Certificates.........................................................5, 31
</TABLE>
107
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Subordinate Certificates...................................................5, 31
Subservicer...................................................................26
Subservicers..................................................................18
Tax Exempt Investor..........................................................101
Tiered REMICs.................................................................75
Title V.......................................................................72
Title VIII....................................................................72
Trust Fund..................................................................1, 5
Trustee........................................................................4
UBTI.........................................................................101
Unaffiliated Sellers..........................................................13
United States person..........................................................88
Value.....................................................................16, 17
</TABLE>
108
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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......................... $ 344.83
Legal Fees and Expenses....................................... *
Accounting Fees and Expenses.................................. *
Trustee's Fees and Expenses
(including counsel fees)................................. *
Printing and Engraving Fees................................... *
Rating Agency Fees............................................ *
Miscellaneous................................................. *
--------
Total ..................................................... $ 344.83
========
</TABLE>
* To be provided by amendment.
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 directs 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.
1
<PAGE>
ITEM 16. EXHIBITS.
Exhibits
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).
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
2
<PAGE>
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.
(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 19th day of July, 1996.
ICIFC SECURED ASSETS CORP.
By: /S/ William Ashmore
--------------------------
William Ashmore
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints, jointly and severally William Ashmore and
Richard Johnson, and each one of them, individually and without the other, his
or her attorney-in-fact, each with the power of substitution, for him or her in
any and all capacities, to sign any and all amendments to this Registration
Statement (including post-effective amendments), and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his or her substitute or substitutes, many do
or cause to be done by virtue hereof.
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, July 19, 1996
- ----------------------
William Ashmore Chief Executive Officer
(Principal Executive Officer)
/S/ Blain Ung Director
- ---------------------- July 19, 1996
Blaine Ung
/S/ Richard Johnson Director and Chief Financial Officer July 19, 1996
- ----------------------
Richard Johnson (Principal Financial Officer and
Principal Accounting Officer)
4
<PAGE>
EXHIBIT 1.1
<PAGE>
EXHIBIT 1.1
ICIFC SECURED ASSETS CORP.
$_____________ (Approximately)
Mortgage Pass-Through Certificates, Series 199__-__
Class R $__________ ____%
Class A $__________ ____%
UNDERWRITING AGREEMENT
----------------------
______________, 199_
[Underwriter]
- ------------------------
________________________
________________________
Ladies and Gentlemen:
ICIFC Secured Assets Corp., a California corporation (the "Company"),
proposes to sell to you (also referred to herein as the "Underwriter") Mortgage
Pass-Through Certificates, Series 199_-_, Class A and Class R Certificates other
than a de minimis portion thereof (collectively, the "Certificates"), having the
aggregate principal amounts and Pass-Through Rates set forth above. The
Certificates, together with the Class M and Class B Certificates of the same
series, will evidence the entire beneficial interest in the Trust Fund (as
defined in the Pooling and Servicing Agreement referred to below) consisting
primarily of a pool (the "Pool") of conventional, fixed-rate, one- to four-
family residential mortgage loans (the "Mortgage Loans") as described in the
Prospectus Supplement (as hereinafter defined) to be sold by the Company. A de
minimis portion of the Class R Certificates will not be sold hereunder and will
be held by the Trustee.
The Certificates will be issued pursuant to a pooling and servicing
agreement (the "Pooling and Servicing Agreement") to be dated as of
________________________, 199_ (the "Cut-off Date") among the Company, as
seller, [ICI Funding Corporation], as master servicer ("ICIFC"), and
______________________________, as trustee (the "Trustee"). The Certificates
are described more fully in the Basic Prospectus and the Prospectus Supplement
(each as hereinafter defined) which the Company has furnished to you.
1. Representations Warranties and Covenants.
----------------------------------------
1.1 The Company represents and warrants to, and agrees with you
that:
(a) The Company has filed with the Securities and Exchange
<PAGE>
Commission (the "Commission") a registration statement (No. 333-________) on
Form S-3 for the registration under the Securities Act of 1933, as amended (the
"Act"), of Mortgage Pass-Through Certificates (issuable in series), including
the Certificates, which registration statement has become effective, and a copy
of which, as amended to the date hereof, has heretofore been delivered to you.
The Company proposes to file with the Commission pursuant to Rule 424(b) under
the rules and regulations of the Commission under the Act (the "1933 Act
Regulations") a supplement dated ________________. 199_ (the "Prospectus
Supplement"), to the prospectus dated ______________, 199_ (the "Basic
Prospectus"), relating to the Certificates and the method of distribution
thereof. Such registration statement (No. 333-________) including exhibits
thereto and any information incorporated therein by reference, as amended at the
date hereof, is hereinafter called the "Registration Statement"; and the Basic
Prospectus and the Prospectus Supplement and any information incorporated
therein by reference, together with any amendment thereof or supplement thereto
authorized by the Company on or prior to the Closing Date for use in connection
with the offering of the Certificates, are hereinafter called the "Prospectus".
Any preliminary form of the Prospectus Supplement which has heretofore been
filed pursuant to Rule 424, or prior to the effective date of the Registration
Statement pursuant to Rule 402(a), or 424(a) is hereinafter called a
"Preliminary Prospectus Supplement."
(b) The Registration Statement has become effective, and the
Registration Statement as of the effective date (the "Effective Date"), and the
Prospectus, as of the date of the Prospectus Supplement, complied in all
material respects with the applicable requirements of the Act and the 1933 Act
Regulations; and the Registration Statement, as of the Effective Date, did not
contain any untrue statement of a material fact and did not omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading and the Prospectus, as of the date of the Prospectus
Supplement, did not, and as of the Closing Date will not, contain an untrue
statement of a material fact and did not and will not omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that the Company makes no representations or warranties as to the information
contained in or omitted from the Registration Statement or the Prospectus or any
amendment thereof or supplement thereto relating to the information identified
in Exhibit D (the "Excluded Information"); and provided, further, that the
Company makes no representations or warranties as to either (i) any information
in any Computational Materials or ABS Term Sheets (each as hereinafter defined)
required to be provided by the Underwriter to the Company pursuant to Section
4.2, except to the extent of any information set forth therein that constitutes
Pool Information (as defined below), or (ii) as to any information contained in
or omitted from the portions of the Prospectus identified in Exhibit E (the
"Underwriter Information"). As used herein, "Pool Information" means
information with respect to the characteristics of the Mortgage Loans and
administrative and servicing fees, as provided by or on behalf of the Company to
the Underwriter in final form and set forth in the Prospectus Supplement. The
Company acknowledges that, except for any Computational Materials, the
Underwriter Information constitutes the only information furnished in writing by
you or on your behalf for use in
2
<PAGE>
connection with the preparation of the Registration Statement, any preliminary
prospectus or the Prospectus, and you confirm that the Underwriter Information
is correct.
(c) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of California and has
the requisite corporate power to own its properties and to conduct its business
as presently conducted by it.
(d) This Agreement has been duly authorized, executed and delivered
by the Company.
(e) As of the Closing Date (as defined herein) the Certificates will
conform in all material respects to the description thereof contained in the
Prospectus and the representations and warranties of the Company in the Pooling
and Servicing Agreement will be true and correct in all material respects.
1.2 The Underwriter represents and warrants to and agrees with the Company
that:
(a) No purpose of the Underwriter relating to the purchase of any of
the Class R Certificates by the Underwriter is or will be to enable the Company
to impede the assessment or collection of any tax.
(b) The Underwriter has no present knowledge or expectation that it
will be unable to pay any United States taxes owed by it so long as any of the
Certificates remain outstanding.
(c) The Underwriter has no present knowledge or expectation that it
will become insolvent or subject to a bankruptcy proceeding for so long as any
of the Certificates remain outstanding.
(d) No purpose of the Underwriter relating to any sale of any of the
Class R Certificates by the Underwriter will be to enable it to impede the
assessment or collection of tax. In this regard, the Underwriter hereby
represents to and for the benefit of the Company that the Underwriter intends to
pay taxes associated with holding the Class R Certificates, as they become due,
fully understanding that it may incur tax liabilities in excess of any cash
flows generated by the Class R Certificates.
(e) The Underwriter will, in connection with any transfer it makes of
any of the Class R Certificates, obtain from its transferee the affidavit
required by Section 5.02(i)(B)(1) of the Pooling and Servicing Agreement, will
not consummate any such transfer if it knows or believes that any representation
contained in such affidavit is false and will provide the Trustee with the
Certificate required by Section 5.02(i)(B)(2) of the Pooling and Servicing
Agreement.
3
<PAGE>
(f) The Underwriter hereby certifies that (i) with respect to any
classes of Certificates issued in authorized denominations or Percentage
Interests of less than $25,000 or 20%, as the case may be, the fair market value
of each such Certificate sold to any person on the date of initial sale thereof
by the Underwriter will not be less than $100,000, and (ii) with respect to each
class of Certificates to be maintained on the book-entry records of The
Depository Trust Company ("DTC"), the interest in each such class of
Certificates sold to any person on the date of initial sale thereof by the
Underwriter shall not be less than an initial Certificate Principal Balance of
$25,000.
(g) The Underwriter will use its best reasonable efforts to cause
Trepp & Co. to issue a commitment letter, prior to the Closing Date, to DTC
stating that Trepp & Co. will value the DTC Registered Certificates (hereinafter
defined) on an ongoing basis subsequent to the Closing Date.
(h) The Underwriter will have funds available at ___________________
___, in the Underwriter's account at such bank at the time all documents are
executed and the closing of the sale of the Certificates is completed, except
for the transfer of funds and the delivery of the Certificates. Such funds will
be available for immediate transfer into the account of the Company maintained
at such bank.
(i) As of the date hereof and as of the Closing Date, the Underwriter
has complied with all of its obligations hereunder including Section 4.2, and,
with respect to all Computational Materials and ABS Term Sheets provided by the
Underwriter to the Company pursuant to Section 4.2, if any, such Computational
Materials and ABS Term Sheets are accurate in all material respects when read in
conjunction with the Prospectus Supplement (taking into account the assumptions
explicitly set forth in the Computational Materials, except to the extent of any
errors therein that are caused by errors in the Pool Information). The
Computational Materials and ABS Term Sheets provided by the Underwriter to the
Company constitute a complete set of all Computational Materials and ABS Term
Sheets that are required to be filed with the Commission.
1.3 The Underwriter covenants and agrees to pay directly, or reimburse the
Company upon demand for (i) any and all taxes (including penalties and interest)
owed or asserted to be owed by the Company as a result of a claim by the
Internal Revenue Service that the transfer of any of the Class R Certificates to
the Underwriter hereunder or any transfer thereof by the Underwriter may be
disregarded for federal tax purposes and (ii) any and all losses, claims,
damages and liabilities, including attorney's fees and expenses, arising out of
any failure of the Underwriter to make payment or reimbursement in connection
with any such assertion as required in (i) above. In addition, the Underwriter
acknowledges that on the Closing Date immediately after the transactions
described herein it will be the owner of the Class R Certificates for federal
tax purposes, and the Underwriter covenants that it will not assert in any
proceeding that the transfer of the Class R Certificates from the Company to the
Underwriter should be disregarded for any purpose.
4
<PAGE>
2. Purchase and Sale. Subject to the terms and conditions and in
reliance upon the representations and warranties herein set forth, the Company
agrees to sell to you, and you agree to purchase from the Company, the
Certificates (other than for a de minimis portion of the Class R Certificates,
which shall be transferred by the Company to the Trustee) at a price equal to
___% of the aggregate principal balance of the Certificates as of the Closing
Date. There will be added to the purchase price of the Certificates an amount
equal to interest accrued thereon from the Cut-off Date to but not including the
Closing Date. The purchase price for the Certificates was agreed to by the
Company in reliance upon the transfer from the Company to the Underwriter of the
tax liabilities associated with the ownership of the Class R Certificates.
3. Delivery and Payment. Delivery of and payment for the Certificates
shall be made at the office of Freshman, Marantz, Orlanski, Cooper & Klein at
7:00 a.m., Los Angeles time, on ____________, 199__ or such later date as you
shall designate, which date and time may be postponed by agreement between you
and the Company (such date and time of delivery and payment for the Certificates
being herein called the "Closing Date"). Delivery of the Certificates (except
for the Class R Certificates (the "Definitive Certificates")) shall be made to
you through the Depository Trust Company ("DTC") (such Certificates, the "DTC
Registered Certificates"), and delivery of the Definitive Certificates shall be
made in registered, certified form, in each case against payment by you of the
purchase price thereof to or upon the order of the Company by wire transfer in
immediately available funds. The Definitive Certificates shall be registered in
such names and in such denominations as you may request not less than two
business days in advance of the Closing Date. The Company agrees to have the
Definitive Certificates available for inspection, checking and packaging by you
in New York, New York not later than 1:00 p.m. on the business day prior to the
Closing Date.
4. Offering by Underwriter.
4.1 It is understood that you propose to offer the Certificates for
sale to the public as set forth in the Prospectus and you agree that all such
offers and sales by you shall be made in compliance with all applicable laws and
regulations.
4.2 It is understood that you may prepare and provide to prospective
investors certain Computational Materials (as defined below) in connection with
your offering of the Certificates, subject to the following conditions:
(a) The Underwriter shall comply with all applicable laws and
regulations in connection with the use of Computational Materials, including the
No-Action Letter of May 20, 1994 issued by the Commission to Kidder, Peabody
Acceptance Corporation 1, Kidder, Peabody & Co. Incorporated and Kidder
Structured Asset Corporation, as made applicable to other issuers and
underwriters by the Commission in response to the request of the Public
Securities Association dated May 24, 1994 (collectively, the "Kidder/PSA
Letter") as well as the PSA Letter referred to below. The
5
<PAGE>
Underwriter shall comply with all applicable laws and regulations in connection
with the use of ABS Term Sheets, including the No-Action Letter of February 17,
1995 issued by the Commission to the Public Securities Association (the "PSA
Letter" and, together with the Kidder/PSA Letter, the "No-Action Letters").
(b) For purposes hereof, "Computational Materials" as used herein
shall have the meaning given such term in the No-Action Letters, but shall
include only those Computational Materials that have been prepared or delivered
to prospective investors by or at the direction of the Underwriter. For
purposes hereof, "ABS Term Sheets" and "Collateral Term Sheets" as used herein
shall have the meanings given such terms in the PSA Letter but shall include
only those ABS Term Sheets or Collateral Term Sheets that have been prepared or
delivered to prospective investors by or at the direction of the Underwriter.
(c) All Computational Materials and ABS Term Sheets provided to
prospective investors that are required to be filed pursuant to the No-Action
Letters shall bear a legend on each page including the following statement:
"THE INFORMATION HEREIN HAS BEEN PROVIDED SOLELY BY
[Underwriter]. NEITHER THE ISSUER OF THE CERTIFICATES NOR ANY OF
ITS AFFILIATES MAKES ANY REPRESENTATION AS TO THE ACCURACY OR
COMPLETENESS OF THE INFORMATION HEREIN. THE INFORMATION HEREIN IS
PRELIMINARY, AND WILL BE SUPERSEDED BY THE APPLICABLE PROSPECTUS
SUPPLEMENT AND BY ANY OTHER INFORMATION SUBSEQUENTLY FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION.
In the case of Collateral Term Sheets, such legend shall also include the
following statement:
"THE INFORMATION CONTAINED HEREIN WILL BE SUPERSEDED BY THE
DESCRIPTION OF THE MORTGAGE POOL CONTAINED IN THE PROSPECTUS
SUPPLEMENT RELATING TO THE CERTIFICATES AND [Except with respect
to the initial Collateral Term Sheet prepared by the Underwriter]
SUPERSEDES ALL INFORMATION CONTAINED IN ANY COLLATERAL TERM
SHEETS RELATING TO THE MORTGAGE POOL PREVIOUSLY PROVIDED BY [the
Underwriter]."
The Company shall have the right to require additional specific legends or
notations to appear on any Computational Materials or ABS Term Sheets, the right
to require changes
6
<PAGE>
regarding the use of terminology and the right to determine the types
of information appearing therein. Notwithstanding the foregoing, this
subsection (c) will be satisfied if all such Computational Materials
and ABS Term Sheets bear a legend in the form set forth in Exhibit I
hereto.
(d) The Underwriter shall provide the Company with representative
forms of all Computational Materials and ABS Term Sheets prior to their first
use, to the extent such forms have not previously been approved by the Company
for use by the Underwriter. The Underwriter shall provide to the Company, for
filing on Form 8-K as provided in Section 5.9, copies (in such format as
required by the Company) of all Computational Materials that are required to be
filed with the Commission pursuant to the No-Action Letters. The Underwriter
may provide copies of the foregoing in a consolidated or aggregated form
including all information required to be filed. All Computational Materials and
ABS Term Sheets described in this subsection (d) must be provided to the Company
not later than 10:00 a.m. New York time one business day before filing thereof
is required pursuant to the terms of this Agreement. The Underwriter agrees
that it will not provide to any investor or prospective investor in the
Certificates any Computational Materials or ABS Term Sheets on or after the day
on which Computational Materials and ABS Term Sheets are required to be provided
to the Company pursuant to this Section 4.2(d) (other than copies of
Computational Materials or ABS Term Sheets previously submitted to the Company
in accordance with this Section 4.2(d) for filing pursuant to Section 5.9),
unless such Computational Materials or ABS Term Sheets are preceded or
accompanied by the delivery of a Prospectus to such investor or prospective
investor.
(e) All information included in the Computational Materials shall be
generated based on substantially the same methodology and assumptions that are
used to generate the information in the Prospectus Supplement as set forth
therein; provided that the Computational Materials and ABS Term Sheets or ABS
Term Sheets, as the case may be, may include information based on alternative
assumptions if specified therein. If any Computational Materials or ABS Term
Sheets that are required to be filed were based on assumptions with respect to
the Pool that differ from the final Pool Information in any material respect or
on Certificate structuring terms that were revised prior to the printing of the
Prospectus, the Underwriter shall prepare revised Computational Materials or ABS
Term Sheets, as the case may be, based on the final Pool Information and
structuring assumptions, circulate such revised Computational Materials and ABS
Term Sheets to all recipients of the preliminary versions thereof that indicated
orally to the underwriter they would purchase all or any portion of the
Certificates and include such revised Computational Materials and ABS Term
Sheets (marked, "as revised") in the materials delivered to the Company pursuant
to subsection (d) above.
(f) The Company shall not be obligated to file any Computational
Materials that have been determined to contain any material error or omission.
In the event that any Computational Materials or ABS Terms Sheets are
determined, within the period which the Prospectus relating to the Certificates
is required to be delivered under
7
<PAGE>
the Act, to contain a material error or omission, the Underwriter shall prepare
a corrected version of such Computational Materials or ABS Term Sheets, shall
circulate such corrected Computational Materials to all recipients of the prior
versions thereof that indicated orally to the Underwriter they would purchase
all or any portion of the Certificates and shall deliver copies of such
corrected Computational Materials and ABS Term Sheets (marked, "as corrected")
to the Company for filing with the Commission in a subsequent Form 8-K
submission (subject to the Company's obtaining an accountant's comfort letter in
respect of such corrected Computational Materials, which shall be at the expense
of the Underwriter), provided that if any such letter is required to be revised
solely because of a change in the Pool Information, fifty percent of any
additional expenses for such letter resulting from the change in Pool
Information shall be paid by each of the Underwriter and the Company.
(g) If the Underwriter does not provide any Computational Materials
or ABS Term Sheets to the Company pursuant to subsection (d) above, the
Underwriter shall be deemed to have represented, as of the Closing Date, that it
did not provide any prospective investors with any information in written or
electronic form in connection with the offering of the Certificates that is
required to be filed with the Commission in accordance with the No-Action
Letters, and the Underwriter shall provide the Company with a certification to
that effect on the Closing Date.
(h) In the event of any delay in the delivery by the underwriter to
the Company of all Computational Materials and ABS Term Sheets required to be
delivered in accordance with subsection (d) above, or in the delivery of the
accountant's comfort letter in respect thereof pursuant to Section 5.9, the
Company shall have the right to delay the release of the Prospectus to investors
or to the Underwriter, to delay the Closing Date and to take other appropriate
actions in each case as necessary in order to allow the Company to comply with
its agreement set forth in Section 5.9 to file the Computational Materials and
ABS Term Sheets by the time specified therein.
(i) The Underwriter represents that it has in place, and covenants
that it shall maintain internal controls and procedures which it reasonably
believes to be sufficient to ensure full compliance with all applicable legal
requirements of the No-Action Letters with respect to the generation and use of
Computational Materials and ABS Term Sheets in connection with the offering of
the Certificates.
4.3 You further agree that on or prior to the sixth day after the Closing
Date, you shall provide the Company with a certificate, substantially in the
form of Exhibit F attached hereto, setting forth (i) in the case of each class
of Certificates, (a) if less than 10% of the aggregate principal balance of such
class of Certificates has been sold to the public as of such date, the value
calculated pursuant to clause (b)(iii) of Exhibit F hereto, or, (b) if 10% or
more of such class of Certificates has been sold to the public as of such date
but no single price is paid for at least 10% of the aggregate principal balance
of such class of Certificates, then the weighted average price at which the
Certificates of such class were
8
<PAGE>
sold expressed as a percentage of the principal balance of such class of
Certificates sold, or (c) the first single price at which at least 10% of the
aggregate principal balance of such class of Certificates was sold to the
public, (ii) the prepayment assumption used in pricing each class of
Certificates, and (iii) such other information as to matters of fact as the
Company may reasonably request to enable it to comply with its reporting
requirements with respect to each class of Certificates to the extent such
information can in the good faith judgment of the Underwriter be determined by
it.
5. Agreements. The Company agrees with you that:
5.1 Before amending or supplementing the Registration Statement or
the Prospectus with respect to the Certificates, the Company will furnish you
with a copy of each such proposed amendment or supplement.
5.2 The Company will cause the Prospectus Supplement to be
transmitted to the Commission for filing pursuant to Rule 424(b) under the Act
by means reasonably calculated to result in filing with the Commission pursuant
to said rule.
5.3 If, during the period after the first date of the public offering
of the Certificates in which a prospectus relating to the Certificates is
required to be delivered under the Act, any event occurs as a result of which it
is necessary to amend or supplement the Prospectus, as then amended or
supplemented, in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not misleading,
or if it shall be necessary to amend or supplement the Prospectus to comply with
the Act or the 1933 Act Regulations, the Company promptly will prepare and
furnish, at its own expense, to you, either amendments or supplements to the
Prospectus so that the statements in the Prospectus as so amended or
supplemented will not, in the light of the circumstances when the Prospectus is
delivered to a purchaser, be misleading or so that the Prospectus will comply
with law.
5.4 The Company will furnish to you, without charge, a copy of the
Registration Statement (including exhibits thereto) and, so long as delivery of
a prospectus by an underwriter or dealer may be required by the Act, as many
copies of the Prospectus, any documents incorporated by reference therein and
any amendments and supplements thereto as you may reasonably request.
5.5 The Company agrees, so long as the Certificates shall be
outstanding, or until such time as you shall cease to maintain a secondary
market in the Certificates, whichever first occurs, to deliver to you the annual
statement as to compliance delivered to the Trustee pursuant to Section 3.19 of
the Pooling and Servicing Agreement and the annual statement of a firm of
independent public accountants furnished to the Trustee pursuant to Section 3.20
of the Pooling and Servicing Agreement, as soon as such statements are furnished
to the Company.
9
<PAGE>
5.6 The Company will endeavor to arrange for the qualification of the
Certificates for sale under the laws of such jurisdictions as you may reasonably
designate and will maintain such qualification in effect so long as required for
the initial distribution of the Certificates; provided, however, that the
Company shall not be required to qualify to do business in any jurisdiction
where it is not now so qualified or to take any action that would subject it to
general or unlimited service of process in any jurisdiction where it is not now
so subject.
5.7 If the transactions contemplated by this Agreement are
consummated, the Company will pay or cause to be paid all expenses incident to
the performance of the obligations of the Company under this Agreement, and will
reimburse you for any reasonable expenses (including reasonable fees and
disbursements of counsel) reasonably incurred by you in connection with
qualification of the Certificates for sale and determination of their
eligibility for investment under the laws of such jurisdictions as you have
reasonably requested pursuant to Section 5.6 above and the printing of memoranda
relating thereto, for any fees charged by investment rating agencies for the
rating of the Certificates, and for expenses incurred in distributing the
Prospectus (including any amendments and supplements thereto) to the
Underwriter. Except as herein provided, you shall be responsible for paying all
costs and expenses incurred by you, including the fees and disbursements of your
counsel, in connection with the purchase and sale of the Certificates.
5.8 If, during the period after the Closing Date in which a
prospectus relating to the Certificates is required to be delivered under the
Act, the Company receives notice that a stop order suspending the effectiveness
of the Registration Statement or preventing the offer and sale of the
Certificates is in effect, the Company will advise you of the issuance of such
stop order.
5.9 The Company shall file the Computational Materials and ABS Term
Sheets (if any) provided to it by the Underwriter under Section 4.2(f) with the
Commission pursuant to a Current Report on Form 8-K by 10:00 a.m. on the morning
the Prospectus is delivered to the Underwriter or, the case of any Collateral
Term Sheet required to be filed prior to such date, by 10:00 a.m. on the second
business day following the first day on which such Collateral Term Sheet has
been sent to a prospective investor; provided, however, that prior to such
filing of the Computational Materials and ABS Term Sheets (other than any
Collateral Term Sheets that are not based on the Pool Information) by the
Company, the Underwriter must comply with its obligations pursuant to Section
4.2 and the Company must receive a letter from ___________________________,
certified public accountants, satisfactory in form and substance to the Company
and its counsel, to the effect that such accountants have performed certain
specified procedures, all of which have been agreed to by the Company, as a
result of which they determined that all information that is included in the
Computational Materials (if any) provided by the Underwriter to the Company for
filing on Form 8-K, as provided in Section 4.2 and this Section 5.9, is accurate
without exception. The foregoing letter shall be at the sole expense of the
Underwriter. The Company shall file any corrected Computational Materials
described in Section 4.2(t)
10
<PAGE>
as soon as practicable following receipt thereof. The Company also will file
with the Commission within fifteen days of the issuance of the Certificates a
Current Report on Form 8-K (for purposes of filing the Pooling and Servicing
Agreement).
6. Conditions to the Obligations of the Underwriter. The Underwriter's
obligation to purchase the Certificates shall be subject to the following
conditions:
6.1 No stop order suspending the effectiveness of the Registration
Statement shall be in effect, and no proceedings for that purpose shall be
pending or, to the knowledge of the Company, threatened by the Commission; and
the Prospectus Supplement shall have been filed or transmitted for filing, by
means reasonably calculated to result in a filing with the Commission pursuant
to Rule 424(b) under the Act.
6.2 Since __________, 199_ there shall have been no material adverse
change (not in the ordinary course of business) in the condition of the Company.
6.3 The Company shall have delivered to you a certificate, dated the
Closing Date, of the President, a Senior Vice President or a Vice President of
the Company to the effect that the signer of such certificate has examined this
Agreement, the Prospectus, the Pooling and Servicing Agreement and various other
closing documents, and that, to the best of his or her knowledge after
reasonable investigation:
(a) the representations and warranties of the Company in this
Agreement and in the Pooling and Servicing Agreement are true and correct in all
material respects; and
(b) the Company has, in all material respects, complied with all
the agreements and satisfied all the conditions on its part to be performed or
satisfied hereunder at or prior to the Closing Date.
6.4 You shall have received the opinions of Freshman, Marantz,
Orlanski, Cooper & Klein, special counsel for the Company and ICIFC, dated the
Closing Date and substantially to the effect set forth in Exhibit A-1, Exhibit
A-2 and Exhibit B.
6.5 You shall have received from counsel for the Underwriter, an
opinion dated the Closing Date in form and substance satisfactory to the
Underwriter.
6.6 The Underwriter shall have received from certified public
accountants, a letter dated the date hereof and satisfactory in form and
substance to the Underwriter and the Underwriter's counsel, to the effect that
they have performed certain specified procedures, all of which have been agreed
to by the Underwriter, as a result of which they determined that certain
information of an accounting, financial or statistical nature set forth in the
Prospectus Supplement under the captions "Description of the Mortgage Pool",
"Pooling and Servicing Agreement", "Description of the Certificates" and
"Certain Yield and
11
<PAGE>
Prepayment Considerations" agrees with the records of the Company excluding any
questions of legal interpretation.
6.7 The Certificates shall have been rated "AAA" by [Standard &
Poor's Ratings Services] and [Fitch Investor's Service, L.P.]
6.8 You shall have received the opinion of [Trustee's Counsel], dated
the Closing Date, substantially to the effect set forth in Exhibit C.
6.9 You shall have received from Freshman, Marantz, Orlanski, Cooper
& Klein, special counsel to the Company, and from Freshman, Marantz, Orlanski,
Cooper & Klein, general counsel to the Company, reliance letters with respect to
any opinions delivered to [Standard & Poor's Ratings Services] and [Fitch
Investor Services, L.P.].
The Company will furnish you with conformed copies of the above opinions,
certificates, letters and documents as you reasonably request.
7. Indemnification and Contribution.
7.1 The Company agrees to indemnify and hold harmless you and each
person, if any, who controls you within the meaning of either Section 15 of the
Act or Section 20 of the Securities Exchange Act of 1934, from and against any
and all losses, claims, damages and liabilities caused by any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement for the registration of the Certificates as originally filed or in any
amendment thereof or other filing incorporated by reference therein, or in the
Prospectus or incorporated by reference therein (if used within the period set
forth in Section 5.3 hereof and as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto), or caused by any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except insofar as such
losses, claims, damages, or liabilities are caused by any such untrue statement
or omission or alleged untrue statement or omission based upon any information
with respect to which the Underwriter has agreed to indemnify the Company
pursuant to Section 7.2; provided, that neither the Company, or you will be
liable in any case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any such untrue statement or alleged untrue
statement or omission or alleged omission made therein relating to the Excluded
Information.
7.2 You agree to indemnify and hold harmless the Company, its
directors or officers and any person controlling the Company to the same extent
as the indemnity set forth in clause 7.1 above from the Company to you, but only
with respect to (1) the Underwriter Information and (ii) the Computational
Materials and ABS Term Sheets, except to the extent of any errors in the
Computational Materials or ABS Term Sheets that are caused by errors in the Pool
Information. In addition, you agree to indemnify and hold
12
<PAGE>
harmless the Company its directors or officers and any person controlling the
Company against any and all losses, claims, damages, liabilities and expenses
(including, without limitation, reasonable attorneys' fees) caused by, resulting
from, relating to, or based upon any legend regarding original issue discount on
any Certificate resulting from incorrect information provided by the Underwriter
in the certificates described in Section 4.3 hereof.
7.3 In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to either clause 7.1 or 7.2, such person (the "indemnified
party") shall promptly notify the person against whom such indemnity may be
sought (the "indemnifying party") in writing and the indemnifying party, upon
request of the indemnified party, shall retain counsel reasonably satisfactory
to the indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the reasonable
fees and disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the reasonable fees and expenses of such counsel shall be at the
expense of such indemnified party unless (1) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such counsel or
(ii) the named parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and representation
of both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that the
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees and
expenses of more than one separate firm for all such indemnified parties. Such
firm shall be designated in writing by you, in the case of parties indemnified
pursuant to clause 7. 1 and by the Company, in the case of parties indemnified
pursuant to clause 7.2. The indemnifying party may, at its option, at any time
upon written notice to the indemnified party, assume the defense of any
proceeding and may designate counsel reasonably satisfactory to the indemnified
party in connection therewith provided that the counsel so designated would have
no actual or potential conflict of interest in connection with such
representation. Unless it shall assume the defense of any proceeding the
indemnifying party shall not be liable for any settlement of any proceeding,
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment. If the indemnifying party assumes the defense
of any proceeding, it shall be entitled to settle such proceeding with the
consent of the indemnified party or, if such settlement provides for release of
the indemnified party in connection with all matters relating to the proceeding
which have been asserted against the indemnified party in such proceeding by the
other parties to such settlement, without the consent of the indemnified party.
7.4 If the indemnification provided for in this Section 7 is
unavailable to an indemnified party under clause 7.1 or 7.2 hereof or
insufficient in respect of any losses, claims, damages or liabilities referred
to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
13
<PAGE>
indemnified party as a result of such losses, claims, damages or liabilities, in
such proportion as is appropriate to reflect not only the relative benefits
received by the Company on the one hand and the Underwriter on the other from
the offering of the Certificates but also the relative fault of the Company on
the one hand and of the Underwriter, on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative fault of the Company on the one hand and of the Underwriter on the
other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or by the Underwriter, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
7.5 The Company and the Underwriter agree that it would not be just
and equitable if contribution pursuant to this Section 7 were determined by pro
rata allocation or by any other method of allocation which does not take account
of the considerations referred to in clause 7.4, above. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages and
liabilities referred to in this Section 7 shall be deemed to include, subject to
the limitations set forth above, any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim except where the indemnified party is required to bear such
expenses pursuant to clause 7.4; which expenses the indemnifying, party shall
pay as and when incurred, at the request of the indemnified party, to the extent
that the indemnifying party believes that it will be ultimately obligated to pay
such expenses. In the event that any expenses so paid by the indemnifying party
are subsequently determined to not be required to be borne by the indemnifying
party hereunder, the party which received such payment shall promptly refund the
amount so paid to the party which made such payment. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
7.6 The indemnity and contribution agreements contained in this
Section 7 and the representations and warranties of the Company in this
Agreement shall remain operative and in full force and effect regardless (i) any
termination of this Agreement, (ii) any investigation made by the Underwriter or
on behalf of the Underwriter or any person controlling the Underwriter or by or
on behalf of the Company and its respective directors or officers or any person
controlling the Company and (iii) acceptance of and payment for any of the
Certificates.
8. Termination. This Agreement shall be subject to termination by notice
given to the Company, if the sale of the Certificates provided for herein is not
consummated because of any failure or refusal on the part of the Company to
comply with the terms or to fulfill any of the conditions of this Agreement, or
if for any reason the Company shall be unable to perform their respective
obligations under this Agreement. If you terminate
14
<PAGE>
this Agreement in accordance with this Section 8, the Company will reimburse you
for all reasonable out-of-pocket expenses (including reasonable fees and
disbursements of counsel) that shall have been reasonably incurred by the
Underwriter in connection with the proposed purchase and sale of the
Certificates.
9. Certain Representations and Indemnities to Survive. The respective
agreements, representations, warranties, indemnities and other statements of the
Company or the officers of the Company, and you set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any
investigation, or statement as to the results thereof, made by you or on your
behalf or made by or on behalf of the Company or any of its officers, directors
or controlling persons, and will survive delivery of and payment for the
Certificates.
10. Notices. All communications hereunder will be in writing and
effective only on receipt, and, if sent to the Underwriter will be mailed,
delivered or telegraphed and confirmed to you at
____________________________________________________, Attention:
_______________________or if sent to the Company, will be mailed, delivered or
telegraphed and confirmed to it at ICIFC Secured Assets Corp., 20371 Irvine
Avenue, Suite 200, Santa Ana Heights, California 92707.
11. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 7 hereof, and their
successors and assigns, and no other person will have any right or obligation
hereunder.
12. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the State of New York.
13. Counterparts. This Agreement may be executed in any number of
counterparts, of which shall be deemed an original, which taken together shall
constitute one and the same instrument.
15
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us a counterpart hereof, whereupon this letter and
your acceptance shall represent a binding agreement between the Company and you.
Very truly yours,
ICIFC SECURED ASSETS CORP.
By:________________
Name:
Title: Chief Executive Officer
The foregoing Underwriting Agreement
is hereby confirmed and accepted as of
the date first above written.
_________________________
By:_______________________
Name:
Title:
16
<PAGE>
EXHIBIT A-1
[Freshman, Marantz, Orlanski, Cooper & Klein Letterhead]
______________, 199_
ICIFC Secured Assets Corp.
20371 Irvine Avenue, Suite 200
Santa Ana Heights, California 92707
ICI Funding Corporation
20371 Irvine Avenue, Suite 200
Santa Ana Heights, California 92707
[Underwriter]
- -------------------------------
_______________________________
_______________________________
[Trustee]
- -------------------------------
_______________________________
_______________________________
Re: ICIFC Secured Assets Corp.
Mortgage Pass-Through Certificates, Series 199_
---------------------------------------------------
Ladies and Gentlemen:
We have acted as special counsel to ICIFC Secured Assets Corp. (the
"Company") and ICI Funding Corporation (the "Master Servicer") in connection
with the issuance and sale by the Company of Mortgage Pass-Through Certificates,
Series 199_, ___ (the "Certificates"), pursuant to a Pooling and Servicing
Agreement, dated as of __________________, 199_ (the "Pooling and Servicing
Agreement"), among the Company, the Master Servicer and ____________, as trustee
(the "Trustee"). The Certificates consist of ____________ classes designated as
Class A and Class R (collectively, the "Senior Certificates") and ______________
classes of subordinated certificates designated as Class M and Class B. Only the
Senior Certificates and the Class M Certificates (collectively, the "Offered
Certificates") are offered under the Prospectus.
<PAGE>
ICIFC Secured Assets Corp. 2.
ICI Funding Corporation
________________,199_
The Senior Certificates in the aggregate and the Class M Certificates will
evidence initial undivided interests of approximately ___% and ___%,
respectively, in a trust fund (the "Trust Fund") consisting primarily of a pool
of conventional, fixed-rate, one- to four-family first mortgage loans (the
"Mortgage Loans") held by __________________________, as custodian (the
"Custodian"), pursuant to a Custodial Agreement, dated as of ______________,
199_, among the Company, the Master Servicer, the Custodian and the Trustee (the
"Custodial Agreement"). ("The Purchaser") acquired the Mortgage Loans through
its mortgage loan purchase program from various seller/servicers. The Purchaser
transferred the Mortgage Loans to the Company pursuant to an Assignment and
Assumption Agreement, dated _______________, 199_ (the "Assignment and
Assumption Agreement"), in exchange for immediately available funds, the Class M
and Class B Certificates. The Company will sell the Class A and the Class R
Certificates other than a de minimis portion thereof (the "Underwritten
Certificates") to __________________________________ (the "Underwriter"),
pursuant to an Underwriting Agreement, dated _____________________, 199_,
between the Company and the Underwriter (the "Underwriting Agreement", the
Pooling and Servicing Agreement, the Custodial Agreement, the Underwriting
Agreement and the Assignment and Assumption Agreement, collectively, the
"Agreements"). Capitalized terms used but not defined herein shall have the
meanings set forth in the Agreements. This opinion letter is rendered pursuant
to Section 6.4 of the Underwriting Agreement.
In connection with rendering this opinion letter, we have examined the
Agreements and such records and other documents as we have deemed necessary. As
to matters of fact, we have examined and relied upon representations of the
parties contained in the Agreements and, where we have deemed appropriate,
representations or certifications of officers of the Company, the Master
Servicer, the Trustee or public officials. We have assumed the authenticity of
all documents submitted to us as originals, the genuineness of all signatures,
the legal capacity of natural persons and the conformity to the originals of all
documents submitted to us as copies. We have assumed that all parties, except
for the Company and the Master Servicer, had the corporate power and authority
to enter into and perform all obligations under such documents. As to such
parties, we also have assumed the due authorization by all requisite corporate
action, the due execution and delivery and the enforceability of such documents.
We have assumed that there is not and will not be any other agreement that
materially supplements or otherwise modifies the agreements expressed in the
Agreements. We have further assumed the conformity of the Mortgage Loans and
related documents to the requirements of the Agreements.
<PAGE>
ICIFC Secured Assets Corp. 3.
ICI Funding Corporation
________________,199_
In rendering this opinion letter, we do not express any opinion concerning
any law other than the law of the State of California and the federal law of the
United States, nor do we express any opinion concerning the application of the
"doing business" laws or the securities laws of any jurisdiction other than the
federal securities laws of the United States. To the extent that we have relied
on the foregoing opinion letter, the opinions set forth below are subject to the
same assumptions, qualifications, exceptions and other limitations set forth
therein. We do not express any opinion on any issue not expressly addressed
below.
Based upon the foregoing, it is our opinion that:
1. The Registration Statement has become effective under the Securities
Act of 1933, as amended (the "Act"), and, to the best of our
knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and not withdrawn, and no
proceedings for that purpose have been instituted or threatened under
Section 8(d) of the Act.
2. The Registration Statement, at the Effective Date, and the Prospectus,
as of the date of the Prospectus Supplement, other than any financial
or statistical information or Computational Materials contained or
incorporated by reference therein, complied as to form in all material
respects with the requirements of the Act and the applicable rules and
regulations thereunder.
3. To our knowledge, there are no material contracts, indentures, or
other documents (not including computational materials) of a character
required to be described or referred to in either the Registration
Statement or the Prospectus or to be filed as exhibits to the
Registration Statement other than those described or referred to
therein or filed or incorporated by reference as exhibits thereto.
4. The Offered Certificates, when duly and validly executed,
authenticated and delivered in accordance with the Pooling and
Servicing Agreement, will be entitled to the benefits of the Pooling
and Servicing Agreement.
5. The statements made in the Prospectus under the heading "Description
of the Certificates", insofar as such statements purport to summarize
certain provisions of the Offered Certificates and the Pooling and
Servicing Agreement, provide a fair summary of such provisions. The
statements made in the Basic Prospectus and the Prospectus Supplement,
as the case may be,
<PAGE>
ICIFC Secured Assets Corp. 4.
ICI Funding Corporation
________________,199_
under the headings "Certain Federal Income Tax Consequences", "Certain
Legal Aspects of Mortgage Loans and Related Matters--Applicability of
Usury Laws", and "--Alternative Mortgage Instruments", and "ERISA
Considerations", to the extent that they constitute matters of State
of California or federal law or legal conclusions with respect
thereto, while not purporting to discuss all possible consequences of
investment in the Offered Certificates are correct in all material
respects with respect to those consequences or matters that are
discussed therein.
6. Each class of the Senior Certificates and the Class M Certificates
will be "mortgage related securities", as defined in Section 3(a)(41)
of the Securities Exchange Act of 1934, as amended, so long as such
class is rated in one of the two highest rating categories by at least
one nationally recognized statistical rating organization.
7. The Pooling and Servicing Agreement is not required to be qualified
under the Trust Indenture Act of 1939, as amended, and the Trust Fund
created by the Pooling and Servicing Agreement is not required to be
registered under the Investment Company Act of 1940, as amended.
8. No consent, approval, authorization or order of any federal or State
of California court or governmental agency or body is required for the
consummation by the Company or the Master Servicer of the transactions
contemplated by the terms of the Agreements, except (a) such as have
been obtained under the Act and (b) such as may be required under the
blue sky laws of any jurisdiction in connection with the purchase and
the offer and sale of the Underwritten Certificates by the
Underwriter, as to which we express no opinion.
9. Neither the sale of the Underwritten Certificates to the Underwriter
pursuant to the Underwriting Agreement, nor the consummation of any
other of the transactions contemplated by, or the fulfillment by the
Company or the Master Servicer of the terms of the Agreements, will
result in a breach of any term or provision of any federal or State of
California statute or regulation or, to the best of our knowledge,
conflict with, result in a breach, violation or acceleration of or
constitute a default under any order of any federal or State of
California court, regulatory body, administrative agency or
governmental body having jurisdiction over the Company or the Master
Servicer.
<PAGE>
ICIFC Secured Assets Corp. 5.
ICI Funding Corporation
________________,199_
10. Each of the Agreements has been duly authorized, executed and
delivered by the Company and the Master Servicer and, upon due
authorization, execution and delivery by the other parties thereto,
each will constitute a valid, legal and binding agreement of the
Company and the Master Servicer, enforceable against the Company and
the Master Servicer in accordance with its terms, except as
enforceability may be limited by (i) bankruptcy, insolvency,
liquidation, receivership, moratorium, reorganization or other similar
laws affecting the rights of creditors, (ii) general principles of
equity, whether enforcement is sought in a proceeding, in equity or at
law, and (iii) public policy considerations underlying the securities
laws, to the extent that such public policy considerations limit the
enforceability of the provisions of any of the Agreements which
purport to provide indemnification with respect to securities law
violations.
11. Assuming compliance with the provisions of the Pooling and Servicing
Agreement, for federal income tax purposes, the Trust Fund will
qualify as a real estate mortgage investment conduit ("REMIC") within
the meaning of Sections 860A through 860G (the "REMIC Provisions") of
the Internal Revenue Code of 1986, the Offered Certificates (other
than the Class R Certificates) will be "regular interests" in the
Trust Fund and the Class R Certificates will be the sole class of
"residual interests" in the Trust Fund, within the meaning of the
REMIC Provisions in effect on the date hereof.
12. Assuming compliance with the provisions of the Pooling and Servicing
Agreement, for State of California income and corporation franchise
tax purposes, the Trust Fund will be classified as a REMIC and not as
a corporation, partnership or trust, in conformity with the federal
income tax treatment of the Trust Fund. Accordingly, the Trust Fund
will be exempt from all State of California taxation imposed on its
income, franchise or capital stock, and its assets will not be
included in the calculation of any franchise tax liability.
<PAGE>
ICIFC Secured Assets Corp. 6.
ICI Funding Corporation
________________,199_
This opinion letter is rendered for the sole benefit of each addressee
hereof, and no other person or entity is entitled to rely hereon without our
prior written consent. Copies of this opinion letter may not be furnished to
any other person or entity, nor may any portion of this opinion letter be
quoted, circulated or referred to in any other document, without our prior
written consent.
Very truly yours,
FRESHMAN, MARANTZ, ORLANSKI, COOPER &
KLEIN
<PAGE>
EXHIBIT A-2
[Freshman, Marantz, Orlanski, Cooper & Klein Letterhead]
____________, 199_
ICIFC Secured Assets Corp.
20371 Irvine Avenue, Suite 200
Santa Ana Heights, California 92707
[Underwriter]
- -----------------------------
_____________________________
_____________________________
[Trustee]
- -----------------------------
_____________________________
_____________________________
Re: ICIFC Secured Assets Corp.
Mortgage Pass-Through Certificates,
Series 199_-__
----------------------------------------
Ladies and Gentlemen:
We have acted as special counsel to ICIFC Secured Assets Corp. (the
"Company") and ICI Funding Corporation (the "Master Servicer") in connection
with the issuance and sale by the Company of Mortgage Pass-Through Certificates,
Series 199 _-__ (the "Certificates"), pursuant to a Pooling and Servicing
Agreement, dated as of _____________________, 199_ (the "Pooling and Servicing
Agreement"), among the Company, the Master Servicer and _______________________
as trustee (the "Trustee"). The Certificates consist of __________________
classes designated as Class A and Class R (collectively, the "Senior
Certificates") and ________________________________________ classes of
subordinated certificates designated as Class M and Class B.
<PAGE>
ICIFC Secured Assets Corp. 2.
[Underwriter]
[Trustee]
____________________, 199_
The Senior Certificates in the aggregate and the Class M Certificates will
evidence Initial undivided interests of approximately - ___ % and ___%,
respectively, in a trust fund (the "Trust Fund") consisting primarily of a pool
of conventional, fixed-rate, one- to four-family first mortgage loans (the
"Mortgage Loans held by _____________________________________________________
_______, as custodian (the "Custodian"), pursuant to a Custodial Agreement,
dated as of ___________________, 199_, among the Company, the Master Servicer,
the Custodian and the Trustee (the "Custodial Agreement").____________________
______________________________________________ ("The Purchaser") acquired the
Mortgage Loans through its mortgage loan purchase program from various
seller/servicers. The Purchaser transferred the Mortgage Loans to the Company
pursuant to an Assignment and Assumption Agreement, dated ____________________
_____________ 1, 199_ (the "Assignment and Assumption Agreement"), in exchange
for immediately available funds, the Class M and Class B Certificates and a de
minimis portion of the Class R Certificates. The Company will sell the Class A
Certificates and the Class R Certificates other than a de minimis portion
thereof (the "Underwritten Certificates") to _________________________ (the
"Underwriter"), pursuant to an Underwriting Agreement, dated 199_ between the
Company and the Underwriter (the "Underwriting Agreement"; the Pooling and
Servicing Agreement, the Custodial Agreement, the Underwriting Agreement and the
Assignment and Assumption Agreement, collectively, the "Agreements").
Capitalized terms used but not defined herein shall have the meanings set forth
in the Agreements. This letter is rendered pursuant to Section 6.4 of the
Underwriting Agreement.
Because the primary purpose of our professional engagement was not to
establish factual matters and because of the wholly or partially non-legal
character of many determinations involved in the preparation of the Registration
Statement and the Prospectus, we are not passing upon and do not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus, except to the extent
expressly set forth in paragraph numbered 5 of our opinion letter relating to
certain securities matters, dated the date hereof and addressed to the Company,
the Master Servicer, the Underwriter and the Trustee (the "Closing Opinion"),
and make no representation that we have otherwise independently verified the
accuracy, completeness or fairness of such statements, except as aforesaid. In
particular and without limiting the foregoing, we have not examined any
accounting, financial or statistical records not included in either the
Registration Statement or the Prospectus from which the information and
statements included therein are derived, and we express no belief as to any such
accounting, financial or statistical information contained in either the
Registration Statement or the Prospectus or the information included under the
caption "Method of Distribution" contained in the Prospectus Supplement, or as
to any Computational Materials. We also note that we are not experts with
respect to any portion of the
<PAGE>
ICIFC Secured Assets Corp. 3.
[Underwriter]
[Trustee]
____________________, 199_
Registration Statement or the Prospectus, including without limitation such
accounting, financial or statistical information, except to the extent we may be
deemed to be "experts" within the meaning of the Securities Act of 1933 or the
rules and regulations thereunder with respect to the matters specifically
mentioned in paragraph numbered 5 of the Closing Opinion.
However, in the course of our acting as counsel to the Company in
connection with its preparation of the Registration Statement or the Prospectus,
we met in conferences and participated in telephone conversations involving
representatives of the Company, representatives of the Master Servicer,
representatives of the Underwriter, representatives of the Trustee,
representatives of the Custodian, ________________________ in their capacity as
counsel to the Underwriter, and ____________________ in their capacity as
counsel to the Master Servicer, during which conferences and telephone
conversations the contents of the Registration Statement and the Prospectus and
related matters were discussed. In addition, we reviewed the minutes of the
Board of Directors of the Company and of the Master Servicer, which minutes were
represented to us by the Company or the Master Servicer, as applicable, to
__________________________ 199_, and certain documents furnished to us by the
Company and the Master Servicer or otherwise in our possession. We have not
otherwise undertaken any procedures that were intended or likely to elicit
information concerning the accuracy, completeness or fairness of the statements
made in the Registration Statement or the Prospectus.
Based on the foregoing, our understanding of applicable law and the
experience we have gained in our practice thereunder, we hereby advise the
Underwriter that no information has come to our attention that causes us to
believe that the Registration Statement, as of the Effective Date, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
or that the Prospectus, as of the date of the Prospectus Supplement and as of
the Closing Date, contained an untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
<PAGE>
ICIFC Secured Assets Corp. 4.
[Underwriter]
[Trustee]
____________________, 199_
This letter is rendered for the sole benefit of each addressee hereof, and
no other person or entity is entitled to rely hereon without our prior written
consent. Copies of this letter may not be furnished to any other person or
entity, nor may any portion of this letter be quoted, circulated or referred to
in any other document, without our prior written consent.
Very truly yours,
FRESHMAN, MARANTZ, ORLANSKI, COOPER &
KLEIN
<PAGE>
EXHIBIT B
[Freshman, Marantz, Orlanski, Cooper & Klein Letterhead]
______________, 199_
[Trustee]
- -------------------------
_________________________
_________________________
[Underwriter]
- -------------------------
_________________________
_________________________
Re: ICIFC Secured Assets Corp.
Mortgage Pass-Through Certificates, Series 199_-__
---------------------------------------------------
Ladies and Gentlemen:
Our firm is General Counsel to ICIFC Secured Assets Corp. (the "Company")
and ICI Funding Corporation (the "Master Servicer"). In that capacity, we are
familiar with the issuance and sale by the Company of Mortgage Pass-Through
Certificates, Series 199_-__ (the "Certificates"), pursuant to a Pooling and
Servicing Agreement, dated as of _________________, 199_ (the "Pooling and
Servicing Agreement"), among the Company, the Master Servicer and
____________________________, as trustee (the "Trustee"). The Certificates
consist of _______________ classes designated as Class A and Class R
(collectively, the "Senior Certificates") and ________________ classes of
subordinated certificates designated as Class M and Class B. Only the Senior
Certificates and the Class M Certificates (collectively, the "Offered
Certificates") are offered under the Prospectus.
The Senior Certificates in the aggregate and the Class M Certificates will
evidence initial undivided interests of approximately ___% and ___%,
respectively, in a trust fund (the "Trust Fund") consisting primarily of a pool
of conventional, fixed-rate, one- to four-family first mortgage loans (the
"Mortgage Loans") held by ___________________________________________________
_______________________, as custodian (the "Custodian"), pursuant to a Custodial
Agreement, dated as of _________________ 1, 199_, among the Company, the Master
Servicer, the Custodian and the Trustee (the "Custodial Agreement"). The Master
Servicer acquired the Mortgage Loans through its mortgage loan purchase program
from various seller/servicers. The Master Servicer transferred the Mortgage
Loans to the Company pursuant to an Assignment and Assumption Agreement, dated
________________________, 199_ (the "Assignment and Assumption Agreement") in
exchange for immediately available Funds, the Class M and the Class B
Certificates. The Company will sell the Class A Certificates and the Class R
Certificates other than a minimum portion thereof (the "Underwritten
Certificates") to __________________________ (the "Underwriter") pursuant to an
Underwriting
<PAGE>
ICIFC Secured Assets Corp. 2.
[Underwriter]
[Trustee]
____________________, 199_
Agreement, dated 199_, between the Company and the Underwriter (the
"Underwriting Agreement"; the Pooling and Servicing Agreement, the Custodial
Agreement, the Underwriting Agreement and the Assignment and Assumption
Agreement, collectively, the "Agreements"). Capitalized terms used but not
defined herein shall have the meanings set forth in the Agreements. This opinion
letter is rendered pursuant to Section 6.4 of the Underwriting Agreement.
In connection with rendering this opinion letter, we have examined the
Agreements and such other records and other documents as we have deemed
necessary. As to matters of fact, we have examined and relied upon
representations of the parties contained in the Agreements and, where we have
deemed appropriate, representations and certifications of officers of the
Company, the Master Servicer, the Trustee or public officials. We have assumed
the authenticity of all documents submitted to us as originals, the genuineness
of all signatures, the legal capacity of natural persons and the conformity to
the original of all documents submitted to us as copies. We have assumed that
all parties, except for the Company and the Master Servicer, had the corporate
power and authority to enter into and perform all obligations thereunder. As to
such parties, we also have assumed the due authorization by all requisite
corporate action, the due execution and delivery and the enforceability of such
documents. We have further assumed the conformity of the Mortgage Loans and
related documents to the requirements of the Agreements.
In rendering this opinion letter, we do not express any opinion
concerning law other than the law of the State of California and the federal law
of the United States, and we do not express any opinion concerning the
application of the "doing business" laws or the securities laws of any
jurisdiction other than the federal securities laws of the United States. We do
not express any opinion on any issue not expressly addressed below.
Based upon the foregoing, we are of the opinion that:
1. The Company and the Master Servicer are duly incorporated and are
validly existing as corporations in good standing under the laws of the State of
California and each has the requisite power and authority, corporate or other,
to own its properties and conduct its business, as presently conducted by it,
and to enter into and perform its obligations under the Agreements.
2. Each of the Agreements has been duly and validly authorized,
executed and delivered by the Company and the Master Servicer and, upon due
authorization, execution and delivery by other parties thereto, will constitute
the valid, legal and binding agreements of the Company and the Master Servicer,
enforceable against the Company and the Master
<PAGE>
[Trustee] 3.
[Underwriter]
_______________, 199_
Servicer, in accordance with its terms, except as enforceability may be limited
by (1) bankruptcy, insolvency, liquidation, receivership, moratorium,
reorganization or other similar laws affecting the rights of creditors, (ii)
general principles of equity, whether enforcement is sought in a proceeding in
equity or at law, and (iii) public policy considerations underlying the
securities laws, to the extent that such public policy considerations limit the
enforceability of the provisions of the Agreements which purport to provide
indemnification with respect to securities law violations.
3. The Offered Certificates, when duly and validly executed,
authenticated and delivered in accordance with the Pooling and Servicing
Agreement, will be entitled to the benefits of the Pooling and Servicing
Agreement.
4. No consent, approval, authorization or order of the State of
California or federal court or governmental agency or body is required for the
consummation by the Company or the Master Servicer of the transactions
contemplated by the terms of the Agreements, except for those consents,
approvals, authorizations or orders which previously have been obtained.
5. Neither the sale, issuance and delivery of the Underwritten
Certificates as provided in the Agreements, nor the consummation of any other of
the transactions contemplated by, or the fulfillment of any other of the terms
of, the Agreements, will result in a breach of any term or provision of the
charter or bylaws of the Company or the Master Servicer or any State of
California or federal statute or regulation or conflict with, result in a
breach, violation or acceleration of or constitute a default under the terms of
any indenture or other material agreement or instrument to which the Company or
the Master Servicer is a party or by which it is bound or any order or
regulation of any State of California or federal court, regulatory body,
administrative agency or governmental body having jurisdiction over the Company
or the Master Servicer.
<PAGE>
[Trustee] 4.
[Underwriter]
_______________, 199_
This opinion letter is rendered for the sole benefit of each addressee
hereof, and no other person or entity is entitled to rely hereon without our
prior written consent. Copies of this opinion letter may not be furnished to any
other person or entity, nor may any portion of this opinion letter be quoted,
circulated or referred to in any other document without our prior written
consent.
Very truly yours,
FRESHMAN, MARANTZ, ORLANSKI, COOPER &
KLEIN
<PAGE>
EXHIBIT C
[TRUSTEE'S COUNSEL'S LETTERHEAD]
___________________, 199_
[Underwriter] ICIFC Secured Assets Corp.
- ----------------------------- 20371 Irvine Avenue, Suite 200
_____________________________ Santa Ana Heights, California 92707
_____________________________
ICI Funding Corporation [Trustee]
20371 Irvine Avenue, Suite 200 --------------------------------
Santa Ana Heights, CA 92707 ________________________________
________________________________
Re: ICIFC Secured Assets Corp.
Mortgage Pass-Through Certificates, Series 199__-__
-----------------------------------------------------------
Ladies and Gentlemen:
In connection with the issuance of the above-referenced Certificates
pursuant to the Pooling and Servicing Agreement, dated as of ________________,
199_ (the "Pooling and Servicing, Agreement"), among ICIFC Secured Assets Corp.,
as Company, ICI Funding Corporation, as Master Servicer and
____________________________, as trustee (the "Trustee"), we have been asked to
furnish this opinion. Capitalized terms used but not defined herein shall have
the meanings ascribed to such terms in the Pooling and Servicing Agreement.
In arriving at the opinions expressed below, we have examined and relied
upon the originals or copies, certified or otherwise identified to our
satisfaction, of the Pooling and Servicing Agreement and of such documents,
instruments and certificates, and we have made such investigations of law, as we
have deemed appropriate as the basis to the opinions expressed below. We have
assumed but have not verified that the signatures on all documents that we have
examined are genuine and that each person signing each such document was duly
authorized to sign such document on behalf of the person or entity purported to
be bound thereby.
Based on the foregoing, we are of the opinion that:
1. The Trustee has full corporate power and authority to execute and
deliver the Pooling and Servicing Agreement, the Custodial Agreement
and the Certificates and to perform its obligations under the Pooling
and Servicing Agreement and the Custodial Agreement.
<PAGE>
[Trustee] 2.
[Underwriter]
______________, 199_
2. Each of the Pooling and Servicing Agreement and the Custodial
Agreement has been duly authorized, executed and delivered by the
Trustee, and the Trustee has duly executed and delivered the
Certificates as provided in the Pooling and Servicing Agreement.
3. The Pooling and Servicing Agreement is a legal, valid and binding
obligation of the Trustee, enforceable against the Trustee in
accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium, receivership and similar laws
affecting the rights of creditors generally, and subject, as to
enforceability, to general principles of equity, regardless of whether
such enforcement is considered in a proceeding at law or in equity.
4. In the event that the Master Servicer defaults in its obligation to
make Advances pursuant to Section 4.03(b) of the Pooling and Servicing
Agreement, the Trustee is not, as of the date hereof, prohibited by
any provision of its Amended Articles of Organization or By-Laws or by
any provision of the banking and trust laws of the State of New York
from assuming, pursuant to Section 7.02 of the Pooling and Servicing
Agreement, the obligation to make such Advances.
We express no opinion as to the laws of any jurisdiction other than the
laws of the State of New York.
We are furnishing this opinion to you solely for your benefit. This opinion
may not be used, circulated, quoted or otherwise referred to for any other
purpose.
Very truly yours,
__________________________
<PAGE>
EXHIBIT D
Excluded Information
<PAGE>
EXHIBIT E
Underwriter Information
<PAGE>
EXHIBIT F
_______________, 199_
ICIFC Secured Assets Corp.
20371 Irvine Avenue, Suite 200
Santa Ana Heights, California 92707
Re: ICIFC Secured Assets Corp.,
Mortgage Pass-Through Certificates,
Series 199_-__,Class A and Class R
-------------------------------------------
Pursuant to Section 4 of the Underwriting Agreement, dated _______________
199_, between ICIFC Secured Assets Corp. and ________________________ (the
"Underwriter") relating to the Certificates referenced above (the "Underwriting
Agreement"), the undersigned does hereby certify that:
(a) The prepayment assumption used in pricing the Certificates was __%
SPA.
(b) Set forth below is (i), the first price, as a percentage of the
principal balance of each class of Certificates, in which 10% of the aggregate
principal balance of each such class of Certificates was sold to the public at a
single price, if applicable, or (ii) if more than 10% of a class of Certificates
have been sold to the public but no single price is paid for at least 10% of the
aggregate principal balance of such class of Certificates, then the weighted
average price at which the Certificates of such class were sold expressed as a
percentage of the principal balance of such class of Certificates, or (iii) if
less than 10% of the aggregate principal balance of a class of Certificates has
been sold to the public, the purchase price for each such class of Certificates
paid by the Underwriter expressed as a percentage of the principal balance of
such class of Certificates calculated by: (1) estimating the fair market value
of each such class of Certificates as of ___________________________, 199_; (2)
adding such estimated fair market value to the aggregate purchase price of each
class of Certificates described in clause (1) or (ii) above; (3) dividing each
of the fair market values determined in clause (1) by the sum obtained in clause
(2); (4) multiplying the quotient obtained for each class of Certificates in
clause (3) by the purchase price paid by the Underwriter for all the
Certificates; and (5) for each class of Certificates, dividing the product
obtained from such class of Certificates in clause (4) by the original
principal balance of such class of Certificates:
<PAGE>
2.
Class A: ___________________
Class R: ___________________
[* less than 10% has been sold to the public]
The prices set forth above do not include accrued interest with respect to
periods before closing.
_______________________
By:____________________
Name:__________________
Title:_________________
<PAGE>
EXHIBIT G
[Form of Legend]
<PAGE>
EXHIBIT 3.1
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
IMPERIAL CREDIT SECURED ASSETS CORP.
Kasey Hannah certifies that:
1. She is the sole incorporator of IMPERIAL CREDIT SECURED ASSETS CORP., a
California corporation.
2. She hereby adopts the following amendment of the articles of incorporation
of this corporation:
Article I be added to the Articles of Incorporation of this corporation to
read as follows:
I
The name of the corporation shall be ICIFC Secured Assets Corp.
3. No directors were named in the original articles of incorporation and none
have been elected.
4. No shares have been issued.
I further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of my own knowledge.
Date: July 1, 1996
/s/ Kasey Hannah
----------------------
Kasey Hannah
<PAGE>
ARTICLES OF INCORPORATION
OF
IMPERIAL CREDIT SECURED ASSETS CORP.
A California corporation
I
The name of the corporation shall be Imperial Credit Secured Assets
Corp.
II
The purpose of the corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust business or the
practice of a profession permitted to be incorporated by the California
Corporations Code. Notwithstanding the foregoing, the nature of the business or
purposes to be conducted or promoted by the corporation is limited to the
following activities and none other:
A. To acquire, own, hold, transfer, assign, pledge and otherwise deal
with the following (the "Mortgage Collateral"); (i)(a) "fully modified
passthrough" mortgage-backed certificates guaranteed as to timely
payment of principal and interest by the Government National Mortgage
Association; (b) Guaranteed Mortgage Pass-Through Certificates issued
and guaranteed as to timely payment of principal and interest by the
Federal National Mortgage Association; (c) Mortgage Participation
Certificates issued and guaranteed as to timely payment of interest
and principal, in most cases, by the Federal Home Loan Mortgage
Corporation (collectively, the "Agency Certificates"); (d) securities
representing interests in Agency Certificates; or (e) mortgage pass-
through certificates or mortgage collateralized bonds issued by any
other entity with respect to or secured by a pool of mortgage loans
(collectively, "Certificates") which are either owned by the
corporation or granted by a Borrower (as defined below) to secure
payment of Mortgage Backed Notes (as defined below); (ii) mortgage
notes and related mortgages, or interests therein (including, but not
limited to, participation certificates with respect to such mortgage
notes or related mortgages) ("Pledged Mortgages"), which are either
owned by the corporation or granted by a Borrower to secure payment of
a Mortgaged Backed Note; (iii) mortgage backed notes evidencing loans
made by the corporation to commercial banks, saving and loan
associations and savings banks, the deposits of which are
1
<PAGE>
insured by the Federal Deposit Insurance Corporation ("FDIC"),
affiliates of FDIC insured institutions, and other entities which are
not FDIC insured institutions but are engaged directly, or through the
owners of such entities or their affiliates, in mortgage financing,
origination or funding activities (e.g., mortgage bankers, home
builders and state agencies), or to any other entity (collectively,
the "Borrowers"), which loans are secured by Pledged Mortgages or
Certificates ("Mortgage Backed Notes"); and (iv) real property and any
improvements thereon, including commercial, multifamily and
residential properties ("Properties");
B. To authorize, issue, hold, retain an interest in (including a
subordinated interest), sell, deliver or otherwise deal with (i) bonds
or other evidences of indebtedness ("Bonds") that are secured by a
pledge or other assignment of Mortgage Collateral, reserve funds,
guaranteed investment contracts, letters of credit, insurance
contracts, surety bonds or any other credit enhancement device
(collectively, the "Collateral"), and are rated in one of the three
highest categories as may be designated by any nationally recognized
statistical rating agency, or (ii) mortgage pass-through certificates
which evidence an interest in pools of mortgage loans or other
Mortgage Collateral ("Pass-Through Certificates") that are rated in
one of the three highest categories as may be designated by any
nationally recognized statistical rating agency; provided that one or
more classes of Bonds or Pass Through Certificates of a series issued
by the corporation may be subordinate to other Bonds or Pass-Through
Certificates of such series and need not be so rated;
C. To serve as settlor or depositor of one or more trusts formed to
authorize, issue, sell and deliver Bonds, Pass-Through Certificates or
other certificates of interest that are secured by a pledge or other
assignment of, or represent an interest in, the Collateral and are
rated in one of the three highest categories available by any
nationally recognized rating agency; provided that one or more classes
of an issue of such securities by such trust may be subordinate to
other securities of such issue and not so rated;
D. To do all things as are reasonable or necessary to enable the
corporation to carry out any of the activities specified in paragraphs
A, B and C of this Article II, including entering into loan
agreements, indentures, pooling agreements, insurance agreements,
servicing agreements, reimbursement agreements, issuing debt (subject
to the provisions of this Article II and Article VIII hereof) and
selling residual interests in Mortgage Collateral or selling
certificates of participation or beneficial interests in any trust for
which the corporation serves as depositor or settlor.
III
The name and address in this state of the corporation's initial agent
for service process is: Richard Johnson, 20371 Irvine Ave. #104, Santa Ana
Heights, CA 92707.
2
<PAGE>
IV
The total number of shares which this corporation is authorized to
issue is Ten Thousand (10,000).
V
The liability of directors of the corporation for monetary damages
shall be eliminated to the fullest extent of the law.
VI
The corporation is authorized to provide indemnification of its agents
(as defined in Section 317 of the California Corporations Code) for breach of
duty to the corporation and its shareholders through by-law provisions or
through agreements with its agents or both, in excess of the indemnification
otherwise permitted by Section 317 of the California Corporations Code, subject
to the limits on excess indemnification set forth in Section 204 of the
California Corporations Code.
VII
The affirmative unanimous vote of the holders of all of the
corporation's outstanding common stock and the unanimous vote of the whole board
of directors (including the Independent Director) at any meeting of the board of
directors shall be necessary (i) for the amendment of Articles II, VII, VIII, IX
and X of these Articles of Incorporation and for the amendment of the by-laws of
the corporation; or (ii) before the corporation may take any action to institute
proceedings to have itself adjudicated as bankrupt or insolvent, or consent to
the institution of bankruptcy or insolvency proceedings against it, or seek or
consent to the entry of any order for relief or the appointment of a receiver,
trustee, or other similar official for it or for any substantial part of its
property, or seek liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
make any general assignment for the benefit of creditors, or take any corporate
action in furtherance of any of the actions set forth above in this paragraph.
VIII
Notwithstanding any other provision of these Articles of Incorporation
provision of law which otherwise so empowers the corporation, the corporation
shall not perform any act in contravention of any of the following:
A. The corporation shall not (i) consolidate or merge with or into any
other entity or person or transfer its properties and assets
substantially as an entirety to any entity; or (ii) engage in any
other action that bears on whether the separate legal identity of
3
<PAGE>
the corporation will be respected, including, without limitation (a)
holding itself out as being liable for the debts of any other party,
(b) forming, or causing to be formed, any subsidiaries, or (c) acting
other than in its corporate name and through its duly authorized
officers or agents;
B. The corporation shall not engage in any joint activity or transaction
of any kind with or for the benefit of any Related Company (as defined
below), including loans to or from any Related Company and any
guarantee of the indebtedness of any Related Company, except for (i)
entering into the agreements referenced in Article II hereof; (ii)
purchasing management services and leasing office space or equipment,
in each case only to the extent necessary for the conduct of the
corporation's business; and (iii) payment of lawful dividends and
capital distributions to its shareholder or shareholders;
C. The corporation shall not create, incur, assume, guarantee or in any
manner become liable in respect of any indebtedness, except as stated
in Article II hereof, other than trade payables and expense accruals
incurred in the ordinary course of business and which are incident to
the business purpose of the corporation as stated in Article II; and
D. The corporation shall not commingle its funds and assets with those of
any Related Company.
"Related Company" means the shareholder or shareholders of this
corporation or any entity other than this corporation now or hereafter
controlled directly or indirectly by, or under direct or indirect common control
with, the shareholders of this corporation.
IX
The corporation shall (A) maintain its financial and accounting books
and records separate from those of any other entity or person, (B) pay from its
assets all obligations and indebtedness of any kind incurred by it, and shall
not pay from its assets any obligations or indebtedness of any other entity or
person, (C) transact all business with any Related Party on an arms-length
basis, (D) prepare or cause to be prepared separate tax returns and financial
statements, or if part of a consolidated group, then it will be shown as a
separate member of such group, and (E) observe all corporate formalities
required by these Articles of Incorporation, by-laws and the laws of the State
of California.
X
The corporation shall at all times have at least one director (an
"Independent Director") who shall not have been, at the time of his or her
appointment or at any time in the five (5) years preceding such appointment, (A)
a stockholder, director, officer or an employee of any Related Company or
4
<PAGE>
affiliate or subsidiary thereof, (B) a customer of or a supplier to any Related
Company or any affiliate or subsidiary thereof, (C) a person or other entity
controlling any such stockholder, director, officer, employee, supplier or
customer, or (D) a member of the immediate family of any such stockholder,
director, officer, employee, supplier or customer of any Related Company or such
subsidiary or affiliate thereof. As used herein, the term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a person or other entity, whether
through ownership of voting securities, by contract or otherwise.
Dated: May 2, 1996
/s/ Kasey Hannah
---------------------------------
Kasey Hannah, Sole Incorporator
I hereby declare that I am the person who executed the foregoing
Articles of Incorporation, which execution is my act and deed.
/s/ Kasey Hannah
---------------------------------
Kasey Hannah, Sole Incorporator
5
<PAGE>
EXHIBIT 3.2
<PAGE>
BY-LAWS
OF
ICIFC Secured Assets Corp.
a California corporation
ARTICLE I
OFFICES
-------
Section 1. PRINCIPAL OFFICE. The principal office for the
transaction of business of the corporation is hereby fixed and located at 20371
Irvine Avenue, Santa Ana Heights, California 92707.
The location may be changed by approval of a majority of the
authorized Directors, and additional offices may be established and maintained
at such other place or places, either within or outside California, as the Board
of Directors may from time to time designate.
Section 2. OTHER OFFICES. Branch or subordinate offices may at any
time be established by the Board of Directors at any place or places where the
corporation is qualified to do business.
ARTICLE II
DIRECTORS - MANAGEMENT
----------------------
Section 1. RESPONSIBILITY OF BOARD OF DIRECTORS. Subject to the
provisions of the General Corporation Law and to any limitations in the Articles
of Incorporation of the corporation relating to action required to be approved
by the Shareholders, as that term is defined in Section 153 of the California
Corporations Code (hereafter "Code"), or by the outstanding shares, as that term
is defined in Section 152 of the Code, the business and affairs of the
corporation shall be managed and all corporate powers shall be exercised by or
under the direction of the Board of Directors (hereafter "Board"). The Board
may delegate the management of the day-to-day operation of the business of the
corporation to a management company or other person, provided that the business
and affairs of the corporation shall be managed and all corporate powers shall
be exercised under the ultimate direction of the Board.
Section 2. STANDARD OF CARE. Each Director shall perform the duties
of a Director, including the duties as a member of any committee of the Board
upon which the irector may serve, in good faith, in a manner such Director
believes to be
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in the best interests of the corporation, and with such care, including
reasonable inquiry, as an ordinary prudent person in a like position would use
under similar circumstances.
Section 3. NUMBER AND QUALIFICATION OF DIRECTORS. The authorized
number of Directors shall be no less than three (3) or more than seven (7)
provided, however, that (1) before shares are issued, the number may be one, (2)
before shares are issued, the number may be two, (3) so long as the corporation
has only one shareholder, the number may be one, (4) so long as the corporation
has only one shareholder, the number may be two, and (5) so long as the
corporation has only two shareholders, the number may be two. The indefinite
number of directors may be changed, or a definite number fixed without provision
for an indefinate number, by an amendment to this by-law duly adopted by the
vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that an amendment reducing the number or
the minimum number of directors to a number less than five (5) cannot be adopted
if the votes cast against its adoption at a meeting of the shareholders, or the
shares not consenting in the case of action by written consent, are equal to
more than 16 2/3% of the outstanding shares entitled to vote. No amendment may
change the stated maximum number of authorized directors to a number greater
than two times the stated minimum number of directors minus one. Directors need
not be shareholders.
Section 4. ELECTION AND TERM OF OFFICE OF DIRECTORS. Directors shall
be elected at each annual meeting of the Shareholders to hold office until the
next annual meeting. Each Director, including a Director elected to fill a
vacancy, shall hold office until the expiration of the term for which elected
and until a successor has been elected and qualified.
Section 5. VACANCIES. Vacancies in the Board may be filled at a
meeting by a majority of the remaining Directors, though less than a quorum, by
the unanimous written consent of the directors then in office or by a sole
remaining Director, except that a vacancy created by the removal of a director
by the vote or written consent of the Shareholders or by court order may be
filled only by (i) the vote of a majority of the shares entitled to vote
represented at a duly held meeting at which a quorum is present, or (ii) the
written consent of holders of a majority of the outstanding shares entitled to
vote. Each Director so elected shall hold office until the next annual meeting
of the Shareholders and until a successor has been elected and qualified.
A vacancy or vacancies in the Board shall exist (i) in the event of
the death, resignation, or removal of any Director; (ii) if the Board by
resolution declares vacant the office of a Director who has been declared of
unsound mind by an order of court or convicted of a felony; (iii) if the
authorized number of Directors is increased; or (iv) if the shareholders fail,
at any meeting of shareholders at which any Director or Directors are elected,
to elect the number of Directors to be voted for at that meeting.
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The Shareholders may elect a Director or Directors at any time to fill
any vacancy or vacancies not filled by the Directors, but any such election by
written consent shall require the consent of a majority of the outstanding
shares entitled to vote.
Any Director may resign effective on giving written notice to the
Chairman of the Board, the President, the Secretary, or the Board, unless the
notice specifies a later time for that resignation to become effective. If the
resignation of a Director is effective at a future time, the Board may elect a
successor to take office when the resignation becomes effective.
No reduction of the authorized number of Directors shall have the
effect of removing any Director before that Director's term of office expires.
Section 6. REMOVAL OF DIRECTORS. The entire Board of Directors or
any individual Director may be removed from office as provided by Sections 303
and 304 of the Code. Any such vacancy or vacancies thereby created shall be
filled by a majority vote of the Directors, provided, however, if there are no
Directors remaining in office, then by a majority vote of the shares entitled to
vote represented at a special meeting at which a quorum is present, or, by the
written consent of holders of a majority of the outstanding shares entitled to
vote.
Section 7. NOTICE, PLACE AND MANNER OF MEETINGS. Meetings of the
Board of Directors may be called by the Chairman of the Board, or the President,
or any Vice President, or the Secretary, or any two (2) Directors and shall be
held at the principal office of the corporation, unless some other place is
designated in the notice of the meeting. Members of the Board may participate
in a meeting through use of a conference telephone or similar communications
equipment so long as all members participating in such a meeting can hear one
another. Accurate minutes of any meeting of the Board or any committee thereof,
shall be maintained by the Secretary or other Officer designated for that
purpose.
Section 8. ANNUAL MEETINGS. The annual meeting of the Board shall be
held immediately following the adjournment of the annual meeting of the
Shareholders.
Section 9. SPECIAL MEETINGS - NOTICES - WAIVERS. Special meetings of
the Board may be called at any time by the President or, if he or she is absent,
unable, or refuses to act, by any Vice President or the Secretary or by any two
(2) Directors, or by one (1) Director if only one is provided.
At least forty-eight (48) hours notice of the time and place of
special meetings shall be delivered personally to the Directors or personally
communicated to them by a corporate Officer by telephone or telegraph. If the
notice is sent to a Director by letter, it shall be addressed to him or her at
his or her address as it is shown upon the records of the corporation, or if it
is not so shown on such records or is not readily ascertainable, at the place in
which the meetings of the Directors are regularly held. In case such notice is
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mailed, it shall be deposited in the United States mail, postage prepaid, in the
place in which the principal office of the corporation is located at least four
(4) days prior to the time of the holding of the meeting. Such mailing,
telegraphing, telephoning or delivery as above provided shall be due, legal and
personal notice to such Director.
If (i) all or a majority of the Directors are present at any
Directors' meeting and said meeting is not properly called or noticed as set
forth in these By-Laws and all directors, including those not present, sign a
waiver of notice of such meeting or a consent to holding the meeting or an
approval of the minutes thereof, whether prior to or after the holding of such
meeting, which said waiver, consent or approval shall be filed with the
Secretary of the corporation, or, (ii) a Director attends a meeting without
notice but without protesting, prior thereto or at its commencement, the lack of
notice, then the transactions thereof are as valid as if had at a meeting
regularly called and noticed.
Section 10. ACTION WITHOUT A MEETING BY WRITTEN CONSENT. Any action
required or permitted to be taken by the board of directors may be taken without
a meeting, if all members of the board individually or collectively consent in
writing to that action. Any action by written consent shall have the same
effect as a unanimous vote of the board of directors. All such written consents
shall be filed with the minutes of the proceedings of the board of directors.
Section 11. QUORUM. A majority of the number of Directors as fixed
by these By-Laws shall be necessary to constitute a quorum for the transaction
of business, and the action of a majority of the Directors present at any
meeting at which there is a quorum, when duly assembled, is valid as a corporate
act; provided that a minority of the Directors, in the absence of a quorum, may
adjourn from time to time, but may not transact any business. A meeting at
which a quorum is initially present may continue to transact business,
notwithstanding the withdrawal of Directors, if any action taken is approved by
a majority of the required quorum for such meeting.
Section 12. NOTICE OF ADJOURNMENT. Notice of the time and place of
holding an adjourned meeting need not be given to absent Directors if the time
and place be fixed at the meeting adjourned and held within twenty-four (24)
hours, but if adjourned more than twenty-four (24) hours, notice shall be given
to all Directors not present at the time of the adjournment.
Section 13. COMPENSATION OF DIRECTORS. Directors, as such, shall not
receive any stated salary for their services, but by resolution of the Board a
fixed sum and expense of attendance, if any, may be allowed for attendance at
each regular and special meeting of the Board; provided that nothing herein
contained shall be construed to preclude any Director from serving the
corporation in any other capacity and receiving compensation therefor.
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Section 14. COMMITTEES. Committees of the Board may be appointed by
resolution passed by a majority of the whole Board. Committees shall be
composed of two (2) or more members of the Board, and shall have such powers of
the Board as may be expressly delegated to it by resolution of the Board, except
those powers expressly made non-delegable by Section 311 of the Code.
Section 15. ADVISORY DIRECTORS. The Board may, from time to time,
elect up to three persons to be Advisory Directors who shall not by such
appointment be members of the Board or have voting power. Advisory Directors
shall be available from time to time to perform special assignments specified by
the Board, to attend meetings of the Board upon invitation and to furnish
consultation to the Board. The period during which the title shall be held may
be prescribed by the Board. If no period is prescribed, the title shall be held
at the pleasure of the Board. Such Advisory members may receive such
compensation as the Board may determine.
ARTICLE III
OFFICERS
--------
Section 1. OFFICERS. The Officers of the corporation shall be a
Chairman of the Board or a President or both; a Secretary, and a Chief Financial
Officer. The corporation may also have, at the discretion of the Board, one or
more Vice Presidents, one or more Assistant Secretaries, one or more Assistant
Treasurers, and such other Officers as may be appointed in accordance with the
provisions of Section 3 of this Article III. Any number of offices may be held
by the same person.
Section 2. ELECTION. The Officers of the corporation, except such
Officers as may be appointed in accordance with the provisions of Section 3 or
Section 5 of this Article, shall be elected annually by the Board, and each
shall hold office until he or she shall resign or shall be removed or otherwise
disqualified to serve, or a successor shall be elected and qualified.
Section 3. SUBORDINATE OFFICERS, ETC. The Board may appoint such
other Officers as the business of the corporation may require, each of whom
shall hold office for such period, have such authority and perform such duties
as are provided in these By-Laws or as the Board may from time to time
determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the
rights, if any, of an Officer under any contract of employment, any Officer may
be removed, either with or without cause, by the Board, at any regular or
special meeting of the Board, or, except in case of an Officer chosen by the
Board, by any Officer upon whom such power of removal may be conferred by the
Board.
Any Officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at
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any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the Officer is a
party.
Section 5. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in the By-Laws for regular appointments to that office.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such
an officer be elected, shall, if present, preside at meetings of the Board and
exercise and perform such other powers and duties as may be from time to time
assigned by the Board or prescribed by these By-Laws. If there is no President,
the Chairman of the Board shall in addition be the Chief Executive Officer of
the corporation and shall have the powers and duties prescribed in Section 7 of
this Article III.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as
may be given by the Board to the Chairman of the Board, if there be such an
officer, the President shall be the Chief Executive Officer of the corporation
unless otherwise provided by the Board. The President shall, subject to the
control of the Board, have general supervision, direction and control of the
business and Officers of the corporation. He or she shall preside at all
meetings of the Shareholders and in the absence of the Chairman of the Board, or
if there be none, at all meetings of the Board. The President shall be ex
officio a member of all the standing commit tees, including the Executive
Committee, if any, and shall have the general powers and duties of management
usually vested in the office of President of a corporation, and shall have such
other powers and duties as may be prescribed by the Board or these By-Laws.
Section 8. VICE PRESIDENTS. In the absence or disability of the
President, the Vice Presidents, if any, in order of their rank as fixed by the
Board, or if not ranked, the Vice President designated by the Board, shall
perform all the duties of the President, and when so acting shall have all the
powers of, and be subject to, all the restrictions upon, the President. The
Vice Presidents shall have such other powers and perform such other duties as
from time to time may be prescribed for them respectively by the Board or these
By-Laws.
Section 9. SECRETARY. The Secretary shall keep, or cause to be kept,
a book of minutes at the principal office or such other place as the Board may
order, of all meetings of Directors and Shareholders, with the time and place of
holding, whether regular or special, and if special, how authorized, the notice
thereof given, the names of those present at Directors' meetings, the number of
shares present or represented at Shareholders' meetings and the proceedings
thereof.
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The Secretary shall keep, or cause to be kept, at the principal office
or at the office of the corporation's transfer agent, a share register, or
duplicate share register, showing the names of the Shareholders and their
addresses; the number and classes of shares held by each; the number and date of
certificates issued for the same; and the number and date of cancellation of
every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all the
meetings of the Shareholders and of the Board required by these By-Laws or by
law to be given. He or she shall keep, or cause to be kept, the seal of the
corporation in safe custody, and shall have such other powers and perform such
other duties as may be prescribed by the Board or by these By-Laws.
Section 10. CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall keep and maintain, or cause to be kept and maintained in accordance with
generally accepted accounting principles, adequate and correct accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
earnings (or surplus) and shares. The books of account shall at all reasonable
times be open to inspection by any Director.
This Officer or his designee shall deposit all moneys and other
valuables in the name and to the credit of the corporation with such
depositaries as may be designated by the Board. He or she shall disburse the
funds of the corporation as may be ordered by the Board, shall render to the
President and Directors, whenever they request it, an account of all of his or
her transactions and of the financial condition of the corporation, and shall
have such other powers and perform such other duties as may be prescribed by the
Board or these By-Laws.
ARTICLE IV
SHAREHOLDERS' MEETINGS
----------------------
Section 1. PLACE OF MEETINGS. All meetings of the Shareholders shall
be held at the principal office of the corporation unless some other
appropriate and convenient location be designated for that purpose from time to
time by the Board.
Section 2. ANNUAL MEETINGS. The annual meeting of the Shareholders
shall be held, each year, on such date and at such time as is determined by the
Board of Directors.
At the annual meeting, the Shareholders shall elect a Board of
Directors, consider reports of the affairs of the corporation and transact such
other business as may be properly brought before said meeting.
Section 3. SPECIAL MEETINGS. Special meetings of the Shareholders
may be called at any time by the Board of Directors, the Chairman of the Board,
the President, a
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Vice President, the Secretary, or by one or more Shareholders holding not less
than one-tenth (1/10) of the voting power of the corporation. Except as provided
hereafter, notice shall be given as for the annual meeting.
Upon receipt of a written request addressed to the Chairman,
President, Vice President, or Secretary, mailed or delivered personally to such
Officer by any person (other than the Board) entitled to call a special meeting
of Shareholders, such Officer shall cause notice to be given, to the
Shareholders entitled to vote, that a meeting will be held at a time requested
by the person or persons calling the meeting, not less than thirty-five (35) nor
more than sixty (60) days after receipt of such request. If such notice is not
given within twenty (20) days after receipt of such request, the persons calling
the meeting may give notice thereof in the manner provided by these By-Laws or
apply to the Superior Court as provided in Section 305(c) of the Code.
Section 4. NOTICE OF MEETINGS - REPORTS. Notice of meetings, annual
or special, shall be given in writing not less than ten (10) nor more than sixty
(60) days before the date of the meeting to Shareholders entitled to vote
thereat. Such notice shall be given by the Secretary or the Assistant
Secretary, or if there be no such Officer, or in the case of his or her neglect
or refusal, by any Director or Shareholder.
Such notices or any reports shall be given personally or by mail or
other means of written communication as provided in Section 601 of the Code and
shall be sent to the Share holder's address appearing on the books of the
corporation, or supplied by him or her to the corporation for the purpose of
notice, and in the absence thereof, as provided in said Section 601.
Notice of any meeting of Shareholders shall specify the place, the day
and the hour of meeting, and (i) in case of a special meeting, the general
nature of the business to be transacted and no other business may be transacted,
or (ii) in the case of an annual meeting, those matters which the Board at date
of mailing, intends to present for action by the Shareholders. At any meetings
where Directors are to be elected, notice shall include the names of the
nominees, if any, intended at date of notice to be presented by management for
election.
If a Shareholder supplied no address, notice shall be deemed to have
been given if mailed to the place where the principal office of the corporation,
in California, is situated, or published at least once in some newspaper of
general circulation in the County of said principal office.
Notice shall be deemed given at the time it is delivered personally or
deposited in the mail or sent by other means of written communication. The
Officer giving such notice or report shall prepare and file an affidavit or
declaration thereof.
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When a meeting is adjourned for forty-five (45) days or more, notice
of the adjourned meeting shall be given as in the case of an original meeting,
provided, however, it shall not be necessary to give any notice of adjournment
or of the business to be transacted at an adjourned meeting other than by
announcement at the meeting at which such adjournment is taken.
Section 5. WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDER. The
transactions of any meeting of Shareholders, however called and noticed, shall
be as valid as though said transactions occurred at a meeting duly held after
regular call and notice, if a quorum be present either in person or by proxy,
and if, either before or after the meeting, each of the Shareholders entitled to
vote, not present in person or by proxy, sign a written waiver of notice, or a
consent to the holding of such meeting or an approval of the minutes thereof.
All such waivers, consents or approvals shall be filed with the corporate
records or made a part of the minutes of the meeting. Attendance shall
constitute a waiver of notice, unless objection shall be made as provided in
Section 601(e) of the Code.
Section 6. SHAREHOLDERS ACTING WITHOUT A MEETING-ELECTION OF
DIRECTORS. Any action which may be taken at a meeting of the Shareholders, may
be taken without a meeting or notice of meeting if authorized by a writing
signed by all of the Shareholders entitled to vote at a meeting for such
purpose, and filed with the Secretary of the corporation, provided, further,
that while ordinarily Directors can only be elected by unanimous written consent
under Section 603(d) of the Code, if the Directors fail to fill a vacancy, then
a Director to fill that vacancy may be elected by the written consent of persons
holding a majority of shares entitled to vote for the election of Directors.
Section 7. OTHER ACTIONS WITHOUT A MEETING. Unless otherwise
provided in the Code, any action which may be taken at any annual or special
meeting of Shareholders may be taken without a meeting and without prior notice,
if a consent in writing, setting forth the action so taken, signed by the
holders of the outstanding shares having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted.
Unless the consents of all Shareholders entitled to vote have been
solicited in writing,
(1) Notice of any Shareholder approval pursuant to Sections 310,
317, 1201 or 2007 of the Code without a meeting by less than unanimous
written consent shall be given at least ten (10) days before the
consummation of the action authorized by such approval, and
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(2) Prompt notice shall be given of the taking of any other
corporate action approved by Shareholders without a meeting by less than
unanimous written consent, to each of those Shareholders entitled to vote
who have not consented in writing.
Any Shareholder giving a written consent, or the Shareholder's
proxyholders, or a transferee of the shares of a personal representative of the
Shareholder or their respective proxyholders, may revoke the consent by a
writing received by the corporation prior to the time that written consents of
the number of shares required to authorize the proposed action have been filed
with the Secretary of the corporation, but may not do so thereafter. Such
revocation is effective upon its receipt by the Secretary of the corporation.
Section 8. QUORUM. The holders of a majority of the shares entitled
to vote thereat, present in person, or represented by proxy, shall constitute a
quorum at all meetings of the Shareholders for the transaction of business
except as otherwise provided by law, by the Articles of Incorporation of the
corporation, or by these By-Laws. If, however, such majority shall not be
present or represented at any meeting of the Shareholders, the Shareholders
entitled to vote thereat, present in person, or by proxy, shall have the power
to adjourn the meeting from time to time, until the requisite amount of voting
shares shall be present. At such adjourned meeting at which the requisite
amount of voting shares shall be represented, any business may be transacted
which might have been transacted at a meeting as originally notified.
If a quorum be initially present, the Shareholders may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
Shareholders to leave less than a quorum, if any action taken is approved by a
majority of the Shareholders required to initially constitute a quorum.
Section 9. VOTING. Only persons in whose names shares entitled to
vote stand on the stock records of the corporation on the day of any meeting of
Shareholders, unless some other day be fixed by the Board for the determination
of Shareholders of record, and then on such other day, shall be entitled to vote
at such meeting.
Provided that prior to the voting at a meeting, a candidate's name has
been placed in nomination and one or more Shareholders has given notice at the
meeting of the Shareholder's intent to cumulate the Shareholder's votes, every
Shareholder entitled to vote at any election for Directors of any corporation
for profit may cumulate their votes and give one candidate a number of votes
equal to the number of Directors to be elected multiplied by the number of votes
to which his or her shares are entitled, or distribute his or her votes on the
same principle among as many candidates as he or she thinks fit. If any one
shareholder has given such notice, all shareholders may cumulate their votes for
candidates in nomination.
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The candidates receiving the highest number of votes up to the number
of Directors to be elected are elected.
The Board of Directors may fix a time in the future not exceeding
thirty (30) days nor less than ten (10) preceding the date of any meeting of
Shareholders or the date fixed for the payment of any dividend or distribution,
or for the allotment of rights, or when any change or conversion or exchange of
shares shall go into effect, as a record date for the determination of the
Shareholders entitled to notice of and to vote at any such meeting, or entitled
to receive any such dividend or distribution, or any allotment of rights, or to
exercise the rights in respect to any such change, conversion or exchange of
shares. In such case only Shareholders of record on the date so fixed shall be
entitled to notice of and to vote at such meeting, or to receive such dividends,
distribution or allotment of rights, or to exercise such rights, as the case may
be notwithstanding any transfer of any share on the books of the corporation
after any record date fixed as aforesaid. The Board of Directors may close the
books of the corporation against transfers of shares during the whole or any
part of such period.
Section 10. PROXIES. Every Shareholder entitled to vote, or to
execute consents, may do so, either in person or by written proxy, executed in
accordance with the provi sions of Sections 604 and 705 of the Code and filed
with the Secretary of the corporation.
Section 11. ORGANIZATION. The President, or in the absence of the
President, any Vice President, shall call the meeting of the Shareholders to
order, and shall act as chairman of the meeting. In the absence of the
President and all of the Vice Presidents, Shareholders shall appoint a chairman
for such meeting. The Secretary of the corporation shall act as Secretary of
all meetings of the Shareholders, but in the absence of the Secretary at any
meeting of the Shareholders, the presiding Officer may appoint any person to act
as Secretary of the meeting.
Section 12. INSPECTORS OF ELECTION. In advance of any meeting of
Shareholders the Board of Directors may, if they so elect, appoint inspectors of
election to act at such meeting or any adjournment thereof. If inspectors of
election be not so appointed, or if any persons so appointed fail to appear or
refuse to act, the chairman of any such meeting may, and on the request of any
Shareholder or his or her proxy shall, make such appointment at the meeting in
which case the number of inspectors shall be either one (1) or three (3) as
determined by a majority of the Shareholders represented at the meeting.
ARTICLE V
CERTIFICATES AND TRANSFER OF SHARES
-----------------------------------
Section 1. CERTIFICATES FOR SHARES. Certificates for shares shall be
of such form and device as the Board may designate and shall state the name of
the record holder of the shares represented thereby; its number; date of
issuance; the number of shares
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for which it is issued; a statement of the rights, privileges, preferences and
restrictions, if any; a statement as to the redemption or conversion, if any; a
statement of liens or restrictions upon transfer or voting, if any; if the
shares be assessable or, if assessments are collectible by personal action, a
plain statement of such facts.
All certificates shall be signed in the name of the corporation by the
Chairman of the Board or Vice Chairman of the Board or the President or Vice
President and by the Chief Financial Officer or an Assistant Treasurer or the
Secretary or any Assistant Secretary, certifying the number of shares and the
class or series of shares owned by the Shareholder.
Any or all of the signatures on the certificate may be facsimile. In
case any Officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed on a certificate shall have ceased to be that Officer,
transfer agent, or registrar before that certificate is issued, it may be issued
by the corporation with the same effect as if that person were an Officer,
transfer agent, or registrar at the date of issue.
Section 2. TRANSFER ON THE BOOKS. Upon surrender to the Secretary or
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 3. LOST OR DESTROYED CERTIFICATES. Any person claiming a
certificate of stock to be lost or destroyed shall make an affidavit or
affirmation of that fact and shall, if the Directors so require, give the
corporation a bond of indemnity, in form and with one or more sureties
satisfactory to the Board, in at least double the value of the stock represented
by said certificate, whereupon a new certificate may be issued in the same tenor
and for the same number of shares as the one alleged to be lost or destroyed.
Section 4. TRANSFER AGENTS AND REGISTRARS. The Board may appoint one
or more transfer agents or transfer clerks, and one or more registrars, which
shall be an incorporated bank or trust company, either domestic or foreign, who
shall be appointed at such times and places as the requirements of the
corporation may necessitate and the Board may designate.
Section 5. CLOSING STOCK TRANSFER BOOKS - RECORD DATE. In order that
the corporation may determine the Shareholders entitled to notice of any meeting
or to vote or entitled to receive payment of any dividend or other distribution
or allotment of any rights or entitled to exercise any rights in respect of any
other lawful action, the Board may fix, in advance, a record date, which shall
not be more than sixty (60) nor less than ten (10) days prior to the date of
such meeting nor more than sixty (60) days prior to any other action.
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If no record date is fixed, the record date for determining
Shareholders entitled to notice of or to vote at a meeting of Shareholders shall
be at the close of business on the business day next preceding the day on which
notice is given, or, if notice is waived, at the close of business on the
business day next preceding the day on which the meeting is held. The record
date for determining Shareholders entitled to give consent to corporate action
in writing without a meeting, when no prior action by the Board is necessary,
shall be the day on which the first written consent is given.
The record date for determining Shareholders for any other purpose
shall be at the close of business on the day on which the Board adopts the
resolution relating thereto, or the sixtieth (60th) day prior to the date of
such other action, whichever is later.
Section 6. LEGEND CONDITION. In the event any shares of the
corporation are issued pursuant to a permit or exemption therefrom requiring the
imposition of a legend condition, the person or persons issuing or transferring
said shares shall make said legend appear on the certificate and on the stub
relating thereto in the stock record book and shall not be required to transfer
any shares free of such legend unless an amendment to such permit or a new
permit be first issued so authorizing such a deletion.
ARTICLE VI
RECORDS - REPORTS - INSPECTION
------------------------------
Section 1. RECORDS. The corporation shall maintain, in accordance
with generally accepted accounting principles, adequate and correct accounts,
books and records of its business and properties. All of such books, records
and accounts shall be kept at its principal office in the State of California,
as fixed by the Board from time to time.
Section 2. INSPECTION OF BOOKS AND RECORDS. All books and records
provided for in Section 1500 of the Code shall be open to inspection by the
Directors and Shareholders from time to time and in the manner provided in
Section 1600 through 1602, inclusive, of the Code.
Section 3. CERTIFICATION AND INSPECTION OF BY- LAWS. The original or
a copy of these By-Laws, as amended from time to time, certified by the
Secretary, shall be kept at the corporation's principal office and shall be open
to inspection by the Shareholders of the corporation at all reasonable times
during office hours.
Section 4. CHECKS, DRAFTS, ETC. All checks, drafts, or other orders
for payment of money, notes or other evidences of indebtedness, issued in the
name of or payable to the corporation, shall be signed or endorsed by such
person or persons and in such manner as shall be determined from time to time by
resolution of the Board.
Section 5. CONTRACTS, ETC. -- HOW EXECUTED. The Board, except as
otherwise provided by these By-Laws, may authorize any Officer or Officers,
agent or
13
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agents, to enter into any contract or execute any instrument in the
name of and on behalf of the corporation. Such authority may be general or
confined to specific instances. Unless so autho rized by the Board, no Officer,
agent or employee shall have any power or authority to bind the corporation by
any contract or agreement, or to pledge its credit, or to render it liable for
any purpose or to any amount, except as provided in Section 313 of the Code.
ARTICLE VII
ANNUAL REPORTS
--------------
Section 1. WAIVER OF ANNUAL REPORTS TO SHAREHOLDER. The annual
report to Shareholders referred to in Section 1501 of the Code is expressly
waived so long as the corporation shall have less than one hundred (100)
Shareholders. However, nothing herein shall be interpreted as prohibiting the
Board from issuing annual or other periodic reports to the Shareholders of the
corporation as they consider appropriate.
ARTICLE VIII
AMENDMENTS TO BY-LAWS
---------------------
Section 1. AMENDMENTS. After initial By-Laws of the corporation
shall have been adopted by the incorporator or incorporators of the
corporation, the By-Laws may be amended or repealed or new By-Laws may be
adopted by the shareholders entitled to exercise a majority of the voting power
or by the Board of Directors; provided, however, that the Board of Directors
shall have no control over any By-Law which changes the authorized number of
directors of the corporation; provided, further, than any control over the By-
Laws herein vested in the Board of Directors shall be subject to the authority
of the aforesaid shareholders to amend or repeal the By-Laws or to adopt new By-
Laws; and provided further than any By-Law amendment or new By-law which changes
the minimum number of directors to fewer than five shall require authorization
by the greater proportion of voting power of the shareholders as hereinbefore
set forth.
Section 2. RECORD OF AMENDMENTS. Whenever an amendment or new By-Law
is adopted, it shall be copied in the book of By-Laws with the original By-Laws,
in the appropriate place. If any By-Law is repealed, the fact of repeal with
the date of the meeting at which the repeal was enacted or written assent was
filed shall be stated in said book.
ARTICLE IX
CORPORATE SEAL
--------------
The corporate seal shall be circular in form, and shall have inscribed
thereon the name of the corporation, the date of its incorporation, and the word
"California".
14
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ARTICLE X
CORPORATE LOANS
---------------
Section 1. LIMITATION ON CORPORATE LOANS AND GUARANTEES. Except as
provided in Section 2 of this Article X, the corporation shall not make any
loan of money or property to, or guaranty the obligation of, any director or
officer of the corporation or its parent or subsidiary, unless the transaction,
or an employee benefit plan authorizing such loans or guarantees, after
disclosure of the right under such a plan to include officers or directors,
(a) is approved by the vote of a majority of the shares, with the
shares owned by the director or officer, or by the director or
officer then eligible to participate in such plan not being
entitled to vote thereon, or
(b) is approved by the unanimous vote of the shareholders.
Section 2. PERMISSIBLE CORPORATE LOANS AND GUARANTEES. Notwithstanding
the provisions of Section 1 of this Article X:
(a) the Board alone is authorized to and may approve a loan of money
or property to, or guaranty the obligation of, any officer,
whether or not a director, or an employee benefit plan
authorizing such a loan or guaranty to an officer, by a vote
sufficient without counting the vote of any interested director
or directors if: (i) the corporation has outstanding shares held
of record by 100 or more persons (determined as provided in
Section 605 of the Code) on the date of approval by the Board;
and (ii) the Board determines that such a loan or guaranty or
plan may reasonably be expected to benefit the corporation;
(b) the corporation may make any loan of money or property to, or
guaranty the obligation of, any person upon the security of
shares of the corporation, if the loan or guaranty is: (i)
otherwise adequately secured; (ii) made pursuant to an employee
benefit plan permitted by Section 408 of the Code; (iii) approved
by the shareholders with the shares owned by the borrower not
entitled to vote; or (iv) approved by the unanimous vote of the
shareholders;
(c) the corporation may advance money to a director or officer of the
corporation or of its parent or any subsidiary for any expenses
reasonably anticipated to be incurred in the performance of the
duties of such director or officer, provided that in the absence
of such advance such director or officer would be entitled to be
reimbursed for such expenses by the corporation, its parent or
any subsidiary; and
15
<PAGE>
(d) the corporation may make any payment of premiums, in whole or in
part, on a life insurance policy on the life of any director or
officer so long as repayment to the corporation of the amount
paid by it is secured by the proceeds of the policy and its cash
surrender value.
ARTICLE XI
INDEMNIFICATION OF DIRECTORS, OFFICERS,
---------------------------------------
EMPLOYEES AND OTHER AGENTS
--------------------------
Section 1. AGENTS, PROCEEDINGS, AND EXPENSES. For the purposes of
this Article, "agent" means any person who is or was a director, officer,
employee, or other agent of the corporation, or is or was serving at the request
of the corporation as a director, officer, employee, or agent of another foreign
or domestic corporation, partnership, joint venture, trust or other enterprise,
or was a director, officer, employee, or agent of a foreign or domestic
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation; "proceeding" means
any threatened, pending or completed action or proceeding, whether civil,
criminal, administrative, or investigative; and "expenses" includes, without
limitation, attorneys' fees and any expenses of establishing a right to
indemnification under Section 4 or Section 5(c) of this Article.
Section 2. ACTIONS OTHER THAN BY THE CORPORATION. The corporation
shall indemnify any person who was or is a party, or is threatened to be made a
party, to any proceeding (other than an action by or in the right of the
corporation to procure a judgment in its favor) by reason of the fact that such
person is or was an agent of the corporation, against expenses, judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with such proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in the best interests of the
corporation and, in the case of a criminal proceeding, had no reasonable cause
to believe the conduct of such person was unlawful. The termination of any
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which the person reasonably
believed to be in the best interests of the corporation or that the person had
reasonable cause to believe that the persons' conduct was unlawful.
Section 3. ACTIONS BY THE CORPORATION. The corporation shall
indemnify any person who was or is a party, or is threatened to be made a party,
to any threatened, pending or completed action by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person is or was an agent of the corporation, against expenses actually and
reasonably incurred by such person in connection with the defense or settlement
of such action if such person acted in good faith, in a manner such person
believed to be in the best interests of the corporation. No indemnification
shall be made under this Section 3 for any of the following:
16
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(a) In respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to the corporation and its
shareholders, unless and only to the extent that the court in which such
proceeding is or was pending shall determine upon application that, in view
of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for the expenses which the court shall determine; or
(b) Of amounts paid in settling or otherwise disposing of a
pending action without court approval; or
(c) Of expenses incurred in defending a pending action which is
settled or otherwise disposed of without court approval.
Section 4. SUCCESSFUL DEFENSE BY AGENT. To the extent that an agent
of the corporation has been successful on the merits in defense of any
proceeding referred to in Sections 2 or 3 of this Article, or in defense of any
claim, issue, or matter therein, the agent shall be indemnified against expenses
actually and reasonably incurred by the agent in connection therewith.
Section 5. REQUIRED APPROVAL. Except as provided in Section 4 of
this Article, any indemnification under this Article shall be made by the
corporation only if authorized in the specific case, upon a determination that
indemnification of the agent is proper in the circumstances because the agent
has met the applicable standard of conduct set forth in Sections 2 or 3 of this
Article; by any of the following:
(a) A majority vote of a quorum consisting of directors who are
not parties to such proceeding; or
(b) If such a quorum of directors is not obtainable, by
independent legal counsel in a written opinion; or
(c) Approval of the shareholders, with the shares owned by the
person to be indemnified not being entitled to vote thereon. For the
purposes of this subsection, "approval of the shareholders" means approved
or ratified by the affirmative vote of a majority of the shares of the
corporation represented and voting at a duly held meeting at which a quorum
is present (which shares voting affirmatively shall also constitute at
least a majority of the required quorum) or by the written consent signed
by the holders of a majority of the outstanding shares entitled to vote,
which written consent shall be procedurally procured in the manner provided
by law; or
(d) The court in which the proceeding is or was pending upon
application made by the corporation or the agent of the attorney or other
person
17
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rendering services in connection with the defense, whether or not
such application by the agent, attorney, or other person is opposed by the
corporation.
Section 6. ADVANCE OF EXPENSES. Expenses incurred in defending any
proceeding may be advanced by the corporation before the final disposition of
the proceedings on receipt of an undertaking by or on behalf of the agent to
repay the amount of the advance unless it shall be determined ultimately that
the agent is entitled to be indemnified as authorized in this Article.
Section 7. OTHER RIGHTS AUTHORIZED. The indemnification provided by
this Article shall not be exclusive of any other rights to which those seeking
indemnification may be entitled under any by-law, agreement, vote of
shareholders, or vote of disinterested directors or otherwise, both as to action
in an official capacity and as to action in another capacity while holding such
office, to the extent such additional rights to indemnification are authorized
in the Articles of Incorporation of the corporation. Nothing contained in this
Section shall affect any right to indemnification to which persons other than
directors and officers of the corporation or any subsidiary hereof may be
entitled by contract or otherwise.
Section 8. LIMITATIONS. No indemnification or advance shall be made
under this Article, except as provided in Section 4 or Section 5(c), in any
circumstance where it appears:
(a) That it would be inconsistent with a provision of the
articles, by-laws, a resolution of the shareholders or an agreement in
effect at the time of the accrual of the alleged cause of action asserted
in the proceeding in which the expenses were incurred or other amounts were
paid, which prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
Section 9. INSURANCE. Upon and in the event of a determination by
the board of directors of the corporation to purchase such insurance, the
corporation shall purchase and maintain insurance on behalf of any agent of the
corporation against any liability asserted against or incurred by the agent in
such capacity or arising out of the agent's status as such whether or not the
corporation would have the power to indemnify the agent against that liability
under the provisions of this Section.
Section 10. FIDUCIARIES OF CORPORATE EMPLOYEE BENEFIT PLAN. This
Article does not apply to any proceeding against any trustee, investment
manager, or other fiduciary of an employee benefit plan in that person's
capacity as such, even though that person may also be an agent of the
corporation as defined in Section 1 of this Article. Nothing contained in this
Article shall limit any right to indemnification to
18
<PAGE>
which such a trustee, investment manager, or other fiduciary may be entitled by
contract or otherwise, which shall be enforceable to the extent permitted by
applicable law other than this Article.
Section 11. RIGHT TO INDEMNITY CONTINUES. The rights to indemnity
provided for in this Article shall continue as to a person who has ceased to be
a director, officer, employee, or agent and shall inure to the benefit of the
heirs, executors, and administrators of the person.
ARTICLE XII
MISCELLANEOUS
-------------
Section 1. REPRESENTATION OF SHARES IN OTHER CORPORATIONS. Shares of
other corporations standing in the name of the corporation may be voted or
represented and all incidents thereto may be exercised on behalf of the
corporation by the Chairman of the Board, the President or any Vice President
and the Secretary or an Assistant Secretary.
Section 2. SUBSIDIARY CORPORATIONS. Shares of the corporation owned
by a subsidiary shall not be entitled to vote on any matter. A subsidiary for
these purposes is defined as a corporation, the shares of which possessing more
than 25% of the total combined voting power of all classes of shares entitled to
vote, are owned directly or indirectly through one or more subsidiaries.
Section 3. ACCOUNTING YEAR. The accounting year of the corporation
shall be a calendar year unless otherwise fixed by resolution of the Board.
19
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CERTIFICATE OF INCORPORATOR OF ADOPTION OF BYLAWS:
- ---------------------------------------------------
I, the undersigned, do hereby certify:
That I am the Sole Incorporator of ICIFC Secured Assets Corp, a
California corporation, that the foregoing By-Laws, comprising nineteen (19)
pages, constitute the By-Laws of said corporation as duly adopted by Action of
the Incorporator of the corporation on July 1, 1996.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the
seal of said corporation on this 1st day of July, 1996.
By: /s/ Kasey Hannah
-------------------------------
Kasey Hannah
<PAGE>
EXHIBIT 4.1
-----------
<PAGE>
Exhibit 4.1
-----------
================================================================================
ICIFC SECURED ASSETS CORP.
Company,
[ICI FUNDING CORPORATION]
[NAME OF MASTER SERVICER]
Master Servicer,
and
[NAME OF TRUSTEE],
Trustee
POOLING AND SERVICING AGREEMENT
Dated as of_____________1, 199_
Mortgage Pass-Through Certificates
Series 199_-__
================================================================================
<PAGE>
TABLE OF CONTENTS
---------------
<TABLE>
<CAPTION>
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ARTICLE I
DEFINITIONS
<S> <C> <C>
SECTION 1.01. Defined Terms......................................................... 2
Accrued Certificate Interest.................................................... 2
Advance......................................................................... 2
Agreement....................................................................... 2
Anniversary..................................................................... 2
Assignment...................................................................... 2
Assignment Agreement............................................................ 3
Available Distribution Amount................................................... 3
Bankruptcy Amount............................................................... 3
Bankruptcy Code................................................................. 3
Bankruptcy Loss................................................................. 3
Business Day.................................................................... 3
Cash Liquidation................................................................ 3
Certificate..................................................................... 4
Certificate Account............................................................. 4
Certificate Account Deposit Date................................................ 4
Certificateholder............................................................... 4
Holder.......................................................................... 4
Certificate Owner............................................................... 4
Certificate Principal Balance................................................... 4
Certificate Register............................................................ 4
Class........................................................................... 4
Class A Certificate............................................................. 4
Class B Certificate............................................................. 5
Class B Percentage.............................................................. 5
Class R Certificate............................................................. 5
Closing Date.................................................................... 5
Code............................................................................ 5
Collateral Value................................................................ 5
Company......................................................................... 5
Corporate Trust Office.......................................................... 5
Credit Support Depletion Date................................................... 5
Custodial Account............................................................... 5
Cut-off Date.................................................................... 5
Debt Service Reduction.......................................................... 5
Default Loss.................................................................... 5
Deficient Valuation............................................................. 6
Definitive Certificate.......................................................... 6
Deleted Mortgage Loan........................................................... 6
Determination Date.............................................................. 6
Disqualified Organization....................................................... 6
Distribution Date............................................................... 6
Due Date........................................................................ 6
</TABLE>
i
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<TABLE>
<CAPTION>
Page
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<S> <C>
Due Period...................................................................... 6
Duff & Phelps................................................................... 6
Eligible Account................................................................ 6
Event of Default................................................................ 7
Excess Bankruptcy Loss.......................................................... 7
Excess Fraud Loss............................................................... 7
Excess Special Hazard Loss...................................................... 7
Extraordinary Events............................................................ 7
Special Hazard Loss............................................................. 7
Extraordinary Losses............................................................ 8
FDIC............................................................................ 8
FHLMC........................................................................... 8
Fitch........................................................................... 8
FNMA............................................................................ 8
Fraud Losses.................................................................... 8
Fraud Loss Amount............................................................... 8
Funding Date.................................................................... 8
Initial Certificate Principal Balance........................................... 8
Insurance Policy................................................................ 9
Insurance Proceeds.............................................................. 9
Late Collections................................................................ 9
Liquidation Proceeds............................................................ 9
Loan-to-Value Ratio............................................................. 9
Master Servicer................................................................. 9
Monthly Payment................................................................. 9
Moody's......................................................................... 9
Mortgage........................................................................ 9
Mortgage File................................................................... 9
Mortgage Loan................................................................... 9
Mortgage Loan Schedule.......................................................... 10
Mortgage Note................................................................... 11
Mortgage Rate................................................................... 11
Mortgaged Property.............................................................. 11
Mortgagor....................................................................... 11
Net Mortgage Rate............................................................... 11
Nonrecoverable Advance.......................................................... 11
Non-United States Person........................................................ 11
Notional Amount................................................................. 11
Officers' Certificate........................................................... 11
Opinion of Counsel.............................................................. 11
Optimal Percentage.............................................................. 11
Optimal Principal Distribution Amount........................................... 12
Original Senior Percentage...................................................... 12
OTS............................................................................. 12
Outstanding Mortgage Loan....................................................... 12
Ownership Interest.............................................................. 12
Pass-Through Rate............................................................... 12
Percentage Interest............................................................. 12
</TABLE>
ii
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<TABLE>
<CAPTION>
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<S> <C>
Permitted Instruments........................................................... 12
Permitted Transferee............................................................ 13
Person.......................................................................... 13
Pool Strip Rate................................................................. 13
Prepayment Assumption........................................................... 13
Prepayment Interest Shortfall................................................... 13
Prepayment Period............................................................... 14
Primary Hazard Insurance Policy................................................. 14
Primary Mortgage Insurance Policy............................................... 14
Principal Prepayment............................................................ 14
Purchase Price.................................................................. 14
Qualified Insurer............................................................... 14
Qualified Substitute Mortgage Loan.............................................. 14
Rating Agency................................................................... 15
Realized Loss................................................................... 15
Record Date..................................................................... 15
Regular Certificate............................................................. 15
Relief Act Interest Shortfall................................................... 16
REMIC........................................................................... 16
REMIC Provisions................................................................ 16
Remittance Report............................................................... 16
REO Acquisition................................................................. 16
REO Disposition................................................................. 16
REO Imputed Interest............................................................ 16
REO Proceeds.................................................................... 16
REO Property.................................................................... 16
Request for Release............................................................. 16
Required Insurance Policy....................................................... 16
Residual Certificate............................................................ 16
Responsible Officer............................................................. 16
Seller.......................................................................... 17
Seller's Warranty Certificate................................................... 17
Senior Accelerated Distribution Percentage...................................... 17
Senior Percentage............................................................... 17
Senior Principal Distribution Amount............................................ 18
Servicing Account............................................................... 18
Servicing Advances.............................................................. 18
Servicing Fee................................................................... 18
Servicing Fee Rate.............................................................. 18
Servicing Officer............................................................... 18
Single Certificate.............................................................. 18
Southern Pacific Funding........................................................ 18
Special Hazard Amount........................................................... 18
Special Hazard Percentage....................................................... 18
[Standard & Poor's]............................................................. 19
Startup Day..................................................................... 19
Stated Principal Balance........................................................ 19
Subordinate Principal Distribution Amount....................................... 19
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C> <C>
Sub-Servicer.................................................................... 19
Sub-Servicer Remittance Date.................................................... 19
Sub-Servicing Account........................................................... 19
Sub-Servicing Agreement......................................................... 19
Tax Returns..................................................................... 19
Transfer........................................................................ 20
Transferor...................................................................... 20
Trust Fund...................................................................... 20
Trustee......................................................................... 20
Trustee's Fee................................................................... 20
Uninsured Cause................................................................. 20
United States Person............................................................ 20
Voting Rights................................................................... 20
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
SECTION 2.01. Conveyance of Mortgage Loans....................................... 21
SECTION 2.02. Acceptance of the Trust Fund by the Trustee........................ 23
SECTION 2.03. Representations, Warranties and Covenants of the Master Servicer
and the Company.................................................... 24
SECTION 2.04. Representations and Warranties of the Seller; Repurchase and
Substitution....................................................... 26
SECTION 2.05. Issuance of Certificates Evidencing Interests in the Trust Fund.... 28
ARTICLE III
ADMINISTRATION AND SERVICING
OF THE TRUST FUND
SECTION 3.01. Master Servicer to Act as Master Servicer.......................... 29
SECTION 3.02. Sub-Servicing Agreements Between Master Servicer and Sub-
Servicers.......................................................... 30
SECTION 3.03. Successor Sub-Servicers............................................ 30
SECTION 3.04. Liability of the Master Servicer................................... 31
SECTION 3.05. No Contractual Relationship Between Sub-Servicers and Trustee or
Certificateholders................................................. 31
SECTION 3.06. Assumption or Termination of Sub-Servicing Agreements by
Trustee............................................................ 31
SECTION 3.07. Collection of Certain Mortgage Loan Payments....................... 31
SECTION 3.08. Sub-Servicing Accounts............................................. 32
SECTION 3.09. Collection of Taxes, Assessments and Similar Items; Servicing
Accounts........................................................... 32
SECTION 3.10. Custodial Account.................................................. 32
SECTION 3.11. Permitted Withdrawals From the Custodial Account................... 33
SECTION 3.12. Permitted Instruments.............................................. 35
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C> <C>
SECTION 3.13. Maintenance of Primary Mortgage Insurance and Primary Hazard
Insurance.......................................................... 35
SECTION 3.14. Enforcement of Due-on-Sale Clauses; Assumption Agreements.......... 36
SECTION 3.15. Realization Upon Defaulted Mortgage Loans.......................... 37
SECTION 3.16. Trustee to Cooperate; Release of Mortgage Files.................... 38
SECTION 3.17. Servicing Compensation............................................. 39
SECTION 3.18. Maintenance of Certain Servicing Policies.......................... 39
SECTION 3.19. Annual Statement as to Compliance.................................. 39
SECTION 3.20. Annual Independent Public Accountants' Servicing Statement......... 40
SECTION 3.21. Access to Certain Documentation.................................... 40
SECTION 3.22. Title, Conservation and Disposition of REO Property................ 41
SECTION 3.23. Additional Obligations of the Master Servicer...................... 42
SECTION 3.24. Additional Obligations of the Company.............................. 42
ARTICLE IV
PAYMENTS TO CERTIFICATEHOLDERS
SECTION 4.01. Certificate Account; Distributions................................. 44
SECTION 4.02. Statements to Certificateholders................................... 47
SECTION 4.03. Remittance Reports; Advances by the Master Servicer................ 48
SECTION 4.04. Allocation of Realized Losses...................................... 50
SECTION 4.05. Information Reports to be Filed by the Master Servicer............. 50
SECTION 4.06. Compliance with Withholding Requirements........................... 51
ARTICLE V
THE CERTIFICATE
SECTION 5.01. The Certificates................................................... 52
SECTION 5.02. Registration of Transfer and Exchange of Certificates.............. 52
ERISA.............................................................. 53
SECTION 5.03. Mutilated, Destroyed, Lost or Stolen Certificates.................. 56
SECTION 5.04. Persons Deemed Owners.............................................. 56
ARTICLE VI
THE COMPANY AND THE MASTER SERVICER
SECTION 6.01. Liability of the Company and the Master Servicer................... 57
SECTION 6.02. Merger, Consolidation or Conversion of the Company or the Master
Servicer........................................................... 57
SECTION 6.03. Limitation on Liability of the Company, the Master Servicer and
Others............................................................. 57
SECTION 6.04. Limitation on Resignation of the Master Servicer................... 58
</TABLE>
v
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<TABLE>
<CAPTION>
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<S> <C> <C>
ARTICLE VII
DEFAULT
SECTION 7.01. Events of Default.................................................. 59
Imperial........................................................... 60
SECTION 7.02. Trustee to Act; Appointment of Successor........................... 60
SECTION 7.03. Notification to Certificateholders................................. 61
SECTION 7.04. Waiver of Events of Default........................................ 61
ARTICLE VIII
CONCERNING THE TRUSTEE
SECTION 8.01. Duties of Trustee.................................................. 62
SECTION 8.02. Certain Matters Affecting the Trustee.............................. 63
SECTION 8.03. Trustee Not Liable for Certificates or Mortgage Loans.............. 64
SECTION 8.04. Trustee May Own Certificates....................................... 64
SECTION 8.05. Payment of Trustee's Fees.......................................... 64
SECTION 8.06. Eligibility Requirements for Trustee............................... 64
SECTION 8.07. Resignation and Removal of the Trustee............................. 65
SECTION 8.08. Successor Trustee.................................................. 65
SECTION 8.09. Merger or Consolidation of Trustee................................. 66
SECTION 8.10. Appointment of Co-Trustee or Separate Trustee...................... 66
ARTICLE IX
TERMINATION
SECTION 9.01. Termination Upon Repurchase or Liquidation of All Mortgage
Loans.............................................................. 68
SECTION 9.02. Additional Termination Requirements................................ 69
ARTICLE X
REMIC PROVISIONS
SECTION 10.01. REMIC Administration.............................................. 71
SECTION 10.02. Prohibited Transactions and Activities............................ 73
SECTION 10.03. Master Servicer and Trustee Indemnification....................... 73
ARTICLE XI
MISCELLANEOUS PROVISIONS
SECTION 11.01. Amendment......................................................... 74
SECTION 11.02. Recordation of Agreement; Counterparts............................ 75
SECTION 11.03. Limitation on Rights of Certificateholders........................ 75
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C> <C>
SECTION 11.04. Governing Law..................................................... 76
SECTION 11.05. Notices........................................................... 76
SECTION 11.06. Severability of Provisions........................................ 76
SECTION 11.07. Successors and Assigns; Third Party Beneficiary................... 76
SECTION 11.08. Article and Section Headings...................................... 77
SECTION 11.09. Notice to Rating Agencies and Certificateholder................... 77
</TABLE>
vii
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Signatures
Acknowledgments
Exhibit A-1 Form of Class A Certificate
Exhibit A-2 Form of Class B Certificate
Exhibit B Form of Class R Certificate
Exhibit C Form of Trustee Initial Certification
Exhibit D Form of Trustee Final Certification
Exhibit E Form of Remittance Report
Exhibit F-1 Request for Release
Exhibit F-2 Request for Release for Mortgage Loans Paid in Full
Exhibit G-1 Form of Investor Representation Letter
Exhibit G-2 Form of Transferor Representation Letter
Exhibit G-3 Transferor Affidavit and Agreement in connection with transfer of
Residual Certificates
Exhibit G-4 Transferee Affidavit and Agreement in connection with transfer of
Residual Certificates
Exhibit G-5 Form of Investor Representation Letter for Insurance Companies
Exhibit H Mortgage Loan Schedule
Exhibit I Seller's Warranty Certificate
Exhibit J Form of Notice Under Section 3.24
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This Pooling and Servicing Agreement, effective as of _______________ 1,
199_, among ICIFC SECURED ASSETS CORP., as the company (together with its
permitted successors and assigns, the "Company"), [NAME OF MASTER SERVICER] [ICI
FUNDING CORPORATION], as master servicer (together with its permitted successors
and assigns, the "Master Servicer"), and [NAME OF TRUSTEE], as trustee (together
with its permitted successors and assigns, the "Trustee"),
PRELIMINARY STATEMENT:
The Company intends to sell mortgage pass-through certificates
(collectively, the "Certificates"), to be issued hereunder in multiple classes
(each, a "Class"), which in the aggregate will evidence the entire beneficial
ownership interest in the Mortgage Loans (as defined herein). As provided
herein, the Master Servicer will make an election to treat the segregated pool
of assets described in the definition of Trust Fund (as defined herein), and
subject to this Agreement (including the Mortgage Loans but excluding the
Initial Monthly Payment Deposit), as a real estate mortgage investment conduit
(a "REMIC") for federal income tax purposes, and such segregated pool of assets
will be designated as the "Trust Fund." The Class A-1, Class A-2, Class A-3,
Class A-4, Class A-5, Class A-6, Class A-7 and Class B Certificates will
represent ownership of "regular interests" in the Trust Fund, and the Class R
Certificates will be the sole class of "residual interests" therein, for
purposes of the REMIC Provisions (as defined herein) under federal income tax
law.
The following table sets forth the designation, type, Pass-Through Rate,
aggregate Initial Certificate Principal Balance, initial ratings and certain
features for each Class of Certificates comprising the interests in the Trust
Fund created hereunder.
<TABLE>
<CAPTION>
AGGREGATE
INITIAL
PASS- CERTIFICATE INITIAL RATINGS
--------------------
THROUG PRINCIPAL
DESCRIPTION TYPE RATE BALANCE FEATURES [____] [____]
- ------------------------------------- --------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A-1 Senior ______% $_________ Senior ____ ____
Class A-2 Senior ______% $_________ Senior ____ ____
Class A-3 Senior ______% $_________ Senior ____ ____
Class A-4 Senior ______% $_________ Senior ____ ____
Class A-5 Senior/Fixed Strip ______% $_________ Senior/Interest Only ____ ____
Class A-6 Senior ______% $_________ Senior ____ ____
Class A-7 Senior/Variable Variable Rate $_________ Senior/Interest Only ____ ____
Strip
Class R Residual ______% $_________ Residual ____ ____
Class B Subordinate ______% $_________ Subordinate ____ ____
</TABLE>
The Mortgage Loans have an aggregate Stated Principal Balance as of the
Cut-off Date equal to $___________. The Mortgage Loans are fixed rate mortgage
loans having terms to maturity at origination or modification of not more than
30 years.
In consideration of the mutual agreements herein contained, the Company,
the Master Servicer and the Trustee agree as follows:
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ARTICLE I
DEFINITIONS
SECTION 1.01. Defined Terms.
Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the meanings specified in this
Article.
"Accrued Certificate Interest": With respect to each Distribution Date, as
to any Class A Certificate (other than the Class A-5 Certificates and Class A-7
Certificates) or any Class B Certificate, one month's interest accrued at the
then applicable Pass-Through Rate on the Certificate Principal Balance thereof
immediately prior to such Distribution Date. With respect to each Distribution
Date, as to the Class A-5 Certificates and Class A-7 Certificates, one month's
interest accrued at the then applicable Pass-Through Rate on the Notional Amount
thereof immediately prior to such Distribution Date. Accrued Certificate
Interest will be calculated on the basis of a 360-day year consisting of twelve
30-day months. In each case Accrued Certificate Interest on any Class of
Certificates will be reduced by the amount of (i) Prepayment Interest
Shortfalls, if any, which are not covered by payments by the Master Servicer
pursuant to Section 3.23 with respect to such Distribution Date, (ii) the
interest portion (adjusted to the related Net Mortgage Rate) of any of Realized
Losses (including Excess Special Hazard Losses, Excess Fraud Losses, Excess
Bankruptcy Losses and Extraordinary Losses) not allocated solely to one or more
specific Classes of Certificates pursuant to Section 4.04 (which, with respect
to the pro rata portion thereof allocated to the Class A-1, Class A-5 and Class
A-6 Certificates will be allocated first to the Class A-6 Certificates and
second to the Class A-1 and Class A-5 Certificates on a pro rata basis to the
extent such Realized Losses are Default Losses), (iii) the interest portion of
Advances previously made with respect to a Mortgage Loan or REO Property which
remained unreimbursed following the Cash Liquidation or REO Disposition of such
Mortgage Loan or REO Property that was 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 the subordination provided by the Class B
Certificates pursuant to Section 4.04, including interest that is not
collectible from the Mortgagor pursuant to the Relief Act or similar legislation
or regulations as in effect from time to time; with all such reductions
allocated among the Classes of Certificates, in proportion to their respective
amounts of Accrued Certificate Interest which would have resulted absent such
reductions. In addition to that portion of the reductions described in the
preceding sentence, Accrued Certificate Interest on the Class B Certificates
will be reduced by the interest portion (adjusted to the related Net Mortgage
Rate) of Realized Losses that are allocated solely to the Class B Certificates
pursuant to Section 4.04.
"Advance": As to any Mortgage Loan, any advance made by the Master Servicer
on any Distribution Date pursuant to Section 4.03.
"Agreement": This Pooling and Servicing Agreement and all amendments
hereof.
"Anniversary": Each anniversary of _____________ 1, 19__.
"Assignment": An assignment of Mortgage, notice of transfer or equivalent
instrument, in recordable form, which is sufficient under the laws of the
jurisdiction wherein the related Mortgaged Property is located to reflect of
record the sale of the Mortgage, which assignment, notice of transfer or
equivalent instrument may be in the form of one or more blanket assignments
covering Mortgages secured by Mortgaged Properties located in the same county,
if permitted by law.
"Assignment Agreement": The Assignment and Assumption Agreement, dated as
of ____________,
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199_, between [ICI Funding Corporation] and the Company relating to the transfer
and assignment of the Mortgage Loans.
"Available Distribution Amount": With respect to each Distribution
Date, the Available Distribution Amount will be an amount equal to (a) the sum
of (i) the balance on deposit in the Custodial Account as of the close of
business on the related Determination Date and (ii) the aggregate amount of any
Advances made, all required amounts pursuant to Section 3.22 and all amounts
required to be paid by the Master Servicer pursuant to Sections 3.13 and 3.23 by
deposits into the Certificate Account on the immediately preceding Certificate
Account Deposit Date, reduced by (b) the sum, as of the close of business on the
related Determination Date of (i) Monthly Payments collected but due during a
Due Period subsequent to the Due Period ending on the first day of the month of
the related Distribution Date, (ii) all interest or other income earned on
deposits in the Custodial Account, (iii) any other amounts reimbursable or
payable to the Master Servicer or any other Person pursuant to Section 3.11,
(iv) Insurance Proceeds, Liquidation Proceeds, Principal Prepayments, REO
Proceeds and the proceeds of Mortgage Loan purchases (or amounts received in
connection with substitutions) made pursuant to Section 2.02 and 2.04, in each
case received or made in the month of such Distribution Date and (v) the
Trustee's Fee.
"Bankruptcy Amount": As of any date of determination, an amount, equal to
the excess, if any, of (A) $_______, over (B) the aggregate amount of Bankruptcy
Losses allocated solely to one or more specific Classes of Certificates in
accordance with Section 4.04.
The Bankruptcy Amount may be further reduced by the Master Servicer
(including accelerating the manner in which such coverage is reduced) provided
that prior to any such reduction, the Master Servicer shall (i) obtain written
confirmation from each Rating Agency that such reduction shall not reduce the
rating assigned to any Class of Certificates by such Rating Agency below the
lower of the then-current rating or the rating assigned to such Certificates as
of the Closing Date by such Rating Agency and (ii) provide a copy of such
written confirmation to the Trustee.
"Bankruptcy Code": The United States Bankruptcy Code of 1978, as amended.
"Bankruptcy Loss": With respect to any Mortgage Loan, a Deficient Valuation
or Debt Service Reduction; provided, however, that a Deficient Valuation or a
Debt Service Reduction shall not be deemed a Bankruptcy Loss hereunder 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 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 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 any Deficient
Valuation or Debt Service Reduction.
"Business Day": Any day other than (i) a Saturday or a Sunday or (ii) a day
on which banking institutions in the State of ______________ or the State of
______________ (and such other state or states in which the Custodial Account or
the Certificate Account are at the time located) are required or authorized by
law or executive order to be closed.
"Cash Liquidation": As to any defaulted Mortgage Loan other than a Mortgage
Loan as to which an REO Acquisition occurred, the final receipt by or on behalf
of the Master Servicer of 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.
"Certificate": Any Class A, Class B or Class R Certificate.
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<PAGE>
"Certificate Account": The account or accounts created and maintained
pursuant to Section 4.01, which shall be entitled
"___________________________________, as trustee, in trust for the registered
holders of ICIFC Secured Assets Corp., Mortgage Pass-Through Certificates,
Series 199_-__" and which must be an Eligible Account.
"Certificate Account Deposit Date": The 20th day (or if such 20th day is
not a Business Day, the Business Day immediately preceding such 20th day) of the
month.
"Certificateholder" or "Holder": The Person in whose name a Certificate is
registered in the Certificate Register, except that, neither a Disqualified
Organization nor a Non-United States Person shall be a Holder of a Class R
Certificate for any purposes hereof and, solely for the purposes of giving any
consent pursuant to this Agreement, any Certificate registered in the name of
the Company or the Master Servicer or any affiliate thereof shall be deemed not
to be outstanding and the Voting Rights to which it is entitled shall not be
taken into account in determining whether the requisite percentage of Voting
Rights necessary to effect any such consent has been obtained, except as
otherwise provided in Section 11.01. The Trustee shall be entitled to rely upon
a certification of the Company or the Master Servicer in determining if any
Certificates are registered in the name of a respective affiliate.
"Certificate Owner": With respect to a Book-Entry Certificate, the Person
who is the beneficial owner of such Certificate, as reflected on the books of an
indirect participating brokerage firm for which a Company Participant acts as
agent, if any, and otherwise on the books of a Company Participant, if any, and
otherwise on the books of the Company.
"Certificate Principal Balance": With respect to each Class A Certificate
(other than a Class A-5 Certificate or Class A-7 Certificate), on any date of
determination, an amount equal to (i) the Initial Certificate Principal Balance
of such Certificate as specified on the face thereof, minus (ii) the sum of (x)
the aggregate of all amounts previously distributed with respect to such
Certificate (or any predecessor Certificate) and applied to reduce the
Certificate Principal Balance thereof pursuant to Section 4.02(b) and (y) the
aggregate of all reductions in Certificate Principal Balance deemed to have
occurred in connection with Realized Losses which were previously allocated to
such Certificate (or any predecessor Certificate) pursuant to Section 4.04. With
respect to the Class B Certificates, on any date of determination, an amount
equal to the Percentage Interest evidenced by such Certificate times the excess,
if any, of (A) the then aggregate Stated Principal Balance of the Mortgage Loans
over (B) the then aggregate Certificate Principal Balance of all other Classes
of Certificates then outstanding. The Class A-5 Certificates, Class A-7
Certificates and Class R Certificates have no Certificate Principal Balance.
"Certificate Register": The register maintained pursuant to Section 5.02.
"Class": Collectively, all of the Certificates bearing the same
designation.
"Class A Certificate": Any one of the Class A-1, Class A-2, Class A-3,
Class A-4, Class A-5, Class A-6 or Class A-7 Certificates, executed by the
Trustee and authenticated by the Certificate Registrar substantially in the form
annexed hereto as Exhibit A-1, each such Certificate evidencing an interest
designated as a "regular interest" in the Trust Fund for purposes of the REMIC
Provisions.
"Class B Certificate": The Class B Certificates executed by the Trustee and
authenticated by the Certificate Registrar substantially in the form annexed
hereto as Exhibit A-2 and evidencing an interest designated as a "regular
interest" in the Trust Fund for purposes of the REMIC Provisions.
"Class B Percentage": With respect to any Distribution Date, the lesser of
(i) 100% minus the Senior
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<PAGE>
Percentage and (ii) a fraction, expressed as a percentage, the numerator of
which is the aggregate Certificate Principal Balance of the Class B Certificates
immediately prior to such date and the denominator of which is the aggregate
Stated Principal Balance of all of the Mortgage Loans (or related REO
Properties) immediately prior to such Distribution Date.
"Class R Certificate": Any one of the Class R Certificates executed and
delivered by the Trustee substantially in the form annexed hereto as Exhibit B
and evidencing an interest designated as a "residual interest" in the REMIC for
purposes of the REMIC Provisions.
"Closing Date": _______________ ___, 19__.
"Code": The Internal Revenue Code of 1986.
"Collateral Value": The appraised value of a Mortgaged Property based upon
the lesser of (i) the appraisal made at the time of the origination of the
related Mortgage Loan, or (ii) the sales price of such Mortgaged Property at
such time of origination. With respect to a Mortgage Loan the proceeds of which
were used to refinance an existing mortgage loan, the appraised value of the
Mortgaged Property based upon the appraisal (as reviewed and approved by the
Seller) obtained at the time of refinancing.
"Company": ICIFC Secured Assets Corp., or its successor in interest.
"Corporate Trust Office": The principal office of the Trustee at which at
any particular time its corporate trust business with respect to this Agreement
shall be administered, which office at the date of the execution of this
instrument is located at ____________________________________________________,
Attention: __________________ Series 199_-__.
"Credit Support Depletion Date": The first Distribution Date on which the
Senior Percentage equals 100%.
"Custodial Account": The custodial account or accounts created and
maintained pursuant to Section 3.10 in a depository institution, as custodian
for the holders of the Certificates, for the holders of certain other interests
in mortgage loans serviced or sold by the Master Servicer and for the Master
Servicer, into which the amounts set forth in Section 3.10 shall be deposited
directly. Any such account or accounts shall be an Eligible Account.
"Cut-off Date": _____________ 1, 199_.
"Debt Service Reduction": With respect to any Mortgage Loan, a reduction in
the scheduled Monthly Payment for such Mortgage Loan by a court of competent
jurisdiction in a proceeding under the Bankruptcy Code, except such a reduction
constituting a Deficient Valuation or any reduction that results in a permanent
forgiveness of principal.
"Default Loss": Any Realized Loss that is attributable to the related
Mortgagor's failure to make any payment of principal or interest as required
under the Mortgage Note, excluding 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 provided by the Class
B Certificates pursuant to Section 4.04.
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<PAGE>
"Deficient Valuation": With respect to any Mortgage Loan, a valuation by a
court of competent jurisdiction of the Mortgaged Property in an amount less than
the then outstanding indebtedness under the Mortgage Loan, which valuation
results from a proceeding initiated by the Mortgagor under the Bankruptcy Code.
"Definitive Certificate": Any definitive, fully registered Certificate.
"Deleted Mortgage Loan": A Mortgage Loan replaced or to be replaced with a
Qualified Substitute Mortgage Loan.
"Determination Date": The 15th day (or if such 15th day is not a Business
Day, the Business Day immediately preceding such 15th day) of the month of the
related Distribution Date.
"Disqualified Organization": Any of the following: (i) the United States,
any State or any political subdivision thereof, any possession of the United
States or any agency or instrumentality of any of the foregoing (other than an
instrumentality which is a corporation, if all of its activities are subject to
tax and, except for the FHLMC, a majority of its board of directors is not
selected by any such governmental unit), (ii) a foreign government,
international organization or any agency or instrumentality of either the
foregoing, (iii) an organization (except certain farmers' cooperatives described
in Section 521 of the Code) which is exempt from tax imposed by Chapter 1 of the
Code (unless such organization is subject to the tax imposed by Section 511 of
the Code on unrelated business taxable income), (iv) rural electric and
telephone cooperatives described in Section 1381 of the Code or (v) any other
Person so designated by the Trustee based on an Opinion of Counsel obtained by
the Trustee, at the expense of the Trust Fund, (which opinion shall be sought
only if the Trustee has actual knowledge that the holding of an Ownership
Interest in a Class R Certificate by such Person may cause the Trust Fund or any
Person having an Ownership Interest in any Class of Certificates, other than
such Person, to incur a liability for any federal tax imposed under the Code
that would not otherwise be imposed but for the Transfer of an Ownership
Interest in a Class R Certificate to such Person). The terms "United States,"
"State" and "international organization" shall have the meanings set forth in
Section 7701 of the Code or successor provisions.
"Distribution Date": The 25th day of any month, or if such 25th day is not
a Business Day, the Business Day immediately following such 25th day commencing
on _______ 25, 19__.
"Due Date": The first day of the month of the related Distribution Date.
"Due Period": With respect to any Distribution Date, the period commencing
on the second day of the month preceding the month of such Distribution Date
(or, with respect to the first Due Period, the day following the Cut-off Date)
and ending on the related Due Date.
["Duff & Phelps": Duff & Phelps Credit Rating Company or its successor in
interest.]
"Eligible Account": An account maintained with a federal or state chartered
depository institution (i) the short-term obligations of which are rated by each
of the Rating Agencies in its highest rating at the time of any deposit therein,
or (ii) insured by the FDIC (to the limits established by such Corporation), the
uninsured deposits in which account are otherwise secured such that, as
evidenced by an Opinion of Counsel (obtained by and at the expense of the Person
requesting that the account be held pursuant to this clause (ii)) delivered to
the Trustee prior to the establishment of such account, the Certificateholders
will have a claim with respect to the funds in such account and a perfected
first priority security interest against any collateral (which shall be limited
to Permitted Instruments, each of which shall mature not later than the Business
Day immediately preceding the Distribution Date next following the date of
investment in such collateral or the
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<PAGE>
Distribution Date if such Permitted Instrument is an obligation of the
institution that maintains the Certificate Account or Custodial Account)
securing such funds that is superior to claims of any other depositors or
general creditors of the depository institution with which such account is
maintained or (iii) a trust account or accounts maintained with a federal or
state chartered depository institution or trust company with trust powers acting
in its fiduciary capacity or (iv) an account or accounts of a depository
institution acceptable to the Rating Agencies (as evidenced in writing by the
Rating Agencies that use of any such account as the Custodial Account or the
Certificate Account will not have an adverse effect on the then-current ratings
assigned to the Classes of the Certificates then rated by the Rating Agencies).
Eligible Accounts may bear interest.
"Event of Default": One or more of the events described in Section 7.01.
"Excess Bankruptcy Loss": Any Bankruptcy Loss, or portion thereof, which
exceeds the then applicable Bankruptcy Amount.
"Excess Fraud Loss": Any Fraud Loss, or portion thereof, which exceeds the
then applicable Fraud Loss Amount.
"Excess Special Hazard Loss": Any Special Hazard Loss, or portion thereof,
that exceeds the then applicable Special Hazard Amount.
"Extraordinary Events": Any of the following conditions with respect to a
Mortgaged Property or Mortgage Loan causing or resulting in a loss which causes
the liquidation of such Mortgage Loan:
(a) losses that are of a type that would be covered by the fidelity
bond and the errors and omissions insurance policy required to be
maintained pursuant to Section 3.18 but are in excess of the coverage
maintained thereunder;
(b) nuclear reaction or nuclear radiation or radioactive
contamination, all whether controlled or uncontrolled, and whether such
loss be direct or indirect, proximate or remote or be in whole or in part
caused by, contributed to or aggravated by a peril covered by the
definition of the term "Special Hazard Loss";
(c) hostile or warlike action in time of peace or war, including
action in hindering, combatting or defending against an actual, impending
or expected attack:
1. by any government or sovereign power, de jure or de facto,
or by any authority maintaining or using military, naval or air
forces; or
2. by military, naval or air forces; or
3. by an agent of any such government, power, authority or
forces;
(d) any weapon of war employing atomic fission or radioactive force
whether in time of peace or war; or
(e) insurrection, rebellion, revolution, civil war, usurped power or
action taken by governmental authority in hindering, combatting or
defending against such an occurrence, seizure or destruction under
quarantine or customs regulations, confiscation by order of any government
or public authority; or risks of contraband or illegal transportation or
trade.
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"Extraordinary Losses": Any loss incurred on a Mortgage Loan caused by or
resulting from an Extraordinary Event.
"FDIC": Federal Deposit Insurance Corporation or any successor.
"FHLMC": Federal Home Loan Mortgage Corporation or any successor.
["Fitch": Fitch Investors Service, Inc., or its successor in interest-]
"FNMA": Federal National Mortgage Association or any successor.
"Fraud Losses": Any Realized Loss sustained by reason of a default arising
from fraud, dishonesty or misrepresentation in connection with the related
Mortgage Loan.
"Fraud Loss Amount": As of any date of determination after the Cut-off
Date, an amount equal to: (X) up to and including the [first] anniversary of the
Cut-off Date an amount equal to ______% of the aggregate outstanding principal
balance of all of the Mortgage Loans as of the Cut-off Date minus the aggregate
amount of Fraud Losses allocated to the Class B Certificates in accordance with
Section 4.04 since the Cut-off Date up to such date of determination, (Y) from
the [first] to the 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 outstanding principal balance of
all of the Mortgage Loans as of the most recent anniversary of the Cut-off Date
minus (2) the Fraud Losses allocated solely to the Class B Certificates in
accordance with Section 4.04 since the most recent anniversary of the Cut-off
Date up to such date of determination. On and after the fifth anniversary of
the Cutoff Date the Fraud Loss Amount shall be zero.
The Fraud Loss Amount may be further reduced by the Master Servicer
(including accelerating the manner in which such coverage is reduced) provided
that prior to any such reduction, the Master Servicer shall (i) obtain written
confirmation from each Rating Agency that such reduction shall not reduce the
rating assigned to any Class of Certificates by such Rating Agency below the
lower of the then-current rating or the rating assigned to such Certificates as
of the Closing Date by such Rating Agency and (ii) provide a copy of such
written confirmation to the Trustee.
"Funding Date": With respect to each Mortgage Loan, the date on which
funds were advanced by or on behalf of the Seller and interest began to accrue
thereunder.
["ICI Funding Corporation": ICI Funding Corporation, a ___________________
corporation, and any successor thereto.]
"Initial Certificate Principal Balance": With respect to each Class of
Certificates, the Certificate Principal Balance of such Class of Certificates as
of the Cut-off Date as set forth in the Preliminary Statement hereto.
"Insurance Policy": With respect to any Mortgage Loan, any insurance
policy which is required to be maintained from time to time under this Agreement
in respect of such Mortgage Loan.
"Insurance Proceeds": Proceeds paid by any insurer pursuant to the Primary
Mortgage Insurance Policy and any other insurance policy covering a Mortgage
Loan to the extent such proceeds are not applied to the restoration of the
related Mortgaged Property or released to the Mortgagor in accordance with the
procedures that the Master Servicer would follow in servicing mortgage loans
held for its own account.
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<PAGE>
"Late Collections": With respect to any Mortgage Loan, all amounts
received during any Due Period, whether as late payments of Monthly Payments or
as Insurance Proceeds, Liquidation Proceeds or otherwise, which represent late
payments or collections of Monthly Payments due but delinquent for a previous
Due Period and not previously recovered.
"Liquidation Proceeds": Amounts (other than Insurance Proceeds) received
by the Master Servicer in connection with the taking of an entire Mortgaged
Property by exercise of the power of eminent domain or condemnation or in
connection with the liquidation of a defaulted Mortgage Loan through trustee's
sale, foreclosure sale or otherwise, other than amounts received in respect of
REO Property.
"Loan-to-Value Ratio": As of any date, the fraction, expressed as a
percentage, the numerator of which is the current principal balance of the
related Mortgage Loan at the date of determination and the denominator of which
is the Collateral Value of the related Mortgaged Property.
"Master Servicer": [ICI Funding Corporation] [Name of Master Servicer], or
any successor master servicer appointed as herein provided.
"Monthly Payment": With respect to any Mortgage Loan, the scheduled
monthly payment of principal and interest on such Mortgage Loan which is payable
by a Mortgagor from time to time under the related Mortgage Note as originally
executed (after adjustment, if any, for Principal Prepayments and for Deficient
Valuations occurring prior to such Due Date, and after any adjustment by reason
of any bankruptcy or similar proceeding or any moratorium or similar waiver or
grace period).
["Moody's": Moody's Investors Service, Inc. or its successor in interest.]
"Mortgage": The mortgage, deed of trust or any other instrument securing
the Mortgage Loan.
"Mortgage File": The mortgage documents listed in Section 2.01 pertaining
to a particular Mortgage Loan and any additional documents required to be added
to the Mortgage File pursuant to this Agreement; provided, that whenever the
term "Mortgage File" is used to refer to documents actually received by the
Trustee, such term shall not be deemed to include such additional documents
required to be added unless they are actually so added.
"Mortgage Loan": Each of the mortgage loans, transferred and assigned to
the Trustee pursuant to Section 2.01 or Section 2.03 and from time to time held
in the Trust Fund, the Mortgage Loans originally so transferred, assigned and
held being identified in the Mortgage Loan Schedule attached hereto as Exhibit H
(and any Qualified Substitute Mortgage Loans). As used herein, the term
"Mortgage Loan" includes the related Mortgage Note and Mortgage.
"Mortgage Loan Schedule": As of any date of determination, the schedule of
Mortgage Loans included in the Trust Fund. The initial schedule of Mortgage
Loans with accompanying information transferred on the Closing Date to the
Trustee as part of the Trust Fund for the Certificates, attached hereto as
Exhibit H (as amended from time to time to reflect the addition of Qualified
Substitute Mortgage Loans) (and, for purposes of the Trustee's review of the
Mortgage Files pursuant to Section 2.02, in computer-readable form as delivered
to the Trustee), which list shall set forth the following information, if
applicable, with respect to each Mortgage Loan:
(i) the loan number and name of the Mortgagor;
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(ii) the street address, city, state and zip code of the Mortgaged
Property;
(iii) the Mortgage Rate;
(iv) the maturity date;
(v) the original principal balance;
(vi) the first payment date;
(vii) the type of Mortgaged Property;
(viii) the Monthly Payment in effect as of the Cut-off Date;
(ix) the principal balance as of the Cut-off Date;
(x) the occupancy status;
(xi) the purpose of the Mortgage Loan;
(xii) the Collateral Value of the Mortgaged Property;
(xiii) the original term to maturity;
(xiv) the paid-through date of the Mortgage Loan;
(xv) the Loan-to-Value Ratio; and
(xvi) whether or not the Mortgage Loan was underwritten pursuant to a
limited documentation program.
The Mortgage Loan Schedule shall also set forth the total of the amounts
described under (ix) above for all of the Mortgage Loans. The Mortgage Loan
Schedule may be in the form of more than one schedule, collectively setting
forth all of the information required. With respect to any Qualified Substitute
Mortgage Loan, the item described in clauses (viii) shall be set forth as the
date of substitution.
"Mortgage Note": The note or other evidence of the indebtedness of a
Mortgagor under a Mortgage Loan.
"Mortgage Rate": With respect to any Mortgage Loan, the annual rate at
which interest accrues on such Mortgage Loan.
"Mortgaged Property": The underlying property securing a Mortgage Loan.
"Mortgagor": The obligor or obligors on a Mortgage Note.
"Net Mortgage Rate": As to each Mortgage Loan, a per annum rate of
interest equal to the related Mortgage Rate as in effect from time to time minus
the sum of the Servicing Fee Rate and the rate at which the Trustee's Fee
accrues.
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"Nonrecoverable Advance": Any Advance previously made or proposed to be
made in respect of a Mortgage Loan which, in the good faith judgment of the
Master Servicer, will not or, in the case of a proposed Advance, would not be
ultimately recoverable from related Late Collections, Insurance Proceeds,
Liquidation Proceeds, REO Proceeds or amounts reimbursable to the Master
Servicer pursuant to Section 4.01(b). The determination by the Master Servicer
that it has made a Nonrecoverable Advance or that any proposed Advance would
constitute a Nonrecoverable Advance, shall be evidenced by an Officers'
Certificate delivered to the Company and the Trustee.
"Non-United States Person": Any Person other than a United States Person.
"Notional Amount": As of any Distribution Date, with respect to the Class
A-5 Certificates and the Class A-7 Certificates, an amount equal to the
aggregate Certificate Principal Balance of all Classes of Certificates
immediately prior to such date.
"Officers' Certificate": A certificate signed by the Chairman of the
Board, the Vice Chairman of the Board, the President or a vice president and by
the Treasurer, the Secretary, or one of the assistant treasurers or assistant
secretaries of the Master Servicer or of the Sub-Servicer and delivered to the
Company and Trustee.
"Opinion of Counsel": A written opinion of counsel, who may be counsel for
the Company or the Master Servicer, reasonably acceptable to the Trustee; except
that any opinion of counsel relating to (a) the qualification of any account
required to be maintained pursuant to this Agreement as an Eligible Account, (b)
qualification of the Trust Fund as a REMIC, (c) compliance with the REMIC
Provisions or (d) resignation of the Master Servicer pursuant to Section 6.04
must be an opinion of counsel who (i) is in fact independent of the Company and
the Master Servicer, (ii) does not have any direct financial interest or any
material indirect financial interest in the Company or the Master Servicer or in
an affiliate of either and (iii) is not connected with the Company or the Master
Servicer as an officer, employee, director or person performing similar
functions.
"Optimal Percentage": A fraction, expressed as a percentage, the numerator
of which is the 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 Class A
Certificates immediately prior to such Distribution Date.
"Optimal Principal Distribution Amount": An amount equal to the product of
(i) the then applicable Optimal Percentage and (ii) the Senior Principal
Distribution Amount.
"Original Senior Percentage": _______%, which is the fraction, expressed as
a percentage, the numerator of which is the aggregate Initial Certificate
Principal Balance of the Class A Certificates and the denominator of which is
the aggregate Stated Principal Balance of the Mortgage Loans.
"OTS": Office of Thrift Supervision or any successor.
"Outstanding Mortgage Loan": As to any Due Date, a Mortgage Loan
(including an REO Property) which was not the subject of a Principal Prepayment
in full, Cash Liquidation or REO Disposition and which was not purchased or
substituted for prior to such Due Date pursuant to Sections 2.02 or 2.04.
"Ownership Interest": As to any Certificate, any ownership or security
interest in such Certificate, including any interest in such Certificate as the
Holder thereof and any other interest therein, whether direct or indirect, legal
or beneficial, as owner or as pledgee.
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"Pass-Through Rate": With respect to the Class A Certificates (other than
the Class A-7 Certificates) and Class B Certificates and any Distribution Date,
the per annum rate set forth in the Preliminary Statement hereto. With respect
to the Class A-7 Certificates and any Distribution Date, a rate equal to the
weighted average, expressed as a percentage, of the Pool Strip Rates of all
Mortgage Loans in the Trust Fund as of the Due Date in the month immediately
preceding the month in which such Distribution Date occurs, weighted on the
basis of the respective Stated Principal Balances of such Mortgage Loans, which
Stated Principal Balances shall be the Stated Principal Balances of such
Mortgage Loans at the close of business on the immediately preceding
Distribution Date after giving effect to the distributions thereon allocable to
principal (or, in the case of the initial Distribution Date, at the close of
business on the Cut-off Date). With respect to the Class A-7 Certificates and
the initial Distribution Date, the Pass-Through Rate is equal to ______% per
annum.
"Percentage Interest": With respect to any Certificate (other than a Class
A-5, Class A-7 or Class R Certificate), the undivided percentage ownership
interest in the related Class evidenced by such Certificate, which percentage
ownership interest shall be equal to the initial Certificate Principal Balance
thereof divided by the aggregate Initial Certificate Principal Balance of all of
the Certificates of the same Class. With respect to a Class A-5 or Class A-7
Certificate, the undivided percentage ownership interest in the related Class
evidenced by such Certificate, which percentage ownership interest shall be
equal to the initial Notional Amount thereof divided by the aggregate initial
Notional Amount of all of the Certificates of the same Class. With respect to a
Class R Certificate, the interest in distributions to be made with respect to
such Class evidenced thereby, expressed as a percentage, as stated on the face
of each such Certificate.
"Permitted Instruments": Any one or more of the following:
(i)(a) direct obligations of, or obligations fully guaranteed as to
principal and interest by, the United States or any agency or
instrumentality thereof, provided such obligations are backed by the full
faith and credit of the United States and (b) direct obligations of, and
obligations guaranteed as to timely payment by FHLMC or FNMA if, at the
time of investment, they are assigned the highest credit rating by the
Rating Agencies;
(ii) repurchase obligations (the collateral for which is held by a
third party or the Trustee) with respect to any security described in
clause (i) above, provided that the short-term unsecured obligations of the
party agreeing to repurchase such obligations are at the time rated by each
Rating Agency in one of its two highest long-term rating categories;
(iii) certificates of deposit, time deposits, demand deposits and
bankers' acceptances of any bank or trust company incorporated under the
laws of the United States or any state thereof or the District of Columbia,
provided that the short-term commercial paper of such bank or trust company
(or, in the case of the principal depository institution in a depository
institution holding company, the long-term unsecured debt obligations of
the depository institution holding company) at the date of acquisition
thereof has been rated by each Rating Agency in its highest short-term
rating;
(iv) commercial paper (having original maturities of not more than
nine months) of any corporation incorporated under the laws of the United
States or any state thereof or the District of Columbia which on the date
of acquisition has been rated by each Rating Agency in its highest short-
term rating;
(v) a money market fund or a qualified investment fund rated by
each Rating Agency in its highest rating available; and
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(vi) if previously confirmed in writing to the Trustee, any other
obligation or security acceptable to each Rating Agency in respect of
mortgage pass-through certificates rated in each Rating Agency's highest
rating category;
provided, that no such instrument shall be a Permitted Instrument if such
instrument evidences either (a) the right to receive interest only payments with
respect to the obligations underlying such instrument or (b) both principal and
interest payments derived from obligations underlying such instrument where the
principal and interest payments with respect to such instrument provide a yield
to maturity exceeding 120% of the yield to maturity at par of such underlying
obligation.
"Permitted Transferee": Any transferee of a Class R Certificate other than
a Disqualified Organization or a Non-United States Person.
"Person": Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Pool Strip Rate": With respect to each Mortgage Loan, the rate per annum
equal to the Net Mortgage Rate thereon minus _____% per annum.
"Prepayment Assumption": A prepayment assumption of _____% of the standard
prepayment assumption, used for determining the accrual of original issue
discount and market discount and premium on the Certificates for federal income
tax purposes. The standard prepayment assumption assumes a constant rate of
prepayment of mortgage loans 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, increasing by an additional 0.2% per annum in each succeeding month until
the thirtieth month, and a constant 6% per annum rate of prepayment thereafter
for the life of such mortgage loans.
"Prepayment Interest Shortfall": With respect to any Distribution Date,
for each Mortgage Loan that was the subject of a partial Principal Prepayment, a
Principal Prepayment in full, or of a Cash Liquidation or an REO Disposition
during the related Prepayment Period, an amount equal to the amount of interest
that would have accrued at the applicable Net Mortgage Rate (i) in the case of a
Principal Prepayment in full, Cash Liquidation or REO Disposition on the
principal balance of such Mortgage Loan immediately prior to such prepayment (or
liquidation), commencing on the date of prepayment (or liquidation) and ending
on the last day of the month of prepayment or liquidation or (ii) in the case of
a partial Principal Prepayment, on the amount of such prepayment, commencing on
the date as of which the prepayment is applied and ending on the last day of the
month of prepayment.
"Prepayment Period": As to any Distribution Date, the calendar month
preceding the month in which such Distribution Date occurs.
"Primary Hazard Insurance Policy": Each primary hazard insurance policy
required to be maintained pursuant to Section 3.13.
"Primary Mortgage Insurance Policy": Each primary mortgage insurance
policy required to be maintained pursuant to Section 3.13.
"Principal Prepayment": Any payment of principal made by the Mortgagor on
a Mortgage Loan which is received in advance of its scheduled Due Date and which
is not accompanied by an amount of interest representing scheduled interest due
on any date or dates in any month or months subsequent to the month of
prepayment.
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"Purchase Price": With respect to any Mortgage Loan (or REO Property)
required to be purchased pursuant to Section 2.02 or 2.04, an amount equal to
the sum of (i) 100% of the Stated Principal Balance thereof, (ii) unpaid accrued
interest (or REO Imputed Interest) at the sum of the applicable Net Mortgage
Rate, the rate at which the Trustee's Fee accrues on the Stated Principal
Balance thereof outstanding during each Due Period that such interest was not
paid or advanced, from the date through which interest was last paid by the
Mortgagor or advanced and distributed to Certificateholders together with unpaid
related Servicing Fees from the date through which interest was last paid by the
Mortgagor, in each case to the first day of the month in which such Purchase
Price is to be distributed, plus (iii) the aggregate of all Advances made in
respect thereof that were not previously reimbursed.
"Qualified Insurer": An insurance company duly qualified as such under the
laws of the state of its principal place of business and each state having
jurisdiction over such insurer in connection with the insurance policy issued by
such insurer, duly authorized and licensed in such states to transact business
in such states and to write the insurance provided by the insurance policy
issued by it, approved as an insurer by the Master Servicer, as a FNMA approved
mortgage insurer and having a claims paying ability rating of at least "AA" by
________________ and which is acceptable to _______________. Any replacement
insurer with respect to a Mortgage Loan must have at least as high a claims
paying ability rating by ______________ and _______________ as the insurer it
replaces had on the Closing Date.
"Qualified Substitute Mortgage Loan": A Mortgage Loan substituted by the
Company for a Deleted Mortgage Loan which must, on the date of such
substitution, as confirmed in an Officers' Certificate delivered to the Trustee,
(i) have an outstanding principal balance, after deduction of the principal
portion of the monthly payment due in the month of substitution (or in the case
of a substitution of more than one Mortgage Loan for a Deleted Mortgage Loan, an
aggregate outstanding principal balance, after such deduction), not in excess of
the Stated Principal Balance of the Deleted Mortgage Loan (the amount of any
shortfall to be deposited by the Master Servicer, in the Custodial Account in
the month of substitution); (ii) have a Mortgage Rate and a Net Mortgage Rate no
lower than and not more than 1% per annum higher than the Mortgage Rate and Net
Mortgage Rate, respectively, of the Deleted Mortgage Loan as of the date of
substitution; (iii) have a remaining term to stated maturity not greater than
(and not more than one year less than) that of the Deleted Mortgage Loan; (iv)
comply with each representation and warranty set forth in Section 2 of the
Seller's Warranty Certificate; (v) have a Loan-to-Value Ratio as of the date of
substitution equal to or lower than the Loan-to-Value Ratio of the Deleted
Mortgage Loan as of such date; and (vi) be covered under a Primary Insurance
Policy if such Qualified Substitute Mortgage Loan has a Loan-to-Value Ratio in
excess of 80%. In the event that one or more mortgage loans are substituted for
one or more Deleted Mortgage Loans, the amounts described in clause (i) hereof
shall be determined on the basis of aggregate principal balances, the Mortgage
Rates described in clause (ii) hereof shall be determined on the basis of
weighted average Mortgage Rates, the Net Mortgage Rates described in clause (ii)
hereof shall be satisfied as to each such mortgage loan, the terms described in
clause (iii) shall be determined on the basis of weighted average remaining
terms to maturity, the Loan-to-Value Ratios described in clause (v) hereof shall
be satisfied as to each such mortgage loan and, except to the extent otherwise
provided in this sentence, the representations and warranties described in
clause (iv) hereof must be satisfied as to each Qualified Substitute Mortgage
Loan or in the aggregate, as the case may be.
"Rating Agency": [Standard & Poor's] [Moody's] [Fitch] [Duff & Phelps].
If either agency or a successor is no longer in existence, "Rating Agency" shall
be such statistical credit rating agency, or other comparable Person, designated
by the Company, notice of which designation shall be given to the Trustee and
the Master Servicer. References herein to the two highest long term debt rating
categories of a Rating Agency shall mean "AA" or better in the case of [Standard
& Poor's] [Fitch] [Duff & Phelps] and "Aa2" or better in the case of Moody's and
references herein to the highest short-term debt rating of a Rating Agency shall
mean "D-1 " or better in the case of [Duff & Phelps] and "A-1" in the case of
[Standard & Poor's,] and in the case
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of any other Rating Agency such references shall mean such rating categories
without regard to any plus or minus.
"Realized Loss": With respect to any Mortgage Loan or related REO Property
as to which a Cash Liquidation or REO Disposition has occurred, an amount (not
less than zero) equal to (i) the Stated Principal Balance of the Mortgage Loan
as of the date of Cash Liquidation or REO Disposition, plus (ii) interest (and
REO Imputed Interest, if any) at the related Net Mortgage Rate from the Due Date
as to which interest was last paid or advanced to Certificateholders up to the
date of the Cash Liquidation or REO Disposition on the Stated Principal Balance
of such Mortgage Loan outstanding during each Due Period that such interest was
not paid or advanced, minus (iii) the proceeds, if any, received during the
month in which such Cash Liquidation or REO Disposition occurred, to the extent
applied as recoveries of interest at the related Net Mortgage Rate and to
principal of the Mortgage Loan, net of the portion thereof reimbursable to the
Master Servicer or any Sub-Servicer with respect to related Advances not
previously reimbursed. With respect to each Mortgage Loan which has become the
subject of a Deficient Valuation, the difference between the principal balance
of the Mortgage Loan outstanding immediately prior to such Deficient Valuation
and the principal balance of the Mortgage Loan as reduced by the Deficient
Valuation. With respect to each Mortgage Loan which has become the subject of a
Debt Service Reduction, the amount of such Debt Service Reduction.
"Record Date": The last Business Day of the month immediately preceding
the month of the related Distribution Date.
"Regular Certificate": Any of the Certificates other than the Class R
Certificates.
"Relief Act": The Soldiers' and Sailors' Civil Relief Act of 1940, as
amended.
"Relief Act Interest Shortfall": With respect to any Distribution Date and
any Mortgage Loan, any reduction in the amount of interest collectible on such
Mortgage Loan for the most recently ended calendar month as a result of the
application of the Relief Act.
"REMIC": A "real estate mortgage investment conduit" within the meaning of
Section 860D of the Code.
"REMIC Provisions": Provisions of the federal income tax law relating to
real estate mortgage investment conduits, which appear at Sections 860A through
86OG of Subchapter M of Chapter 1 of the Code, and related provisions, and
proposed, temporary and final regulations and published rulings, notices and
announcements promulgated thereunder, as the foregoing may be in effect from
time to time.
"Remittance Report": A report prepared by the Master Servicer providing
the information set forth in Exhibit E attached hereto.
"REO Acquisition": The acquisition by the Master Servicer on behalf of the
Trustee for the benefit of the Certificateholders of any REO Property pursuant
to Section 3.15.
"REO Disposition": The receipt by the Master Servicer of Insurance
Proceeds, Liquidation Proceeds and other payments and recoveries (including
proceeds of a final sale) which the Master Servicer expects to be finally
recoverable from the sale or other disposition of the REO Property.
"REO Imputed Interest": As to any REO Property, for any period, an amount
equivalent to interest (at the Mortgage Rate that would have been applicable to
the related Mortgage Loan had it been outstanding) on the unpaid principal
balance of the Mortgage Loan as of the date of acquisition thereof (as such
balance
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is reduced by any income from the REO Property treated as a recovery of
principal pursuant to Section 3.15).
"REO Proceeds": Proceeds, net of directly related expenses, received in
respect of any REO Property (including, without limitation, proceeds from the
rental of the related Mortgaged Property and of any REO Disposition), which
proceeds are required to be deposited into the Custodial Account as and when
received.
"REO Property": A Mortgaged Property acquired by the Master Servicer
through foreclosure or deed-in-lieu of foreclosure in connection with a
defaulted Mortgage Loan.
"Request for Release": A release signed by a Servicing Officer, in the
form of Exhibits F-1 or F-2 attached hereto.
"Required Insurance Policy": With respect to any Mortgage Loan, any
Insurance Policy or any other insurance policy that is required to be maintained
from time to time under this Agreement or pursuant to the provisions of a
Mortgage Loan.
"Residual Certificate": Any of the Class R Certificates.
"Responsible Officer": When used with respect to the Trustee, the Chairman
or Vice Chairman of the Board of Directors or Trustees, the Chairman or Vice
Chairman of the Executive or Standing Committee of the Board of Directors or
Trustees, the President, the Chairman of the Committee on Trust Matters, any
vice president, any assistant vice president, the Secretary, any assistant
secretary, the Treasurer, any assistant treasurer, the Cashier, any assistant
cashier, any trust officer or assistant trust officer, the Controller and any
assistant controller or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also, with respect to a particular matter, any other officer to whom such matter
is referred because of such officer's knowledge of and familiarity with the
particular subject.
"Seller": [ICI Funding Corporation] and its successors and assigns.
"Seller's Warranty Certificate": The Seller's Warranty Certificate of the
Seller, dated ______ __, 19__, in the form of Exhibit I attached hereto.
"Senior Accelerated Distribution Percentage": With respect to any
Distribution Date, the percentage indicated below:
<TABLE>
<CAPTION>
DISTRIBUTION DATE SENIOR ACCELERATED DISTRIBUTION PERCENTAGE
- --------------------------------------------------------- -------------------------------------------------------
<S> <C> <C> <C>
_____________ ______ through _____________ ______ ............ 100%
_____________ ______ through _____________ ______ ............ Senior Percentage, plus 70% of the difference
between 100% and the Senior Percentage
_____________ ______ through _____________ ______ ............ Senior Percentage, plus 60% of the difference
between 100% and the Senior Percentage
_____________ ______ through _____________ ______ ............ Senior Percentage, plus 40% of the difference
between 100% and the Senior Percentage
_____________ ______ through _____________ ______ ............ Senior Percentage, plus 20% of the difference
between 100% and the Senior Percentage
_____________ ______ and thereafter ............................ Senior Percentage
</TABLE>
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<PAGE>
provided, however, (i) that any scheduled reduction to the Senior Accelerated
Distribution Percentage described above shall not occur as of any Distribution
Date unless either (a)(1) the outstanding principal balance of Mortgage Loans
delinquent [60] days or more averaged over the last six months, as a percentage
of the aggregate outstanding principal balance of all Mortgage Loans averaged
over the last [six] months, does not exceed [2%] and (2) 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 the Closing
Date are less than [30%, 35%, 40%, 45% or 50%], respectively, of the Initial
Certificate Principal Balance of the Class B Certificates or (b)(1) the
outstanding principal balance of the Mortgage Loans delinquent [60] days or more
averaged over the last six months, as a percentage of the aggregate outstanding
principal balance of all Mortgage Loans averaged over the last [six] months,
does not exceed [4%] and (2) Realized Losses on the Mortgage Loans to date for
such Distribution Date are less than [10%] of the Initial Certificate Principal
Balance of the Class B Certificates and (ii) that for any Distribution Date on
which the Senior Percentage is greater than the Original Senior Percentage, the
Senior Accelerated Distribution Percentage for such Distribution Date shall be
100%. Notwithstanding the foregoing, upon the reduction of the aggregate
Certificate Principal Balance of the Class A Certificates to zero, the Senior
Accelerated Distribution Percentage shall thereafter be 0%.
"Senior Percentage": As of any Distribution Date, the lesser of 100% and a
fraction, expressed as a percentage, the numerator of which is the aggregate
Certificate Principal Balance of the Class A Certificates immediately prior to
such Distribution Date and the denominator of which is the aggregate Stated
Principal Balance of all of the Mortgage Loans (or related REO Properties)
immediately prior to such Distribution Date.
"Senior Principal Distribution Amount": As to any Distribution Date, the
lesser of (a) the balance of the Available Distribution Amount remaining after
the distribution of all amounts required to be distributed pursuant to Section
4.02(b)(i) and (b) the sum of the amounts required to be distributed to the
Class A Certificateholders on such Distribution Date pursuant to Section
4.02(b)(ii) and (vi).
"Servicing Account": The account or accounts created and maintained
pursuant to Section 3.09.
"Servicing Advances": All customary, reasonable and necessary "out of
pocket" costs and expenses incurred in connection with a default, delinquency or
other unanticipated event by the Master Servicer in the performance of its
servicing obligations, including, but not limited to, the cost of (i) the
preservation, restoration and protection of a Mortgaged Property, (ii) any
enforcement or judicial proceedings, including foreclosures, (iii) the
management and liquidation of any REO Property and (iv) compliance with the
obligations under the second paragraph of Section 3.01 and Section 3.09.
"Servicing Fee": As to each Mortgage Loan, an amount, payable out of any
payment of interest on the Mortgage Loan, equal to interest at the related
Servicing Fee Rate on the Stated Principal Balance of such Mortgage Loan for the
calendar month preceding the month in which the payment is due (alternatively,
in the event such payment of interest accompanies a Principal Prepayment in full
made by the Mortgagor, interest for the number of days covered by such payment
of interest).
"Servicing Fee Rate": With respect to each Mortgage Loan, the per annum
rate of ______%.
"Servicing Officer": Any officer of the Master Servicer involved in, or
responsible for, the administration and servicing of the Mortgage Loans, whose
name appears on a list of servicing officers furnished to the Trustee by the
Master Servicer, as such list may from time to time be amended.
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"Single Certificate": A Certificate of any Class evidencing the minimum
denomination for Certificates of such Class as set forth in Section 5.01.
"Special Hazard Amount": As of any Distribution Date, an amount equal to
$___________ (the initial "Special Hazard Amount") minus the sum of (i) the
aggregate amount of Special Hazard Losses allocated solely to the Class B
Certificates pursuant to Section 4.04 and (ii) the Adjustment Amount (as defined
below) as most recently calculated. For each anniversary of the Cut-off Date,
the Adjustment Amount shall be calculated and shall be equal to the amount, if
any, by which the amount calculated in accordance with the preceding sentence
(without giving effect to the deduction of the Adjustment Amount for such
anniversary) exceeds the greater of (A) the product of the Special Hazard
Percentage for such anniversary multiplied by the outstanding principal balance
of all of the Mortgage Loans on such anniversary and (B) twice the outstanding
principal balance of the Mortgage Loan which has the largest outstanding
principal balance on such Anniversary.
"Special Hazard Percentage": As of each anniversary of the Cut-off Date,
the greater of (i) 1% and (ii) the largest percentage obtained by dividing the
aggregate outstanding principal balance on such anniversary of the Mortgage
Loans secured by Mortgaged Properties located in a single, five-digit zip code
area in the State of California by the outstanding principal balance of all the
Mortgage Loans on such anniversary.
"[Standard & Poor's": Standard & Poor's Ratings Group, a division of
McGraw Hill, Inc. or its successor in interest.]
"Startup Day": The day designated as such pursuant to Article X hereof.
"Stated Principal Balance": With respect to any Mortgage Loan or related
REO Property at any given time, (i) the principal balance of the Mortgage Loan
outstanding as of the Cut-off Date, after application of principal payments due
on or before such date, whether or not received, minus (ii) the sum of (a) the
principal portion of the Monthly Payments due with respect to such Mortgage Loan
or REO Property during each Due Period ending prior to the most recent
Distribution Date which were received or with respect to which an Advance was
made, (b) all Principal Prepayments with respect to such Mortgage Loan or REO
Property, and all Insurance Proceeds, Liquidation Proceeds and net income from a
REO Property to the extent applied by the Master Servicer as recoveries of
principal in accordance with Section 3.15 with respect to such Mortgage Loan or
REO Property, which were distributed pursuant to Section 4.01 on any previous
Distribution Date and (c) any Realized Loss with respect thereto allocated
pursuant to Section 4.04 for any previous Distribution Date.
"Subordinate Principal Distribution Amount": With respect to any
Distribution Date and the Class B Certificates, (a) the sum of (i) the product
of (x) the Class B Percentage and (y) the aggregate of the amounts calculated
for such Distribution Date under clauses (1), (2) and (3) of Section 4. 01
(b)(ii)(A); (ii) the principal collections described in Section 4. 01 (b)(ii)(B)
to the extent such collections are not otherwise distributed to the Senior
Certificates; and (iii) the product of (x) 100% minus the Senior Accelerated
Distribution Percentage and (z) the aggregate of all Principal Prepayments in
Full and Curtailments received in the related Prepayment Period; provided,
however, that such amount shall in no event exceed the outstanding Certificate
Principal Balance of the Class B Certificates immediately prior to such date.
"Sub-Servicer": Any Person with which the Master Servicer has entered into
a Sub-Servicing Agreement and which meets the qualifications of a Sub-Servicer
pursuant to Section 3.02.
"Sub-Servicer Remittance Date": The 18th day of each month, or if such day
is not a Business Day, the immediately preceding Business Day.
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<PAGE>
"Sub-Servicing Account": An account established by a Sub-Servicer which
meets the requirements set forth in Section 3.08 and is otherwise acceptable to
the Master Servicer.
"Sub-Servicing Agreement": The written contract between the Master
Servicer and a Sub-Servicer and any successor Sub-Servicer relating to servicing
and administration of certain Mortgage Loans as provided in Section 3.02.
"Tax Returns": The federal income tax return on Internal Revenue Service
Form 1066, U.S. Real Estate Mortgage Investment Conduit Income Tax Return,
including Schedule Q thereto, Quarterly Notice to Residual Interest Holders of
REMIC Taxable Income or Net Loss Allocation, or any successor forms, to be filed
on behalf of the Trust Fund due to its classification as a REMIC under the REMIC
Provisions, together with any and all other information, reports or returns that
may be required to be furnished to the Certificateholders or filed with the
Internal Revenue Service or any other governmental taxing authority under any
applicable provisions of federal, state or local tax laws.
"Transfer": Any direct or indirect transfer, sale, pledge, hypothecation
or other form of assignment of any Ownership Interest in a Certificate.
"Transferor": Any Person who is disposing by Transfer of any Ownership
Interest in a Certificate.
"Trust Fund": The segregated pool of assets subject hereto, constituting
the primary trust created hereby and to be administered hereunder, with respect
to which a REMIC election is to be made, consisting of: (i) the Mortgage Loans
(exclusive of payments of principal and interest due on or before the Cut-off
Date, if any) as from time to time are subject to this Agreement and all
payments under and proceeds of the Mortgage Loans, together with all documents
included in the related Mortgage File, subject to Section 2.01; (ii) such funds
or assets as from time to time are deposited in the Custodial Account and the
Certificate Account; (iii) any REO Property; (iv) the Primary Mortgage Insurance
Policies, if any, Primary Hazard Insurance Policies and all other Insurance
Policies with respect to the Mortgage Loans; and (v) the Company's interest in
respect of the representations and warranties made by the Seller in the Seller's
Warranty Certificate as assigned to the Trustee pursuant to Section 2.04 hereof.
"Trustee": [Name of Trustee], or its successor in interest, or any
successor trustee appointed as herein provided.
"Trustee's Fee": As to each Mortgage Loan and as the Distribution Date, an
amount, payable out of any payment of interest on the Mortgage Loan, equal to
interest at ______% per annum on the Stated Principal Balance of such Mortgage
Loan as of the Due Date immediately preceding the month in which such
Distribution Date occurs.
"Uninsured Cause": Any cause of damage to property subject to a Mortgage
such that the complete restoration of such property is not fully reimbursable by
the hazard insurance policies or flood insurance policies required to be
maintained pursuant to Section 3.13.
"United States Person": 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 includable 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.
The term "United States" shall have the meaning set forth in Section 7701 of the
Code or successor provisions.
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"Voting Rights": The portion of the voting rights of all of the
Certificates which is allocated to any Certificate. ______% of all of the Voting
Rights shall be allocated among Holders of the Certificates, respectively, other
than the Class A-5, Class A-7 and Class R Certificates, in proportion to the
outstanding Certificate Principal Balances of their respective Certificates; and
the Holders of the Class A-5, Class A-7 and Class R Certificates shall be
entitled to ___%, ___% and ___% of all of the Voting Rights, respectively,
allocated among the Certificates of each such Class in accordance with their
respective Percentage Interests.
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ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
SECTION 2.01. Conveyance of Mortgage Loans.
The Company, as of the Closing Date, and concurrently with the execution
and delivery hereof, does hereby assign, transfer, sell, set over and otherwise
convey to the Trustee without recourse all the right, title and interest of the
Company in and to the Mortgage Loans identified on the Mortgage Loan Schedule
and all other assets included or to be included in the Trust Fund for the
benefit of the Certificateholders. Such assignment includes all principal and
interest received by the Master Servicer on or with respect to the Mortgage
Loans (other than payment of principal and interest due on or before the Cut-off
Date).
In connection with such transfer and assignment, the Company has requested
the Seller to deliver to, and deposit with the Trustee, the following documents
or instruments:
(i) the original Mortgage Note, endorsed by the Seller "Pay to
the order of [Name of Trustee], as trustee without recourse" or to "Pay to
the order of [Name of Trustee], as trustee for holders of ICIFC Secured
Assets Corp., Mortgage PassThrough Certificates, Series 199_-_, without
recourse" with all intervening endorsements showing a complete chain of
endorsements from the originator to the Person endorsing it to the Trustee;
(ii) the original recorded Mortgage or, if the original Mortgage
has not been returned from the applicable public recording office, a copy
of the Mortgage certified by the Seller to be a true and complete copy of
the original Mortgage submitted to the title insurance company for
recording;
(iii) a duly executed original Assignment of the Mortgage endorsed
by the Seller, without recourse, to "[Name of Trustee], as trustee" or to
"[Name of Trustee], as trustee for holders of ICIFC Secured Assets Corp.,
Mortgage Pass-Through Certificates, Series 199_-_", with evidence of
recording thereon;
(iv) the original recorded Assignment or Assignments of the
Mortgage showing a complete chain of assignment from the originator thereof
to the Person assigning it to the Trustee or, if any such Assignment has
not been returned from the applicable public recording office, a copy of
such Assignment certified by the Seller to be a true and complete copy of
the original Assignment submitted to the title insurance company for
recording;
(v) the original lender's title insurance policy, or, if such
policy has not been issued, any one of an original or a copy of the
preliminary title report, title binder or title commitment on the Mortgaged
Property with the original policy of the insurance to be delivered promptly
following the receipt thereof;
(vi) the original of any assumption, modification, extension or
guaranty agreement;
(vii) the original or a copy of the private mortgage insurance
policy or original certificate of private mortgage insurance, if
applicable; and
(viii) if any of the documents or instruments referred to above
were executed on behalf of the Mortgagor by another Person, the original
power of attorney or other instrument that
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authorized and empowered such Person to sign, or a copy thereof certified
by the Seller (or by an officer of the applicable title insurance or escrow
company) to be a true and correct copy of the original.
The Seller is obligated pursuant to the Seller's Warranty Certificate to
deliver to the Trustee: (a) either the original recorded Mortgage, or in the
event such original cannot be delivered by the Seller, a copy of such Mortgage
certified as true and complete by the appropriate recording office, in those
instances where a copy thereof certified by the Seller was delivered to the
Trustee pursuant to clause (ii) above; and (b) either the original Assignment or
Assignments of the Mortgage, with evidence of recording thereon, showing a
complete chain of assignment from the originator to the Seller, or in the event
such original cannot be delivered by the Seller, a copy of such Assignment or
Assignments certified as true and complete by the appropriate recording office,
in those instances where copies thereof certified by the Seller were delivered
to the Trustee pursuant to clause (iv) above. Notwithstanding anything to the
contrary contained in this Section 2.01, in those instances where the public
recording office retains the original Mortgage after it has been recorded, the
Seller shall be deemed to have satisfied its obligations hereunder upon delivery
to the Trustee of a copy of such Mortgage certified by the public recording
office to be a true and complete copy of the recorded original thereof.
If any Assignment is lost or returned unrecorded to the Trustee because of
any defect therein, the Seller is required to prepare a substitute Assignment or
cure such defect, as the case may be, and the Trustee shall cause such
Assignment to be recorded in accordance with this paragraph.
The Seller is required, as described in the Seller's Warranty Certificate,
to deliver to the Trustee the original of any documents assigned to the Trustee
pursuant to this Section 2.01 not later than 120 days after the Closing Date.
All original documents relating to the Mortgage Loans which are not
delivered to the Trustee, to the extent delivered by the Seller to the Master
Servicer, are and shall be held by the Master Servicer in trust for the benefit
of the Trustee on behalf of the Certificateholders.
Except as may otherwise expressly be provided herein, neither the Company,
the Master Servicer nor the Trustee shall (and the Master Servicer shall ensure
that no Sub-Servicer shall) assign, sell, dispose of or transfer any interest in
the Trust Fund or any portion thereof, or permit the Trust Fund or any portion
thereof to be subject to any lien, claim, mortgage, security interest, pledge or
other encumbrance of, any other Person.
It is intended that the conveyance of the Mortgage Loans by the Company to
the Trustee as provided in this Section be, and be construed as, a sale of the
Mortgage Loans by the Company to the Trustee for the benefit of the
Certificateholders. It is, further, not intended that such conveyance be deemed
a pledge of the Mortgage Loans by the Company to the Trustee to secure a debt or
other obligation of the Company. However, in the event that the Mortgage Loans
are held to be property of the Company, or if for any reason this Agreement is
held or deemed to create a security interest in the Mortgage Loans, then it is
intended that, (a) this Agreement shall also be deemed to be a security
agreement within the meaning of Articles 8 and 9 of the New York Uniform
Commercial Code and the Uniform Commercial Code of any other applicable
jurisdiction; (b) the conveyance provided for in this Section shall be deemed to
be (1) a grant by the Company to the Trustee of a security interest in all of
the Company's right (including the power to convey title thereto), title and
interest, whether now owned or hereafter acquired, in and to (A) the Mortgage
Loans, including the Mortgage Notes, the Mortgages, any related insurance
policies and all other documents in the related Mortgage Files, (B) all amounts
payable to the holders of the Mortgage Loans in accordance with the terms
thereof and (C) all proceeds of the conversion, voluntary or involuntary, of the
foregoing into cash, instruments, securities or other property, including
without limitation all amounts from time to time held or
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invested in the Certificate Account or the Custodial Account, whether in the
form of cash, instruments, securities or other property and (2) an assignment by
the Company to the Trustee of any security interest in any and all of the
Seller's right (including the power to convey title thereto), title and
interest, whether now owned or hereafter acquired, in and to the property
described in the foregoing clauses (1)(A) through (C) granted by [ICI Funding
Corporation] to the Company pursuant to the Assignment Agreement; (c) the
possession by the Trustee or its agent of Mortgage Notes and such other items of
property as constitute instruments, money, negotiable documents or chattel paper
shall be deemed to be "possession by the secured party" or possession by a
purchaser or a person designated by such secured party, for purposes of
perfecting the security interest pursuant to the New York Uniform Commercial
Code and the Uniform Commercial Code of any other applicable jurisdiction
(including, without limitation, Sections 9-305, 8-313 or 8-321 thereof); and (d)
notifications to persons holding such property, and acknowledgments, receipts or
confirmations from persons holding such property, shall be deemed notifications
to, or acknowledgments, receipts or confirmations from, financial
intermediaries, bailees or agents (as applicable) of the Trustee for the purpose
of perfecting such security interest under applicable law. The Company and the
Trustee shall, to the extent consistent with this Agreement, take such actions
as may be necessary to ensure that, if this Agreement were deemed to create a
security interest in the Mortgage Loans, such security interest would be deemed
to be a perfected security interest of first priority under applicable law and
will be maintained as such throughout the term of the Agreement.
SECTION 2.02. Acceptance of the Trust Fund by the Trustee.
The Trustee acknowledges receipt (subject to any exceptions noted in the
Initial Certification described below) of the documents referred to in Section
2.01 above and all other assets included in the Trust Fund and declares that it
holds and will hold such documents and the other documents delivered to it
constituting the Mortgage Files, and that it holds or will hold such other
assets included in the Trust Fund (to the extent delivered or assigned to the
Trustee), in trust for the exclusive use and benefit of all present and future
Certificateholders.
The Trustee agrees, for the benefit of the Certificateholders, to review
each Mortgage File on or before the Closing Date to ascertain that all documents
required to be delivered to it are in its possession, and the Trustee agrees to
execute and deliver to the Company and the Master Servicer on the Closing Date
an Initial Certification in the form annexed hereto as Exhibit C to the effect
that, as to each Mortgage Loan listed in the Mortgage Loan Schedule (other than
any Mortgage Loan paid in full or any Mortgage Loan specifically identified in
such certification as not covered by such certification), (i) all documents
required to be delivered to it pursuant to this Agreement with respect to such
Mortgage Loan are in its possession, (ii) such documents have been reviewed by
it and appear regular on their face and relate to such Mortgage Loan and (iii)
based on its examination and only as to the foregoing documents, the information
set forth in items (i) - (vi) and (xiii) of the definition of the "Mortgage Loan
Schedule" accurately reflects information set forth in the Mortgage File.
Neither the Trustee nor the Master Servicer shall be under any duty to determine
whether any Mortgage File should include any of the documents specified in
clause (vi) of Section 2.01. Neither the Trustee nor the Master Servicer shall
be under any duty or obligation to inspect, review or examine said documents,
instruments, certificates or other papers to determine that the same are
genuine, enforceable or appropriate for the represented purpose or that they
have actually been recorded or that they are other than what they purport to be
on their face.
Within 90 days of the Closing Date the Trustee shall deliver to the Company
and the Master Servicer a Final Certification in the form annexed hereto as
Exhibit D evidencing the completeness of the Mortgage Files, with any applicable
exceptions noted thereon.
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If in the process of reviewing the Mortgage Files and preparing the
certifications referred to above the Trustee finds any document or documents
constituting a part of a Mortgage File to be missing or defective in any
material respect, the Trustee shall promptly notify the Seller, the Master
Servicer and the Company. The Trustee shall promptly notify the Seller of such
defect and request that the Seller cure any such defect within 60 days from the
date on which the Seller was notified of such defect, and if the Seller does not
cure such defect in all material respects during such period, request that the
Seller purchase such Mortgage Loan from the Trust Fund on behalf of the
Certificateholders at the Purchase Price within 90 days after the date on which
the Seller was notified of such defect. It is understood and agreed that the
obligation of the Seller to cure a material defect in, or purchase any Mortgage
Loan as to which a material defect in a constituent document exists shall
constitute the sole remedy respecting such defect available to
Certificateholders or the Trustee on behalf of Certificateholders. The Purchase
Price for the purchased Mortgage Loan shall be deposited or caused to be
deposited upon receipt by the Master Servicer in the Custodial Account and, upon
receipt by the Trustee of written notification of such deposit signed by a
Servicing Officer, the Trustee shall release or cause to be released to the
Seller the related Mortgage File and shall execute and deliver such instruments
of transfer or assignment, in each case without recourse, as the Seller shall
require as necessary to vest in the Seller ownership of any Mortgage Loan
released pursuant hereto and at such time the Trustee shall have no further
responsibility with respect to the related Mortgage File.
SECTION 2.03. Representations, Warranties and Covenants of the Master
Servicer and the Company.
(a) The Master Servicer hereby represents and warrants to and covenants
with the Company and the Trustee for the benefit of Certificateholders that:
(i) The Master Servicer is, and throughout the term hereof shall
remain, a duly organized, validly existing and in good standing under the
laws of the State of (except as otherwise permitted pursuant to Section
6.02), the Master Servicer is, and shall remain, in compliance with the
laws of each state in which any Mortgaged Property is located to the extent
necessary to perform its obligations under this Agreement, and the Master
Servicer is, and shall remain, approved to sell mortgage loans to and
service mortgage loans for FNMA and FHLMC;
(ii) The execution and delivery of this Agreement by the Master
Servicer, and the performance and compliance with the terms of this
Agreement by the Master Servicer, will not violate the Master Servicer's
articles of incorporation or bylaws or constitute a default (or an event
which, with notice or lapse of time, or both, would constitute a default)
under, or result in the breach of, any material agreement or other
instrument to which it is a party or which is applicable to it or any of
its assets;
(iii) The Master Servicer has the full power and authority to
enter into and consummate all transactions contemplated by this Agreement,
has duly authorized the execution, delivery and performance of this
Agreement, and has duly executed and delivered this Agreement;
(iv) This Agreement, assuming due authorization, execution and
delivery by the Company and the Trustee, constitutes a valid, legal and
binding obligation of the Master Servicer, enforceable against the Master
Servicer in accordance with the terms hereof, subject to (A) applicable
bankruptcy, insolvency, reorganization, moratorium and other laws affecting
the enforcement of creditors' rights generally, and (B) general principles
of equity, regardless of whether such enforcement is considered in a
proceeding in equity or at law;
(v) The Master Servicer is not in violation of, and its
execution and delivery of this
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Agreement and its performance and compliance with the terms of this
Agreement will not constitute a violation of, any law, any order or decree
of any court or arbiter, or any order, regulation or demand of any federal,
state or local governmental or regulatory authority, which violation is
likely to affect materially and adversely either the ability of the Master
Servicer to perform its obligations under this Agreement or the financial
condition of the Master Servicer;
(vi) No litigation is pending or, to the best of the Master
Servicer's knowledge, threatened against the Master Servicer which would
prohibit its entering into this Agreement or performing its obligations
under this Agreement or is likely to affect materially and adversely either
the ability of the Master Servicer to perform its obligations under this
Agreement or the financial condition of the Master Servicer;
(vii) The Master Servicer will comply in all material respects in
the performance of this Agreement and with all reasonable rules and
requirements of each insurer under each Insurance Instrument;
(viii) The execution of this Agreement and the performance of the
Master Servicer's obligations hereunder do not require any license, consent
or approval of any state or federal court, agency, regulatory authority or
other governmental body having jurisdiction over the Master Servicer, other
than such as have been obtained; and
(ix) No information, certificate of an officer, statement
furnished in writing or report delivered to the Company, any affiliate of
the Company or the Trustee by the Master Servicer will, to the knowledge of
the Master Servicer, contain any untrue statement of a material fact or
omit a material fact necessary to make the information, certificate,
statement or report not misleading; and
It is understood and agreed that the representations, warranties and
covenants set forth in this Section 2.03(a) shall survive the execution and
delivery of this Agreement, and shall inure to the benefit of the Company, the
Trustee and the Certificateholders. Upon discovery by the Company, the Trustee
or the Master Servicer of a breach of any of the foregoing representations,
warranties and covenants that materially and adversely affects the interests of
the Company or the Trustee, the party discovering such breach shall give prompt
written notice to the other parties.
(b) The Company hereby represents and warrants to the Master Servicer and
the Trustee for the benefit of Certificateholders that as of the Closing Date
(or, if otherwise specified below, as of the date so specified):
(i) Immediately prior to the assignment of the Mortgage Loans to
the Trustee, the Company had good title to, and was the sole owner of, each
Mortgage Loan free and clear of any pledge, lien, encumbrance or security
interest (other than rights to servicing and related compensation) and such
assignment validly transfers ownership of the Mortgage Loans to the Trustee
free and clear of any pledge, lien, encumbrance or security interest;
(ii) No Mortgage Loan is one month or more delinquent in payment
of principal and interest as of the Cut-off Date and no Mortgage Loan has
been so delinquent more than once in the 12-month period prior to the Cut-
off Date;
(iii) The information set forth in the Mortgage Loan Schedule with
respect to each Mortgage Loan or the Mortgage Loans, as the case may be, is
true and correct in all material respects at the date or dates respecting
which such information is furnished;
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(iv) The Mortgage Loans are fully-amortizing, fixed-rate mortgage
loans with level Monthly Payments due on the first day of each month and
terms to maturity at origination or modification of not more than 30 years;
(v) Each Mortgage Loan secured by a Mortgaged Property with a
Loan-to-Value Ratio at origination in excess of 80% is the subject of a
Primary Mortgage Insurance Policy that insures that portion of the
principal balance thereof that exceeds the amount equal to 75% of the
appraised value of the related Mortgaged Property. Each such Primary
Mortgage Insurance Policy is in full force and effect and the Trustee is
entitled to the benefits thereunder; and
(vi) The representations and warranties of the Seller with
respect to the Mortgage Loans and the remedies therefor are as set forth in
the Seller's Warranty Certificate.
[Other representations and warranties as applicable.]
It is understood and agreed that the representations and warranties set forth in
this Section 2.03(b) shall survive delivery of the respective Mortgage Files to
the Trustee.
Upon discovery by either the Company, the Master Servicer or the Trustee of
a breach of any representation or warranty set forth in this Section 2.03 which
materially and adversely affects the interests of the Certificateholders in any
Mortgage Loan, the party discovering such breach shall give prompt written
notice to the other parties.
SECTION 2.04. Representations and Warranties of the Seller; Repurchase
and Substitution.
The Company hereby assigns to the Trustee for the benefit of
Certificateholders its interest in respect of the representations and warranties
made by the Seller in the Seller's Warranty Certificate or the exhibits thereto.
Insofar as the Seller's Warranty Certificate relates to such representations and
warranties and any remedies provided thereunder for any breach of such
representations and warranties, such right, title and interest may be enforced
by the Trustee on behalf of the Certificateholders. Upon the discovery by the
Company, the Master Servicer or the Trustee of a breach of any of the
representations and warranties made in the Seller's Warranty Certificate in
respect of any Mortgage Loan which materially and adversely affects the
interests of the Certificateholders in such Mortgage Loan, the party discovering
such breach shall give prompt written notice to the other parties. The Trustee
shall promptly notify the Seller of such breach and request that such Seller
shall, within 90 days from the date that the Company, the Seller or the Trustee
was notified of such breach, either (i) cure such breach in all material
respects or (ii) purchase such Mortgage Loan from the Trust Fund at the Purchase
Price and in the manner set forth in Section 2.02; provided that in the case of
such breach, the Seller shall have the option to substitute a Qualified
Substitute Mortgage Loan or Loans for such Mortgage Loan if such substitution
occurs within two years following the Closing Date. Any such substitution must
occur within 90 days from the date the Seller was notified of the breach if such
90 day period expires before two years following the Closing Date. In the event
that the Seller elects to substitute a Qualified Substitute Mortgage Loan or
Loans for a Deleted Mortgage Loan pursuant to this Section 2.04, the Seller
shall deliver to the Trustee for the benefit of the Certificateholders with
respect to such Qualified Substitute Mortgage Loan or Loans, the original
Mortgage Note, the Mortgage, an Assignment of the Mortgage in recordable form,
and such other documents and agreements as are required by Section 2.01, with
the Mortgage Note endorsed as required by Section 2.01. No substitution will be
made in any calendar month after the Determination Date for such month. Monthly
Payments due with respect to Qualified Substitute Mortgage Loans in the month of
substitution shall not be part of the Trust Fund and will be retained by the
Master Servicer and remitted by the Master Servicer to the Seller on the next
succeeding Distribution Date.
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For the month of substitution, distributions to Certificateholders will include
the Monthly Payment due on a Deleted Mortgage Loan for such month and thereafter
the Seller shall be entitled to retain all amounts received in respect of such
Deleted Mortgage Loan. The Company shall amend or cause to be amended the
Mortgage Loan Schedule for the benefit of the Certificateholders to reflect the
removal of such Deleted Mortgage Loan and the substitution of the Qualified
Substitute Mortgage Loan or Loans and the Company shall deliver the amended
Mortgage Loan Schedule, to the Trustee. Upon such substitution, the Qualified
Substitute Mortgage Loan or Loans shall be subject to the terms of this
Agreement in all respects, the Seller shall be deemed to have made the
representations and warranties with respect to the Qualified Substitute Mortgage
Loan contained in the Seller's Warranty Certificate as of the date of
substitution, and the Company shall be deemed to have made with respect to any
Qualified Substitute Mortgage Loan or Loans, as of the date of substitution, the
representations and warranties set forth in Section 2.03 hereof, and the Seller
shall be obligated to repurchase or substitute for any Qualified Substitute
Mortgage Loan as to which a repurchase or substitution obligation has occurred
pursuant to Section 3 of the Seller's Warranty Certificate.
In connection with the substitution of one or more Qualified Substitute
Mortgage Loans for one or more Deleted Mortgage Loans, the Master Servicer will
determine the amount (if any) by which the aggregate principal balance of all
such Qualified Substitute Mortgage Loans as of the date of substitution is less
than the aggregate Stated Principal Balance of all such Deleted Mortgage Loans
(in each case after application of the principal portion of the Monthly Payments
due in the month of substitution that are to be distributed to
Certificateholders in the month of substitution). The Seller shall provide the
Master Servicer on the day of substitution for immediate deposit in to the
Custodial Account the amount of such shortfall, without any reimbursement
therefor. The Seller shall give notice in writing to the Trustee of such event,
which notice shall be accompanied by an Officers' Certificate as to the
calculation of such shortfall and by an Opinion of Counsel to the effect that
such substitution will not cause (a) any federal tax to be imposed on the Trust
Fund, including without limitation, any federal tax imposed on "prohibited
transactions" under Section 86OF(a)(1) of the Code or on "contributions after
the startup date" under Section 86OG(d)(1) of the Code or (b) any portion of the
Trust Fund to fail to qualify as a REMIC at any time that any Certificate is
outstanding. The costs of any substitution as described above, including any
related assignments, opinions or other documentation in connection therewith
shall be borne by the Seller.
Except as expressly set forth herein neither the Trustee nor the Master
Servicer is under any obligation to discover any breach of the above mentioned
representations and warranties. It is understood and agreed that the obligation
of the Seller to cure such breach or to so purchase or substitute for any
Mortgage Loan as to which such a breach has occurred and is continuing shall
constitute the sole remedy respecting such breach available to
Certificateholders or the Trustee on behalf of Certificateholders. In addition,
if the first scheduled Monthly Payment is due during the first month after its
closing date (as such term is used in the Seller's Warranties Certificate) and
such Monthly Payment is not received by the Master Servicer within 30 days of
the due date in accordance with the terms of the related Mortgage Note, the
Master Servicer shall promptly notify the Seller and the Trustee and the Seller
shall purchase such Mortgage Loan from the Trust Fund at the Purchase Price or
substitute a Qualified Substitute Mortgage Loan therefor within 15 days from the
date that the Seller was notified.
SECTION 2.05. Issuance of Certificates Evidencing Interests in the Trust
Fund.
The Trustee acknowledges the assignment to it of the Mortgage Loans and the
delivery of the Mortgage Files to it together with the assignment to it of all
other assets included in the Trust Fund, receipt of which is hereby
acknowledged. Concurrently with such delivery and in exchange therefor, the
Trustee,
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pursuant to the written request of the Company executed by an officer of the
Company, has executed and caused to be authenticated, and delivered to or upon
the order of the Company, the Certificates in authorized denominations which
evidence ownership of the entire Trust Fund.
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ARTICLE III
ADMINISTRATION AND SERVICING
OF THE TRUST FUND
SECTION 3.01. Master Servicer to Act as Master Servicer.
The Master Servicer shall service and administer the Mortgage Loans for the
benefit of the Certificateholders, in accordance with this Agreement and the
customary and usual standards of practice of prudent institutional mortgage
lenders servicing comparable mortgage loans for their own account in the
respective states in which the Mortgaged Properties are located. Subject to the
foregoing, the Master Servicer shall have full power and authority, acting alone
and/or through Sub-Servicers as provided in Section 3.02, to do or cause to be
done any and all things in connection with such servicing and administration
that it may deem necessary or desirable. Without limiting the generality of the
foregoing, the Master Servicer in its own name or in the name of a Sub-Servicer
is hereby authorized and empowered by the Trustee when the Master Servicer
believes it appropriate in its best judgment, to (i) execute and deliver, on
behalf of the Certificateholders and the Trustee or any of them, any and all
instruments of satisfaction or cancellation, or of partial or full release or
discharge, and all other comparable instruments, with respect to the Mortgage
Loans and the Mortgaged Properties, (ii) institute foreclosure proceedings or
obtain a deed-in-lieu of foreclosure so as to convert the ownership of such
properties, and (iii) hold or cause to be held title to such properties, on
behalf of the Trustee and Certificateholders. The Master Servicer shall service
and administer the Mortgage Loans in accordance with applicable state and
federal law and shall provide to the Mortgagors any reports required to be
provided to them thereby. Subject to Section 3.16, the Trustee shall furnish to
the Master Servicer and any Sub-Servicer any powers of attorney and other
documents necessary or appropriate to enable the Master Servicer and any Sub-
Servicer to carry out their servicing and administrative duties hereunder. The
Trustee shall not be responsible for any action taken by the Master Servicer or
any Sub-Servicer pursuant to the application of such powers of attorney.
In accordance with the standards of the preceding paragraph, the Master
Servicer shall advance or cause to be advanced funds as necessary for the
purpose of effecting the payment of taxes and assessments on the Mortgaged
Properties, which advances shall be reimbursable in the first instance from
related collections from the Mortgagors pursuant to Section 3.09, and further as
provided in Section 3.11. No costs incurred by the Master Servicer or by Sub-
Servicers in effecting the payment of taxes and assessments on the Mortgaged
Properties shall, for the purpose of calculating distributions to
Certificateholders, be added to the amount owing under the related Mortgage
Loans, notwithstanding that the terms of such Mortgage Loans so permit.
The Master Servicer shall not (unless the Mortgagor is in default with
respect to the Mortgage Loan or such default is, in the judgment of the Master
Servicer, reasonably foreseeable) make or permit any modification, waiver or
amendment of any term of any Mortgage Loan that would both (i) effect an
exchange or reissuance of such Mortgage Loan under Section 1001 of the Code (or
final, temporary or proposed Treasury regulations promulgated thereunder) and
(ii) cause the Trust Fund to fail to qualify as a REMIC under the Code or the
imposition of any tax on "prohibited transactions" or "contributions" after the
startup date under the REMIC Provisions.
The Master Servicer may approve a request for a partial release of the
Mortgaged Property, easement, consent to alteration or demolition and other
similar matters if it has determined, exercising its good faith business
judgement in the same manner as it would if it were the owner of the related
Mortgage Loan, that
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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.
The relationship of the Master Servicer (and of any successor to the Master
Servicer under this Agreement) to the Trustee under this Agreement is intended
by the parties to be that of an independent contractor and not that of a joint
venturer, partner or agent.
SECTION 3.02. Sub-Servicing Agreements Between Master Servicer and Sub-
Servicers.
(a) The Master Servicer may enter into Sub-Servicing Agreements with Sub-
Servicers for the servicing and administration of the Mortgage Loans and for the
performance of any and all other activities of the Master Servicer hereunder.
Each Sub-Servicer shall be either (i) an institution the accounts of which are
insured by the FDIC or (ii) another entity that engages in the business of
originating or servicing mortgage loans, and in either case shall be authorized
to transact business in the state or states in which the related Mortgaged
Properties it is to service are situated, if and to the extent required by
applicable law to enable the SubServicer to perform its obligations hereunder
and under the Sub-Servicing Agreement, and in either case shall be a FHLMC or
FNMA approved mortgage servicer. Each Sub-Servicing Agreement must impose on
the Sub-Servicer requirements conforming to the provisions set forth in Section
3.08 and provide for servicing of the Mortgage Loans consistent with the terms
of this Agreement. With the consent of the Trustee, which consent shall not be
unreasonably withheld, the Master Servicer and the Sub-Servicers may enter into
Sub-Servicing Agreements and make amendments to the Sub-Servicing Agreements or
enter into different forms of Sub-Servicing Agreements; provided, however, that
any such amendments or different forms shall be consistent with and not violate
the provisions of this Agreement.
(b) As part of its servicing activities hereunder, the Master Servicer,
for the benefit of the Trustee and the Certificateholders, shall enforce the
obligations of each SubServicer under the related Sub-Servicing Agreement,
including, without limitation, any obligation to make advances in respect of
delinquent payments as required by a Sub-Servicing Agreement, or to purchase a
Mortgage Loan on account of defective documentation or on account of a breach of
a representation or warranty, as described in Section 2.02. Such enforcement,
including, without limitation, the legal prosecution of claims, termination of
Sub-Servicing Agreements and the pursuit of other appropriate remedies, shall be
in such form and carried out to such an extent and at such time as the Master
Servicer, in its good faith business judgment, would require were it the owner
of the related Mortgage Loans. The Master Servicer shall pay the costs of such
enforcement at its own expense, but shall be reimbursed therefor only (i) from a
general recovery resulting from such enforcement only to the extent, if any,
that such recovery exceeds all amounts due in respect of the related Mortgage
Loans or (ii) from a specific recovery of costs, expenses or attorneys' fees
against the party against whom such enforcement is directed.
SECTION 3.03. Successor Sub-Servicers.
The Master Servicer shall be entitled to terminate any Sub-Servicing
Agreement and the rights and obligations of any Sub-Servicer pursuant to any
Sub-Servicing Agreement in accordance with the terms and conditions of such Sub-
Servicing Agreement. In the event of termination of any Sub-Servicer, all
servicing obligations of such Sub-Servicer shall be assumed simultaneously by
the Master Servicer without any act or deed on the part of such Sub-Servicer or
the Master Servicer, and the Master Servicer either shall service directly the
related Mortgage Loans or shall enter into a Sub-Servicing Agreement with a
successor Sub-Servicer which qualifies under Section 3.02.
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SECTION 3.04. Liability of the Master Servicer.
Notwithstanding any Sub-Servicing Agreement, any of the provisions of this
Agreement relating to agreements or arrangements between the Master Servicer and
a SubServicer or reference to actions taken through a Sub-Servicer or otherwise,
the Master Servicer shall remain obligated and primarily liable to the Trustee
and Certificateholders for the servicing and administering of the Mortgage Loans
in accordance with the provisions of Section 3.01 without diminution of such
obligation or liability by virtue of such Sub-Servicing Agreements or
arrangements or by virtue of indemnification from the Sub-Servicer and to the
same extent and under the same terms and conditions as if the Master Servicer
alone were servicing and administering the Mortgage Loans. For purposes of this
Agreement, the Master Servicer shall be deemed to have received payments on
Mortgage Loans when the Sub-Servicer has received such payments. The Master
Servicer shall be entitled to enter into any agreement with a Sub Servicer for
indemnification of the Master Servicer by such Sub-Servicer and nothing
contained in this Agreement shall be deemed to limit or modify such
indemnification.
SECTION 3.05. No Contractual Relationship Between Sub-Servicers and
Trustee or Certificateholders.
Any Sub-Servicing Agreement that may be entered into and any transactions
or services relating to the Mortgage Loans involving a Sub-Servicer in its
capacity as such and not as an originator shall be deemed to be between the Sub-
Servicer and the Master Servicer alone, and the Trustee and Certificateholders
shall not be deemed parties thereto and shall have no claims, rights,
obligations, duties or liabilities with respect to the Sub-Servicer except as
set forth in Section 3.06.
SECTION 3.06. Assumption or Termination of Sub-Servicing Agreements by
Trustee.
In the event the Master Servicer shall for any reason no longer be the
master servicer (including by reason of an Event of Default), the Trustee or its
designee shall thereupon assume all of the rights and obligations of the Master
Servicer under each Sub-Servicing Agreement that the Master Servicer may have
entered into, unless the Trustee is then permitted and elects to terminate any
Sub-Servicing Agreement in accordance with its terms. The Trustee, its designee
or the successor servicer for the Trustee shall be deemed to have assumed all of
the Master Servicer's interest therein and to have replaced the Master Servicer
as a party to each Sub-Servicing Agreement to the same extent as if the Sub-
Servicing Agreements had been assigned to the assuming party, except that the
Master Servicer shall not thereby be relieved of any liability or obligations
under the Sub-Servicing Agreements, and the Master Servicer shall continue to be
entitled to any rights or benefits which arose prior to its termination as
master servicer.
The Master Servicer at its expense shall, upon request of the Trustee,
deliver to the assuming party all documents and records relating to each Sub-
Servicing Agreement and the Mortgage Loans then being serviced and an accounting
of amounts collected and held by it and otherwise use its best efforts to effect
the orderly and efficient transfer of the Sub-Servicing Agreements to the
assuming party.
SECTION 3.07. Collection of Certain Mortgage Loan Payments.
The Master Servicer shall make reasonable efforts to collect all payments
called for under the terms and provisions of the Mortgage Loans, and shall, to
the extent such procedures shall be consistent with this Agreement and the terms
and provisions of any related Insurance Policy, follow such collection
procedures as it would follow with respect to mortgage loans comparable to the
Mortgage Loans and held for its own account. The Master Servicer shall not be
required to institute or join in litigation with respect to collection of any
payment (whether under a Mortgage, Mortgage Note, Primary Hazard Insurance
Policy, Primary
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Mortgage Insurance Policy or otherwise or against any public or governmental
authority with respect to a taking or condemnation) if it reasonably believes
that it is prohibited by applicable law from enforcing the provision of the
Mortgage or other instrument pursuant to which such payment is required.
Consistent with the foregoing, the Master Servicer may in its discretion waive
any prepayment fees, late payment charge or other charge, except as otherwise
required under applicable law. The Master Servicer shall be responsible for
preparing and distributing all information statements relating to payments on
the Mortgage Loans, in accordance with all applicable federal and state tax laws
and regulations.
SECTION 3.08. Sub-Servicing Accounts.
In those cases where a Sub-Servicer is servicing a Mortgage Loan pursuant
to a Sub-Servicing Agreement, the Sub-Servicer will be required to establish and
maintain one or more accounts (collectively, the "Sub-Servicing Account"). The
Sub-Servicing Account shall be an Eligible Account and shall otherwise be
acceptable to the Master Servicer. All amounts held in a Sub-Servicing Account
shall be held in trust for the Trustee for the benefit of the
Certificateholders. The Sub-Servicer will be required to deposit into the Sub-
Servicing Account no later than the first Business Day after receipt all
proceeds of Mortgage Loans received by the Sub-Servicer, less its servicing
compensation and any unreimbursed expenses and advances, to the extent permitted
by the Sub-Servicing Agreement. On each Sub-Servicer Remittance Date the Sub-
Servicer will be required to remit to the Master Servicer for deposit into the
Custodial Account all funds held in the Sub-Servicing Account with respect to
any Mortgage Loan as of the Sub-Servicer Remittance Date, after deducting from
such remittance an amount equal to the servicing compensation and unreimbursed
expenses and advances to which it is then entitled pursuant to the related Sub-
Servicing Agreement, to the extent not previously paid to or retained by it. In
addition, on each Sub-Servicer Remittance Date the Sub-Servicer will be required
to remit to the Master Servicer any amounts required to be advanced pursuant to
the related SubServicing Agreement. The Sub-Servicer will also be required to
remit to the Master Servicer, within one Business Day of receipt, the proceeds
of any Principal Prepayment made by the Mortgagor and any Insurance Proceeds or
Liquidation Proceeds.
SECTION 3.09. Collection of Taxes, Assessments and Similar Items;
Servicing Accounts.
The Master Servicer and the Sub-Servicers shall establish and maintain one
or more accounts (the "Servicing Accounts"), and shall deposit and retain
therein all collections from the Mortgagors (or related advances from Sub-
Servicers) for the payment of taxes, assessments, Primary Hazard Insurance
Policy premiums, and comparable items for the account of the Mortgagors, to the
extent that the Master Servicer customarily escrows for such amounts.
Withdrawals of amounts so collected from a Servicing Account may be made only to
(i) effect payment of taxes, assessments, Primary Hazard Insurance Policy
premiums and comparable items; (ii) reimburse the Master Servicer (or a Sub-
Servicer to the extent provided in the related Sub-Servicing Agreement) out of
related collections for any payments made pursuant to Sections 3.01 (with
respect to taxes and assessments) and 3.13 (with respect to Primary Hazard
Insurance Policies); (iii) refund to Mortgagors any sums as may be determined to
be overages; or (iv) clear and terminate the Servicing Account at the
termination of this Agreement pursuant to Section 9.01. As part of its servicing
duties, the Master Servicer or Sub-Servicers shall, if and to the extent
required by law, pay to the Mortgagors interest on funds in Servicing Accounts
from its or their own funds, without any reimbursement therefor.
SECTION 3.10. Custodial Account.
(a) The Master Servicer shall establish and maintain one or more accounts
(collectively, the "Custodial Account") in which the Master Servicer shall
deposit or cause to be deposited no later than the first Business Day after
receipt or as and when received from the Sub-Servicers, the following payments
and collections received or made by or on behalf of it subsequent to the Cut-off
Date, or received by it prior to
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the Cut-off Date but allocable to a period subsequent thereto (other than in
respect of principal and interest on the Mortgage Loans 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,
not including any portion thereof representing interest on account of the
related Servicing Fee Rate;
(iii) all Insurance Proceeds, other than proceeds that represent
reimbursement of costs and expenses incurred by the Master Servicer in
connection with presenting claims under the related Insurance Policies,
Liquidation Proceeds and REO Proceeds;
(iv) all proceeds of any Mortgage Loan or REO Property
repurchased or purchased in accordance with Sections 2.02, 2.04 or 9.01 and
all amounts required to be deposited in connection with the substitution of
a Qualified Substitute Mortgage Loan pursuant to Section 2.04;
(v) any amounts required to be deposited in the Custodial
Account pursuant to Section 3.12, 3.13 or 3.22; and
(vi) all amounts transferred from the Certificate Account to the
Custodial Account in accordance with Sections 4.01(b).
For purposes of the immediately preceding sentence, the Cut-off Date with
respect to any Qualified Substitute Mortgage Loan shall be deemed to be the date
of substitution.
The foregoing requirements for deposit in the Custodial Account shall be
exclusive. In the event the Master Servicer shall deposit in the Custodial
Account any amount not required to be deposited therein, it may withdraw such
amount from the Custodial Account, any provision herein to the contrary
notwithstanding. The Custodial Account shall be maintained as a segregated
account, separate and apart from trust funds created for mortgage pass-through
certificates of other series, and the other accounts of the Master Servicer.
(b) Funds in the Custodial Account may be invested in Permitted
Instruments in accordance with the provisions set forth in Section 3.12. The
Master Servicer shall give notice to the Trustee and the Company of the location
of the Custodial Account after any change thereof.
(c) Payments in the nature of late payment charges, prepayment fees,
assumption fees and reconveyance fees received on the Mortgage Loans shall not
be deposited in the Custodial Account, but rather shall be received and held by
the Master Servicer as additional servicing compensation.
SECTION 3.11. Permitted Withdrawals From the Custodial Account.
The Master Servicer may, from time to time as provided herein, make
withdrawals from the Custodial Account of amounts on deposit therein pursuant to
Section 3. 10 that are attributable to the Mortgage Loans for the following
purposes:
(i) to make deposits into the Certificate Account in the amounts and
in the manner provided for in Section 4.01, such deposit to include interest
collections on the Mortgage Loans at the Net Mortgage Rate [and net of amounts
reimbursed therefrom];
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(ii) to pay to itself, the Company, the Seller or any other appropriate
person, as the case may be, with respect to each Mortgage Loan that has
previously been purchased, repurchased or replaced pursuant to Sections 2.02,
2.04 or 9.01 all amounts received thereon and not yet distributed as of the date
of purchase, repurchase or substitution;
(iii) to reimburse itself or any Sub-Servicer for Advances not previously
reimbursed, the Master Servicer's or any Sub-Servicer's right to reimbursement
pursuant to this clause (iii) being limited to amounts received which represent
Late Collections (net of the related Servicing Fees) of Monthly Payments on
Mortgage Loans with respect to which such Advances were made and as further
provided in Section 3.15;
(iv) to reimburse or pay itself, the Trustee or the Company for expenses
incurred by or reimbursable to the Master Servicer, the Trustee or the Company
pursuant to Sections 3.22, 6.03, 8.05, 10.01(c) or 10.01(g), except as otherwise
provided in such Sections;
(v) to reimburse itself or any Sub-Servicer for costs and expenses
incurred by or reimbursable to it relating to the prosecution of any claims
pursuant to Section 3.13 that are in excess of the amounts so recovered;
(vi) to reimburse itself or any Sub-Servicer for unpaid Servicing Fees
and unreimbursed Servicing Advances, the Master Servicer's or any Sub-Servicer's
right to reimbursement pursuant to this clause (vi) with respect to any Mortgage
Loan being limited to late recoveries of the payments for which such advances
were made pursuant to Section 3.01 or Section 3.09 and any other related Late
Collections;
(vii) to pay itself as servicing compensation (in addition to the
Servicing Fee), on or after each Distribution Date, any interest or investment
income earned on funds deposited in the Custodial Account for the period ending
on such Distribution Date, subject to Section 8.05;
(viii) to reimburse itself or any Sub-Servicer for any Advance previously
made which itself has determined to be a Nonrecoverable Advance, provided that
either (a) such Advance was made with respect to a delinquency that ultimately
constituted an Excess Special Hazard Loss, Excess Fraud Loss, Excess Bankruptcy
Loss or Extraordinary Loss, or (b) the Certificate Principal Balances of the
Class B Certificates have been reduced to zero; and
(ix) to clear and terminate the Custodial Account at the termination of
this Agreement pursuant to Section 9.01.
The Master Servicer shall keep and maintain separate accounting records on
a Mortgage Loan by Mortgage Loan basis, for the purpose of justifying any
withdrawal from the Custodial Account pursuant to such clauses (ii), (iii),
(iv), (v), (vi), (vii) and (viii).
In connection with clause (viii) above, the Trustee shall notify the Master
Servicer if and when the Certificate Principal Balances of the Class B
Certificates have been reduced to zero.
SECTION 3.12. Permitted Instruments.
Any institution maintaining the Custodial Account shall at the direction of
the Master Servicer invest the funds in such account in Permitted Instruments,
each of which shall mature not later than the Business Day immediately preceding
the Distribution Date next following the date of such investment (except that if
such Permitted Instrument is an obligation of the institution that maintains
such account, then such Permitted Instrument shall mature not later than such
Distribution Date) and shall not be sold or disposed of prior to
<PAGE>
its maturity. All income and gain realized from any such investment as well as
any interest earned on deposits in the Custodial Account shall be for the
benefit of the Master Servicer. The Master Servicer shall deposit in the
Custodial Account (with respect to investments made hereunder of funds held
therein) an amount equal to the amount of any loss incurred in respect of any
such investment immediately upon realization of such loss without right of
reimbursement.
SECTION 3.13. Maintenance of Primary Mortgage Insurance and Primary Hazard
Insurance.
(a) The Master Servicer shall not take, or permit any Sub-servicer to
take, any action which would result in non-coverage under any applicable Primary
Mortgage Insurance Policy of any loss which, but for the actions of the Master
Servicer or Sub-servicer, would have been covered thereunder. To the extent
coverage is available, the Master Servicer shall keep or cause to be kept in
full force and effect each such Primary Mortgage Insurance Policy until the
principal balance of the related Mortgage Loan secured by a Mortgaged Property
is reduced to 75% or less of the Collateral Value in the case of such a Mortgage
Loan having a Loan-to- Value Ratio at origination in excess of 80%. The Master
Servicer shall not cancel or refuse to renew any such Primary Mortgage Insurance
Policy, or consent to any Sub-servicer canceling or refusing to renew any such
Primary Mortgage Insurance Policy applicable to a Mortgage Loan subserviced by
it, that is in effect at the date of the initial issuance of the Certificates
and is required to be kept in force hereunder unless the replacement Primary
Mortgage Insurance Policy for such canceled or non-renewed policy is maintained
with a Qualified Insurer.
(b) In connection with its activities as administrator and servicer of the
Mortgage Loans, the Master Servicer agrees to present or to cause the related
Sub-servicer to present, on behalf of the Master Servicer, the Sub-servicer, if
any, the Trustee and Certificateholders, claims to the insurer under any Primary
Mortgage Insurance Policies, in a timely manner in accordance with such
policies, and, in this regard, to take or cause to be taken such reasonable
action as shall be necessary to permit recovery under any Primary Mortgage
Insurance Policies respecting defaulted Mortgage Loans. Pursuant to Section 3.
10, any Insurance Proceeds collected by or remitted to the Master Servicer under
any Primary Mortgage Insurance Policies shall be deposited in the Custodial
Account, subject to withdrawal pursuant to Section 3.11.
(c) The Master Servicer shall cause to be maintained for each Mortgage
Loan primary hazard insurance with extended coverage on the related Mortgaged
Property in an amount equal to the lesser of 100% of the replacement value of
the improvements, as determined by the insurance company, on such Mortgaged
Property or the unpaid principal balance of the Mortgage Loan. The Master
Servicer shall also cause to be maintained on property acquired upon
foreclosure, or deed in lieu of foreclosure, of any Mortgage Loan, fire
insurance with extended coverage in an amount equal to the replacement value of
the improvements thereon. Pursuant to Section 3.10, any amounts collected by the
Master Servicer under any such policies (other than amounts to be applied to the
restoration or repair of the related Mortgaged Property or property thus
acquired or amounts released to the Mortgagor in accordance with the Master
Servicer's normal servicing procedures) shall be deposited in the Custodial
Account, subject to withdrawal pursuant to Section 3.11. Any cost incurred by
the Master Servicer in maintaining any such insurance shall not, for the purpose
of calculating monthly distributions to Certificateholders, be added to the
amount owing under the Mortgage Loan, notwithstanding that the terms of the
Mortgage Loan so permit. It is understood and agreed that no earthquake or other
additional insurance is to be required of any Mortgagor or maintained on
property acquired in respect of a Mortgage Loan other than pursuant to such
applicable laws and regulations as shall at any time be in force and as shall
require such additional insurance. When the improvements securing a Mortgage
Loan are located at the time of origination of such Mortgage Loan in a federally
designated special flood hazard area, the Master Servicer shall cause flood
insurance (to the extent available) to be maintained in respect thereof. Such
flood insurance shall be in an amount equal to the lesser of (i) the replacement
value of the improvements, which are part of such Mortgaged Property on a
replacement cost basis and (ii) the
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maximum amount of such insurance available for the related Mortgaged Property
under the national flood insurance program (assuming that the area in which such
Mortgaged Property is located is participating in such program).
In the event that the Master Servicer shall obtain and maintain a blanket
fire insurance policy with extended coverage insuring against hazard losses on
all of the Mortgage Loans, it shall conclusively be deemed to have satisfied its
obligations as set forth in the first two sentences of this Section 3.13, it
being understood and agreed that such policy may contain a deductible clause, in
which case the Master Servicer shall, in the event that there shall not have
been maintained on the related Mortgaged Property a policy complying with the
first two sentences of this Section 3.13 and there shall have been a loss which
would have been covered by such policy, deposit in the Certificate Account the
amount not otherwise payable under the blanket policy because of such deductible
clause. Any such deposit by the Master Servicer shall be made on the
Certificate Account Deposit Date next preceding the Distribution Date which
occurs in the month following the month in which payments under any such policy
would have been deposited in the Custodial Account. In connection with its
activities as administrator and servicer of the Mortgage Loans, the Master
Servicer agrees to present, on behalf of itself, the Trustee and
Certificateholders, claims under any such blanket policy.
SECTION 3.14. Enforcement of Due-on-Sale Clauses; Assumption Agreements.
The Master Servicer will, to the extent it has knowledge of any conveyance
or prospective conveyance by any Mortgagor of the Mortgaged Property (whether by
absolute conveyance or by contract of sale, and whether or not the Mortgagor
remains or is to remain liable under the Mortgage Note or the Mortgage),
exercise or cause to be exercised its rights to accelerate the maturity of such
Mortgage Loan under any "due-on-sale" clause applicable thereto; provided,
however, that the Master Servicer shall not exercise any such rights if it
reasonably believes that it is prohibited by law from doing so or if such
enforcement will adversely affect or jeopardize required coverage under the
Insurance Instruments. If the Master Servicer is unable to enforce such "due-
on-sale" clause (as provided in the previous sentence) or if no "due-on-sale"
clause is applicable, the Master Servicer or the Sub-Servicer will enter into an
assumption and modification agreement with the Person to whom such property has
been conveyed or is proposed to be conveyed, pursuant to which such Person
becomes liable under the Mortgage Note and, to the extent permitted by
applicable state law, the Mortgagor remains liable thereon; provided, however,
that the Master Servicer shall not enter into any assumption and modification
agreement if the coverage provided under the Primary Insurance Policy, if any,
would be impaired by doing so. The Master Servicer is also authorized to enter
into a substitution of liability agreement with such Person, pursuant to which
the original Mortgagor is released from liability and such Person is substituted
as the Mortgagor and becomes liable under the Mortgage Note, if the Master
Servicer shall have determined in good faith that such substitution will not
adversely affect the collectability of the Mortgage Loan. Any fee collected by
or on behalf of the Master Servicer for entering into an assumption or
substitution of liability agreement will be retained by or on behalf of the
Master Servicer as additional servicing compensation. In connection with any
such assumption, no material term of the Mortgage Note (including but not
limited to the Mortgage Rate, the amount of the Monthly Payment and any other
term affecting the amount or timing of payment on the Mortgage Loan) may be
changed. The Master Servicer shall not enter into any substitution or
assumption if such substitution or assumption would constitute a "significant
modification" effecting an exchange or reissuance of such Mortgage Loan under
the Code (or final, temporary or proposed Treasury regulations promulgated
thereunder) and cause the Trust Fund to fail to qualify as a REMIC under the
Code or the imposition of any tax on "prohibited transactions" or
"contributions" after the Startup Day under the REMIC Provisions. The Master
Servicer shall notify the Trustee that any such substitution or assumption
agreement has been completed by forwarding to the Trustee the original copy of
such substitution or assumption agreement, which copy shall be added to the
related Mortgage File and shall, for all purposes, be considered a part of such
Mortgage File to the same extent as all other documents and instruments
constituting a part thereof.
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Notwithstanding the foregoing paragraph or any other provision of this
Agreement, the Master Servicer shall not be deemed to be in default, breach or
any other violation of its obligations hereunder by reason of any assumption of
a Mortgage Loan by operation of law or any assumption that the Master Servicer
may be restricted by law from preventing, for any reason whatsoever. For
purposes of this Section 3.14, the term "assumption" is deemed to also include a
sale of a Mortgaged Property that is not accompanied by an assumption or
substitution of liability agreement.
SECTION 3.15. Realization Upon Defaulted Mortgage Loans.
The Master Servicer shall exercise reasonable efforts, consistent with the
procedures that the Master Servicer would use in servicing loans for its own
account, to foreclose upon or otherwise comparably convert (which may include an
REO Acquisition) the ownership of properties securing such of the Mortgage Loans
as come into and continue in default and as to which no satisfactory
arrangements can be made for collection of delinquent payments pursuant to
Section 3.07, and which are not released from the Trust Fund pursuant to any
other provision hereof. The Master Servicer shall use reasonable efforts to
realize upon such defaulted Mortgage Loans in such manner as will maximize the
receipt of principal and interest by Certificateholders, taking into account,
among other things, the timing of foreclosure proceedings. The foregoing is
subject to the provisions that, in any case in which Mortgaged Property shall
have suffered damage from an Uninsured Cause, the Master Servicer shall not be
required to expend its own funds toward the restoration of such property unless
it shall determine in (i) that such restoration will increase the net proceeds
of liquidation of the related Mortgage Loan to Certificateholders after
reimbursement to itself for such expenses, and (ii) that such expenses will be
recoverable by the Master Servicer through Insurance Proceeds or Liquidation
Proceeds from the related Mortgaged Property, as contemplated in Section 3.11.
The Master Servicer shall be responsible for all other costs and expenses
incurred by it in any such proceedings; provided, however, that it shall be
entitled to reimbursement thereof from the related Mortgaged Property, as
contemplated in Section 3.11.
The proceeds of any Cash Liquidation or REO Disposition, as well as any
recovery resulting from a partial collection of Insurance Proceeds or
Liquidation Proceeds or any income from an REO Property, will be applied in the
following order of priority: first, to reimburse the Master Servicer or any Sub-
Servicer for any related unreimbursed Servicing Advances, pursuant to Section
3.11 (vi) or 3.22; second, to accrued and unpaid interest on the Mortgage Loan
or REO Imputed Interest, at the Mortgage Rate, to the date of the Cash
Liquidation or REO Disposition, or to the Due Date prior to the Distribution
Date on which such amounts are to be distributed if not in connection with a
Cash Liquidation or REO Disposition; and third, as a recovery of principal of
the Mortgage Loan. If the amount of the recovery so allocated to interest is
less than a full recovery thereof, that amount will be allocated as follows:
first, on a pro rata basis, to unpaid Servicing Fees; and second, to interest at
the related Net Mortgage Rate. The portion of the recovery so allocated to
unpaid Servicing Fees shall be reimbursed to the Master Servicer or any Sub-
Servicer pursuant to Section 3.11(vi). The portions of the recovery so allocated
to interest at the related Net Mortgage Rate and to principal of the Mortgage
Loan shall be applied as follows: first, to reimburse the Trustee for any unpaid
Trustee's Fees, second, to reimburse the Master Servicer or any Sub-Servicer for
any related unreimbursed Advances in accordance with Section 3. 1 31 (iii) or
3.22, and third, for distribution in accordance with the provisions of Section
4.01(b) and 4.01(c).
SECTION 3.16. Trustee to Cooperate; Release of Mortgage Files.
Upon the payment in full of any Mortgage Loan, or the receipt by the Master
Servicer of a notification that payment in full shall be escrowed in a manner
customary for such purposes, the Master Servicer will immediately notify the
Trustee by a certification (which certification shall include a statement to the
effect that all amounts received or to be received in connection with such
payment which are required to
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be deposited in the Custodial Account pursuant to Section 3.10 have been or will
be so deposited) of a Servicing Officer and shall request delivery to it of the
Mortgage File in the form of the Request for Release attached hereto as Exhibit
F-2. Upon receipt of such certification and request, the Trustee shall promptly
release the related Mortgage File to the Master Servicer. Subject to the receipt
by the Master Servicer of the proceeds of such payment in full and the payment
of all related fees and expenses, the Master Servicer shall arrange for the
release to the Mortgagor of the original cancelled Mortgage Note. The Master
Servicer shall provide for preparation of the appropriate instrument of
satisfaction covering any Mortgage Loan which pays in full and the Trustee shall
cooperate in the execution and return of such instrument to provide for its
delivery or recording as may be required. All other documents in the Mortgage
File shall be retained by the Master Servicer to the extent required by
applicable law. No expenses incurred in connection with any instrument of
satisfaction or deed of reconveyance shall be chargeable to the Custodial
Account or the Certificate Account.
From time to time and as appropriate for the servicing or foreclosure of
any Mortgage Loan, including, for this purpose, collection under the Insurance
Instruments or any other insurance policy relating to the Mortgage Loan, the
Trustee shall, upon request of the Master Servicer and delivery to the Trustee
of a Request for Release in the form attached hereto as Exhibit F-1, release the
related Mortgage File to the Master Servicer, and the Trustee shall execute such
documents as the Master Servicer shall prepare and request as being necessary to
the prosecution of any such proceedings. Such Request for Release shall
obligate the Master Servicer to return each document previously requested from
the Mortgage File to the Trustee when the need therefor by the Master Servicer
no longer exists, unless the Mortgage Loan has been liquidated and the
Liquidation Proceeds relating to the Mortgage Loan have been deposited in the
Custodial Account or the Mortgage File or such document has been delivered to an
attorney, or to a public trustee or other public official as required by law,
for purposes of initiating or pursuing legal action or other proceedings for the
foreclosure of the Mortgaged Property either judicially or non-judicially, and
the Master Servicer has delivered to the Trustee a certificate of a Servicing
Officer certifying as to the name and address of the Person to which such
Mortgage File or such document was delivered and the purpose or purposes of such
delivery. Upon receipt of a certificate of a Servicing Officer stating that
such Mortgage Loan was liquidated and that all amounts received or to be
received in connection with such liquidation which are required to be deposited
into the Custodial Account have been or will be so deposited, or that such
Mortgage Loan has become an REO Property, the servicing receipt shall be
released by the Trustee to the Master Servicer.
Upon written request of a Servicing Officer, the Trustee shall execute and
deliver to the Master Servicer any court pleadings, requests for trustee's sale
or other documents prepared by the Master Servicer that are necessary to the
foreclosure or trustee's sale in respect of a Mortgaged Property or to any legal
action brought to obtain judgment against any Mortgagor on the Mortgage Note or
Mortgage or to obtain a deficiency judgment, or to enforce any other remedies or
rights provided by the Mortgage Note or Mortgage or otherwise available at law
or in equity. Each such request that such pleadings or documents be executed by
the Trustee shall include a certification as to the reason such documents or
pleadings are required and that the execution and delivery thereof by the
Trustee will not invalidate or otherwise affect the lien of the Mortgage, except
for the termination of such a lien upon completion of the foreclosure or
trustee's sale.
SECTION 3.17. Servicing Compensation.
As compensation for its activities hereunder, the Master Servicer shall be
entitled to retain, from deposits to the Custodial Account of amounts
representing payments or recoveries of interest, the Servicing Fees with respect
to each Mortgage Loan (less any portion of such amounts retained by any Sub-
Servicer). In addition, the Master Servicer shall be entitled to recover unpaid
Servicing Fees out of related Late Collections to the extent permitted in
Section 3.11.
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The Master Servicer also shall be entitled pursuant to Section 3.11 to
receive from the Custodial Account, as additional servicing compensation
interest or other income earned on deposits therein, as well as any prepayment
fees, assumption fees, late payment fees and reconveyance fees. The Master
Servicer shall be required to pay all expenses incurred by it in connection with
its servicing activities hereunder (including payment of the premiums for any
Primary Mortgage Insurance Policy or blanket policy insuring against hazard
losses pursuant to Section 3.13, payment of the servicing compensation of the
Sub-Servicer to the extent not retained by it), and shall not be entitled to
reimbursement therefor except as specifically pro vided in Section 3.11. The
Servicing Fee may not be transferred in whole or in part except in connection
with the transfer of all of the Master Servicer's responsibilities and
obligations under this Agreement.
SECTION 3.18. Maintenance of Certain Servicing Policies.
During the term of its service as Master Servicer, the Master Servicer
shall maintain in force (i) a policy or policies of insurance covering errors
and omissions in the performance of its obligations as servicer hereunder and
(ii) a fidelity bond in respect of its officers, employees or agents. Each such
policy or policies and bond shall, together, comply with the requirements from
time to time of FNMA or FHLMC for persons performing servicing for mortgage
loans purchased by such corporation. The Master Servicer shall prepare and
present, on behalf of itself, the Trustee and Certificateholders, claims under
any such errors and omissions policy or policies or fidelity bond in a timely
fashion in accordance with the terms of such policy or bond, and upon the filing
of any claim on any policy or bond described in this Section, the Master
Servicer shall promptly notify the Trustee of any such claims and the Trustee
shall notify the Rating Agency of such claim.
SECTION 3.19. Annual Statement as to Compliance.
The Master Servicer will deliver to the Trustee and the Company on or
before ________ ___ of each year, beginning with _______ ___, 199_, an Officers'
Certificate stating, as to each signatory thereof, that (i) a review of the
activities of the Master Servicer during the preceding calendar year and of its
performance under this Agreement has been made under such officers' supervision,
and (ii) to the best of such officers' knowledge, based on such review, the
Master Servicer has fulfilled in all material respects its obligations under
this Agreement throughout such year, or, if there has been a default in the
fulfillment of any such obligation, specifying each such default known to such
officers and the nature and status thereof. Copies of such certificate shall be
provided by the Trustee to any Certificateholder upon request at the Master
Servicer's expense, provided such statement is delivered by the Master Servicer
to the Trustee.
SECTION 3.20. Annual Independent Public Accountants' Servicing
Statement.
On or before March 31 of each year, beginning with March 31, 19__, the
Master Servicer at its expense shall furnish to the Company and the Trustee a
statement from a firm of independent certified public accountants (which is a
member of the American Institute of Certified Public Accountants) to the effect
that, based on 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 FHLMC, the servicing of mortgage loans under
agreements (including this Agreement) substantially similar to each other was
conducted in compliance with such agreements except for such significant
exceptions or errors in record that, in the opinion of the firm, the Uniform
Single Attestation Program for Mortgage Bankers or the Audit Program for
Mortgages serviced for FHLMC 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 Sub-servicers, 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
FHLMC (rendered within one year of such statement) of firms of independent
public accountants with respect to those Sub-servicers which also have been the
subject of such an examination. Copies of such statement shall be provided by
the
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Trustee to any Certificateholder upon request at the Master Servicer's expense,
provided such statement is delivered by the Master Servicer to the Trustee.
SECTION 3.21. Access to Certain Documentation.
(a) The Master Servicer shall provide to the OTS, the FDIC and other
federal banking regulatory agencies, and their respective examiners, access to
the documentation regarding the Mortgage Loans required by applicable
regulations of the OTS, the FDIC and such other agencies. Such access shall be
afforded without charge, but only upon reasonable and prior written request and
during normal business hours at the offices of the Master Servicer designated by
it. Nothing in this Section shall derogate from the obligation of the Master
Servicer to observe any applicable law prohibiting disclosure of information
regarding the Mortgagors and the failure of the Master Servicer to provide
access as provided in this Section as a result of such obligation shall not
constitute a breach of this section.
(b) The Master Servicer shall afford the Company and the Trustee, upon
reasonable notice, during normal business hours access to all records maintained
by the Master Servicer in respect of its rights and obligations hereunder and
access to officers of the Master Servicer responsible for such obligations.
Upon request, the Master Servicer shall furnish the Company and the Trustee with
its most recent financial statements and such other information as the Master
Servicer possesses regarding its business, affairs, property and condition,
financial or otherwise to the extent related to the servicing of the Mortgage
Loans. The Company may, but is not obligated to, enforce the obligations of the
Master Servicer hereunder and may, but is not obligated to, perform, or cause a
designee to perform, any defaulted obligation of the Master Servicer hereunder
or exercise the rights of the Master Servicer hereunder; provided that the
Master Servicer shall not be relieved of any of its obligations hereunder by
virtue of such performance by the Company or its designee. The Company shall
not have any responsibility or liability for any action or failure to act by the
Master Servicer and is not obligated to supervise the performance of the Master
Servicer under this Agreement or otherwise.
SECTION 3.22. Title, Conservation and Disposition of REO Property.
This Section shall apply only to REO Properties acquired for the account of
the Trust Fund, and shall not apply to any REO Property relating to a Mortgage
Loan which was purchased or repurchased from the Trust Fund pursuant to any
provision hereof. In the event that title to any such REO Property is acquired,
the deed or certificate of sale shall be issued to the Trustee, or to its
nominee, on behalf of the Certificateholders. The Master Servicer, on behalf of
the Trust Fund, shall either sell any REO Property within two years after the
Trust Fund acquires ownership of such REO Property for purposes of Section
86OG(a)(8) of the Code or, at the expense of the Trust Fund, request an
extension of the two-year grace period, more than 60 days before the day on
which the two-year grace period would otherwise expire, unless the Master
Servicer has delivered to the Trustee an Opinion of Counsel, addressed to the
Trustee and the Master Servicer, to the effect that the holding by the Trust
Fund of such REO Property subsequent to two years after its acquisition will not
result in the imposition on the Trust Fund of taxes on "prohibited transactions"
thereof, as defined in Section 86OF of the Code, or cause the Trust Fund to fail
to qualify as a REMIC under federal law at any time that any Certificates are
outstanding. The Master Servicer shall manage, conserve, protect and operate
each REO Property for the Certificateholders solely for the purpose of its
prompt disposition and sale in a manner which does not cause such REO Property
to fail to qualify as "foreclosure property" within the meaning of Section
86OG(a)(8) or result in the receipt by the Trust Fund of any "income from non-
permitted assets" within the meaning of Section 86OF(a)(2)(B) of the Code or any
"net income from foreclosure property" which is subject to taxation under the
REMIC Provisions. Pursuant to its efforts to sell such REO Property, the Master
Servicer shall either itself or through an agent selected by the Master Servicer
protect and conserve such REO Property in the same manner and to such extent as
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is customary in the locality where such REO Property is located and may,
incident to its conservation and protection of the interests of the
Certificateholders, rent the same, or any part thereof, as the Master Servicer
deems to be in the best interest of the Certificateholders for the period prior
to the sale of such REO Property.
The Master Servicer shall segregate and hold all funds collected and
received in connection with the operation of any REO Property separate and apart
from its own funds and general assets. The Master Servicer shall deposit, or
cause to be deposited, on a daily basis in the Custodial Account all revenues
received with respect to the REO Properties, net of any directly related
expenses incurred or withdraw therefrom funds necessary for the proper
operation, management and maintenance of the REO Property.
If as of the date of acquisition of title to any REO Property there remain
outstanding unreimbursed Servicing Advances with respect to such REO Property or
any outstanding Advances allocated thereto the Master Servicer, upon an REO
Disposition, shall be entitled to reimbursement for any related unreimbursed
Servicing Advances and any unreimbursed related Advances as well as any unpaid
Servicing Fees from proceeds received in connection with the REO Disposition, as
further provided in Section 3.15.
Subject to the first paragraph of this Section 3.22, the REO Disposition
shall be carried out by the Master Servicer at such price and upon such terms
and conditions as the Master Servicer shall determine to be in the best economic
interest of the Trust Fund.
Any REO Disposition shall be for cash only (unless changes in the REMIC
Provisions made subsequent to the Startup Day allow a sale for other
consideration).
The Master Servicer shall deposit the proceeds from the REO Disposition,
net of any payment to the Master Servicer as provided above, in the Custodial
Account upon receipt thereof for distribution in accordance with Section 4.01,
including any such net proceeds which are in excess of the applicable Stated
Principal Balance plus all unpaid REO Imputed Interest thereon through the date
of the REO Disposition.
Notwithstanding the foregoing provisions of this Section 3.22, with respect
to any Mortgage Loan as to which the Master Servicer has received notice of, or
has actual knowledge of, the presence of any toxic or hazardous substance on the
Mortgaged Property, the Master Servicer shall promptly request the Trustee and
the Company to provide directions and instructions with respect to such Mortgage
Loan and shall act in accordance with any such directions and instructions
jointly provided by the Trustee and the Company. Notwithstanding the preceding
sentence of this Section 3.22, with respect to any Mortgage Loan described by
such sentence, the Master Servicer shall not, on behalf of the Trustee, either
(i) obtain title to the related Mortgaged Property as a result of or in lieu of
foreclosure or otherwise, or (ii) otherwise acquire possession of, the related
Mortgaged Property, unless (i) the Company and the Trustee jointly direct the
Master Servicer to take such action and (ii) either (A) the Master Servicer has,
at least 30 days prior to taking such action, obtained and delivered to the
Company an environmental audit report prepared by a Person who regularly
conducts environmental audits using customary industry standards or (B) the
Company has directed the Master Servicer not to obtain an environmental audit
report. If the Trustee and the Company have not jointly provided directions and
instructions to the Master Servicer in connection with any such Mortgage Loan
within 30 days of a request by the Master Servicer for such directions and
instructions, then the Master Servicer shall take such action as it deems to be
in the best economic interest of the Trust Fund (other than proceeding against
the Mortgaged Property) and is hereby authorized at such time as it deems
appropriate to release such Mortgaged Property from the lien of the related
Mortgage.
The cost of the environmental audit report contemplated by this Section
3.22 shall be advanced by the Master Servicer as an expense of the Trust Fund,
and the Master Servicer shall be reimbursed therefor
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from the Custodial Account as provided in Section 3.11, any such right of
reimbursement being prior to the rights of the Certificateholders to receive any
amount in the Custodial Account.
If the Master Servicer determines, as described above, that it is in the
best economic interest of the Trust Fund to take such actions as are necessary
to bring any such Mortgaged Property in compliance with applicable environmental
laws, or to take such action with respect to the containment, clean-up or
remediation of hazardous substances, hazardous materials, hazardous wastes, or
petroleum-based materials affecting any such Mortgaged Property, then the Master
Servicer shall take such action as it deems to be in the best economic interest
of the Trust Fund. The cost of any such compliance, containment, clean-up or
remediation shall be advanced by the Master Servicer as an expense of the Trust
Fund, and the Master Servicer shall be entitled to be reimbursed therefor from
the Custodial Account as provided in Section 3.11, any such right of
reimbursement being prior to the rights of the Certificateholders to receive any
amount in the Custodial Account.
SECTION 3.23. Additional Obligations of the Master Servicer.
On each Certificate Account Deposit Date, the Master Servicer shall deliver
to the Trustee for deposit in the Certificate Account from its own funds and
without any right of reimbursement therefor, a total amount equal to the
aggregate of the Prepayment Interest Shortfalls for such Distribution Date;
provided that the Master Servicer's obligations under this subsection on any
Distribution Date shall not be more than the total amount of its master
servicing compensation payable in such month.
SECTION 3.24. Additional Obligations of the Company.
The Company agrees that on or prior to the tenth day after the Closing
Date, the Company shall provide the Trustee with a written notification,
substantially in the form of Exhibit J attached hereto, relating to each Class
of Certificates, setting forth (i) in the case of each Class of such
Certificates, (a) if less than 10% of the aggregate Certificate Principal
Balance of such Class of Certificates has been sold as of such date, the value
calculated pursuant to clause (b)(iii) of Exhibit J hereto, or, (b) if 10% or
more of such Class of Certificates has been sold as of such date but no single
price is paid for at least 10% of the aggregate Certificate Principal Balance of
such Class of Certificates, then the weighted average price at which the
Certificates of such Class were sold and the aggregate percentage of
Certificates of such Class sold, (c) the first single price at which at least
10% of the aggregate Certificate Principal Balance of such class of Certificates
was sold or, (d) if any Certificates of each Class of Certificates are retained
by the Company or an affiliated corporation, or are delivered to the Seller, the
fair market value of such Certificates as of the Closing Date, (ii) the
prepayment assumption used in pricing the Certificates, and (iii) such other
information as to matters of fact as the Trustee may reasonably request to
enable it to comply with its reporting requirements with respect to each Class
of such Certificates to the extent such information can in the good faith
judgment of the Company be determined by it.
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ARTICLE IV
PAYMENTS TO CERTIFICATEHOLDERS
SECTION 4.01. Certificate Account; Distributions.
(a) The Trustee shall establish and maintain a Certificate Account, in
which the Master Servicer shall cause to be deposited on behalf of the Trustee
on or before 3:00 P.M. New York time on each Certificate Account Deposit Date by
wire transfer of immediately available funds an amount equal to the sum of (i)
any Advance for the immediately succeeding Distribution Date, (ii) any amount
required to be deposited in the Certificate Account pursuant to Sections 3.11,
3.13, 3.23 or 4.03(b) and (iii) all other amounts constituting or, if not
otherwise applicable to the payment of the Trustee's Fee, that would constitute
the Available Distribution Amount for the immediately succeeding Distribution
Date. The Trustee shall transfer from the Certificate Account to itself, the
Trustee's Fee on each Certificate Account Deposit Date. Such amounts do not
constitute part of the Available Distribution Amount.
(b) On each Distribution Date the Trustee shall, distribute to the Master
Servicer, in the case of a distribution pursuant to Section 4.01(b)(iii), and to
each Certificateholder of record on the next preceding Record Date (other than
as provided in Section 9.01 respecting the final distribution) either in
immediately available funds (by wire transfer or otherwise) to the account of
such Certificateholder at a bank or other entity having appropriate facilities
therefor, if such Certificateholder has so notified the Trustee at least 5
Business Days prior to the related Record Date and such Certificateholder is the
registered owner of Certificates the aggregate Initial Certificate Principal
Balance of which is not less than $2,500,000 (or, with respect to the Class A-5
and Class A-7 Certificates, is the registered owner of an initial Notional
Amount of not less than $10,000,000 of each such class), or otherwise by check
mailed to such Certificateholder at the address of such Holder appearing in the
Certificate Register, such Certificateholder's share (based on the aggregate of
the Percentage Interests represented by Certificates of the applicable Class
held by such Holder) of the following amounts, in the following order of
priority, in each case to the extent of the Available Distribution Amount:
(i) to the Class A Certificateholders on a pro rata basis based
on Accrued Certificate Interest payable thereon, Accrued Certificate
Interest on such Classes of Certificates for such Distribution Date and to
the extent not previously paid, for all prior Distribution Dates;
(ii) to the Class A Certificateholders (other than the Class A-5
Certificateholders and the Class A-7 Certificateholders), in the priorities
and amounts set forth in Sections 4.01(c) and (d), the sum of the following
(applied to reduce the Certificate Principal Balances of such Class A
Certificates, as applicable):
(A) the Senior Percentage for such Distribution Date times
the sum of the following:
(1) the principal portion of each Monthly Payment due
during the related Due Period on each Outstanding Mortgage Loan,
whether or not received on or prior to the related Determination Date,
minus the principal portion of any Debt Service Reduction which
together with other Bankruptcy Losses exceeds the Bankruptcy Amount;
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(2) the Stated Principal Balance of any Mortgage Loan
purchased during the related Prepayment Period and the amount of any
shortfall deposited in the Custodial Account in connection with the
substitution of a Deleted Mortgage Loan pursuant to Section 2.04
during the related Prepayment Period; and
(3) the principal portion of all other unscheduled
collections (other than Principal Prepayments and amounts received in
connection with a Cash Liquidation or REO Disposition) received during
the related Prepayment Period, including, without limitation,
Insurance Proceeds, Liquidation Proceeds and REO Proceeds, to the
extent applied by the Master Servicer as recoveries of principal of
the related Mortgage Loan pursuant to Section 3.15;
(B) with respect to each Mortgage Loan for which a Cash
Liquidation or a REO Disposition occurred during the related Prepayment
Period and 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 Senior Percentage for such Distribution Date times
the Stated Principal Balance of such Mortgage Loan and (b) the Senior
Accelerated Distribution Percentage for such Distribution Date times the
related unscheduled collections (including without limitation Insurance
Proceeds, Liquidation Proceeds and REO Proceeds) to the extent applied by
the Master Servicer as recoveries of principal of the related Mortgage Loan
pursuant to Section 3.15;
(C) the Senior Accelerated Distribution Percentage for such
Distribution Date times the aggregate of all Principal Prepayments in Full
and Curtailments received in the related Prepayment Period; and
(D) any amounts described in clauses (A), (B) and (C) of
this Section 4.01 (b)(ii), as determined for any previous Distribution
Date, which remain unpaid after application of amounts previously
distributed pursuant to this clause (D) to the extent that such amounts are
not attributable to Realized Losses which have been allocated to the Class
B Certificates;
(iii) if the Certificate Principal Balances of the Class B
Certificates have not been reduced to zero, to the Master Servicer or a
Subservicer, to the extent of and in reimbursement for any Advances
previously made with respect to any Mortgage Loan or REO Property which
remain unreimbursed in whole or in part following the Cash Liquidation or
REO Disposition of such Mortgage Loan or REO Property, minus any such
Advances that were made with respect to delinquencies that ultimately
constituted Excess Special Hazard Losses, Excess Fraud Losses, Excess
Bankruptcy Losses or Extraordinary Losses;
(iv) to the Holders of the Class B Certificates, the Accrued
Certificate Interest thereon for such Distribution Date, plus any Accrued
Certificate Interest thereon remaining unpaid from any previous
Distribution Date, except as provided below;
(v) to the Holders of the Class B Certificates, an amount equal
to the Subordinate Principal Distribution Amount for such Class of
Certificates for such Distribution Date, applied in reduction of the
Certificate Principal Balance of the Class B Certificates;
(vi) to the Class A Certificateholders (other than the Class A-5
and Class A-7 Certificateholders) in the priority set forth in Section
4.01(c), the portion, if any, of the Available Distribution Amount
remaining after the foregoing distributions, applied to reduce the
Certificate Principal Balances of such Class A Certificates, but in no
event more than the sum of the outstanding
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Certificate Principal Balances of the Class A Certificates (other than the
Class A-5 and Class A-7 Certificates) and thereafter applied to reduce the
Certificate Principal Balance of the Class B Certificates, but in no event
more than the outstanding Certificate Principal Balance of the Class B
Certificates; and
(vii) to the Class R Certificateholders, the balance, if any, of the
Available Distribution Amount.
(c) Distributions of principal on the Class A Certificates (other
than the Class A-5 and Class A-7 Certificates) on each Distribution Date
occurring prior to the occurrence of the Credit Support Depletion Date will be
made as follows:
(i) first, to the Class A-1 Certificates and Class A-6
Certificates, with the amount to be distributed allocated as between such
classes on a pro rata basis, until the Certificate Principal Balance of
each such Class has been reduced to zero;
(ii) second, to the Class A-2 Certificates, until the Certificate
Principal Balance thereof has been reduced to zero;
(iii) third, to the Class A-3 Certificates, until the Certificate
Principal Balance thereof has been reduced to zero; and
(iv) fourth, to the Class A-4 Certificates, until the Certificate
Principal Balance thereof has been reduced to zero.
(d) 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, 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.
(e) The Trustee shall, upon written request from the Master
Servicer, invest or cause the institution maintaining the Certificate Account to
invest the funds in the Certificate Account in Permitted Instruments designated
in the name of the Trustee for the benefit of the Certificateholders, which
shall mature not later than the Business Day next preceding the Distribution
Date next following the date of such investment (except that (i) any investment
in obligations of the institution with which the Certificate Account is
maintained may mature on such Distribution Date and (ii) any other investment
may mature on such Distribution Date if the Trustee shall agree to advance funds
on such Distribution Date to the Certificate Account in the amount payable on
such investment on such Distribution Date, pending receipt thereof to the extent
necessary to make distributions on the Certificates) and shall not be sold or
disposed of prior to maturity. All income and gain realized from any such
investment shall be for the benefit of the Master Servicer and shall be subject
to its withdrawal or order from time to time. The amount of any losses incurred
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in respect of any such investments shall be deposited in the Certificate Account
by the Master Servicer out of its own funds immediately as realized without
right of reimbursement.
SECTION 4.02. Statements to Certificateholders.
On each Distribution Date the Trustee shall forward or cause to be
forwarded by mail to each Holder of a Certificate and to the Company and the
Master Servicer a statement as to such distribution setting forth the following
information as to each Class of Certificates to the extent applicable:
(i) (a) the amount of such distribution to the
Certificateholders of such Class applied to reduce the Certificate
Principal Balance thereof, and (b) the aggregate amount included therein
representing Principal Prepayments;
(ii) the amount of such distribution to the Certificateholders of
such Class allocable to interest;
(iii) if the distribution to the Certificateholders of such Class
is less than the full amount that would be distributable to such
Certificateholders if there were sufficient funds available therefor, the
amount of the shortfall;
(iv) the amount of any Advance by the Master Servicer pursuant to
Section 4.04;
(v) the number and aggregate Stated Principal Balance of the
Mortgage Loans after giving effect to the distribution of principal on such
Distribution Date;
(vi) the aggregate Certificate Principal Balance of each Class of
Certificates, after giving effect to the amounts distributed on such
Distribution Date, separately identifying any reduction thereof due to
Realized Losses other than pursuant to an actual distribution of principal;
(vii) the related Subordinate Principal Distribution Amount;
(viii) the amount of Servicing Fees paid to the Master Servicer;
(ix) on the basis of the most recent reports furnished to it by
Subservicers, the number and aggregate principal balances of Mortgage Loans
that are delinquent (A) one month, (B) two months and (C) three months, and
the number and aggregate principal balance of Mortgage Loans that are in
foreclosure;
(x) the number, aggregate principal balance and book value of
any REO Properties;
(xi) the aggregate Accrued Certificate Interest remaining unpaid,
if any, for each Class of Certificates, after giving effect to the
distribution made on such Distribution Date;
(xii) the Special Hazard Amount, Fraud Loss Amount and Bankruptcy
Amount as of the close of business on such Distribution Date and a
description of any change in the calculation of such amounts;
(xiii) the Pass-Through Rate on the Class A-7 Certificates for such
Distribution Date;
(xiv) the occurrence of the Credit Support Depletion Date;
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(xv) the Senior Accelerated Distribution Percentage applicable to
such distribution;
(xvi) the Senior and Class B Percentages for such Distribution
Date;
(xvii) the aggregate amount of Realized Losses allocated to the
Certificates on such Distribution Date;
(xviii) the aggregate amount of any recoveries on previously
foreclosed loans from the Seller due to a breach of representation or
warranty;
(xix) the weighted average remaining term to maturity of the
Mortgage Loans after giving effect to the amounts distributed on such
Distribution Date; and
(xx) the weighted average Mortgage Rates of the Mortgage Loans
after giving effect to the amounts distributed on such Distribution Date.
In the case of information furnished pursuant to subclauses (i) and (ii)
above, the amounts shall also be expressed as a dollar amount per Single
Certificate.
Within a reasonable period of time after the end of each calendar year, the
Trustee shall prepare and forward to each Person who at any time during the
calendar year was a Holder of a Certificate, a statement containing the
information set forth in subclauses (i) and (ii) above, aggregated for such
calendar year or applicable portion thereof during which such Person was a
Certificateholder. Such obligation of the Trustee shall be deemed to have been
satisfied to the extent that substantially comparable information shall be
provided by the Trustee pursuant to any requirements of the Code and regulations
thereunder as from time to time are in force.
SECTION 4.03. Remittance Reports; Advances by the Master Servicer.
(a) By 11:00 A.M. New York time the Business Day following each
Determination Date, the Master Servicer shall deliver to the Trustee a report,
prepared as of the close of business on the Determination Date (the
"Determination Date Report"), by telecopy or in a mutually agreeable electronic
format. The Determination Date Report and any written information supplemental
thereto shall include such information with respect to the Mortgage Loans that
is reasonably available to the Master Servicer and that is required by the
Trustee for purposes of making the calculations referred to in the following
paragraph, as set forth in written specifications or guidelines issued by the
Trustee from time to time. Not later than 2:00 P.M. New York time on the
Certificate Account Deposit Date, the Trustee shall furnish by telecopy to the
Master Servicer a statement (the information in such statement to be made
available to Certificateholders or the Company by the Master Servicer on
request) setting forth (i) the Available Distribution Amount, (ii) the amounts
required to be withdrawn from the Custodial Account and deposited into the
Certificate Account on the immediately succeeding Certificate Account Deposit
Date pursuant to clause (iii) of Section 4.01 (a); and (iii) such other
information with respect to the Mortgage Loans as the Trustee may reasonably
require to perform the calculations necessary to make the distributions
contemplated by Section 4.01 and to prepare the statements to Certificateholders
contemplated by Section 4.02. The determination by the Trustee of such amounts
shall, in the absence of obvious error, be presumptively deemed to be correct
for all purposes hereunder.
(b) Not later than 2:00 P.M. New York time on the Certificate Account
Deposit Date, the Trustee shall notify the Master Servicer of the aggregate
amount of Advances required to be made for the related Distribution Date, which
shall be the aggregate amount of Monthly Payments (with each interest
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portion thereof adjusted to be net of the related Servicing Fee Rate), less the
amount of any related Debt Service Reductions or reductions in the amount of
interest collectable from the Mortgagor pursuant to the Relief Act, on the
Outstanding Mortgage Loans as of the related Due Date, which Monthly Payments
were delinquent as of the close of business as of the related Determination
Date, provided that following the reduction of the Certificate Principal
Balances of the Class B Certificates to zero no Advance shall be made if it
would be a Nonrecoverable Advance. On or before 3:00 P.M. New York time on each
Certificate Account Deposit Date, the Master Servicer shall either (i) deposit
in the Certificate Account from its own funds, or funds received therefor from
the Sub-Servicers, an amount equal to the Advances to be made by the Master
Servicer in respect of the related Distribution Date, (ii) withdraw from amounts
on deposit in the Custodial Account and deposit in the Certificate Account all
or a portion of the amounts held for future distribution in discharge of any
such Advance, or (iii) make advances in the form of any combination of (i) and
(ii) aggregating the amount of such Advance. Any portion of the amounts held for
future distribution so used shall be replaced by the Master Servicer by deposit
in the Custodial Account on or before 12: 00 P.M. New York time on any future
Certificate Account Deposit Date to the extent that funds attributable to the
Mortgage Loans that are available in the Custodial Account for deposit in the
Certificate Account on such Certificate Account Deposit Date shall be less than
payments to Certificateholders required to be made on the following Distribution
Date. The amount of any reimbursement pursuant to Section 4.01(b)(iii) in
respect of outstanding Advances on any Distribution Date shall be allocated to
specific Monthly Payments due but delinquent for previous Due Periods, which
allocation shall be made, to the extent practicable, to Monthly Payments which
have been delinquent for the longest period of time. Such allocations shall be
conclusive for purposes of reimbursement to the Master Servicer from recoveries
on the Mortgage Loans pursuant to Section 3.11. The determination by the Master
Servicer that it has made a Nonrecoverable Advance or that any proposed Advance,
if made, would constitute a Nonrecoverable Advance, shall be evidenced by a
certificate of a Servicing Officer delivered to the Seller and the Trustee. The
Trustee shall deposit all funds it receives pursuant to this Section 4.03 into
the Certificate Account.
(c) In the event that the Master Servicer determines on the Certificate
Account Deposit Date that it will be unable to deposit in the Certificate
Account an amount equal to the Advance required to be made for the immediately
succeeding Distribution Date in the amount determined by the Trustee pursuant to
paragraph (b) above, it shall give notice to the Trustee of its inability to
advance (such notice may be given by telecopy), not later than 3:00 P.M., New
York time, on such Business Day, specifying the portion of such amount that it
will be unable to deposit. If the Master Servicer shall have determined that it
is not obligated to make the entire Advance because all or a lesser portion of
such Advance would not be recoverable from Insurance Proceeds, Liquidation
Proceeds or otherwise, the Master Servicer shall promptly deliver to the Trustee
for the benefit of the Certificateholders an Officer's Certificate setting forth
the reasons for the Master Servicer's determination. Not later than 5:00 P.M.,
New York time, on the Certificate Account Deposit Date, unless by such time the
Master Servicer shall have directly or indirectly deposited in the Certificate
Account the entire amount of the Advances required to be made for the related
Distribution Date, pursuant to Section 7.01, the Trustee shall (a) terminate all
of the rights and obligations of the Master Servicer under this Agreement in
accordance with Section 7.01 and (b) assume the rights and obligations of the
Master Servicer hereunder, including the obligation to deposit in the
Certificate Account an amount equal to the Advance for the immediately
succeeding Distribution Date.
SECTION 4.04. Allocation of Realized Losses.
Prior to each Distribution Date, the Master Servicer shall determine the
total amount of Realized Losses, if any, that resulted from any Cash
Liquidation, Debt Service Reduction, Deficient Valuation or REO Disposition that
occurred during the related Prepayment Period. The amount of each Realized Loss
shall be evidenced by an Officers' Certificate by the Master Servicer. Realized
Losses shall be allocated among the various Classes of Certificates as
determined by the Trustee in accordance with the following provisions. All
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Realized Losses, other than Excess Special Hazard Losses, Excess Bankruptcy
Losses, Excess Fraud Losses or Extraordinary Losses shall be allocated as
follows: first, to the Class B Certificates until the Certificate Principal
Balance thereof has been reduced to zero; and second, among all the Class A
Certificates as described below. Any Excess Special Hazard Losses, Excess
Bankruptcy Losses, Excess Fraud Losses and Extraordinary Losses on Mortgage
Loans will be allocated among the Class A and Class B Certificates on a pro rata
basis, as described below. As used herein, an allocation of a Realized Loss on
a "pro rata basis" among two or more specified Classes of Certificates means an
allocation on a pro rata basis, without priority among the various Classes so
specified, to each such Class of Certificates on the basis of the then
outstanding Certificate Principal Balances thereof in the case of the principal
portion of a Realized Loss or based on the Accrued Certificate Interest thereon
in the case of an interest portion of a Realized Loss. Allocations of Realized
Losses which are Default Losses to the Class A 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 Class A-
1, Class A-5 and Class A-6 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 Class A-1, Class A-5 and Class A-6
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 and Class
A-5 Certificates on a pro rata basis. Any allocation of the principal portion
of Realized Losses (other than Debt Service Reductions) to a Class A Certificate
shall be made by reducing the Certificate Principal Balance thereof by the
amount so allocated, which allocation shall be deemed to have occurred at the
close of business on such Distribution Date. Any allocation of the principal
portion of Realized Losses (other than Debt Service Reductions) to the Class B
Certificates, shall be made by operation of the definition of "Certificate
Principal Balance" and by operation of the provisions of Section 4.01(b).
Allocations of the interest portions of Realized Losses shall be made by
operation of the definition of "Accrued Certificate Interest" and by operation
of the provisions of Section 4.01(b) or 4.01(d), as applicable. Allocations of
the principal portion of Debt Service Reductions shall be made by operation of
the provisions of Section 4.01(b) or 4.01(d), as applicable. All Realized
Losses and all other losses allocated to a Class of Certificates under this
Section 4.04 will be allocated among the Certificates of such Class in
proportion to the Percentage Interests evidenced thereby.
SECTION 4.05. Information Reports to be Filed by the Master Servicer.
The Master Servicer or the Sub-Servicers shall file the information returns
with respect to the receipt of mortgage interest received in a trade or
business, reports of foreclosures and abandonments of any Mortgaged Property and
the information returns relating to cancellation of indebtedness income with
respect to any Mortgaged Property required by Sections 6050H, 6050J and 6050P of
the Code, respectively, and deliver to the Trustee an Officers' Certificate
stating that such reports have been filed. Such reports shall be in form and
substance sufficient to meet the reporting requirements imposed by such Sections
6050H, 6050J and 6050P of the Code.
SECTION 4.06. Compliance with Withholding Requirements.
Notwithstanding any other provision of this Agreement, the Trustee shall
comply with all federal withholding requirements respecting payments to
Certificateholders of interest or original issue discount on the Mortgage Loans,
and payments of interest or discount on amounts invested by the Trustee as agent
for Certificateholders pursuant to an election made under Section 4.01 hereof,
that the Trustee reasonably believes are applicable under the Code. The consent
of Certificateholders shall not be required for such withholding. In the event
the Trustee withholds any amount from interest or original issue discount
payments or advances thereof to any Certificateholder pursuant to federal
withholding requirements, the Trustee shall, together with its monthly report to
such Certificateholders pursuant to Section 4.02 hereof, indicate such amount
withheld.
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ARTICLE V
THE CERTIFICATES
SECTION 5.01. The Certificates.
The Certificates will be substantially in the respective forms annexed
hereto as Exhibits A-1, A-2 and B. The Certificates will be issuable in
registered form only. The Class A Certificates, other than the Class A-5 and
Class A-7 Certificates, shall be issuable in minimum dollar denominations of
$1,000 and integral multiples of $1 in excess thereof, except that one
Certificate of each Class of Class A Certificates may be issued in an amount
such that the denomination of such Certificate and the aggregate denomination of
all other outstanding Certificates of such Class together equal the aggregate
Certificate Principal Balance of such Class. The Class B Certificates shall be
issuable in minimum dollar denominations of $25,000 and integral multiples of $1
in excess thereof, except that one Certificate of such Class may be issued in an
amount such that the denomination of such Certificate and the aggregate
denomination of all other outstanding Certificates of such Class together equal
the aggregate Certificate Principal Balance of such Class. The Class A-5 and
Class A-7 Certificates shall be issuable in minimum Notional Amounts of $1,000
and integral multiples of $1 in excess thereof, except that one Certificate of
each such Class may be issued in an amount such that the denomination of such
Certificate and the aggregate denomination of all other outstanding Certificates
of such Class together equal the aggregate Notional Amount of such Class. The
Class R Certificates will each be issuable in minimum denominations of any
Percentage Interest representing 20% and integral multiples of 0.01% in excess
thereof, provided, however, that one Class R Certificate may be issued to the
"tax matters person" pursuant to Article X, in a minimum denomination
representing a Percentage Interest of not less than 0.01%.
Upon original issue, the Certificates shall, upon the written request of
the Company executed by an officer of the Company, be executed and delivered by
the Trustee, authenticated by the Trustee and delivered to or upon the order of
the Company upon receipt by the Trustee of the documents specified in Section
2.01. The Certificates shall be executed by manual or facsimile signature on
behalf of the Trustee in its capacity as trustee hereunder by a Responsible
Officer. Certificates bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Trustee shall bind the Trustee,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Certificates or did not
hold such offices at the date of such Certificates. No Certificate shall be
entitled to any benefit under this Agreement, or be valid for any purpose,
unless there appears on such Certificate a certificate of authentication
substantially in the form provided for herein executed by the Trustee by manual
signature, and such certificate upon any Certificate shall be conclusive
evidence, and the only evidence, that such Certificate has been duly
authenticated and delivered hereunder. All Certificates issued on the Closing
Date shall be dated the Closing Date and any Certificates delivered thereafter
shall be dated the date of their authentication.
SECTION 5.02. Registration of Transfer and Exchange of Certificates.
The Trustee shall maintain a Certificate Register in which, subject to such
reasonable regulations as it may prescribe, the Trustee shall provide for the
registration of Certificates and of transfers and exchanges of Certificates as
herein provided.
No transfer, sale, pledge or other disposition of a Class B or a Class R
Certificate shall be made unless such transfer, sale, pledge or other
disposition is exempt from the registration requirements of the Securities Act
of 1933, as amended (the "Act"), and any applicable state securities laws or is
made in accordance with said Act and laws. In the event that a transfer of a
Class B or Class R Certificate is to be made (i) the Depositor may direct the
Trustee to require a written Opinion of Counsel acceptable to and in
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form and substance satisfactory to the Trustee and the Depositor that such
transfer shall be made pursuant to an exemption, describing the applicable
exemption and the basis therefor, from said Act and laws or is being made
pursuant to said Act and laws, which Opinion of Counsel shall not be an expense
of the Trustee, the Depositor or the Master Servicer, provided that such Opinion
of Counsel will not be required in connection with the initial transfer of any
such Certificate by the Depositor or any affiliate thereof, to a non-affiliate
of the Depositor and (ii) the Trustee shall require the transferee to execute a
representation letter, substantially in the form of Exhibit G-1 hereto, and the
Trustee shall require the transferor to execute a representation letter,
substantially in the form of Exhibit G-2 hereto, each acceptable to and in form
and substance satisfactory to the Depositor and the Trustee certifying to the
Depositor and the Trustee the facts surrounding such transfer, which
representation letters shall not be an expense of the Trustee, the Depositor or
the Master Servicer. Any such Certificateholder desiring to effect such transfer
shall, and does hereby agree to, indemnify the Trustee, the Depositor and the
Master Servicer against any liability that may result if the transfer is not so
exempt or is not made in accordance with such applicable federal and state laws.
The Trustee shall require a written Opinion of Counsel from a prospective
transferee prior to the transfer of any Class B or Class R Certificate to any
employee benefit plan or other retirement arrangement, including individual
retirement accounts and Keogh plans, that is subject to Section 406 of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") or Section
4975 of the Code (any of the foregoing, a "Plan"), to a trustee or other Person
acting on behalf of any Plan, or to any other person who is using "plan assets"
of any Plan to effect such acquisition (including any insurance company using
funds in its general or separate accounts that may constitute "plan assets").
Such Opinion of Counsel must establish to the satisfaction of the Depositor and
the Trustee or the Certificate Registrar that such disposition will not violate
the prohibited transaction provisions of Section 406 of ERISA and Section 4975
of the Code. Neither the Depositor, the Master Servicer nor the Trustee will be
required to obtain such Opinion of Counsel on behalf of any prospective
transferee. In the case of any transfer of the foregoing Certificates to an
insurance company, in lieu of such Opinion of Counsel, the Trustee shall require
a certification in the form of Exhibit G-5 hereto substantially to the effect
that all funds used by such transferee to purchase such Certificates will be
funds held by it in its general account which it reasonably believes do not
constitute "plan assets" of any Plan (as defined above). The permission of any
transfer in violation of the restriction on transfer set forth in this paragraph
shall not constitute a default or an Event of Default.
(i) Each Person who has or who acquires any Ownership Interest in a Class
R Certificate shall be deemed by the acceptance or acquisition of such Ownership
Interest to have agreed to be bound by the following provisions and to have
irrevocably authorized the Trustee or its designee under clause (iii)(A) below
to deliver payments to a Person other than such Person and to negotiate the
terms of any mandatory sale under clause (iii)(B) below and to execute all
instruments of transfer and to do all other things necessary in connection with
any such sale. The rights of each Person acquiring any Ownership Interest in a
Class R Certificate are expressly subject to the following provisions:
(A) Each Person holding or acquiring any Ownership Interest in a
Class R Certificate shall be a Permitted Transferee and shall promptly
notify the Trustee of any change or impending change in its status as a
Permitted Transferee.
(B) In connection with any proposed transfer of any Ownership
Interest in a Class R Certificate, the Trustee shall require delivery to
it, and shall not register the transfer of any Class R Certificate until
its receipt of (1) an affidavit and agreement (a "Transfer Affidavit and
Agreement" in the form attached hereto as Exhibit G-3) from the proposed
Transferee, in form and substance satisfactory to the Master Servicer and
the Trustee representing and warranting, among other things, that it is a
Permitted Transferee, that it is not acquiring its Ownership Interest in
the Class R Certificate that is the subject of the proposed Transfer as a
nominee, trustee or agent for any Person
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who is not a Permitted Transferee, that for so long as it retains its
Ownership Interest in a Class R Certificate, it will endeavor to remain a
Permitted Transferee, and that it has reviewed the provisions of this
Section 5.02 and agrees to be bound by them, and (11) a certificate, in the
form attached hereto as Exhibit G-4, from the Holder wishing to transfer
the Class R Certificate, in form and substance satisfactory to the Master
Servicer and the Trustee representing and warranting, among other things,
that no purpose of the proposed Transfer is to impede the assessment or
collection of tax.
(C) Notwithstanding the delivery of a Transfer Affidavit and
Agreement by a proposed Transferee under clause (B) above, if a Responsible
Officer of the Trustee assigned to this transaction has actual knowledge
that the proposed Transferee is not a Permitted Transferee, no Transfer of
an Ownership Interest in a Class R Certificate to such proposed Transferee
shall be effected.
(D) Each Person holding or acquiring any Ownership Interest in a
Class R Certificate shall agree (x) to require a Transfer Affidavit and
Agreement from any other Person to whom such Person attempts to transfer
its Ownership Interest in a Class R Certificate and (y) not to transfer its
Ownership Interest unless it provides a certificate to the Trustee in the
form attached hereto as Exhibit G-4.
(E) Each Person holding or acquiring an Ownership Interest in a
Class R Certificate, by purchasing an Ownership Interest in such
Certificate, agrees to give the Trustee written notice that it is a "pass-
through interest holder" within the meaning of Temporary Treasury
Regulations Section 1.67-3T(a)(2)(i)(A) immediately upon acquiring an
Ownership Interest in a Class R Certificate, if it is "a pass-through
interest holder", or is holding an Ownership Interest in a Class R
Certificate on behalf of a "pass-through interest holder."
(ii) The Trustee will register the Transfer of any Class R Certificate
only if it shall have received the Transfer Affidavit and Agreement in the form
attached hereto as Exhibit G-3, a certificate of the holder requesting such
transfer in the form attached hereto as Exhibit G-4 and all of such other
documents as shall have been reasonably required by the Trustee as a condition
to such registration. Transfers of the Class R Certificates to Non-United States
Persons and Disqualified Organizations are prohibited.
(iii) (a) If any Disqualified Organization shall become a holder of a
Class R Certificate, then the last preceding Permitted Transferee shall be
restored, to the extent permitted by law, to all rights and obligations as
holder thereof retroactive to the date of registration of such Transfer of such
Class R Certificate. If a Non-United States Person shall become a holder of a
Class R Certificate, then the last preceding United States Person shall be
restored, to the extent permitted by law, to all rights and obligations as
holder thereof retroactive to the date of registration of such Transfer of such
Class R Certificate. If a transfer of a Class R Certificate is disregarded
pursuant to the provisions of Treasury Regulations Section 1.860E-1 or Section
1.86OG-3, then the last preceding Permitted Transferee shall be restored, to the
extent permitted by law, to all rights and obligations as holder thereof
retroactive to the date of registration of such Transfer of such Class R
Certificate. The Trustee shall be under no liability to any Person for any
registration of Transfer of a Class R Certificate that is in fact not permitted
by this Section 5.02 or for making any payments due on such Certificate to the
holder thereof or for taking any other action with respect to such holder under
the provisions of this Agreement.
(b) If any purported Transferee shall become a holder of a Class R
Certificate in violation of the restrictions in this Section 5.02 and to the
extent that the retroactive restoration of the rights of the holder of such
Class R Certificate as described in clause (iii)(a) above shall be invalid,
illegal or unenforceable, then the Trustee shall have the right, without notice
to the holder or any prior holder of such Class R Certificate, to sell such
Class R Certificate to a purchaser selected by the Trustee on such terms as
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the Trustee may choose. Such purported Transferee shall promptly endorse and
deliver each Class R Certificate in accordance with the instructions of the
Trustee. Such purchaser may be the Trustee itself. The proceeds of such sale,
net of the commissions (which may include commissions payable to the Trustee),
expenses and taxes due, if any, will be remitted by the Trustee to such
purported Transferee. The terms and conditions of any sale under this clause
(iii)(b) shall be determined in the sole discretion of the Trustee, and the
Trustee shall not be liable to any Person having an Ownership Interest in a
Class R Certificate as a result of its exercise of such discretion.
(iv) The Trustee shall make available to the Internal Revenue Service and
those Persons specified by the REMIC Provisions, all information necessary to
compute any tax imposed (A) as a result of the transfer of an ownership interest
in a Class R Certificate to any Person who is a Disqualified Organization,
including the information regarding "excess inclusions" of such Class R
Certificates required to be provided to the Internal Revenue Service and certain
Persons as described in Treasury Regulations Sections 1.86OD-l(b)(5) and 1.860E
2(a)(5), and (B) as a result of any regulated investment company, real estate
investment trust, common trust fund, partnership, trust, estate or organization
described in Section 1381 of the Code that holds an Ownership Interest in a
Class R Certificate having as among its record holders at any time any Person
who is a Disqualified Organization. The Trustee may charge and shall be
entitled to reasonable compensation for providing such information as may be
required from those Persons which may have had a tax imposed upon them as
specified in clauses (A) and (B) of this paragraph for providing such
information.
Subject to the preceding paragraphs, upon surrender for registration of
transfer of any Certificate at the office of the Trustee maintained for such
purpose, the Trustee shall execute and the Trustee or the Authenticating Agent
shall authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Certificates of the same Class of a like aggregate
initial Certificate Principal Balance. Every Certificate surrendered for
transfer shall be accompanied by notification of the account of the designated
transferee or transferees for the purpose of receiving distributions pursuant to
Section 4.01 by wire transfer, if any such transferee desires and is eligible
for distribution by wire transfer.
At the option of the Certificateholders, Certificates may be exchanged for
other Certificates of authorized denominations of the same Class of a like
aggregate initial Certificate Principal Balance, upon surrender of the
Certificates to be exchanged at the office of the Certificate Registrar.
Whenever any Certificates are so surrendered for exchange the Trustee shall
execute, authenticate and deliver the Certificates which the Certificateholder
making the exchange is entitled to receive. Every Certificate presented or
surrendered for transfer or exchange shall (if so required by the Trustee or the
Certificate Registrar) be duly endorsed by, or be accompanied by a written
instrument of transfer in the form satisfactory to the Trustee or the
Certificate Registrar duly executed by, the Holder thereof or his attorney duly
authorized in writing.
No service charge shall be made to the Certificateholders for any transfer
or exchange of Certificates, but the Trustee may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Certificates.
All Certificates surrendered for transfer and exchange shall be canceled
and retained by the Trustee in accordance with the Trustee's standard
procedures.
SECTION 5.03. Mutilated, Destroyed, Lost or Stolen Certificates.
If (i) any mutilated Certificate is surrendered to the Trustee and the
Trustee receives evidence to its satisfaction of the destruction, loss or theft
of any Certificate, and (ii) there is delivered to the Trustee such security or
indemnity as may be required by it to save it harmless, then, in the absence of
notice to the Trustee that such Certificate has been acquired by a bona fide
purchaser, the Trustee shall execute, authenticate and
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deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or
stolen Certificate, a new Certificate of the same Class and initial Certificate
Principal Balance. Upon the issuance of any new Certificate under this Section,
the Trustee may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Any replacement Certificate issued pursuant to this Section shall constitute
complete and indefeasible evidence of ownership in the Trust Fund, as if
originally issued, whether or not the lost, stolen or destroyed Certificate
shall be found at any time.
SECTION 5.04. Persons Deemed Owners.
The Company, the Master Servicer, the Trustee and any agent of any of them
may treat the person in whose name any Certificate is registered as the owner of
such Certificate for the purpose of receiving distributions pursuant to Section
4.01 and for all other purposes whatsoever, and neither the Company, the Master
Servicer, the Trustee nor any agent of any of them shall be affected by notice
to the contrary.
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ARTICLE VI
THE COMPANY AND THE MASTER SERVICER
SECTION 6.01. Liability of the Company and the Master Servicer.
The Company and the Master Servicer each shall be liable in accordance
herewith only to the extent of the obligations specifically imposed upon and
undertaken by the Company and the Master Servicer herein.
SECTION 6.02. Merger, Consolidation or Conversion of the Company or the
Master Servicer.
The Company and the Master Servicer each will keep in full effect its
existence, rights and franchises as a corporation under the laws of the state of
its incorporation, and each will obtain and preserve its qualification to do
business as a foreign corporation in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of this Agreement, the Certificates or any of the Mortgage Loans
and to perform its respective duties under this Agreement; and provided further
that the Rating Agencies' ratings of the Class A Certificates immediately prior
to such merger or consolidation will not be qualified, reduced or withdrawn as a
result thereof (as evidenced by a letter to such effect from the Rating
Agencies).
Any Person into which the Company or the Master Servicer may be merged,
consolidated or converted, or any corporation resulting from any merger or
consolidation to which the Company or the Master Servicer shall be a party, or
any Person succeeding to the business of the Company or the Master Servicer,
shall be the successor of the Company or the Master Servicer, as the case may
be, hereunder, without the execution or filing of any paper or any further act
on the part of any of the parties hereto, anything herein to the contrary
notwithstanding; provided, however, that the successor or surviving Person to
the Master Servicer shall be qualified to sell mortgage loans to and service
mortgage loans for FNMA or FHLMC.
SECTION 6.03. Limitation on Liability of the Company, the Master Servicer
and Others.
Neither the Company, the Master Servicer nor any of the directors,
officers, employees or agents of the Company or the Master Servicer shall 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
this Agreement, or for errors in judgment; provided, however, that this
provision shall not protect the Company or the Master Servicer (but this
provision shall protect the above described persons) against any breach of
warranties or representations made herein, or against any specific liability
imposed on the Master Servicer pursuant to Section 3.01 or any other Section
hereof; and provided further that this provision shall not protect the Company,
the Master Servicer or any such person, 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 hereunder. The Company, the Master Servicer and any
director, officer, employee or agent of the Company or the Master Servicer may
rely in good faith on any document of any kind prima facie properly executed and
----- -----
submitted by any Person respecting any matters arising hereunder. The Company,
the Master Servicer and any director, officer, employee or agent of the Company
or the Master Servicer shall be indemnified and held harmless by the Trust Fund
against any loss, liability or expense incurred in connection with any legal
action relating to this Agreement or the Certificates, other than any loss,
liability or expense related to Master Servicer's servicing obligations with
respect to any specific Mortgage Loan or Mortgage Loans (except as any such
loss, liability or expense shall be otherwise reimbursable pursuant to this
Agreement) or related to the Master Servicer's obligations under Section 3.01,
or any loss, liability or expense incurred by reason of willful misfeasance, bad
faith or gross negligence in the performance of duties hereunder or by reason of
reckless disregard of obligations and duties hereunder.
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Neither the Company nor the Master Servicer shall be under any obligation to
appear in, prosecute or defend any legal action which is not incidental to its
respective duties under this Agreement and which in its opinion may involve it
in any expense or liability; provided, however, that the Company or the Master
Servicer may in its sole discretion undertake any such action which it may deem
necessary or desirable with respect to this Agreement and the rights and duties
of the parties hereto and the interests of the Certificateholders hereunder. In
such event, the legal expenses and costs of such action and any liability
resulting therefrom (except any action or liability related to the Master
Servicer's obligations under Section 3.01) shall be expenses, costs and
liabilities of the Trust Fund, and the Company and the Master Servicer shall be
entitled to be reimbursed therefor from the Certificate Account as provided in
Section 3.11, any such right of reimbursement being prior to the rights of
Certificateholders to receive any amount in the Certificate Account.
SECTION 6.04. Limitation on Resignation of the Master Servicer.
The Master Servicer shall not resign from the obligations and duties hereby
imposed on it except (a) upon appointment of a successor servicer reasonably
acceptable to the Trustee and upon receipt by the Trustee of a letter from each
Rating Agency that such a resignation and appointment will not, in and of
itself, result in a downgrading of the Certificates or (b) upon determination
that its duties hereunder are no longer permissible under applicable law (any
such determination permitting the resignation of the Master Servicer to be
evidenced by an Opinion of Counsel (at the expense of the resigning Master
Servicer) to such effect delivered to the Trustee). No such resignation shall
become effective until the Trustee or a successor servicer shall have assumed
the Master Servicer's responsibilities, duties, liabilities and obligations
hereunder.
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ARTICLE VII
DEFAULT
SECTION 7.01. Events of Default.
"Event of Default", wherever used herein, means any one of the following
events:
(i) any failure by the Master Servicer to remit to the Trustee for
distribution to the Certificateholders any payment (other than an Advance)
required to be made under the terms of the Certificates or this Agreement
which continues unremedied for a period of one day after the date upon
which written notice of such failure, requiring the same to be remedied,
shall have been given to the Master Servicer by the Company (with a copy to
the Trustee) or the Trustee, or to the Master Servicer, the Company and the
Trustee by the Holders of Certificates entitled to at least 25% of the
Voting Rights; or
(ii) any failure on the part of the Master Servicer duly to observe
or perform in any material respect any other of the covenants or agreements
on the part of the Master Servicer contained in the Certificates or in this
Agreement (including any breach of the Master Servicer's representations
and warranties pursuant to Section 2.03(a) which materially and adversely
affects the interests of the Certificateholders) which continues unremedied
for a period of 30 days after the date on which written notice of such
failure, requiring the same to be remedied, shall have been given to the
Master Servicer by the Company (with a copy to the Trustee) or the Trustee,
or to the Master Servicer, the Company and the Trustee by the Holders of
Certificates entitled to at least 25% of the Voting Rights; or
(iii) a decree or order of a court or agency or supervisory
authority having jurisdiction in an involuntary case under any present or
future federal or state bankruptcy, insolvency or similar law or the
appointment of a conservator or receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings, or for the winding-up or liquidation of its affairs, shall
have been entered against the Master Servicer and such decree or order
shall have remained in force undischarged or unstayed for a period of 60
consecutive days; or
(iv) the Master Servicer shall consent to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment of
debt, marshalling of assets and liabilities or similar proceedings of or
relating to the Master Servicer or of or relating to all or substantially
all of its property; or
(v) the Master Servicer shall admit in writing its inability to
pay its debts generally as they become due, file a petition to take
advantage of or otherwise voluntarily commence a case or proceeding under
any applicable bankruptcy, insolvency, reorganization or other similar
statute, make an assignment for the benefit of its creditors, or
voluntarily suspend payment of its obligations; or
(vi) the Master Servicer shall fail to deposit in the Certificate
Account on any Certificate Account Deposit Date an amount equal to any
required Advance.
If the Master Servicer shall fail to make any deposit in the Certificate Account
as required by Section 4.01, the Trustee shall give the Master Servicer notice
pursuant to clause (i) not later than the Business Day following the Certificate
Account Deposit Date. If an Event of Default described in clauses (i) - (v) of
this Section shall occur, then, and in each and every such case, so long as such
Event of Default shall not have
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been remedied, the Company or the Trustee may, and at the direction of the
Holders of Certificates entitled to at least 51% of the Voting Rights, the
Trustee shall, by notice to the Master Servicer (and to the Company if given by
the Trustee or to the Trustee if given by the Company) terminate all of the
rights and obligations of the Master Servicer under this Agreement and in and to
the Trust Fund, other than its rights as a Certificateholder hereunder and the
Company, terminate all of the rights and obligations of the Master Servicer
under this Agreement and in and to the Trust Fund, other than its rights as a
Certificateholder hereunder. If an Event of Default described in clause (vi)
hereof shall occur, the Trustee shall, by notice to the Master Servicer and the
Company, terminate all of the rights and obligations of the Master Servicer
under this Agreement and in and to the Trust Fund, other than its rights as a
Certificateholder hereunder. On or after the receipt by the Master Servicer of
such notice, all authority and power of the Master Servicer under this
Agreement, whether with respect to the Certificates (other than as a holder
thereof) or the Mortgage Loans or other wise, shall pass to and be vested in the
Trustee pursuant to and under this Section, and, without limitation, the Trustee
is hereby authorized and empowered to execute and deliver, on behalf of the
Master Servicer, as attorney-in-fact or otherwise, any and all documents and
other instru ments, and to do or accomplish all other acts or things necessary
or appropriate to effect the purposes of such notice of termination, whether to
complete the transfer and endorsement or assignment of the Mortgage Loans and
related documents, or otherwise. The Master Servicer agrees to cooperate with
the Trustee in effecting the termination of the Master Servicer's
responsibilities and rights hereunder, including, without limitation, the
transfer to the Trustee or its appointed agent for administration by it of all
cash amounts which shall at the time be deposited by the Master Servicer or
should have been deposited to the Custodial or the Certificate Account or
thereafter be received with respect to the Mortgage Loans. The Trustee shall not
be deemed to have breached any obligation hereunder as a result of a failure to
make or delay in making any distribution as and when required hereunder caused
by the failure of the Master Servicer to remit any amounts received on it or to
deliver any documents held by it with respect to the Mortgage Loans. For
purposes of this Section 7.01, the Trustee shall not be deemed to have knowledge
of an Event of Default unless a Responsible Officer of the Trustee assigned to
and working in the Trustee's Corporate Trust Division has actual knowledge
thereof or unless notice of any event which is in fact such an Event of Default
is received by the Trustee and such notice references the Certificates, the
Trust Fund or this Agreement.
[Notwithstanding any termination of the activities of ICI Funding
Corporation ("ICIFC") in its capacity as Master Servicer hereunder, ICIFC shall
be entitled to receive, out of any Late Collection of a Monthly Payment on a
Mortgage Loan which was due prior to the notice terminating ICIFC rights and
obligations as Master Servicer hereunder and received after such notice, that
portion to which ICIFC would have been entitled pursuant to Sections 3.11 (ii),
(iii), (iv), (v) and (viii) and Section 4. 01 (b)(iii) as well as the portion of
its related Servicing Fee in respect thereof, and any other amounts payable to
ICIFC hereunder the entitlement to which arose prior to the termination of its
activities hereunder.]
SECTION 7.02. Trustee to Act; Appointment of Successor.
On and after the time the Master Servicer receives a notice of termination
pursuant to Section 7.01, the Trustee or its appointed agent shall be the
successor in all respects to the Master Servicer in its capacity as Master
Servicer under this Agreement and the transactions set forth or provided for
herein and shall be subject thereafter to all the responsibilities, duties and
liabilities relating thereto placed on the Master Servicer including the
obligation to make Advances which have been or will be required to be made
(except for the responsibilities, duties and liabilities contained in Section
2.03 and its obligations to deposit amounts in respect of losses incurred prior
to the date of succession pursuant to Section 3.12 and 4.01(e)) by the terms and
provisions hereof; and provided further, that any failure to perform such duties
or responsibilities caused by the Master Servicer's failure to provide
information required by Section 4.03 shall not be considered a default by the
Trustee hereunder. As compensation therefor, the Trustee shall be entitled to
all funds relating to the Mortgage Loans which the Master Servicer would have
been entitled to charge to the Custodial Account and
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the Certificate Account if the Master Servicer had continued to act hereunder.
Notwithstanding the above, the Trustee may, if it shall be unwilling to so act,
or shall, if it is unable to so act or if the Holders of Certificates entitled
to at least 51% of the Voting Rights so request in writing to the Trustee,
appoint, or petition a court of competent jurisdiction to appoint, any FNMA- or
FHLMC approved mortgage servicing institution having a net worth of not less
than $10,000,000 as the successor to the Master Servicer hereunder in the
assumption of all or any part of the responsibilities, duties or liabilities of
the Master Servicer hereunder. Pending appointment of a successor to the Master
Servicer hereunder, the Trustee shall act in such capacity as hereinabove
provided. In connection with such appointment and assumption, the Trustee may
make such arrangements for the compensation of such successor out of payments on
Mortgage Loans as it and such successor shall agree; provided, however, that no
such compensation shall be in excess of that permitted the Master Servicer
hereunder. The Trustee and such successor shall take such action, consistent
with this Agreement, as shall be necessary to effectuate any such succession;
provided, however, that such succession shall not reduce the ratings of the
Certificates below the original ratings thereof.
Any successor, including the Trustee, to the Master Servicer shall maintain
in force during its term as master servicer hereunder the Insurance Policies and
fidelity bonds to the same extent as the Master Servicer is so required pursuant
to Sections 3.13 and 3.18.
SECTION 7.03. Notification to Certificateholders.
(a) Upon any such termination or appointment of a successor to the Master
Servicer, the Trustee shall give prompt notice thereof to Certificateholders.
(b) Within 60 days after the occurrence of any Event of Default, the
Trustee shall transmit by mail to all Holders of Certificates notice of each
such Event of Default hereunder known to the Trustee, unless such Event of
Default shall have been cured or waived.
SECTION 7.04. Waiver of Events of Default.
The Holders representing at least 66% of the Voting Rights of Certificates
affected by a default or Event of Default hereunder, may waive such default or
Event of Default (other than an Event of Default set forth in Section 7.01(vi);
provided, however, that (a) a default or Event of Default under clause (i) of
- -------- -------
Section 7.01 may be waived only by all of the Holders of Certificates affected
by such default or Event of Default and (b) no waiver pursuant to this Section
7.04 shall affect the Holders of Certificates in the manner set forth in the
second paragraph of Section 11.01 or materially adversely affect any non-
consenting Certificateholder. Upon any such waiver of a default or Event of
Default by the Holders representing the requisite percentage of Voting Rights of
Certificates affected by such default or Event of Default, such default or Event
of Default shall cease to exist and shall be deemed to have been remedied for
every purpose hereunder. No such waiver shall extend to any subsequent or other
default or Event of Default or impair any right consequent thereon except to the
extent expressly so waived.
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ARTICLE VIII
CONCERNING THE TRUSTEE
SECTION 8.01. Duties of Trustee.
The Trustee, prior to the occurrence of an Event of Default and after the
curing of all Events of Default which may have occurred, undertakes to perform
such duties and only such duties as are specifically set forth in this
Agreement. If an Event of Default occurs and is continuing, the Trustee shall
exercise such of the rights and powers vested in it by this Agreement, and use
the same degree of care and skill in their exercise as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs. Any
permissive right of the Trustee enumerated in this Agreement shall not be
construed as a duty.
The Trustee, upon receipt of all resolutions, certificates, statements,
opinions, reports, documents, orders or other instruments furnished to the
Trustee which are specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to determine whether they
conform to the requirements of this Agreement. If any such instrument is found
not to conform to the requirements of this Agreement in a material manner, the
Trustee shall take action as it deems appropriate to have the instrument
corrected.
The Trustee shall sign on behalf of the Trust Fund any tax return that the
Trustee is required to sign pursuant to applicable federal, state or local tax
laws.
The Trustee covenants and agrees that it shall perform its obligations
hereunder in a manner so as to maintain the status of the Trust Fund as a REMIC
under the REMIC Provisions and to prevent the imposition of any federal, state
or local income, prohibited transaction, contribution or other tax on the Trust
Fund to the extent that maintaining such status and avoiding such taxes are
reasonably within the control of the Trustee and are reasonably within the scope
of its duties under this Agreement.
No provision of this Agreement shall be construed to relieve the Trustee
from liability for its own negligent action, its own negligent failure to act or
its own misconduct; provided, however, that:
(i) Prior to the occurrence of an Event of Default, and after the
curing of all such Events of Default which may have occurred, the duties
and obligations of the Trustee shall be determined solely by the express
provisions of this Agreement, the Trustee shall not be liable except for
the performance of such duties and obligations as are specifically set
forth in this Agreement, no implied covenants or obligations shall be read
into this Agreement against the Trustee and, in the absence of bad faith on
the part of the Trustee, the Trustee may conclusively rely, as to the truth
of the statements and the correctness of the opinions expressed therein,
upon any certificates or opinions furnished to the Trustee and conforming
to the requirements of this Agreement;
(ii) The Trustee shall not be personally liable for an error of
judgment made in good faith by a Responsible Officer or Responsible
Officers of the Trustee, unless it shall be proved that the Trustee was
negligent in ascertaining the pertinent facts;
(iii) The Trustee shall not be personally liable with respect to any
action taken, suffered or omitted to be taken by it in good faith in
accordance with the direction of Holders of Certificates entitled to at
least 25% of the Voting Rights relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under this
Agreement.
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SECTION 8.02. Certain Matters Affecting the Trustee.
Except as otherwise provided in Section 8.01:
(a) The Trustee may request and rely upon and shall be protected in
acting or refraining from acting upon any resolution, Officers'
Certificate, certificate of auditors or any other certificate, statement,
instrument, opinion, report, notice, request, consent, order, appraisal,
bond or other paper or document reasonably believed by it to be genuine and
to have been signed or presented by the proper party or parties;
(b) The Trustee may consult with counsel and any Opinion of Counsel
shall be full and complete authorization and protection in respect of any
action taken or suffered or omitted by it hereunder in good faith and in
accordance therewith;
(c) The Trustee shall be under no obligation to exercise any of the
trusts or powers vested in it by this Agreement or to make any
investigation of matters arising hereunder or to institute, conduct or
defend any litigation hereunder or in relation hereto at the request, order
or direction of any of the Certificateholders, pursuant to the provisions
of this Agreement, unless such Certificateholders shall have offered to the
Trustee reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred therein or thereby; nothing contained
herein shall, however, relieve the Trustee of the obligation, upon the
occurrence of an Event of Default (which has not been cured), to exercise
such of the rights and powers vested in it by this Agreement, and to use
the same degree of care and skill in their exercise as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs;
(d) The Trustee shall not be personally liable for any action
taken, suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon it
by this Agreement;
(e) Prior to the occurrence of an Event of Default hereunder and
after the curing of all Events of Default which may have occurred, the
Trustee shall not be bound to make any investigation into the facts or
matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, bond or other
paper or document, unless requested in writing to do so by Holders of
Certificates entitled to at least 25% of the Voting Rights; provided,
however, that if the payment within a reasonable time to the Trustee of the
costs, expenses or liabilities likely to be incurred by it in the making of
such investigation is, in the opinion of the Trustee, not reasonably
assured to the Trustee by the security afforded to it by the terms of this
Agreement, the Trustee may require reasonable indemnity against such
expense or liability as a condition to taking any such action. The
reasonable expense of every such reasonable examination shall be paid by
the Master Servicer or, if paid by the Trustee, shall be repaid by the
Master Servicer upon demand; and
(f) The Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through agents or
attorneys.
SECTION 8.03. Trustee Not Liable for Certificates or Mortgage Loans.
The recitals contained herein and in the Certificates, other than the
signature of the Trustee on the Certificates and the certificate of
authentication, shall be taken as the state ments of the Company or the Master
Servicer, as the case may be, and the Trustee assumes no responsibility for
their correctness. The
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Trustee makes no representations or warranties as to the validity or sufficiency
of this Agreement or of the Certificates or of any Mortgage Loan or related
document, other than the signature of the Trustee on the Certificates and the
Certificate of Authentication. The Trustee shall not be accountable for the use
or application by the Company or the Master Servicer of any of the Certificates
or of the proceeds of such Certificates, or for the use or application of any
funds paid to the Seller in respect of the Mortgage Loans or deposited in or
withdrawn from the Custodial Account or the Certificate Account or any other
account by or on behalf of the Company or the Master Servicer, other than any
funds held by or on behalf of the Trustee in accordance with Section 4.01.
SECTION 8.04. Trustee May Own Certificates.
The Trustee in its individual or any other capacity may become the owner or
pledgee of Certificates with the same rights it would have if it were not
Trustee.
SECTION 8.05. Payment of Trustee's Fees.
The Trustee shall withdraw from the Certificate Account on each
Distribution Date and pay to itself the Trustee's Fee. Except as otherwise
provided in this Agreement, the Trustee and any director, officer, employee or
agent of the Trustee shall be indemnified by the Trust Fund and held harmless
against any loss, liability or "unanticipated out-of-pocket" expense incurred or
paid to third parties (which expenses shall not include salaries paid to
employees, or allocable overhead, of the Trustee) in connection with the
acceptance or administration of its trusts hereunder or the Certificates, other
than any loss, liability or expense incurred by reason of willful misfeasance,
bad faith or negligence in the performance of duties hereunder or by reason of
reckless disregard of obligations and duties hereunder all such amounts shall be
payable from funds in the Custodial Account as provided in Section 3.11. The
provisions of this Section 8.05 shall survive the termination of this Agreement.
The Master Servicer shall indemnify the Trustee and any director, officer,
employee or agent of the Trustee against any loss, liability or expense that may
be sustained in connection with this Agreement related to the willful
misfeasance, bad faith or negligence in the performance of its duties hereunder.
SECTION 8.06. Eligibility Requirements for Trustee.
The Trustee hereunder shall at all times be a corporation or a national
banking association organized and doing business under the laws of any state or
the United States of America or the District of Columbia, authorized under such
laws to exercise corporate trust powers, having a combined capital and surplus
of at least $50,000,000 and subject to supervision or examination by federal or
state authority. In addition, the Trustee shall at all times be acceptable to
the Rating Agency rating the Certificates. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of the aforesaid supervising or examining authority, then for the purposes of
this Section the combined capital and surplus of such corporation shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. In case at any time the Trustee shall cease
to be eligible in accordance with the provisions of this Section, the Trustee
shall resign immediately in the manner and with the effect specified in Section
8.07. The corporation or national banking association serving as Trustee may
have normal banking and trust relationships with the Seller and its affiliates
or the Master Servicer and its affiliates; provided, however, that such
corporation cannot be an affiliate of the Master Servicer other than the Trustee
in its role as successor to the Master Servicer.
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SECTION 8.07. Resignation and Removal of the Trustee.
The Trustee may at any time resign and be discharged from the trusts hereby
created by giving notice thereof to the Company, the Master Servicer and to all
Certificateholders; provided, that such resignation shall not be effective until
a successor trustee is appointed and accepts appointment in accordance with the
following provisions. Upon receiving such notice of resignation, the Company
shall promptly appoint a successor trustee who meets the eligibility
requirements of Section 8.06 by written instrument, in duplicate, which
instrument shall be delivered to the resigning Trustee and to the successor
trustee. A copy of such instrument shall be delivered to the Certificateholders
and the Master Servicer by the Company. If no successor trustee shall have been
so appointed and have accepted appointment within 60 days after the giving of
such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor trustee; provided,
however, that the resigning Trustee shall not resign and be discharged from the
trusts hereby created until such time as the Rating Agency rating the
Certificates approves the successor trustee.
If at any time the Trustee shall cease to be eligible in accordance with
the provisions of Section 8.06 and shall fail to resign after written request
therefor by the Company or the Master Servicer, or if at any time the Trustee
shall become incapable of acting, or shall be adjudged bankrupt or insolvent, or
a receiver of the Trustee or of its property shall be appointed, or any public
officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation, or if
the rating of the long-term debt obligations of the Trustee is not acceptable to
the Rating Agency in respect of mortgage pass-through certificates having a
rating equal to the then current rating on the Certificates, then the Company
may remove the Trustee and appoint a successor trustee who meets the eligibility
requirements of Section 8.06 by written instrument, in duplicate, which
instrument shall be delivered to the Trustee so removed and to the successor
trustee. A copy of such instrument shall be delivered to the Certificateholders
and the Master Servicer by the Company.
The Holders of Certificates entitled to at least 51% of the Voting Rights
may at any time remove the Trustee and appoint a successor trustee by written
instrument or instruments, in triplicate, signed by such Holders or their
attorneys-in-fact duly authorized, one complete set of which instruments shall
be delivered to the Master Servicer, one complete set to the Trustee so removed
and one complete set to the successor so appointed. A copy of such instrument
shall be delivered to the Certificateholders and the Master Servicer by the
Company.
Any resignation or removal of the Trustee and appointment of a successor
trustee pursuant to any of the provisions of this Section shall not become
effective until acceptance of appointment by the successor trustee as provided
in Section 8.08.
SECTION 8.08. Successor Trustee.
Any successor trustee appointed as provided in Section 8.07 shall execute,
acknowledge and deliver to the Master Servicer and to its predecessor trustee an
instrument accepting such appointment hereunder, and thereupon the resignation
or removal of the prede cessor trustee shall become effective and such successor
trustee, without any further act, deed or conveyance, shall become fully vested
with all the rights, powers, duties and obligations of its predecessor
hereunder, with the like effect as if originally named as trustee herein. The
predecessor trustee shall deliver to the successor trustee all Mortgage Files
and related documents and statements held by it hereunder, and the Master
Servicer and the predecessor trustee shall execute and deliver such instruments
and do such other things as may reasonably be required for more fully and
certainly vesting and confirming in the successor trustee all such rights,
powers, duties and obligations.
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No successor trustee shall accept appointment as provided in this Section
unless at the time of such acceptance such successor trustee shall be eligible
under the provisions of Section 8.06.
Upon acceptance of appointment by a successor trustee as provided in this
Section, the Master Servicer shall mail notice of the succession of such trustee
hereunder to all Holders of Certificates at their addresses as shown in the
Certificate Register. If the Master Servicer fails to mail such notice within
ten days after acceptance of appointment by the successor trustee, the successor
trustee shall cause such notice to be mailed at the expense of the Master
Servicer.
SECTION 8.09. Merger or Consolidation of Trustee.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to the business of the Trustee, shall be the successor of
the Trustee hereunder, provided such corporation shall be eligible under the
provisions of Section 8.06, without the execution or filing of any paper or any
further act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding.
SECTION 8.10. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions hereof, at any time, for the purpose
of meeting any legal requirements of any jurisdiction in which any part of the
Trust Fund or property securing the same may at the time be located, the Company
and the Trustee acting jointly shall have the power and shall execute and
deliver all instruments to appoint one or more Persons approved by the Trustee
to act as co-trustee or co-trustees, jointly with the Trustee, or separate
trustee or separate trustees, of all or any part of the Trust Fund, and to vest
in such Person or Persons, in such capacity, such title to the Trust Fund, or
any part thereof, and, subject to the other provisions of this Section 8. 10,
such powers, duties, obligations, rights and trusts as the Company and the
Trustee may consider necessary or desirable. If the Company shall not have
joined in such appointment within 15 days after the receipt by it of a request
so to do, or in case an Event of Default shall have occurred and be continuing,
the Trustee alone shall have the power to make such appointment. No co-trustee
or separate trustee hereunder shall be required to meet the terms of eligibility
as a successor trustee under Section 8.06 hereunder and no notice to Holders of
Certificates of the appointment of co-trustee(s) or separate trustee(s) shall be
required under Section 8.08 hereof.
In the case of any appointment of a co-trustee or separate trustee pursuant
to this Section 8. 10 all rights, powers, duties and obligations conferred or
imposed upon the Trustee shall be conferred or imposed upon and exercised or
performed by the Trustee and such separate trustee or co-trustee jointly, except
to the extent that under any law of any jurisdiction in which any particular act
or acts are to be performed (whether as Trustee hereunder or as successor to the
Master Servicer hereunder), the Trustee shall be incompetent or unqualified to
perform such act or acts, in which event such rights, powers, duties and
obligations (including the holding of title to the Trust Fund or any portion
thereof in any such jurisdiction) shall be exercised and performed by such
separate trustee or co-trustee at the direction of the Trustee.
Any notice, request or other writing given to the Trustee shall be deemed
to have been given to each of the then separate trustees and co-trustees, as
effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Article VIII. Each separate trustee and co-trustee, upon its acceptance
of the trusts conferred, shall be vested with the estates or property specified
in its instrument of appointment, either jointly with the Trustee or separately,
as may be provided therein, subject to all the provisions of this Agreement,
specifically including every provision of this Agreement relating to the conduct
of, affecting the liability of, or affording protection to, the
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Trustee. Every such instrument shall be filed with the Trustee.
Any separate trustee or co-trustee may, at any time, constitute the
Trustee, its agent or attorney-in-fact, with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor trustee.
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ARTICLE IX
TERMINATION
SECTION 9.01. Termination Upon Repurchase or Liquidation of All Mortgage
Loans.
Subject to Section 9.02, the respective obligations and responsibilities of
the Company, the Master Servicer and the Trustee created hereby (other than the
obligations of the Master Servicer to provide for and the Trustee to make
payments to Certificateholders as hereafter set forth) shall terminate upon
payment to the Certificateholders of all amounts held by or on behalf of the
Trustee and required to be paid to them hereunder following the earlier to occur
of (i) the repurchase by the Master Servicer of all Mortgage Loans and each REO
Property in respect thereof remaining in the Trust Fund at a price equal to (a)
100% of the unpaid principal balance of each Mortgage Loan (other than one as to
which a REO Property was acquired) on the day of repurchase together with
accrued interest on such unpaid principal balance at the related Net Mortgage
Rate to the first day of the month in which the proceeds of such repurchase are
to be distributed, plus (b) the appraised value of any REO Property less the
good faith estimate of the Master Servicer of liquidation expenses to be
incurred in connection with its disposal thereof, such appraisal to be conducted
by an appraiser mutually agreed upon by the Master Servicer and the Trustee at
the expense of the Master Servicer, (but not more than the unpaid principal
balance of the related Mortgage Loan, together with accrued interest on that
balance at the Net Mortgage Rate to the first day of the month of repurchase),
and (ii) the final payment or other liquidation (or any Advance with respect
thereto) of the last Mortgage Loan remaining in the Trust Fund (or the
disposition of all REO Property in respect thereof); provided, however, that in
no event shall the trust created hereby continue beyond expiration of 21 years
from the death of the last survivor of the descendants of Joseph P. Kennedy, the
late ambassador of the United States to the Court of St. James, living on the
date hereof. In the case of any repurchase by the Master Servicer pursuant to
clause (i), the Master Servicer shall include in such repurchase price the
amount of any Advances that will be reimbursed to the Master Servicer pursuant
to Section 3.11 (iii) and the Master Servicer shall exercise reasonable efforts
to cooperate fully with the Trustee in effecting such repurchase and the
transfer of the Mortgage Loans and related Mortgage Files and related records to
the Master Servicer.
The right of the Master Servicer to repurchase all Mortgage Loans pursuant
to (i) above shall be conditioned upon the aggregate Stated Principal Balance of
such Mortgage Loans at the time of any such repurchase aggregating an amount
equal to or less than ___% of the aggregate Stated Principal Balance of the
Mortgage Loans at the Cut-off Date. If such right is exercised, the Master
Servicer upon such repurchase shall provide to the Trustee, the certifica tion
required by Section 3.16.
Notice of any termination, specifying the Distribution Date upon which the
Certificateholders may surrender their Certificates to the Trustee for payment
of the final distri bution and cancellation, shall be given promptly by the
Master Servicer by letter to the Trustee and shall be given promptly by the
Trustee to the Certificateholders mailed (a) in the event such notice is given
in connection with the Master Servicer's election to repurchase, not earlier
than the 15th day and not later than the 25th day of the month next preceding
the month of such final distribution or (b) otherwise during the month of such
final distribution on or before the Determination Date in such month, in each
case specifying (i) the Distribution Date upon which final payment of the
Certificates will be made upon presentation and surrender of Certificates at the
office of the Certificate Registrar therein designated, (ii) the amount of any
such final payment and (iii) that the Record Date otherwise applicable to such
Distribution Date is not applicable, payments being made only upon presentation
and surrender of the Certificates at the office of the Certificate Registrar
therein specified. In the event such notice is given in connection with the
Master Servicer's election to repurchase, the Master Servicer shall deposit in
the Custodial Account pursuant to Section 3. 10 on the last day of the related
Prepayment Period an amount equal to the above-described repurchase price
payable out of its own funds. Upon presentation
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and surrender of the Certificates by the Certificateholders, the Trustee shall
distribute to the Certificateholders (i) the amount otherwise distributable on
such Distribution Date, if not in connection with the Master Servicer's election
to repurchase, or (ii) if the Master Servicer elected to so repurchase, an
amount determined as follows: with respect to each Class A and Class B
Certificate, the outstanding Certificate Principal Balance thereof, plus one
month's interest thereon at the applicable Pass-Through Rate and any previously
unpaid Accrued Certificate Interest, subject to the priority set forth in
Section 4.01(b); and with respect to each Class R Certificate, the Percentage
Interest evidenced thereby multiplied by the difference, if any, between the
above described repurchase price and the aggregate amount to be distributed to
the Class A and Class B Certificateholders. Upon certification to the Trustee by
a Servicing Officer, following such final deposit, the Trustee shall promptly
release the Mortgage Files as directed by the Master Servicer for the remaining
Mortgage Loans, and the Trustee shall execute all assignments, endorsements and
other instruments required by the Master Servicer as being necessary to
effectuate such transfer.
In the event that all of the Certificateholders shall not surrender their
Certificates for cancellation within six months after the time specified in the
above-mentioned notice, the Trustee shall give a second notice to the remaining
Certificateholders to surrender their Certificates for cancellation and receive
the final distribution with respect thereto. If within six months after the
second notice all of the Certificates shall not have been surrendered for
cancellation, the Trustee shall take reasonable steps as directed by the
Company, or appoint an agent to take reasonable steps, to contact the remaining
Certificateholders concerning surrender of their Certificates, and the cost
thereof shall be paid out of the funds and other assets which remain subject
hereto. If, within nine months after the second notice, all of the Certificates
shall not have been surrendered for cancellation, the Class R Certificateholders
shall be entitled to all unclaimed funds and other assets which remain subject
hereto.
SECTION 9.02. Additional Termination Requirements.
(a) In the event the Master Servicer repurchases the Mortgage Loans as
provided in Section 9.01, the Trust Fund shall be terminated in accordance with
the following additional requirements, unless the Master Servicer obtains for
the Trustee an Opinion of Counsel to the effect that the failure of the Trust
Fund to comply with the requirements of this Section 9.02 will not (i) result in
the imposition of taxes on the net income derived from "prohibited transactions"
of the Trust Fund as defined in Section 86OF of the Code or (ii) cause the Trust
Fund to fail to qualify as a REMIC at any time that any Certificates are
outstanding:
(i) The Trustee shall establish a 90-day liquidation period and
specify the first day of such period in a statement attached to the Trust
Fund's final Tax Return pursuant to Treasury Regulation (S)1.86OF-1. The
Trustee shall satisfy all the requirements of a qualified liquidation under
86OF of the Code and any regulations thereunder, as evidenced by an Opinion
of Counsel obtained at the expense of the Master Servicer;
(ii) During such 90-day liquidation period, and at or prior to the
time of making of the final payment on the Certificates, the Master
Servicer shall sell all of the assets of the Trust Fund for cash; and
(iii) At the time of the making of the final payment on the
Certificates, the Trustee shall distribute or credit, or cause to be
distributed or credited, to the Holders of the Class R Certificates all
remaining cash on hand (other than cash retained to meet claims), and the
Trust Fund shall terminate at that time.
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(b) By their acceptance of the Class R Certificates, the Holders thereof
hereby agree to authorize the Trustee to specify the 90-day liquidation period
for the Trust Fund, which authorization shall be binding upon all successor
Class R Certificateholders.
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ARTICLE X
REMIC PROVISIONS
SECTION 10.01. REMIC Administration.
(a) The Trustee shall make an election to treat the Trust Fund as a REMIC
under the Code and, if necessary, under applicable state law. Such election
will be made on Form 1066 or other appropriate federal tax or information return
or any appropriate state return for the taxable year ending on the last day of
the calendar year in which the Certificates are issued. For the purposes of the
REMIC election in respect of the Trust Fund, the Class A and Class B
Certificates shall be designated as the "regular interests" and the Class R
Certificates shall be designated as the sole class of "residual interest" in the
Trust Fund. The Trustee shall not permit the creation of any "interests" in the
Trust Fund (within the meaning of Section 86OG of the Code) other than the
Regular Certificates and the Residual Certificates.
(b) The Closing Date is hereby designated as the "startup day" of the
Trust Fund within the meaning of Section 86OG(a)(9) of the Code.
(c) The Trustee shall hold a Class R Certificate representing a 0.01 %
Percentage interest of all Class R Certificates and shall be designated as the
tax matters person of the Trust Fund in the manner provided under Treasury
regulations section 1.86OF-4(d) and temporary Treasury regulations section
301.6231(a)(7)-1T. The Trustee, as tax matters person, shall (i) act on behalf
of the Trust Fund in relation to any tax matter or controversy involving the
Trust Fund and (ii) represent the Trust Fund in any administrative or judicial
proceeding relating to an examination or audit by any governmental taxing
authority with respect thereto. To the extent authorized under the Code and the
regulations promulgated thereunder, each Holder of a Class R Certificate, hereby
irrevocably appoints and authorizes the Trustee to be its attorney-in-fact for
purposes of signing any Tax Returns required to be filed on behalf of the Trust
Fund. The legal expenses and costs of any such action described in this
subsection and any liability resulting therefrom shall constitute expenses of
the Trust Fund and the Trustee shall be entitled to reimbursement therefor
unless such legal expenses and costs are incurred by reason of the Trustee's
willful misfeasance, bad faith or negligence.
(d) Except as provided in Section 4.05, the Trustee shall prepare or cause
to be prepared, sign and file all of the Tax Returns in respect of the Trust
Fund created hereunder. The expenses of preparing and filing such returns shall
be borne by the Trustee without any right of reimbursement therefor.
(e) The Trustee shall perform on behalf of the Trust Fund all reporting
and other tax compliance duties that are the responsibility of the Trust Fund
under the Code, REMIC Provisions or other compliance guidance issued by the
Internal Revenue Service or any state or local taxing authority. Among its other
duties, as required by the Code, the REMIC Provisions or other such compliance
guidance, the Trustee shall provide (i) to any Transferor of a Class R
Certificate such information as is necessary for the application of any tax
relating to the transfer of a Class R Certificate to any Person who is not a
Permitted Transferee, (ii) Certificateholders such information or reports as are
required by the Code or the REMIC Provisions including reports relating to
interest, original issue discount and market discount or premium (using the
Prepayment Assumption) and (iii) to the Internal Revenue Service the name,
title, address and telephone number of the person who will serve as the
representative of the Trust Fund. In addition, the Company shall provide or
cause to be provided to the Trustee, within ten (10) days after the Closing
Date, all information or data that the Trustee reasonably determines to be
relevant for tax purposes as to the valuations and issue prices of the
Certificates, including, without limitation, the price, yield, prepayment
assumption and projected cash flow of the Certificates.
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(f) The Trustee shall take such action and shall cause the Trust Fund
created hereunder to take such action as shall be necessary to create or
maintain the status thereof as a REMIC under the REMIC Provisions (and the
Master Servicer shall assist it, to the extent reasonably requested by it). The
Trustee shall not take any action, cause the Trust Fund to take any action or
fail to take (or fail to cause to be taken) any action that, under the REMIC
Provisions, if taken or not taken, as the case may be, could (i) endanger the
status of the Trust Fund as a REMIC or (ii) result in the imposition of a tax
upon the Trust Fund (including but not limited to the tax on prohibited
transactions as defined in Section 86OF(a)(2) of the Code and the tax on
contributions to a REMIC set forth in Section 86OG(d) of the Code) (either such
event, an "Adverse REMIC Event") unless the Trustee received an Opinion of
Counsel (at the expense of the party seeking to take such action but in no event
shall such Opinion of Counsel be an expense of the Trustee) to the effect that
the contemplated action will not, with respect to the Trust Fund created
hereunder, endanger such status or result in the imposition of such a tax. The
Master Servicer shall not take or fail to take any action (whether or not
authorized hereunder) as to which the Trustee has advised it in writing that it
has received an Opinion of Counsel to the effect that an Adverse REMIC Event
could occur with respect to such action. In addition, prior to taking any
action with respect to the Trust Fund or its assets, or causing the Trust Fund
to take any action, which is not expressly permitted under the terms of this
Agreement, the Master Servicer will consult with the Trustee or its designee, in
writing, with respect to whether such action could cause an Adverse REMIC Event
to occur with respect to the Trust Fund, and the Master Servicer shall not take
any such action or cause the Trust Fund to take any such action as to which the
Trustee has advised it in writing that an Adverse REMIC Event could occur. The
Trustee may consult with counsel to make such written advice, and the cost of
same shall be borne by the party seeking to take the action not permitted by
this Agreement (but in no event shall such cost be an expense of the Trustee).
At all times as may be required by the Code, the Trustee will ensure that
substantially all of the assets of the Trust Fund will consist of "qualified
mortgages" as defined in Section 86OG(a)(3) of the Code and "permitted
investments" as defined in Section 86OG(a)(5) of the Code.
(g) In the event that any tax is imposed on "prohibited transactions" of
the Trust Fund created hereunder as defined in Section 86OF(a)(2) of the Code,
on "net income from foreclosure property" of the Trust Fund as defined in
Section 86OG(c) of the Code, on any contributions to the Trust Fund after the
Startup Day therefor pursuant to Section 86OG(d) of the Code, or any other tax
is imposed by the Code or any applicable provisions of state or local tax laws,
such tax shall be charged (i) to the Trustee pursuant to Section 10.03 hereof,
if such tax arises out of or results from the willful misfeasance, bad faith or
negligence in performance by the Trustee of any of its obligations under this
Article X, (ii) to the Master Servicer pursuant to Section 10.03 hereof, if such
tax arises out of or results from a breach by the Master Servicer of any of its
obligations under Article III or this Article X, or otherwise (iii) against
amounts on deposit in the Custodial Account and shall be paid by withdrawal
therefrom.
(h) On or before April 15 of each calendar year, commencing April 15,
19_, the Trustee shall deliver to the Master Servicer and each Rating Agency a
Certificate from a Responsible Officer of the Trustee stating the Trustee's
compliance with this Article X.
(i) The Master Servicer and the Trustee shall, for federal income tax
purposes, maintain books and records with respect to the Trust Fund on a
calendar year and on an accrual basis.
(j) Following the Startup Day, the Trustee shall not accept any
contributions of assets to the Trust Fund other than in connection with any
Qualified Substitute Mortgage Loan delivered in accordance with Section 2.04
unless it shall have received an Opinion of Counsel (which such Opinion of
Counsel shall not be an expense of the Trustee) to the effect that the inclusion
of such assets in the Trust Fund will not cause the Trust Fund to fail to
qualify as a REMIC at any time that any Certificates are outstanding or subject
the Trust Fund to any tax under the REMIC Provisions or other applicable
provisions of federal, state and
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local law or ordinances.
(k) Neither the Trustee nor the Master Servicer shall enter into any
arrangement by which the Trust Fund will receive a fee or other compensation for
services nor permit either such REMIC to receive any income from assets other
than "qualified mortgages" as defined in Section 86OG(a)(3) of the Code or
"permitted investments" as defined in Section 86OG(a)(5) of the Code.
(1) Solely for purposes of satisfying Section 1.86OG-1(a)(4)(iii) of the
Treasury regulations, and based on certain assumptions described below, the
"latest possible maturity date" by which the Certificate Principal Balances of
the Certificates representing a regular interest in the Trust Fund would be
reduced to zero is __________ 25, 20__, which is the Distribution Date
immediately following the latest scheduled maturity of any Mortgage Loan as
determined assuming that (i) scheduled interest and principal payments on the
Mortgage Loans are received in a timely manner, with no delinquencies or losses,
(ii) there are no principal prepayments, and (iii) neither the Seller nor the
Master Servicer will repurchase any Mortgage Loans.
SECTION 10.02. Prohibited Transactions and Activities.
Neither the Company, the Master Servicer nor the Trustee shall sell,
dispose of or substitute for any of the Mortgage Loans (except in connection
with (i) the foreclosure of a Mortgage Loan, including but not limited to, the
acquisition or sale of a Mortgaged Property acquired by deed in lieu of
foreclosure, (ii) the bankruptcy of the Trust Fund, (iii) the termination of the
Trust Fund pursuant to Article IX of this Agreement or (iv) a purchase of
Mortgage Loans pursuant to Article 11 or III of this Agreement) nor acquire any
assets for the Trust Fund, nor sell or dispose of any investments in the
Custodial Account or the Certificate Account for gain, nor accept any
contributions to the Trust Fund after the Closing Date unless it has received an
Opinion of Counsel (at the expense of the party seeking to cause such sale,
disposition, substitution or acquisition but in no event shall such Opinion of
Counsel be an expense of the Trustee) that such sale, disposition, substitution
or acquisition will not (a) affect adversely the status of the Trust Fund as a
REMIC or (b) cause the Trust Fund to be subject to a tax on "prohibited
transactions" or "contributions" pursuant to the REMIC Provisions.
SECTION 10.03. Master Servicer and Trustee Indemnification.
(a) The Trustee agrees to indemnify the Trust Fund, the Company and the
Master Servicer for any taxes and costs including, without limitation, any
reasonable attorneys fees imposed on or incurred by the Trust Fund, the Company
or the Master Servicer, as a result of the willful misfeasance, bad faith or
negligence by the Trustee with respect to the Trustee's covenants set forth in
this Article X.
(b) The Master Servicer agrees to indemnify the Trust Fund, the Company
and the Trustee for any taxes and costs (including, without limitation, any
reasonable attorneys' fees) imposed on or incurred by the Trust Fund, the
Company or the Trustee, as a result of a breach of the Master Servicer's
covenants set forth in this Article X or in Article III with respect to
compliance with the REMIC Provisions, including without limitation, any
penalties arising from the Trustee's execution of Tax Returns prepared by the
Master Servicer that contain errors or omissions.
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ARTICLE XI
MISCELLANEOUS PROVISIONS
SECTION 11.01. Amendment.
This Agreement may be amended from time to time by the Company, the Master
Servicer and the Trustee without the consent of any of the Certificateholders,
(i) to cure any ambiguity, (ii) to correct or supplement any provisions herein
which may be defective or inconsistent with any other provisions herein 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 class of Certificates, as evidenced by a letter from
each applicable Rating Agency, (iv) to modify, eliminate or add to any of the
provisions of the Trust Fund (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 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 Certificateholder, or (b) to restrict the transfer of the
Class R Certificates, provided that the Company has determined that the then-
current ratings of the Class A Certificates will not be adversely affected, as
evidenced by a letter from each Rating Agency, and that any such amendment will
not give rise to any tax with respect to the transfer of the Class R
Certificates to a non-Permitted Transferee, (v) to make any other provisions
with respect to matters or questions arising this 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.
This Agreement may also be amended from time to time by the Company, the
Master Servicer and the Trustee with the consent of the Holders of Certificates
entitled to at least 66-2/3% of the Voting Rights allocated to each Class
affected thereby for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of this Agreement or of modifying in
any manner the rights of the Holders of Certificates; provided, however, that no
such amendment shall (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
any Certificate without the consent of the Holder of such Certificate, or (ii)
reduce the aforesaid percentage of Certificates the Holders of which are
required to consent to any such amendment, without the consent of the Holders of
all Certificates then outstanding. Notwithstanding any other provision of this
Agreement, for purposes of the giving or withholding of consents pursuant to
this Section 11.01, Certificates registered in the name of the Seller or the
Master Servicer or any affiliate thereof shall be entitled to Voting Rights with
respect to matters described in clauses (i) and (ii) of this paragraph.
Notwithstanding any contrary provision of this Agreement, the Trustee shall
not consent to any amendment to this Agreement unless it shall have first
received an Opinion of Counsel (provided by the Person requesting such
amendment) to the effect that such amendment will not result in the imposition
of any tax on the Trust Fund pursuant to the REMIC Provisions or cause the Trust
Fund to fail to qualify as a REMIC at any time that any of the Certificates are
outstanding.
Promptly after the execution of any such amendment the Trustee shall
furnish a statement describing the amendment to each Certificateholder.
It shall not be necessary for the consent of Certificateholders under this
Section 11.01 to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent shall approve the
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substance thereof. The manner of obtaining such consents and of evidencing the
authorization of the execution thereof by Certificateholders shall be subject to
such reasonable regulations as the Trustee may prescribe.
Prior to executing any amendment pursuant to this Section, the Trustee
shall be entitled to receive an Opinion of Counsel (provided by the Person
requesting such amendment) to the effect that such amendment is authorized or
permitted by this Agreement. The cost of an Opinion of Counsel delivered
pursuant to this Section 11.01 shall be an expense of the party requesting such
amendment, but in any case shall not be an expense of the Trustee.
The Trustee may, but shall not be obligated to enter into any amendment
pursuant to this Section that affects its rights, duties and immunities under
this Agreement or otherwise.
SECTION 11.02. Recordation of Agreement; Counterparts.
To the extent permitted by applicable law, this Agreement is subject to
recordation in all appropriate public offices for real property records in all
the counties or other comparable jurisdictions in which any or all of the
properties subject to the Mortgages are situated, and in any other appropriate
public recording office or elsewhere, such recordation to be effected by the
Master Servicer and at the expense of the Company on direction by the Trustee,
but only upon direction accompanied by an Opinion of Counsel to the effect that
such recordation materially and beneficially affects the interests of the
Certificateholders.
For the purpose of facilitating the recordation of this Agreement as herein
provided and for other purposes, this Agreement may be executed simultaneously
in any number of counterparts, each of which counterparts shall be deemed to be
an original, and such counterparts shall constitute but one and the same
instrument.
SECTION 11.03. Limitation on Rights of Certificateholders.
The death or incapacity of any Certificateholder shall not operate to
terminate this Agreement or the Trust Fund, nor entitle such Certificateholder's
legal representatives or heirs to claim an accounting or to take any action or
proceeding in any court for a partition or winding up of the Trust Fund, nor
otherwise affect the rights, obligations and liabilities of the parties hereto
or any of them.
No Certificateholder shall have any right to vote (except as expressly
provided for herein) or in any manner otherwise control the operation and
management of the Trust Fund, or the obligations of the parties hereto, nor
shall anything herein set forth, or contained in the terms of the Certificates,
be construed so as to constitute the Certificateholders from time to time as
partners or members of an association; nor shall any Certificateholder be under
any liability to any third party by reason of any action taken by the parties to
this Agreement pursuant to any provision hereof.
No Certificateholder shall have any right by virtue of any provision of
this Agreement to institute any suit, action or proceeding in equity or at law
upon or under or with respect to this Agreement, unless such Holder previously
shall have given to the Trustee a notice of an Event of Default, or of a default
by the Seller or the Trustee in the performance of any obligation hereunder, and
of the continuance thereof, as hereinbefore provided, and unless also the
Holders of Certificates entitled to at least 25% of the Voting Rights shall have
made written request upon the Trustee to institute such action, suit or
proceeding in its own name as Trustee hereunder and shall have offered to the
Trustee such reasonable indemnity as it may require against the costs, expenses
and liabilities to be incurred therein or thereby, and the Trustee, for 60 days
after its receipt of such notice, request and offer of indemnity, shall have
neglected or refused to institute any such
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action, suit or proceeding. It is understood and intended, and expressly
covenanted by each Certificateholder with every other Certificateholder and the
Trustee, that no one or more Holders of Certificates shall have any right in any
manner whatever by virtue of any provision of this Agreement to affect, disturb
or prejudice the rights of the Holders of any other of such Certificates, or to
obtain or seek to obtain priority over or preference to any other such Holder,
or to enforce any right under this Agreement, except in the manner herein
provided and for the equal, ratable and common benefit of all
Certificateholders. For the protection and enforcement of the provisions of this
Section, each and every Certificateholder and the Trustee shall be entitled to
such relief as can be given either at law or in equity.
SECTION 11.04. Governing Law.
This Agreement and the Certificates shall be construed in accordance with
the laws of the State of New York and the obligations, rights and remedies of
the parties hereunder shall be determined in accordance with such laws.
SECTION 11.05. Notices.
All demands, notices and direction hereunder shall be in writing and shall
be deemed effective upon receipt when delivered to (a) in the case of the
Company, ________________________, ____________________________________,
Attention: ____________________, or such other address as may hereafter be
furnished to the Trustee and the Master Servicer in writing by the Company, (b)
in the case of the Trustee,_______________________________________________,
Attention: _______________________________, or such other address as may
hereafter be furnished to the Master Servicer and the Company in writing by the
Trustee and (c) in the case of the Master Servicer, [ICI Funding Corporation]
[20371 Irvine Avenue, Suite 200, Santa Ana Heights, CA 92707,] Attention:
__________________________ or such other address as may hereafter be furnished
to the Company and the Trustee in writing. Any notice required or permitted to
be mailed to a Certificateholder shall be given by first class mail, postage
prepaid, at the address of such Holder as shown in the Certificate Register. Any
notice so mailed within the time prescribed in this Agreement shall be
conclusively presumed to have been duly given, whether or not the
Certificateholder receives such notice.
SECTION 11.06. Severability of Provisions.
If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall be for any reason whatsoever held invalid, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and shall
in no way affect the validity or enforceability of the other provisions of this
Agreement or of the Certificates or the rights of the Holders thereof.
SECTION 11.07. Successors and Assigns; Third Party Beneficiary.
The provisions of this Agreement shall be binding upon and inure to the
benefit of the respective successors and assigns of the parties hereto, and all
such provisions shall inure to the benefit of the Trustee and the
Certificateholders. The parties hereto agree that the Seller is the intended
third party beneficiary of Sections 3.07, 3.10 and 3.22 hereof, and that the
Seller may enforce such provisions to the same extent as if the Seller were a
party to this Agreement.
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SECTION 11.08. Article and Section Headings.
The article and section headings herein are for convenience of reference
only, and shall not limit or otherwise affect the meaning hereof.
SECTION 11.09. Notice to Rating Agencies and Certificateholder.
The Trustee shall use its best efforts to promptly provide notice to the
Rating Agency referred to below with respect to each of the following of which
it has actual knowledge:
1. Any material change or amendment to this Agreement;
2. The occurrence of any Event of Default that has not been cured;
3. The resignation or termination of the Master Servicer or the Trustee;
4. The repurchase or substitution of Mortgage Loans pursuant to Section
2.04;
5. The final payment to Certificateholders; and
6. Any change in the location of the Custodial Account or the Certificate
Account.
In addition, the Trustee shall promptly furnish to the Rating Agency copies
of the following:
1. Each report to Certificateholders described in Section 4.02;
2. Each annual independent public accountants' servicing report received
as
described in Section 3.20; and
3. Each Master Servicer compliance report received as described in
Section 3.19.
Any such notice pursuant to this Section 11.09 shall be in writing and
shall be deemed to have been duly given if personally delivered or mailed by
first class mail, postage prepaid, or by express delivery service to (i) in the
case of [_________________________] Attention: ____________, and (ii) in the
case of [____________________________________________________] or, in each case,
such other address as such Rating Agency may designate in writing to the parties
thereto.
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IN WITNESS WHEREOF, the Company, the Master Servicer and the Trustee have
caused their names to be signed hereto by their respective officers thereunto
duly authorized all as of the day and year first above written.
ICIFC SECURED ASSETS CORP.,
Company
By:________________________________________
[ICI FUNDING CORPORATION]
[NAME OF MASTER SERVICER],
Master Servicer
By:________________________________________
[NAME OF TRUSTEE]
Trustee
By:________________________________________
<PAGE>
EXHIBIT 4.2
<PAGE>
Exhibit 4.2
-----------
________________________________________________________________________________
________________________________________________________________________________
ICIFC SECURED ASSETS CORP.
Company,
[ICI FUNDING CORPORATION]
[NAME OF MASTER SERVICER]
Master Servicer,
and
[NAME OF TRUSTEE],
Trustee
POOLING AND SERVICING AGREEMENT
Dated as of_____________1, 199_
Mortgage Pass-Through Certificates
Series 199_-__
________________________________________________________________________________
________________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
___________
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE I
DEFINITIONS
SECTION 1.01. Defined Terms.............................................. 2
Accrued Certificate Interest.......................................... 2
Adjustment Date....................................................... 2
Advance............................................................... 2
Agreement............................................................. 2
Anniversary........................................................... 2
Assignment............................................................ 2
Assignment Agreement.................................................. 2
Available Distribution Amount......................................... 2
Bankruptcy Amount..................................................... 3
Bankruptcy Code....................................................... 3
Bankruptcy Loss....................................................... 3
Business Day.......................................................... 3
Cash Liquidation...................................................... 3
Certificate........................................................... 3
Certificate Account................................................... 3
Certificate Account Deposit Date...................................... 4
Certificateholder..................................................... 4
Certificate Owner..................................................... 4
Certificate Principal Balance......................................... 4
Closing Date.......................................................... 4
Code.................................................................. 4
Collateral Value...................................................... 4
Company............................................................... 4
Converted Mortgage Loan............................................... 4
Convertible Mortgage Loan............................................. 4
Converting Mortgage Loan.............................................. 4
Corporate Trust Office................................................ 5
Custodial Account..................................................... 5
Cut-off Date.......................................................... 5
Debt Service Reduction................................................ 5
Deficient Valuation................................................... 5
Definitive Certificate................................................ 5
Deleted Mortgage Loan................................................. 5
Determination Date.................................................... 5
Distribution Date..................................................... 5
Due Date.............................................................. 5
Due Period............................................................ 5
Duff & Phelps......................................................... 5
Eligible Account...................................................... 5
Event of Default...................................................... 5
Excess Bankruptcy Loss................................................ 6
Excess Fraud Loss..................................................... 6
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Excess Special Hazard Loss............................................ 6
Extraordinary Events.................................................. 6
Extraordinary Losses.................................................. 7
FDIC.................................................................. 7
FHLMC................................................................. 7
Fitch................................................................. 7
FNMA.................................................................. 7
Fraud Losses.......................................................... 7
Fraud Loss Amount..................................................... 7
Funding Date.......................................................... 7
Gross Margin.......................................................... 7
Index................................................................. 7
ICI Funding Corporation............................................... 8
Initial Certificate Principal Balance................................. 8
Insurance Policy...................................................... 8
Insurance Proceeds.................................................... 8
Late Collections...................................................... 8
Letter of Credit...................................................... 8
Letter of Credit Issuer............................................... 8
Liquidation Proceeds.................................................. 8
Loan-to-Value Ratio................................................... 8
Master Servicer....................................................... 8
Maximum Interest Rate................................................. 8
Minimum Interest Rate................................................. 8
Monthly Payment....................................................... 8
Moody's............................................................... 9
Mortgage.............................................................. 9
Mortgage File......................................................... 9
Mortgage Loan......................................................... 9
Mortgage Loan Schedule................................................ 9
Mortgage Note......................................................... 10
Mortgage Rate......................................................... 10
Mortgaged Property.................................................... 10
Mortgagor............................................................. 10
Net Mortgage Rate..................................................... 10
Nonrecoverable Advance................................................ 10
Officers' Certificate................................................. 10
Opinion of Counsel.................................................... 11
OTS................................................................... 11
Outstanding Mortgage Loan............................................. 11
Ownership Interest.................................................... 11
Pass-Through Rate..................................................... 11
Percentage Interest................................................... 11
Periodic Cap.......................................................... 11
Permitted Instruments................................................. 11
Person................................................................ 12
Prepayment Assumption................................................. 12
Prepayment Interest Shortfall......................................... 12
Prepayment Period..................................................... 12
Primary Hazard Insurance Policy....................................... 12
</TABLE>
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<TABLE>
<S> <C>
Primary Mortgage Insurance Policy..................................... 13
Principal Prepayment.................................................. 13
Purchase Price........................................................ 13
Qualified Insurer..................................................... 13
Qualified Substitute Mortgage Loan.................................... 13
Rating Agency......................................................... 14
Realized Loss......................................................... 14
Record Date........................................................... 14
Relief Act............................................................ 14
Remittance Report..................................................... 14
REO Acquisition....................................................... 14
REO Disposition....................................................... 14
REO Imputed Interest.................................................. 14
REO Proceeds.......................................................... 14
REO Property.......................................................... 15
Request for Release................................................... 15
Required Insurance Policy............................................. 15
Responsible Officer................................................... 15
Seller................................................................ 15
Seller's Warranty Certificate......................................... 15
Servicing Account..................................................... 15
Servicing Advances.................................................... 15
Servicing Fee......................................................... 15
Servicing Fee Rate.................................................... 15
Servicing Officer..................................................... 15
Single Certificate.................................................... 15
Special Hazard Amount................................................. 16
Special Hazard Percentage............................................. 16
Standard & Poor's..................................................... 16
Stated Principal Balance.............................................. 16
Sub-Servicer.......................................................... 16
Sub-Servicer Remittance Date.......................................... 16
Sub-Servicing Account................................................. 16
Sub-Servicing Agreement............................................... 16
Tax Returns........................................................... 16
Transfer.............................................................. 16
Transferor............................................................ 16
Trust Fund............................................................ 17
Trustee............................................................... 17
Trustee's Fee......................................................... 17
Uninsured Cause....................................................... 17
Voting Rights......................................................... 17
</TABLE>
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<TABLE>
<CAPTION>
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
<S> <C>
SECTION 2.01. Conveyance of Mortgage Loans.................................................................. 18
SECTION 2.02. Acceptance of the Trust Fund by the Trustee................................................... 20
SECTION 2.03. Representations, Warranties and Covenants of the Master Servicer and the Company.............. 21
SECTION 2.04. Representations and Warranties of the Seller; Repurchase and Substitution..................... 23
SECTION 2.05. Issuance of Certificates Evidencing Interests in the Trust Fund............................... 24
ARTICLE III
ADMINISTRATION AND SERVICING
OF THE TRUST FUND
SECTION 3.01. Master Servicer to Act as Master Servicer.................................................... 25
SECTION 3.02. Sub-Servicing Agreements Between Master Servicer and Sub-Servicers........................... 26
SECTION 3.03. Successor Sub-Servicers...................................................................... 26
SECTION 3.04. Liability of the Master Servicer............................................................. 26
SECTION 3.05. No Contractual Relationship Between Sub-Servicers and Trustee or Certificateholders.......... 27
SECTION 3.06. Assumption or Termination of Sub-Servicing Agreements by Trustee............................. 27
SECTION 3.07. Collection of Certain Mortgage Loan Payments................................................. 27
SECTION 3.08. Sub-Servicing Accounts....................................................................... 28
SECTION 3.09. Collection of Taxes, Assessments and Similar Items; Servicing Accounts....................... 28
SECTION 3.10. Custodial Account............................................................................ 28
SECTION 3.11. Permitted Withdrawals From the Custodial Account............................................. 29
SECTION 3.12. Permitted Instruments........................................................................ 30
SECTION 3.13. Maintenance of the Letter of Credit, Primary Mortgage Insurance and Primary Hazard Insurance. 30
SECTION 3.14. Enforcement of Due-on-Sale Clauses; Assumption Agreements.................................... 32
SECTION 3.15. Realization Upon Defaulted Mortgage Loans.................................................... 33
SECTION 3.16. Trustee to Cooperate; Release of Mortgage Files.............................................. 34
SECTION 3.17. Servicing Compensation....................................................................... 35
SECTION 3.18. Maintenance of Certain Servicing Policies.................................................... 35
SECTION 3.19. Annual Statement as to Compliance............................................................ 35
SECTION 3.20. Annual Independent Public Accountants' Servicing Statement................................... 36
SECTION 3.21. Access to Certain Documentation.............................................................. 36
SECTION 3.22. Title, Conservation and Disposition of REO Property.......................................... 37
SECTION 3.23. Additional Obligations of the Master Servicer................................................ 38
</TABLE>
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<TABLE>
<S> <C>
SECTION 3.24. Additional Obligations of the Company......................................................... 38
SECTION 3.25. Converted Mortgage Loans; Purchase Obligations Upon Conversion; Administration by the Trustee. 38
ARTICLE IV
PAYMENTS TO CERTIFICATEHOLDERS
SECTION 4.01. Certificate Account; Distributions.
SECTION 4.02. Statements to Certificateholders.............................................................. 40
SECTION 4.03. Remittance Reports; Advances by the Master Servicer........................................... 42
SECTION 4.04. Allocation of Realized Losses................................................................. 43
SECTION 4.05. Information Reports to be Filed by the Master Servicer........................................ 43
SECTION 4.06. The Letter of Credit.......................................................................... 43
SECTION 4.07. Compliance with Withholding Requirements...................................................... 45
ARTICLE V
THE CERTIFICATES
SECTION 5.01. The Certificates.
SECTION 5.02. Registration of Transfer and Exchange of Certificates......................................... 46
SECTION 5.03. Mutilated, Destroyed, Lost or Stolen Certificates............................................. 47
SECTION 5.04. Persons Deemed Owners......................................................................... 47
ARTICLE VI
THE COMPANY AND THE MASTER SERVICER
SECTION 6.01. Liability of the Company and the Master Servicer.............................................. 48
SECTION 6.02. Merger, Consolidation or Conversion of the Company or the Master Servicer..................... 48
SECTION 6.03. Limitation on Liability of the Company, the Master Servicer and Others........................ 48
SECTION 6.04. Limitation on Resignation of the Master Servicer.............................................. 49
ARTICLE VII
DEFAULT
SECTION 7.01. Events of Default............................................................................. 50
SECTION 7.02. Trustee to Act; Appointment of Successor...................................................... 51
SECTION 7.03. Notification to Certificateholders............................................................ 52
SECTION 7.04. Waiver of Events of Default................................................................... 52
</TABLE>
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ARTICLE VIII
CONCERNING THE TRUSTEE
<TABLE>
<S> <C>
SECTION 8.01. Duties of Trustee.................................................. 53
SECTION 8.02. Certain Matters Affecting the Trustee.............................. 54
SECTION 8.03. Trustee Not Liable for Certificates or Mortgage Loans.............. 55
SECTION 8.04. Trustee May Own Certificates....................................... 55
SECTION 8.05. Payment of Trustee's Fees.......................................... 55
SECTION 8.06. Eligibility Requirements for Trustee............................... 55
SECTION 8.07. Resignation and Removal of the Trustee............................. 56
SECTION 8.08. Successor Trustee.................................................. 56
SECTION 8.09. Merger or Consolidation of Trustee................................. 57
SECTION 8.10. Appointment of Co-Trustee or Separate Trustee...................... 57
SECTION 8.11. Information Reports and Tax Returns................................ 58
ARTICLE IX
TERMINATION
SECTION 9.01. Termination Upon Repurchase or Liquidation of All Mortgage Loans..... 59
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.01. Amendment......................................................... 61
SECTION 10.02. Recordation of Agreement; Counterparts............................ 62
SECTION 10.03. Limitation on Rights of Certificateholders........................ 62
SECTION 10.04. Governing Law..................................................... 63
SECTION 10.05. Notices........................................................... 63
SECTION 10.06. Severability of Provisions........................................ 63
SECTION 10.07. Successors and Assigns; Third Party Beneficiary................... 63
SECTION 10.08. Article and Section Headings...................................... 63
SECTION 10.09. Notice to Rating Agencies and Certificateholder................... 64
</TABLE>
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Signatures
Acknowledgments
Exhibit A Form of A Certificate
Exhibit B Form of Irrevocable Letter of Credit
Exhibit C Form of Trustee Initial Certification
Exhibit D Form of Trustee Final Certification
Exhibit E Form of Remittance Report
Exhibit F-1 Request for Release
Exhibit F-2 Request for Release for Mortgage Loans Paid in Full
Exhibit G-1 Form of Investor Representation Letter
Exhibit G-2 Form of Transferor Representation Letter
Exhibit G-3 Form of Investor Representation Letter for Insurance Companies
Exhibit H Mortgage Loan Schedule
Exhibit I Seller's Warranty Certificate
Exhibit J Form of Notice Under Section 3.24
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This Pooling and Servicing Agreement, effective as of ___________ 1,
199_, among ICIFC SECURED ASSETS CORP., as the company (together with its
permitted successors and assigns, the "Company"), [NAME OF MASTER SERVICER] [ICI
FUNDING CORPORATION], as master servicer (together with its permitted successors
and assigns, the "Master Servicer"), and [NAME OF TRUSTEE], as trustee (together
with its permitted successors and assigns, the "Trustee"),
PRELIMINARY STATEMENT:
The Company intends to sell mortgage pass-through certificates (the
"Certificates"), which will evidence the entire beneficial ownership interest in
the Mortgage Loans (as defined herein). The Mortgage Loans have an aggregate
Stated Principal Balance as of the Cut-off Date equal to $_____________. The
Mortgage Loans are adjustable rate mortgage loans having terms to maturity at
origination or modification of not more than 30 years.
In consideration of the mutual agreements herein contained, the
Company, the Master Servicer and the Trustee agree as follows:
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ARTICLE I
DEFINITIONS
SECTION 1.01. Defined Terms.
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the meanings specified in this
Article.
"Accrued Certificate Interest": With respect to each Distribution
Date, one month's interest accrued at the then applicable Pass-Through Rate on
the Certificate Principal Balance of the Certificates immediately prior to such
Distribution Date. Accrued Certificate Interest will be calculated on the basis
of a 360-day year consisting of twelve 30-day months. In each case Accrued
Certificate Interest on the Certificates will be reduced by the amount of (i)
Prepayment Interest Shortfalls, if any, which are not covered by payments by the
Master Servicer pursuant to Section 3.23 with respect to such Distribution Date,
(ii) the interest portion (adjusted to the related Net Mortgage Rate) of any of
Realized Losses (including Excess Special Hazard Losses, Excess Fraud Losses,
Excess Bankruptcy Losses and Extraordinary Losses) not covered by draws on the
Letter of Credit pursuant to Section 4.04, (iii) the interest portion of
Advances previously made with respect to a Mortgage Loan or REO Property which
remained unreimbursed following the Cash Liquidation or REO Disposition of such
Mortgage Loan or REO Property that was 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, including interest that is not collectible from the
Mortgagor pursuant to the Relief Act or similar legislation or regulations as in
effect from time to time; with all such reductions allocated to the
Certificates, in proportion to their respective amounts of Accrued Certificate
Interest which would have resulted absent such reductions.
"Adjustment Date": With respect to each Mortgage Loan, the date set
forth in the related Mortgage Note on which the Mortgage Rate may change and
each semi-annual anniversary of such date. The first Adjustment Date as to each
Mortgage Loan is set forth in the Mortgage Loan Schedule.
"Advance": As to any Mortgage Loan, any advance made by the Master
Servicer on any Distribution Date pursuant to Section 4.03.
"Agreement": This Pooling and Servicing Agreement and all amendments
hereof.
"Anniversary": Each anniversary of ___________ 1, 19__.
"Assignment": An assignment of Mortgage, notice of transfer or
equivalent instrument, in recordable form, which is sufficient under the laws of
the jurisdiction wherein the related Mortgaged Property is located to reflect of
record the sale of the Mortgage, which assignment, notice of transfer or
equivalent instrument may be in the form of one or more blanket assignments
covering Mortgages secured by Mortgaged Properties located in the same county,
if permitted by law.
"Assignment Agreement": The Assignment and Assumption Agreement,
dated as of ____________, 199_, between [ICI Funding Corporation] and the
Company relating to the transfer and assignment of the Mortgage Loans.
"Available Distribution Amount": With respect to each Distribution
Date, the Available Distribution Amount will be an amount equal to (a) the sum
of (i) the balance on deposit in the Custodial Account as of the close of
business on the related Determination Date and (ii) the aggregate amount of any
Advances made,
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all required amounts pursuant to Section 3.22 and all amounts required to be
paid by the Master Servicer pursuant to Sections 3.13 and 3.23 by deposits into
the Certificate Account on the immediately preceding Certificate Account Deposit
Date, reduced by (b) the sum, as of the close of business on the related
Determination Date of (i) Monthly Payments collected but due during a Due Period
subsequent to the Due Period ending on the first day of the month of the related
Distribution Date, (ii) all interest or other income earned on deposits in the
Custodial Account, (iii) any other amounts reimbursable or payable to the Master
Servicer or any other Person pursuant to Section 3.11, (iv) Insurance Proceeds,
Liquidation Proceeds, Principal Prepayments, REO Proceeds and the proceeds of
Mortgage Loan purchases (or amounts received in connection with substitutions)
made pursuant to Section 2.02, 2.04 and 3.25, in each case received or made in
the month of such Distribution Date and (v) the Trustee's Fee.
"Bankruptcy Amount": As of any date of determination, an amount,
equal to the excess, if any, of (A) $ , over (B) the aggregate amount of draws
made under the Letter of Credit with respect to Bankruptcy Losses since the Cut-
off Date up to such date of determination in accordance with Section 4.04.
The Bankruptcy Amount may be further reduced by the Master Servicer
(including accelerating the manner in which such coverage is reduced) provided
that prior to any such reduction, the Master Servicer shall (i) obtain written
confirmation from each Rating Agency that such reduction shall not reduce the
rating assigned to the Certificates by such Rating Agency below the lower of the
then-current rating or the rating assigned to such Certificates as of the
Closing Date by such Rating Agency and (ii) provide a copy of such written
confirmation to the Trustee.
"Bankruptcy Code": The United States Bankruptcy Code of 1978, as
amended.
"Bankruptcy Loss": With respect to any Mortgage Loan, a Deficient
Valuation or Debt Service Reduction; provided, however, that a Deficient
Valuation or a Debt Service Reduction shall not be deemed a Bankruptcy Loss
hereunder 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 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
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
any Deficient Valuation or Debt Service Reduction.
"Business Day": Any day other than (i) a Saturday or a Sunday or (ii)
a day on which banking institutions in the State of or the State of (and such
other state or states in which the Custodial Account, the Certificate Account or
the office of the Letter of Credit Issuer at which draws under the Letter of
Credit are to be made is at the time located) are required or authorized by law
or executive order to be closed.
"Cash Liquidation": As to any defaulted Mortgage Loan other than a
Mortgage Loan as to which an REO Acquisition occurred, the final receipt by or
on behalf of the Master Servicer of 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.
"Certificate": Any one of the Certificates, executed by the Trustee
and authenticated by the Certificate Registrar substantially in the form annexed
hereto as Exhibit A.
"Certificate Account": The account or accounts created and maintained
pursuant to Section 4.01, which shall be entitled
"_________________________________, as trustee, in trust for the registered
holders of ICIFC Secured Assets Corp., Mortgage Pass-Through Certificates,
Series 199---" and which must be an Eligible Account.
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"Certificate Account Deposit Date": The 20th day (or if such 20th day
is not a Business Day, the Business Day immediately preceding such 20th day) of
the month.
"Certificateholder" or "Holder": The Person in whose name a
Certificate is registered in the Certificate Register, except that any
Certificate registered in the name of the Company or the Master Servicer or any
affiliate thereof shall be deemed not to be outstanding and the Voting Rights to
which it is entitled shall not be taken into account in determining whether the
requisite percentage of Voting Rights necessary to effect any such consent has
been obtained, except as otherwise provided in Section 10.01. The Trustee shall
be entitled to rely upon a certification of the Company or the Master Servicer
in determining if any Certificates are registered in the name of a respective
affiliate.
"Certificate Owner": With respect to a Book-Entry Certificate, the
Person who is the beneficial owner of such Certificate, as reflected on the
books of an indirect participating brokerage firm for which a Company
Participant acts as agent, if any, and otherwise on the books of a Company
Participant, if any, and otherwise on the books of the Company.
"Certificate Principal Balance": With respect to each Certificate, on
any date of determination, an amount equal to (i) the Initial Certificate
Principal Balance of such Certificate as specified on the face thereof, minus
(ii) the sum of (x) the aggregate of all amounts previously distributed with
respect to such Certificate (or any predecessor Certificate) and applied to
reduce the Certificate Principal Balance thereof pursuant to Section 4.02(b) and
(y) the aggregate of all reductions in Certificate Principal Balance deemed to
have occurred in connection with Realized Losses which were previously allocated
to such Certificate (or any predecessor Certificate) pursuant to Section 4.04.
"Certificate Register": The register maintained pursuant to Section
5.02.
"Closing Date": ___________ ___, 19__.
"Code": The Internal Revenue Code of 1986.
"Collateral Value": The appraised value of a Mortgaged Property based
upon the lesser of (i) the appraisal made at the time of the origination of the
related Mortgage Loan, or (ii) the sales price of such Mortgaged Property at
such time of origination. With respect to a Mortgage Loan the proceeds of which
were used to refinance an existing mortgage loan, the appraised value of the
Mortgaged Property based upon the appraisal (as reviewed and approved by the
Seller) obtained at the time of refinancing.
"Company": ICIFC Secured Assets Corp., or its successor in interest.
"Converted Mortgage Loan": Any Convertible Mortgage Loan with respect
to which the interest rate borne by such Mortgage Loan has been converted from
an adjustable interest rate to a fixed interest rate.
"Convertible Mortgage Loan": Any Mortgage Loan which by its terms
grants to the related Mortgagor the option to convert the interest rate borne by
such Mortgage Loan from an adjustable interest rate to a fixed interest rate.
"Converting Mortgage Loan": Any Convertible Mortgage Loan with
respect to which the related Mortgagor has given notice of his intent to convert
from an adjustable interest rate to a fixed interest rate and prior to the
conversion of such Mortgage Loan.
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<PAGE>
"Corporate Trust Office": The principal office of the Trustee at
which at any particular time its corporate trust business with respect to this
Agreement shall be administered, which office at the date of the execution of
this instrument is located at _______________________________________________,
Attention: __________________________ Series 199_-__.
"Custodial Account": The custodial account or accounts created and
maintained pursuant to Section 3.10 in a depository institution, as custodian
for the holders of the Certificates, for the holders of certain other interests
in mortgage loans serviced or sold by the Master Servicer and for the Master
Servicer, into which the amounts set forth in Section 3.10 shall be deposited
directly. Any such account or accounts shall be an Eligible Account.
"Cut-off Date": ____________ 1, 199_.
"Debt Service Reduction": With respect to any Mortgage Loan, a
reduction in the scheduled Monthly Payment for such Mortgage Loan by a court of
competent jurisdiction in a proceeding under the Bankruptcy Code, except such a
reduction constituting a Deficient Valuation or any reduction that results in a
permanent forgiveness of principal.
"Deficient Valuation": With respect to any Mortgage Loan, a valuation
by a court of competent jurisdiction of the Mortgaged Property in an amount less
than the then outstanding indebtedness under the Mortgage Loan, which valuation
results from a proceeding initiated by the Mortgagor under the Bankruptcy Code.
"Definitive Certificate": Any definitive, fully registered
Certificate.
"Deleted Mortgage Loan": A Mortgage Loan replaced or to be replaced
with a Qualified Substitute Mortgage Loan.
"Determination Date": The 15th day (or if such 15th day is not a
Business Day, the Business Day immediately preceding such 15th day) of the month
of the related Distribution Date.
"Distribution Date": The 25th day of any month, or if such 25th day
is not a Business Day, the Business Day immediately following such 25th day
commencing on _________ 25, 19__.
"Due Date": The first day of the month of the related Distribution
Date.
"Due Period": With respect to any Distribution Date, the period
commencing on the second day of the month preceding the month of such
Distribution Date (or, with respect to the first Due Period, the day following
the Cut-off Date) and ending on the related Due Date.
["Duff & Phelps": Duff & Phelps Credit Rating Company or its
successor in interest.]
"Eligible Account": An account maintained with a federal or state
chartered depository institution (i) the short-term obligations of which are
rated by each of the Rating Agencies in its highest rating at the time of any
deposit therein, or (ii) insured by the FDIC (to the limits established by such
Corporation), the uninsured deposits in which account are otherwise secured such
that, as evidenced by an Opinion of Counsel (obtained by and at the expense of
the Person requesting that the account be held pursuant to this clause (ii))
delivered to the Trustee prior to the establishment of such account, the
Certificateholders will have a claim with respect to the funds in such account
and a perfected first priority security interest against any collateral (which
shall be limited to Permitted Instruments, each of which shall mature not later
than the Business Day
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<PAGE>
immediately preceding the Distribution Date next following the date of
investment in such collateral or the Distribution Date if such Permitted
Instrument is an obligation of the institution that maintains the Certificate
Account or Custodial Account) securing such funds that is superior to claims of
any other depositors or general creditors of the depository institution with
which such account is maintained or (iii) a trust account or accounts maintained
with a federal or state chartered depository institution or trust company with
trust powers acting in its fiduciary capacity or (iv) an account or accounts of
a depository institution acceptable to the Rating Agencies (as evidenced in
writing by the Rating Agencies that use of any such account as the Custodial
Account or the Certificate Account will not have an adverse effect on the then-
current ratings assigned to the Certificates). Eligible Accounts may bear
interest.
"Event of Default": One or more of the events described in Section
7.01.
"Excess Bankruptcy Loss": Any Bankruptcy Loss, or portion thereof,
which exceeds the then applicable Bankruptcy Amount.
"Excess Fraud Loss": Any Fraud Loss, or portion thereof, which
exceeds the then applicable Fraud Loss Amount.
"Excess Special Hazard Loss": Any Special Hazard Loss, or portion
thereof, that exceeds the then applicable Special Hazard Amount.
"Extraordinary Events": Any of the following conditions with respect
to a Mortgaged Property or Mortgage Loan causing or resulting in a loss which
causes the liquidation of such Mortgage Loan:
(a) losses that are of a type that would be covered by the fidelity
bond and the errors and omissions insurance policy required to be maintained
pursuant to Section 3.18 but are in excess of the coverage maintained
thereunder;
(b) nuclear reaction or nuclear radiation or radioactive
contamination, all whether controlled or uncontrolled, and whether such loss be
direct or indirect, proximate or remote or be in whole or in part caused by,
contributed to or aggravated by a peril covered by the definition of the term
"Special Hazard Loss";
(c) hostile or warlike action in time of peace or war, including
action in hindering, combatting or defending against an actual, impending or
expected attack:
1. by any government or sovereign power, de jure or de facto,
or by any authority maintaining or using military, naval or air forces; or
2. by military, naval or air forces; or
3. by an agent of any such government, power, authority or
forces;
(d) any weapon of war employing atomic fission or radioactive force
whether in time of peace or war; or
(e) insurrection, rebellion, revolution, civil war, usurped power or
action taken by governmental authority in hindering, combatting or defending
against such an occurrence, seizure or destruction under quarantine or customs
regulations, confiscation by order of any government or public authority; or
risks of contraband or illegal transportation or trade.
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"Extraordinary Losses": Any loss incurred on a Mortgage Loan caused
by or resulting from an Extraordinary Event.
"FDIC": Federal Deposit Insurance Corporation or any successor.
"FHLMC": Federal Home Loan Mortgage Corporation or any successor.
["Fitch": Fitch Investors Service, Inc., or its successor in
interest.]
"FNMA": Federal National Mortgage Association or any successor.
"Fraud Losses": Any Realized Loss sustained by reason of a default
arising from fraud, dishonesty or misrepresentation in connection with the
related Mortgage Loan.
"Fraud Loss Amount": As of any date of determination after the Cut-
off Date, an amount equal to: (X) up to and including the [first] anniversary of
the Cut-off Date an amount equal to ______% of the aggregate outstanding
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 since the Cut-off Date up to such date of determination, (Y) from the
[first] to the 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 outstanding principal balance of
all of the Mortgage Loans as of the most recent anniversary 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. On and after the fifth anniversary of the Cut-off
Date the Fraud Loss Amount shall be zero.
The Fraud Loss Amount may be further reduced by the Master Servicer
(including accelerating the manner in which such coverage is reduced) provided
that prior to any such reduction, the Master Servicer shall (i) obtain written
confirmation from each Rating Agency that such reduction shall not reduce the
rating assigned to the Certificates by such Rating Agency below the lower of the
then-current rating or the rating assigned to such Certificates as of the
Closing Date by such Rating Agency and (ii) provide a copy of such written
confirmation to the Trustee.
"Funding Date": With respect to each Mortgage Loan, the date on which
funds were advanced by or on behalf of the Seller and interest began to accrue
thereunder.
"Gross Margin": As to each Mortgage Loan, the fixed percentage set
forth in the related Mortgage Note and indicated in Exhibit H hereto which
percentage is added to the Index on each Adjustment Date to determine (subject
to rounding in accordance with the related Mortgage Note, Periodic Cap, Maximum
Interest Rate and Minimum Interest Rate) the interest rate to be borne by such
Mortgage Loan until the next Adjustment Date.
"Index": With respect to any Mortgage Loan, the Cost of Funds Index
reflecting 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 published in The Wall Street Journal, as most recently available
-----------------------
as of the date ____ days prior to the relevant 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.
7
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["ICI Funding Corporation": ICI Funding Corporation, a
___________________ corporation, and any successor thereto.]
"Initial Certificate Principal Balance": With respect to the
Certificates, $_____________.
"Insurance Policy": With respect to any Mortgage Loan, any insurance
policy which is required to be maintained from time to time under this Agreement
in respect of such Mortgage Loan.
"Insurance Proceeds": Proceeds paid by any insurer pursuant to the
Primary Mortgage Insurance Policy and any other insurance policy covering a
Mortgage Loan to the extent such proceeds are not applied to the restoration of
the related Mortgaged Property or released to the Mortgagor in accordance with
the procedures that the Master Servicer would follow in servicing mortgage loans
held for its own account.
"Late Collections": With respect to any Mortgage Loan, all amounts
received during any Due Period, whether as late payments of Monthly Payments or
as Insurance Proceeds, Liquidation Proceeds or otherwise, which represent late
payments or collections of Monthly Payments due but delinquent for a previous
Due Period and not previously recovered.
"Letter of Credit": The irrevocable letter of credit covering certain
losses on the Mortgage Loans in all of the Mortgage Pools, in the form of
Exhibit B hereto, issued by the letter of Credit Issuer, naming the Trustee as
beneficiary for the benefit of the Certificateholders, as the same may be
terminated, modified or reduced from time to time pursuant to its terms and
Section 4.06, and any replacement letter of credit obtained pursuant to Section
4.06.
"Letter of Credit Issuer": ______________, or if a replacement
Letter of Credit is issued in accordance with the terms hereof, the issuer of
such replacement Letter of Credit.
"Liquidation Proceeds": Amounts (other than Insurance Proceeds)
received by the Master Servicer in connection with the taking of an entire
Mortgaged Property by exercise of the power of eminent domain or condemnation or
in connection with the liquidation of a defaulted Mortgage Loan through
trustee's sale, foreclosure sale or otherwise, other than amounts received in
respect of REO Property.
"Loan-to-Value Ratio": As of any date, the fraction, expressed as a
percentage, the numerator of which is the current principal balance of the
related Mortgage Loan at the date of determination and the denominator of which
is the Collateral Value of the related Mortgaged Property.
"Master Servicer": [ICI Funding Corporation] [Name of Master
Servicer], or any successor master servicer appointed as herein provided.
"Maximum Interest Rate": As to any Mortgage Loan, the maximum
interest rate that may be borne by such Mortgage Loan as set forth in the
related Mortgage Note and indicated in Exhibit H, which rate may be applicable
to such Mortgage Loan at any time during the life of such Mortgage Loan.
"Minimum Interest Rate": As to any Mortgage Loan, the minimum
interest rate that may be borne by such Mortgage Loan as set forth in the
related Mortgage Note and indicated in Exhibit H hereto, which rate may be
applicable to such Mortgage Loan at any time during the life of such Mortgage
Loan.
"Monthly Payment": With respect to any Mortgage Loan, the scheduled
monthly payment of principal and interest on such Mortgage Loan which is payable
by a Mortgagor from time to time under the related Mortgage Note as originally
executed (after adjustment, if any, for Principal Prepayments and for Deficient
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Valuations occuring prior to such Due Date, and after any adjustment by reason
of any bankruptcy or similar proceeding or any moratorium or similar waiver or
grace period).
["Moody's": Moody's Investors Service, Inc. or its successor in
interest.]
"Mortgage": The mortgage, deed of trust or any other instrument
securing the Mortgage Loan.
"Mortgage File": The mortgage documents listed in Section 2.01
pertaining to a particular Mortgage Loan and any additional documents required
to be added to the Mortgage File pursuant to this Agreement; provided, that
whenever the term "Mortgage File" is used to refer to documents actually
received by the Trustee, such term shall not be deemed to include such
additional documents required to be added unless they are actually so added.
"Mortgage Loan": Each of the mortgage loans, transferred and assigned
to the Trustee pursuant to Section 2.01 or Section 2.03 and from time to time
held in the Trust Fund, the Mortgage Loans originally so transferred, assigned
and held being identified in the Mortgage Loan Schedule attached hereto as
Exhibit H (and any Qualified Substitute Mortgage Loans). As used herein, the
term "Mortgage Loan" includes the related Mortgage Note and Mortgage.
"Mortgage Loan Schedule": As of any date of determination, the
schedule of Mortgage Loans included in the Trust Fund. The initial schedule of
Mortgage Loans with accompanying information transferred on the Closing Date to
the Trustee as part of the Trust Fund for the Certificates, attached hereto as
Exhibit H (as amended from time to time to reflect the addition of Qualified
Substitute Mortgage Loans) (and, for purposes of the Trustee's review of the
Mortgage Files pursuant to Section 2.02, in computer-readable form as delivered
to the Trustee), which list shall set forth the following information, if
applicable, with respect to each Mortgage Loan:
(i) the loan number and name of the Mortgagor;
(ii) the street address, city, state and zip code of the Mortgaged
Property;
(iii) the Mortgage Rate;
(iv) Maximum Interest Rate;
(v) Minimum Interest Rate;
(vi) Gross Margin;
(vii) the first Adjustment Rate;
(viii) the Periodic Cap;
(ix) the maturity date;
(x) the original principal balance;
(xi) the first payment date;
(xii) the type of Mortgaged Property;
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(xiii) the Monthly Payment in effect as of the Cut-off Date;
(xiv) the principal balance as of the Cut-off Date;
(xv) the occupancy status;
(xvi) the purpose of the Mortgage Loan;
(xvii) the Collateral Value of the Mortgaged Property;
(xviii) the original term to maturity;
(xix) the paid-through date of the Mortgage Loan;
(xx) the Loan-to-Value Ratio; and
(xxi) whether or not the Mortgage Loan was underwritten pursuant to
a limited documentation program.
The Mortgage Loan Schedule shall also set forth the total of the
amounts described under (xiv) above for all of the Mortgage Loans. The Mortgage
Loan Schedule may be in the form of more than one schedule, collectively setting
forth all of the information required. With respect to any Qualified Substitute
Mortgage Loan, the item described in clause (xiii) shall be set forth as the
date of substitution.
"Mortgage Note": The note or other evidence of the indebtedness of a
Mortgagor under a Mortgage Loan.
"Mortgage Rate": With respect to any Mortgage Loan, the annual rate at
which interest accrues on such Mortgage Loan.
"Mortgaged Property": The underlying property securing a Mortgage
Loan.
"Mortgagor": The obligor or obligors on a Mortgage Note.
"Net Mortgage Rate": As to each Mortgage Loan, a per annum rate of
interest equal to the related Mortgage Rate as in effect from time to time minus
the Servicing Fee Rate.
"Nonrecoverable Advance": Any Advance previously made or proposed to
be made in respect of a Mortgage Loan which, in the good faith judgment of the
Master Servicer, will not or, in the case of a proposed Advance, would not be
ultimately recoverable from related Late Collections, Insurance Proceeds,
Liquidation Proceeds or REO Proceeds. The determination by the Master Servicer
that it has made a Nonrecoverable Advance or that any proposed Advance would
constitute a Nonrecoverable Advance, shall be evidenced by an Officers'
Certificate delivered to the Company and the Trustee.
"Officers' Certificate": A certificate signed by the Chairman of the
Board, the Vice Chairman of the Board, the President or a vice president and by
the Treasurer, the Secretary, or one of the assistant treasurers or assistant
secretaries of the Master Servicer or of the Sub-Servicer and delivered to the
Company and Trustee.
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"Opinion of Counsel": A written opinion of counsel, who may be counsel
for the Company or the Master Servicer, reasonably acceptable to the Trustee;
except that any opinion of counsel relating to (a) the qualification of any
account required to be maintained pursuant to this Agreement as an Eligible
Account, or (b) resignation of the Master Servicer pursuant to Section 6.04 must
be an opinion of counsel who (i) is in fact independent of the Company and the
Master Servicer, (ii) does not have any direct financial interest or any
material indirect financial interest in the Company or the Master Servicer or in
an affiliate of either and (iii) is not connected with the Company or the Master
Servicer as an officer, employee, director or person performing similar
functions.
"OTS": Office of Thrift Supervision or any successor.
"Outstanding Mortgage Loan": As to any Due Date, a Mortgage Loan
(including an REO Property) which was not the subject of a Principal Prepayment
in full, Cash Liquidation or REO Disposition and which was not purchased or
substituted for prior to such Due Date pursuant to Sections 2.02, 2.04 or 3.25.
"Ownership Interest": As to any Certificate, any ownership or security
interest in such Certificate, including any interest in such Certificate as the
Holder thereof and any other interest therein, whether direct or indirect, legal
or beneficial, as owner or as pledgee.
"Pass-Through Rate": With respect to the Certificates and any
Distribution Date, a rate equal to the weighted average, expressed as a
percentage, of the Net Mortgage Rates of all Mortgage Loans in the Trust Fund as
of the Due Date in the month immediately preceding the month in which such
Distribution Date occurs, weighted on the basis of the respective Stated
Principal Balances of such Mortgage Loans, which Stated Principal Balances shall
be the Stated Principal Balances of such Mortgage Loans at the close of business
on the immediately preceding Distribution Date after giving effect to the
distributions thereon allocable to principal (or, in the case of the initial
Distribution Date, at the close of business on the Cut-off Date).
"Percentage Interest": With respect to any Certificate, the undivided
percentage ownership interest equal to the initial Certificate Principal Balance
thereof divided by the aggregate Initial Certificate Principal Balance of all of
the Certificates.
"Periodic Cap": With respect to the Mortgage Loans, the periodic rate
cap which limits the increase or the decrease of the related Mortgage Rate on
any Adjustment Date to _______%.
"Permitted Instruments": Any one or more of the following:
(i)(a) direct obligations of, or obligations fully guaranteed as to
principal and interest by, the United States or any agency or
instrumentality thereof, provided such obligations are backed by the full
faith and credit of the United States and (b) direct obligations of, and
obligations guaranteed as to timely payment by FHLMC or FNMA if, at the
time of investment, they are assigned the highest credit rating by the
Rating Agencies;
(ii) repurchase obligations (the collateral for which is held by a
third party or the Trustee) with respect to any security described in
clause (i) above, provided that the short-term unsecured obligations of the
party agreeing to repurchase such obligations are at the time rated by each
Rating Agency in one of its two highest long-term rating categories;
(iii) certificates of deposit, time deposits, demand deposits and
bankers' acceptances of any bank or trust company incorporated under the
laws of the United States or any state thereof or the District
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of Columbia, provided that the short-term commercial paper of such bank or
trust company (or, in the case of the principal depository institution in a
depository institution holding company, the long-term unsecured debt
obligations of the depository institution holding company) at the date of
acquisition thereof has been rated by each Rating Agency in its highest
short-term rating;
(iv) commercial paper (having original maturities of not more than
nine months) of any corporation incorporated under the laws of the United
States or any state thereof or the District of Columbia which on the date
of acquisition has been rated by each Rating Agency in its highest short-
term rating;
(v) a money market fund or a qualified investment fund rated by
each Rating Agency in its highest rating available; and
(vi) if previously confirmed in writing to the Trustee, any other
obligation or security acceptable to each Rating Agency in respect of
mortgage pass-through certificates rated in each Rating Agency's highest
rating category;
provided, that no such instrument shall be a Permitted Instrument if such
instrument evidences either (a) the right to receive interest only payments with
respect to the obligations underlying such instrument or (b) both principal and
interest payments derived from obligations underlying such instrument where the
principal and interest payments with respect to such instrument provide a yield
to maturity exceeding 120% of the yield to maturity at par of such underlying
obligation.
"Person": Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Prepayment Assumption": A prepayment assumption of ____% of the
standard prepayment assumption, used for determining the accrual of original
issue discount and market discount and premium on the Certificates for federal
income tax purposes. The standard prepayment assumption assumes a constant rate
of prepayment of mortgage loans 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, increasing by an additional 0.2% per annum in each succeeding
month until the thirtieth month, and a constant 6% per annum rate of prepayment
thereafter for the life of such mortgage loans.
"Prepayment Interest Shortfall": With respect to any Distribution
Date, for each Mortgage Loan that was the subject of a partial Principal
Prepayment, a Principal Prepayment in full, or of a Cash Liquidation or an REO
Disposition during the related Prepayment Period, an amount equal to the amount
of interest that would have accrued at the applicable Net Mortgage Rate (i) in
the case of a Principal Prepayment in full, Cash Liquidation or REO Disposition
on the principal balance of such Mortgage Loan immediately prior to such
prepayment (or liquidation), commencing on the date of prepayment (or
liquidation) and ending on the last day of the month of prepayment or
liquidation or (ii) in the case of a partial Principal Prepayment, on the amount
of such prepayment, commencing on the date as of which the prepayment is applied
and ending on the last day of the month of prepayment.
"Prepayment Period": As to any Distribution Date, the calendar month
preceding the month in which such Distribution Date occurs.
"Primary Hazard Insurance Policy": Each primary hazard insurance
policy required to be maintained pursuant to Section 3.13.
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"Primary Mortgage Insurance Policy": Each primary mortgage insurance
policy required to be maintained pursuant to Section 3.13.
"Principal Prepayment": Any payment of principal made by the
Mortgagor on a Mortgage Loan which is received in advance of its scheduled Due
Date and which is not accompanied by an amount of interest representing
scheduled interest due on any date or dates in any month or months subsequent to
the month of prepayment.
"Purchase Price": With respect to any Mortgage Loan (or REO Property)
required to be purchased pursuant to Section 2.02, 2.04 or 3.25, an amount equal
to the sum of (i) 100% of the Stated Principal Balance thereof, (ii) unpaid
accrued interest (or REO Imputed Interest) at the sum of the applicable Net
Mortgage Rate, the rate at which the Trustee's Fee accrues on the Stated
Principal Balance thereof outstanding during each Due Period that such interest
was not paid or advanced, from the date through which interest was last paid by
the Mortgagor or advanced and distributed to Certificateholders together with
unpaid related Servicing Fees from the date through which interest was last paid
by the Mortgagor, in each case to the first day of the month in which such
Purchase Price is to be distributed, plus (iii) the aggregate of all Advances
made in respect thereof that were not previously reimbursed.
"Qualified Insurer": An insurance company duly qualified as such
under the laws of the state of its principal place of business and each state
having jurisdiction over such insurer in connection with the insurance policy
issued by such insurer, duly authorized and licensed in such states to transact
business in such states and to write the insurance provided by the insurance
policy issued by it, approved as an insurer by the Master Servicer, as a FNMA
approved mortgage insurer and having a claims paying ability rating of at least
"AA" by ____________________ and which is acceptable to _________________. Any
replacement insurer with respect to a Mortgage Loan must have at least as high a
claims paying ability rating by ____________ and _______________ as the insurer
it replaces had on the Closing Date.
"Qualified Substitute Mortgage Loan": A Mortgage Loan substituted by
the Company for a Deleted Mortgage Loan which must, on the date of such
substitution, as confirmed in an Officers' Certificate delivered to the Trustee,
(i) have an outstanding principal balance, after deduction of the principal
portion of the monthly payment due in the month of substitution (or in the case
of a substitution of more than one Mortgage Loan for a Deleted Mortgage Loan, an
aggregate outstanding principal balance, after such deduction), not in excess of
the Stated Principal Balance of the Deleted Mortgage Loan (the amount of any
shortfall to be deposited by the Master Servicer, in the Custodial Account in
the month of substitution); (ii) have a Mortgage Rate and a Net Mortgage Rate no
lower than and not more than 1% per annum higher than the Mortgage Rate and Net
Mortgage Rate, respectively, of the Deleted Mortgage Loan as of the date of
substitution; (iii) have a remaining term to stated maturity not greater than
(and not more than one year less than) that of the Deleted Mortgage Loan; (iv)
comply with each representation and warranty set forth in Section 2 of the
Seller's Warranty Certificate; (v) have a Loan-to-Value Ratio as of the date of
substitution equal to or lower than the Loan-to-Value Ratio of the Deleted
Mortgage Loan as of such date; and (vi) be covered under a Primary Insurance
Policy if such Qualified Substitute Mortgage Loan has a Loan-to-Value Ratio in
excess of 80%. In the event that one or more mortgage loans are substituted for
one or more Deleted Mortgage Loans, the amounts described in clause (i) hereof
shall be determined on the basis of aggregate principal balances, the Mortgage
Rates described in clause (ii) hereof shall be determined on the basis of
weighted average Mortgage Rates, the Net Mortgage Rates described in clause (ii)
hereof shall be satisfied as to each such mortgage loan, the terms described in
clause (iii) shall be determined on the basis of weighted average remaining
terms to maturity, the Loan-to-Value Ratios described in clause (v) hereof shall
be satisfied as to each such mortgage loan and, except to the extent otherwise
provided in this sentence, the representations and warranties described in
clause (iv) hereof must be satisfied as to each Qualified Substitute Mortgage
Loan or in the aggregate, as the case may be.
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"Rating Agency": [Standard & Poor's] [Moody's] [Fitch] [Duff &
Phelps]. If either agency or a successor is no longer in existence, "Rating
Agency" shall be such statistical credit rating agency, or other comparable
Person, designated by the Company, notice of which designation shall be given to
the Trustee and the Master Servicer. References herein to the two highest long
term debt rating categories of a Rating Agency shall mean "AA" or better in the
case of [Standard & Poor's] [Fitch] [Duff & Phelps] and "Aa2" or better in the
case of Moody's and references herein to the highest short-term debt rating of a
Rating Agency shall mean "D-1" or better in the case of [Duff & Phelps] and "A-
1" in the case of [Standard & Poor's, ] and in the case of any other Rating
Agency such references shall mean such rating categories without regard to any
plus or minus.
"Realized Loss": With respect to any Mortgage Loan or related REO
Property as to which a Cash Liquidation or REO Disposition has occurred, an
amount (not less than zero) equal to (i) the Stated Principal Balance of the
Mortgage Loan as of the date of Cash Liquidation or REO Disposition, plus (ii)
interest (and REO Imputed Interest, if any) at the related Net Mortgage Rate
from the Due Date as to which interest was last paid or advanced to
Certificateholders up to the date of the Cash Liquidation or REO Disposition on
the Stated Principal Balance of such Mortgage Loan outstanding during each Due
Period that such interest was not paid or advanced, minus (iii) the proceeds, if
any, received during the month in which such Cash Liquidation or REO Disposition
occurred, to the extent applied as recoveries of interest at the related Net
Mortgage Rate and to principal of the Mortgage Loan, net of the portion thereof
reimbursable to the Master Servicer or any Sub-Servicer with respect to related
Advances not previously reimbursed. With respect to each Mortgage Loan which has
become the subject of a Deficient Valuation, the difference between the
principal balance of the Mortgage Loan outstanding immediately prior to such
Deficient Valuation and the principal balance of the Mortgage Loan as reduced by
the Deficient Valuation. With respect to each Mortgage Loan which has become the
subject of a Debt Service Reduction, the amount of such Debt Service Reduction.
"Record Date": The last Business Day of the month immediately
preceding the month of the related Distribution Date.
"Relief Act": The Soldiers' and Sailors' Civil Relief Act of 1940, as
amended.
"Remittance Report": A report prepared by the Master Servicer
providing the information set forth in Exhibit E attached hereto.
"REO Acquisition": The acquisition by the Master Servicer on behalf
of the Trustee for the benefit of the Certificateholders of any REO Property
pursuant to Section 3.15.
"REO Disposition": The receipt by the Master Servicer of Insurance
Proceeds, Liquidation Proceeds and other payments and recoveries (including
proceeds of a final sale) which the Master Servicer expects to be finally
recoverable from the sale or other disposition of the REO Property.
"REO Imputed Interest": As to any REO Property, for any period, an
amount equivalent to interest (at the Mortgage Rate that would have been
applicable to the related Mortgage Loan had it been outstanding) on the unpaid
principal balance of the Mortgage Loan as of the date of acquisition thereof (as
such balance is reduced by any income from the REO Property treated as a
recovery of principal pursuant to Section 3.15) .
"REO Proceeds": Proceeds, net of directly related expenses, received
in respect of any REO Property (including, without limitation, proceeds from the
rental of the related Mortgaged Property and of any REO Disposition), which
proceeds are required to be deposited into the Custodial Account as and when
received.
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"REO Property": A Mortgaged Property acquired by the Master Servicer
through foreclosure or deed-in-lieu of foreclosure in connection with a
defaulted Mortgage Loan.
"Request for Release": A release signed by a Servicing Officer, in
the form of Exhibits F-1 or F-2 attached hereto.
"Required Insurance Policy": With respect to any Mortgage Loan, any
Insurance Policy or any other insurance policy that is required to be maintained
from time to time under this Agreement or pursuant to the provisions of a
Mortgage Loan.
"Responsible Officer": When used with respect to the Trustee, the
Chairman or Vice Chairman of the Board of Directors or Trustees, the Chairman or
Vice Chairman of the Executive or Standing Committee of the Board of Directors
or Trustees, the President, the Chairman of the Committee on Trust Matters, any
vice president, any assistant vice president, the Secretary, any assistant
secretary, the Treasurer, any assistant treasurer, the Cashier, any assistant
cashier, any trust officer or assistant trust officer, the Controller and any
assistant controller or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also, with respect to a particular matter, any other officer to whom such matter
is referred because of such officer's knowledge of and familiarity with the
particular subject.
"Seller": [ICI Funding Corporation], and its successors and assigns.
"Seller's Warranty Certificate": The Seller's Warranty Certificate of
the Seller, dated ________ __, 19__, in the form of Exhibit I attached hereto.
"Servicing Account": The account or accounts created and maintained
pursuant to Section 3.09.
"Servicing Advances": All customary, reasonable and necessary "out of
pocket" costs and expenses incurred in connection with a default, delinquency or
other unanticipated event by the Master Servicer in the performance of its
servicing obligations, including, but not limited to, the cost of (i) the
preservation, restoration and protection of a Mortgaged Property, (ii) any
enforcement or judicial proceedings, including foreclosures, (iii) the
management and liquidation of any REO Property and (iv) compliance with the
obligations under the second paragraph of Section 3.01 and Section 3.09.
"Servicing Fee": As to each Mortgage Loan, an amount, payable out of
any payment of interest on the Mortgage Loan, equal to interest at the related
Servicing Fee Rate on the Stated Principal Balance of such Mortgage Loan for the
calendar month preceding the month in which the payment is due (alternatively,
in the event such payment of interest accompanies a Principal Prepayment in full
made by the Mortgagor, interest for the number of days covered by such payment
of interest).
"Servicing Fee Rate": With respect to each Mortgage Loan, the per
annum rate of _______%."
"Servicing Officer": Any officer of the Master Servicer involved in,
or responsible for, the administration and servicing of the Mortgage Loans,
whose name appears on a list of servicing officers furnished to the Trustee by
the Master Servicer, as such list may from time to time be amended.
"Single Certificate": A Certificate evidencing the minimum
denomination of the Certificates as set forth in Section 5.01.
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"Special Hazard Amount": As of any Distribution Date, an amount equal
to $___________ (the initial "Special Hazard Amount") minus the sum of (i) the
aggregate amount of draws made under the Letter of Credit in accordance with
Section 4.04 since the Cut-off Date and (ii) the Adjustment Amount (as defined
below) as most recently calculated. For each anniversary of the Cut-off Date,
the Adjustment Amount shall be calculated and shall be equal to the amount, if
any, by which the amount calculated in accordance with the preceding sentence
(without giving effect to the deduction of the Adjustment Amount for such
anniversary) exceeds the greater of (A) the product of the Special Hazard
Percentage for such anniversary multiplied by the outstanding principal balance
of all of the Mortgage Loans on such anniversary and (B) twice the outstanding
principal balance of the Mortgage Loan which has the largest outstanding
principal balance on such Anniversary.
"Special Hazard Percentage": As of each anniversary of the Cut-off
Date, the greater of (i) 1% and (ii) the largest percentage obtained by dividing
the aggregate outstanding principal balance on such anniversary of the Mortgage
Loans secured by Mortgaged Properties located in a single, five-digit zip code
area in the State of California by the outstanding principal balance of all the
Mortgage Loans on such anniversary.
"[Standard & Poor's": Standard & Poor's Ratings Group, a division of
McGraw Hill, Inc. or its successor in interest.]
"Stated Principal Balance": With respect to any Mortgage Loan or
related REO Property at any given time, (i) the principal balance of the
Mortgage Loan outstanding as of the Cut-off Date, after application of principal
payments due on or before such date, whether or not received, minus (ii) the sum
of (a) the principal portion of the Monthly Payments due with respect to such
Mortgage Loan or REO Property during each Due Period ending prior to the most
recent Distribution Date which were received or with respect to which an Advance
was made, (b) all Principal Prepayments with respect to such Mortgage Loan or
REO Property, and all Insurance Proceeds, Liquidation Proceeds and net income
from a REO Property to the extent applied by the Master Servicer as recoveries
of principal in accordance with Section 3.15 with respect to such Mortgage Loan
or REO Property, which were distributed pursuant to Section 4.01 on any previous
Distribution Date and (c) any Realized Loss with respect thereto allocated
pursuant to Section 4.04 for any previous Distribution Date.
"Sub-Servicer": Any Person with which the Master Servicer has entered
into a Sub-Servicing Agreement and which meets the qualifications of a Sub-
Servicer pursuant to Section 3.02.
"Sub-Servicer Remittance Date": The 18th day of each month, or if
such day is not a Business Day, the immediately preceding Business Day.
"Sub-Servicing Account": An account established by a Sub-Servicer
which meets the requirements set forth in Section 3.08 and is otherwise
acceptable to the Master Servicer.
"Sub-Servicing Agreement": The written contract between the Master
Servicer and a Sub-Servicer and any successor Sub-Servicer relating to servicing
and administration of certain Mortgage Loans as provided in Section 3.02.
["Tax Returns": [To be provided.]]
"Transfer": Any direct or indirect transfer, sale, pledge,
hypothecation or other form of assignment of any Ownership Interest in a
Certificate.
"Transferor": Any Person who is disposing by Transfer of any
Ownership Interest in a Certificate.
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"Trust Fund": The corpus of the trust created by this Agreement, to
the extent described herein, consisting of the Mortgage Loans, such assets as
shall from time to time be identified as deposited in respect of the Mortgage
Loans in the Custodial Account and in the Certificate Account, property which
secured a Mortgage Loan and which has been acquired by foreclosure or deed in
lieu of foreclosure, proceeds of any Primary Hazard Insurance Policies, if any,
and the Letter of Credit (or any alternate form of credit support substituted
therefor) and all proceeds thereof.
"Trustee": [Name of Trustee], or its successor in interest, or any
successor trustee appointed as herein provided.
"Trustee's Fee": As to each Mortgage Loan and as the Distribution
Date, an amount, payable out of any payment of interest on the Mortgage Loan,
equal to interest at _____% per annum on the Stated Principal Balance of such
Mortgage Loan as of the Due Date immediately preceding the month in which such
Distribution Date occurs.
"Uninsured Cause": Any cause of damage to property subject to a
Mortgage such that the complete restoration of such property is not fully
reimbursable by the hazard insurance policies or flood insurance policies
required to be maintained pursuant to Section 3.13.
"Voting Rights": The portion of the voting rights of all of the
Certificates which is allocated to any Certificate. The Voting Rights shall be
allocated among Holders of the Certificates, in proportion to the outstanding
Certificate Principal Balances of their respective Certificates.
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ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
SECTION 2.01. Conveyance of Mortgage Loans.
The Company, as of the Closing Date, and concurrently with the
execution and delivery hereof, does hereby assign, transfer, sell, set over and
otherwise convey to the Trustee without recourse all the right, title and
interest of the Company in and to the Mortgage Loans identified on the Mortgage
Loan Schedule and all other assets included or to be included in the Trust Fund
for the benefit of the Certificateholders. Such assignment includes all
principal and interest received by the Master Servicer on or with respect to the
Mortgage Loans (other than payment of principal and interest due on or before
the Cut-off Date).
In connection with such transfer and assignment, the Company has
requested the Seller to deliver to, and deposit with the Trustee, the following
documents or instruments:
(i) the original Mortgage Note, endorsed by the Seller "Pay
to the order of [Name of Trustee], as trustee without recourse" or to "Pay
to the order of [Name of Trustee], as trustee for holders of Imperial
Credit Secured Assets Corp., Mortgage Pass-Through Certificates, Series
199---, without recourse" with all intervening endorsements showing a
complete chain of endorsements from the originator to the Person endorsing
it to the Trustee;
(ii) the original recorded Mortgage or, if the original
Mortgage has not been returned from the applicable public recording office,
a copy of the Mortgage certified by the Seller to be a true and complete
copy of the original Mortgage submitted to the title insurance company for
recording;
(iii) a duly executed original Assignment of the Mortgage
endorsed by the Seller, without recourse, to "[Name of Trustee], as
trustee" or to "[Name of Trustee], as trustee for holders of Imperial
Credit Secured Assets Corp. Mortgage Pass-Through Certificates, Series
199---", with evidence of recording thereon;
(iv) the original recorded Assignment or Assignments of the
Mortgage showing a complete chain of assignment from the originator thereof
to the Person assigning it to the Trustee or, if any such Assignment has
not been returned from the applicable public recording office, a copy of
such Assignment certified by the Seller to be a true and complete copy of
the original Assignment submitted to the title insurance company for
recording;
(v) the original lender's title insurance policy, or, if
such policy has not been issued, any one of an original or a copy of the
preliminary title report, title binder or title commitment on the Mortgaged
Property with the original policy of the insurance to be delivered promptly
following the receipt thereof;
(vi) the original of any assumption, modification, extension
or guaranty agreement;
(vii) the original or a copy of the private mortgage
insurance policy or original certificate of private mortgage insurance, if
applicable; and
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(viii) if any of the documents or instruments referred to
above were executed on behalf of the Mortgagor by another Person, the
original power of attorney or other instrument that authorized and
empowered such Person to sign, or a copy thereof certified by the Seller
(or by an officer of the applicable title insurance or escrow company) to
be a true and correct copy of the original.
The Seller is obligated pursuant to the Seller's Warranty Certificate
to deliver to the Trustee: (a) either the original recorded Mortgage, or in the
event such original cannot be delivered by the Seller, a copy of such Mortgage
certified as true and complete by the appropriate recording office, in those
instances where a copy thereof certified by the Seller was delivered to the
Trustee pursuant to clause (ii) above; and (b) either the original Assignment or
Assignments of the Mortgage, with evidence of recording thereon, showing a
complete chain of assignment from the originator to the Seller, or in the event
such original cannot be delivered by the Seller, a copy of such Assignment or
Assignments certified as true and complete by the appropriate recording office,
in those instances where copies thereof certified by the Seller were delivered
to the Trustee pursuant to clause (iv) above. Notwithstanding anything to the
contrary contained in this Section 2.01, in those instances where the public
recording office retains the original Mortgage after it has been recorded, the
Seller shall be deemed to have satisfied its obligations hereunder upon delivery
to the Trustee of a copy of such Mortgage certified by the public recording
office to be a true and complete copy of the recorded original thereof.
If any Assignment is lost or returned unrecorded to the Trustee
because of any defect therein, the Seller is required to prepare a substitute
Assignment or cure such defect, as the case may be, and the Trustee shall cause
such Assignment to be recorded in accordance with this paragraph.
The Seller is required, as described in the Seller's Warranty
Certificate, to deliver to the Trustee the original of any documents assigned to
the Trustee pursuant to this Section 2.01 not later than 120 days after the
Closing Date.
All original documents relating to the Mortgage Loans which are not
delivered to the Trustee, to the extent delivered by the Seller to the Master
Servicer, are and shall be held by the Master Servicer in trust for the benefit
of the Trustee on behalf of the Certificateholders.
Except as may otherwise expressly be provided herein, neither the
Company, the Master Servicer nor the Trustee shall (and the Master Servicer
shall ensure that no Sub-Servicer shall) assign, sell, dispose of or transfer
any interest in the Trust Fund or any portion thereof, or pen-nit the Trust Fund
or any portion thereof to be subject to any lien, claim, mortgage, security
interest, pledge or other encumbrance of, any other Person.
It is intended that the conveyance of the Mortgage Loans by the
Company to the Trustee as provided in this Section be, and be construed as, a
sale of the Mortgage Loans by the Company to the Trustee for the benefit of the
Certificateholders. It is, further, not intended that such conveyance be deemed
a pledge of the Mortgage Loans by the Company to the Trustee to secure a debt or
other obligation of the Company. However, in the event that the Mortgage Loans
are held to be property of the Company, or if for any reason this Agreement is
held or deemed to create a security interest in the Mortgage Loans, then it is
intended that, (a) this Agreement shall also be deemed to be a security
agreement within the meaning of Articles 8 and 9 of the New York Uniform
Commercial Code and the Uniform Commercial Code of any other applicable
jurisdiction; (b) the conveyance provided for in this Section shall be deemed to
be (1) a grant by the Company to the Trustee of a security interest in all of
the Company's right (including the power to convey title thereto), title and
interest, whether now owned or hereafter acquired, in and to (A) the Mortgage
Loans, including the Mortgage Notes, the Mortgages, any related insurance
policies and all other documents in the related Mortgage Files, (B) all amounts
payable to the holders of the Mortgage Loans in accordance with the terms
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thereof and (C) all proceeds of the conversion, voluntary or involuntary, of the
foregoing into cash, instruments, securities or other property, including
without limitation all amounts from time to time held or invested in the
Certificate Account or the Custodial Account, whether in the form of cash,
instruments, securities or other property and (2) an assignment by the Company
to the Trustee of any security interest in any and all of the Seller's right
(including the power to convey title thereto), title and interest, whether now
owned or hereafter acquired, in and to the property described in the foregoing
clauses (1)(A) through (C) granted by ICI Funding Corporation to the Company
pursuant to the Assignment Agreement; (c) the possession by the Trustee or its
agent of Mortgage Notes and such other items of property as constitute
instruments, money, negotiable documents or chattel paper shall be deemed to be
"possession by the secured party" or possession by a purchaser or a person
designated by such secured party, for purposes of perfecting the security
interest pursuant to the New York Uniform Commercial Code and the Uniform
Commercial Code of any other applicable jurisdiction (including, without
limitation, Sections 9-305, 8-313 or 8-321 thereof); and (d) notifications to
persons holding such property, and acknowledgments, receipts or confirmations
from persons holding such property, shall be deemed notifications to, or
acknowledgments, receipts or confirmations from, financial intermediaries,
bailees or agents (as applicable) of the Trustee for the purpose of perfecting
such security interest under applicable law. The Company and the Trustee shall,
to the extent consistent with this Agreement, take such actions as may be
necessary to ensure that, if this Agreement were deemed to create a security
interest in the Mortgage Loans, such security interest would be deemed to be a
perfected security interest of first priority under applicable law and will be
maintained as such throughout the term of the Agreement.
SECTION 2.02. Acceptance of the Trust Fund by the Trustee.
The Trustee acknowledges receipt (subject to any exceptions noted in
the Initial Certification described below) of the documents referred to in
Section 2.01 above and all other assets included in the Trust Fund and declares
that it holds and will hold such documents and the other documents delivered to
it constituting the Mortgage Files, and that it holds or will hold such other
assets included in the Trust Fund (to the extent delivered or assigned to the
Trustee), in trust for the exclusive use and benefit of all present and future
Certificateholders.
The Trustee agrees, for the benefit of the Certificateholders, to
review each Mortgage File on or before the Closing Date to ascertain that all
documents required to be delivered to it are in its possession, and the Trustee
agrees to execute and deliver to the Company and the Master Servicer on the
Closing Date an Initial Certification in the form annexed hereto as Exhibit C to
the effect that, as to each Mortgage Loan listed in the Mortgage Loan Schedule
(other than any Mortgage Loan paid in full or any Mortgage Loan specifically
identified in such certification as not covered by such certification), (i) all
documents required to be delivered to it pursuant to this Agreement with respect
to such Mortgage Loan are in its possession, (ii) such documents have been
reviewed by it and appear regular on their face and relate to such Mortgage Loan
and (iii) based on its examination and only as to the foregoing documents, the
information set forth in items (i) - (vi) and (xiii) of the definition of the
"Mortgage Loan Schedule" accurately reflects information set forth in the
Mortgage File. Neither the Trustee nor the Master Servicer shall be under any
duty to determine whether any Mortgage File should include any of the documents
specified in clause (vi) of Section 2.01. Neither the Trustee nor the Master
Servicer shall be under any duty or obligation to inspect, review or examine
said documents, instruments, certificates or other papers to determine that the
same are genuine, enforceable or appropriate for the represented purpose or that
they have actually been recorded or that they are other than what they purport
to be on their face.
Within 90 days of the Closing Date the Trustee shall deliver to the
Company and the Master Servicer a Final Certification in the form annexed hereto
as Exhibit D evidencing the completeness of the Mortgage Files, with any
applicable exceptions noted thereon.
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If in the process of reviewing the Mortgage Files and preparing the
certifications referred to above the Trustee finds any document or documents
constituting a part of a Mortgage File to be missing or defective in any
material respect, the Trustee shall promptly notify the Seller, the Master
Servicer and the Company. The Trustee shall promptly notify the Seller of such
defect and request that the Seller cure any such defect within 60 days from the
date on which the Seller was notified of such defect, and if the Seller does not
cure such defect in all material respects during such period, request that the
Seller purchase such Mortgage Loan from the Trust Fund on behalf of the
Certificateholders at the Purchase Price within 90 days after the date on which
the Seller was notified of such defect. It is understood and agreed that the
obligation of the Seller to cure a material defect in, or purchase any Mortgage
Loan as to which a material defect in a constituent document exists shall
constitute the sole remedy respecting such defect available to
Certificateholders or the Trustee on behalf of Certificateholders. The Purchase
Price for the purchased Mortgage Loan shall be deposited or caused to be
deposited upon receipt by the Master Servicer in the Custodial Account and, upon
receipt by the Trustee of written notification of such deposit signed by a
Servicing Officer, the Trustee shall release or cause to be released to the
Seller the related Mortgage File and shall execute and deliver such instruments
of transfer or assignment, in each case without recourse, as the Seller shall
require as necessary to vest in the Seller ownership of any Mortgage Loan
released pursuant hereto and at such time the Trustee shall have no further
responsibility with respect to the related Mortgage File.
SECTION 2.03. Representations, Warranties and Covenants of the Master
Servicer and the Company.
(a) The Master Servicer hereby represents and warrants to and
covenants with the Company and the Trustee for the benefit of Certificateholders
that:
(i) The Master Servicer is, and throughout the term hereof
shall remain, a duly organized, validly existing and in good standing under
the laws of the State of (except as otherwise permitted pursuant to Section
6.02), the Master Servicer is, and shall remain, in compliance with the
laws of each state in which any Mortgaged Property is located to the extent
necessary to perform its obligations under this Agreement, and the Master
Servicer is, and shall remain, approved to sell mortgage loans to and
service mortgage loans for FNMA and FHLMC;
(ii) The execution and delivery of this Agreement by the
Master Servicer, and the performance and compliance with the terms of this
Agreement by the Master Servicer, will not violate the Master Servicer's
articles of incorporation or bylaws or constitute a default (or an event
which, with notice or lapse of time, or both, would constitute a default)
under, or result in the breach of, any material agreement or other
instrument to which it is a party or which is applicable to it or any of
its assets;
(iii) The Master Servicer has the full power and authority to
enter into and consummate all transactions contemplated by this Agreement,
has duly authorized the execution, delivery and performance of this
Agreement, and has duly executed and delivered this Agreement;
(iv) This Agreement, assuming due authorization, execution
and delivery by the Company and the Trustee, constitutes a valid, legal and
binding obligation of the Master Servicer, enforceable against the Master
Servicer in accordance with the terms hereof, subject to (A) applicable
bankruptcy, insolvency, reorganization, moratorium and other laws affecting
the enforcement of creditors' rights generally, and (B) general principles
of equity, regardless of whether such enforcement is considered in a
proceeding in equity or at law;
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(v) The Master Servicer is not in violation of, and its
execution and delivery of this Agreement and its performance and
compliance with the terms of this Agreement will not constitute a
violation of, any law, any order or decree of any court or arbiter, or
any order, regulation or demand of any federal, state or local
governmental or regulatory authority, which violation is likely to
affect materially and adversely either the ability of the Master
Servicer to perform its obligations under this Agreement or the
financial condition of the Master Servicer;
(vi) No litigation is pending or, to the best of the Master
Servicer's knowledge, threatened against the Master Servicer which
would prohibit its entering into this Agreement or performing its
obligations under this Agreement or is likely to affect materially and
adversely either the ability of the Master Servicer to perform its
obligations under this Agreement or the financial condition of the
Master Servicer;
(vii) The Master Servicer will comply in all material
respects in the performance of this Agreement and with all reasonable
rules and requirements of each insurer under each Insurance
Instrument;
(viii) The execution of this Agreement and the performance of
the Master Servicer's obligations hereunder do not require any
license, consent or approval of any state or federal court, agency,
regulatory authority or other governmental body having jurisdiction
over the Master Servicer, other than such as have been obtained; and
(ix) No information, certificate of an officer, statement
furnished in writing or report delivered to the Company, any affiliate
of the Company or the Trustee by the Master Servicer will, to the
knowledge of the Master Servicer, contain any untrue statement of a
material fact or omit a material fact necessary to make the
information, certificate, statement or report not misleading; and
It is understood and agreed that the representations, warranties and
covenants set forth in this Section 2.03(a) shall survive the execution and
delivery of this Agreement, and shall inure to the benefit of the Company, the
Trustee and the Certificateholders. Upon discovery by the Company, the Trustee
or the Master Servicer of a breach of any of the foregoing representations,
warranties and covenants that materially and adversely affects the interests of
the Company or the Trustee, the party discovering such breach shall give prompt
written notice to the other parties.
(b) The Company hereby represents and warrants to the Master Servicer
and the Trustee for the benefit of Certificateholders that as of the Closing
Date (or, if otherwise specified below, as of the date so specified):
(i) Immediately prior to the assignment of the Mortgage
Loans to the Trustee, the Company had good title to, and was the sole
owner of, each Mortgage Loan free and clear of any pledge, lien,
encumbrance or security interest (other than rights to servicing and
related compensation) and such assignment validly transfers ownership
of the Mortgage Loans to the Trustee free and clear of any pledge,
lien, encumbrance or security interest;
(ii) No Mortgage Loan is one month or more delinquent in
payment of principal and interest as of the Cut-off Date and no
Mortgage Loan has been so delinquent more than once in the 12-month
period prior to the Cut-off Date;
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(iii) The information set forth in the Mortgage Loan Schedule
with respect to each Mortgage Loan or the Mortgage Loans, as the case
may be, is true and correct in all material respects at the date or
dates respecting which such information is furnished;
(iv) The Mortgage Loans are fully-amortizing, adjustable-
rate mortgage loans with Monthly Payments due on the first day of each
month and terms to maturity at origination or modification of not more
than 30 years;
(v) Each Mortgage Loan secured by a Mortgaged Property with
a Loan-to-Value Ratio at origination in excess of 80% is the subject
of a Primary Mortgage Insurance Policy that insures that portion of
the principal balance thereof that exceeds the amount equal to 75% of
the appraised value of the related Mortgaged Property. Each such
Primary Mortgage Insurance Policy is in full force and effect and the
Trustee is entitled to the benefits thereunder; and
(vi) The representations and warranties of the Seller with
respect to the Mortgage Loans and the remedies therefor are as set
forth in the Seller's Warranty Certificate.
[Other representations and warranties as applicable.]
It is understood and agreed that the representations and warranties set forth in
this Section 2.03(b) shall survive delivery of the respective Mortgage Files to
the Trustee.
Upon discovery by either the Company, the Master Servicer or the
Trustee of a breach of any representation or warranty set forth in this Section
2.03 which materially and adversely affects the interests of the
Certificateholders in any Mortgage Loan, the party discovering such breach shall
give prompt written notice to the other parties.
SECTION 2.04. Representations and Warranties of the Seller;Repurchase
and Substitution.
The Company hereby assigns to the Trustee for the benefit of
Certificateholdersits interest in respect of the representations and warranties
made by the Seller in the Seller's Warranty Certificate or the exhibits thereto.
Insofar as the Seller's Warranty Certificate relates to such representations and
warranties and any remedies provided thereunder for any breach of such
representations and warranties, such right, title and interest may be enforced
by the Trustee on behalf of the Certificateholders. Upon the discovery by the
Company, the Master Servicer or the Trustee of a breach of any of the
representations and warranties made in the Seller's Warranty Certificate in
respect of any Mortgage Loan which materially and adversely affects the
interests of the Certificateholders in such Mortgage Loan, the party discovering
such breach shall give prompt written notice to the other parties. The Trustee
shall promptly notify the Seller of such breach and request that such Seller
shall, within 90 days from the date that the Company, the Seller or the Trustee
was notified of such breach, either (i) cure such breach in all material
respects or (ii) purchase such Mortgage Loan from the Trust Fund at the Purchase
Price and in the manner set forth in Section 2.02; provided that in the case of
such breach, the Seller shall have the option to substitute a Qualified
Substitute Mortgage Loan or Loans for such Mortgage Loan if such substitution
occurs within 90 days following the Closing Date. Any such substitution must
occur within 90 days from the date the Seller was notified of the breach if such
90 day period expires before two years following the Closing Date. In the event
that the Seller elects to substitute a Qualified Substitute Mortgage Loan or
Loans for a Deleted Mortgage Loan pursuant to this Section 2.04, the Seller
shall deliver to the Trustee for the benefit of the Certificateholders with
respect to such Qualified Substitute Mortgage Loan or Loans, the original
Mortgage Note, the Mortgage, an Assignment of the Mortgage in recordable form,
and such other documents and agreements as are required by Section 2.01, with
the Mortgage Note endorsed as required by Section 2.01. No substitution will be
made
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in any calendar month after the Determination Date for such month. Monthly
Payments due with respect to Qualified Substitute Mortgage Loans in the month of
substitution shall not be part of the Trust Fund and will be retained by the
Master Servicer and remitted by the Master Servicer to the Seller on the next
succeeding Distribution Date. For the month of substitution, distributions to
Certificateholders will include the Monthly Payment due on a Deleted Mortgage
Loan for such month and thereafter the Seller shall be entitled to retain all
amounts received in respect of such Deleted Mortgage Loan. The Company shall
amend or cause to be amended the Mortgage Loan Schedule for the benefit of the
Certificateholders to reflect the removal of such Deleted Mortgage Loan and the
substitution of the Qualified Substitute Mortgage Loan or Loans and the Company
shall deliver the amended Mortgage Loan Schedule, to the Trustee. Upon such
substitution, the Qualified Substitute Mortgage Loan or Loans shall be subject
to the terms of this Agreement in all respects, the Seller shall be deemed to
have made the representations and warranties with respect to the Qualified
Substitute Mortgage Loan contained in the Seller's Warranty Certificate as of
the date of substitution, and the Company shall be deemed to have made with
respect to any Qualified Substitute Mortgage Loan or Loans, as of the date of
substitution, the representations and warranties set forth in Section 2.03
hereof, and the Seller shall be obligated to repurchase or substitute for any
Qualified Substitute Mortgage Loan as to which a repurchase or substitution
obligation has occurred pursuant to Section 3 of the Seller's Warranty
Certificate.
In connection with the substitution of one or more Qualified
Substitute Mortgage Loans for one or more Deleted Mortgage Loans, the Master
Servicer will determine the amount (if any) by which the aggregate principal
balance of all such Qualified Substitute Mortgage Loans as of the date of
substitution is less than the aggregate Stated Principal Balance of all such
Deleted Mortgage Loans (in each case after application of the principal portion
of the Monthly Payments due in the month of substitution that are to be
distributed to Certificateholders in the month of substitution). The Seller
shall provide the Master Servicer on the day of substitution for immediate
deposit in to the Custodial Account the amount of such shortfall, without any
reimbursement therefor. The Seller shall give notice in writing to the Trustee
of such event, which notice shall be accompanied by an Officers' Certificate as
to the calculation of such shortfall. The costs of any substitution as described
above, including any related assignments, opinions or other documentation in
connection therewith shall be dome by the Seller.
Except as expressly set forth herein neither the Trustee nor the
Master Servicer is under any obligation to discover any breach of the above
mentioned representations and warranties. It is understood and agreed that the
obligation of the Seller to cure such breach or to so purchase or substitute for
any Mortgage Loan as to which such a breach has occurred and is continuing shall
constitute the sole remedy respecting such breach available to
Certificateholders or the Trustee on behalf of Certificateholders. In addition,
if the first scheduled Monthly Payment is due during the first month after its
closing date (as such term is used in the Seller's Warranties Certificate) and
such Monthly Payment is not received by the Master Servicer within 30 days of
the due date in accordance with the terms of the related Mortgage Note, the
Master Servicer shall promptly notify the Seller and the Trustee and the Seller
shall purchase such Mortgage Loan from the Trust Fund at the Purchase Price or
substitute a Qualified Substitute Mortgage Loan therefor within 15 days from the
date that the Seller was notified.
SECTION 2.05. Issuance of Certificates Evidencing Interests in the
Trust Fund.
The Trustee acknowledges the assignment to it of the Mortgage Loans
and the delivery of the Mortgage Files to it together with the assignment to it
of all other assets included in the Trust Fund, receipt of which is hereby
acknowledged. Concurrently with such delivery and in exchange therefor, the
Trustee, pursuant to the written request of the Company executed by an officer
of the Company, has executed and caused to be authenticated, and delivered to or
upon the order of the Company, the Certificates in authorized denominations
which evidence ownership of the entire Trust Fund.
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ARTICLE III
ADMINISTRATION AND SERVICING
OF THE TRUST FUND
SECTION 3.01. Master Servicer to Act as Master Servicer.
The Master Servicer shall service and administer the Mortgage Loans
for the benefit of the Certificateholders, in accordance with this Agreement and
the customary and usual standards of practice of prudent institutional mortgage
lenders servicing comparable mortgage loans for their own account in the
respective states in which the Mortgaged Properties are located. Subject to the
foregoing, the Master Servicer shall have full power and authority, acting alone
and/or through Sub-Servicers as provided in Section 3.02, to do or cause to be
done any and all things in connection with such servicing and administration
that it may deem necessary or desirable. Without limiting the generality of the
foregoing, the Master Servicer in its own name or in the name of a Sub-Servicer
is hereby authorized and empowered by the Trustee when the Master Servicer
believes it appropriate in its best judgment, to (i) execute and deliver, on
behalf of the Certificateholders and the Trustee or any of them, any and all
instruments of satisfaction or cancellation, or of partial or full release or
discharge, and all other comparable instruments, with respect to the Mortgage
Loans and the Mortgaged Properties, (ii) institute foreclosure proceedings or
obtain a deed-in-lieu of foreclosure so as to convert the ownership of such
properties, and (iii) hold or cause to be held title to such properties, on
behalf of the Trustee and Certificateholders. The Master Servicer shall service
and administer the Mortgage Loans in accordance with applicable state and
federal law and shall provide to the Mortgagors any reports required to be
provided to them thereby. Subject to Section 3.16, the Trustee shall furnish to
the Master Servicer and any Sub-Servicer any powers of attorney and other
documents necessary or appropriate to enable the Master Servicer and any Sub-
Servicer to carry out their servicing and administrative duties hereunder. The
Trustee shall not be responsible for any action taken by the Master Servicer or
any Sub-Servicer pursuant to the application of such powers of attorney.
In accordance with the standards of the preceding paragraph, the
Master Servicer shall advance or cause to be advanced funds as necessary for the
purpose of effecting the payment of taxes and assessments on the Mortgaged
Properties, which advances shall be reimbursable in the first instance from
related collections from the Mortgagors pursuant to Section 3.09, and further as
provided in Section 3.11. No costs incurred by the Master Servicer or by Sub-
Servicers in effecting the payment of taxes and assessments on the Mortgaged
Properties shall, for the purpose of calculating distributions to
Certificateholders, be added to the amount owing under the related Mortgage
Loans, notwithstanding that the terms of such Mortgage Loans so permit.
The Master Servicer may approve a request for a partial release of the
Mortgaged Property, easement, consent to alteration or demolition and other
similar matters if it has determined, exercising its good faith business
judgement 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.
The relationship of the Master Servicer (and of any successor to the
Master Servicer under this Agreement) to the Trustee under this Agreement is
intended by the parties to be that of an independent contractor and not that of
a joint venturer, partner or agent.
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SECTION 3.02. Sub-Servicing Agreements Between Master Servicer and
Sub-Servicers.
(a) The Master Servicer may enter into Sub-Servicing Agreements with
Sub-Servicers for the servicing and administration of the Mortgage Loans and for
the performance of any and all other activities of the Master Servicer
hereunder. Each Sub-Servicer shall be either (i) an institution the accounts of
which are insured by the FDIC or (ii) another entity that engages in the
business of originating or servicing mortgage loans, and in either case shall be
authorized to transact business in the state or states in which the related
Mortgaged Properties it is to service are situated, if and to the extent
required by applicable law to enable the SubServicer to perform its obligations
hereunder and under the Sub-Servicing Agreement, and in either case shall be a
FHLMC or FNMA approved mortgage servicer. Each Sub-Servicing Agreement must
impose on the Sub-Servicer requirements conforming to the provisions set forth
in Section 3.08 and provide for servicing of the Mortgage Loans consistent with
the terms of this Agreement. With the consent of the Trustee, which consent
shall not be unreasonably withheld, the Master Servicer and the Sub-Servicers
may enter into Sub-Servicing Agreements and make amendments to the Sub-Servicing
Agreements or enter into different forms of Sub-Servicing Agreements; provided,
however, that any such amendments or different forms shall be consistent with
and not violate the provisions of this Agreement.
(b) As part of its servicing activities hereunder, the Master
Servicer, for the benefit of the Trustee and the Certificateholders, shall
enforce the obligations of each SubServicer under the related Sub-Servicing
Agreement, including, without limitation, any obligation to make advances in
respect of delinquent payments as required by a Sub-Servicing Agreement, or to
purchase a Mortgage Loan on account of defective documentation or on account of
a breach of a representation or warranty, as described in Section 2.02. Such
enforcement, including, without limitation, the legal prosecution of claims,
termination of Sub-Servicing Agreements and the pursuit of other appropriate
remedies, shall be in such form and carried out to such an extent and at such
time as the Master Servicer, in its good faith business judgment, would require
were it the owner of the related Mortgage Loans. The Master Servicer shall pay
the costs of such enforcement at its own expense, but shall be reimbursed
therefor only (i) from a general recovery resulting from such enforcement only
to the extent, if any, that such recovery exceeds all amounts due in respect of
the related Mortgage Loans or (ii) from a specific recovery of costs, expenses
or attorneys' fees against the party against whom such enforcement is directed.
SECTION 3.03. Successor Sub-Servicers.
The Master Servicer shall be entitled to terminate any Sub-Servicing
Agreement and the rights and obligations of any Sub-Servicer pursuant to any
Sub-Servicing Agreement in accordance with the terms and conditions of such Sub-
Servicing Agreement. In the event of termination of any Sub-Servicer, all
servicing obligations of such Sub-Servicer shall be assumed simultaneously by
the Master Servicer without any act or deed on the part of such Sub-Servicer or
the Master Servicer, and the Master Servicer either shall service directly the
related Mortgage Loans or shall enter into a Sub-Servicing Agreement with a
successor Sub-Servicer which qualifies under Section 3.02.
SECTION 3.04. Liability of the Master Servicer.
Notwithstanding any Sub-Servicing Agreement, any of the provisions of
this Agreement relating to agreements or arrangements between the Master
Servicer and a SubServicer or reference to actions taken through a Sub-Servicer
or otherwise, the Master Servicer shall remain obligated and primarily liable to
the Trustee and Certificateholders for the servicing and administering of the
Mortgage Loans in accordance with the provisions of Section 3.01 without
diminution of such obligation or liability by virtue of such Sub-Servicing
Agreements or arrangements or by virtue of indemnification from the Sub-Servicer
and to the same extent and under the same terms and conditions as if the Master
Servicer alone were servicing and administering the
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Mortgage Loans. For purposes of this Agreement, the Master Servicer shall be
deemed to have received payments on Mortgage Loans when the Sub-Servicer has
received such payments. The Master Servicer shall be entitled to enter into any
agreement with a Sub Servicer for indemnification of the Master Servicer by such
Sub-Servicer and nothing contained in this Agreement shall be deemed to limit or
modify such indemnification.
SECTION 3.05. No Contractual Relationship Between Sub-Servicers and
Trustee or Certificateholders.
Any Sub-Servicing Agreement that may be entered into and any
transactions or services relating to the Mortgage Loans involving a Sub-Servicer
in its capacity as such and not as an originator shall be deemed to be between
the Sub-Servicer and the Master Servicer alone, and the Trustee and
Certificateholders shall not be deemed parties thereto and shall have no claims,
rights, obligations, duties or liabilities with respect to the Sub-Servicer
except as set forth in Section 3.06.
SECTION 3.06. Assumption or Termination of Sub-Servicing Agreements
by Trustee.
In the event the Master Servicer shall for any reason no longer be the
master servicer (including by reason of an Event of Default), the Trustee or its
designee shall thereupon assume all of the rights and obligations of the Master
Servicer under each Sub-Servicing Agreement that the Master Servicer may have
entered into, unless the Trustee is then permitted and elects to terminate any
Sub-Servicing Agreement in accordance with its terms. The Trustee, its designee
or the successor servicer for the Trustee shall be deemed to have assumed all of
the Master Servicer's interest therein and to have replaced the Master Servicer
as a party to each Sub-Servicing Agreement to the same extent as if the Sub-
Servicing Agreements had been assigned to the assuming party, except that the
Master Servicer shall not thereby be relieved of any liability or obligations
under the Sub-Servicing Agreements, and the Master Servicer shall continue to be
entitled to any rights or benefits which arose prior to its termination as
master servicer.
The Master Servicer at its expense shall, upon request of the Trustee,
deliver to the assuming party all documents and records relating to each Sub-
Servicing Agreement and the Mortgage Loans then being serviced and an accounting
of amounts collected and held by it and otherwise use its best efforts to effect
the orderly and efficient transfer of the Sub-Servicing Agreements to the
assuming party.
SECTION 3.07. Collection of Certain Mortgage Loan Payments.
The Master Servicer shall make reasonable efforts to collect all
payments called for under the terms and provisions of the Mortgage Loans, and
shall, to the extent such procedures shall be consistent with this Agreement and
the terms and provisions of any related Insurance Policy, follow such collection
procedures as it would follow with respect to mortgage loans comparable to the
Mortgage Loans and held for its own account. The Master Servicer shall not be
required to institute or join in litigation with respect to collection of any
payment (whether under a Mortgage, Mortgage Note, Primary Hazard Insurance
Policy, Primary Mortgage Insurance Policy or otherwise or against any public or
governmental authority with respect to a taking or condemnation) if it
reasonably believes that it is prohibited by applicable law from enforcing the
provision of the Mortgage or other instrument pursuant to which such payment is
required. Consistent with the foregoing, the Master Servicer may in its
discretion waive any prepayment fees, late payment charge or other charge,
except as otherwise required under applicable law. The Master Servicer shall be
responsible for preparing and distributing all information statements relating
to payments on the Mortgage Loans, in accordance with all applicable federal and
state tax laws and regulations.
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SECTION 3.08. Sub-Servicing Accounts.
In those cases where a Sub-Servicer is servicing a Mortgage Loan
pursuant to a Sub-Servicing Agreement, the Sub-Servicer will be required to
establish and maintain one or more accounts (collectively, the "Sub-Servicing
Account"). The Sub-Servicing Account shall be an Eligible Account and shall
otherwise be acceptable to the Master Servicer. All amounts held in a Sub-
Servicing Account shall be held in trust for the Trustee for the benefit of the
Certificateholders. The Sub-Servicer will be required to deposit into the Sub-
Servicing Account no later than the first Business Day after receipt all
proceeds of Mortgage Loans received by the Sub-Servicer, less its servicing
compensation and any unreimbursed expenses and advances, to the extent permitted
by the Sub-Servicing Agreement. On each Sub-Servicer Remittance Date the Sub-
Servicer will be required to remit to the Master Servicer for deposit into the
Custodial Account all funds held in the Sub-Servicing Account with respect to
any Mortgage Loan as of the Sub-Servicer Remittance Date, after deducting from
such remittance an amount equal to the servicing compensation and unreimbursed
expenses and advances to which it is then entitled pursuant to the related Sub-
Servicing Agreement, to the extent not previously paid to or retained by it. In
addition, on each Sub-Servicer Remittance Date the Sub-Servicer will be required
to remit to the Master Servicer any amounts required to be advanced pursuant to
the related SubServicing Agreement. The Sub-Servicer will also be required to
remit to the Master Servicer, within one Business Day of receipt, the proceeds
of any Principal Prepayment made by the Mortgagor and any Insurance Proceeds or
Liquidation Proceeds.
SECTION 3.09. Collection of Taxes, Assessments and Similar Items;
Servicing Accounts.
The Master Servicer and the Sub-Servicers shall establish and maintain
one or more accounts (the "Servicing Accounts"), and shall deposit and retain
therein all collections from the Mortgagors (or related advances from Sub-
Servicers) for the payment of taxes, assessments, Primary Hazard Insurance
Policy premiums, and comparable items for the account of the Mortgagors, to the
extent that the Master Servicer customarily escrows for such amounts.
Withdrawals of amounts so collected from a Servicing Account may be made only to
(i) effect payment of taxes, assessments, Primary Hazard Insurance Policy
premiums and comparable items; (ii) reimburse the Master Servicer (or a Sub-
Servicer to the extent provided in the related Sub-Servicing Agreement) out of
related collections for any payments made pursuant to Sections 3.01 (with
respect to taxes and assessments) and 3.13 (with respect to Primary Hazard
Insurance Policies); (iii) refund to Mortgagors any sums as may be determined to
be overages; or (iv) clear and terminate the Servicing Account at the
termination of this Agreement pursuant to Section 9.01. As part of its servicing
duties, the Master Servicer or Sub-Servicers shall, if and to the extent
required by law, pay to the Mortgagors interest on funds in Servicing Accounts
from its or their own funds, without any reimbursement therefor.
SECTION 3.10. Custodial Account.
(a) The Master Servicer shall establish and maintain one or more
accounts (collectively, the "Custodial Account") in which the Master Servicer
shall deposit or cause to be deposited no later than the first Business Day
after receipt or as and when received from the Sub-Servicers, the following
payments and collections received or made by or on behalf of it subsequent to
the Cut-off Date, or received by it prior to the Cut-off Date but allocable to a
period subsequent thereto (other than in respect of principal and interest on
the Mortgage Loans 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, not including any portion thereof representing interest on
account of the related Servicing Fee Rate;
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(iii) all Insurance Proceeds, other than proceeds that
represent reimbursement of costs and expenses incurred by the Master
Servicer in connection with presenting claims under the related
Insurance Policies, Liquidation Proceeds and REO Proceeds;
(iv) all proceeds of any Mortgage Loan or REO Property
repurchased or purchased in accordance with Sections 2.02, 2.04, 3.25
or 9.01 and all amounts required to be deposited in connection with
the substitution of a Qualified Substitute Mortgage Loan pursuant to
Section 2.04;
(v) any amounts required to be deposited in the Custodial
Account pursuant to Section 3.12, 3.13 or 3.22; and
(vi) all amounts required to be deposited pursuant to
Section 3.25.
For purposes of the immediately preceding sentence, the Cut-off Date
with respect to any Qualified Substitute Mortgage Loan shall be deemed to be the
date of substitution.
The foregoing requirements for deposit in the Custodial Account shall
be exclusive. In the event the Master Servicer shall deposit in the Custodial
Account any amount not required to be deposited therein, it may withdraw such
amount from the Custodial Account, any provision herein to the contrary
notwithstanding. The Custodial Account shall be maintained as a segregated
account, separate and apart from trust funds created for mortgage pass-through
certificates of other series, and the other accounts of the Master Servicer.
(b) Funds in the Custodial Account may be invested in Permitted
Instruments in accordance with the provisions set forth in Section 3.12, The
Master Servicer shall give notice to the Trustee and the Company of the location
of the Custodial Account after any change thereof.
(c) Payments in the nature of late payment charges, prepayment fees,
assumption fees and reconveyance fees received on the Mortgage Loans shall not
be deposited in the Custodial Account, but rather shall be received and held by
the Master Servicer as additional servicing compensation.
SECTION 3.11. Permitted Withdrawals From the Custodial Account.
The Master Servicer may, from time to time as provided herein, make
withdrawals from the Custodial Account of amounts on deposit therein pursuant to
Section 3. 10 that are attributable to the Mortgage Loans for the following
purposes:
(i) to make deposits into the Certificate Account in the
amounts and in the manner provided for in Section 4.01, such deposit
to include interest collections on the Mortgage Loans at the Net
Mortgage Rate [and net of amounts reimbursed therefrom];
(ii) to pay to itself, the Company, the Seller or any other
appropriate person, as the case may be, with respect to each Mortgage
Loan that has previously been purchased, repurchased or replaced
pursuant to Sections 2.02, 2.04 or 9.01 all amounts received thereon
and not yet distributed as of the date of purchase, repurchase or
substitution;
(iii) to reimburse itself or any Sub-Servicer for Advances
not previously reimbursed, the Master Servicer's or any Sub-Servicer's
right to reimbursement pursuant to this clause (iii) being limited to
amounts received which represent Late Collections (net of the related
Servicing Fees) of Monthly Payments on Mortgage Loans with respect to
which such Advances were made and as further provided in Section 3.15;
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(iv) to reimburse or pay itself, the Trustee or the Company
for expenses incurred by or reimbursable to the Master Servicer, the
Trustee or the Company pursuant to Sections 3.22, 6.03, 8.05, 10.01(c)
or 10.01(g), except as otherwise provided in such Sections;
(v) to reimburse itself or any Sub-Servicer for costs and
expenses incurred by or reimbursable to it relating to the prosecution
of any claims pursuant to Section 3.13 that are in excess of the
amounts so recovered;
(vi) to reimburse itself or any Sub-Servicer for unpaid
Servicing Fees and unreimbursed Servicing Advances, the Master
Servicer's or any Sub-Servicer's right to reimbursement pursuant to
this clause (vi) with respect to any Mortgage Loan being limited to
late recoveries of the payments for which such advances were made
pursuant to Section 3.01 or Section 3.09 and any other related Late
Collections;
(vii) to pay itself as servicing compensation (in addition to
the Servicing Fee), on or after each Distribution Date, any interest
or investment income earned on funds deposited in the Custodial
Account for the period ending on such Distribution Date, subject to
Section 8.05;
(viii) to reimburse itself or any Sub-Servicer for any Advance
previously made which itself has determined to be a Nonrecoverable
Advance, provided that such Advance was made with respect to a
delinquency that ultimately constituted an Excess Special Hazard Loss,
Excess Fraud Loss, Excess Bankruptcy Loss or Extraordinary Loss; and
to clear and terminate the Custodial Account at the termination of
this Agreement pursuant to Section 9.01.
The Master Servicer shall keep and maintain separate accounting
records on a Mortgage Loan by Mortgage Loan basis, for the purpose of justifying
any withdrawal from the Custodial Account pursuant to such clauses (ii), (iii),
(iv), (v), (vi), (vii) and (viii).
SECTION 3.12. Permitted Instruments.
Any institution maintaining the Custodial Account shall at the
direction of the Master Servicer invest the funds in such account in Permitted
Instruments, each of which shall mature not later than the Business Day
immediately preceding the Distribution Date next following the date of such
investment (except that if such Permitted Instrument is an obligation of the
institution that maintains such account, then such Permitted Instrument shall
mature not later than such Distribution Date) and shall not be sold or disposed
of prior to its maturity. All income and gain realized from any such investment
as well as any interest earned on deposits in the Custodial Account shall be for
the benefit of the Master Servicer. The Master Servicer shall deposit in the
Custodial Account (with respect to investments made hereunder of funds held
therein) an amount equal to the amount of any loss incurred in respect of any
such investment immediately upon realization of such loss without right of
reimbursement.
SECTION 3.13. Maintenance of the Letter of Credit, Primary Mortgage
Insurance and Primary Hazard Insurance.
(a) The Master Servicer covenants and agrees to exercise its best
reasonable efforts to maintain and keep the Letter of Credit in full force and
effect in accordance with Section 4.06 until the termination of the Trust Fund
created hereby, unless the amount available to be drawn thereunder has been
exhausted or unless the Letter of Credit has been terminated pursuant to the
terms thereof or hereof. As to any Distribution Date, with respect to any
Mortgage Loan as to which liquidation has been completed (which shall be deemed
to have occurred when the Master Servicer determines that it has received all
Insurance Proceeds
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(other than proceeds from a drawing under the Letter of Credit), Liquidation
Proceeds and other recoveries which the Master Servicer deems to be recoverable)
during the preceding calendar month or was deemed to have occurred during such
preceding calendar month in accordance with Section 3.07 (other than any
Mortgage Loan relating to a Mortgaged Property which has suffered an
Extraordinary Loss), by 12:00 Noon, New York City time, on the related
Certificate Account Deposit Date, the Trustee shall draw on the Letter of
Credit, after receipt of the written statement of the Master Servicer delivered
pursuant to Section 4.04, pursuant to the terms thereof. In lieu of a draw under
the Letter of Credit as provided above, Southern Pacific Funding, at its sole
option, may, on the Certificate Account Deposit Date upon which such draw could
otherwise be made, deposit an amount equal to such draw into the Certificate
Account. After any drawing under the Letter of Credit or payment by Southern
Pacific Funding pursuant to this Section 3.13(a), the Trustee shall assign to
Southern Pacific Funding any rights in or to the related Mortgage Loan and such
Mortgage Loan will thereafter no longer be part of the Trust Fund. Upon receipt
by Southern Pacific Funding of any amounts in connection with a Mortgage Loan so
assigned to it, Southern Pacific Funding shall supply the Trustee with an
Officers' Certificate which sets forth such amount, and (except in the case of a
payment made by Southern Pacific Funding in lieu of a draw on the Letter of
Credit) Southern Pacific Funding shall cause the Letter of Credit Issuer to be
reimbursed to the extent required for reinstatement of the available amount
under the Letter of Credit. Upon receipt by the Trustee of such an Officers'
Certificate, if the Letter of Credit remains outstanding, the Trustee shall
request the reinstatement of the amount remaining under the Letter of Credit in
an amount equal to such recovered amount by delivering a certificate to the
Letter of Credit Issuer substantially in the form of Annex B to the Letter of
Credit.
Notwithstanding the foregoing, draws on the Letter of Credit, or
payments in lieu thereof, in connection with Fraud Losses shall not exceed in
the aggregate Fraud Loss Amount.
(b) The Master Servicer may terminate the Letter of Credit or reduce
the amount thereof (pursuant to Section 4.06(d)) or substitute an alternative
form of credit enhancement therefor, provided that prior to any such reduction,
termination or substitution, the Master Servicer shall obtain written
confirmation from the Rating Agency that such reduction, termination or
substitution would not adversely affect the then-current rating assigned to the
Certificates by such Rating Agency and provide a copy of such confirmation to
the Trustee and, provided that the Master Servicer obtains on Opinion of Counsel
to the effect that obtaining any such alternative form of credit support will
not adversely affect the classification of the Trust Fund as a grantor trust for
federal income tax purposes.
(c) The Master Servicer shall not take, or permit any Sub-servicer to
take, any action which would result in non-coverage under any applicable Primary
Mortgage Insurance Policy of any loss which, but for the actions of the Master
Servicer or Sub-servicer, would have been covered thereunder. To the extent
coverage is available, the Master Servicer shall keep or cause to be kept in
full force and effect each such Primary Mortgage Insurance Policy until the
principal balance of the related Mortgage Loan secured by a Mortgaged Property
is reduced to 75% or less of the Collateral Value in the case of such a Mortgage
Loan having a Loan-to-Value Ratio at origination in excess of 80%. The Master
Servicer shall not cancel or refuse to renew any such Primary Mortgage Insurance
Policy, or consent to any Sub-servicer canceling or refusing to renew any such
Primary Mortgage Insurance Policy applicable to a Mortgage Loan subserviced by
it, that is in effect at the date of the initial issuance of the Certificates
and is required to be kept in force hereunder unless the replacement Primary
Mortgage Insurance Policy for such canceled or non-renewed policy is maintained
with a Qualified Insurer.
(d) In connection with its activities as administrator and servicer of the
Mortgage Loans, the Master Servicer agrees to present or to cause the related
Sub-servicer to present, on behalf of the Master Servicer, the Sub-servicer, if
any, the Trustee and Certificateholders, claims to the insurer under any Primary
Mortgage Insurance Policies, in a timely manner in accordance with such
policies, and, in this regard, to take
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or cause to be taken such reasonableaction as shall be necessary to permit
recovery under any Primary Mortgage Insurance Policies respecting defaulted
Mortgage Loans. Pursuant to Section 3.10, any Insurance Proceeds collected by or
remitted to the Master Servicer under any Primary Mortgage Insurance Policies
shall be deposited in the Custodial Account, subject to withdrawal pursuant to
Section 3.11.
(e) The Master Servicer shall cause to be maintained for each
Mortgage Loan primary hazard insurance with extended coverage on the related
Mortgaged Property in an amount equal to the lesser of 100% of the replacement
value of the improvements, as determined by the insurance company, on such
Mortgaged Property or the unpaid principal balance of the Mortgage Loan. The
Master Servicer shall also cause to be maintained on property acquired upon
foreclosure, or deed in lieu of foreclosure, of any Mortgage Loan, fire
insurance with extended coverage in an amount equal to the replacement value of
the improvements thereon. Pursuant to Section 3.10, any amounts collected by the
Master Servicer under any such policies (other than amounts to be applied to the
restoration or repair of the related Mortgaged Property or property thus
acquired or amounts released to the Mortgagor in accordance with the Master
Servicer's normal servicing procedures) shall be deposited in the Custodial
Account, subject to withdrawal pursuant to Section 3.11. Any cost incurred by
the Master Servicer in maintaining any such insurance shall not, for the purpose
of calculating monthly distributions to Certificateholders, be added to the
amount owing under the Mortgage Loan, notwithstanding that the terms of the
Mortgage Loan so permit. It is understood and agreed that no earthquake or other
additional insurance is to be required of any Mortgagor or maintained on
property acquired in respect of a Mortgage Loan other than pursuant to such
applicable laws and regulations as shall at any time be in force and as shall
require such additional insurance. When the improvements securing a Mortgage
Loan are located at the time of origination of such Mortgage Loan in a federally
designated special flood hazard area, the Master Servicer shall cause flood
insurance (to the extent available) to be maintained in respect thereof. Such
flood insurance shall be in an amount equal to the lesser of (i) the replacement
value of the improvements, which are part of such Mortgaged Property on a
replacement cost basis and (ii) the maximum amount of such insurance available
for the related Mortgaged Property under the national flood insurance program
(assuming that the area in which such Mortgaged Property is located is
participating in such program).
In the event that the Master Servicer shall obtain and maintain a
blanket fire insurance policy with extended coverage insuring against hazard
losses on all of the Mortgage Loans, it shall conclusively be deemed to have
satisfied its obligations as set forth in the first two sentences of this
Section 3.13, it being understood and agreed that such policy may contain a
deductible clause, in which case the Master Servicer shall, in the event that
there shall not have been maintained on the related Mortgaged Property a policy
complying with the first two sentences of this Section 3.13 and there shall have
been a loss which would have been covered by such policy, deposit in the
Certificate Account the amount not otherwise payable under the blanket policy
because of such deductible clause. Any such deposit by the Master Servicer shall
be made on the Certificate Account Deposit Date next preceding the Distribution
Date which occurs in the month following the month in which payments under any
such policy would have been deposited in the Custodial Account. In connection
with its activities as administrator and servicer of the Mortgage Loans, the
Master Servicer agrees to present, on behalf of itself, the Trustee and
Certificateholders, claims under any such blanket policy.
SECTION 3.14. Enforcement of Due-on-Sale Clauses; Assumption
Agreements.
The Master Servicer will, to the extent it has knowledge of any
conveyance or prospective conveyance by any Mortgagor of the Mortgaged Property
(whether by absolute conveyance or by contract of sale, and whether or not the
Mortgagor remains or is to remain liable under the Mortgage Note or the
Mortgage), exercise or cause to be exercised its rights to accelerate the
maturity of such Mortgage Loan under any "due-on-sale" clause applicable
thereto; provided, however, that the Master Servicer shall not exercise any such
rights if it reasonably believes that it is prohibited by law from doing so or
if such
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enforcement will adversely affect or jeopardize required coverage under the
Insurance Instruments. If the Master Servicer is unable to enforce such "due on-
sale" clause (as provided in the previous sentence) or if no "due-on-sale"
clause is applicable, the Master Servicer or the Sub-Servicer will enter into an
assumption and modification agreement with the Person to whom such property has
been conveyed or is proposed to be conveyed, pursuant to which such Person
becomes liable under the Mortgage Note and, to the extent permitted by
applicable state law, the Mortgagor remains liable thereon; provided, however,
that the Master Servicer shall not enter into any assumption and modification
agreement if the coverage provided under the Primary Insurance Policy, if any,
would be impaired by doing so. The Master Servicer is also authorized to enter
into a substitution of liability agreement with such Person, pursuant to which
the original Mortgagor is released from liability and such Person is substituted
as the Mortgagor and becomes liable under the Mortgage Note, if the Master
Servicer shall have determined in good faith that such substitution will not
adversely affect the collectability of the Mortgage Loan. Any fee collected by
or on behalf of the Master Servicer for entering into an assumption or
substitution of liability agreement will be retained by or on behalf of the
Master Servicer as additional servicing compensation. In connection with any
such assumption, no material term of the Mortgage Note (including but not
limited to the Mortgage Rate, the amount of the Monthly Payment and any other
term affecting the amount or timing of payment on the Mortgage Loan) may be
changed. The Master Servicer shall notify the Trustee that any such substitution
or assumption agreement has been completed by forwarding to the Trustee the
original copy of such substitution or assumption agreement, which copy shall be
added to the related Mortgage File and shall, for all purposes, be considered a
part of such Mortgage File to the same extent as all other documents and
instruments constituting a part thereof.
Notwithstanding the foregoing paragraph or any other provision of this
Agreement, the Master Servicer shall not be deemed to be in default, breach or
any other violation of its obligations hereunder by reason of any assumption of
a Mortgage Loan by operation of law or any assumption that the Master Servicer
may be restricted by law from preventing, for any reason whatsoever. For
purposes of this Section 3.14, the term "assumption" is deemed to also include a
sale of a Mortgaged Property that is not accompanied by an assumption or
substitution of liability agreement.
` SECTION 3.15. Realization Upon Defaulted Mortgage Loans.
The Master Servicer shall exercise reasonable efforts, consistent with
the procedures that the Master Servicer would use in servicing loans for its own
account, to foreclose upon or otherwise comparably convert (which may include an
REO Acquisition) the ownership of properties securing such of the Mortgage Loans
as come into and continue in default and as to which no satisfactory
arrangements can be made for collection of delinquent payments pursuant to
Section 3.07, and which are not released from the Trust Fund pursuant to any
other provision hereof. The Master Servicer shall use reasonable efforts to
realize upon such defaulted Mortgage Loans in such manner as will maximize the
receipt of principal and interest by Certificateholders, taking into account,
among other things, the timing of foreclosure proceedings. The foregoing is
subject to the provisions that, in any case in which Mortgaged Property shall
have suffered damage from an Uninsured Cause, the Master Servicer shall not be
required to expend its own funds toward the restoration of such property unless
it shall determine in (i) that such restoration will increase the net proceeds
of liquidation of the related Mortgage Loan to Certificateholders after
reimbursement to itself for such expenses, and (ii) that such expenses will be
recoverable by the Master Servicer through Insurance Proceeds or Liquidation
Proceeds from the related Mortgaged Property, as contemplated in Section 3.11.
The Master Servicer shall be responsible for all other costs and expenses
incurred by it in any such proceedings; provided, however, that it shall be
entitled to reimbursement thereof from the related Mortgaged Property, as
contemplated in Section 3.11.
The proceeds of any Cash Liquidation or REO Disposition, as well as
any recovery resulting from a partial collection of Insurance Proceeds or
Liquidation Proceeds or any income from an REO Property, will
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be applied in the following order of priority: first, to reimburse the Master
Servicer or any Sub-Servicer for any related unreimbursed Servicing Advances,
pursuant to Section 3.11(vi) or 3.22; second, to accrued and unpaid interest on
the Mortgage Loan or REO Imputed Interest, at the Mortgage Rate, to the date of
the Cash Liquidation or REO Disposition, or to the Due Date prior to the
Distribution Date on which such amounts are to be distributed if not in
connection with a Cash Liquidation or REO Disposition; and third, as a recovery
of principal of the Mortgage Loan. If the amount of the recovery so allocated to
interest is less than a full recovery thereof, that amount will be allocated as
follows: first, on a pro rata basis, to unpaid Servicing Fees; and second, to
interest at the related Net Mortgage Rate. The portion of the recovery so
allocated to unpaid Servicing Fees shall be reimbursed to the Master Servicer or
any Sub-Servicer pursuant to Section 3.11(vi). The portions of the recovery so
allocated to interest at the related Net Mortgage Rate and to principal of the
Mortgage Loan shall be applied as follows: first, to reimburse the Trustee for
any unpaid Trustee's Fees, second, to reimburse the Master Servicer or any Sub-
Servicer for any related unreimbursed Advances in accordance with Section 3.11
(iii) or 3.22, and third, for distribution in accordance with the provisions of
Section 4.01(b).
SECTION 3.16. Trustee to Cooperate; Release of Mortgage Files.
Upon the payment in full of any Mortgage Loan, or the receipt by the
Master Servicer of a notification that payment in full shall be escrowed in a
manner customary for such purposes, the Master Servicer will immediately notify
the Trustee by a certification (which certification shall include a statement to
the effect that all amounts received or to be received in connection with such
payment which are required to be deposited in the Custodial Account pursuant to
Section 3.10 have been or will be so deposited) of a Servicing Officer and shall
request delivery to it of the Mortgage File in the form of the Request for
Release attached hereto as Exhibit F-2. Upon receipt of such certification and
request, the Trustee shall promptly release the related Mortgage File to the
Master Servicer. Subject to the receipt by the Master Servicer of the proceeds
of such payment in full and the payment of all related fees and expenses, the
Master Servicer shall arrange for the release to the Mortgagor of the original
cancelled Mortgage Note. The Master Servicer shall provide for preparation of
the appropriate instrument of satisfaction covering any Mortgage Loan which pays
in full and the Trustee shall cooperate in the execution and return of such
instrument to provide for its delivery or recording as may be required. All
other documents in the Mortgage File shall be retained by the Master Servicer to
the extent required by applicable law. No expenses incurred in connection with
any instrument of satisfaction or deed of reconveyance shall be chargeable to
the Custodial Account or the Certificate Account.
From time to time and as appropriate for the servicing or foreclosure
of any Mortgage Loan, including, for this purpose, collection under the
Insurance Instruments or any other insurance policy relating to the Mortgage
Loan, the Trustee shall, upon request of the Master Servicer and delivery to the
Trustee of a Request for Release in the form attached hereto as Exhibit F-1,
release the related Mortgage File to the Master Servicer, and the Trustee shall
execute such documents as the Master Servicer shall prepare and request as being
necessary to the prosecution of any such proceedings. Such Request for Release
shall obligate the Master Servicer to return each document previously requested
from the Mortgage File to the Trustee when the need therefor by the Master
Servicer no longer exists, unless the Mortgage Loan has been liquidated and the
Liquidation Proceeds relating to the Mortgage Loan have been deposited in the
Custodial Account or the Mortgage File or such document has been delivered to an
attorney, or to a public trustee or other public official as required by law,
for purposes of initiating or pursuing legal action or other proceedings for the
foreclosure of the Mortgaged Property either judicially or non-judicially, and
the Master Servicer has delivered to the Trustee a certificate of a Servicing
Officer certifying as to the name and address of the Person to which such
Mortgage File or such document was delivered and the purpose or purposes of such
delivery. Upon receipt of a certificate of a Servicing Officer stating that such
Mortgage Loan was liquidated and that all amounts received or to be received in
connection with such liquidation which are required to be deposited
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into the Custodial Account have been or will be so deposited, or that such
Mortgage Loan has become an REO Property, the servicing receipt shall be
released by the Trustee to the Master Servicer.
Upon written request of a Servicing Officer, the Trustee shall execute
and deliver to the Master Servicer any court pleadings, requests for trustee's
sale or other documents prepared by the Master Servicer that are necessary to
the foreclosure or trustee's sale in respect of a Mortgaged Property or to any
legal action brought to obtain judgment against any Mortgagor on the Mortgage
Note or Mortgage or to obtain a deficiency judgment, or to enforce any other
remedies or rights provided by the Mortgage Note or Mortgage or otherwise
available at law or in equity. Each such request that such pleadings or
documents be executed by the Trustee shall include a certification as to the
reason such documents or pleadings are required and that the execution and
delivery thereof by the Trustee will not invalidate or otherwise affect the lien
of the Mortgage, except for the termination of such a lien upon completion of
the foreclosure or trustee's sale.
SECTION 3.17. Servicing Compensation.
As compensation for its activities hereunder, the Master Servicer
shall be entitled to retain, from deposits to the Custodial Account of amounts
representing payments or recoveries of interest, the Servicing Fees with respect
to each Mortgage Loan (less any portion of such amounts retained by any Sub-
Servicer). In addition, the Master Servicer shall be entitled to recover unpaid
Servicing Fees out of related Late Collections to the extent permitted in
Section 3.11.
The Master Servicer also shall be entitled pursuant to Section 3. 11
to receive from the Custodial Account, as additional servicing compensation
interest or other income earned on deposits therein, as well as any prepayment
fees, assumption fees, late payment fees and reconveyance fees. The Master
Servicer shall be required to pay all expenses incurred by it in connection with
its servicing activities hereunder (including payment of fees and commissions
for the Letter of Credit, payment of the premiums for any Primary Mortgage
Insurance Policy or blanket policy insuring against hazard losses pursuant to
Section 3.13, payment of the servicing compensation of the Sub-Servicer to the
extent not retained by it), and shall not be entitled to reimbursement therefor
except as specifically provided in Section 3.11. The Servicing Fee may not be
transferred in whole or in part except in connection with the transfer of all of
the Master Servicer's responsibilities and obligations under this Agreement.
SECTION 3.18. Maintenance of Certain Servicing Policies.
During the term of its service as Master Servicer, the Master Servicer
shall maintain in force (i) a policy or policies of insurance covering errors
and omissions in the performance of its obligations as servicer hereunder and
(ii) a fidelity bond in respect of its officers, employees or agents. Each such
policy or policies and bond shall, together, comply with the requirements from
time to time of FNMA or FHLMC for persons performing servicing for mortgage
loans purchased by such corporation. The Master Servicer shall prepare and
present, on behalf of itself, the Trustee and Certificateholders, claims under
any such errors and omissions policy or policies or fidelity bond in a timely
fashion in accordance with the terms of such policy or bond, and upon the filing
of any claim on any policy or bond described in this Section, the Master
Servicer shall promptly notify the Trustee of any such claims and the Trustee
shall notify the Rating Agency of such claim.
SECTION 3.19. Annual Statement as to Compliance.
The Master Servicer will deliver to the Trustee and the Company on or
before _____ __ of each year, beginning with _____ __, 199_, an Officers'
Certificate stating, as to each signatory thereof, that (i) a review of the
activities of the Master Servicer during the preceding calendar year and of its
performance under this Agreement has been made under such officers' supervision,
and (ii) to the best of such officers' knowledge,
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based on such review, the Master Servicer has fulfilled in all material respects
its obligations under this Agreement throughout such year, or, if there has been
a default in the fulfillment of any such obligation, specifying each such
default known to such officers and the nature and status thereof. Copies of such
certificate shall be provided by the Trustee to any Certificateholder upon
request at the Master Servicer's expense, provided such statement is delivered
by the Master Servicer to the Trustee.
SECTION 3.20. Annual Independent Public Accountants' Servicing
Statement.
On or before March 31 of each year, beginning with March 31, 19__, the
Master Servicer at its expense shall furnish to the Company and the Trustee a
statement from a firm of independent certified public accountants (which is a
member of the American Institute of Certified Public Accountants) to the effect
that, based on 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 FHLMC, the servicing of mortgage loans under
agreements (including this Agreement) substantially similar to each other was
conducted in compliance with such agreements except for such significant
exceptions or errors in record that, in the opinion of the firm, the Uniform
Single Attestation Program for Mortgage Bankers or the Audit Program for
Mortgages serviced for FHLMC 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 Sub-servicers, 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
FHLMC (rendered within one year of such statement) of firms of independent
public accountants with respect to those Sub-servicers which also have been the
subject of such an examination. Copies of such statement shall be provided by
the Trustee to any Certificateholder upon request at the Master Servicer's
expense, provided such statement is delivered by the Master Servicer to the
Trustee.
SECTION 3.21. Access to Certain Documentation.
(a) The Master Servicer shall provide to the OTS, the FDIC and other
federal banking regulatory agencies, and their respective examiners, access to
the documentation regarding the Mortgage Loans required by applicable
regulations of the OTS, the FDIC and such other agencies. Such access shall be
afforded without charge, but only upon reasonable and prior written request and
during normal business hours at the offices of the Master Servicer designated by
it. Nothing in this Section shall derogate from the obligation of the Master
Servicer to observe any applicable law prohibiting disclosure of information
regarding the Mortgagors and the failure of the Master Servicer to provide
access as provided in this Section as a result of such obligation shall not
constitute a breach of this section.
(b) The Master Servicer shall afford the Company and the Trustee,
upon reasonable notice, during normal business hours access to all records
maintained by the Master Servicer in respect of its rights and obligations
hereunder and access to officers of the Master Servicer responsible for such
obligations. Upon request, the Master Servicer shall furnish the Company and the
Trustee with its most recent financial statements and such other information as
the Master Servicer possesses regarding its business, affairs, property and
condition, financial or otherwise to the extent related to the servicing of the
Mortgage Loans. The Company may, but is not obligated to, enforce the
obligations of the Master Servicer hereunder and may, but is not obligated to,
perform, or cause a designee to perform, any defaulted obligation of the Master
Servicer hereunder or exercise the rights of the Master Servicer hereunder;
provided that the Master Servicer shall not be relieved of any of its
obligations hereunder by virtue of such performance by the Company or its
designee. The Company shall not have any responsibility or liability for any
action or failure to act by the Master Servicer and is not obligated to
supervise the performance of the Master Servicer under this Agreement or
otherwise.
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SECTION 3.22. Title, Conservation and Disposition of REO Property.
This Section shall apply only to REO Properties acquired for the
account of the Trust Fund, and shall not apply to any REO Property relating to a
Mortgage Loan which was purchased or repurchased from the Trust Fund pursuant to
any provision hereof. In the event that title to any such REO Property is
acquired, the deed or certificate of sale shall be issued to the Trustee, or to
its nominee, on behalf of the Certificateholders. Pursuant to its efforts to
sell such REO Property, the Master Servicer shall either itself or through an
agent selected by the Master Servicer protect and conserve such REO Property in
the same manner and to such extent as is customary in the locality where such
REO Property is located and may, incident to its conservation and protection of
the interests of the Certificateholders, rent the same, or any part thereof, as
the Master Servicer deems to be in the best interest of the Certificateholders
for the period prior to the sale of such REO Property.
The Master Servicer shall segregate and hold all funds collected and
received in connection with the operation of any REO Property separate and apart
from its own funds and general assets. The Master Servicer shall deposit, or
cause to be deposited, on a daily basis in the Custodial Account all revenues
received with respect to the REO Properties, net of any directly related
expenses incurred or withdraw therefrom funds necessary for the proper
operation, management and maintenance of the REO Property.
If as of the date of acquisition of title to any REO Property there
remain outstanding unreimbursed Servicing Advances with respect to such REO
Property or any outstanding Advances allocated thereto the Master Servicer, upon
an REO Disposition, shall be entitled to reimbursement for any related
unreimbursed Servicing Advances and any unreimbursed related Advances as well as
any unpaid Servicing Fees from proceeds received in connection with the REO
Disposition, as further provided in Section 3.15.
Subject to the first paragraph of this Section 3.22, the REO
Disposition shall be carried out by the Master Servicer at such price and upon
such terms and conditions as the Master Servicer shall determine to be in the
best economic interest of the Trust Fund.
The Master Servicer shall deposit the proceeds from the REO
Disposition, net of any payment to the Master Servicer as provided above, in the
Custodial Account upon receipt thereof for distribution in accordance with
Section 4.01, including any such net proceeds which are in excess of the
applicable Stated Principal Balance plus all unpaid REO Imputed Interest thereon
through the date of the REO Disposition.
Notwithstanding the foregoing provisions of this Section 3.22, with
respect to any Mortgage Loan as to which the Master Servicer has received notice
of, or has actual knowledge of, the presence of any toxic or hazardous substance
on the Mortgaged Property, the Master Servicer shall promptly request the
Trustee and the Company to provide directions and instructions with respect to
such Mortgage Loan and shall act in accordance with any such directions and
instructions jointly provided by the Trustee and the Company. Notwithstanding
the preceding sentence of this Section 3.22, with respect to any Mortgage Loan
described by such sentence, the Master Servicer shall not, on behalf of the
Trustee, either (i) obtain title to the related Mortgaged Property as a result
of or in lieu of foreclosure or otherwise, or (ii) otherwise acquire possession
of, the related Mortgaged Property, unless (i) the Company and the Trustee
jointly direct the Master Servicer to take such action and (ii) either (A) the
Master Servicer has, at least 30 days prior to taking such action, obtained and
delivered to the Company an environmental audit report prepared by a Person who
regularly conducts environmental audits using customary industry standards or
(B) the Company has directed the Master Servicer not to obtain an environmental
audit report. If the Trustee and the Company have not jointly provided
directions and instructions to the Master Servicer in connection with any such
Mortgage Loan within 30 days of a request by the Master Servicer for such
directions and instructions, then the Master Servicer shall
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take such action as it deems to be in the best economic interest of the Trust
Fund (other than proceeding against the Mortgaged Property) and is hereby
authorized at such time as it deems appropriate to release such Mortgaged
Property from the lien of the related Mortgage.
The cost of the environmental audit report contemplated by this
Section 3.22 shall be advanced by the Master Servicer as an expense of the Trust
Fund, and the Master Servicer shall be reimbursed therefor from the Custodial
Account as provided in Section 3.11, any such right of reimbursement being prior
to the rights of the Certificateholders to receive any amount in the Custodial
Account.
If the Master Servicer determines, as described above, that it is in
the best economic interest of the Trust Fund to take such actions as are
necessary to bring any such Mortgaged Property in compliance with applicable
environmental laws, or to take such action with respect to the containment,
clean-up or remediation of hazardous substances, hazardous materials, hazardous
wastes, or petroleum-based materials affecting any such Mortgaged Property, then
the Master Servicer shall take such action as it deems to be in the best
economic interest of the Trust Fund. The cost of any such compliance,
containment, clean-up or remediation shall be advanced by the Master Servicer as
an expense of the Trust Fund, and the Master Servicer shall be entitled to be
reimbursed therefor from the Custodial Account as provided in Section 3.11, any
such right of reimbursement being prior to the rights of the Certificateholders
to receive any amount in the Custodial Account.
SECTION 3.23. Additional Obligations of the Master Servicer.
On each Certificate Account Deposit Date, the Master Servicer shall
deliver to the Trustee for deposit in the Certificate Account from its own funds
and without any right of reimbursement therefor, a total amount equal to the
aggregate of the Prepayment Interest Shortfalls for such Distribution Date;
provided that the Master Servicer's obligations under this subsection on any
Distribution Date shall not be more than the total amount of its master
servicing compensation payable in such month.
SECTION 3.24. Additional Obligations of the Company.
The Company agrees that on or prior to the tenth day after the Closing
Date, the Company shall provide the Trustee with a written notification,
substantially in the form of Exhibit J attached hereto, relating to the
Certificates, setting forth (i)(a) if less than 10% of the aggregate Certificate
Principal Balance of the Certificates has been sold as of such date, the value
calculated pursuant to clause (b)(iii) of Exhibit J hereto, or, (b) if 10% or
more of the Certificates has been sold as of such date but no single price is
paid for at least 10% of the aggregate Certificate Principal Balance of the
Certificates, then the weighted average price at which the Certificates were
sold and the aggregate percentage of Certificates sold, (c) the first single
price at which at least 10% of the aggregate Certificate Principal Balance of
such class of Certificates was sold or, (d) if any Certificates are retained by
the Company or an affiliated corporation, or are delivered to the Seller, the
fair market value thereof as of the Closing Date, (ii) the prepayment assumption
used in pricing the Certificates, and (iii) such other information as to matters
of fact as the Trustee may reasonably request to enable it to comply with its
reporting requirements with respect to such Certificates to the extent such
information can in the good faith judgment of the Company be determined by it.
SECTION 3.25. Converted Mortgage Loans; Purchase Obligations Upon
Conversion; Administration by the Trustee.
(a) The Trustee, as Noteholder (as defined in the Mortgage Notes for
the Mortgage Loans), hereby authorizes and directs the Master Servicer, on
behalf of the Noteholder, to determine fixed interest rates into which
Mortgagors under Convertible Mortgage Loans may convert the adjustable interest
rates on
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their Mortgage Notes in accordance with the fixed formula set forth insuch
Mortgage Notes. The Master Servicer agrees to make such determinations and
otherwise administer the Convertible Mortgage Loans as contemplated in the
Mortgage Notes until the later to occur of (i) the date on which all the
Convertible Mortgage Loans have become Converted Mortgage Loans, and (ii) the
last date on which Mortgagors have the option to convert the adjustable interest
rates on their Mortgage Notes to fixed interest rates.
(b) Upon becoming aware of the intent to convert any Convertible
Mortgage Loan the Master Servicer will promptly notify the Trustee (if it holds
the related Mortgage File) and (if the Seller is not then the Master Servicer)
the Seller. Prior to the day on which a Convertible Mortgage Loan has become a
Converted Mortgage Loan, the Seller shall be obligated pursuant to the terms of
the Seller's Warranty Certificate to purchase a Converting Mortgage Loan at the
Purchase Price. All amounts paid by the Seller in connection with the purchase
of a Converting Mortgage Loan will be deposited in the Custodial Account. A
failure by the Seller to purchase a Converting Mortgage Loan will constitute an
Event of Default for the Seller in its capacity as Master Servicer under this
Agreement pursuant to Section 7.01.
(c) A Converting Mortgage Loan or a Converted Mortgage Loan shall
remain in the Trust Fund and all payments in respect thereof shall remain in the
Trust Fund unless and until such Converting Mortgage Loan or Converted Mortgage
Loan is purchased by the Seller pursuant to Section 3.25(b).
(d) Upon any purchase of a Converting Mortgage Loan by the Seller
pursuant to Section 3.25(b) and the deposit in the Custodial Account of the
Purchase Price, the Trustee shall give the Master Servicer written notice
thereof, and the Trustee shall release, or cause to be released, the related
Mortgage File, shall execute and deliver such instruments of transfer or
assignment (which shall be prepared by, and be at the expense of the Seller), in
each case without recourse, as the Seller, a third party, or the Trustee, as
purchaser thereof, shall require as necessary to vest in the Seller ownership of
any Mortgage Loan released pursuant hereto and at such time the Trustee shall
have no further responsibility with respect to the related Mortgage File and
whereupon such Converted Mortgage Loan shall cease to be a part of the Trust
Fund.
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ARTICLE IV
PAYMENTS TO CERTIFICATEHOLDERS
SECTION 4.01. Certificate Account; Distributions.
(a) The Trustee shall establish and maintain a Certificate Account,
in which the Master Servicer shall cause to be deposited on behalf of the
Trustee on or before 3:00 P.M. New York time on each Certificate Account Deposit
Date by wire transfer of immediately available funds an amount equal to the sum
of (i) any Advance for the immediately succeeding Distribution Date, (ii) any
amount required to be deposited in the Certificate Account pursuant to Sections
3.11, 3.13, 3.23 or 4.03(b) and (iii) all other amounts constituting or, if not
otherwise applicable to the payment of the Trustee's Fee, that would constitute
the Available Distribution Amount for the immediately succeeding Distribution
Date. The Trustee shall transfer from the Certificate Account to itself, the
Trustee's Fee on each Certificate Account Deposit Date. Such amounts do not
constitute part of the Available Distribution Amount.
(b) On each Distribution Date the Trustee shall distribute to each
Certificateholder of record on the next preceding Record Date (other than as
provided in Section 9.01 respecting the final distribution) either in
immediately available funds (by wire transfer or otherwise) to the account of
such Certificateholder at a bank or other entity having appropriate facilities
therefor, if such Certificateholder has so notified the Trustee at least 5
Business Days prior to the related Record Date and such Certificateholder is the
registered owner of Certificates the aggregate Initial Certificate Principal
Balance of which is not less than $2,500,000, or otherwise by check mailed to
such Certificateholder at the address of such Holder appearing in the
Certificate Register, such Certificateholder's share (based on the aggregate of
the Percentage Interests represented by Certificates held by such Holder) of the
Available Distribution Amount.
(c) The Trustee shall, upon written request from the Master Servicer,
invest or cause the institution maintaining the Certificate Account to invest
the funds in the Certificate Account in Permitted Instruments designated in the
name of the Trustee for the benefit of the Certificateholders, which shall
mature not later than the Business Day next preceding the Distribution Date next
following the date of such investment (except that (i) any investment in
obligations of the institution with which the Certificate Account is maintained
may mature on such Distribution Date and (ii) any other investment may mature on
such Distribution Date if the Trustee shall agree to advance funds on such
Distribution Date to the Certificate Account in the amount payable on such
investment on such Distribution Date, pending receipt thereof to the extent
necessary to make distributions on the Certificates) and shall not be sold or
disposed of prior to maturity. All income and gain realized from any such
investment shall be for the benefit of the Master Servicer and shall be subject
to its withdrawal or order from time to time. The amount of any losses incurred
in respect of any such investments shall be deposited in the Certificate Account
by the Master Servicer out of its own funds immediately as realized without
right of reimbursement.
SECTION 4.02. Statements to Certificateholders.
On each Distribution Date the Trustee shall forward or cause to be
forwarded by mail to each Holder of a Certificate and to the Company and the
Master Servicer a statement as to such distribution setting forth the following
information as to the Certificates to the extent applicable:
(i) (a) the amount of such distribution to the
Certificateholders applied to reduce the Certificate Principal Balance
thereof, and (b) the aggregate amount included therein representing
Principal Prepayments;
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(ii) the amount of such distribution to the
Certificateholders allocable to interest;
(iii) if the distribution to the Certificateholders is less
than the full amount that would be distributable to such Certificateholders
if there were sufficient funds available therefor, the amount of the
shortfall;
(iv) the amount of any Advance by the Master Servicer
pursuant to Section 4.03;
(v) the number and aggregate Stated Principal Balance of
the Mortgage Loans after giving effect to the distribution of principal on
such Distribution Date;
(vi) the aggregate Certificate Principal Balance of the
Certificates, after giving effect to the amounts distributed on such
Distribution Date, separately identifying any reduction thereof due to
Realized Losses other than pursuant to an actual distribution of principal;
(vii) the amount of Servicing Fees paid to the Master
Servicer;
(viii) on the basis of the most recent reports furnished to it
by Subservicers, the number and aggregate principal balances of Mortgage
Loans that are delinquent (A) one month, (B) two months and (C) three
months, and the number and aggregate principal balance of Mortgage Loans
that are in foreclosure;
(ix) the number, aggregate principal balance and book value
of any REO Properties;
(x) the aggregate Accrued Certificate Interest remaining
unpaid, if any, for the Certificates, after giving effect to the
distribution made on such Distribution Date;
(xi) the Special Hazard Amount, Fraud Loss Amount and
Bankruptcy Amount as of the close of business on such Distribution Date and
a description of any change in the calculation of such amounts;
(xii) the aggregate amount of Realized Losses allocated to
the Certificates on such Distribution Date;
(xiii) the aggregate amount of any recoveries on previously
foreclosed loans from the Seller due to a breach of representation or
warranty;
(xiv) the weighted average remaining term to maturity of the
Mortgage Loans after giving effect to the amounts distributed on such
Distribution Date; and
(xv) the weighted average Mortgage Rates of the Mortgage
Loans after giving effect to the amounts distributed on such Distribution
Date.
In the case of information furnished pursuant to subclauses (i)
and (ii) above, the amounts shall also be expressed as a dollar amount per
Single Certificate.
Within a reasonable period of time after the end of each calendar year, the
Trustee shall prepare and forward to each Person who at any time during the
calendar year was a Holder of a Certificate, a statement containing the
information set forth in subclauses (i) and (ii) above, aggregated for such
calendar year or applicable portion thereof during which such Person was a
Certificateholder. Such obligation of the Trustee
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shall be deemed to have been satisfied to the extent that substantially
comparable information shall be provided by the Trustee pursuant to any
requirements of the Code and regulations thereunder as from time to time are in
force.
SECTION 4.03. Remittance Reports; Advances by the Master Servicer.
(a) By 11:00 A.M. New York time the Business Day following each
Determination Date, the Master Servicer shall deliver to the Trustee a report,
prepared as of the close of business on the Determination Date (the
"Determination Date Report"), by telecopy or in a mutually agreeable electronic
format. The Determination Date Report and any written information supplemental
thereto shall include such information with respect to the Mortgage Loans that
is reasonably available to the Master Servicer and that is required by the
Trustee for purposes of making the calculations referred to in the following
paragraph, as set forth in written specifications or guidelines issued by the
Trustee from time to time. Not later than 2:00 P.M. New York time on the
Certificate Account Deposit Date, the Trustee shall furnish by telecopy to the
Master Servicer a statement (the information in such statement to be made
available to Certificateholders or the Company by the Master Servicer on
request) setting forth (i) the Available Distribution Amount, (ii) the amounts
required to be withdrawn from the Custodial Account and deposited into the
Certificate Account on the immediately succeeding Certificate Account Deposit
Date pursuant to clause (iii) of Section 4. 01 (a); and (iii) such other
information with respect to the Mortgage Loans as the Trustee may reasonably
require to perform the calculations necessary to make the distributions
contemplated by Section 4.01 and to prepare the statements to Certificateholders
contemplated by Section 4.02. The determination by the Trustee of such amounts
shall, in the absence of obvious error, be presumptively deemed to be correct
for all purposes hereunder.
(b) Not later than 2:00 P.M. New York time on the Certificate Account
Deposit Date, the Trustee shall notify the Master Servicer of the aggregate
amount of Advances required to be made for the related Distribution Date, which
shall be the aggregate amount of Monthly Payments (with each interest portion
thereof adjusted to be net of the related Servicing Fee Rate), less the amount
of any related Debt Service Reductions or reductions in the amount of interest
collectable from the Mortgagor pursuant to the Relief Act, on the Outstanding
Mortgage Loans as of the related Due Date, which Monthly Payments were
delinquent as of the close of business as of the related Determination Date. On
or before 3:00 P.M. New York time on each Certificate Account Deposit Date, the
Master Servicer shall either (i) deposit in the Certificate Account from its own
funds, or funds received therefor from the Sub-Servicers, an amount equal to the
Advances to be made by the Master Servicer in respect of the related
Distribution Date, (ii) withdraw from amounts on deposit in the Custodial
Account and deposit in the Certificate Account all or a portion of the amounts
held for future distribution in discharge of any such Advance, or (iii) make
advances in the form of any combination of (i) and (ii) aggregating the amount
of such Advance. Any portion of the amounts held for future distribution so
used shall be replaced by the Master Servicer by deposit in the Custodial
Account on or before 12:00 P.M. New York time on any future Certificate Account
Deposit Date to the extent that funds attributable to the Mortgage Loans that
are available in the Custodial Account for deposit in the Certificate Account on
such Certificate Account Deposit Date shall be less than payments to
Certificateholders required to be made on the following Distribution Date. Such
allocations shall be conclusive for purposes of reimbursement to the Master
Servicer from recoveries on the Mortgage Loans pursuant to Section 3.11. The
determination by the Master Servicer that it has made a Nonrecoverable Advance
or that any proposed Advance, if made, would constitute a Nonrecoverable
Advance, shall be evidenced by a certificate of a Servicing Officer delivered to
the Seller and the Trustee. The Trustee shall deposit all funds it receives
pursuant to this Section 4.03 into the Certificate Account.
(c) In the event that the Master Servicer determines on the
Certificate Account Deposit Date that it will be unable to deposit in the
Certificate Account an amount equal to the Advance required to be
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made for the immediately succeeding Distribution Date in the amount determined
by the Trustee pursuant to paragraph (b) above, it shall give notice to the
Trustee of its inability to advance (such notice may be given by telecopy), not
later than 3: 00 P.M., New York time, on such Business Day, specifying the
portion of such amount that it will be unable to deposit. If the Master Servicer
shall have determined that it is not obligated to make the entire Advance
because all or a lesser portion of such Advance would not be recoverable from
Insurance Proceeds, Liquidation Proceeds or otherwise, the Master Servicer shall
promptly deliver to the Trustee for the benefit of the Certificateholders an
Officer's Certificate setting forth the reasons for the Master Servicer's
determination. Not later than 5:00 P.M., New York time, on the Certificate
Account Deposit Date, unless by such time the Master Servicer shall have
directly or indirectly deposited in the Certificate Account the entire amount of
the Advances required to be made for the related Distribution Date, pursuant to
Section 7.01, the Trustee shall (a) terminate all of the rights and obligations
of the Master Servicer under this Agreement in accordance with Section 7.01 and
(b) assume the rights and obligations of the Master Servicer hereunder,
including the obligation to deposit in the Certificate Account an amount equal
to the Advance for the immediately succeeding Distribution Date.
SECTION 4.04. Allocation of Realized Losses.
Prior to each Distribution Date, the Master Servicer shall determine
the total amount of Realized Losses, if any, that resulted from any Cash
Liquidation, Debt Service Reduction, Deficient Valuation or REO Disposition that
occurred during the related Prepayment Period. The amount of each Realized Loss
shall be evidenced by an Officers' Certificate by the Master Servicer. Realized
Losses shall be allocated to the Letter of Credit and to the Certificates as
determined by the Trustee in accordance with the following provisions. All
Realized Losses, other than Excess Special Hazard Losses, Excess Bankruptcy
Losses, Excess Fraud Losses or Extraordinary Losses shall first be covered by
draws on the Letter of Credit by the Master Servicer pursuant to Section 4.06
and then allocated to the Certificates, in reduction of the Certificate
Principal Balance thereof. Any Excess Special Hazard Losses, Excess Bankruptcy
Losses, Excess Fraud Losses and Extraordinary Losses on the Mortgage Loans will
be allocated to the Certificates. Any allocation of the principal portion of
Realized Losses to a Certificate shall be made by reducing the Certificate
Principal Balance thereof by the amount so allocated, which allocation shall be
deemed to have occurred at the close of business on such Distribution Date.
Allocations of the interest portions of Realized Losses shall be made by
operation of the definition of "Accrued Certificate Interest". All Realized
Losses and all other losses allocated to the Certificates under this Section
4.04 will be allocated among the Certificates in proportion to the Percentage
Interests evidenced thereby.
SECTION 4.05. Information Reports to be Filed by the Master Servicer.
The Master Servicer or the Sub-Servicers shall file the information
returns with respect to the receipt of mortgage interest received in a trade or
business, reports of foreclosures and abandonments of any Mortgaged Property and
the information returns relating to cancellation of indebtedness income with
respect to any Mortgaged Property required by Sections 6050H, 6050J and 6050P of
the Code, respectively, and deliver to the Trustee an Officers' Certificate
stating that such reports have been filed. Such reports shall be in form and
substance sufficient to meet the reporting requirements imposed by such Sections
6050H, 6050J and 6050P of the Code.
SECTION 4.06. The Letter of Credit.
(a) Except as otherwise set forth herein, the Master Servicer hereby
covenants and agrees to exercise its best reasonable efforts to maintain or
cause the Letter of Credit (or substitute credit enhancement), to be maintained
to the extent and in the form and amount and for the purposes set forth in
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this Agreement. The Trustee shall draw on the Letter of Credit at the times and
in the manner set forth herein and therein.
(b) In the event that at any time the Letter of Credit remains
outstanding the short-term unsecured debt obligations of the Letter of Credit
Issuer are downgraded to "A-1" by Standard & Poor's, then, the Master Servicer
shall promptly notify the Trustee of such downgrade and, within 60 days of such
event, either (i) the Master Servicer shall obtain a replacement letter of
credit or other form of credit enhancement in accordance with this Section
4.06(b).
Prior to delivering any replacement letter of credit or other form of
credit enhancement to the Trustee pursuant to this Section 4.06(b), the Master
Servicer shall (i) obtain an Opinion of Counsel to the effect that such
replacement letter of credit or alternative form of credit support will not
adversely affect the classification of the Trust Fund as a grantor trust for
federal income tax purposes and (ii) written confirmation from the Rating Agency
that such replacement letter of credit or alternative form of credit enhancement
would not have adversely affected the then-current rating assigned to the
Certificates by such Rating Agency and deliver to the Trustee an Opinion of
Counsel to the effect that such replacement letter of credit or alternative form
of credit enhancement is a valid and legally binding obligation of the related
letter of credit issuer or issuer of such alternate form of credit enhancement
in accordance with its terms. Any replacement letter of credit shall be in
generally the same form as the form of Letter of Credit attached as Exhibit B
hereto, shall be issued by a Qualified Bank and the initial amount available to
be drawn thereunder shall equal the amount remaining under the previous Letter
of Credit. The cost of obtaining and maintaining any replacement letter of
credit or alternative form of credit enhancement shall be borne by the Master
Servicer.
The Trustee acknowledges such grant and accepts the trusts under this
Section 4.06 in accordance with the provisions hereof.
(c) Upon receipt of a certificate of a Servicing Officer of the
Master Servicer or the Company instructing the Trustee to reduce, modify or
terminate the amounts available under the Letter of Credit in accordance with
Section 3.13 and (i) in the case of a modification (but not a reduction or
termination of the Letter of Credit), an Opinion of Counsel to the effect that
any such modification of the Letter of Credit will not adversely affect the
classification of the Trust Fund as a grantor trust for federal income tax
purposes, and (ii) written confirmation from the Rating Agency to the effect
that the then-current rating assigned to the Certificates by such Rating Agency
will not be adversely affected by any such reduction, modification or
termination, the Trustee shall reduce, modify or terminate the Letter of Credit
pursuant to such instructions and Section 3.13 shall be deemed modified to the
extent set forth in such instructions.
On the Determination Date immediately following each anniversary of
the Cut-off Date the Master Servicer shall provide the Trustee with a
certificate of a Servicing Officer which sets forth the amounts, if any, by
which the amount available under the Letter of Credit, the Bankruptcy Amount,
the Fraud Loss Amount and the Special Hazard Amount are to be reduced in
accordance with the definitions thereof. In addition, for purposes of reducing
the amount available under the Letter of Credit, the Bankruptcy Amount, the
Fraud Loss Amount and the Special Hazard Amount, as applicable, the Master
Servicer shall notify the Trustee by means of a certificate of a Servicing
Officer of any amounts deposited by the Master Servicer in the Certificate
Account pursuant to Sections 3.11 (a), 3.12(b) and 3.20(a). Upon receipt of each
certificate of a Servicing Officer the Trustee will promptly notify the Letter
of Credit Issuer of such reductions in the form of Annex C to the Letter of
Credit.
In addition, for purposes of reducing the amount available under the
Letter of Credit, the Special Hazard Amount, the Fraud Loss Amount and the
Bankruptcy Amount, as applicable, upon realization thereof, the Master Servicer
shall notify the Trustee by means of an Officer's Certificate of any losses
incurred by the
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Master Servicer in connection with any Mortgage Loan purchased pursuant to
Section 3.13, separately identifying any such losses which would have been
either Special Hazard Losses, Fraud Losses or Bankruptcy Losses, had the
Mortgage Loan not been so purchased. Upon receipt of such an Officers'
Certificate, the Trustee shall promptly notify the Letter of Credit Issuer of
such reduction by delivering a certificate to the Letter of Credit Issuer
substantially in the form of Annex C to the Letter of Credit. Upon receipt by
the Trustee of such an Officers' Certificate, if the Letter of Credit remains
outstanding, the Trustee shall request the reinstatement of the amount available
under the Letter of Credit (and the Fraud Loss Amount, Bankruptcy Amount or
Special Hazard Amount, if applicable) under the Letter of Credit in an amount
equal to such recovered amount be delivering a certificate to the Letter of
Credit Issuer substantially in the form of Annex B to the Letter of Credit.
(d) Upon termination of the Trust Fund pursuant to Article IX or upon
termination of the Letter of Credit pursuant to the terms of this Agreement
(including a draw of the entire amount available under the Letter of Credit
pursuant to Section 4.06(b)), the Trustee shall provide the Letter of Credit
Issuer with a certificate of termination pursuant to the provisions of the
Letter of Credit.
SECTION 4.07. Compliance with Withholding Requirements.
Notwithstanding any other provision of this Agreement, the Trustee
shall comply with all federal withholding requirements respecting payments to
Certificateholders of interest or original issue discount on the Mortgage Loans,
and payments of interest or discount on amounts invested by the Trustee as agent
for Certificateholders pursuant to an election made under Section 4.01 hereof,
that the Trustee reasonably believes are applicable under the Code. The consent
of Certificateholders shall not be required for such withholding. In the event
the Trustee withholds any amount from interest or original issue discount
payments or advances thereof to any Certificateholder pursuant to federal
withholding requirements, the Trustee shall, together with its monthly report to
such Certificateholders pursuant to Section 4.02 hereof, indicate such amount
withheld.
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ARTICLE V
THE CERTIFICATES
SECTION 5.01. The Certificates.
The Certificates will be substantially in the form annexed hereto as
Exhibits A. The Certificates will be issuable in registered form only. The
Certificates shall be issuable in minimum dollar denominations of $1,000 and
integral multiples of $1 in excess thereof, except that one Certificate may be
issued in an amount such that the denomination of such Certificate and the
aggregate denomination of all other outstanding Certificates together equal the
aggregate Certificate Principal Balance of the Certificates.
Upon original issue, the Certificates shall, upon the written request
of the Company executed by an officer of the Company, be executed and delivered
by the Trustee, authenticated by the Trustee and delivered to or upon the order
of the Company upon receipt by the Trustee of the documents specified in Section
2.01. The Certificates shall be executed by manual or facsimile signature on
behalf of the Trustee in its capacity as trustee hereunder by a Responsible
Officer. Certificates bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Trustee shall bind the Trustee,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Certificates or did not
hold such offices at the date of such Certificates. No Certificate shall be
entitled to any benefit under this Agreement, or be valid for any purpose,
unless there appears on such Certificate a certificate of authentication
substantially in the form provided for herein executed by the Trustee by manual
signature, and such certificate upon any Certificate shall be conclusive
evidence, and the only evidence, that such Certificate has been duly
authenticated and delivered hereunder. All Certificates issued on the Closing
Date shall be dated the Closing Date and any Certificates delivered thereafter
shall be dated the date of their authentication.
SECTION 5.02. Registration of Transfer and Exchange of Certificates.
The Trustee shall maintain a Certificate Register in which, subject to
such reasonable regulations as it may prescribe, the Trustee shall provide for
the registration of Certificates and of transfers and exchanges of Certificates
as herein provided.
Upon surrender for registration of transfer of any Certificate at the
office of the Trustee maintained for such purpose, the Trustee shall execute and
the Trustee or the Authenticating Agent shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Certificates
of a like aggregate initial Certificate Principal Balance. Every Certificate
surrendered for transfer shall be accompanied by notification of the account of
the designated transferee or transferees for the purpose of receiving
distributions pursuant to Section 4.01 by wire transfer, if any such transferee
desires and is eligible for distribution by wire transfer.
At the option of the Certificateholders, Certificates may be exchanged
for other Certificates of authorized denominations of a like aggregate initial
Certificate Principal Balance, upon surrender of the Certificates to be
exchanged at the office of the Certificate Registrar. Whenever any Certificates
are so surrendered for exchange the Trustee shall execute, authenticate and
deliver the Certificates which the Certificateholder making the exchange is
entitled to receive. Every Certificate presented or surrendered for transfer or
exchange shall (if so required by the Trustee or the Certificate Registrar) be
duly endorsed by, or be accompanied by a written instrument of transfer in the
form satisfactory to the Trustee or the Certificate Registrar duly executed by,
the Holder thereof or his attorney duly authorized in writing.
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No service charge shall be made to the Certificateholders for any
transfer or exchange of Certificates, but the Trustee may require payment of a
sum sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Certificates.
All Certificates surrendered for transfer and exchange shall be
canceled and retained by the Trustee in accordance with the Trustee's standard
procedures.
SECTION 5.03. Mutilated, Destroyed, Lost or Stolen Certificates.
If (i) any mutilated Certificate is surrendered to the Trustee and the
Trustee receives evidence to its satisfaction of the destruction, loss or theft
of any Certificate, and (ii) there is delivered to the Trustee such security or
indemnity as may be required by it to save it harmless, then, in the absence of
notice to the Trustee that such Certificate has been acquired by a bona fide
purchaser, the Trustee shall execute, authenticate and deliver, in exchange for
or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new
Certificate of the same initial Certificate Principal Balance. Upon the
issuance of any new Certificate under this Section, the Trustee may require the
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto and any other expenses (including the fees
and expenses of the Trustee) connected therewith. Any replacement Certificate
issued pursuant to this Section shall constitute complete and indefeasible
evidence of ownership in the Trust Fund, as if originally issued, whether or not
the lost, stolen or destroyed Certificate shall be found at any time.
SECTION 5.04. Persons Deemed Owners.
The Company, the Master Servicer, the Trustee and any agent of any of
them may treat the person in whose name any Certificate is registered as the
owner of such Certificate for the purpose of receiving distributions pursuant to
Section 4.01 and for all other purposes whatsoever, and neither the Company, the
Master Servicer, the Trustee nor any agent of any of them shall be affected by
notice to the contrary.
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ARTICLE VI
THE COMPANY AND THE MASTER SERVICER
SECTION 6.01. Liability of the Company and the Master Servicer.
The Company and the Master Servicer each shall be liable in accordance
herewith only to the extent of the obligations specifically imposed upon and
undertaken by the Company and the Master Servicer herein.
SECTION 6.02. Merger, Consolidation or Conversion of the Company or
the Master Servicer.
The Company and the Master Servicer each will keep in full effect its
existence, rights and franchises as a corporation under the laws of the state of
its incorporation, and each will obtain and preserve its qualification to do
business as a foreign corporation in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of this Agreement, the Certificates or any of the Mortgage Loans
and to perform its respective duties under this Agreement; and provided further
that the Rating Agencies' ratings of the Certificates immediately prior to such
merger or consolidation will not be qualified, reduced or withdrawn as a result
thereof (as evidenced by a letter to such effect from the Rating Agencies).
Any Person into which the Company or the Master Servicer may be
merged, consolidated or converted, or any corporation resulting from any merger
or consolidation to which the Company or the Master Servicer shall be a party,
or any Person succeeding to the business of the Company or the Master Servicer,
shall be the successor of the Company or the Master Servicer, as the case may
be, hereunder, without the execution or filing of any paper or any further act
on the part of any of the parties hereto, anything herein to the contrary
notwithstanding; provided, however, that the successor or surviving Person to
the Master Servicer shall be qualified to sell mortgage loans to and service
mortgage loans for FNMA or FHLMC.
SECTION 6.03. Limitation on Liability of the Company, the Master
Servicer and Others.
Neither the Company, the Master Servicer nor any of the directors,
officers, employees or agents of the Company or the Master Servicer shall be
under any liability to the Trust Fund or the Certificateholders for any action
taken or for remaining from the taking of any action in good faith pursuant to
this Agreement, or for errors in judgment; provided, however, that this
provision shall not protect the Company or the Master Servicer (but this
provision shall protect the above described persons) against any breach of
warranties or representations made herein, or against any specific liability
imposed on the Master Servicer pursuant to Section 3.01 or any other Section
hereof; and provided further that this provision shall not protect the Company,
the Master Servicer or any such person, 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 hereunder. The Company, the Master Servicer and any
director, officer, employee or agent of the Company or the Master Servicer may
rely in good faith on any document of any kind prima facie properly executed and
----- -----
submitted by any Person respecting any matters arising hereunder. The Company,
the Master Servicer and any director, officer, employee or agent of the Company
or the Master Servicer shall be indemnified and held harmless by the Trust Fund
against any loss, liability or expense incurred in connection with any legal
action relating to this Agreement or the Certificates, other than any loss,
liability or expense related to Master Servicer's servicing obligations with
respect to any specific Mortgage Loan or Mortgage Loans (except as any such
loss, liability or expense shall be otherwise reimbursable pursuant to this
Agreement) or related to the Master Servicer's obligations under Section 3.01,
or any loss, liability or expense incurred by reason of willful misfeasance, bad
faith or gross negligence in the performance of duties hereunder or by reason of
reckless disregard of obligations and duties hereunder.
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Neither the Company nor the Master Servicer shall be under any obligation to
appear in, prosecute or defend any legal action which is not incidental to its
respective duties under this Agreement and which in its opinion may involve it
in any expense or liability; provided, however, that the Company or the Master
Servicer may in its sole discretion undertake any such action which it may deem
necessary or desirable with respect to this Agreement and the rights and duties
of the parties hereto and the interests of the Certificateholders hereunder. In
such event, the legal expenses and costs of such action and any liability
resulting therefrom (except any action or liability related to the Master
Servicer's obligations under Section 3.01) shall be expenses, costs and
liabilities of the Trust Fund, and the Company and the Master Servicer shall be
entitled to be reimbursed therefor from the Certificate Account as provided in
Section 3.11, any such right of reimbursement being prior to the rights of
Certificateholders to receive any amount in the Certificate Account.
SECTION 6.04. Limitation on Resignation of the Master Servicer.
The Master Servicer shall not resign from the obligations and duties
hereby imposed on it except (a) upon appointment of a successor servicer
reasonably acceptable to the Trustee and upon receipt by the Trustee of a letter
from each Rating Agency that such a resignation and appointment will not, in and
of itself, result in a downgrading of the Certificates or (b) upon determination
that its duties hereunder are no longer permissible under applicable law (any
such determination permitting the resignation of the Master Servicer to be
evidenced by an Opinion of Counsel (at the expense of the resigning Master
Servicer) to such effect delivered to the Trustee). No such resignation shall
become effective until the Trustee or a successor servicer shall have assumed
the Master Servicer's responsibilities, duties, liabilities and obligations
hereunder.
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ARTICLE VII
DEFAULT
SECTION 7.01. Events of Default.
"Event of Default", wherever used herein, means any one of the
following events:
(i) any failure by the Master Servicer to remit to the Trustee
for distribution to the Certificateholders any payment (other than an Advance)
required to be made under the terms of the Certificates or this Agreement which
continues unremedied for a period of one day after the date upon which written
notice of such failure, requiring the same to be remedied, shall have been given
to the Master Servicer by the Company (with a copy to the Trustee) or the
Trustee, or to the Master Servicer, the Company and the Trustee by the Holders
of Certificates entitled to at least 25% of the Voting Rights; or
(ii) any failure on the part of the Master Servicer duly to
observe or perform in any material respect any other of the covenants or
agreements on the part of the Master Servicer contained in the Certificates or
in this Agreement (including any breach of the Master Servicer's representations
and warranties pursuant to Section 2.03(a) which materially and adversely
affects the interests of the Certificateholders) which continues unremedied for
a period of 30 days after the date on which written notice of such failure,
requiring the same to be remedied, shall have been given to the Master Servicer
by the Company (with a copy to the Trustee) or the Trustee, or to the Master
Servicer, the Company and the Trustee by the Holders of Certificates entitled to
at least 25% of the Voting Rights; or
(iii) a decree or order of a court or agency or supervisory
authority having jurisdiction in an involuntary case under any present or future
federal or state bankruptcy, insolvency or similar law or the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings, or for the
winding-up or liquidation of its affairs, shall have been entered against the
Master Servicer and such decree or order shall have remained in force
undischarged or unstayed for a period of 60 consecutive days; or
(iv) the Master Servicer shall consent to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings of or relating to
the Master Servicer or of or relating to all or substantially all of its
property; or
(v) the Master Servicer shall admit in writing its inability to
pay its debts generally as they become due, file a petition to take advantage of
or otherwise voluntarily commence a case or proceeding under any applicable
bankruptcy, insolvency, reorganization or other similar statute, make an
assignment for the benefit of its creditors, or voluntarily suspend payment of
its obligations; or
(vi) the Master Servicer shall fail to deposit in the Certificate
Account on any Certificate Account Deposit Date an amount equal to any required
Advance.
If the Master Servicer shall fail to make any deposit in the Certificate Account
as required by Section 4.01, the Trustee shall give the Master Servicer notice
pursuant to clause (i) not later than the Business Day following the Certificate
Account Deposit Date. If an Event of Default described in clauses (i) - (v) of
this Section shall occur, then, and in each and every such case, so long as such
Event of Default shall not have been remedied, the Company or the Trustee may,
and at the direction of the Holders of Certificates entitled to at least 51% of
the Voting Rights, the Trustee shall, by notice to the Master Servicer (and to
the Company if given by the Trustee or to the Trustee if given by the Company)
terminate all of the rights and obligations
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of the Master Servicer under this Agreement and in and to the Trust Fund, other
than its rights as a Certificateholder hereunder and the Company, terminate all
of the rights and obligations of the Master Servicer under this Agreement and in
and to the Trust Fund, other than its rights as a Certificateholder hereunder.
In addition, any failure of the Master Servicer to repurchase a Converting
Mortgage Loan pursuant to Section 3.25 shall constitute an Event of Default, and
in such event, all of the rights and obligations of the Master Servicer
hereunder may be terminated in accordance with the preceding sentence. If an
Event of Default described in clause (vi) hereof shall occur, the Trustee shall,
by notice to the Master Servicer and the Company, terminate all of the rights
and obligations of the Master Servicer under this Agreement and in and to the
Trust Fund, other than its rights as a Certificateholder hereunder. On or after
the receipt by the Master Servicer of such notice, all authority and power of
the Master Servicer under this Agreement, whether with respect to the
Certificates (other than as a holder thereof) or the Mortgage Loans or
otherwise, shall pass to and be vested in the Trustee pursuant to and under this
Section, and, without limitation, the Trustee is hereby authorized and empowered
to execute and deliver, on behalf of the Master Servicer, as attorney-in-fact or
otherwise, any and all documents and other instruments, and to do or accomplish
all other acts or things necessary or appropriate to effect the purposes of such
notice of termination, whether to complete the transfer and endorsement or
assignment of the Mortgage Loans and related documents, or otherwise. The Master
Servicer agrees to cooperate with the Trustee in effecting the termination of
the Master Servicer's responsibilities and rights hereunder, including, without
limitation, the transfer to the Trustee or its appointed agent for
administration by it of all cash amounts which shall at the time be deposited by
the Master Servicer or should have been deposited to the Custodial or the
Certificate Account or thereafter be received with respect to the Mortgage
Loans. The Trustee shall not be deemed to have breached any obligation hereunder
as a result of a failure to make or delay in making any distribution as and when
required hereunder caused by the failure of the Master Servicer to remit any
amounts received on it or to deliver any documents held by it with respect to
the Mortgage Loans. For purposes of this Section 7.01, the Trustee shall not be
deemed to have knowledge of an Event of Default unless a Responsible Officer of
the Trustee assigned to and working in the Trustee's Corporate Trust Division
has actual knowledge thereof or unless notice of any event which is in fact such
an Event of Default is received by the Trustee and such notice references the
Certificates, the Trust Fund or this Agreement.
[Notwithstanding any termination of the activities of ICI Funding
Corporation ("ICI Funding") in its capacity as Master Servicer hereunder, ICIFC
shall be entitled to receive, out of any Late Collection of a Monthly Payment on
a Mortgage Loan which was due prior to the notice terminating ICI Funding's
rights and obligations as Master Servicer hereunder and received after such
notice, that portion to which ICI Funding would have been entitled pursuant to
Sections 3.11 (ii), (iii), (iv), (v) and (viii) as well as the portion of its
related Servicing Fee in respect thereof, and any other amounts payable to ICI
Funding hereunder the entitlement to which arose prior to the termination of its
activities hereunder.]
SECTION 7.02. Trustee to Act; Appointment of Successor.
On and after the time the Master Servicer receives a notice of
termination pursuant to Section 7.01, the Trustee or its appointed agent shall
be the successor in all respects to the Master Servicer in its capacity as
Master Servicer under this Agreement and the transactions set forth or provided
for herein and shall be subject thereafter to all the responsibilities, duties
and liabilities relating thereto placed on the Master Servicer including the
obligation to make Advances which have been or will be required to be made
(except for the responsibilities, duties and liabilities contained in Section
2.03 and its obligations to deposit amounts in respect of losses incurred prior
to the date of succession pursuant to Section 3.12) by the terms and provisions
hereof; and provided further, that any failure to perform such duties or
responsibilities caused by the Master Servicer's failure to provide information
required by Section 4.03 shall not be considered a default by the Trustee
hereunder. As compensation therefor, the Trustee shall be entitled to all funds
relating to the Mortgage Loans which the Master Servicer would have been
entitled to charge to the Custodial Account and the
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Certificate Account if the Master Servicer had continued to act hereunder.
Notwithstanding the above, the Trustee may, if it shall be unwilling to so act,
or shall, if it is unable to so act or if the Holders of Certificates entitled
to at least 51% of the Voting Rights so request in writing to the Trustee,
appoint, or petition a court of competent jurisdiction to appoint, any FNMA- or
FHLMC approved mortgage servicing institution having a net worth of not less
than $10,000,000 as the successor to the Master Servicer hereunder in the
assumption of all or any part of the responsibilities, duties or liabilities of
the Master Servicer hereunder. Pending appointment of a successor to the Master
Servicer hereunder, the Trustee shall act in such capacity as hereinabove
provided. In connection with such appointment and assumption, the Trustee may
make such arrangements for the compensation of such successor out of payments on
Mortgage Loans as it and such successor shall agree; provided, however, that no
such compensation shall be in excess of that permitted the Master Servicer
hereunder. The Trustee and such successor shall take such action, consistent
with this Agreement, as shall be necessary to effectuate any such succession;
provided, however, that such succession shall not reduce the ratings of the
Certificates below the original ratings thereof.
Any successor, including the Trustee, to the Master Servicer shall
maintain in force during its term as master servicer hereunder the Insurance
Policies and fidelity bonds to the same extent as the Master Servicer is so
required pursuant to Sections 3.13 and 3.18.
SECTION 7.03. Notification to Certificateholders.
(a) Upon any such termination or appointment of a successor to the
Master Servicer, the Trustee shall give prompt notice thereof to
Certificateholders.
(b) Within 60 days after the occurrence of any Event of Default, the
Trustee shall transmit by mail to all Holders of Certificates notice of each
such Event of Default hereunder known to the Trustee, unless such Event of
Default shall have been cured or waived.
SECTION 7.04. Waiver of Events of Default.
The Holders representing at least 66% of the Voting Rights of
Certificates affected by a default or Event of Default hereunder, may waive such
default or Event of Default (other than an Event of Default set forth in Section
7.01(vi); provided, however, that (a) a default or Event of Default under clause
-------- -------
(i) of Section 7.01 may be waived only by all of the Holders of Certificates
affected by such default or Event of Default and (b) no waiver pursuant to this
Section 7.04 shall affect the Holders of Certificates in the manner set forth in
the second paragraph of Section 10.01 or materially adversely affect any non-
consenting Certificateholder. Upon any such waiver of a default or Event of
Default by the Holders representing the requisite percentage of Voting Rights of
Certificates affected by such default or Event of Default, such default or Event
of Default shall cease to exist and shall be deemed to have been remedied for
every purpose hereunder. No such waiver shall extend to any subsequent or other
default or Event of Default or impair any right consequent thereon except to the
extent expressly so waived.
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ARTICLE VIII
CONCERNING THE TRUSTEE
SECTION 8.01. Duties of Trustee.
The Trustee, prior to the occurrence of an Event of Default and after
the curing of all Events of Default which may have occurred, undertakes to
perform such duties and only such duties as are specifically set forth in this
Agreement. If an Event of Default occurs and is continuing, the Trustee shall
exercise such of the rights and powers vested in it by this Agreement, and use
the same degree of care and skill in their exercise as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs. Any
permissive right of the Trustee enumerated in this Agreement shall not be
construed as a duty.
The Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Trustee which are specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to determine whether they
conform to the requirements of this Agreement. If any such instrument is found
not to conform to the requirements of this Agreement in a material manner, the
Trustee shall take action as it deems appropriate to have the instrument
corrected.
The Trustee shall sign on behalf of the Trust Fund any tax return that
the Trustee is required to sign pursuant to applicable federal, state or local
tax laws.
The Trustee covenants and agrees that it shall perform its obligations
hereunder in a manner so as to maintain the status of the Trust Fund as a
grantor trust and to prevent the imposition of any federal, state or local
income, prohibited transaction, contribution or other tax on the Trust Fund to
the extent that maintaining such status and avoiding such taxes are reasonably
within the control of the Trustee and are reasonably within the scope of its
duties under this Agreement.
No provision of this Agreement shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own misconduct; provided, however, that :
(i) Prior to the occurrence of an Event of Default, and
after the curing of all such Events of Default which may have
occurred, the duties and obligations of the Trustee shall be
determined solely by the express provisions of this Agreement, the
Trustee shall not be liable except for the performance of such duties
and obligations as are specifically set forth in this Agreement, no
implied covenants or obligations shall be read into this Agreement
against the Trustee and, in the absence of bad faith on the part of
the Trustee, the Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon
any certificates or opinions furnished to the Trustee and conforming
to the requirements of this Agreement;
(ii) The Trustee shall not be personally liable for an error
of judgment made in good faith by a Responsible Officer or Responsible
Officers of the Trustee, unless it shall be proved that the Trustee
was negligent in ascertaining the pertinent facts;
(iii) The Trustee shall not be personally liable with respect
to any action taken, suffered or omitted to be taken by it in good
faith in accordance with the direction of Holders of Certificates
entitled to at least 25% of the Voting Rights relating to the time,
method and place of conducting any proceeding for any remedy available
to the Trustee, or exercising any trust or power conferred upon the
Trustee, under this Agreement.
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SECTION 8.02. Certain Matters Affecting the Trustee.
Except as otherwise provided in Section 8.01:
(a) The Trustee may request and rely upon and shall be protected
in acting or refraining from acting upon any resolution, Officers'
Certificate, certificate of auditors or any other certificate,
statement, instrument, opinion, report, notice, request, consent,
order, appraisal, bond or other paper or document reasonably believed
by it to be genuine and to have been signed or presented by the proper
party or parties;
(b) The Trustee may consult with counsel and any Opinion of
Counsel shall be full and complete authorization and protection in
respect of any action taken or suffered or omitted by it hereunder in
good faith and in accordance therewith;
(c) The Trustee shall be under no obligation to exercise any of
the trusts or powers vested in it by this Agreement or to make any
investigation of matters arising hereunder or to institute, conduct or
defend any litigation hereunder or in relation hereto at the request,
order or direction of any of the Certificateholders, pursuant to the
provisions of this Agreement, unless such Certificateholders shall
have offered to the Trustee reasonable security or indemnity against
the costs, expenses and liabilities which may be incurred therein or
thereby; nothing contained herein shall, however, relieve the Trustee
of the obligation, upon the occurrence of an Event of Default (which
has not been cured), to exercise such of the rights and powers vested
in it by this Agreement, and to use the same degree of care and skill
in their exercise as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs;
(d) The Trustee shall not be personally liable for any action
taken, suffered or omitted by it in good faith and believed by it to
be authorized or within the discretion or rights or powers conferred
upon it by this Agreement;
(e) Prior to the occurrence of an Event of Default hereunder and
after the curing of all Events of Default which may have occurred, the
Trustee shall not be bound to make any investigation into the facts or
matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, bond or
other paper or document, unless requested in writing to do so by
Holders of Certificates entitled to at least 25 % of the Voting
Rights; provided, however, that if the payment within a reasonable
time to the Trustee of the costs, expenses or liabilities likely to be
incurred by it in the making of such investigation is, in the opinion
of the Trustee, not reasonably assured to the Trustee by the security
afforded to it by the terms of this Agreement, the Trustee may require
reasonable indemnity against such expense or liability as a condition
to taking any such action. The reasonable expense of every such
reasonable examination shall be paid by the Master Servicer or, if
paid by the Trustee, shall be repaid by the Master Servicer upon
demand; and
(f) The Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys.
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SECTION 8.03. Trustee Not Liable for Certificates or Mortgage Loans.
The recitals contained herein and in the Certificates, other than the
signature of the Trustee on the Certificates and the certificate of
authentication, shall be taken as the state ments of the Company or the Master
Servicer, as the case may be, and the Trustee assumes no responsibility for
their correctness. The Trustee makes no representations or warranties as to the
validity or sufficiency of this Agreement or of the Certificates or of any
Mortgage Loan or related document, other than the signature of the Trustee on
the Certificates and the Certificate of Authentication. The Trustee shall not
be accountable for the use or application by the Company or the Master Servicer
of any of the Certificates or of the proceeds of such Certificates, or for the
use or application of any funds paid to the Seller in respect of the Mortgage
Loans or deposited in or withdrawn from the Custodial Account or the Certificate
Account or any other account by or on behalf of the Company or the Master
Servicer, other than any funds held by or on behalf of the Trustee in accordance
with Section 4.01.
SECTION 8.04. Trustee May Own Certificates.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Certificates with the same rights it would have if it were
not Trustee.
SECTION 8.05. Payment of Trustee's Fees.
The Trustee shall withdraw from the Certificate Account on each
Distribution Date and pay to itself the Trustee's Fee. Except as otherwise
provided in this Agreement, the Trustee and any director, officer, employee or
agent of the Trustee shall be indemnified by the Trust Fund and held harmless
against any loss, liability or "unanticipated out-of-pocket" expense incurred or
paid to third parties (which expenses shall not include salaries paid to
employees, or allocable overhead, of the Trustee) in connection with the
acceptance or administration of its trusts hereunder or the Certificates, other
than any loss, liability or expense incurred by reason of willful misfeasance,
bad faith or negligence in the performance of duties hereunder or by reason of
reckless disregard of obligations and duties hereunder all such amounts shall be
payable from funds in the Custodial Account as provided in Section 3.11. The
provisions of this Section 8.05 shall survive the termination of this Agreement.
The Master Servicer shall indemnify the Trustee and any director,
officer, employee or agent of the Trustee against any loss, liability or expense
that may be sustained in connection with this Agreement related to the willful
misfeasance, bad faith or negligence in the performance of its duties hereunder.
SECTION 8.06. Eligibility Requirements for Trustee.
The Trustee hereunder shall at all times be a corporation or a
national banking association organized and doing business under the laws of any
state or the United States of America or the District of Columbia, authorized
under such laws to exercise corporate trust powers, having a combined capital
and surplus of at least $50,000,000 and subject to supervision or examination by
federal or state authority. In addition, the Trustee shall at all times be
acceptable to the Rating Agency rating the Certificates. If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of the aforesaid supervising or examining authority, then for the
purposes of this Section the combined capital and surplus of such corporation
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. In case at any time the Trustee shall
cease to be eligible in accordance with the provisions of this Section, the
Trustee shall resign immediately in the manner and with the effect specified in
Section 8.07. The corporation or national banking association serving as Trustee
may have normal banking and trust relationships with the Seller and its
affiliates or the Master Servicer and its affiliates; provided,
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however, that such corporation cannot be an affiliate of the Master Servicer
other than the Trustee in its role as successor to the Master Servicer.
SECTION 8.07. Resignation and Removal of the Trustee.
The Trustee may at any time resign and be discharged from the trusts
hereby created by giving notice thereof to the Company, the Master Servicer and
to all Certificateholders; provided, that such resignation shall not be
effective until a successor trustee is appointed and accepts appointment in
accordance with the following provisions. Upon receiving such notice of
resignation, the Company shall promptly appoint a successor trustee who meets
the eligibility requirements of Section 8.06 by written instrument, in
duplicate, which instrument shall be delivered to the resigning Trustee and to
the successor trustee. A copy of such instrument shall be delivered to the
Certificateholders and the Master Servicer by the Company. If no successor
trustee shall have been so appointed and have accepted appointment within 60
days after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
trustee; provided, however, that the resigning Trustee shall not resign and be
discharged from the trusts hereby created until such time as the Rating Agency
rating the Certificates approves the successor trustee.
If at any time the Trustee shall cease to be eligible in accordance
with the provisions of Section 8.06 and shall fail to resign after written
request therefor by the Company or the Master Servicer, or if at any time the
Trustee shall become incapable of acting, or shall be adjudged bankrupt or
insolvent, or a receiver of the Trustee or of its property shall be appointed,
or any public officer shall take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation, or if the rating of the long-term debt obligations of the Trustee
is not acceptable to the Rating Agency in respect of mortgage pass-through
certificates having a rating equal to the then current rating on the
Certificates, then the Company may remove the Trustee and appoint a successor
trustee who meets the eligibility requirements of Section 8.06 by written
instrument, in duplicate, which instrument shall be delivered to the Trustee so
removed and to the successor trustee. A copy of such instrument shall be
delivered to the Certificateholders and the Master Servicer by the Company.
The Holders of Certificates entitled to at least 51% of the Voting
Rights may at any time remove the Trustee and appoint a successor trustee by
written instrument or instruments, in triplicate, signed by such Holders or
their attorneys-in-fact duly authorized, one complete set of which instruments
shall be delivered to the Master Servicer, one complete set to the Trustee so
removed and one complete set to the successor so appointed. A copy of such
instrument shall be delivered to the Certificateholders and the Master Servicer
by the Company.
Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section shall not
become effective until acceptance of appointment by the successor trustee as
provided in Section 8.08.
SECTION 8.08. Successor Trustee.
Any successor trustee appointed as provided in Section 8.07 shall
execute, acknowledge and deliver to the Master Servicer and to its predecessor
trustee an instrument accepting such appointment hereunder, and thereupon the
resignation or removal of the prede cessor trustee shall become effective and
such successor trustee, without any further act, deed or conveyance, shall
become fully vested with all the rights, powers, duties and obligations of its
predecessor hereunder, with the like effect as if originally named as trustee
herein. The predecessor trustee shall deliver to the successor trustee all
Mortgage Files and related documents and statements held by it hereunder, and
the Master Servicer and the predecessor trustee shall execute and deliver
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such instruments and do such other things as may reasonably be required for more
fully and certainly vesting and confirming in the successor trustee all such
rights, powers, duties and obligations.
No successor trustee shall accept appointment as provided in this
Section unless at the time of such acceptance such successor trustee shall be
eligible under the provisions of Section 8.06.
Upon acceptance of appointment by a successor trustee as provided in
this Section, the Master Servicer shall mail notice of the succession of such
trustee hereunder to all Holders of Certificates at their addresses as shown in
the Certificate Register. If the Master Servicer fails to mail such notice
within ten days after acceptance of appointment by the successor trustee, the
successor trustee shall cause such notice to be mailed at the expense of the
Master Servicer.
SECTION 8.09. Merger or Consolidation of Trustee.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to the business of the Trustee, shall be the successor of
the Trustee hereunder, provided such corporation shall be eligible under the
provisions of Section 8.06, without the execution or filing of any paper or any
further act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding.
SECTION 8.10. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions hereof, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Trust Fund or property securing the same may at the time be located, the
Company and the Trustee acting jointly shall have the power and shall execute
and deliver all instruments to appoint one or more Persons approved by the
Trustee to act as co-trustee or co-trustees, jointly with the Trustee, or
separate trustee or separate trustees, of all or any part of the Trust Fund, and
to vest in such Person or Persons, in such capacity, such title to the Trust
Fund, or any part thereof, and, subject to the other provisions of this Section
8. 10, such powers, duties, obligations, rights and trusts as the Company and
the Trustee may consider necessary or desirable. If the Company shall not have
joined in such appointment within 15 days after the receipt by it of a request
so to do, or in case an Event of Default shall have occurred and be continuing,
the Trustee alone shall have the power to make such appointment. No co-trustee
or separate trustee hereunder shall be required to meet the terms of eligibility
as a successor trustee under Section 8.06 hereunder and no notice to Holders of
Certificates of the appointment of co-trustee(s) or separate trustee(s) shall be
required under Section 8.08 hereof.
In the case of any appointment of a co-trustee or separate trustee
pursuant to this Section 8. 10 all rights, powers, duties and obligations
conferred or imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee or co-trustee
jointly, except to the extent that under any law of any jurisdiction in which
any particular act or acts are to be performed (whether as Trustee hereunder or
as successor to the Master Servicer hereunder), the Trustee shall be incompetent
or unqualified to perform such act or acts, in which event such rights, powers,
duties and obligations (including the holding of title to the Trust Fund or any
portion thereof in any such jurisdiction) shall be exercised and performed by
such separate trustee or co-trustee at the direction of the Trustee.
Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustees and co-trustees,
as effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Article VIII. Each separate trustee and co-trustee, upon its acceptance
of the trusts conferred, shall be vested with
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the estates or property specified in its instrument of appointment, either
jointly with the Trustee or separately, as may be provided therein, subject to
all the provisions of this Agreement, specifically including every provision of
this Agreement relating to the conduct of, affecting the liability of, or
affording protection to, the Trustee. Every such instrument shall be filed with
the Trustee.
Any separate trustee or co-trustee may, at any time, constitute the
Trustee, its agent or attorney-in-fact, with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor trustee.
SECTION 8.11. Information Reports and Tax Returns.
The Trustee shall prepare, execute and timely file such information
reports or returns as may be required from time to time under any applicable
federal, state or local law with respect to the Trust Fund or the
Certificateholders and shall timely provide Certificateholders of such Series
with information as to the Master Servicer's determination of monthly income
accrued by the Trust Fund. [Unless there is a statutory or administrative
clarification to the contrary, as evidenced by an Opinion of Counsel delivered
to the Trustee, requiring such information reports or returns to be prepared
based on a different method, the Trustee shall prepare such information returns
or reports based on a constant yield method with respect to the Certificates of
such Series, using the Prepayment Assumption and a representative initial
offering price for Certificates in computing such constant yield.]
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ARTICLE IX
TERMINATION
SECTION 9.01. Termination Upon Repurchase or Liquidation of All
Mortgage Loans.
The respective obligations and responsibilities of the Company, the
Master Servicer and the Trustee created hereby (other than the obligations of
the Master Servicer to provide for and the Trustee to make payments to
Certificateholders as hereafter set forth) shall terminate upon payment to the
Certificateholders of all amounts held by or on behalf of the Trustee and
required to be paid to them hereunder following the earlier to occur of (i) the
repurchase by the Master Servicer of all Mortgage Loans and each REO Property in
respect thereof remaining in the Trust Fund at a price equal to (a) 100% of the
unpaid principal balance of each Mortgage Loan (other than one as to which a REO
Property was acquired) on the day of repurchase together with accrued interest
on such unpaid principal balance at the related Net Mortgage Rate to the first
day of the month in which the proceeds of such repurchase are to be distributed,
plus (b) the appraised value of any REO Property less the good faith estimate of
the Master Servicer of liquidation expenses to be incurred in connection with
its disposal thereof, such appraisal to be conducted by an appraiser mutually
agreed upon by the Master Servicer and the Trustee at the expense of the Master
Servicer, (but not more than the unpaid principal balance of the related
Mortgage Loan, together with accrued interest on that balance at the Net
Mortgage Rate to the first day of the month of repurchase), and (ii) the final
payment or other liquidation (or any Advance with respect thereto) of the last
Mortgage Loan remaining in the Trust Fund (or the disposition of all REO
Property in respect thereof); provided, however, that in no event shall the
trust created hereby continue beyond expiration of 21 years from the death of
the last survivor of the descendants of Joseph P. Kennedy, the late ambassador
of the United States to the Court of St. James, living on the date hereof. In
the case of any repurchase by the Master Servicer pursuant to clause (i), the
Master Servicer shall include in such repurchase price the amount of any
Advances that will be reimbursed to the Master Servicer pursuant to Section
3.11(iii) and the Master Servicer shall exercise reasonable efforts to cooperate
fully with the Trustee in effecting such repurchase and the transfer of the
Mortgage Loans and related Mortgage Files and related records to the Master
Servicer.
The right of the Master Servicer to repurchase all Mortgage Loans
pursuant to (i) above shall be conditioned upon the aggregate Stated Principal
Balance of such Mortgage Loans at the time of any such repurchase aggregating an
amount equal to or less than __ % of the aggregate Stated Principal Balance of
the Mortgage Loans at the Cut-off Date. If such right is exercised, the Master
Servicer upon such repurchase shall provide to the Trustee, the certifica tion
required by Section 3.16.
Notice of any termination, specifying the Distribution Date upon which
the Certificateholders may surrender their Certificates to the Trustee for
payment of the final distri bution and cancellation, shall be given promptly by
the Master Servicer by letter to the Trustee and shall be given promptly by the
Trustee to the Certificateholders mailed (a) in the event such notice is given
in connection with the Master Servicer's election to repurchase, not earlier
than the 15th day and not later than the 25th day of the month next preceding
the month of such final distribution or (b) otherwise during the month of such
final distribution on or before the Determination Date in such month, in each
case specifying (i) the Distribution Date upon which final payment of the
Certificates will be made upon presentation and surrender of Certificates at the
office of the Certificate Registrar therein designated, (ii) the amount of any
such final payment and (iii) that the Record Date otherwise applicable to such
Distribution Date is not applicable, payments being made only upon presentation
and surrender of the Certificates at the office of the Certificate Registrar
therein specified. In the event such notice is given in connection with the
Master Servicer's election to repurchase, the Master Servicer shall deposit in
the Custodial Account pursuant to Section 3. 10 on the last day of the related
Prepayment Period an amount equal to the above-described repurchase price
payable out of its own funds. Upon presentation
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and surrender of the Certificates by the Certificateholders, the Trustee shall
distribute to the Certificateholders (i) the amount otherwise distributable on
such Distribution Date, if not in connection with the Master Servicer's election
to repurchase, or (ii) if the Master Servicer elected to so repurchase, an
amount determined as follows: with respect to each Certificate, the outstanding
Certificate Principal Balance thereof, plus one month's interest thereon at the
applicable Pass-Through Rate and any previously unpaid Accrued Certificate
Interest. Upon certification to the Trustee by a Servicing Officer, following
such final deposit, the Trustee shall promptly release the Mortgage Files as
directed by the Master Servicer for the remaining Mortgage Loans, and the
Trustee shall execute all assignments, endorsements and other instruments
required by the Master Servicer as being necessary to effectuate such transfer.
In the event that all of the Certificateholders shall not surrender
their Certificates for cancellation within six months after the time specified
in the above-mentioned notice, the Trustee shall give a second notice to the
remaining Certificateholders to surrender their Certificates for cancellation
and receive the final distribution with respect thereto. If within six months
after the second notice all of the Certificates shall not have been surrendered
for cancellation, the Trustee shall take reasonable steps as directed by the
Company, or appoint an agent to take reasonable steps, to contact the remaining
Certificateholders concerning surrender of their Certificates, and the cost
thereof shall be paid out of the funds and other assets which remain subject
hereto. If, within nine months after the second notice, all of the Certificates
shall not have been surrendered for cancellation, the Trustee shall be entitled
to all unclaimed funds and other assets which remain subject hereto.
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ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.01. Amendment.
This Agreement may be amended from time to time by the Company, the
Master Servicer and the Trustee without the consent of any of the
Certificateholders, (i) to cure any ambiguity, (ii) to correct or supplement any
provisions herein which may be defective or inconsistent with any other
provisions herein 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 class of
Certificates, as evidenced by a letter from each applicable Rating Agency, (iv)
to make any other provisions with respect to matters or questions arising this
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 (v) to amend specified provisions that
are not material to holders of any class of Certificates offered hereunder.
This Agreement may also be amended from time to time by the Company,
the Master Servicer and the Trustee with the consent of the Holders of
Certificates entitled to at least 66-2/3% of the Voting Rights for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement or of modifying in any manner the rights of the
Holders of Certificates; provided, however, that no such amendment shall (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 any Certificate without
the consent of the Holder of such Certificate, or (ii) reduce the aforesaid
percentage of Certificates the Holders of which are required to consent to any
such amendment, without the consent of the Holders of all Certificates then
outstanding. Notwithstanding any other provision of this Agreement, for purposes
of the giving or withholding of consents pursuant to this Section 10.01,
Certificates registered in the name of the Seller or the Master Servicer or any
affiliate thereof shall be entitled to Voting Rights with respect to matters
described in clauses (i) and (ii) of this paragraph.
Promptly after the execution of any such amendment the Trustee shall
furnish a statement describing the amendment to each Certificateholder.
It shall not be necessary for the consent of Certificateholders under
this Section 10.01 to approve the particular form of any proposed amendment, but
it shall be sufficient if such consent shall approve the substance thereof. The
manner of obtaining such consents and of evidencing the authorization of the
execution thereof by Certificateholders shall be subject to such reasonable
regulations as the Trustee may prescribe.
Prior to executing any amendment pursuant to this Section, the Trustee
shall be entitled to receive an Opinion of Counsel (provided by the Person
requesting such amendment) to the effect that such amendment is authorized or
permitted by this Agreement. The cost of an Opinion of Counsel delivered
pursuant to this Section 10.01 shall be an expense of the party requesting such
amendment, but in any case shall not be an expense of the Trustee.
The Trustee may, but shall not be obligated to enter into any
amendment pursuant to this Section that affects its rights, duties and
immunities under this Agreement or otherwise.
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SECTION 10.02. Recordation of Agreement; Counterparts.
To the extent permitted by applicable law, this Agreement is subject
to recordation in all appropriate public offices for real property records in
all the counties or other comparable jurisdictions in which any or all of the
properties subject to the Mortgages are situated, and in any other appropriate
public recording office or elsewhere, such recordation to be effected by the
Master Servicer and at the expense of the Company on direction by the Trustee,
but only upon direction accompanied by an Opinion of Counsel to the effect that
such recordation materially and beneficially affects the interests of the
Certificateholders.
For the purpose of facilitating the recordation of this Agreement as
herein provided and for other purposes, this Agreement may be executed
simultaneously in any number of counterparts, each of which counterparts shall
be deemed to be an original, and such counterparts shall constitute but one and
the same instrument.
SECTION 10.03. Limitation on Rights of Certificateholders.
The death or incapacity of any Certificateholder shall not operate to
terminate this Agreement or the Trust Fund, nor entitle such Certificateholder's
legal representatives or heirs to claim an accounting or to take any action or
proceeding in any court for a partition or winding up of the Trust Fund, nor
otherwise affect the rights, obligations and liabilities of the parties hereto
or any of them.
No Certificateholder shall have any right to vote (except as expressly
provided for herein) or in any manner otherwise control the operation and
management of the Trust Fund, or the obligations of the parties hereto, nor
shall anything herein set forth, or contained in the terms of the Certificates,
be construed so as to constitute the Certificateholders from time to time as
partners or members of an association; nor shall any Certificateholder be under
any liability to any third party by reason of any action taken by the parties to
this Agreement pursuant to any provision hereof.
No Certificateholder shall have any right by virtue of any provision
of this Agreement to institute any suit, action or proceeding in equity or at
law upon or under or with respect to this Agreement, unless such Holder
previously shall have given to the Trustee a notice of an Event of Default, or
of a default by the Seller or the Trustee in the performance of any obligation
hereunder, and of the continuance thereof, as hereinbefore provided, and unless
also the Holders of Certificates entitled to at least 25% of the Voting Rights
shall have made written request upon the Trustee to institute such action, suit
or proceeding in its own name as Trustee hereunder and shall have offered to the
Trustee such reasonable indemnity as it may require against the costs, expenses
and liabilities to be incurred therein or thereby, and the Trustee, for 60 days
after its receipt of such notice, request and offer of indemnity, shall have
neglected or refused to institute any such action, suit or proceeding. It is
understood and intended, and expressly covenanted by each Certificateholder with
every other Certificateholder and the Trustee, that no one or more Holders of
Certificates shall have any right in any manner whatever by virtue of any
provision of this Agreement to affect, disturb or prejudice the rights of the
Holders of any other of such Certificates, or to obtain or seek to obtain
priority over or preference to any other such Holder, or to enforce any right
under this Agreement, except in the manner herein provided and for the equal,
ratable and common benefit of all Certificateholders. For the protection and
enforcement of the provisions of this Section, each and every Certificateholder
and the Trustee shall be entitled to such relief as can be given either at law
or in equity.
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SECTION 10.04. Governing Law.
This Agreement and the Certificates shall be construed in accordance
with the laws of the State of New York and the obligations, rights and remedies
of the parties hereunder shall be determined in accordance with such laws.
SECTION 10.05. Notices.
All demands, notices and direction hereunder shall be in writing and
shall be deemed effective upon receipt when delivered to (a) in the case of the
Company, _______________, ______________________________, Attention:
____________________, or such other address as may hereafter be furnished to the
Trustee and the Master Servicer in writing by the Company, (b) in the case of
the Trustee_____________________________________________________, Attention:
______________________________________, or such other address as may hereafter
be furnished to the Master Servicer and the Company in writing by the Trustee
and (c) in the case of the Master Servicer, [ICI Funding Corporation,] [20371
Irvine Avenue, Suite 200, Santa Ana Heights, CA 92707,] Attention:
________________ or such other address as may hereafter be furnished to the
Company and the Trustee in writing. Any notice required or permitted to be
mailed to a Certificateholder shall be given by first class mail, postage
prepaid, at the address of such Holder as shown in the Certificate Register. Any
notice so mailed within the time prescribed in this Agreement shall be
conclusively presumed to have been duly given, whether or not the
Certificateholder receives such notice.
SECTION 10.06. Severability of Provisions.
If any one or more of the covenants, agreements, provisions or terms
of this Agreement shall be for any reason whatsoever held invalid, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and shall
in no way affect the validity or enforceability of the other provisions of this
Agreement or of the Certificates or the rights of the Holders thereof.
SECTION 10.07. Successors and Assigns; Third Party Beneficiary.
The provisions of this Agreement shall be binding upon and inure to
the benefit of the respective successors and assigns of the parties hereto, and
all such provisions shall inure Company, (b) in the case of the Trustee, to the
benefit of the Trustee and the Certificateholders. The parties hereto agree that
the Seller is the intended third party beneficiary of Sections 3.07, 3.10 and
3.22 hereof, and that the Seller may enforce such provisions to the same extent
as if the Seller were a party to this Agreement.
SECTION 10.08. Article and Section Headings.
The article and section headings herein are for convenience of
reference only, and shall not limit or otherwise affect the meaning hereof.
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SECTION 10.09. Notice to Rating Agencies and Certificateholder.
The Trustee shall use its best efforts to promptly provide notice to
the Rating Agencies referred to below and the Letter of Credit Issuer with
respect to each of the following of which it has actual knowledge:
1. Any material change or amendment to this Agreement;
2. The occurrence of any Event of Default that has not been cured;
3. The resignation or termination of the Master Servicer or the
Trustee;
4. The repurchase or substitution of Mortgage Loans pursuant to
Section 2.04;
5. The final payment to Certificateholders; and
6. Any change in the location of the Custodial Account or the
Certificate Account.
In addition, the Trustee shall promptly furnish to the Rating Agency
copies of the following:
1. Each report to Certificateholders described in Section 4.02;
2. Each annual independent public accountants' servicing report
received as described in Section 3.20; and
3. Each Master Servicer compliance report received as described in
Section 3.19.
Any such notice pursuant to this Section 10.09 shall be in writing and
shall be deemed to have been duly given if personally delivered or mailed by
first class mail, postage prepaid, or by express delivery service to (i) in the
case of [___________________] _________________________________, Attention:
_________________, and (ii) in the case of [___________________________________]
or, in each case, such other address as such Rating Agency may designate in
writing to the parties thereto.
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IN WITNESS WHEREOF, the Company, the Master Servicer and the Trustee
have caused their names to be signed hereto by their respective officers
thereunto duly authorized all as of the day and year first above written.
ICIFC SECURED ASSETS CORP.
Company
By:_____________________________________
[ICI CORPORATION]
[NAME OF MASTER SERVICER],
Master Servicer
By:_____________________________________
[NAME OF TRUSTEE]
Trustee
By:_____________________________________
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EXHIBIT 5.1
<PAGE>
[LETTERHEAD OF FRESHMAN, MARANTZ, ORLANSKI, COOPER & KLEIN APPEARS HERE]
July 19, 1996
ICIFC Secured Assets Corp.
20371 Irvine Avenue, Suite 200
Santa Ana Heights, California 92707
Re: ICIFC Secured Assets Corp.
Mortgage Pass-Through Certificates
Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
We have acted as special counsel to ICIFC Secured Assets Corp., a
California corporation (the "Registrant") in connection with the registration
under the Securities Act of 1933, as amended (the "Act"), of Mortgage Pass-
Through Certificates (the "Certificates"), and the related preparation and
filing of a Registration Statement on Form S-3 (the "Registration Statement").
The Certificates are issuable in series under separate pooling and servicing
agreements (each such agreement, a "Pooling and Servicing Agreement"), among the
Registrant, a master servicer to be identified in the prospectus supplement for
such series of Certificates and a trustee to be identified in the prospectus
supplement for such series of Certificates. Each Pooling and Servicing Agreement
will be substantially in the form filed as an Exhibit to the Registration
Statement.
In connection with rendering this opinion letter, we have
examined the forms of the Pooling and Servicing Agreements contained as Exhibits
in the Registration Statement, the Registration Statement and such records and
other documents as we have deemed necessary. As to matters of fact, we have
examined and relied upon representations or certificates of officers of the
Registrant or public officials. We have assumed the authenticity of all
documents submitted to us as originals, the genuineness of all signatures, the
legal capacity of natural persons and the conformity to the originals of all
documents. We have assumed that all parties, other than the Registrant, had the
corporate power and authority to enter into and perform all obligations
thereunder, and, as to such parties, we also have assumed the enforceability of
such documents.
<PAGE>
[LETTERHEAD OF FRESHMAN, MARANTZ, ORLANSKI, COOPER & KLEIN APPEARS HERE]
ICIFC Secured Assets Corp.
July 19, 1996
Page 2
In rendering this opinion letter, we express no opinion as to the
laws of any jurisdiction other than the laws of the State of California, nor do
we express any opinion, either implicitly or otherwise, on any issue not
expressly addressed below. In rendering this opinion letter, we have not passed
upon and do not pass upon the application of "doing business" or the securities
laws of any jurisdiction. This opinion letter is further subject to the
qualification that enforceability may be limited by (i) bankruptcy, insolvency,
liquidation, receivership, moratorium, reorganization or other laws affecting
the enforcement of the rights of creditors generally and (ii) general principles
of equity, whether enforcement is sought in a proceeding in equity or at law.
Based on the foregoing, we are of the opinion that:
1. When a Pooling and Servicing Agreement for a series of
Certificates has been duly authorized by all necessary action and duly executed
and delivered by the parties thereto, such Pooling and Servicing Agreement will
be a legal and valid obligation of the Registrant.
2. When a Pooling and Servicing Agreement for a series of
Certificates has been duly authorized by all necessary action and duly executed
and delivered by the parties thereto, and when the Certificates of such series
have been duly executed and authenticated in accordance with the provisions of
that Pooling and Servicing Agreement, and issued and sold as contemplated in the
Registration Statement and the prospectus and prospectus supplement delivered in
connection therewith, such Certificates will be legally and validly issued and
outstanding, fully paid and non-assessable, and the holders of such Certificates
will be entitled to the benefits of that Pooling and Servicing Agreement.
3. The description of federal income tax consequences appearing
under the heading "Certain Federal Income Tax Consequences" in the prospectus
contained in the Registration Statement, while not purporting to discuss all
possible federal income tax consequences of any investment in Certificates, is
accurate with respect to those tax consequences which are discussed.
We hereby consent to the filing of this opinion letter as an Exhibit
to the Registration Statement, and to the use of our name in the prospectus and
prospectus supplement included in the Registration Statement under the heading
"Legal matters", and in the prospectus included in the Registration Statement
under the heading "Certain Federal Income Tax Consequences", without admitting
that we are "experts" within the
<PAGE>
(LETTER HEAD OF FRESHMAN, MARANTZ, ORLANSKI, COOPER & KLEIN APPEARS HERE)
ICIFC Secured Assets Corp.
July 19, 1996
Page 3
meaning of the Act, and the rules and regulations thereunder, with respect to
any part of the Registration Statement, including this Exhibit.
Very truly yours,
/s/ Freshman, Marantz, Orlanski,
Cooper & Klein
Freshman, Marantz, Orlanski,
Cooper & Klein
