ICIFC SECURED ASSETS CORP
S-3, 1997-07-11
ASSET-BACKED SECURITIES
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<PAGE>
 
                                                     -- Registration No. _______
================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                 ______________

                                    FORM S-3
            REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
                                 ______________

                           ICIFC SECURED ASSETS CORP.
             (Exact name of registrant as specified in its charter)
                                 ______________

                                   California
        (State or other jurisdiction of Incorporation or organization)

                                   33-0715871
                    (I.R.S. Employer Identification Number)

                         20371 Irvine Avenue, Suite 200
                      Santa Ana Heights, California 92707
                                  714-556-0122
               (Address including zip code, and telephone number,
            including area code, of registrant's executive offices)

                                William Ashmore
                      Imperial Credit Secured Assets Corp.
                         20371 Irvine Avenue, Suite 200
                      Santa Ana Heights, California 92707
                                  714-556-0122
            (Name, address, including zip code, and telephone number
                   including area code, of agent for service)
                                 ______________
                                   Copies to:
                            Thomas J. Poletti, Esq.
                  Freshman, Marantz, Orlanski, Cooper & Klein
                            Eighth Floor, East Tower
                            9100 Wilshire Boulevard
                      Beverly Hills, California 90212-3480
                ===============================================

     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
                                                  AMOUNT          OFFERING       AGGREGATE         AMOUNT OF
                                                   TO BE           PRICE         OFFERING         REGISTRATION
TITLE OF SECURITIES TO BE REGISTERED            REGISTERED(1)    PER UNIT(2)      PRICE (2)          FEE(1)
- ------------------------------------------------------------------------------------------------------------------ 
<S>                                              <C>               <C>          <C>               <C>
Pass-Through Certificates, issued in series      $700,000,000       100%         $700,000,000      $212,121.21
==================================================================================================================
</TABLE>

(1) $8,401,644.00 aggregate amount of Mortgage Pass-Through Certificates
registered by the Registrant under Registration Statement No. 333-8439 referred
to below and not previously sold are consolidated in this Registration Statement
pursuant to Rule 429.  All registration fees in connection with such unsold
amount of Mortgage Pass-Through Certificates, totalling approximately $2,545.95,
have been previously paid by the Registrant under the foregoing Registration
Statement.  Accordingly, the total amount registered under the Registration
Statement as so consolidated as of the date of this filing is $708,401,644.00.

(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(a) under the Securities Act of 1933.
                             _____________________

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.

Pursuant to Rule 429 of the Securities Act of 1933, the prospectus which is part
of this Registration Statement is a combined prospectus and includes all the
information currently required in a prospectus relating to the securities
covered by Registration Statement No. 333-8439 previously filed by the
Registrant.  This Registration Statement, which is a new Registration Statement,
also constitutes Post-Effective Amendment No. 1 to Registration Statement No.
333-8439.

================================================================================
<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 JULY 11, 1997

PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED _______________________, 19__)

                                $_______________

                           ICIFC SECURED ASSETS CORP.
                                    COMPANY

              [NAME OF MASTER SERVICER] [ICI FUNDING CORPORATION]
                                MASTER SERVICER

                MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 19_-_
 
                 $__________   ____%     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
under "Description of the Certificates."

     The Series 19__-__ Mortgage Pass-Through Certificates will include the
following seven classes (the "Senior Certificates"): (i) Class A-1 Certificates,
Class A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates, (ii)
Class A-5 Certificates (the "Fixed Strip Certificates"), (iii) Class A-6
Certificates and (iv) Class A-7 Certificates (the "Variable Strip
Certificates").  In addition to the Senior Certificates, the Series 19__-__
Mortgage Pass-Through Certificates will also consist of one class of subordinate
certificates which is designated as the Class B Certificates (the "Subordinate
Certificates") and one class of residual certificates which is designated as the
Class R Certificates (the "Residual Certificates" and, collectively with the
Senior Certificates and the Subordinate Certificates, the "Certificates").  Only
the Senior Certificates (the "Offered Certificates") are offered hereby.

     The Senior Certificates in the aggregate will evidence an initial undivided
interest of approximately __% in a trust fund (the "Trust Fund") consisting
primarily of a pool of certain conventional fixed-rate one- to four-family first
lien mortgage loans (the "Mortgage Loans") to be deposited by ICIFC Secured
Assets Corp. (the "Company") into the Trust Fund for the benefit of the
Certificateholders.  Certain characteristics of the Mortgage Loans are described
herein under "Description of the Mortgage Pool."

   The Prospectus contains an "Index of Principal Definitions" at the end of the
Prospectus.
<PAGE>
 
                                      -2-


     Distributions on the Senior Certificates will be made on the 25th day of
each month or, if such day is not a business day, then on the next business day,
commencing on __________, 19__ (each, a "Distribution Date").  As more fully
described herein under "Description of the Certificates-Interest Distributions,"
interest distributions on the Senior Certificates will be based on the
Certificate Principal Balance thereof (or the Notional Amount (as defined
herein) in the case of the Fixed Strip Certificates and Variable Strip
Certificates) and the then applicable Pass-Through Rate thereof, which will be
variable for the Variable Strip Certificates and fixed for all other classes of
Certificates.  Distributions in respect of principal of the Senior Certificates
will be allocated among the various classes of the Senior Certificates as
described herein under "Description of the Certificates-Principal
Distributions." The rights of the holders of the Subordinate Certificates to
receive distributions with respect to the Mortgage Loans will be subordinate to
the rights of the holders of the Senior Certificates.  Certain losses incurred
due to defaults on the Mortgage Loans and not covered by the Subordinate
Certificates will be allocated on a pro rata basis between the Class A-1, Class
A-5 and Class A-6 Certificates (collectively, the "Tiered Certificates"), on the
one hand, and the Class A-2, Class A-3, Class A-4 and Variable Strip
Certificates, on the other, as more particularly described herein under
"Description of the Certificates-Allocation of Losses; Subordination."  Any such
losses so allocated to the Tiered Certificates will be allocated first to the
Class A-6 Certificates until the Certificate Principal Balance thereof is
reduced to zero, and then on a pro rata basis to the Class A-1 Certificates and
Class A-5 Certificates, as more particularly described herein under "Description
of the Certificates-Allocation of Losses; Subordination."

     There is currently no secondary market for the Senior Certificates.
___________________ (the "Underwriter") intends to make a secondary market in
the Senior Certificates, but is not obligated to do so.  There can be no
assurance that a secondary market for the Senior Certificates will develop or,
if it does develop, that it will continue.  The Senior Certificates will not be
listed on any securities exchange.

     It is a condition of the issuance of the Senior Certificates that they be
rated "___" by _________________________________________________ and "___" by
_________________________________________.

     As described herein, a "real estate mortgage investment conduit" ("REMIC")
election will be made in connection with the Trust Fund for federal income tax
purposes.  Each class of Senior Certificates will constitute "regular interests"
in the REMIC.  See "Federal Income Tax Consequences" herein and in the
Prospectus.

     SEE "RISK FACTORS" BEGINNING ON PAGE S-____ HEREIN AND ON PAGE 11 OF THE
PROSPECTUS FOR A DISCUSSION OF SIGNIFICANT MATTERS AFFECTING AN INVESTMENT IN
THE CERTIFICATES.

     THE YIELD TO MATURITY ON THE SENIOR CERTIFICATES WILL DEPEND ON THE RATE
AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING AS A RESULT OF PREPAYMENTS, DEFAULTS
AND LIQUIDATIONS) ON THE MORTGAGE LOANS.  THE MORTGAGE LOANS GENERALLY MAY BE
PREPAID IN FULL OR IN PART AT 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, 
<PAGE>
 
                                      -3-

LIQUIDATIONS OR OTHERWISE. THE YIELD TO INVESTORS ON THE FIXED STRIP
CERTIFICATES AND THE VARIABLE STRIP CERTIFICATES WILL BE EXTREMELY SENSITIVE TO
THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS) AND DEFAULTS
ON THE MORTGAGE LOANS, WHICH RATE MAY FLUCTUATE SIGNIFICANTLY OVER TIME. A RAPID
RATE OF PRINCIPAL PAYMENTS ON THE MORTGAGE LOANS COULD RESULT IN THE FAILURE OF
INVESTORS IN SUCH CERTIFICATES TO RECOVER THEIR INITIAL INVESTMENTS. SEE
"CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS" HEREIN AND "YIELD CONSIDERATIONS"
IN THE PROSPECTUS.

     PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF PAYMENTS ON
THE OFFERED CERTIFICATES.  THE OFFERED CERTIFICATES DO NOT REPRESENT AN INTEREST
IN OR OBLIGATION OF THE COMPANY, THE MASTER SERVICER OR ANY OF THEIR AFFILIATES.
NEITHER THE OFFERED CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS ARE INSURED
OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE COMPANY,
THE MASTER SERVICER OFFERED OR ANY OF THEIR AFFILIATES.

     THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

     THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING.  ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

     The Offered Certificates will be purchased from the Company by the
Underwriter and will be offered by the Underwriter from time to time to the
public in negotiated transactions or otherwise at varying prices to be
determined at the time of sale.  The proceeds to the Company from the sale of
the Offered Certificates will be equal to ____% of the initial aggregate
principal balance of the Offered Certificates, plus accrued interest thereon
from ___________________________ 1, 19__ (the "Cut-off Date"), net of any
expenses payable by the Company.

     The Offered Certificates are offered by the Underwriter subject to prior
sale, when, as and if delivered to and accepted by the Underwriter and subject
to certain other conditions.  The Underwriter reserves the right to withdraw,
cancel or modify such offer and to reject any order in whole or in part.  It is
expected that delivery of the Offered Certificates will be made on or about
____________________, 19__ at the office of ________________________,
_______________________________________ against payment therefor in immediately
available funds.

                             [Name of Underwriter]
                        [Date of Prospectus Supplement]
<PAGE>
 
                                      -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.  An "Index of Principal Definitions" indicating
where certain capitalized terms used herein and in the Prospectus are defined
appears at the end of the Prospectus.

<TABLE> 
<C>                                <S> 
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 
</TABLE> 
<PAGE>
 
                                      -6-

<TABLE> 
<C>                                <S> 
                                   Certificates) and integral multiples of
                                   $_____ in excess thereof.

The Mortgage Pool................  The Mortgage Pool will consist of a pool of
                                   conventional, fixed-rate, fully amortizing
                                   mortgage loans (the "Mortgage Loans") with an
                                   aggregate principal balance as of the Cut-off
                                   Date of approximately $______________. The
                                   Mortgage Loans are secured by first liens on
                                   one- to four-family residential real
                                   properties (each, a "Mortgaged Property").
                                   The Mortgage Loans have individual principal
                                   balances at origination of at least
                                   $_________ but not more than $___________
                                   with an average principal balance at
                                   origination of approximately $____________.
                                   The Mortgage Loans have terms to maturity
                                   from the date of origination or modification
                                   of not more than ___ years, and a weighted
                                   average remaining term to stated maturity of
                                   approximately ___ months as of the Cut-off
                                   Date. The Mortgage Loans will bear interest
                                   at Mortgage Rates of at least ____% per annum
                                   but not more than ____% per annum, with a
                                   weighted average Mortgage Rate of
                                   approximately ____% per annum as of the Cut-
                                   off Date. For a further description of the
                                   Mortgage Loans, see "Description of the
                                   Mortgage Pool" herein.

The Senior Certificates..........  The Senior Certificates in the aggregate
                                   evidence an initial interest of approximately
                                   ____% in a trust fund (the "Trust Fund")
                                   consisting primarily of the Mortgage Pool.
                                   The Senior Certificates will be issued
                                   pursuant to a Pooling and Servicing
                                   Agreement, to be dated as of the Cut-off
                                   Date, among the Company, the Master Servicer,
                                   and the Trustee (the "Pooling and Servicing
                                   Agreement"). The Senior Certificates will
                                   have the following Pass-Through Rates and
                                   Certificate Principal Balances as of the Cut-
                                   off Date:
</TABLE> 

<TABLE> 
<CAPTION> 
<S>            <C>                     <C>            <C> 
               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
</TABLE> 
<PAGE>
 
                                      -7-

<TABLE> 
<CAPTION> 
<S>                                <C> 
                                   The Offered Certificates are subject to
                                   various priorities for payment of interest
                                   and principal as described herein. For a
                                   description of the allocation of interest and
                                   principal distributions among the Senior
                                   Certificates, see "Summary-Interest
                                   Distributions," "-Principal Distributions,"
                                   "Description of the Certificates-Interest
                                   Distributions" and "-Principal Distributions
                                   on the Senior Certificates" herein.

Interest Distributions...........  The Pass-Through Rates on the Senior
                                   Certificates (other than the Variable Strip
                                   Certificates) are fixed and set forth on the
                                   cover hereof. The Pass-Through Rate on the
                                   Variable Strip Certificates on each
                                   Distribution Date will equal the weighted
                                   average, as determined on the Due Date in the
                                   month preceding the month in which such
                                   Distribution Date occurs, of the Pool Strip
                                   Rates on each of the Mortgage Loans. The Pool
                                   Strip Rate on each Mortgage Loan is equal to
                                   the Net Mortgage Rate thereon minus ____%.
                                   The Net Mortgage Rate on each Mortgage Loan
                                   is equal to the Mortgage Rate thereon minus
                                   the rate per annum at which the related
                                   master servicing fees accrue (the "Servicing
                                   Fee Rate"). The Pool Strip Rates on the
                                   Mortgage Loans range between ____% and ____%.
                                   The initial Pass-Through Rate on the Variable
                                   Strip Certificates is approximately ____%.
                                   The Fixed Strip Certificates and Variable
                                   Strip Certificates have no Certificate
                                   Principal Balance and will accrue interest at
                                   the then applicable Pass-Through Rate on the
                                   Notional Amount (as defined herein).

                                   Holders of the Senior Certificates will be
                                   entitled to receive on each Distribution
                                   Date, to the extent of the Available
                                   Distribution Amount (as defined herein) for
                                   such Distribution Date, interest
                                   distributions in an amount equal to the
                                   aggregate of all Accrued Certificate Interest
                                   (as defined below) with respect to such
                                   Certificates for such Distribution Date and,
                                   to the extent not previously paid, for all
                                   prior Distribution Dates (the "Senior
                                   Interest Distribution Amount").
</TABLE> 
<PAGE>
 
                                      -8-

<TABLE> 
<CAPTION> 
<S>                                <C> 
                                   With respect to any Distribution Date, the
                                   Accrued Certificate Interest in respect of
                                   each class of Senior Certificates will be
                                   equal to one month's interest accrued at the
                                   applicable Pass-Through Rate on the
                                   Certificate Principal Balance (or, in the
                                   case of the Fixed Strip Certificates and
                                   Variable Strip Certificates, the Notional
                                   Amount (as defined below)) of the
                                   Certificates of such class immediately prior
                                   to such Distribution Date, less any interest
                                   shortfalls not covered by Subordination (as
                                   defined herein) and allocated to the
                                   Certificates of such class as described
                                   herein, including any Prepayment Interest
                                   Shortfall (as defined herein), if any, for
                                   such Distribution Date.

                                   If the Senior Interest Distribution Amount
                                   for any Distribution Date is less than the
                                   Available Distribution Amount for such date,
                                   then such shortfall shall be allocated among
                                   the respective classes of Senior Certificates
                                   as described herein under "Description of the
                                   Certificates-Allocation of Losses;
                                   Subordination," and the unpaid Accrued
                                   Certificate Interest in respect of the
                                   Certificates of each such class will be
                                   payable to the holders thereof on subsequent
                                   Distribution Dates, to the extent of
                                   available funds. The Notional Amount of the
                                   Fixed Strip Certificates and Variable Strip
                                   Certificates as of any date of determination
                                   is equal to the aggregate Certificate
                                   Principal Balance of the Certificates of all
                                   classes, including the Subordinate
                                   Certificates, as of such date. See
                                   "Description of the Certificates-Interest
                                   Distributions" herein. References herein to
                                   the Notional Amount of the Fixed Strip
                                   Certificates and Variable Strip Certificates
                                   are used solely for certain calculations and
                                   do not represent the right of the holders of
                                   the Fixed Strip Certificates and Variable
                                   Strip Certificates to receive distributions
                                   of such amount.

Principal Distributions..........  Holders of the Senior Certificates will be
                                   entitled to receive on each Distribution
                                   Date, in the manner and priority set forth
                                   herein, to the extent of the portion of the
                                   Available Distribution Amount remaining after
                                   the Senior Interest Distribution Amount is
                                   distributed to the holders of the Senior
                                   Certificates, a distribution allocable to
                                   principal which will, as more fully described
                                   herein under "Description of the 
                                   Certificates-Distributions of 
</TABLE> 
<PAGE>
 
                                      -9-

<TABLE> 
<CAPTION> 
<S>                                <C> 
                                   Principal," include (i) the Senior Percentage
                                   (as defined herein) of scheduled principal
                                   payments due on the Mortgage Loans and of the
                                   principal portion of any unscheduled
                                   collections of principal (other than
                                   mortgagor prepayments and amounts received in
                                   connection with a Final Disposition (as
                                   defined herein) of a Mortgage Loan described
                                   in clause (ii) below), including repurchases
                                   of the Mortgage Loans, (ii) in connection
                                   with the Final Disposition of a Mortgage Loan
                                   that did not incur any Excess Special Hazard
                                   Losses, Excess Fraud Losses, Excess
                                   Bankruptcy Losses or Extraordinary Losses
                                   (each as defined herein), an amount equal to
                                   the lesser of (a) the Senior Percentage of
                                   the Stated Principal Balance (as defined
                                   herein) of such Mortgage Loan and (b) the
                                   Senior Accelerated Distribution Percentage
                                   (as defined herein) of the related
                                   collections, including any Insurance Proceeds
                                   and Liquidation Proceeds, to the extent
                                   applied as recoveries of principal and (iii)
                                   the Senior Accelerated Distribution
                                   Percentage (as defined below) of mortgagor
                                   prepayments on each Mortgage Loan.

                                   Distributions in respect of principal of the
                                   Senior Certificates on any Distribution Date
                                   will be allocated among the classes then
                                   entitled to such distributions, as described
                                   herein. See "Summary-Special Prepayment
                                   Considerations" and "-Special Yield
                                   Considerations" and "Certain Yield and
                                   Prepayment Considerations" herein. The Fixed
                                   Strip Certificates and Variable Strip
                                   Certificates will not be entitled to receive
                                   any principal distributions.

                                   The Senior Percentage initially will be
                                   approximately ____% and will be recalculated
                                   after each Distribution Date as described
                                   herein to reflect the entitlement of the
                                   holders of the Senior Certificates to
                                   subsequent distributions allocable to
                                   principal. For each Distribution Date
                                   occurring prior to the Distribution Date in
                                   ______________, _____________, the Senior
                                   Accelerated Distribution Percentage will
                                   equal 100%. Thereafter, as further described
                                   herein, during certain periods, subject to
                                   certain loss and delinquency criteria
                                   described herein, the Senior Accelerated
                                   Distribution Percentage may be 100% or
                                   otherwise disproportionately large relative
                                   to the Senior 
</TABLE> 
<PAGE>
 
                                      -10-

<TABLE> 
<CAPTION> 
<S>                                <C> 
                                   Percentage. See "Description of the
                                   Certificates-Principal Distributions on the
                                   Senior Certificates" herein.

Advances.........................  The Master Servicer is required to make
                                   advances ("Advances") in respect of
                                   delinquent payments of principal and interest
                                   on the Mortgage Loans, subject to the
                                   limitations described herein. See
                                   "Description of the Certificates-Advances"
                                   herein and in the Prospectus.

Allocation of Losses;
Subordination....................  Subject to the limitations set forth below,
                                   Realized Losses (as more particularly
                                   described herein) on the Mortgage Loans will
                                   be allocated first to the Subordinate
                                   Certificates and then to the Senior
                                   Certificates. The subordination provided by
                                   the Subordinate Certificates will cover
                                   Realized Losses on the Mortgage Loans that
                                   constitute Defaulted Mortgage Losses, Special
                                   Hazard Losses, Fraud Losses and Bankruptcy
                                   Losses (each as defined in the Prospectus) to
                                   the extent described herein under
                                   "Description of the Certificates-Allocation
                                   of Losses; Subordination." The aggregate
                                   amounts of Special Hazard Losses, Fraud
                                   Losses and Bankruptcy Losses which may be
                                   allocated to the Subordinate Certificates are
                                   initially limited to $_______, $_______ and
                                   $_______, respectively. All of the foregoing
                                   amounts are subject to periodic reduction as
                                   described herein. In the event the
                                   Certificate Principal Balance of the
                                   Subordinate Certificates is reduced to zero,
                                   all additional losses will be borne by the
                                   Senior Certificateholders. In addition, any
                                   Special Hazard Losses, Fraud Losses and
                                   Bankruptcy Losses, in excess of the
                                   respective amounts of coverage therefor will
                                   be borne by the holders of Senior
                                   Certificates and Subordinate Certificates on
                                   a pro rata basis. Any Default Losses (as
                                   defined herein) incurred on the Mortgage
                                   Loans and not covered by the Subordinate
                                   Certificates will be allocated on a pro rata
                                   basis between the Class A-1, Class A-5 and
                                   Class A-6 Certificates (the "Tiered
                                   Certificates"), on the one hand, and the
                                   Class A-2, Class A-3, Class A-4 and 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 
</TABLE> 
<PAGE>
 
                                      -11-

<TABLE> 
<CAPTION> 
<S>                                <C> 
                                   Certificates and the Class A-5 Certificates,
                                   as more particularly described herein.
                                   Because principal distributions are paid to
                                   certain classes of Senior Certificates before
                                   other classes, holders of classes of Senior
                                   Certificates having a later priority of
                                   payment bear a greater risk of such losses
                                   than holders of classes of Senior
                                   Certificates having earlier priorities for
                                   distribution of principal. See "Description
                                   of the Certificates-Allocation of Losses;
                                   Subordination" herein.

Subordinate Certificates.........  The Class B Certificates (the "Subordinate
                                   Certificates") have an aggregate initial
                                   Certificate Principal Balance of
                                   approximately $__________, evidencing an
                                   initial Subordinate Percentage of
                                   approximately ____%, and a Pass-Through Rate
                                   of ____%. The Subordinate Certificates are
                                   not being offered hereby.

Optional Termination.............  At its option, on any Distribution Date when
                                   the aggregate principal balance of the
                                   Mortgage Loans is less than ____% of the
                                   aggregate principal balance of the Mortgage
                                   Loans as of the Cut-off Date, the Master
                                   Servicer or the Company may (i) purchase from
                                   the Trust Fund all remaining Mortgage Loans
                                   and other assets thereof, and thereby effect
                                   early retirement of the Certificates or (ii)
                                   purchase in whole, but not in part, the
                                   Certificates. See "Pooling and Servicing
                                   Agreement-Termination" herein and "The
                                   Pooling Agreement-Termination; Retirement of
                                   Certificates" in the Prospectus.

Special Prepayment 
 Considerations..................  The rate and timing of principal payments on
                                   the Senior Certificates will depend on the
                                   rate and timing of principal payments
                                   (including by reason of prepayments, defaults
                                   and liquidations) on the Mortgage Loans. As
                                   is the case with mortgage-backed securities
                                   generally, the Senior Certificates are
                                   subject to substantial inherent cash-flow
                                   uncertainties because 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 
</TABLE> 
<PAGE>
 
                                      -12-

<TABLE> 
<CAPTION> 
<S>                                <C> 
                                   mortgage loans tend to increase, resulting in
                                   a faster return of principal to investors at
                                   a time when reinvestment at comparable yields
                                   may not be possible.

                                   [The multiple class structure of the Senior
                                   Certificates results in the allocation of
                                   prepayments among certain classes as follows
                                   [TO BE INCLUDED AS APPROPRIATE]:]

                                   [SEQUENTIALLY PAYING CLASSES: [All] classes
                                   of the Senior Certificates are subject to
                                   various priorities for payment of principal
                                   as described herein. Distributions of
                                   principal on classes having an earlier
                                   priority of payment will be affected by the
                                   rates of prepayments of the Mortgage Loans
                                   early in the life of the Mortgage Pool. The
                                   timing of commencement of principal
                                   distributions and the weighted average lives
                                   of classes of Certificates with a later
                                   priority of payment will be affected by the
                                   rates of prepayments experienced both before
                                   and after the commencement of principal
                                   distributions on such classes.]

                                   [PAC CERTIFICATES: Principal distributions on
                                   the PAC Certificates generally will be
                                   payable in amounts determined based on
                                   schedules as described herein, assuming that
                                   the prepayments on the Mortgage Loans occur
                                   each month at a constant level between
                                   approximately ____% SPA and approximately
                                   ____% SPA and based on certain other
                                   assumptions. However, as discussed herein,
                                   actual principal distributions may be greater
                                   or less than the described amounts. If the
                                   prepayments on the Mortgage Loans occur at a
                                   level below or above the PAC Targeted Range,
                                   the amount of principal distributions may
                                   deviate from the described amounts and the
                                   weighted average lives of the remaining PAC
                                   Certificates may be extended or shortened.
                                   The classes of PAC Certificates with later
                                   priorities of payment are less likely to
                                   benefit from the stabilization of principal
                                   distributions provided by the Companion
                                   Certificates as described herein) than the
                                   PAC Certificates with earlier priorities of
                                   payment. Investors in the PAC Certificates
                                   should be aware that the stabilization
                                   provided by the Companion Certificates is
                                   limited.]

                                   [TAC CERTIFICATES: Principal distributions 
                                   on the TAC Certificates generally will be 
                                   payable thereon in the 
</TABLE> 
<PAGE>
 
                                      -13-

<TABLE> 
<CAPTION> 
<S>                                <C> 
                                   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.
</TABLE> 
<PAGE>
 
                                      -14-

<TABLE> 
<CAPTION> 
<S>                                <C> 
Special Yield
 Considerations..................  The yield to maturity on each class of the
                                   Senior Certificates will depend on the rate
                                   and timing of principal payments (including
                                   by reason of prepayments, defaults and
                                   liquidations) on the Mortgage Loans and the
                                   allocation thereof to reduce the Certificate
                                   Principal Balance or Notional Amount of such
                                   class. The yield to maturity on each class of
                                   the Senior Certificates will also depend on
                                   the Pass-Through Rate and any adjustments
                                   thereto (as applicable) and the purchase
                                   price for such Certificates. The yield to
                                   investors on any class of Senior Certificates
                                   will be adversely affected by any allocation
                                   thereto of Prepayment Interest Shortfalls on
                                   the Mortgage Loans, which are expected to
                                   result from the distribution of interest only
                                   to the date of prepayment (rather than a full
                                   month's interest) in connection with
                                   prepayments in full and the lack of any
                                   distribution of interest on the amount of any
                                   partial prepayments. Prepayment Interest
                                   Shortfalls resulting from principal
                                   prepayments in full in any calendar month
                                   will not adversely affect the yield to
                                   investors in the Offered Certificates to the
                                   extent such prepayment interest shortfalls
                                   are covered by the Master Servicer as
                                   discussed herein.

                                   In general, if a class of Senior Certificates
                                   is purchased at a premium and principal
                                   distributions thereon occur at a rate faster
                                   than anticipated at the time of purchase, the
                                   investor's actual yield to maturity will be
                                   lower than that assumed at the time of
                                   purchase. Conversely, if a class of Senior
                                   Certificates is purchased at a discount and
                                   principal distributions thereon occur at a
                                   rate slower than that assumed at the time of
                                   purchase, the investor's actual yield to
                                   maturity will be lower than that assumed at
                                   the time of purchase.

                                   The Senior Certificates were structured based
                                   on a number of assumptions, including a
                                   prepayment assumption of ____% SPA and
                                   corresponding weighted average lives as set
                                   forth herein under "Special Prepayment
                                   Considerations." The prepayment, yield and
                                   other assumptions for the respective classes
</TABLE> 
<PAGE>
 
                                      -15-

<TABLE> 
<CAPTION> 
<S>                                <C> 
                                   that are to be offered hereunder will vary as
                                   determined at the time of sale.

                                   [The multiple class structure of the Senior
                                   Certificates causes the yield of certain
                                   classes to be particularly sensitive to
                                   changes in the prepayment speed of the
                                   Mortgage Loans and other factors, as follows
                                   [TO BE INCLUDED AS APPROPRIATE]:]

                                   [INTEREST STRIP AND INVERSE FLOATER CLASSES:
                                   The yield to investors on the [identify
                                   classes] will be extremely sensitive to the
                                   rate and timing of principal payments on the
                                   Mortgage Loans (including by reason of
                                   prepayments, defaults and liquidations),
                                   which may fluctuate significantly over time.
                                   A rapid rate of principal payments on the
                                   Mortgage Loans could result in the failure of
                                   investors in the [identify interest strip and
                                   inverse floater strip classes] to recover
                                   their initial investments, and a slower than
                                   anticipated rate of principal payments on the
                                   Mortgage Loans could adversely affect the
                                   yield to investors on the [identify non-strip
                                   inverse floater classes].]

                                   [VARIABLE STRIP CERTIFICATES: In addition to
                                   the foregoing, the yield on the Variable
                                   Strip Certificates will be materially
                                   adversely affected to a greater extent than
                                   the yields on the other Senior Certificates
                                   if the Mortgage Loans with higher Mortgage
                                   Rates prepay faster than the Mortgage Loans
                                   with lower Mortgage Rates, because holders of
                                   the Variable Strip Certificates generally
                                   have rights to relatively larger portions of
                                   interest payments on the Mortgage Loans with
                                   higher Mortgage Rates than on Mortgage Loans
                                   with lower Mortgage Rates.]

                                   [ADJUSTABLE RATE (INCLUDING INVERSE FLOATER)
                                   CLASSES: The yield to investors on the
                                   [identify floating rate classes] will be
                                   sensitive, and the yield to investors on the
                                   [identify inverse floater classes] will be
                                   extremely sensitive, to fluctuations in the
                                   level of [the Index]. THE PASS-THROUGH RATE
                                   ON THE [IDENTIFY INVERSE FLOATER CLASSES]
                                   WILL VARY INVERSELY WITH, AND AT A MULTIPLE
                                   OF, [THE INDEX].]
</TABLE> 
<PAGE>
 
                                      -16-

<TABLE> 
<CAPTION> 
<S>                                <C> 
                                   [INVERSE FLOATER COMPANION CLASSES: In
                                   addition to the foregoing, in the event of
                                   relatively low prevailing interest rates
                                   (including [the Index]) and relatively high
                                   rates of principal prepayments over an
                                   extended period, while investors in the
                                   [identify inverse floater companion classes]
                                   may then be experiencing a high current yield
                                   on such Certificates, such yield may be
                                   realized only over a relatively short period,
                                   and it is unlikely that such investors would
                                   be able to reinvest such principal
                                   prepayments on such Certificates at a
                                   comparable yield.]

                                   [RESIDUAL CERTIFICATES: Holders of the
                                   Residual Certificates are entitled to receive
                                   distributions of principal and interest as
                                   described herein; however, holders of such
                                   Certificates may have tax liabilities with
                                   respect to their Certificates during the
                                   early years of the term of the REMIC that
                                   substantially exceed the principal and
                                   interest payable thereon during such periods.
                                   See "Certain Yield and Prepayment
                                   Considerations, " especially "-Additional
                                   Yield Considerations Applicable Solely to the
                                   Residual Certificates " herein, "Federal
                                   Income Tax Consequences" herein and in the
                                   Prospectus and "Yield Considerations" in the
                                   Prospectus.]

                                   See "Certain Yield and Prepayment
                                   Considerations" especially -Yield
                                   Considerations, -Additional Yield
                                   Considerations Applicable Solely to the
                                   Residual Certificates" and "Federal Income
                                   Tax Consequences"] herein, and "Yield
                                   Considerations" in the Prospectus.

Federal Income
 Tax Consequences................  An election will be made to treat the Trust
                                   Fund as a real estate mortgage investment
                                   conduit ("REMIC") for federal income tax
                                   purposes. Upon the issuance of the Offered
                                   Certificates, ___________ __________, counsel
                                   to the Company, will deliver its opinion
                                   generally to the effect that, assuming
                                   compliance with all provisions of the Pooling
                                   and Servicing Agreement, for federal income
                                   tax purposes, the Trust Fund will qualify as
                                   a REMIC within the meaning of Sections 860A
                                   through 86OG of the Internal Revenue Code of
                                   1986 (the "Code").

                                   For federal income tax purposes, the Class R
                                   Certificates will be the sole Class of 
                                   "residual interests" in the Trust 
</TABLE> 
<PAGE>
 
                                      -17-

<TABLE> 
<CAPTION> 
<S>                                <C> 
                                   Fund and the Senior Certificates and the
                                   Subordinate Certificates will constitute the
                                   "regular interests" in the Trust Fund and
                                   will generally be treated as representing
                                   ownership of debt instruments in the Trust
                                   Fund.

                                   For federal income tax reporting purposes,
                                   the _________ Certificates will not, and the
                                   __________Certificates will, be treated as
                                   having been issued with original issue
                                   discount. The prepayment assumption that will
                                   be used in determining the rate of accrual of
                                   original issue discount, market discount and
                                   premium, if any, for federal income tax
                                   purposes will be ____% SPA (as defined
                                   herein). No representation is made that the
                                   Mortgage Loans will prepay at that rate or at
                                   any other rate.

                                   Investors are advised to consult their tax
                                   advisors as to the tax consequences of an
                                   investment in the Certificates in light of
                                   each investor's individual circumstances and
                                   to review "Federal Income Tax Consequences"
                                   herein and in the Prospectus for a general
                                   discussion of material tax matters related to
                                   the Certificates.

Ratings..........................  It is a condition of the issuance of the
                                   Senior Certificates that they be rated "____"
                                   by _______________________________ and "____"
                                   by _______________________________. A
                                   security rating is not a recommendation to
                                   buy, sell or hold securities and may be
                                   subject to revision or withdrawal at any time
                                   by the assigning rating organization. A
                                   security rating does not address the
                                   frequency of prepayments of Mortgage Loans,
                                   or the corresponding effect on yield to
                                   investors. The ratings of the Fixed Strip
                                   Certificates and Variable Strip Certificates
                                   do not address the possibility that the
                                   holders of such Certificates may fail to
                                   fully recover their initial investments. See
                                   "Certain Yield and Prepayment Considerations"
                                   and "Ratings" herein and "Yield
                                   Considerations" in the Prospectus.
</TABLE> 
<PAGE>
 
                                      -18-

<TABLE> 
<CAPTION> 
<S>                                <C> 
Legal Investment.................  The Senior Certificates will constitute
                                   "mortgage related securities" for purposes of
                                   the Secondary Mortgage Market Enhancement Act
                                   of 1984 ("SMMEA") for so long as they are
                                   rated in at least the second highest rating
                                   category by one or more nationally recognized
                                   statistical rating agencies. Institutions
                                   whose investment activities are subject to
                                   legal investment laws and regulations,
                                   regulatory capital requirements or review by
                                   regulatory authorities may be subject to
                                   restrictions on investment in the Offered
                                   Certificates and should consult with their
                                   legal advisors. See "Legal Investment" herein
                                   and "Legal Investment Matters" in the
                                   Prospectus.

Listing Application..............  The Company does not currently intend to make
                                   an application to list the Offered
                                   Certificates on a national securities
                                   exchange or to quote the Offered Securities
                                   in the automated quotation system of a
                                   registered securities association.

Risk Factors.....................  There are material risks associated with an
                                   investment in the Certificates. See "Risk
                                   Factors" beginning on page S-___ herein and
                                   on page 11 of the Prospectus for a discussion
                                   of significant matters affecting investments
                                   in the Certificates.
</TABLE> 
<PAGE>
 
                                      -19-


                                  RISK FACTORS

     [Prospective Certificateholders should consider, among other things, the
items discussed under "Risk Factors" in the Prospectus and the following factors
in connection with the purchase of the Certificates:]

[Appropriate Risk Factors as necessary. Possible Risk Factors based on present
disclosure may include the following:

     Delinquencies and Potential Delinquencies.  Approximately ___% of the
Mortgage Loans (by aggregate principal balance as of the Cut-Off Date) were
thirty days or more but less than sixty days delinquent in their Monthly
Payments (such Mortgage Loans, the "Delinquent Mortgage Loans") as of the Cut-
Off Date.  Prospective investors in the Certificates should be aware, however,
that only approximately ____% of the Mortgage Loans (by aggregate principal
balance as of the Cut-Off Date) had a first Monthly Payment due on or before
________, 1996, and therefore, the remaining Mortgage Loans could not have been
Delinquent Mortgage Loans as of the Cut-Off Date.

     Approximately ____% of the Mortgage Loans (by aggregate outstanding
principal balance as of the Cut-Off Date) are secured by Mortgaged Properties
located in the State of California. Property values of residential real estate
in California have declined in recent years.  If the California residential real
estate market continues to experience an overall decline in property values
after the dates of origination of the Mortgage Loans, the rates of delinquency,
foreclosure, bankruptcy and loss on the Mortgage Loans may increase
substantially, as compared to such rates in a stable or improving real estate
market.

     Approximately ___% of the Mortgage Loans are secured by Mortgaged
Properties located in Orange, California.  On December 6, 1994, Orange County
filed for protection under Chapter 9 of the United States Bankruptcy Code.  If
public services are curtailed as a result of Orange County's financial
difficulties, property values in the related market area may be adversely
affected.

     Underwriting.  Approximately ____% of the Mortgage Loans (measured by Cut-
Off Date Balance) were underwritten in accordance with underwriting standards
that are intended to provide one- to-four family mortgage loans to borrowers
whose creditworthiness and credit histories do not satisfy the requirements of
typical "A" credit borrowers.  The Mortgagors with respect to such Mortgage
Loans may have records of major derogatory credit such as credit write-offs,
outstanding judgments and prior bankruptcies.  Such Mortgage Loans generally
bear higher rates of interest than mortgage loans made to "A" credit borrowers.
Such Mortgage Loans are likely to experience rates of delinquency, foreclosure
and loss that are higher, and may be substantially higher, than mortgage loans
made to "A" credit borrowers.]
<PAGE>
 
                                      -20-

                        DESCRIPTION OF THE MORTGAGE POOL

GENERAL

     The Mortgage Pool will consist of Mortgage Loans with an aggregate
principal balance outstanding as of the Cut-off Date of $__________.  The
Mortgage Loans will consist of conventional (neither insured by the Federal
Housing Administration ("FHA") nor guaranteed by the Veterans' Administration
("VA")), fixed-rate, fully-amortizing, level monthly payment first lien Mortgage
Loans with terms to maturity of not more than __ years from the due date of the
first monthly payment.  On or before the Delivery Date, the Company will acquire
the Mortgage Loans to be included in the Mortgage Pool from [ICI Funding] (the
"Seller)."  The Mortgage Loans were acquired by the Seller from [various third
party correspondents].  The Seller will make certain representations and
warranties with respect to the Mortgage Loans and, as more particularly
described in the Prospectus, will have certain repurchase or substitution
obligations in connection with a breach of any such representation and warranty,
as well as in connection with an omission or defect in respect of certain
constituent documents required to be delivered with respect to the Mortgage
Loans, in any event if such breach, omission or defect cannot be cured and it
materially and adversely affects the interests of Certificateholders.  Neither
the Company nor any other entity or person will have any responsibility to
purchase or replace any Mortgage Loan if the Seller is obligated but fails to do
so.  See "Description of the Mortgage Pool-Representations by Sellers" and
"Description of the Certificates-Assignment of Trust Fund Assets" in the
Prospectus.  The Mortgage Loans will have been originated or acquired by the
Seller in accordance with the underwriting criteria described herein.  See 
"-Underwriting" below. All percentages of the Mortgage Loans described herein
are approximate percentages (except as otherwise indicated) by aggregate
principal balance as of the Cut-off Date.

     None of the Mortgage Loans will have been originated prior to
____________________ or will have a maturity date later than
____________________.  No Mortgage Loan will have a remaining term to maturity
as of the Cut-off Date of less than ___ months.  The weighted average remaining
term to maturity of the Mortgage Loans as of the Cut-off Date will be
approximately ___ months.  The weighted average original term to maturity of the
Mortgage Loans as of the Cut-off Date will be approximately ___ months.

     As of the Cut-off Date, no Mortgage Loan will be one month or more
delinquent in payment of principal and interest.

     Approximately ____% of the Mortgage Loans in the Mortgage Pool will have
been purchased from _______________, and each other Seller sold no more than
____% but less than ____% of the Mortgage Loans to the Company.  Except as
indicated in the preceding sentence, no Seller sold more than ____% of the
Mortgage Loans to the Company.
<PAGE>
 
                                      -21-

     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>
 
                                      -22-


                 CUT-OFF DATE MORTGAGE LOAN PRINCIPAL BALANCES

<TABLE>
<CAPTION>
                         NUMBER OF          AGGREGATE          PERCENTAGE    
 PRINCIPAL BALANCE     MORTGAGE LOANS   PRINCIPAL BALANCE   OF MORTGAGE POOL 
- --------------------   --------------   -----------------   ----------------- 
<S>                    <C>              <C>                 <C>
____________________                    $                                  %
____________________ 
____________________ 
____________________ 
____________________ 
____________________ 
____________________ 
____________________ 
____________________ 
____________________ 
____________________ 
____________________ 
                       --------------   -----------------   ----------------
     Total..........                    $                                  %
                       ==============   =================   ================
</TABLE>

     As of the Cut-off Date, the average unpaid principal balance of the
Mortgage Loans will be approximately $


                         ORIGINAL LOAN-TO-VALUE RATIOS

<TABLE>
<CAPTION>
                         NUMBER OF          AGGREGATE          PERCENTAGE    
 LOAN-TO-VALUE RATIO   MORTGAGE LOANS   PRINCIPAL BALANCE   OF MORTGAGE POOL 
- --------------------   --------------   -----------------   ----------------- 
<S>                    <C>              <C>                 <C>
____________________                    $                                  %
____________________ 
____________________ 
____________________ 
____________________ 
____________________ 
____________________ 
____________________ 
____________________ 
____________________ 
____________________ 
____________________ 
                       --------------   -----------------   ----------------
     Total..........                    $                                  %
                       ==============   =================   ================
</TABLE>

     The weighted average Loan-to-Value Ratio at origination of the Mortgage
Loans will have been approximately ____%.
<PAGE>
 
                                      -23-

                GEOGRAPHIC DISTRIBUTIONS OF MORTGAGED PROPERTIES

<TABLE>
<CAPTION>
                         NUMBER OF          AGGREGATE          PERCENTAGE    
      STATE            MORTGAGE LOANS   PRINCIPAL BALANCE   OF MORTGAGE POOL 
- --------------------   --------------   -----------------   ----------------- 
<S>                    <C>              <C>                 <C>
[NAME OF STATE].....                    $                                %
[NAME OF STATE]..... 
[NAME OF STATE]..... 
[NAME OF STATE]..... 
[NAME OF STATE]..... 
[NAME OF STATE]..... 
Other(1)............
                     --------------   -----------------   ----------------
     Total..........                  $                                  %
                     ==============   =================   ================
</TABLE>
- -------------------
(1)  "Other" includes states and the District of Columbia with less than ____%
     concentrations individually.

     [No more than____% of the Mortgage Loans will be secured by Mortgaged
Properties located in any one zip code area].


                            MORTGAGED PROPERTY TYPES

<TABLE>
<CAPTION>
                                             NUMBER OF          AGGREGATE          PERCENTAGE     
    PROPERTY                               MORTGAGE LOANS   PRINCIPAL BALANCE   OF MORTGAGE POOL  
- --------------------                       --------------   -----------------   ----------------- 
<S>                                        <C>              <C>                 <C>                
Single-family detached.................                     $                                  %
Planned Unit Development (detached)....
Two-to four-family units...............
Condo Low-Rise (less than 5 stories)...
Condo Mid-Rise (5 to 8 stories)........
Condo High-Rise (9 stories or more)....
Townhouse..............................
Planned Unit Developments (attached)...
Leasehold..............................
                                           --------------   ----------------    ----------------
     Total.............................                     $                                  %
                                           ==============   ================    ================
</TABLE>
 
<PAGE>
 
                                      -24-

                            MORTGAGE LOAN PURPOSES

<TABLE>
<CAPTION>
                                             NUMBER OF          AGGREGATE          PERCENTAGE     
  LOAN PURPOSE                             MORTGAGE LOANS   PRINCIPAL BALANCE   OF MORTGAGE POOL  
- --------------------                       --------------   -----------------   ----------------- 
<S>                                        <C>              <C>                 <C>                
Purchase..............                                       $                                 %
Rate/Term Refinance...
Equity Refinance......
                                           --------------   -----------------   ----------------
    Total.............                                       $                                 %
                                           ==============   =================   ================
</TABLE>

     The weighted average Loan-to-Value Ratio at origination of equity refinance
Mortgage Loans will have been____%. The weighted average Loan-to-Value Ratio at
origination of rate and term refinance Mortgage Loans will have been____%.


                          MORTGAGE LOAN DOCUMENTATION

<TABLE>
<CAPTION>
                                             NUMBER OF          AGGREGATE          PERCENTAGE     
  TYPE OF PROGRAM                          MORTGAGE LOANS   PRINCIPAL BALANCE   OF MORTGAGE POOL  
- --------------------                       --------------   -----------------   ----------------- 
<S>                                        <C>              <C>                 <C>                
Full.................                                        $                                 %
Alternative..........
Reduced..............
No Income/No Asset...
                                           --------------   -----------------   ----------------
     Total...........                                        $                                 %
                                           ==============   ================    =================
</TABLE>

     The weighted average Loan-to-Value Ratio at origination of the Mortgage
Loans which were underwritten under a reduced loan documentation program will
have been  ____%. No more than____% of such reduced loan documentation Mortgage
Loans will be secured by Mortgaged Properties located in California.


                                OCCUPANCY TYPES

<TABLE>
<CAPTION>
                                             NUMBER OF          AGGREGATE          PERCENTAGE     
    OCCUPANCY                              MORTGAGE LOANS   PRINCIPAL BALANCE   OF MORTGAGE POOL  
- --------------------                       --------------   -----------------   ----------------- 
<S>                                        <C>              <C>                 <C>                
Primary Residence....                                       $                                  %
Second/Vacation......
Non Owner-occupied...
                                           --------------   -----------------   ----------------
     Total...........                                       $                                 %
                                           ==============   =================   ================
</TABLE>

     [Specific information with respect to the Mortgage Loans will be available
to purchasers of the Certificates on or before the time of issuance of such
Certificates.  If not included in the Prospectus Supplement, such information
will be included in the Form 8-K.]
<PAGE>
 
                                      -25-

THE SELLER

     [Description of Seller as appropriate.  The following disclosure is for ICI
Funding but will be similar if the Seller is an entity other than ICI Funding:

     ICI Funding Corporation ("ICI Funding" or the "Seller"), the Company's
parent, is a mortgage banking conduit that acquires conventional one- to four-
family residential mortgage loans nationwide. ICI Funding is a non-consolidating
subsidiary of Imperial Credit Mortgage Holdings, Inc., a publicly traded Real
Estate Investment Trust.  ICI Funding primarily acquires mortgage loans from
approved correspondents.

     Prior to November 1995, ICI Funding was a division of Imperial Credit
Industries, Inc. ("ICII"). In November 1995, ICII restructured its operations
pursuant to which ICI Funding became a separate corporation and ICII
contributed, among other things, all of the outstanding nonvoting preferred
stock of ICI Funding, which represents 99% of the economic interest in ICI
Funding, to Imperial Credit Mortgage Holdings, Inc., in exchange for
approximately 10% of Imperial Credit Mortgage Holdings, Inc.'s common stock.
The common stock of ICI Funding was retained by ICII until March 1997 when it
was distributed to certain officers and/or directors of ICI Funding who are also
officers and/or directors of ICMH.

     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, or pursuant to, the standards of either ICI
Funding's Progressive Series Program or its Progressive Express(TM) Program,
each of which is described below.

     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, _____% pursuant to, or in accordance with, the
<PAGE>
 
                                      -26-

Progressive Series V Program, and _____% pursuant to, or in accordance with the
Progressive Express(TM) Program.


The Progressive Series Program

     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 Progressive
Series II, III, III+, IV and V Program borrowers are required to have debt
service-to-income ratios 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 
<PAGE>
 
                                      -27-

$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 Series I Program
are underwritten either by employees of ICI Funding or by contracted mortgage
insurance companies 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.  Substantially all of
the mortgage loans originated under the Series III+, IV and V Programs are
underwritten by employees of ICI Funding or contracted due diligence firms.
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.  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
which are less than or equal to 80% and do not require a Primary Insurance
Policy.  ICI Funding receives verbal verification from ICI Funding's conduit
seller 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 (a) 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 as required 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/Alternative Documentation 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-l's, federal business tax
returns for two years, year-to-date financial 
<PAGE>
 
                                      -28-

statements, a business credit report (for corporations) and a signed IRS Form
4506 (Request for Copy of Tax Returns).

     Under the Limited Documentation 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 two-
month period preceding the mortgage loan application.  In addition, the Lite
Documentation Program is available to Series III+, Series IV and Series 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, available to borrowers in the Series I and Series II Programs,
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 verification 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 80% is generally not eligible.

     Under all Progressive Series Programs, ICI Funding's conduit seller
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 Program 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 Program is
$450,000.  Secondary 
<PAGE>
 
                                      -29-

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 may also be 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.

     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 last 24 months, and a maximum of two 30-day
delinquent payments on any installment credit account 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 the Series II Program, a borrower must have a minimum of
five trade accounts with no late mortgage payments for the past 12 months and
may have one 30-day delinquent mortgage payment 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. All
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 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 last 24 months and may not have more
than three 30-day delinquent and one 60-day delinquent payment on any
installment credit account in the past 24 months.  Any open judgment, suit,
lien, collection or charge-off must be paid prior to closing. 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 last 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.
Bankruptcies must be at least 24 months old, fully discharged and the borrower
must have reestablished 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 
<PAGE>
 
                                      -30-

four 30-day delinquent payments or two 60-day delinquent payments or one 90-day
delinquent payment on revolving debt in the last 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 judgments, suits, liens, collections, charge-offs not to exceed
$1,000 must be paid in full at closing. Bankruptcies must be at least 18 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 last 12 months and may not have more than six 30-day delinquent payments or
three 60-day delinquent payments or two 90-day delinquent payments on any
installment credit account in the past 12 months.  Any open judgments, suits,
liens, collections or charge-offs not to exceed $4,000 must be paid in full at
closing.  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.
Historically, desk and/or field appraisal reviews have been 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 
<PAGE>
 
                                      -31-

amounts in excess of $350,000, non-owner occupied properties, second home
properties, cash-out refinance mortgage loans and whenever in the underwriter's
judgment it is necessary to reverify the appraised value of the property.
Effective February 3, 1997, each loan includes one full appraisal and an
enhanced review appraisal by a national appraisal company designated by ICI
Funding. The enhanced appraisal review is not required when the full appraisal
is ordered by the Conduit Seller from one of ICI Funding's approved national
appraisal companies.

     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.

     The Progressive Express(TM) Program

     General.  In July 1996, ICI Funding developed an additional Series to the
Progressive Program, the "Progressive Express(TM) Program". The concept of the
Progressive Express(TM) Program is to underwrite the loan focusing on the
borrowers Fair Issac ("FICO") credit score, ability and willingness to repay the
mortgage loan obligation, and assess the adequacy of the mortgage property as
collateral for the loan. The FICO Score was developed by Fair, Issac Co., Inc.
of San Rafael, California. It is an electronic evaluation of past and present
credit accounts on the borrower's credit bureau report. This includes all
reported accounts as well as public records and inquiries. The Progressive
Express(TM) Program offers six levels of mortgage loan programs. The Progressive
Express(TM) Program has a minimum FICO score that must be met by each of the
borrowers and does not allow for any exceptions to the FICO score requirement.
The FICO Score requirement is as follows: Progressive Express(TM) I 681 & above,
Progressive Express(TM) II 680-621, Progressive Express(TM) III 620-601,
Progressive Express(TM) IV 600-581, Progressive Express(TM) V 580-551, and
Progressive Express(TM) VI 550-500. Each Progressive Express(TM) program has
different FICO score requirements, credit criteria, reserve requirements, and
Loan-to-Value Ratio restrictions. Progressive Express(TM) I is designed for
credit history and income requirements typical of "A+" credit borrowers. In the
event a borrower does not fit the Progressive Express(TM) I criteria, the
borrower's mortgage loan is placed into either Progressive Express(TM) II, III,
IV, V, or VI, depending on which series' mortgage loan parameters meets the
borrower unique credit profile.

     Under the Progressive Express(TM) Program, ICI Funding underwrites single
family dwellings with Loan-to-Value Ratios at origination of up to 95%. In order
for the property to be eligible 
<PAGE>
 
                                      -32-

for the Progressive Express(TM) Program, it must be a single family residence (1
unit only), condominium, and/or planned unit development (PUD). Each mortgage
loan is individually underwritten by an ICI Funding employee or by contracted
Commonwealth Mortgage Assurance Company staff on-site at ICI Funding. This
program is not offered to Conduit Sellers under their Delegated Underwriting
program. Progressive Express(TM) Programs I through IV with Loan-to-Value Ratios
at origination in excess of 80% are insured by Commonwealth Mortgage Assurance
Company. Loan-to-Value Ratios of 80.01% to 85% require 22% mortgage insurance
coverage and 85.01% to 90% require 30% mortgage insurance coverage.

     Each respective buyer completes a Progressive Express(TM) Doc loan
application and certifies the following when signing the application; property
is intended to be owner-occupied, funds are not from a gift, borrower is
presently employed, and the transaction is not a non-arms length transaction. At
the time of signing loan documents, Progressive Express(TM) I - IV borrowers
execute a "Borrower's Certification" certifying the above and that the borrower
has 4 months principal, interest, taxes, and insurance reserves available,
exclusive of cash-out proceeds. The borrower must disclose employment and assets
on the application, however, there is no verification of the information. The
Conduit Seller obtains a Verbal Verification of Employment on each borrower. ICI
Funding uses the foregoing parameters as guidelines only. Sellers may include
certain criteria that ICI Funding may not enforce, particularly, when a fixed
rate loan includes an Addendum to the Note for a prepayment penalty. Full
documentation is requested by the underwriter if it is the judgment of the
underwriter that the compensating factors are insufficient for loan approval
under the Progressive Product Line.

     Credit History.  The Progressive Express(TM) Program defines an acceptable
credit history in each of the programs I through VI.  Progressive Express(TM) I
defines an acceptable credit history as a borrower who has "A+" credit, meaning
a minimum of 5 trade accounts, no 30-day delinquent mortgage payments in the
past 24 months, and a maximum of two 30-day delinquent payments on any revolving
credit accounts within the past 24 months and one 30-day delinquent payment on
any installment credit accounts within the past 24 months. All 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 3 years.  No judgments, suits, liens, collections or charge-offs are
allowed within the past 24 months.  Tax liens are not allowed.

     With respect to Progressive Express(TM) II, a borrower must have a minimum
of 5 trade accounts, no late mortgage payments for the past 12 months, and a
maximum of two 30-day or no 60-day delinquent payments on any revolving credit
accounts and a maximum of one 30-day or no 60-day delinquent payments on any
installment credit accounts in the past 12 months. All 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 3 years.
Judgments, suits, liens, collections or charge-offs must be paid prior to
closing. Tax liens are not allowed.

     With respect to Progressive Express(TM) III, a borrower must have a minimum
of 5 trade accounts, no late mortgage payments for the past 12 months and may
have one 30-day late 
<PAGE>
 
                                      -33-

mortgage payment within the past 13 and 24 months. A borrower may not have more
than a maximum of three 30-day delinquent payments on any revolving credit
accounts or installment credit accounts in the past 24 months. All 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 3 years. Judgments, suits, liens, collections or charge-offs must be paid
prior to closing. Tax liens are not allowed.

     With respect to Progressive Express(TM) IV, a borrower must have a minimum
of 5 trade accounts, no more than two 30-day late mortgage payments in the past
12 months or three 30-day late mortgage payments in the past 24 months. A
borrower may not have more than a maximum of three 30-day or one 60-day
delinquent payments on any revolving credit accounts or installment credit
accounts in the past 24 months. All 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 3 years. Judgments, suits,
liens, collections or charge-offs, not to exceed $500, must be paid prior to
closing. Tax liens are not allowed.

     With respect to Progressive Express(TM) V, a borrower must have a minimum
of 3 trade accounts, no more than two 30-day late mortgage payments in the past
12 months. A borrower may not have more than a maximum of two 30-day or one 60-
day delinquent payments on any revolving credit accounts or installment credit
accounts in the past 12 months. All 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. Judgments, suits,
liens, collections or charge-offs, not to exceed $500, must be paid at closing.
Tax liens are not allowed.

     With respect to Progressive Express(TM) VI, a borrower must have a minimum
of 3 trade accounts, no more than four 30-day or three 30-day and one 60-day
late mortgage payments in the past 12 months. A borrower may not have more than
a maximum of four 30-day or two 60-day or one 90-day delinquent payments on any
revolving credit accounts or installment credit accounts in the past 12 months.
All bankruptcies must be at least 18 months old and fully discharged.
Foreclosures are not allowed in the past 18 months. Judgments, suits, liens,
collections or charge-offs, not to exceed $1,000, must be paid at closing. Tax
liens are not allowed.

     Quality Control.  ICI Funding generally performs a pre-funding audit on
each Progressive Express(TM) Program mortgage loan. This audit includes a review
for compliance with Progressive Express(TM) 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
Express(TM) 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.
<PAGE>
 
                                      -34-

     Appraisals.  Each Progressive Express(TM) loan includes one full 
appraisal and an enhanced review appraisal by a national appraisal company
designated by ICI Funding. The enhanced appraisal review is not required when
the full appraisal is ordered by the Conduit Seller from one of ICI Funding's
approved national appraisal companies. In full appraisals, 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 full 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. Selected mortgage loans will also be reviewed for
compliance and document accuracy.

     ICI Funding commenced acquiring mortgage loans underwritten pursuant to the
Progressive Series Program in November 1995 and pursuant to the Progressive
Express(TM) Program in late 1996. Accordingly, ICI Funding does not have
sufficient historical delinquency or default experience that may be referred to
for purposes of estimating the future delinquency and loss experience of the
Mortgage Loans underwritten pursuant to the Progressive Series Program and the
Progressive Express(TM) Program. There can be no assurance that the delinquency
experience of the servicing portfolio of ICI Funding [or of the Sub-Servicer] as
described herein will correspond to the delinquency experience of the Mortgage
Loans underwritten pursuant to the Progressive Series Program or the Progressive
Express(TM) Program. It is contemplated that all of the Progressive Series
Program and Progressive Express(TM) Program mortgage loans originated or
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 instances where the prospective mortgagor (i)
has demonstrated an ability to save and devote a greater portion of income to
basic housing needs; (ii) 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) has demonstrated an
ability to maintain a debt free position; (iv) 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)  has net worth 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.
<PAGE>
 
                                      -35-

DELINQUENCY AND FORECLOSURE EXPERIENCE

     [Delinquency and foreclosure experience as appropriate.  The following
disclosure is presently applicable for ICI Funding:

     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>
 
                                      -36-

<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>
 
                                      -37-

(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>
 
                                      -38-

     Based solely on information provided by the Seller, the following table
presents the changes in the Company's charge-offs and recoveries for the years
indicated.
<TABLE>
<CAPTION>
                                                        YEARS ENDED DECEMBER 31,
                                               ___________________________________________   
                                                  19__     19__     19__     19__     19__
<S>                                            <C>      <C>      <C>      <C>      <C>
Charge-offs:
     Mortgage Loan Properties...............
     REO Properties.........................   _______  _______  _______  _______  _______  
 
Recoveries:
     Mortgage Loan Properties...............
     REO Properties.........................   _______  _______  _______  _______  _______  
 
           Net charge-offs..................   _______  _______  _______  _______  _______  
 
Ratio of net charge-offs to average loans
outstanding during the year.................   =======  =======  =======  =======  =======  
 
</TABLE>


     The above data on charge-offs and recoveries are calculated on the basis of
the total mortgage loans originated or acquired by the Seller that were
originated as of the date three months prior to the date indicated.  However,
the total amount of mortgage loans on which the above data are based includes
many mortgage loans which were not, as of the respective dates indicated,
outstanding long enough to give rise to some of the indicated charge-offs.  In
the absence of such mortgage loans, the charge-off percentages indicated above
would be higher and could be substantially higher.  Because the Mortgage Pool
will consist of a fixed group of Mortgage Loans, the actual charge-off
percentages with respect to the Mortgage Pool may therefore be expected to be
higher, and may be substantially higher, than the percentages indicated above.

     The information set forth in the preceding paragraphs concerning ICI
Funding has been provided by ICI Funding.]
<PAGE>
 
                                      -39-

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 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
<PAGE>
 
                                      -40-

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), (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")
<PAGE>
 
                                      -41-

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 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 
<PAGE>
 
                                      -42-

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;

          (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 
<PAGE>
 
                                      -43-

     (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 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
<PAGE>
 
                                      -44-

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>
 
                                      -45-

               (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 Losses (as defined 
<PAGE>
 
                                      -46-

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 amount of monthly payments due to certain
bankruptcy proceedings, but does not include any forgiveness of principal.
<PAGE>
 
                                      -47-

     In order to maximize the likelihood of distribution in full of the Senior
Interest Distribution Amount and the Senior Principal Distribution Amount,
holders of Senior Certificates will have a prior right, on each Distribution
Date, to the Available Distribution Amount, to the extent necessary to satisfy
the Senior Interest Distribution Amount and the Senior Principal Distribution
Amount.  The Senior Principal Distribution Amount is subject to adjustment on
each Distribution Date to reflect the then applicable Senior Percentage and the
Senior Accelerated Distribution Percentage, as described herein under "-
Principal Distributions" on the Senior Certificates, each of which may be
increased (to not more than 100%) in the event of delinquencies or Realized
Losses on the Mortgage Loans.  The application of the Senior Accelerated
Distribution Percentage (when it exceeds the Senior Percentage) to determine the
Senior Principal Distribution Amount will accelerate the amortization of the
Senior Certificates relative to the actual amortization of the Mortgage Loans.
To the extent that the Senior Certificates are amortized faster than the
Mortgage Loans, the percentage interest evidenced by the Senior Certificates in
the Trust Fund will be decreased (with a corresponding increase in the interest
in the Trust Fund evidenced by the Subordinate Certificates), thereby
increasing, as a relative matter, the Subordination afforded by the Subordinate
Certificates.  Similarly, holders of Class A-1 Certificates and Class A-5
Certificates will have a prior right, on each Distribution Date occurring on or
after the Credit Support Depletion Date, to that portion of the Available
Distribution Amount allocated to the Tiered Certificates, to the extent
necessary to satisfy the Accrued Certificate Interest on the Class A- I
Certificates and Class A-5 Certificates.  Therefore, any shortfalls in the
amounts that would otherwise be distributable to Class A-1 Certificateholders
and Class A-5 Certificateholders, whether resulting from Mortgage Loan
delinquencies or Realized Losses, will be home by the holders of the Class A-6
Certificates for so long as the Class A-6 Certificates are outstanding.

     The aggregate amount of Realized Losses which may be allocated in
connection with Special Hazard Losses (the "Special Hazard Amount") through
Subordination shall initially be equal to $___________. As of any date of
determination following the Cut-off Date, the Special Hazard Amount shall equal
$_____________________ less the sum of (i) any amounts allocated through
Subordination in respect of Special Hazard Losses and (ii) the Adjustment
Amount.  The Adjustment Amount will be equal to an amount calculated pursuant to
the terms of the Pooling and Servicing Agreement.  As used in this Prospectus
Supplement, "Special Hazard Losses" has the same meaning set forth in the
Prospectus, except that Special Hazard Losses will not include and the
Subordination will not cover Extraordinary Losses, and Special Hazard Losses
will not exceed the lesser of the cost of repair or replacement of the related
Mortgaged Properties.

     The aggregate amount of Realized Losses which may be allocated to the
Subordinate Certificates in connection with Fraud Losses (the "Fraud Loss
Amount") through Subordination shall initially be equal to $___________.  As of
any date of determination after the Cut-off Date the Fraud Loss Amount shall
equal (i) up to and including the [first] 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 
<PAGE>
 
                                      -48-

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 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, 
<PAGE>
 
                                      -49-

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 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 
<PAGE>
 
                                      -50-

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 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 
<PAGE>
 
                                      -51-

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 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.
<PAGE>
 
                                      -52-

     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 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__.
<PAGE>
 
                                      -53-

     The actual characteristics and performance of the Mortgage Loans will
differ from the assumptions used in constructing the table set forth below,
which is hypothetical in nature and is provided only to give a general sense of
how the principal cash flows might behave under varying prepayment scenarios.
For example, it is very unlikely that the Mortgage Loans will prepay at a
constant level of SPA until maturity or that all of the Mortgage Loans will
prepay at the same level of SPA.  Moreover, the diverse remaining terms to
maturity of the Mortgage Loans could produce slower or faster principal
distributions than indicated in the table at the various constant percentages of
SPA specified, even if the weighted average remaining term to maturity of the
Mortgage Loans is as assumed.  Any difference between such assumptions and the
actual characteristics and performance of the Mortgage Loans, or actual
prepayment or loss experience, will affect the percentages of initial
Certificate Principal Balances outstanding over time and the weighted average
lives of the classes of Offered Certificates.

     Subject to the foregoing discussion and assumptions, the following table
indicates the weighted average life of each class of Offered Certificates (other
than the Fixed Strip Certificates and Variable Strip Certificates), and sets
forth the percentages of the initial Certificate Principal Balance of each such
class of Offered Certificates that would be outstanding after each of the dates
shown at various percentages of SPA.
<PAGE>
 
                                      -54-


         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>
 
                                      -55-


          PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
                      AT THE FOLLOWING PERCENTAGES OF SPA
<TABLE>
<CAPTION>
 
                                   Class A-4
                        ---------------------------------
<S>                     <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>
 
                                      -56-

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>
 
                                      -57-

<TABLE>
<CAPTION>
 
 
           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 yields on the Fixed Strip
Certificates and Variable Strip Certificates are likely to differ from those
shown
<PAGE>
 
                                      -58-

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.

     [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.]
<PAGE>
 
                                      -59-

     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.
The common stock of ICI Funding was retained by ICII until March 1997 when it
was distributed to certain officers and/or directors of ICI Funding who are also
officers and/or directors of ICMH.

     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>
 
                                      -60-

<TABLE>
<CAPTION>
                                                           AT DECEMBER 31,
                                        ------------------------------------------------------
                                      199                       199                        199             AT          31, 199
                                ----------------          ----------------         -------------------   -----------------------
                                             PERCENT                 PERCENT                 PERCENT                  PERCENT OF
                                                OF                     OF                      OF        NUMBER       SERVICING 
                                 NUMBER     SERVICING     NUMBER    SERVICING     NUMBER    SERVICING   OF LOANS      PORTFOLIO 
                                OF LOANS    PORTFOLIO    OF LOANS   PORTFOLIO    OF LOANS   PORTFOLIO   --------      --------- 
                                --------    ---------    --------   ---------    --------   ---------                           
<S>                             <C>         <C>          <C>        <C>          <C>        <C>         <C>           <C> 
Total Portfolio(1)                             100%                    100%                    100%                      100%
                                ========    =========    ========   =========    ========   =========   ========      ========= 
 
Period of Delinquency:
    30-59 days                                    %                       %                       %                         %
    60-89 days                                    %                       %                       %                         %
    90 days or more                               %                       %                       %                         %
                                --------    ---------    --------   ---------    --------   ---------   --------      --------- 
 
Total Delinquencies
(excluding Foreclosures)                          %                       %                       %
                                ========    =========    ========   =========    ========   =========   ========      ========= 
 
Foreclosures Pending                              %                       %                       %                         %
</TABLE>

_______________

(1)  Includes purchased mortgage servicing rights owned by the Sub-Servicer
     totalling _________ loans for __________ million unpaid principal balance
     and ____________ loans for ____________ million unpaid principal balance as
     of December 31, 199____ and _________ 199____, respectively.

     There can be no assurance that the delinquency and foreclosure experience
of the Mortgage Loans will correspond to the delinquency and foreclosure
experience of the Sub-Servicer's servicing portfolio set forth in the foregoing
tables.  The statistics shown above represent the delinquency and foreclosure
experience for the Sub-Servicer's servicing portfolio only for the periods
presented, whereas the aggregate delinquency and foreclosure experience on the
Mortgage Loans will depend on the results obtained over the life of the Trust.
The Sub-Servicer's servicing portfolio includes mortgage loans with a variety of
payment and other characteristics (including geographic location) which are not
necessarily representative of the payment and other characteristics of the
Mortgage Loans.  The Sub-Servicer's servicing portfolio includes mortgage loans
underwritten pursuant to guidelines not necessarily representative of those
applicable to the Mortgage Loans.  It should be noted that if the residential
real estate market should experience an overall decline in property values, the
actual rates of delinquencies and foreclosures could be higher than those
previously experienced by the Sub-Servicer.  In addition, adverse economic
conditions may affect the timely payment by mortgagors of scheduled payments of
principal and interest on the Mortgage Loans and, accordingly, the actual rates
of delinquencies and foreclosures with respect to the Mortgage Loans.

     The information set forth in this section concerning the Master Servicer
and the Sub-Servicer has been provided by the Master Servicer and the Sub-
Servicer, respectively.
<PAGE>
 
                                      -61-

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) 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.
<PAGE>
 
                                      -62-

     Upon presentation and surrender of the Senior Certificates in connection
with the termination of the Trust Fund or a purchase of Certificates under the
circumstances described above, the holders of the Senior Certificates will
receive an amount equal to the Certificate Principal Balance of such class plus
one month's interest thereon (or with respect to the Variable Strip
Certificates, one month's interest on the Notional Amount) at the applicable
Pass-Through Rate plus any previously unpaid Accrued Certificate Interest
subject to the priority in "Description of the Certificates-Interest
Distributions" and "-Principal Distributions on the Senior Certificates".


                        FEDERAL INCOME TAX CONSEQUENCES

     The following discussion should be read in conjunction with "Federal Income
Tax Consequences" in the Prospectus.  Taken together, this discussion and the
referenced discussion in the Prospectus, to the extent they relate to matters of
law or legal conclusions with respect to the anticipated material federal income
tax consequences of the purchase, ownership and disposition of the Certificates
offered hereunder, represent the opinion of counsel to the Company with respect
to that series on the material matters associated with such consequences,
subject to any qualifications set forth herein.  The discussions have been
prepared with the advice of O'Melveny & Myers LLP, special tax counsel to the
Company.  Prospective investors should note that no rulings have been or will be
sought from the Internal Revenue Service (the "IRS") with respect to any of the
federal income tax consequences discussed below, and no assurance can be given
the IRS will not take a contrary position.  Accordingly, taxpayers should
consult their own tax advisors and tax return preparers regarding the
preparation of any item on a tax return, even where the anticipated tax
treatment has been discussed herein and in the Prospectus.  In addition to the
federal income tax consequences described herein and in the Prospectus,
potential investors should consider the state and local tax consequences, if
any, of the purchase, ownership and disposition of the Certificates. See "State
and Other Tax Consequences" in the Prospectus.  Certificateholders are advised
to consult their own tax advisors concerning the federal, state, local or other
tax consequences to them of the purchase, ownership and disposition of the
Certificates offered hereunder.

     Prior to the sale of the Offered Certificates, O'Melveny & Myers LLP,
special tax counsel to the Depositor, will have delivered its opinion 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").  Such opinion will be filed with
the Commission either as an exhibit to the Registration Statement of which this
Prospectus Supplement is a part or in a Current Report on Form 8-K.  For federal
income tax purposes, (i) the Residual Certificates are the sole Class of
"residual interests" in the Trust Fund; and (ii) the Certificates constitute the
"regular interests" in the Trust Fund.  See "Federal Income Tax Consequences-
REMICs" in the Prospectus.
<PAGE>
 
                                      -63-

     For federal income tax reporting purposes, the _______ Certificates will
not and the _______ Certificates will be treated as having been issued with
original issue discount.  The prepayment assumption that will be used in
determining the rate of accrual of original issue discount, market discount and
premium, if any, for federal income tax purposes will be based on the assumption
that subsequent to the date of any determination the Mortgage Loans will prepay
at a rate equal to____% SPA.  No representation is made that the Mortgage Loans
will prepay at that rate or at any other rate. See "Federal Income Tax
Consequences-REMICs-Taxation of Owners of REMIC Regular Certificates-Original
Issue Discount," "--Market Discount" and "-Premium" in the Prospectus.

     The IRS has issued regulations (the "OID Regulations") under Sections 1271
to 1275 of the Code generally addressing the treatment of debt instruments
issued with original issue discount. Purchasers of the Offered Certificates
should be aware that the OID Regulations and Section 1272(a)(6) of the Code do
not adequately address certain issues relevant to, or are not applicable to,
securities such as the Offered Certificates.  In addition, there is considerable
uncertainty concerning the application of the OID Regulations to REMIC Regular
Certificates that provide for payments based on an adjustable rate such as the
Offered Certificates.  Because of the uncertainties concerning the application
of Section 1272(a)(6) of the Code to such Certificates and because the rules of
the OID Regulations relating to debt instruments having an adjustable rate of
interest are limited in their application in ways that could preclude their
application to such Certificates even in the absence of Section 1272(a)(6) of
the Code, the IRS could assert that the _______  Certificates should be treated
as having been issued with original issue discount or that one or more of such
Class of Certificates should be governed by the rules applicable to debt
instruments having contingent payments or by some other method not yet set forth
in regulations.  Prospective purchasers of the Offered Certificates are advised
to consult their tax advisors concerning the tax treatment of such Certificates.

     Under Section 166 of the Code, holders of the Offered Certificates that
acquire such Certificates in connection with a trade or business should be
allowed to deduct, as ordinary losses, any losses sustained during a taxable
year in which their Certificates become wholly or partially worthless as the
result of one or more realized losses or distribution shortfalls on the Mortgage
Loans that are allocable to such Offered Certificates.  However, it appears that
a noncorporate holder that does not acquire an Offered Certificate in connection
with its trade or business will not be entitled to deduct a loss under Section
166 of the Code until such holder's Certificate becomes demonstrably wholly
worthless and that the loss will be characterized as a short-term capital loss.

     Each holder of an Offered Certificate will be required to accrue original
issue discount with respect to such Certificate without giving effect to any
reductions in distributions attributable to a default or delinquency on the
Mortgage Loans until it can be established that any such reduction ultimately
will not be recoverable.  As a result, the amount of income required to be
reported for tax purposes in any period by the holder of such a Certificate
could exceed the amount of economic income actually realized by the holder in
such period.  Although the holder of such a Certificate eventually will
recognize a loss or a reduction in income attributable to previously 
<PAGE>
 
                                      -64-

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 assets described in Section
7701(a)(19)(C) of the Code and "real estate assets" within the meaning of
Section 856(c)(5)(A) of the Code.  In addition, interest (including original
issue discount, if any) on the Offered Certificates will be interest described
in Section 856(c)(3)(B) of the Code to the extent that such Certificates are
treated as "real estate assets" within the meaning of Section 856(c)(5)(A) of
the Code.  Moreover, the Offered Certificates (other than the Residual
Certificates) will be "qualified mortgages" within the meaning of Section
86OG(a)(3) of the Code.  See "Federal Income Tax Consequences-REMICs-
Characterization of Investments in REMIC Certificates" in the Prospectus.

     For further information regarding the federal income tax consequences of
investing in the Subordinate Certificates, see "Federal Income Tax Consequences-
REMICs" in the Prospectus.

[SPECIAL TAX CONSIDERATIONS APPLICABLE TO RESIDUAL CERTIFICATES
 --------------------------------------------------------------

     The Residual Certificates will be subject to tax rules that differ
significantly from those that would apply if the Residual Certificates were
treated for federal income tax purposes as direct ownership interest in the
Mortgage Loans or as debt instruments issued by the Trust Fund.  For further
information regarding the federal income tax consequences of investing in the
Residual Certificates, see "Federal Income Tax Consequences-REMICS-Taxation of
Owners of REMIC Residual Certificates" in the Prospectus.

     The IRS has issued regulations under the provisions of the Code related to
REMICs (the "REMIC Regulations") that significantly affect holders of the
Residual Certificates.  The REMIC Regulations impose restrictions on the
transfer or acquisition of certain residual interests, including the Residual
Certificates.  The REMIC Regulations include restrictions that apply to 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 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 
<PAGE>
 
                                      -65-

the possibility of any such transfer being disregarded to the extent that the
Residual Certificates constitute noneconomic residual interests. Such transfers
are prohibited under the Pooling and Servicing Agreement. See "Federal Income
Tax Consequences-Taxation of Owners of REMIC Residual Certificates-Noneconomic
REMIC Residual Certificates" in the Prospectus.

     As discussed above and in the Prospectus, the rules for accrual of original
issue discount with respect to the Senior and Subordinate Certificates are
subject to significant complexity and uncertainty.  See "Federal Income Tax
Consequences" in the Prospectus.  Because original issue discount on such
classes of Certificates will be deducted by the Trust Fund in determining its
taxable income, any changes required by the IRS in the application of those
rules to such Certificates may significantly affect the timing of original issue
discount deductions to the Trust Fund and therefore the amount of the Trust
Fund's taxable income allocable to holders of the Residual Certificates.

     The Residual Certificateholders will be required to report an amount of
taxable income with respect to the earlier accrual periods of the term of the
REMIC that significantly exceeds the amount of cash distributions received by
such Residual Certificateholders from the REMIC with respect to such periods.
Furthermore, the tax on such income will exceed the cash distributions with
respect to such periods.  Consequently, 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 Certificate, particularly a Residual
Certificate, may have significant additional gross income with respect to, but
may be subject to limitations on the deductibility of, servicing and trustee's
fees and other administrative expenses properly allocable to the REMIC in
computing such Certificateholder's regular tax liability and will not be able to
deduct such fees or expenses to any extent in computing such Certificateholder's
alternative minimum tax liability.  Such expenses will be allocated for federal
income tax information reporting purposes entirely to the REMIC Regular
Certificates.  However, it is possible that the IRS may require all or some
portion of such fees and expense to be allocable to the Residual Certificates.
Recently enacted provisions governing the relationship between excess inclusions
and the alternative minimum tax provide that (i) the alternative minimum taxable
income of a taxpayer is based on the taxpayer's regular taxable income computed
without regard to the rule that taxable income cannot be less than tthe amount
of excess inclusions, (ii) the alternative minimum taxable income of a taxpayer
for a taxable year cannot be less than the amount of excess inclusions for that
year, and (iii) the amount of any alternative minimum tax net operating loss is
computed without regard to any excess inclusions.  
<PAGE>
 
                                      -66-

While these provisions are generally effective for tax years beginning after
December 31, 1996, a taxpayer may elect to have these provisions apply only with
respect to tax years beginning after August 20, 1996. See "Federal Income Tax
Consequences-REMICs-Taxation of Owners of REMIC Residual Certificates-Possible
Pass-Through of Miscellaneous Itemized Deductions" in the Prospectus.

     The Trustee will be designated as the "tax matters person" as defined in
Treasury Regulation Section 301.6231(a)(7)-lT with respect to the Trust Fund,
and in connection therewith will be required to hold not less than a 0.01%
Percentage Interest of the Residual Certificates.

     Purchasers of the Residual Certificates are strongly advised to consult
their own tax advisors as to the economic and tax consequences of investment in
such Residual Certificates.

     For further information regarding the federal income tax consequences of
investing in the Residual Certificates, see "Yield Considerations-Additional
Yield Considerations Applicable Solely to the Residual Certificates" herein and
"Federal Income Tax Consequences-REMICs-Taxation of Owners of REMIC Residual
Certificates" in the Prospectus.]
<PAGE>
 
                                      -67-


                             METHOD OF DISTRIBUTION

     Subject to the terms and conditions set forth in the Underwriting Agreement
dated _____________, 19__, the Underwriter has agreed to purchase and the
Company has agreed to sell to the Underwriter each class of Senior Certificates.

     The Underwriting Agreement provides that the obligation of the Underwriter
to pay for and accept delivery of the Senior Certificates is subject to, among
other things, the receipt of certain legal opinions and to the conditions, among
others, that no stop order suspending the effectiveness of the Company's
Registration Statement shall be in effect, and that no proceedings for such
purpose shall be pending before or threatened by the Securities and Exchange
Commission.

     The distribution of the Senior Certificates by the Underwriter may be
effected from time to time in one or more negotiated transactions, or otherwise,
at varying prices to be determined at the time of sale.  Proceeds to the Company
from the sale of the Senior Certificates, before deducting expenses payable by
the Company, will be  ____% of the aggregate Certificate Principal Balance of
the Senior Certificates plus accrued interest thereon from the Cut-off Date.
The Underwriter may effect such transactions by selling the Senior Certificates
to or through dealers, and such dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from the Underwriter for whom
they act as agent.  In connection with the sale of the Senior Certificates, the
Underwriter may be deemed to have received compensation from the Company in the
form of underwriting compensation.  The Underwriter and any dealers that
participate with the Underwriter in the distribution of the Senior Certificates
may be deemed to be underwriters and any profit on the resale of the Senior
Certificates positioned by them may be deemed to be underwriting discounts and
commissions under the Securities Act of 1933.

     The Underwriting Agreement provides that the Company will indemnify the
Underwriter, and that under limited circumstances the Underwriter will indemnify
the Company, against certain civil liabilities under the Securities Act of 1933,
or contribute to payments required to be made in respect thereof.

     There can be no assurance that a secondary market for the Senior
Certificates will develop or, if it does develop, that it will continue.  The
primary source of information available to investors concerning the Senior
Certificates will be the monthly statements discussed in the Prospectus under
"Description of the Certificates - Reports to Certificateholders, " which will
include information as to the outstanding principal balance of the Senior
Certificates and the status of the applicable form of credit enhancement.  There
can be no assurance that any additional information regarding the Senior
Certificates will be available through any other source.  In addition, the
Company is not aware of any 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.
<PAGE>
 
                                      -68-

                                 LEGAL OPINIONS

     Certain legal matters relating to the Certificates will be passed upon for
the Company by Freshman, Marantz, Orlanski, Cooper & Klein and O'Melveny & Myers
LLP, and for the Underwriter by ______________________________________________.


                                    RATINGS

     It is a condition to the issuance of the Senior Certificates that they be
rated not lower than "___" by ______________________________________
("__________________") and "___" by ________________________ ("________").

     The ratings of _______ on mortgage pass-through certificates address the
likelihood of the receipt by Certificateholders of all distributions on the
underlying mortgage loans to which they are entitled. _______ ratings on pass-
through certificates do not represent any assessment such prepayments might
differ from that originally anticipated.  The rating does not address the
possibility that Certificateholders might suffer a lower than anticipated yield.

          ___________________________ ratings on mortgage pass-through
certificates also address the likelihood of the receipt by Certificateholders of
payments required under the Pooling and Servicing Agreement.
_________________________ ratings take into consideration the credit quality of
the mortgage pool, structural and legal aspects associated with the
Certificates, and the extent to which the payment stream in the mortgage pool is
adequate to make payments required under the Certificates.  ___________________
rating on the Certificates does not, however, constitute a statement regarding
frequency of prepayments on the mortgages.  See "Certain Yield and Prepayment
Considerations" herein.

     The Company has not requested a rating on the Senior Certificates by any
rating agency other than ___________________ and  ___________________________.
However, there can be no assurance as to whether any other rating agency will
rate the Senior Certificates, or, if it does, what rating would be assigned by
any such other rating agency.  A rating on the Certificates by another rating
agency, if assigned at all, may be lower than the ratings assigned to the Senior
Certificates by ___________ and ______________________.

     A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization.  Each security rating should be evaluated independently of any
other security rating.  The rating of the Fixed Strip Certificates or Variable
Strip Certificates does not address the possibility 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.
<PAGE>
 
                                      -69-


                                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 OF CONTENTS
                                                            PAGE
                                                            ----
                             PROSPECTUS SUPPLEMENT

Summary....................................................   S-
Risk Factors...............................................   S-
Description of the Mortgage Pool...........................   S-
Certain Yield and Prepayment Considerations................   S-
Pooling and Servicing Agreement............................   S-
Federal Income Tax Consequences............................   S-
Method of Distribution  S-Legal Opinions...................   S-
Ratings....................................................   S-
Legal Investment...........................................   S-

                                  PROSPECTUS
Summary of Prospectus......................................
Risk Factors...............................................
The Mortgage Pools.........................................
Servicing of Mortgage Loans................................
Description of the Certificates............................
Subordination..............................................
Description of Credit Enhancement..........................
Purchase Obligations.......................................
Primary Mortgage Insurance, Hazard.........................
    Insurance; Claims Thereunder...........................
The Company................................................
ICI Funding Corporation....................................
Imperial Credit Mortgage Holdings, Inc.....................
The Pooling Agreement......................................
Yield Considerations.......................................
Maturity and Prepayment....................................
    Considerations.........................................
Certain Legal Aspects of Mortgage..........................
    Loans..................................................
Federal Income Tax Consequences............................
State and Other Tax Consequences...........................
ERISA Considerations.......................................
Legal Investment Matters...................................
Use of Proceeds............................................
Methods of Distribution....................................
Legal Matters..............................................
Financial Information......................................
Rating.....................................................
Index of Principal Definitions.............................
==========================

                          ==========================

                                 ICIFC SECURED
                                 ASSETS CORP.


                               $_______________

                             MORTGAGE PASS-THROUGH
                                 CERTIFICATES

                                Series 19__-__

<TABLE>
<CAPTION>
 
 
<S>           <C>               <C>                    
$             ____%             Class A-1 Certificates
$             ____%             Class A-2 Certificates
$             ____%             Class A-3 Certificates
$             ____%             Class A-4 Certificates
$             ____%             Class A-5 Certificates
$             ____%             Class A-6 Certificates
$     Variable Rate             Class A-7 Certificates 
</TABLE>





                                _______________

                             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 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 2
                                                                       =========


                             SUBJECT TO COMPLETION
             PRELIMINARY PROSPECTUS SUPPLEMENT DATED JULY 11, 1997

PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED __________________, 19 ___)

                                 $_____________

                          ICIFC SECURED ASSETS CORP.
                                    COMPANY

              [NAME OF MASTER SERVICER] [ICI FUNDING CORPORATION]
                                MASTER SERVICER

              MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 19__-__
                 WEIGHTED AVERAGE ADJUSTABLE PASS-THROUGH RATE

     The Series 19__-__ Mortgage Pass-Through Certificates (the "Certificates")
will evidence the entire beneficial ownership interest in a trust fund (the
"Trust Fund") consisting primarily of a pool of conventional adjustable-rate
one- to four-family first lien mortgage loans (the "Mortgage Loans"), exclusive
of the Spread (as defined herein), to be deposited by ICIFC Secured Assets Corp.
(the "Company") into the Trust Fund for the benefit of the Certificateholders.
Certain characteristics of the Mortgage Loans are described herein under
"Description of the Mortgage Pool."

     A limited amount of losses on the Mortgage Loans will initially be covered
by an irrevocable letter of credit (the "Letter of Credit") to be issued by
___________________ (the "Letter of Credit Bank").  The maximum amount available
to be drawn under the Letter of Credit will initially be equal to approximately
_____% of the aggregate principal balance of the Mortgage Loans as
of____________________, 19__ (the "Cut-off Date").

     The interest rates on the Mortgage Loans (each, a "Mortgage Rate") will
change semi-annually based on the Index (as defined herein) and the respective
Note Margins described herein under "Description of the Mortgage Pool-General,"
subject to certain periodic and lifetime limitations as described more fully
herein.  Distributions on the Certificates will be made on the 25th day of each
month or, if such day is not a business day, then on the next succeeding
business day commencing on _______________, 19__ (each, a "Distribution Date").
As more fully described herein under "Description of the Certificates-
Distributions," interest distributions on the Certificates will be based on the
principal balance of the Mortgage Loans and the then applicable Weighted Average
Adjustable Pass-Through Rate, which will equal the weighted average of the Net
Mortgage Rates on the Mortgage Loans for the month preceding such Distribution
Date, as described more fully herein.  The "Net Mortgage Rate" for each Mortgage
Loan is generally equal the Mortgage Rate thereon from time to time, net of the
per annum rates applicable to the calculation of the related
<PAGE>
 
servicing fee and Spread.  The initial Weighted Average Adjustable Pass-Through
Rate for the Certificates will be ________% per annum.  The Weighted Average
Adjustable Pass-Through Rate on the Certificates may increase or decrease from
month to month.  Distributions in respect of principal of the Certificates will
be made as described herein under "Description of the Certificates-
Distributions."

     Certain Mortgage Loans provide that, at the option of the related
Mortgagors, the adjustable rate on such Mortgage Loans may be converted to a
fixed rate (the "Convertible Mortgage Loans"), provided that certain conditions
have been satisfied.  Upon notification from a Mortgagor of such Mortgagor's
intent to convert from an adjustable rate to a fixed rate and prior to the
conversion of any such Mortgage Loan (a "Converting Mortgage Loan"), the Master
Servicer [or the related Subservicer] will be obligated to purchase the
Converting Mortgage Loan at a net price of par plus accrued interest thereon
(the "Conversion Price"). [In the event of a failure by a Subservicer to
purchase a Converting Mortgage Loan, the Master Servicer shall use its best
efforts to purchase any Converted Mortgage Loan (as defined herein) from the
Mortgage Pool at the Conversion Price during the one month period following the
date of conversion to a Converted Mortgage Loan.] In the event that neither the
Master Servicer [nor the related Subservicer] purchases a Converting or
Converted Mortgage Loan, the Mortgage Pool will thereafter include both fixed
rate and adjustable rate Mortgage Loans.  See "Certain Yield and Prepayment
Considerations" herein.  Except as set forth herein, the Master Servicer's only
obligations with respect to the Certificates are its contractual obligations as
Master Servicer under the terms of the Pooling and Servicing Agreement (as
defined herein).

     As described herein, the Trust Fund will be treated as a grantor trust for
federal income tax purposes.  See "Federal Income Tax Consequences."

     The Prospectus contains in "Index of Principal Definitions" at the end of
the Prospectus.

     SEE "RISK FACTORS" BEGINNING ON PAGE S-__ HEREIN AND ON PAGE 11 OF THE
PROSPECTUS FOR A DISCUSSION OF SIGNIFICANT MATTERS AFFECTING AN INVESTMENT IN
THE CERTIFICATES.

     The yield to maturity on the Certificates will depend on the rate of
payment of principal (including as a result of prepayments, defaults,
liquidations and purchases of Converting Mortgage Loans and Converted Mortgage
Loans) on the Mortgage Loans.  The Mortgage Loans may be prepaid in full or in
part at any time without penalty.  The yield to investors on the Certificates
will be adversely affected by any shortfalls in interest collected on the
Mortgage Loans due to prepayments, liquidations or otherwise. See "Certain Yield
and Prepayment Considerations" herein and "Yield Considerations" in the
Prospectus.

     PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF PAYMENTS ON
THE CERTIFICATES.  THE CERTIFICATES DO NOT REPRESENT AN 

                                       2
<PAGE>
 
INTEREST IN OR OBLIGATION OF THE COMPANY, THE MASTER SERVICER OR ANY OF THEIR
AFFILIATES. NEITHER THE CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS ARE
INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE
COMPANY, THE MASTER SERVICER OFFERED OR ANY OF THEIR AFFILIATES.

     THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

     THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING.  ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

     The Certificates will be purchased from the Company by the Underwriter and
will be offered by the Underwriter from time to time to the public in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale.  The proceeds to the Company from the sale of the Certificates will be
equal to __________% of the initial aggregate principal balance of the
Certificates, plus accrued interest thereon from ___________ 1, 19__ (the "Cut-
off Date"), net of any expenses payable by the Company.

     The Certificates are offered by the Underwriter subject to prior sale,
when, as and if delivered to and accepted by the Underwriter and subject to
certain other conditions.  The Underwriter reserves the right to withdraw,
cancel or modify such offer and to reject any order in whole or in part.  It is
expected that delivery of the Certificates will be made on or about 19- at the
office of _________________________________, _____________,
_____________________ against payment therefor in immediately available funds.


                             [Name of Underwriter]
                        [Date of Prospectus Supplement]

                                       3
<PAGE>
 
     THE CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE A
SEPARATE SERIES OF CERTIFICATES BEING OFFERED BY THE COMPANY PURSUANT TO ITS
PROSPECTUS DATED ___________, 19__, OF WHICH THIS PROSPECTUS SUPPLEMENT IS A
PART AND WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT.  THE PROSPECTUS CONTAINS
IMPORTANT INFORMATION REGARDING THIS OFFERING WHICH IS NOT CONTAINED HEREIN, AND
PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS AND THIS PROSPECTUS
SUPPLEMENT IN FULL.  SALES OF THE CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE
PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.

UNTIL __________________, 19__, ALL DEALERS EFFECTING TRANSACTIONS IN THE
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO WHICH IT RELATES.  THIS
DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

                                       4
<PAGE>
 
                                    SUMMARY

     The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus.
Capitalized terms used herein and not otherwise defined herein have the meanings
assigned in the Prospectus.  An "Index of Principal Definitions" indicating
where certain capitalized terms used herein and in the Prospectus are defined
appears at the end of the Prospectus.

<TABLE> 
<CAPTION> 
<S>                           <C> 
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.
</TABLE> 

                                       5
<PAGE>
 
<TABLE> 
<CAPTION> 
<S>                           <C> 
The Mortgage Pool..........   The Mortgage Pool will consist of a pool of adjustable rate, 
                              fully-amortizing mortgage loans (the "Mortgage Loans"),
                              exclusive of the Spread (as defined herein).  The aggregate 
                              principal balance of the Mortgage Loans as of the Cut-off Date 
                              will be approximately $___________________.

                              The Mortgage Loans are secured by first liens on one-to four-               
                              family residential real properties (each, a "Mortgaged                    
                              Property").  The Mortgage Loans have individual principal                 
                              balances at origination of at least $_____________ but not                
                              more than $__________ with an average principal balance at                
                              origination of approximately $___________.  The Mortgage                  
                              Loans have terms to maturity of _ years from the date of                  
                              origination and a weighted average remaining term to stated               
                              maturity of approximately __ years and __ months as of the                
                              Cut-off Date.  The Mortgage Rate on each Mortgage Loan will               
                              adjust semi-annually on its Adjustment Date (as defined                   
                              herein), with corresponding adjustments in the amount of                  
                              monthly payments, to equal the sum (rounded as described                  
                              herein) of the Index described below and a fixed percentage set           
                              forth in the related Mortgage Note (the "Note Margin").                   
                              However, (i) on any Adjustment Date such Mortgage Rate may                
                              not increase or decrease by more than 1% (the "Periodic Rate              
                              Cap"), (ii) over the life of such Mortgage Loan, such Mortgage            
                              Rate may not exceed the related maximum Mortgage Rate                     
                              (such maximum Mortgage Rate is equal to the Mortgage Rate                 
                              at origination plus a lifetime rate cap (the "Lifetime Rate               
                              Cap")), which maximum Mortgage Rates will range from                      
                              _____% to _____% and (iii) with respect to approximately                  
                              _______% of the Mortgage Loans, by aggregate principal                    
                              balances of the Cut-off Date, over the life of such Mortgage              
                              Loan, such Mortgage Rate may not be lower than the minimum                
                              Mortgage Rate.  The difference between the Mortgage Rate on               
                              each Mortgage Loan at origination and the minimum Mortgage                
                              Rate on such Mortgage Loan will equal the lifetime rate floor             
                              (the "Lifetime Rate Floor").  The minimum Mortgage Rates                  
                              will range from _______% to _______% per annum.                            

                              Accordingly, changes in the Weighted Average Adjustable                  
                              Pass-Through Rate will not necessarily correspond to changes             
                              in the Index or other prevailing interest rates.  Additionally, the      
                              initial Mortgage Rates in effect on the Mortgage Loans will              
                              likely be lower than the sum of the Index and related Note                
</TABLE> 

                                       6
<PAGE>
 
<TABLE> 
<CAPTION> 
<S>                           <C> 
                              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 Converted Mortgage Loan, the                      
                              Mortgage Pool will thereafter include both fixed-rate and                   
                              adjustable rate Mortgage Loans.  See "Certain Yield and                     
                              Prepayment Considerations" herein.                                           
</TABLE> 

                                       7
<PAGE>
 
<TABLE> 
<CAPTION> 
<S>                           <C> 
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.                                                            


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.
</TABLE> 

                                       8
<PAGE>
 
<TABLE> 
<CAPTION> 
<S>                           <C> 
Advances...................   The Master Servicer is required to make advances
                              ("Advances") to holders of the Certificates in respect of 
                              delinquent payments of principal and interest on the Mortgage 
                              Loans, subject to the limitations described herein.  See       
                              "Description of the Certificates-Advances" herein and in the   
                              Prospectus.                                                     

Credit
 Enhancement...............   Neither the Certificates nor the Mortgage Loans are insured or 
                              guaranteed by  any governmental agency or instrumentality or 
                              by the Company, the Master Servicer or any affiliate thereof.          
                              However, a limited amount of losses on the Mortgage Loans              
                              will be covered initially by an irrevocable letter of credit (the      
                              "Letter of Credit") to be issued by __________________ (the            
                              "Letter of Credit Bank") in favor of the Trustee for the benefit       
                              of the holders of the Certificates.  The maximum amount                
                              available under the Letter of Credit to cover losses with respect      
                              to the Mortgage Loans will initially equal $___________ (the           
                              initial "Available Amount") which is equal to approximately            
                              ______% of the aggregate principal balance of the Mortgage             
                              Loans as of the Cut-off Date.  The Available Amount is subject         
                              to periodic reduction as described herein.  See "Description of        
                              the Certificates-Distributions."                                        

                              The Letter of Credit will cover losses on the Mortgage Loans             
                              that constitute Defaulted Mortgage Losses, Special Hazard                
                              Losses, Fraud Losses and Bankruptcy Losses (each as defined              
                              in the Prospectus), to the extent described herein.  Amounts             
                              that may be drawn under the Letter of Credit to cover Special            
                              Hazard Losses, Fraud Losses and Bankruptcy Losses are                    
                              initially limited to $_______________, $_______________ and              
                              $_______________, respectively.  All of the foregoing                    
                              amounts are subject to periodic reduction as described                   
                              herein.                                                                  
                              Any draws under the Letter of Credit, including draws for                
                              Special Hazard Losses, Fraud Losses and Bankruptcy Losses,               
                              will                                                                     
                              reduce the Available Amount.  The Letter of Credit will                  
                              expire on _______________, 19__, unless earlier terminated               
                              or extended in accordance with its terms or replaced in a                
                              manner as herein described.  See "Description of the Credit              
                              Enhancement-Letter of Credit."                                            

                              In the event losses on Mortgage Loans occur which are not 
                              covered by the Letter of Credit or any replacement credit 
</TABLE> 

                                       9
<PAGE>
 
<TABLE> 
<CAPTION> 
<S>                           <C> 

                              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 a time when reinvestment at comparable yields may             
                              not bepossible.                                                             

                              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 
</TABLE> 

                                       10
<PAGE>
 
<TABLE> 
<CAPTION> 
<S>                           <C> 
                              of the Mortgage Loans limiting changes in the Mortgage Rates 
                              and the purchase price for such Certificates.  The Weighted          
                              Average Adjustable Pass-Through Rate will be reduced to the          
                              extent that prepayments, liquidations and purchases occur at a       
                              faster rate for Mortgage Loans having higher Net Mortgage            
                              Rates than for Mortgage Loans having lower Net Mortgage              
                              Rates.  The yield to investors on the Certificates will be           
                              adversely affected by any allocation thereto of prepayment           
                              interest shortfalls on the Mortgage Loans, which are expected        
                              to result from the distribution of interest only to the date of      
                              prepayment (rather than a full month's interest) in connection       
                              with prepayments in full, and the lack of any distribution of        
                              interest on the amount of any partial prepayments.  See              
                              "Certain Yield and Prepayment Considerations" herein, and            
                              "Yield Considerations" in the Prospectus.                             

Federal Income Tax
 Consequences..............   No election will be made to treat the Trust Fund as a real estate 
                              mortgage investment conduit for federal income tax purposes.        
                              ________________________, counsel to the Depositor, will            
                              deliver its opinion generally to the effect that, assuming          
                              compliance with all provisions of the Pooling and Servicing         
                              Agreement, for federal income tax purposes the Trust Fund           
                              will be classified as a grantor trust under the Internal Revenue    
                              Code of 1986 (the "Code"), and not as a partnership or an           
                              association taxable as a corporation.                                

                              For further information regarding the federal income tax
                              consequences of investing in the Certificates see "Federal 
                              Income Tax Consequences" herein.

Rating.....................   It is a condition of the issuance of the Certificates that they be 
                              rated at least "____" by _____________________. 
                              ______________ RATING OF THE CERTIFICATES WILL                         
                              NOT REPRESENT ANY ASSESSMENT OF THE MASTER                             
                              SERVICER'S [NOR THE RELATED SUBSERVICER'S]                             
                              ABILITY TO PURCHASE CONVERTING MORTGAGE                                
                              LOANS, OR THE REMARKETING AGENT'S ABILITY TO                           
                              ARRANGE FOR THE PURCHASE OF CONVERTED                                  
                              MORTGAGE LOANS.  In the event that neither the Master                  
                              Servicer [nor the related Subservicer] purchases a Converting          
                              or Converted Mortgage Loan, investors in the Certificates              
                              might suffer a lower than anticipated yield.  A security rating         

</TABLE> 

                                       11
<PAGE>
 
<TABLE> 
<CAPTION> 
<S>                           <C> 
                              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.                              

Listing Application........   The Company does not currently intend to make an application 
                              to list the Offered Certificates on a national securities exchange 
                              or to quote the Offered Securities in the automated quotation 
                              system of a registered securities association.

Risk Factors...............   There are material risks associated with an investment in the 
                              Certificates.  See "Risk Factors" beginning on page ___ herein     
                              and on page 11 of the Prospectus for a discussion of significant   
                              matters affecting investments in the Certificates.                  

</TABLE> 

                                       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.  Possible Risk Factors based on present
disclosure may include the following:

     Delinquencies and Potential Delinquencies.  Approximately ___% of the
Mortgage Loans (by aggregate principal balance as of the Cut-Off Date) were
thirty days or more but less than sixty days delinquent in their Monthly
Payments (such Mortgage Loans, the "Delinquent Mortgage Loans") as of the Cut-
Off Date.  Prospective investors in the Certificates should be aware, however,
that only approximately ____% of the Mortgage Loans (by aggregate principal
balance as of the Cut-Off Date) had a first Monthly Payment due on or before
________, 1996, and therefore, the remaining Mortgage Loans could not have been
Delinquent Mortgage Loans as of the Cut-Off Date.

     Approximately ____% of the Mortgage Loans (by aggregate outstanding
principal balance as of the Cut-Off Date) are secured by Mortgaged Properties
located in the State of California.  Property values of residential real estate
in California have declined in recent years.  If the California residential real
estate market continues to experience an overall decline in property values
after the dates of origination of the Mortgage Loans, the rates of delinquency,
foreclosure, bankruptcy and loss on the Mortgage Loans may increase
substantially, as compared to such rates in a stable or improving real estate
market.

     Approximately ___% of the Mortgage Loans are secured by Mortgaged
Properties located in Orange, California.  On December 6, 1994, Orange County
filed for protection under Chapter 9 of the United States Bankruptcy Code.  If
public services are curtailed as a result of Orange County's financial
difficulties, property values in the related market area may be adversely
affected.

     Underwriting.  Approximately ____% of the Mortgage Loans (measured by Cut-
Off Date Balance) were underwritten in accordance with underwriting standards
that are intended to provide one- to-four family mortgage loans to borrowers
whose creditworthiness and credit histories do not satisfy the requirements of
typical "A" credit borrowers.  The Mortgagors with respect to such Mortgage
Loans may have records of major derogatory credit such as credit write-offs,
outstanding judgments and prior bankruptcies.  Such Mortgage Loans generally
bear higher rates of interest than mortgage loans made to "A" credit borrowers.
Such Mortgage Loans are likely to experience rates of delinquency, foreclosure
and loss that are higher, and may be substantially higher, than mortgage loans
made to "A" credit borrowers.]

                                       13
<PAGE>
 
                       DESCRIPTION OF THE MORTGAGE POOL
GENERAL

     The Mortgage Pool will consist of Mortgage Loans with an aggregate
principal balance outstanding as of the Cut-off Date of approximately
$____________.  The Mortgage Pool will consist of conventional, adjustable-rate,
fully-amortizing Mortgage Loans with terms to maturity of not more than 30 years
from the due date of the first monthly payment.  On or before the Delivery Date,
the Company will acquire the Mortgage Loans to be included in Mortgage Pool from
[ICI Funding] (in such capacity, the "Seller").  The Seller will make certain
representations and warranties with respect to the Mortgage Loans and, as more
particularly described in the Prospectus, will have certain repurchase or
substitution obligations in connection with a breach of any such representation
and warranty, as well as in connection with an omission or defect in respect of
certain constituent documents required to be delivered with respect to the
Mortgage Loans, in any event if such breach, omission or defect cannot be cured
and it materially and adversely affects the interests of Certificateholders.
Neither the Company nor any other entity or person will have any responsibility
to purchase or replace any Mortgage Loan if the Seller is obligated but fails to
do so.  See "Description of the Mortgage Pool-Representations by Sellers" and
"Description of the Certificates-Assignment of Trust Fund Assets" in the
Prospectus and "-The Seller" below.  The Mortgage Loans will have been
originated or acquired by the Seller in accordance with the underwriting
criteria described herein.  See "-Underwriting" below.  All percentages of the
Mortgage Loans described herein are approximate percentages (except as otherwise
indicated) by aggregate principal balance as of the Cut-off Date.

     The Mortgage Rate on each Mortgage Loan will adjust semi-annually on a date
specified in the related Mortgage Note (the "Adjustment Date").  For
approximately ______% of the Mortgage Loans, by aggregate principal balance as
of the Cut-off Date, the first Adjustment Date occurred prior to the Cut-off
Date.

     On each Adjustment Date, the Mortgage Rate on a Mortgage Loan will be
adjusted to equal the sum (rounded to either the nearest or next highest
multiple of _____%) of (a) a rate per annum equal to the monthly weighted
average cost of funds for members of the Federal Home Loan Bank of San Francisco
(the "FHLB of San Francisco") as published by the FHLB of San Francisco (the
"Cost of Funds Index" or "Index") and as most recently available as of the day
45 days prior to such Adjustment Date or, in the event that such Index is no
longer available, an index selected by the Master Servicer and reasonably
acceptable to the Trustee that is based on comparable information, and (b) the
related Note Margin, subject to the following limitations.  The Mortgage Rate on
the Mortgage Loan on any Adjustment Date may not increase or decrease by more
than the Periodic Rate Cap applicable to such Mortgage Loan and, over the life
of such Mortgage Loan, generally may not exceed the Mortgage Rate at origination
plus the Lifetime Rate Cap, or be less than the Mortgage Rate at origination
minus any Lifetime Rate Floor, applicable to such Mortgage Loan.  No Mortgage
Loan provides for payment caps on any Adjustment Date which would result in
deferred interest or negative amortization.  Effective with the first payment
due date on a Mortgage Loan after an Adjustment Date therefor, the monthly
principal and interest payment will be adjusted to an amount 

                                       14
<PAGE>
 
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.

                                       15
<PAGE>
 
                              COST OF FUNDS INDEX

Month            1991       1992       1993        1994       1995       1996
=====            ====       ====       ====        ====       ====       ====

January...
February..
March.....
April.....
May.......
June......
JulyJuly..
August....
September.
October...
November..
December..

     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 the 

                                       16
<PAGE>
 
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 ").

                                       17
<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 $___________.

                                       18
<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.

     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.

                                       19
<PAGE>
 
     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>

                                       20
<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.

     See also "The Mortgage Pools" and "Certain Legal Aspects of Mortgage Loans"
in the Prospectus.

                                       21
<PAGE>
 
                        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.

     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 

                                       22
<PAGE>
 
covered by the Letter of Credit, including any Prepayment Interest Shortfalls
(as defined below) resulting from full and partial prepayments, as well as
certain losses and delinquencies on the Mortgage Loans as described below. The
Weighted Average Adjustable Pass-Through Rate for any Distribution Date will
equal the average of the Net Mortgage Rates on the Mortgage Loans (weighted by
the principal balances of such Mortgage Loans as of the Due Date occurring in
the preceding month). Subject to the following limitations, for each period
beginning on the related Adjustment Date therefor, the Net Mortgage Rate on a
Mortgage Loan will equal the sum of the Cost of Funds Index (rounded to the
nearest multiple of ________%) and the Net Note Margin. The Net Note Margin for
each Mortgage Loan will be _______%. The Net Mortgage Rate on any Mortgage Loan
on any Adjustment Date may not increase or decrease by more than the Periodic
Rate Cap, and the Net Mortgage Rate on any Mortgage Loan will not exceed the
maximum Net Mortgage Rate (the "Maximum Net Mortgage Rate") applicable to such
Mortgage Loan as specified in the Pooling and Servicing Agreement. The
difference between the Net Mortgage Rate as of the Cut-off Date and the Maximum
Net Mortgage Rate will not exceed, and may be less than, the Lifetime Rate Cap.
With respect to each Mortgage Loan, the Net Mortgage Rate is the rate per annum
equal to the Mortgage Rate for such Mortgage Loan, net of the Servicing Fee Rate
and the per annum rate at which the Spread accrues. See "Description of the
Mortgage Pool" and "Pooling and Servicing Agreement-Servicing and Other
Compensation and Payment of Expenses; Spread" herein.

     Holders of the Certificates will be entitled to receive on each
Distribution Date, to the extent of the Available Distribution Amount for such
Distribution Date after distributions of interest as set forth above, an amount
equal to the "Principal Distribution Amount" for such Distribution Date, which
will equal the sum of: (a) the principal portion of any Advances for such
Distribution Date; (b) any amount required to be paid by the Master Servicer due
to the operation of a deductible clause in any blanket policy maintained by it
to cover hazard losses on the Mortgage Loans as described in the Prospectus
under "Primary Mortgage Insurance, Hazard Insurance; Claims Thereunder"; (c) all
payments in respect of the Mortgage Loans on account of principal (including,
without limitation, principal prepayments, the principal portion of any
Liquidation Proceeds and Insurance Proceeds, the principal portion of proceeds
from repurchased Mortgage Loans and the principal portion of proceeds from the
purchase of Converting Mortgage Loans and the sale of Converted Mortgage Loans)
on deposit in the Certificate Account on the Determination Date immediately
preceding such Distribution Date, exclusive or net of (i) Liquidation Proceeds,
Insurance Proceeds and principal prepayments received during the month in which
such Distribution Date occurs (unless such amounts are deemed to have been
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 

                                       23
<PAGE>
 
principal which have been the subject of a previous Advance or Advances and
which are eligible for withdrawal in reimbursement to the Master Servicer.

     The Prepayment Interest Shortfall for any Distribution Date is equal to the
aggregate shortfall, if any, in collections of interest (adjusted to the related
Net Mortgage Rates) resulting from mortgagor prepayments on the Mortgage Loans
during the preceding calendar month.  Such shortfalls will result because
interest on prepayments in full is collected only to the date of prepayment, and
no interest is collected on prepayments in part, as such prepayments are applied
to reduce the outstanding principal balance of the related Mortgage Loan as of
the Due Date in the month of prepayment.  The Prepayment Interest Shortfall and
other interest shortfalls (such as those resulting from the application of the
Relief Act (as defined herein)) not covered by the Letter of Credit on any
Distribution Date will be allocated to the holders of the Certificates pro rata
based on distributions of interest to be made on such Distribution Date, before
taking into account any such reduction. Prepayment Interest Shortfalls and other
interest shortfalls will not be offset by a reduction of the servicing
compensation of the Master Servicer or otherwise.

     Distributions for any Distribution Date will also be reduced if net
Liquidation Proceeds or net Insurance Proceeds (together with any net amounts
payable as described below under "Description of Credit Enhancement") received
on a defaulted Mortgage Loan liquidated during the month preceding the month in
which such Distribution Date occurs are less than the outstanding principal
balance of such Mortgage Loan, plus interest thereon at the related Net Mortgage
Rate.  If an Advance by the Master Servicer was previously made in respect
thereof, late payments of principal and interest, if any, remitted to the Master
Servicer for deposit into the Certificate Account will not be passed through to
Certificateholders but rather will be subject  to withdrawal by the Master
Servicer from the Certificate Account in reimbursement to itself for such
Advance.  To the extent that an Advance is not made, the distributions for such
Distribution Date will be reduced accordingly. Reimbursement of the Master
Servicer or the Company for any other advances or expenses reimbursable to
either as described in the Prospectus, out of amounts otherwise distributable to
the Certificateholders, will also reduce the distributions for the related
Distribution Date.  Distributions for any Distribution Date will be reduced to
the extent that losses on any Mortgage Loans in the Mortgage Pool are not
covered by the Letter of Credit or any substitute form of credit enhancement.

     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 

                                       24
<PAGE>
 
described in the Prospectus) for future distribution or withdrawal) with respect
to any payments of principal and interest (net of the related Servicing Fees and
the Spread) which were due on the Mortgage Loans on the immediately preceding
Due Date and delinquent on the business day next preceding the related
Determination Date.

     Such Advances are required to be made only to the extent they are deemed by
the Master Servicer to be recoverable from related late collections, Insurance
Proceeds, Liquidation Proceeds or draws on the Letter of Credit.  The purpose of
making such Advances is to maintain a regular cash flow to the
Certificateholders, rather than to guarantee or insure against losses.  The
Master Servicer will not be required to make any Advances with respect to
reductions in the amount of the monthly payments on the Mortgage Loans due to
bankruptcy proceedings or the application of the Relief Act or similar
legislation or regulations.

     All Advances will be reimbursable to the Master Servicer on a first
priority basis from late collections, Insurance Proceeds, Liquidation Proceeds
and draws on the Letter of Credit on or in respect of the Mortgage Loan as to
which such unreimbursed Advance was made.  In addition, any Advances previously
made which are deemed by the Master Servicer to be nonrecoverable from related
late collections, Insurance Proceeds, Liquidation Proceeds or draws on the
Letter of Credit may be reimbursed to the Master Servicer out of any funds in
the Custodial Account or Certificate Account prior to distributions on the
Certificates.


                  CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS

     The effective yield to the holders of Certificates will be lower than the
yield otherwise produced by the applicable Weighted Average Adjustable Pass-
Through Rate and purchase price because monthly distributions will not be made
to such holders until the 25th day (or if such day is not a business day, then
on the next succeeding business day) of the month following the month in which
interest accrues on the Mortgage Loans (without any 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.

                                       25
<PAGE>
 
     Other factors affecting prepayment of mortgage loans include changes in
mortgagors' housing needs, job transfers, mortgage market interest rates,
unemployment, mortgagors' net equity in the mortgaged properties, changes in the
value of the mortgaged properties and servicing decisions.  If prevailing
mortgage rates fell significantly below the Mortgage Rates on the Mortgage
Loans, the rate of prepayment (and refinancing) would be expected to increase.
Conversely, if prevailing mortgage rates rose significantly above the Mortgage
Rates on the Mortgage Loans, the rate of prepayment on the Mortgage Loans would
be expected to decrease.  There can be no certainty as to the rate of
prepayments on, or conversions of, the Mortgage Loans during any period or over
the life of the Certificates.  However, in the event that substantial numbers of
Mortgagors exercise their conversion rights, and [the related Subservicers and]
the Master Servicer purchase the Converting and Converted Mortgage Loans, the
Mortgage Pool will experience substantial prepayment of principal.

     The Mortgage Loans may be prepaid by the Mortgagors at any time without
payment of any prepayment fee or penalty.  In addition, certain of the Mortgage
Loans provide that the Mortgagors may, during a specified period of time,
convert the adjustable rate of such Mortgage Loans to a fixed rate.  The Company
is not aware of any publicly available statistics that set forth principal
prepayment or conversion experience or prepayment or conversion forecasts of
comparable adjustable rate mortgage loans over an extended period of time, and
its experience with respect to comparable adjustable rate mortgages is
insufficient to draw any conclusions with respect to the expected prepayment or
conversion rates on the Mortgage Loans included in the Mortgage Pool.  The rate
of payments (including prepayments) on pools of mortgage loans is influenced by
a variety of economic, geographic and social.  As is the case with conventional
fixed rate mortgage loans, adjustable rate mortgage loans may be subject to a
greater rate of principal prepayments or purchases due to their conversion to
fixed interest rate loans in a low interest rate 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.

                                       26
<PAGE>
 
     The existence of Periodic Rate Caps, Lifetime Rate Caps and any Lifetime
Rate Floors also will affect the likelihood of prepayments resulting from
refinancing and the exercise of the conversion option.  Although the Mortgage
Rates on the Mortgage Loans will adjust periodically, such increases and
decreases will be limited by the Periodic Rate Caps, Lifetime Rate Caps and any
Lifetime Rate Floors on each Mortgage Loan and will be based on the Index (which
may not rise and fall consistently with mortgage interest rates) plus the
related Note Margins (which may be different from the prevailing margins on
other mortgage loans).  As a result, the Mortgage Rates on the Mortgage Loans at
any time may not equal the prevailing rates for other adjustable rate loans and
accordingly, the rate of prepayment may be lower or higher than would otherwise
be anticipated.

     With respect to those Mortgage Loans having Lifetime Rate Floors, if
prevailing mortgage rates were to fall below the minimum Mortgage Rates, the
rate of prepayment on such Mortgage Loans may be expected to increase and such
Mortgage Loans may prepay at a rate higher than would otherwise be anticipated
for adjustable rate mortgage loans.

     All of the Mortgage Loans are assumable under certain circumstances if, in
the sole judgment of the Master Servicer, the prospective purchaser of a
Mortgaged Property is creditworthy and the security for such Mortgage Loan is
not impaired by the assumption.  The extent to which the Mortgage Loans are
assumed by purchasers of the Mortgaged Properties rather than prepaid by the
related mortgagors in connection with the sales of the Mortgaged Properties will
affect the weighted average life of the Certificates and may result in a
prepayment experience on the Mortgage Loans that differs from that on other
conventional mortgage loans.

     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 

                                       27
<PAGE>
 
that on level payment mortgage loans. Furthermore, the Mortgagor under each
Mortgage Loan was qualified on the basis of the Mortgage Rate in effect at
origination. The repayment of such Mortgage Loans will be dependent on the
ability of the Mortgagor to make larger monthly payments following adjustments
of the Mortgage Rate. The rate of default on Mortgage Loans which are equity
refinance or limited documentation mortgage loans may be higher than for other
types of Mortgage Loans.

     Prepayments, liquidations and purchases of the Mortgage Loans will result
in distributions to Certificateholders of principal amounts which would
otherwise be distributed over the remaining terms of the Mortgage Loans.
Furthermore, the rate of prepayments, defaults and liquidations on, or
conversions of, the Mortgage Loans will be affected by the general economic
condition of the region of the country where the related Mortgaged Properties
are located.  The risk of delinquencies and loss is greater and prepayments are
less likely in regions where a weak or deteriorating economy exists, as may be
evidenced by increasing unemployment or falling property values.  See "Maturity
and Prepayment Considerations" in the Prospectus.  Since the rates of payment of
principal on the Mortgage Loans will depend on future events and a variety of
factors (as described more fully herein and in the Prospectus under "Yield
Considerations" and "Maturity and Prepayment Considerations"), no assurance can
be given as to such rate or the rate of principal prepayments on the
Certificates.

     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 

                                       28
<PAGE>
 
will be adjusted pursuant to the Index, such rate is subject to the Periodic
Rate Cap and is also limited by the Lifetime Rate Cap and any Lifetime Rate
Floor applicable to such Mortgage Loan. With respect to certain Mortgage Loans
the difference between the Net Mortgage Rate as of the Cut-off Date and the
maximum Net Mortgage Rate will be less than the Lifetime Rate Cap. Therefore, if
the Index changes substantially between Adjustment Dates, the Net Mortgage Rate
may be lower than if the Net Mortgage Rate could be adjusted based on the Index
without such caps.

     A number of factors affect the performance of the Index and may cause the
Index to move in a manner different from other indices.  To the extent that the
Index may reflect changes in the general level of interest rates less quickly
than other indices, in a period of rising interest rates, increases in the yield
to Certificateholders due to such rising interest rates may occur later than
that which would be produced by other indices, and in a period of declining
rates, the Index may remain higher than other market interest rates which may
result in a higher level of prepayments of Mortgage Loans which adjust in
accordance with the Index than mortgage loans which adjust in accordance with
other indices.

     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

                                       29
<PAGE>
 
     [Name of Master Servicer] [ICI Funding Corporation ("ICI Funding")], will
act as master servicer (in such capacity, the "Master Servicer") for the
Certificates pursuant to the Pooling and Servicing Agreement.

     [Further disclosure as appropriate.  See Version 1 for disclosure for ICI
Funding.]

SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES; SPREAD

     The Servicing Fees for each Mortgage Loan are payable out of the interest
payments on such Mortgage Loan.  The Servicing Fees in respect of each Mortgage
Loan will accrue at _____% per annum (the "Servicing Fee Rate") on the
outstanding principal balance of each Mortgage Loan.  The Master Servicer is
obligated to pay certain ongoing expenses associated with the Trust Fund and
incurred by the Master Servicer in connection with its responsibilities under
the Pooling and Servicing Agreement, including the expenses of the Letter of
Credit and any substitute credit support and the fees of the Trustee.  See
"Servicing of Mortgage Loans Servicing and Other Compensation and Payment of
Expenses; 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.

                                       30
<PAGE>
 
     Upon presentation and surrender of the Certificates in connection with the
termination of the Trust Fund or a purchase of Certificates under the
circumstances described above, the holders of the Certificates will receive, in
proportion to their respective Percentage Interests, an amount equal to the sum
of the principal balances of the Mortgage Loans plus one month's accrued
interest thereon at the then applicable Weighted Average Adjustable Pass-Through
Rate.


                       DESCRIPTION OF CREDIT ENHANCEMENT

GENERAL

     All of the Mortgage Loans are the subject of credit support coverage
provided by the Letter of Credit.  In addition, each Mortgage Loan is covered by
a Primary Hazard Insurance Policy as described under "Primary Mortgage
Insurance, Hazard Insurance; 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.

                                       31
<PAGE>
 
     Notwithstanding the foregoing, the maximum amount available under the
Letter of Credit in connection with Fraud Losses (the "Fraud Loss Amount") shall
initially be equal to $___________. As of any date of determination after the
Cut-off Date the Fraud Loss Amount shall equal (X) prior to the first
anniversary of the Cut-off Date an amount equal to ______% of the aggregate
principal balance of all of the Mortgage Loans as of the Cut-off Date minus the
aggregate amount of draws made under the Letter of Credit with respect to Fraud
Losses up to such date of determination, and (Y) from the first through fifth
anniversary of the Cut-off Date, an amount equal to (1) the lesser of (a) the
Fraud Loss Amount as of the most recent anniversary of the Cut-off Date and (b)
_____% of the aggregate principal balance of all of the Mortgage Loans as of the
most recent anniversary of the Cut-off Date minus (2) the aggregate amount of
draws made under the Letter of Credit with respect to Fraud Losses since the
most recent anniversary of the Cut-off Date up to such date of determination.
After the fifth anniversary of the Cut-off Date the Fraud Loss Amount shall be
zero and no draws shall be made under the Letter of Credit with respect to Fraud
Losses.

     The maximum amount available under the Letter of Credit in respect of
Special Hazard Losses (the "Special Hazard Amount") will equal $___________ less
the sum of (A) any amounts drawn under the Letter of Credit in respect of
Special Hazard Losses (to the extent that such amounts do not exceed the lesser
of the cost of repair or replacement of the related Mortgaged Properties) and
(B) the Adjustment Amount.  The Adjustment Amount on each anniversary of the
Cut-off Date will be equal to the amount, if any, by which the Special Hazard
Amount, without giving effect to the deduction of the Adjustment Amount for such
anniversary, exceeds the greater of (i) 1% (or, if greater than 1%, the highest
percentage of Mortgage Loans by principal balance in any California zip code
area) times the aggregate principal balance of all of the Mortgage Loans in the
Mortgage Pool on such anniversary and (ii) twice the principal balance of the
single Mortgage Loan in the Mortgage Pool having the largest principal balance.
As used in this Prospectus Supplement, "Special Hazard Losses" has the same
meaning set forth in the Prospectus except that Special Hazard Losses will not
include and the Letter of Credit will not cover losses occasioned by war, civil
insurrection, certain governmental actions and nuclear reaction.

     As of any date of determination prior to the first anniversary of the Cut-
off Date, the maximum amount available under the Letter of Credit in respect of
Bankruptcy Losses (the "Bankruptcy Amount") will equal $_____________ less the
sum of any amounts drawn under the Letter of Credit for such losses up to such
date of determination.  As of any day of determination on or after the first
anniversary of the Cut-off Date, the Bankruptcy Amount will equal the excess, if
any, of (1) the lesser of (a) the Bankruptcy Amount as of the business day next
preceding the most recent anniversary of the Cut-off Date (the "Relevant
Anniversary") and (b) an amount calculated pursuant to the terms of the Pooling
and Servicing Agreement, which amount as calculated will provide for a reduction
in the Bankruptcy Amount, provided that delinquency rates and losses on all of
the Mortgage Loans do not exceed certain levels as set forth in the Pooling and
Servicing Agreement, over (2) the aggregate amount of draws made under the
Letter of Credit since the Relevant Anniversary in connection with Bankruptcy
Losses.  The Bankruptcy Amount and the related automatic reductions described
above may be reduced or modified upon written confirmation from the Rating
Agency that such reduction or modification will not adversely affect the then
current rating 

                                       32
<PAGE>
 
assigned to the Certificates by such Rating Agency. Such a reduction or
modification may adversely affect the coverage provided by the Letter of Credit
with respect to Bankruptcy Losses.

     [Described manner in which payments will be made under the Letter of
Credit.] See "Description of Credit Enhancement-Letter of Credit" in the
Prospectus.  However, the Trustee shall not make such draws under the Letter of
Credit in connection with a 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 

                                       33
<PAGE>
 
month in which such purchase occurs. To the extent that the Master Servicer
subsequently experiences losses with respect to such purchased Mortgage Loans
which would have been covered by the Letter of Credit had such Mortgage Loans
remained in the Trust Fund, the Available Amount (and the Special Hazard Amount,
Fraud Loss Amount or Bankruptcy Amount, to the extent that such losses
constitute Special Hazard Losses, Fraud Losses or Bankruptcy Losses) will be
reduced by an amount equal to the entire amount of such losses.

     The Letter of Credit will expire on ________________, 19__ unless earlier
terminated or extended in accordance with its terms.  The Letter of Credit
contains provisions to the effect that on or before the first day of the sixth
month immediately preceding the expiration date a request may be made to extend
the expiration date.  It is within the Letter of Credit Bank's sole discretion
whether to agree to such an extension.  If, as of the date 30 days prior to the
expiration date, or the expiration date thereof as so extended, a replacement
Letter of Credit or alternate form of credit support has not been delivered to
the Trustee, then, pursuant to the terms of the Pooling and Servicing Agreement,
the entire remaining amount of the Letter of Credit will be drawn by the Trustee
prior to such expiration date.  In that event, the amount so paid will be held
by the Trustee in the form of a reserve fund held outside of the Trust Fund (but
pledged to the Trustee and held by it in trust for the benefit of the
Certificateholders), pending the substitution of any other form of credit
support therefor, and will be applied in the same manner as described herein
regarding draws under the Letter of Credit.

LETTER OF CREDIT BANK

     The Letter of Credit will be issued by the Letter of Credit Bank, which
will be the ____________________, a _____________________.  _____________
principal executive offices are located at ____________________.

     ___________________ is engaged in a broad range of banking and financial
services activities, including deposit-taking, lending and leasing, securities
brokerage services, investment management, investment banking, capital markets
activities and foreign exchange transactions.

     [Additional disclosure as appropriate with respect to matters material to
investors in the Certificates, including asset size and regulatory ratings.]

     The information set forth in the preceding paragraphs concerning the Letter
of Credit Bank has been provided by the Letter of Credit Bank as of the date
hereof.


                        FEDERAL INCOME TAX CONSEQUENCES

GENERAL

                                       34
<PAGE>
 
     The following general discussion of the anticipated material federal income
tax consequences of the purchase, ownership and disposition of Certificates, to
the extent it relates to matters of law or legal conclusions with respect
thereto, represents the opinion of counsel to the Company with respect to that
series on the material matters associated with such consequences, subject to any
qualifications set forth herein and in the Prospectus.  This discussion has been
prepared with the advice of O'Melveny & Myers LLP, special tax counsel to the
Company.  This discussion is directed solely to a holder of a Certificate as a
capital asset within the meaning of Section 1221 of the Internal Revenue Code of
1986 (the "Code") and does not purport to discuss all federal income tax
consequences that may be applicable to particular categories of investors, some
of which (such as banks, insurance companies and foreign investors) may be
subject to special rules.  Further, the authorities on which this discussion,
and the opinion referred to below, are based are subject to change or differing
interpretations, which could apply retroactively.  Prospective investors should
note that no rulings have been or will be sought from the Internal Revenue
Service (the "IRS") with respect to any of the federal income tax consequences
discussed below, and no assurance can be given the IRS will not take a contrary
position.  Taxpayers and preparers of tax returns should be aware that under
applicable Treasury regulations a provider of advice on specific issues of law
is not considered an income tax return preparer unless the advice (i) is given
with respect to events that have occurred at the time the advice is rendered and
is not given with respect to the consequences of contemplated actions, and (ii)
is directly relevant to the determination of an entry on a tax return.
Accordingly, taxpayers should consult their own tax advisors and tax return
preparers regarding the preparation of any item on a tax return, even where the
anticipated tax treatment has been discussed herein.  A holder of a Certificate
is advised to consult its own tax advisors concerning the federal, state, local
or other tax consequences to it of the purchase, ownership and disposition of a
Certificate.

GRANTOR TRUST

     CLASSIFICATION OF THE TRUST FUND

     Prior to the issuance of the Certificates, O'Melveny & Myers LLP, special
tax counsel to the Company, will have delivered its opinion to the effect that,
assuming compliance with all provisions of the Pooling and Servicing Agreement,
the Trust Fund will be classified as a grantor trust under subpart E, part I of
subchapter J of the Code and not as an association taxable as a corporation or
as a partnership.  Accordingly, a holder of a Certificate generally will be
treated as the owner of an undivided interest in the Mortgage Loans and other
assets held as part of the trust fund in which the Certificates evidence an
undivided interest.  The opinion referenced above will be filed with the
Commission either as an exhibit to the Registration Statement of which this
Prospectus Supplement is a part or in a Current Report on Form 8-K.

     CHARACTERIZATION OF THE INVESTMENT IN THE CERTIFICATES

     The Certificates will represent interests in (i) "loans secured by an
interest in real property " within the meaning of Section 7701 (a)(19)(C) of the
Code; (ii) "obligations (including any participation or certificate of
beneficial ownership therein) which . . . are principally secured by an 

                                       35
<PAGE>
 
interest in real property" within the meaning of Section 86OG(a)(3)(A) of the
Code; and (iii) "real estate assets" within the meaning of Section 856(c)(5)(A)
of the Code generally in the same proportion that the assets of the Trust Fund
would be so treated. In addition, interest on the Certificates will to the same
extent be considered "interest on obligations secured by mortgages on real
property or on interests in real property" within the meaning of Section
856(c)(3)(B) of the Code.

     TAXATION OF OWNERS OF THE CERTIFICATES

     A holder of a Certificate generally will be required to report on its
federal income tax returns its share of the entire income from the Mortgage
Loans (including amounts used to pay reasonable servicing fees and other
expenses) in accordance with the holder's normal method of accounting and will
be entitled to deduct its share of any such reasonable servicing fees and other
expenses.  Because of market discount or premium, the amount includible in
income on account of the Certificate may differ significantly from the amount
distributable thereon representing interest on the Mortgage Loans.  Under
Section 67 of the Code, an individual, estate or trust holding a Certificate
directly or through certain pass-through entities will be allowed a deduction
for such reasonable servicing fees and expenses only to the extent that the
aggregate of such holder's miscellaneous itemized deductions exceeds two percent
of such holder's adjusted gross income.  In addition, Section 68 of the Code
provides that the amount of itemized deductions otherwise allowable for an
individual whose adjusted gross income exceeds a specified amount will be
reduced by the lesser of (i) 3% of the excess of the individual's adjusted gross
income over such amount or (ii) 80% of the amount of itemized deductions
otherwise allowable for the taxable year.  The amount of additional taxable
income reportable by a holder of a Certificate that is subject to the
limitations of either Section 67 or Section 68 of the Code may be substantial.
Further, a holder of a Certificate (other than corporations) subject to the
alternative minimum tax may not deduct miscellaneous itemized deductions in
determining such holder's alternative minimum taxable income.

     Market Discount.  A holder of a Certificate may be subject to the market
discount rules of Sections 1276 through 1278 of the Code to the extent an
interest in the Mortgage Loans is considered to have been purchased at a "market
discount", that is, at a purchase price less than its adjusted issue price.  If
market discount is in excess of a de minimis amount (as described below), the
holder generally will be required to include in income in each month the amount
of such discount that has accrued through such month that has not previously
been included in income, but limited, in the case of the portion of such
discount that is allocable to any Mortgage Loan, to the payment of stated
redemption price on the Mortgage Loans that is received by (or, in the case of
an accrual basis holder of a Certificate, due to) the Trust Fund in that month.
A holder of a Certificate may elect to include market discount in income
currently as it accrues (under a constant yield method 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 

                                       36
<PAGE>
 
interest, discount (including de minimis market or original issue discount) and
premium in income as interest, based on a constant yield method. If such an
election were made with respect to the Mortgage Loans with market discount, such
holder would be deemed to have made an election to include currently market
discount in income with respect to all other debt instruments having market
discount that such holder acquires during the taxable year of the election or
thereafter, and possibly previously acquired instruments. Similarly, a holder
that made this election for a Certificate acquired at a premium would be deemed
to have made an election to amortize bond premium with respect to all debt
instruments having amortizable bond premium that such holder owns or acquires.
Each of these elections to accrue interest, discount and premium with respect to
a Certificate on a constant yield method or as interest is irrevocable.

     Section 1276(b)(3) of the Code authorized the Treasury Department to issue
regulations providing for the method for accruing market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury Department, certain
rules described in the Conference Committee Report (the "Committee Report")
accompanying the Tax Reform Act of 1986 will apply.  Under those rules, in each
accrual period market discount on the Mortgage Loans should accrue, at the
holder's option: (i) on the basis of a constant yield method, or (ii) in an
amount that bears the same ratio to the total remaining market discount as the
original issue discount accrued in the accrual period bears to the total
original issue discount remaining at the beginning of the accrual period.
Because the regulations referred to in this paragraph have not been issued, it
is not possible to predict what effect such regulations might have on the tax
treatment of the Mortgage Loans purchased at a discount in the secondary market.

     Market discount with respect to the Mortgage Loans generally will be
considered to exceed a de minimis amount if it is greater than 0.25% of the
stated redemption price of the Mortgage Loans multiplied by the number of
complete years to maturity remaining after the date of their purchase. In
interpreting a similar rule with respect to original issue discount on
obligations payable in installments, the OID Regulations refer to the weighted
average maturity of obligations, and it is likely that the same rule will be
applied with respect to market discount, presumably taking into account the
prepayment assumption used, if any.  If market discount is treated as de minimis
under the foregoing rule, it appears that such market discount will be included
in income as each payment of stated principal is made, based on the product of
the total amount of such de minimis market discount and a fraction, the
numerator of which is the amount of such principal payment and the denominator
of which is the outstanding stated principal amount of the Mortgage Loans.

     Further, any discount that is not original issue discount and exceeds a de
minimis amount may require the deferral of interest expense deductions
attributable to accrued market discount not yet includible in income, unless an
election has been made to report market discount currently as it accrues.

     Premium.  If a holder of a Certificate is treated as acquiring the Mortgage
Loans at a premium, that is, at a price in excess of their principal amount,
such holder may elect under Section 171 of the Code to amortize using a constant
yield method the portion of such premium allocable to 

                                       37
<PAGE>
 
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.

     GRANTOR TRUST REPORTING

                                       38
<PAGE>
 
     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 of, the United States or any political
subdivision thereof, or an estate or trust whose income from sources without the
United States is includible in gross income for United States federal income tax
purposes regardless of its connection with the conduct of a trade or business
within the United States and a 

                                       39
<PAGE>
 
trust for which one or more United States fiduciaries have the authority to
control all substantial decisions and for which a court of the United States can
exercise primary supervision over the trust's administration. For years
beginning before January 1, 1997, the term "United States person" shall include
a trust whose income is includible in gross income for United States federal
income taxation regardless of source, in lieu of trusts just described, unless
the trust elects to have its United States status determined under the criteria
described in the previous sentence for tax years ending after August 20, 1996.
To the extent such holder does not qualify for exemption, distributions of
interest, including distributions in respect of accrued original issue discount,
to such holder may be subject to a tax rate of 30%, subject to reduction under
any applicable tax treaty.

     In addition, the foregoing rules will not apply to exempt a United States
shareholder of a controlled foreign corporation from taxation on such United
States shareholder's allocable portion of the interest income received by such
controlled foreign corporation.

     To the extent that interest on the Certificates would be exempt under
Section 871(h)(1) of the Code from U.S. withholding tax, and a Certificate is
not held in connection with a holder's trade or business in the United States, a
Certificate will not be subject to U.S. estate taxes in the estate of non-
resident alien individual.

                                       40
<PAGE>
 
                             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 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.

                                       41
<PAGE>
 
                                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.

     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 

                                       42
<PAGE>
 
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.

                                       43
<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-
Description of the Certificates.............................. S-
Certain Yield and Prepayment                                  
     Considerations.......................................... S-
Pooling and Servicing Agreement.............................. S-
Description of Credit Enhancement............................ S-
Federal Income Tax
     Consequences............................................ S-
Method of Distribution....................................... S-
Legal Opinions............................................... S-
Rating....................................................... S-
Legal Investment............................................. S-

                                   PROSPECTUS
Summary of Prospectus...........................................
Risk Factors....................................................
The Mortgage Pools..............................................
Servicing of Mortgage Loans.....................................
Description of the Certificates.................................
Subordination...................................................
Description of Credit Enhancement...............................
Purchase Obligations............................................
Primary Mortgage Insurance, Hazard..............................
     Insurance; Claims Thereunder...............................
The Company.....................................................
ICI Funding Corporation.........................................
Imperial Credit Mortgage Holdings, Inc..........................
The Pooling Agreement...........................................
Yield Considerations............................................
Maturity and Prepayment.........................................
     Considerations.............................................
Certain Legal Aspects of Mortgage...............................
     Loans......................................................
Certain Federal Income Tax......................................
     Consequences...............................................
State and Other Tax Consequences................................
ERISA Considerations............................................
Legal Investment Matters........................................
Use of Proceeds.................................................
Methods of Distribution.........................................
Legal Matters...................................................
Financial Information...........................................
Rating..........................................................
Index of Principal Definitions..................................
</TABLE> 
================================================================================

================================================================================



                                 ICIFC SECURED
                                  ASSETS CORP.


                                $_______________

                             MORTGAGE PASS-THROUGH
                                  CERTIFICATES

                                 Series 199_-__



                                _______________

                             PROSPECTUS SUPPLEMENT
                                _______________



                     --------------------------------------



                                _________, 19__



================================================================================
<PAGE>
 
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A         +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE   +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY  +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT        +
+BECOMES EFFECTIVE. THIS 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.                                                               +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
                   
PROSPECTUS      SUBJECT TO COMPLETION, DATED JULY 11, 1997     
 
Mortgage Pass-Through Certificates
ICIFC Secured Assets Corp.
 
The mortgage pass-through certificates (the "Offered Certificates") offered
hereby and by the supplements hereto (each, a "Prospectus Supplement") will be
offered from time to time in series. The Offered Certificates of each series,
together with any other mortgage pass-through certificates of such series, are
collectively referred to herein as the "Certificates."
 
Each series of Certificates will represent in the aggregate the entire
beneficial ownership interest in a trust fund (with respect to any series, the
"Trust Fund") to be established by ICIFC Secured Assets Corp. (the "Company").
Each Trust Fund will consist primarily of a segregated pool (a "Mortgage Pool")
of one- to four-family and/or multifamily residential first and/or junior
mortgage loans or manufactured housing conditional sales contracts and
installment loan agreements (collectively, the "Mortgage Loans") or interests
therein (which may include Mortgage Securities as defined herein), acquired by
the Company from one or more affiliated or unaffiliated institutions (the
"Sellers"). See "The Company" and "The Mortgage Pools." The Mortgage Loans and
other assets in each Trust Fund will be held in trust for the benefit of the
holders of the related series of Certificates (the "Certificateholders")
pursuant to a pooling and servicing or other agreement (in either case, a
"Pooling Agreement") as more fully described herein under "Description of the
Certificates" and in the related Prospectus Supplement. Information regarding
the Offered Certificates of a series, and the general characteristics of the
Mortgage Loans and other assets in the related Trust Fund, will be set forth in
the related Prospectus Supplement.
 
Each series of Certificates will include one or more classes. Each class of
Certificates of any series will represent the right, which right may be senior
or subordinate to the rights of one or more of the other classes of the
Certificates, to receive a specified portion of payments of principal or
interest (or both) on the Mortgage Loans and other assets in the related Trust
Fund in the manner described herein under "Description of the Certificates" and
in the related Prospectus Supplement. A series may include one or more classes
of Certificates entitled to principal distributions, with disproportionate,
nominal or no interest distributions, or to interest distributions, with
disproportionate, nominal or no principal distributions. A series may include
two or more classes of Certificates which differ as to the timing, sequential
order, priority of payment, pass-through rate or amount of distributions of
principal or interest or both. See "Description of the Certificates."
 
THE COMPANY'S ONLY OBLIGATIONS WITH RESPECT TO A SERIES OF CERTIFICATES WILL BE
PURSUANT TO CERTAIN REPRESENTATIONS AND WARRANTIES MADE BY THE COMPANY, EXCEPT
AS PROVIDED IN THE RELATED PROSPECTUS SUPPLEMENT. THE MASTER SERVICER (THE
"MASTER SERVICER") FOR ANY SERIES OF CERTIFICATES WILL BE NAMED IN THE RELATED
PROSPECTUS SUPPLEMENT. THE PRINCIPAL OBLIGATIONS OF THE MASTER SERVICER WILL BE
PURSUANT TO ITS CONTRACTUAL SERVICING OBLIGATIONS (WHICH INCLUDE ITS LIMITED
OBLIGATION TO MAKE CERTAIN ADVANCES IN THE EVENT OF DELINQUENCIES IN PAYMENTS
ON THE RELATED MORTGAGE LOANS). SEE "DESCRIPTION OF THE CERTIFICATES."
 
If so specified in the related Prospectus Supplement, the Trust Fund for a
series of Certificates may include any one or any combination of a mortgage
pool insurance policy, letter of credit, bankruptcy bond, special hazard
insurance policy, reserve fund or other form of credit support. In addition to
or in lieu of the foregoing, credit enhancement may be provided by means of
subordination of one or more classes of Certificates. See "Description of
Credit Enhancement."
 
The rate of payment of principal of each class of Certificates entitled to a
portion of principal payments on the Mortgage Loans and other assets in the
related Mortgage Pool will depend on the priority of payment of such class and
the rate and timing of principal payments (including by reason of prepayments,
defaults, liquidations and repurchases of Mortgage Loans) on such Mortgage
Loans and other assets. A rate of principal payment slower or faster than that
anticipated may affect the yield on a class of Certificates in the manner
described herein under "Yield Considerations" and in the related Prospectus
Supplement.
 
One or more separate elections may be made to treat a Trust Fund or a
designated portion thereof as a real estate mortgage investment conduit
("REMIC") for federal income tax purposes. If applicable, the Prospectus
Supplement for a series of Certificates will specify which class or classes of
the related series of Certificates will be considered to be regular interests
in the related REMIC and which class of Certificates or other interests will be
designated as the residual interest in the related REMIC. See "Federal Income
Tax Consequences" herein.
 
SEE "RISK FACTORS" BEGINNING ON PAGE 11 HEREIN AND ON PAGE S-   OF THE RELATED
PROSPECTUS SUPPLEMENT FOR A DISCUSSION OF SIGNIFICANT MATTERS AFFECTING
INVESTMENTS IN THE CERTIFICATES.
 
PROCEEDS OF THE ASSETS IN THE RELATED TRUST FUND ARE THE SOLE SOURCE OF
PAYMENTS ON THE CERTIFICATES. THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN
OR OBLIGATION OF THE COMPANY, THE MASTER SERVICER OR ANY OF THEIR RESPECTIVE
AFFILIATES. NEITHER THE CERTIFICATES OF ANY SERIES NOR THE UNDERLYING MORTGAGE
LOANS OR MORTGAGE SECURITIES WILL BE GUARANTEED OR INSURED BY ANY GOVERNMENTAL
AGENCY OR INSTRUMENTALITY OR BY THE COMPANY, THE MASTER SERVICER OR ANY OF
THEIR RESPECTIVE AFFILIATES, UNLESS OTHERWISE SPECIFIED IN THE RELATED
PROSPECTUS SUPPLEMENT.
 
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
 
The Offered Certificates may be offered through one or more different methods,
including offerings through underwriters, as more fully described herein under
"Methods of Distribution" and in the related Prospectus Supplement.
 
There will be no secondary market for the Offered Certificates of any series
prior to the offering thereof. There can be no assurance that a secondary
market for any of the Offered Certificates will develop or, if it does develop,
that it will continue. The Offered Certificates will not be listed on any
securities exchange.
 
Retain this Prospectus for future reference. This Prospectus may not be used to
consummate sales of securities offered hereby unless accompanied by a
Prospectus Supplement. This Prospectus contains in "Index of Principal
Definitions" beginning on page 115 herein.
   
The date of this Prospectus is July   , 1997.     
<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......................................................   5
RISK FACTORS...............................................................  12
THE MORTGAGE POOLS.........................................................  19
   General.................................................................  19
   The Mortgage Loans......................................................  21
   Underwriting Standards..................................................  25
   Federal Home Loan Mortgage Corporation ("Freddie Mac")..................  26
   Qualifications of Originators and Sellers...............................  27
   Representations by Sellers..............................................  27
SERVICING OF MORTGAGE LOANS................................................  30
   General.................................................................  30
   The Master Servicer.....................................................  30
   Collection and Other Servicing Procedures; Mortgage Loan Modifications..  30
   Subservicers............................................................  32
   Special Servicers.......................................................  33
   Realization Upon or Sale of Defaulted Mortgage Loans....................  33
   Servicing and Other Compensation and Payment of Expenses; Spread........  35
   Evidence as to Compliance...............................................  36
DESCRIPTION OF THE CERTIFICATES............................................  37
   General.................................................................  37
   Form of Certificates....................................................  38
   Assignment of Trust Fund Assets.........................................  39
   Certificate Account.....................................................  42
   Distributions...........................................................  45
   Distributions of Interest and Principal on the Certificates.............  46
   Distributions on the Certificates in Respect of Prepayment Premiums or
        in Respect of Equity Participations................................  47
   Allocation of Losses and Shortfalls.....................................  47
   Advances................................................................  47
   Reports to Certificateholders...........................................  48
DESCRIPTION OF CREDIT ENHANCEMENT..........................................  49
   General.................................................................  49
   Subordinate Certificates................................................  50
   Letter of Credit........................................................  51
   Mortgage Pool Insurance Policies........................................  51
   Special Hazard Insurance Policies.......................................  53
   Bankruptcy Bonds........................................................  54
   Reserve Funds...........................................................  54
   Maintenance of Credit Enhancement.......................................  55
   Reduction or Substitution of Credit Enhancement.........................  57
PURCHASE OBLIGATIONS.......................................................  57
PRIMARY MORTGAGE INSURANCE, HAZARD INSURANCE; CLAIMS THEREUNDER............  58
   General.................................................................  58
   Primary Mortgage Insurance Policies.....................................  58
   Hazard Insurance Policies...............................................  59
   FHA Insurance...........................................................  60
</TABLE>
<TABLE>   
<S>                                                                          <C>
THE COMPANY.................................................................  61
ICI FUNDING CORPORATION.....................................................  61
IMPERIAL CREDIT MORTGAGE HOLDINGS, INC......................................  61
THE POOLING AGREEMENT.......................................................  62
   General..................................................................  62
   Certain Matters Regarding the Master Servicer and the Company............  62
   Events of Default........................................................  63
   Rights Upon Event of Default.............................................  64
   Amendment................................................................  64
   Termination; Retirement of Certificates..................................  65
   The Trustee..............................................................  66
   Limitations on the Duties of the Trustee.................................  66
   Certain Matters Regarding the Trustee....................................  66
   Resignation and Removal of the Trustee...................................  67
YIELD CONSIDERATIONS........................................................  67
MATURITY AND PREPAYMENT CONSIDERATIONS......................................  69
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS.....................................  70
   Single Family Loans and Multifamily Loans................................  70
   Contracts................................................................  71
   Foreclosure on Mortgages.................................................  73
   Repossession with respect to Contracts...................................  74
   Rights of Redemption.....................................................  75
   Anti-Deficiency Legislation and Other Limitations on Lenders.............  76
   Junior Mortgages.........................................................  77
   Consumer Protection Laws with respect to Contracts.......................  78
   Environmental Legislation................................................  79
   Enforceability of Certain Provisions.....................................  79
   Subordinate Financing....................................................  80
   Applicability of Usury Laws..............................................  80
   Alternative Mortgage Instruments.........................................  81
   Formaldehyde Litigation with respect to Contracts........................  81
   Soldiers' and Sailors' Civil Relief Act of 1940..........................  81
FEDERAL INCOME TAX CONSEQUENCES.............................................  82
   General..................................................................  82
   REMICS...................................................................  83
   Grantor Trust Funds......................................................  98
STATE AND OTHER TAX CONSEQUENCES............................................ 107
ERISA CONSIDERATIONS........................................................ 107
   Plan Asset Regulations................................................... 108
   Tax Exempt Investors..................................................... 110
   Consultation With Counsel................................................ 110
LEGAL INVESTMENT MATTERS.................................................... 110
USE OF PROCEEDS............................................................. 111
METHODS OF DISTRIBUTION..................................................... 112
LEGAL MATTERS............................................................... 113
FINANCIAL INFORMATION....................................................... 113
RATING...................................................................... 113
INDEX OF PRINCIPAL DEFINITIONS.............................................. 114
</TABLE>    
 
                                       2
<PAGE>
 
  UNTIL 90 DAYS AFTER THE DATE OF EACH PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE RELATED OFFERED CERTIFICATES, WHETHER OR NOT
PARTICIPATING IN THE DISTRIBUTION THEREOF, MAY BE REQUIRED TO DELIVER THIS
PROSPECTUS AND THE RELATED PROSPECTUS SUPPLEMENT. THIS DELIVERY REQUIREMENT IS
IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT
AND PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
 
                             AVAILABLE INFORMATION
 
  The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Such reports and other information filed by the Company can be
inspected and copied at the public reference facilities maintained by the
Commission at its Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and its Regional Offices located as follows: Chicago
Regional Office, 500 West Madison, 14th Floor, Chicago, Illinois 60661; New
York Regional Office, Seven World Trade Center, New York, New York 10048.
Copies of such material can also be obtained from the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates and electronically through the Commission's Electronic Data
Gathering, Analysis and Retrieval System at the Commission's Web Site
(http://www.sec.gov.). The Company does not intend to send any financial
reports to Certificateholders.
 
  This Prospectus does not contain all of the information set forth in the
Registration Statement (of which this Prospectus forms a part) and exhibits
thereto which the Company has filed with the Commission under the Securities
Act of 1933 (the "Securities Act") and to which reference is hereby made.
 
                         REPORTS TO CERTIFICATEHOLDERS
 
  The Master Servicer or other designated person will be required to provide
periodic unaudited reports concerning each Trust Fund to all registered
holders of Offered Certificates. Such information will be provided in
accordance with the requirements of recent SEC No-Action Letters. Such
information will include, among other things, the following: (i) with respect
to each series of Offered Certificates, a form 8-K will be filed within
fifteen days after the issuance of such series and will include the relevant
Pooling Agreement for such series; (ii) pursuant to the Pooling Agreement for
the related series, concurrently with each distribution on each distribution
date, the holders of each class of Registered Certificates will receive a
monthly statement setting forth material information pertaining to each
distribution, as required by the Pooling Agreement; (iii) for so long as the
Pool Insurer, if any, is eligible to use Form S-3 and is making reports
pursuant to the Exchange Act, incorporated by reference into the appropriate
Monthly Statements, on a quarterly and annual basis, the current financial
statements of the Pool Insurer, if any, for such series; (iv) for so long as
the Company has a duty to file periodic reports with respect to any Trust Fund
and series pursuant to the Exchange Act, a form 8-K will be filed with the
Commission within fifteen days after the related distribution to
Certificateholders of any series is made containing the Monthly Statement; (v)
if any monthly (or other periodic) distribution to Certificateholders of a
series is not made as required by the related Pooling Agreement, or in the
event of any material change in the procedures or forms described above for
the reports to the Certificateholders or Trustee, the Company will file within
fifteen days of the due date for such distribution, a Form 8-K responding to
Item 5 thereof, to the extent applicable to the related Trust Fund the
Registered Certificates of such series, describing such failure to make
payment or such change in reporting; (vi) within fifteen days under Item 5 of
Form 8-K, any matters that have occurred during any month that would be
reportable under Item 1, 2, 4 or 5 of Part II of Form 10-Q, to the extent
applicable; (vii) on or prior to 90 days following the Company's fiscal year
end, an annual report on Form 10-K containing information required under Items
2, 3, 4, 5, 9, 12, 13 and 14 thereof, to the extent material to the operations
of the Trust Fund and required by recent SEC No-Action Letters. The Company
will not provide Quarterly Reports on Form 10-Q since pertinent information
will be covered in the Form 8-Ks to be filed with the Commission as described
above. See "Description of the Certificates-Reports to Certificateholders."
 
                                       3
<PAGE>
 
               INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
 
  There are incorporated herein and in the related Prospectus Supplement by
reference all documents and reports filed or caused to be filed by the Company
with respect to a Trust Fund pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act, prior to the termination of the offering of the Offered
Certificates of the related series. The Company will provide or cause to be
provided without charge to each person to whom this Prospectus is delivered in
connection with the offering of one or more classes of Offered Certificates,
upon written or oral request of such person, a copy of any or all such reports
incorporated herein by reference, in each case to the extent such reports
relate to one or more of such classes of such Offered Certificates, other than
the exhibits to such documents, unless such exhibits are specifically
incorporated by reference in such documents. Requests should be directed in
writing to ICIFC Secured Assets Corp., 20371 Irvine Avenue, Suite 200, Santa
Ana Heights, California 92707, or by telephone at (714) 556-0122. The Company
has determined that its financial statements will not be material to the
offering of any Offered Certificates.
 
                                       4
<PAGE>
 
 
                             SUMMARY OF PROSPECTUS
 
  The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to each series of Certificates contained in the
Prospectus Supplement to be prepared and delivered in connection with the
offering of Offered Certificates of such series. Capitalized terms used in this
summary that are not otherwise defined shall have the meanings ascribed thereto
elsewhere in this Prospectus. An "Index of Principal Definitions" indicating
where certain capitalized terms used herein are defined appears in this
Prospectus beginning on page 115.
 
<TABLE>
 <C>                                    <S>
 Securities Offered.................... Mortgage pass-through certificates.
                                        The mortgage pass-through certificates
                                        (the "Offered Certificates") offered
                                        hereby and by the various Prospectus
                                        Supplements with respect hereto will
                                        be offered from time to time in
                                        series. The Offered Certificates of
                                        each series, together with any other
                                        mortgage pass-through certificates of
                                        such series, are collectively referred
                                        to herein as the "Certificates."

 Company............................... ICIFC Secured Assets Corp. (the
                                        "Company"), a wholly-owned subsidiary
                                        of ICI Funding Corporation ("ICI
                                        Funding"). See "The Company" and "ICI
                                        Funding Corporation."

 Master Servicer....................... The master servicer (the "Master
                                        Servicer"), if any, for a series of
                                        Certificates will be specified in the
                                        related Prospectus Supplement and may
                                        either be an entity not affiliated
                                        with the Company or an affiliate of
                                        the Company, including ICI Funding,
                                        the Company's parent and a non-
                                        consolidating subsidiary of Imperial
                                        Credit Mortgage Holdings, Inc.
                                        ("ICMH"). See "ICI Funding
                                        Corporation," "Imperial Credit
                                        Mortgage Holdings, Inc." and
                                        "Servicing of Mortgage Loans--The
                                        Master Servicer."

 Special Servicer...................... The special servicer (the "Special
                                        Servicer"), if any, for a series of
                                        Certificates will be specified, or the
                                        circumstances under which a Special
                                        Servicer will be appointed will be
                                        described, in the related Prospectus
                                        Supplement. Any Special Servicer may
                                        either be an entity unaffiliated with
                                        the Company or an affiliate of the
                                        Company. See "Servicing of Mortgage
                                        Loans--Special Servicers."

 Trustee............................... The trustee (the "Trustee") for each
                                        series of Certificates will be
                                        specified in the related Prospectus
                                        Supplement. See "The Pooling
                                        Agreement--The Trustee."

 The Certificates...................... Each series of Certificates will
                                        include one or more classes of
                                        Certificates which will represent in
                                        the aggregate the entire beneficial
                                        ownership interest in a segregated
                                        pool of Mortgage Loans (exclusive of
                                        any portion of interest payments (the
                                        "Spread") relating to each Mortgage
                                        Loan retained by the Company or any of
                                        its affiliates) or interests therein
                                        (which may include Mortgage Securities
                                        as defined herein), and certain other
                                        assets as described below
                                        (collectively, a "Trust Fund"), and
                                        will be issued pursuant to a pooling
                                        and servicing
</TABLE>
 
                                       5
<PAGE>
 
 
<TABLE>
 <C>                                    <S>
                                        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."
</TABLE>
 
                                       6
<PAGE>
 
<TABLE>
 <C>                                    <S>
                                        The Certificates will not be
                                        guaranteed or insured by any
                                        governmental agency or
                                        instrumentality, by the Company, the
                                        Master Servicer or any of their
                                        respective affiliates or by any other
                                        person, unless otherwise specified in
                                        the related Prospectus Supplement.

 The Mortgage Pools.................... Each Trust Fund will consist primarily
                                        of a segregated pool (a "Mortgage
                                        Pool") of mortgage loans and/or
                                        manufactured housing conditional sales
                                        and installment loan agreements
                                        (collectively, the "Mortgage Loans").
                                        Each Mortgage Loan will be secured by
                                        a first or junior lien on or security
                                        interest in (i) a one- to four-family
                                        residential property, (ii) a
                                        residential property consisting of
                                        five or more rental or cooperatively
                                        owned dwelling units or (iii) a new or
                                        used manufactured home (each, a
                                        "Mortgaged Property"). The Mortgaged
                                        Properties may be located in any one
                                        of the 50 states, the District of
                                        Columbia or the Commonwealth of Puerto
                                        Rico. For a description of the types
                                        of Mortgage Loans that may be included
                                        in the Mortgage Pools, see "The
                                        Mortgage Pools--The Mortgage Loans."
                                        The Mortgage Loans will not be
                                        guaranteed or insured by the Company,
                                        any of its affiliates or, unless
                                        otherwise specified in the related
                                        Prospectus Supplement, by any
                                        governmental agency or instrumentality
                                        or any other person.

                                        If specified in the related Prospectus
                                        Supplement, Mortgage Loans which are
                                        converting or converted from an
                                        adjustable-rate to a fixed-rate or
                                        certain Mortgage Loans for which the
                                        Mortgage Rate has been reset may be
                                        repurchased by the Company or
                                        purchased by the related Master
                                        Servicer, the applicable Seller or
                                        another party, or a designated
                                        remarketing agent will use its best
                                        efforts to arrange the sale thereof as
                                        further described herein under "The
                                        Mortgage Pools--The Mortgage Loans."

                                        If so specified in the related
                                        Prospectus Supplement, some Mortgage
                                        Loans may be delinquent or non-
                                        performing as of the date of their
                                        deposit in the related Trust Fund.

                                        If specified in the related Prospectus
                                        Supplement, a Trust Fund may include
                                        or consist solely of mortgage
                                        participations or pass-through
                                        certificates evidencing interests in
                                        Mortgage Loans ("Mortgage
                                        Securities"), as described herein. See
                                        "The Mortgage Pools--General" herein.

                                        Each Mortgage Loan and Mortgage
                                        Security included in a Trust Fund will
                                        have been selected by the Company from
                                        among those purchased, either directly
                                        or indirectly, from a prior holder
                                        thereof (a "Seller"), which prior
                                        holder may or may not be the
                                        originator of such Mortgage Loan or
                                        the issuer of such Mortgage Security
                                        and may be an affiliate of the
</TABLE>
 
                                       7
<PAGE>
 
<TABLE>
 <C>                                    <S>
                                        Company. A Mortgage Security included
                                        in a Trust Fund, however, may also
                                        have been issued previously by the
                                        Company or an affiliate thereof.
                                        A Current Report on Form 8-K will be
                                        available upon request to purchasers
                                        of the Offered Certificates of the
                                        related series and will be filed,
                                        together with the related Pooling
                                        Agreement, with the Securities and
                                        Exchange Commission within fifteen
                                        days after such initial issuance.

 Interest Distributions................ Except as otherwise specified in the
                                        related Prospectus Supplement,
                                        interest on each class of Offered
                                        Certificates of each series, other
                                        than Strip Certificates or Accrual
                                        Certificates (prior to the time when
                                        accrued interest becomes payable
                                        thereon), will accrue at the
                                        applicable Pass-Through Rate (which
                                        may be a fixed, variable or adjustable
                                        rate or any combination thereof) on
                                        such class's principal balance
                                        outstanding from time to time and will
                                        be remitted on the 25th day (or, if
                                        such day is not a business day, on the
                                        next succeeding business day) of each
                                        month, commencing with the month
                                        following the month in which the Cut-
                                        off Date (as defined in the applicable
                                        Prospectus Supplement) occurs (each, a
                                        "Distribution Date"). Distributions,
                                        if any, with respect to interest on
                                        Strip Certificates will be calculated
                                        and made on each Distribution Date as
                                        described herein under "Description of
                                        the Certificates--Distribution of
                                        Interest and Principal on the
                                        Certificates" and in the related
                                        Prospectus Supplement. Interest that
                                        has accrued but is not yet payable on
                                        any Accrual Certificates will be added
                                        to the principal balance of such class
                                        on each Distribution Date, and will
                                        thereafter bear interest.
                                        Distributions of interest with respect
                                        to one or more classes of Offered
                                        Certificates (or, in the case of a
                                        class of Accrual Certificates, accrued
                                        interest to be added to the principal
                                        balance thereof) may be reduced as a
                                        result of the occurrence of certain
                                        delinquencies not covered by advances,
                                        losses, prepayments and other
                                        contingencies described herein and in
                                        the related Prospectus Supplement. See
                                        "Yield Considerations" and
                                        "Description of the Certificates--
                                        Distributions of Interest and
                                        Principal on the Certificates."

 Principal Distributions............... Except as otherwise specified in the
                                        related Prospectus Supplement,
                                        principal distributions on the
                                        Certificates of each series will be
                                        payable on each Distribution Date,
                                        commencing with the Distribution Date
                                        in the month following the month in
                                        which the Cut-off Date occurs, to the
                                        holders of the Certificates of such
                                        series, or of the class or classes of
                                        Certificates then entitled thereto, on
                                        a pro rata basis among all such
                                        Certificates or among the Certificates
                                        of any such class, in proportion to
                                        their respective outstanding principal
                                        balances, or in the priority and
                                        manner otherwise specified in the
                                        related Prospectus Supplement. Strip
                                        Certificates with no
</TABLE>
 
                                       8
<PAGE>
 
<TABLE>
 <C>                                    <S>
                                        principal balance will not receive
                                        distributions in respect of principal.
                                        Distributions of principal with
                                        respect to any series of Certificates,
                                        or with respect to one or more classes
                                        included therein, may be reduced to
                                        the extent of certain delinquencies
                                        not covered by advances or losses not
                                        covered by the applicable form of
                                        credit enhancement. See "The Mortgage
                                        Pools," "Maturity and Prepayment
                                        Considerations" and "Description of
                                        the Certificates."
 Credit Enhancement.................... If so specified in the Prospectus
                                        Supplement, the Trust Fund with
                                        respect to any series of Certificates
                                        may include any one or any combination
                                        of a letter of credit, mortgage pool
                                        insurance policy, special hazard
                                        insurance policy, bankruptcy bond or
                                        reserve fund to provide partial
                                        coverage for certain defaults and
                                        losses relating to the Mortgage Loans.
                                        Credit support also may be provided in
                                        the form of subordination of one or
                                        more classes of Certificates in a
                                        series under which losses are first
                                        allocated to any Subordinate
                                        Certificates up to a specified limit.
                                        Any form of credit enhancement will
                                        have certain limitations and
                                        exclusions from coverage thereunder,
                                        which will be described in the related
                                        Prospectus Supplement. Losses not
                                        covered by any form of credit
                                        enhancement will be borne by the
                                        holders of the related Certificates
                                        (or certain classes thereof). The
                                        amount and types of coverage, the
                                        identification of any entity providing
                                        the coverage, the terms of any
                                        subordination and related information
                                        will be set forth in the Prospectus
                                        Supplement relating to a series of
                                        Certificates. See "Description of
                                        Credit Enhancement."

 Advances.............................. If and to the extent described in the
                                        related Prospectus Supplement, and
                                        subject to any limitations specified
                                        therein, the Master Servicer for any
                                        Trust Fund will be obligated to make,
                                        or have the option of making, certain
                                        advances with respect to delinquent
                                        scheduled payments on the Mortgage
                                        Loans in such Trust Fund. Any such
                                        advance made by the Master Servicer
                                        with respect to a Mortgage Loan is
                                        recoverable by it as described herein
                                        under "Description of the
                                        Certificates--Advances" either from
                                        recoveries on or in respect of the
                                        specific Mortgage Loan or, with
                                        respect to any advance subsequently
                                        determined to be nonrecoverable from
                                        recoveries on or in respect of the
                                        specific Mortgage Loan, out of funds
                                        otherwise distributable to the holders
                                        of the related series of Certificates,
                                        which may include the holders of any
                                        Senior Certificates of such series. If
                                        and to the extent provided in the
                                        Prospectus Supplement for a series of
                                        Certificates, the Master Servicer will
                                        be entitled to receive interest on its
                                        advances for the period that they are
                                        outstanding payable from amounts in
                                        the related Trust Fund. As specified
                                        in the Prospectus Supplement with
                                        respect to any series of Certificates
                                        as to which the Trust Fund includes
                                        Mortgage Securities, the advancing
                                        obligations in respect of the
</TABLE>
 
                                       9
<PAGE>
 
<TABLE>
 <C>                                    <S>
                                        underlying Mortgage Loans will be
                                        pursuant to the terms of such Mortgage
                                        Securities, as may be supplemented by
                                        the terms of the applicable Pooling
                                        Agreement, and may differ from the
                                        provisions described herein.
 Optional Termination.................. The Master Servicer, the Company or,
                                        if specified in the related Prospectus
                                        Supplement, the holder of the residual
                                        interest in a REMIC may at its option
                                        either (i) effect early retirement of
                                        a series of Certificates through the
                                        purchase of the assets in the related
                                        Trust Fund or (ii) purchase, in whole
                                        but not in part, the Certificates
                                        specified in the related Prospectus
                                        Supplement; in each case under the
                                        circumstances and in the manner set
                                        forth herein under "The Pooling
                                        Agreement--Termination; Retirement of
                                        Certificates" and in the related
                                        Prospectus Supplement.

 Legal Investment...................... At the date of issuance, as to each
                                        series, each class of Offered
                                        Certificates will be rated at the
                                        request of the Company in one of the
                                        four highest rating categories by one
                                        or more nationally recognized
                                        statistical rating agencies (each, a
                                        "Rating Agency"). Unless otherwise
                                        specified in the related Prospectus
                                        Supplement, each class of Offered
                                        Certificates that is rated in one of
                                        the two highest rating categories by
                                        at least one Rating Agency will
                                        constitute "mortgage related
                                        securities" for purposes of the
                                        Secondary Mortgage Market Enhancement
                                        Act of 1984 ("SMMEA"). Investors whose
                                        investment authority is subject to
                                        legal restrictions should consult
                                        their own legal advisors to determine
                                        whether and to what extent the Offered
                                        Certificates of any series constitute
                                        legal investments for them. See "Legal
                                        Investment Matters."

 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.
</TABLE>
 
 
                                       10
<PAGE>
 
<TABLE>   
 <C>                                    <S>
 Federal Income Tax Consequences....... Offered Certificates of each series
                                        will constitute either (i) interests
                                        ("Grantor Trust Certificates") in a
                                        Trust Fund treated as a grantor trust
                                        under applicable provisions of the
                                        Code, or (ii) "regular interests"
                                        ("REMIC Regular Certificates") or
                                        "residual interests" ("REMIC Residual
                                        Certificates") in a Trust Fund, or a
                                        portion thereof, treated as a REMIC
                                        under Sections 860A through 86OG of
                                        the Code.
                                        Investors are advised to consult their
                                        tax advisors as to the tax
                                        consequences of an investment in the
                                        Certificates in light of each
                                        investor's individual circumstances
                                        and to review "Federal Income Tax
                                        Consequences" herein and in the
                                        related Prospectus Supplement for a
                                        general discussion of material tax
                                        matters related to the Certificates.
                                        Such discussion, to the extent it
                                        relates to matters of law or legal
                                        conclusions with respect thereto,
                                        represents the opinion of counsel to
                                        the Company, subject to any
                                        qualifications set forth therein. See
                                        "Federal Income Tax Consequences."

 Ratings............................... It is a condition to the issuance of
                                        any class of Offered Certificates that
                                        they shall have been rated not lower
                                        than investment grade, that is, in one
                                        of the four highest rating categories,
                                        by at least one Rating Agency. Ratings
                                        on mortgage pass-through certificates
                                        address the likelihood of receipt by
                                        the holders thereof of all collections
                                        on the underlying mortgage assets to
                                        which such holders are entitled. These
                                        ratings address the structural, legal
                                        and issuer-related aspects associated
                                        with such certificates, the nature of
                                        the underlying mortgage assets and the
                                        credit quality of the guarantor, if
                                        any. Ratings on mortgage pass-through
                                        certificates do not represent any
                                        assessment of the likelihood of
                                        principal prepayments by borrowers or
                                        of the degree by which such
                                        prepayments might differ from those
                                        originally anticipated. As a result,
                                        Certificateholders might suffer a
                                        lower than anticipated yield, and, in
                                        addition, holders of stripped interest
                                        certificates in extreme cases might
                                        fail to recoup their initial
                                        investments.

 Listing Application................... The Company does not currently intend
                                        to make an application to list the
                                        Offered Certificates on a national
                                        securities exchange or to quote the
                                        Offered Securities in the automated
                                        quotation system of a registered
                                        securities association.

 Risk Factors.......................... There are material risks associated
                                        with an investment in the
                                        Certificates. See "Risk Factors"
                                        beginning on page 12 herein and on
                                        page S-  of the Prospectus Supplement
                                        for a discussion of significant
                                        matters affecting investments in the
                                        Certificates.
</TABLE>    
 
                                       11
<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.
 
                                      12
<PAGE>
 
  Risks of Declining Property Values and High Loan-to-Value Ratios. An
investment in securities such as the Certificates which generally represent
interests in mortgage loans and/or manufactured housing conditional sales
contracts and installment loan agreements may be affected by, among other
things, a decline in real estate values and changes in the borrowers'
financial condition. No assurance can be given that values of the Mortgaged
Properties have remained or will remain at their levels on the dates of
origination of the related Mortgage Loans. If the residential real estate
market should experience an overall decline in property values such that the
outstanding balances of the Mortgage Loans, and any secondary financing on the
Mortgaged Properties, in a particular Mortgage Pool become equal to or greater
than the value of the Mortgaged Properties, the actual rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced
in the mortgage lending industry. Mortgaged Properties subject to high Loan-
to-Value Ratios are at greater risk since such properties initially have less
equity than Mortgaged Properties with low Loan-to-Value ratios and therefore a
decline in property values could dissipate equity more quickly. Delinquencies,
foreclosures and losses due to declining values of Mortgaged Properties,
especially those with high Loan-to-Value Ratios, would cause losses to the
Trust and, to the extent not covered by credit enhancement, would adversely
affect the yield to maturity on the Certificates.
 
  Risks of Negatively Amortizing Loans. In the case of Mortgage Loans that are
subject to negative amortization, due to the addition to principal balance of
Deferred Interest, the principal balances of such Mortgage Loans could be
increased to an amount equal to or in excess of the value of the underlying
Mortgaged Properties, thereby increasing the likelihood of default. To the
extent that such losses are not covered by any reserve fund or instrument of
credit enhancement in the related Trust Fund, holders of Certificates of the
series evidencing interests in the related Mortgage Pool will bear all risk of
loss resulting from default by Mortgagors and will have to look primarily to
the value of the Mortgaged Properties for recovery of the outstanding
principal and unpaid interest on the defaulted Mortgage Loans. Certain of the
types of loans which may be included in the Mortgage Pools may involve
additional uncertainties not present in traditional types of loans.
 
  Risks of Buydown Mortgage Loans. Certain of the Mortgage Loans contained in
a Mortgage Pool may be subject to temporary buydown plans ("Buydown Mortgage
Loans") pursuant to which the monthly payments made by the Mortgagor during
the early years of the Mortgage Loan (the "Buydown Period") will be less than
the scheduled monthly payments on the Mortgage Loan, the resulting difference
to be made up from (i) an amount (such amount, exclusive of investment
earnings thereon, being hereinafter referred to as "Buydown Funds")
contributed by the seller of the Mortgaged Property or another source and
placed in a custodial account (the "Buydown Account"), (ii) if the Buydown
Funds are contributed on a present value basis, investment earnings on such
Buydown Funds or (iii) additional buydown funds to be contributed over time by
the Mortgagor's employer or another source. See "Description of the
Certificates--Certificate Account." Generally, the Mortgagor under each
Buydown Mortgage Loan will be qualified at the applicable lower monthly
payment. Accordingly, the repayment of a Buydown Mortgage Loan is dependent on
the ability of the Mortgagor to make larger level monthly payments after the
Buydown Funds have been depleted and, for certain Buydown Mortgage Loans,
during the Buydown Period. The inability of a Mortgagor to make such larger
monthly payments could lead to losses on the Mortgage Loans, and to the extent
not covered by credit enhancement, may adversely affect the yield to maturity
on the Certificates.
 
  Geographic Concentration of Mortgaged Properties. Certain geographic regions
of the United States from time to time will experience weaker regional
economic conditions and housing markets, and, consequently, will experience
higher rates of loss and delinquency than will be experienced on mortgage
loans generally. For example, a region's economic condition and housing market
may be directly, or indirectly, adversely affected by natural disasters or
civil disturbances such as earthquakes, hurricanes, floods, eruptions or
riots. The economic impact of any of these types of events may also be felt in
areas beyond the region immediately affected by the disaster or disturbance.
The Mortgage Loans underlying certain series of Certificates may be
concentrated in these regions, and such concentration may present risk
considerations in addition to those generally present for similar mortgage-
backed securities without such concentration. Moreover, as described below,
any Mortgage Loan for which a breach of a representation or warranty exists
will remain in the related Trust Fund in the event
 
                                      13
<PAGE>
 
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.
 
  Risks of Loans With Balloon Payments. Certain of the Mortgage Loans included
in a Trust Fund, particularly those secured by Multifamily Properties, may not
be fully amortizing (or may not amortize at all) over their terms to maturity
and, thus, will require substantial payments of principal and interest (that
is, balloon payments) at their stated maturity. Mortgage Loans of this type
involve a greater degree of risk than self-amortizing loans because the
ability of a Mortgagor to make a balloon payment typically will depend upon
its ability either to fully refinance the loan or to sell the related
Mortgaged Property at a price sufficient to permit the Mortgagor to make the
balloon payment. The ability of a Mortgagor to accomplish either of these
goals will be affected by a number of factors, including the value of the
related Mortgaged Property, the level of available mortgage rates at the time
of sale or refinancing, the Mortgagor's equity in the related Mortgaged
Property, prevailing general economic conditions, the availability of credit
for loans secured by comparable real properties and, in the case of
Multifamily Properties, the financial condition and operating history of the
Mortgagor and the related Mortgaged Property, tax laws and rent control laws.
 
  Risks of Lending on Non-Owner Occupied Properties. It is anticipated that
some or all of the Mortgage Loans included in any Trust Fund, particularly
Mortgage Loans secured by Multifamily Properties, will be nonrecourse loans or
loans for which recourse may be restricted or unenforceable. As to those
Mortgage Loans, recourse in the event of Mortgagor default will be limited to
the specific real property and other assets, if any, that were pledged to
secure the Mortgage Loan. However, even with respect to those Mortgage Loans
that provide for recourse against the Mortgagor and its assets generally,
there can be no assurance that enforcement of such recourse provisions will be
practicable, or that the other assets of the Mortgagor will be sufficient to
permit a recovery in respect of a defaulted Mortgage Loan in excess of the
liquidation value of the related Mortgaged Property.
 
  Mortgage Loans made on the security of Multifamily Properties may entail
risks of delinquency and foreclosure, and risks of loss in the event thereof,
that are greater than similar risks associated with loans made on the security
of Single Family Properties. The ability of a borrower to repay a loan secured
by an income-producing property typically is dependent primarily upon the
successful operation of such property rather than upon the existence of
independent income or assets of the borrower; thus, the value of an income-
producing property is directly related to the net operating income derived
from such property. If the net operating income of the property is reduced
(for example, if rental or occupancy rates decline or real estate tax rates or
other operating expenses increase), the borrower's ability to repay the loan
may be impaired. In addition, the concentration of default, foreclosure and
loss risk for a pool of Mortgage Loans secured by Multifamily Properties may
be greater than for a pool of Mortgage Loans secured by Single Family
Properties of comparable aggregate unpaid principal balance because the pool
of Mortgage Loans secured by Multifamily Properties is likely to consist of a
smaller number of higher balance loans.
 
  Risks of Non-Conforming Loans. Mortgage Loans to be included in a Mortgage
Pool may be non-conforming Mortgage Loans. Non-conforming Mortgage Loans are
Mortgage Loans that do not qualify for purchase by government sponsored
agencies such as Fannie Mae and Freddie Mac due to credit characteristics that
to not satisfy such Fannie Mae and Freddie Mac guidelines, including
mortgagors whose creditworthiness and repayment ability do not satisfy such
Fannie Mae and Freddie Mac underwriting guidelines and mortgagors who may have
a record of credit write-offs, outstanding judgments, prior bankruptcies and
other derogatory credit items. Accordingly, non-conforming Mortgage Loans are
likely to experience rates of delinquency, foreclosure and loss that are
higher, and that may be substantially higher, than mortgage loans originated
in accordance with Fannie Mae or Freddie Mac underwriting guidelines. The
principal differences between conforming Mortgage Loans and non-conforming
Mortgage Loans include the applicable Loan-to-Value Ratios, the credit and
income histories of the related Mortgagors, the documentation required for
approval of the related Mortgage Loans, the types of properties securing the
Mortgage Loans, the loan sizes and the Mortgagors'
 
                                      14
<PAGE>
 
occupancy status with respect to the Mortgaged Properties. As a result of
these and other factors, the interest rates charged on non-conforming Mortgage
Loans are often higher than those charged for conforming Mortgage Loans. The
combination of different underwriting criteria and higher rates of interest
may also lead to higher delinquency, foreclosure and losses on non-conforming
Mortgage Loans as compared to conforming Mortgage Loans.
 
  Risks of Underwriting Standards of Unaffiliated Sellers. Mortgage Loans to
be included in a Mortgage Pool will have been purchased by the Company, either
directly or indirectly from Sellers. Such Mortgage Loans will generally have
been originated in accordance with underwriting standards acceptable to the
Company and generally described herein under "The Mortgage Pools--Underwriting
Standards" as more particularly described in the underwriting criteria
included in the related Prospectus Supplement. Nevertheless, in some cases,
particularly those involving Unaffiliated Sellers, the Company may not be able
to establish the underwriting standards used in the origination of the related
Mortgage Loans. In those cases, the related Prospectus Supplement will include
a statement to such effect and will reflect what, if any, re-underwriting of
the related Mortgage Loans was completed by the Company or any of its
affiliates. To the extent the Mortgage Loans cannot be re-underwritten or the
underwriting criteria cannot be verified, the Mortgage Loans might suffer
losses greater than they would had they been directly underwritten by the
Company or an affiliate thereof. Any such losses, to the extent not covered by
credit enhancement, may adversely affect the yield to maturity of the
Certificates.
 
  Risks Associated With Limited or No Documentation Loans. Mortgage Loans to
be included in a Mortgage Pool may have been originated in accordance with
underwriting standards that require documentation from Mortgagors that is more
limited than that required under standard loan underwriting programs or that
require no documentation from Mortgagors. Such programs rely on a combination
of independent credit ratings, asset evaluations, collateral value, work
history, and lower Loan-to Value Ratios. Such Mortgage Loans could experience
rates of delinquency, foreclosure and loss that are higher, and may be
substantially higher, than Mortgage Loans originated in accordance with
underwriting standards that require full documentation.
 
  Risks Associated with Junior Lien Mortgage Loans. Certain of the Mortgage
Pools may contain Mortgage Loans secured by junior liens and the related
senior liens may not be included in the Mortgage Pool. An overall decline in
the residential real estate market could adversely affect the values of the
Mortgaged Properties securing the Mortgage Loans with junior liens such that
the outstanding principal balances, together with any senior financing
thereon, exceeds the value of the Mortgaged Properties. Since Mortgage Loans
secured by junior (i.e., second, third, etc.) lines are subordinate to the
rights of the beneficiaries under the related senior deeds of trust or senior
mortgages, such a decline would adversely affect the position of the related
junior beneficiary or junior mortgagee before having such an effect on the
position of the related senior beneficiaries or senior mortgagees. A rise in
interest rates over a period of time, the general condition of the Mortgaged
Property and other factors may also have the effect of reducing the value of
the Mortgaged Property from the value oat the time the junior lien Mortgage
Loan was originated. As a result, the Loan-to-Value Ratio may exceed the ratio
in effect at the time the Mortgage Loan was originated. Such an increase may
reduce the likelihood that, in the event of a default by the related
Mortgagor, liquidation or other proceeds will be sufficient to satisfy the
junior lien Mortgage Loan after satisfaction of any senior liens and the
payment of any liquidation expenses.
 
  Other factors may affect the prepayment rate of junior lien Mortgage Loans,
such as the amounts of, and interest on, the related senior mortgage loans and
the use of senior lien mortgage loans as long-term financing for home
purchases and junior lien mortgage loans as shorter-term financing for a
variety of purposes, such as home improvement, educational expenses and
purchases of consumer durable such as automobiles. Accordingly, junior lien
Mortgage Loans may experience a higher rate of prepayments that traditional
senior lien mortgage loans. In addition, any future limitations on the rights
of borrowers to deduct interest payments on junior lien Mortgage Loans for
federal income tax purposes may further increase the rate of prepayments on
such junior lien Mortgage Loans.
 
                                      15
<PAGE>
 
  Risks of Nonperfection of Security Interests. Any Contract included in a
Mortgage Pool will be secured by a security interest in a Manufactured Home.
Perfection of security interests in Manufactured Homes and enforcement of
rights to realize upon the value of the Manufactured Homes as collateral for
the Contracts are subject to a number of federal and state laws, including the
UCC as adopted in each state and each state's certificate of title statutes.
The steps necessary to perfect the security interest in a Manufactured Home
will vary from state to state. In the event the Master Servicer fails, due to
clerical errors or otherwise, to take the appropriate steps to perfect such a
security interest, the Trustee may not have a first priority security interest
in the Manufactured Home securing a Contract. Additionally, courts in many
states have held that manufactured homes may, under certain circumstances,
become subject to real estate title and recording laws. As a result, a
security interest in a manufactured home could be rendered subordinate to the
interests of other parties claiming an interest in the home under applicable
state real estate law. The failure to properly perfect a valid, first priority
security interest in a Manufactured Home securing a Contract could lead to
losses that may adversely affect the yield to maturity of the Certificates.
 
  Risks Relating to Liquidation of Mortgaged Properties. Substantial delays
can be encountered in connection with the liquidation of defaulted Mortgage
Loans and corresponding delays in the receipt of related proceeds by the
Certificateholders could occur. An action to foreclose on a Mortgaged Property
securing a Mortgage Loan is regulated by state statutes, rules and judicial
decisions and is subject to many of the delays and expenses of other lawsuits
if defenses or counterclaims are interposed, sometimes requiring several years
to complete. Furthermore, in some states an action to obtain a deficiency
judgment is not permitted following a nonjudicial sale of a Mortgaged
Property. In the event of a default by a Mortgagor, these restrictions, among
other things, may impede the ability of the Master Servicer to foreclose on or
sell the Mortgaged Property or to obtain Liquidation Proceeds sufficient to
repay all amounts due on the related Mortgage Loan. The Master Servicer will
be entitled to deduct from Liquidation Proceeds all expenses reasonably
incurred in attempting to recover amounts due on the related Liquidated
Mortgage Loan and not yet repaid, including payments to prior lienholders,
accrued Servicing Fees, legal fees and costs of legal action, real estate
taxes, and maintenance and preservation expenses. In the event that any
Mortgaged Properties fail to provide adequate security for the related
Mortgage Loans and insufficient funds are available from any applicable credit
enhancement, Certificateholders could experience a loss on their investment.
 
  Liquidation expenses with respect to defaulted mortgage loans do not vary
directly with the outstanding principal balance of the loan at the time of
default. Therefore, assuming that a servicer takes the same steps in realizing
upon a defaulted mortgage loan having a small remaining principal balance as
it would in the case of a defaulted mortgage loan having a larger principal
balance, the amount realized after expenses of liquidation would be less as a
percentage of the outstanding principal balance of the smaller principal
balance mortgage loan than would be the case with a larger principal balance
loan.
 
  Environmental Risks. The Mortgaged Properties are subject to certain
environmental risks. Under various federal, state and local environmental
laws, ordinances and regulations, a current or previous owner of real property
may be liable for the costs of removal or remediation of hazardous or toxic
substances on, under or in such property. Such laws often impose liability
whether or not the owner or operation knew of, or was responsible for, the
presence of such hazardous or toxic substances. A lender also risks such
liability on foreclosure of the mortgage on such property. In addition, the
presence of hazardous or toxic substances, or the failure to properly
remediate such property, may adversely affect the owner's or operator's
ability to sell such property. Although the incidence of environmental
contamination of residential properties is less common than that for
commercial properties, Mortgage Loans contained in a Mortgage Pool may be
secured by Mortgaged Properties in violation of environmental laws, ordinances
or regulations. The Master Servicer is generally prohibited from foreclosing
on a Mortgaged Property unless it has taken adequate steps to ensure
environmental compliance with respect to such Mortgaged Property. However, to
the extent the Master Servicer errs and forecloses on Mortgaged Property that
is subject to environmental law violations, and to the extent a Seller does
not provide adequate representations and warranties against such violations,
or is unable to honor such obligations, including the obligation to repurchase
a Mortgage Loan upon the breach of a representation or warranty, a Mortgage
Pool could experience losses.
 
                                      16
<PAGE>
 
  Limited Nature of Ratings. It is a condition to the issuance of the
Certificates that each series of Certificates be rated in one of the four
highest rating categories by a nationally recognized statistical rating
agency. A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time. No person
is obligated to maintain the rating on any Certificate, and accordingly, there
can be no assurance that the ratings assigned to any Certificate on the date
on which such Certificate is originally issued will not be lowered or
withdrawn by a Rating Agency at any time thereafter. in the event any rating
is revised or withdrawn, the liquidity or the market value of the related
Certificate may be adversely affected. See "Rating" herein.
 
  Limited Representations by and Against the Seller. Each Seller will have
made representations and warranties in respect of the Mortgage Loans and/or
Mortgage Securities sold by such Seller and evidenced by a series of
Certificates. In the event of a breach of a Seller's representation or
warranty that materially adversely affects the interests of the
Certificateholders in a Mortgage Loan or Mortgage Security, unless otherwise
specified in the related Prospectus Supplement, the related Seller will be
obligated to cure the breach or repurchase or, if permitted, replace such
Mortgage Loan or Mortgage Security as described below. However, there can be
no assurance that a Seller will honor its obligation to cure, repurchase or,
if permitted, replace any Mortgage Loan or Mortgage Security as to which such
a breach of a representation or warranty arises. A Seller's failure or refusal
to honor its repurchase obligation could lead to losses that, to the extent
not covered by credit enhancement, may adversely affect the yield to maturity
of the Certificates.
 
  In instances where a Seller is unable, or disputes its obligation, to
purchase affected Mortgage Loans and/or Mortgage Securities, the Master
Servicer may negotiate and enter into one or more settlement agreements with
such Seller that could provide for, among other things, the purchase of only a
portion of the affected Mortgage Loans and/or Mortgage Securities. Any such
settlement could lead to losses on the Mortgage Loans and/or Mortgage
Securities which would be borne by the related Certificates. Neither the
Company nor the Master Servicer will be obligated to purchase a Mortgage Loan
or Mortgage Security if a Seller defaults on its obligation to do so, and no
assurance can be given that the Sellers will carry out such purchase
obligations. Such a default by a Seller is not a default by the Company or by
the Master Servicer. Any Mortgage Loan or Mortgage Security not so purchased
or substituted for shall remain in the related Trust Fund and any losses
related thereto shall be allocated to the related credit enhancement, to the
extent available, and otherwise to one or more classes of the related series
of Certificates.
 
  All of the representations and warranties of a Seller in respect of a
Mortgage Loan or Mortgage Security will have been made as of the date on which
such Mortgage Loan or Mortgage Security was purchased from the Seller by or on
behalf of the Company; the date as of which such representations and
warranties were made will be a date prior to the date of initial issuance of
the related series of Certificates or, in the case of a Designated Seller
Transaction, will be the date of closing of the related sale by the applicable
Seller. A substantial period of time may have elapsed between the date as of
which the representations and warranties were made and the later date of
initial issuance of the related series of Certificates. Accordingly, the
Seller's purchase obligation (or, if specified in the related Prospectus
Supplement, limited replacement option) will not arise if, during the period
commencing on the date of sale of a Mortgage Loan or Mortgage Security by the
Seller, an event occurs that would have given rise to such an obligation had
the event occurred prior to sale of the affected Mortgage Loan or Mortgage
Security, as the case may be. The occurrence of events during this period that
are not covered by a Seller's purchase obligation could lead to losses that,
to the extent not covered by credit enhancement, may adversely affect the
yield to maturity of the Certificates.
 
  Subordination of Certain Classes of Certificates. Credit support for a
particular series of Certificates may be provided in the form of subordination
of one or more classes of Certificates in a series under which losses are
first allocated to any Subordinate Certificates up to a specified limit.
Losses not covered by any form of credit enhancement will be borne by the
holders of the related Certificates (or certain classes thereof). Therefore,
in the event of substantial losses in any Mortgage Pool, such losses may be
borne by such holders.
 
                                      17
<PAGE>
 
  Book Entry Registration May Affect Liquidity. Because transfers and pledges
of DTC Registered Securities can be effected only through book entries at DTC
through Participants, the liquidity of the secondary market for DTC Registered
Securities may be reduced to the extent that some investors are unwilling to
hold Certificates in book entry form in the name of DTC and the ability to
pledge DTC Registered Securities may be limited due to the lack of a physical
certificate. Beneficial Owners of DTC Registered Securities may, in certain
cases experience delay in the receipt of payments of principal and interest
such payments will be forwarded by the related Trustee to DTC who will then
forward payment to the Participants who will thereafter forward payment to
Beneficial Owners. In the event of the insolvency of DTC or a Participant in
whose name DTC Registered Securities are recorded, the ability of Beneficial
Owners to obtain timely payment and (if the limits of applicable insurance
coverage is otherwise unavailable) ultimate payment of principal and interest
on DTC Registered Securities may be impaired.
 
  Yield to Maturity May Vary. The yield to maturity of the Offered
Certificates of each series will depend on, among other things, the rate and
timing of principal payments (including prepayments, liquidations due to
defaults, and repurchases due to conversion of ARM Loans to fixed interest
rate loans or breaches of representations and warranties) on the related
Mortgage Loans and the price paid by Certificateholders. Such yield may be
adversely affected by a higher or lower than anticipated rate of prepayments
on the related Mortgage Loans. The yield to maturity on Strip Certificates
will be extremely sensitive to the rate of prepayments on the related Mortgage
Loans. In addition, the yield to maturity on certain other types of classes of
Certificates, including Accrual Certificates, Certificates with a Pass-Through
Rate which fluctuates inversely with an index or certain other classes in a
series including more than one class of Certificates, may be relatively more
sensitive to the rate of prepayment on the related Mortgage Loans than other
classes of Certificates. Prepayments are influenced by a number of factors,
including prevailing mortgage market interest rates, local and regional
economic conditions and homeowner mobility. In addition, to the extent amounts
in any Pre-Funding Account have not been used to purchase additional Mortgage
Loans, holders of the Certificates may receive an additional prepayment. See
"Yield Considerations" and "Maturity and Prepayment Considerations" herein.
 
  ERISA Considerations. Generally, ERISA applies to investments made by
employee benefit plans and transactions involving the assets of such plans.
Due to the complexity of regulations that govern such plans, prospective
investors that are subject to ERISA are urged to consult their own counsel
regarding consequences under ERISA of acquisition, ownership and disposition
of the Offered Certificates of any series. See "ERISA Considerations".
 
  Federal Tax Considerations Regarding REMIC Residual Certificates. Holders of
REMIC Residual Certificates will be required to report on their federal income
tax returns as ordinary income their pro rata share of the taxable income of
the REMIC, regardless of the amount or timing of their receipt of cash
payments, as described under "Federal Income Tax Consequences--REMICs".
Accordingly, under certain circumstances, holders of Offered Certificates that
constitute REMIC Residual Certificates may have taxable income and tax
liabilities arising from such investment during a taxable year in excess of
the cash received during such period. The requirement that holders of REMIC
Residual Certificates report their pro rata share of the taxable income and
net loss of the REMIC will continue until the principal balances of all
classes of Certificates of the related series have been reduced to zero, even
though holders of REMIC Residual Certificates have received full payment of
their stated interest and principal. A portion (or, in certain circumstances,
all) of such Certificateholder's share of the REMIC taxable income may be
treated as "excess inclusion" income to such holder, which (i) generally will
not be subject to offset by losses from other activities, (ii) for a tax-
exempt holder, will be treated as unrelated business taxable income and (iii)
for a foreign holder, will not qualify for exemption from withholding tax.
Individual holders of REMIC Residual Certificates may be limited in their
ability to deduct servicing fees and other expenses of the REMIC. In addition,
REMIC Residual Certificates are subject to certain restrictions on transfer.
Because of the special tax treatment of REMIC Residual Certificates, the
taxable income arising in a given year on a REMIC Residual Certificate will
not be equal to the taxable income associated with investment in a corporate
bond or stripped instrument having similar cash flow characteristics and pre-
tax yield. Therefore, the after-tax yield on a REMIC Residual Certificate may
be significantly less than that of a corporate bond or stripped instrument
having similar cash flow characteristics.
 
                                      18
<PAGE>
 
  Risks of Optional Termination. The Master Servicer or the Company will have
the option to purchase, in whole but not in part, the Certificates specified
in the related Prospectus Supplement in the manner set forth in the related
Prospectus Supplement. Upon the purchase of such Certificates or at any time
thereafter, at the option of the Master Servicer or the Company, the assets of
the Trust Fund may be sold, thereby effecting a retirement of the Certificates
and the termination of the Trust Fund, or the Certificates so purchased may be
held or resold by the Master Servicer or the Company.
 
  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 or the Company at the price specified in the
related Prospectus Supplement. The exercise of such right will effect early
retirement of the Certificates of that series, and will be 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. A Trust Fund may also
be terminated and the Certrificates retired upon the Master Servicer's
determination, based upon an opinion of counsel, that the REMIC status of the
Trust Fund has been lost or that a substantial risk exists that such status
will be lost for the then current taxable year. The termination of a Trust
Fund and the early retirement of Certificates by the Master Servicer or the
Company may adversely affect the yield to holders of certain classes of such
Certificates.
 
                              THE MORTGAGE POOLS
 
GENERAL
 
  Each Mortgage Pool will consist primarily of Mortgage Loans, minus the
Spread, if any, or any other interest retained by the Company or any affiliate
of the Company. The Mortgage Loans may consist of Single Family Loans,
Multifamily Loans and Contracts, each as described below.
 
  The Mortgage Loans (other than the Contracts) will be evidenced by
promissory notes ("Mortgage Notes") and secured by mortgages, deeds of trust
or other similar security instruments ("Mortgages") that, in each case, create
a first or junior lien on the related Mortgagor's fee or leasehold interest in
the related Mortgaged Property. The Mortgaged Properties for such loans may
consist of attached or detached one-family dwelling units, two- to four-family
dwelling units, condominiums, townhouses, row houses, individual units in
planned-unit developments and certain other individual dwelling units (a
"Single Family Property" and the related loans, "Single Family Loans"), which
in each case may be owner-occupied or may be a vacation, second or non-owner-
occupied home. The Mortgaged Properties for such loans may also consist of
residential properties consisting of five or more rental or cooperatively
owned dwelling units in high-rise, mid-rise or garden apartment buildings or
projects ("Multifamily Properties" and the related loans, "Multifamily
Loans").
 
  The "Contracts" will consist of manufactured housing conditional sales
contracts and installment loan agreements each secured by a Manufactured Home.
Unless otherwise specified in the related Prospectus Supplement, each Contract
will be fully amortizing and will bear interest at its Mortgage Rate. Unless
specified otherwise in the related Prospectus Supplement, Contracts will all
have individual principal balances at origination of not less than $10,000 and
not more than $1,000,000 and original terms to maturity of 5 to 40 years. The
"Manufactured Homes" securing the Contracts will consist of manufactured homes
within the meaning of 42 United States Code, Section 5402(6), which defines a
"manufactured home" as "a structure, transportable in one or more sections,
which in the traveling mode, is eight body feet or more in width or forty body
feet or more in length, or, when erected on site, is three hundred twenty or
more square feet, and which is built on a permanent chassis and designed to be
used as a dwelling with or without a permanent foundation when connected to
the required utilities, and includes the plumbing, heating, air conditioning,
and electrical systems contained therein; except that such term shall include
any structure which meets all the requirements of this paragraph
 
                                      19
<PAGE>
 
except the size requirements and with respect to which the manufacturer
voluntarily files a certification required by the Secretary of Housing and
Urban Development and complies with the standards established under this
chapter."
 
  The related Prospectus Supplement will specify for the Contracts contained
in the related Trust Fund, among other things, the date of origination of the
Contracts; the Mortgage Rate on the Contracts; the Contract Loan-to-Value
Ratios; the minimum and maximum outstanding principal balances as of the Cut-
Off Date and the average outstanding principal balance; the outstanding
principal balances of the Contracts included in the related Trust Fund; and
the original maturities of the Contracts and the last maturity date of any
Contract.
 
  Mortgaged Properties may be located in any one of the 50 states, the
District of Columbia or the Commonwealth of Puerto Rico.
 
  The Mortgage Loans will not be guaranteed or insured by the Company, any of
its affiliates or, unless otherwise specified in the related Prospectus
Supplement, by any governmental agency or instrumentality or other person.
However, if so specified in the related Prospectus Supplement, the Mortgage
Loans may be insured by the Federal Housing Administration (the "FHA" and such
loans, "FHA Loans"). See "Primary Mortgage Insurance, Hazard Insurance; Claims
Thereunder--FHA Insurance."
 
  A Mortgage Pool may include Mortgage Loans that are delinquent or non-
performing as of the date the related series of Certificates is issued. In
that case, the related Prospectus Supplement will set forth, as to each such
Mortgage Loan, available information as to the period of such delinquency or
nonperformance and any other information relevant for a prospective purchaser
to make an investment decision.
 
  Each Mortgage Loan will be selected by the Company for inclusion in a
Mortgage Pool from among those purchased by the Company, either directly or
through its affiliates, from banks, savings and loan associations, mortgage
bankers, investment banking firms, the Resolution Trust Corporation (the
"RTC"), the Federal Deposit Insurance Corporation (the "FDIC") and other
mortgage loan originators or sellers not affiliated with the Company
("Unaffiliated Sellers") or from affiliates of the Company, including ICI
Funding and ICMH (collectively "Affiliated Sellers"; Unaffiliated Sellers and
Affiliated Sellers are collectively referred to herein as "Sellers"). If a
Mortgage Pool is composed of Mortgage Loans acquired by the Company directly
from Unaffiliated Sellers, the related Prospectus Supplement will specify the
extent of Mortgage Loans so acquired. The characteristics of the Mortgage
Loans are as described in the related Prospectus Supplement. Other mortgage
loans available for purchase by the Company may have characteristics which
would make them eligible for inclusion in a Mortgage Pool but were not
selected for inclusion in such Mortgage Pool.
 
  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
 
                                      20
<PAGE>
 
related Prospectus Supplement, such Mortgage Securities will be generally
similar to Certificates offered hereunder. As to any such series of
Certificates, the related Prospectus Supplement will include a description of
such Mortgage Securities and any related credit enhancement, and the Mortgage
Loans underlying such Mortgage Securities will be described together with any
other Mortgage Loans included in the Mortgage Pool relating to such series. To
the extent the issuance of such Mortgage Securities has been registered under
the Exchange Act, the underlying securities will be registered and the
underlying issuer will be a reporting entity pursuant to Sections 12 or 15(d)
of the Exchange Act. Additionally, the material terms of such underlying
securities will be disclosed in the related Prospectus Supplement.
Furthermore, the Company will include only Mortgage Securities acquired in the
secondary market and not in a public offering of such securities.
 
THE MORTGAGE LOANS
 
  Each of the Mortgage Loans will be a type of mortgage loan described or
referred to in paragraphs numbered (1) through (8) below, with any variations
thereto described in the related Prospectus Supplement:
 
    (1) Fixed-rate, fully-amortizing mortgage loans (which may include
  mortgage loans converted from adjustable-rate mortgage loans or otherwise
  modified) providing for level monthly payments of principal and interest
  and terms at origination or modification of not more than approximately 15
  years;
 
    (2) Fixed-rate, fully-amortizing mortgage loans (which may include
  mortgage loans converted from adjustable-rate mortgage loans or otherwise
  modified) providing for level monthly payments of principal and interest
  and terms at origination or modification of more than 15 years, but not
  more than approximately 25 or 30 years;
 
    (3) Fully-amortizing adjustable-rate mortgage loans ("ARM Loans") having
  an original or modified term to maturity of not more than approximately 25
  or 30 years with a related interest rate (a "Mortgage Rate") which
  generally adjusts initially either three months, six months or one, three,
  five or seven years subsequent to the initial payment date, and thereafter
  at either three-month, six-month, one-year or other intervals (with
  corresponding adjustments in the amount of monthly payments) over the term
  of the mortgage loan to equal the sum of a fixed percentage set forth in
  the related Mortgage Note (the "Note Margin") and an index./1/ The related
  Prospectus Supplement will 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;
 
- --------
/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) another index substantially similar to the
   indexes described in (i) through (v) above as described in the related
   Prospectus Supplement.
 
                                      21
<PAGE>
 
    (5) Fixed-rate, graduated payment mortgage loans having original or
  modified terms to maturity of not more than approximately 15 years with
  monthly payments during the first year calculated on the basis of an
  assumed interest rate which is a specified percentage below the Mortgage
  Rate on such mortgage loan. Such monthly payments increase at the beginning
  of the second year by a specified percentage of the monthly payment during
  the preceding year and each year thereafter to the extent necessary to
  amortize the mortgage loan over the remainder of its approximately 15-year
  term. Deferred Interest, if any, will be added to the principal balance of
  such mortgage loans;
 
    (6) Fixed-rate, graduated payment mortgage loans having original or
  modified terms to maturity of not more than approximately 25 or 30 years
  with monthly payments during the first year calculated on the basis of an
  assumed interest rate which is a specified percentage below the Mortgage
  Rate. Such monthly payments increase at the beginning of the second year by
  a specified percentage of the monthly payment during the preceding year and
  each year thereafter to the extent necessary to fully amortize the mortgage
  loan within its approximately 25- or 30-year term. Deferred Interest, if
  any, will be added to the principal balance of such mortgage loan;
 
    (7) Mortgage loans ("Balloon Loans") having payment terms similar to
  those described in one of the preceding paragraphs numbered (1) through
  (6), calculated on the basis of an assumed amortization term, but providing
  for a payment (a "Balloon Payment") of all outstanding principal and
  interest to be made at the end of a specified term that is shorter than
  such assumed amortization term; or
 
    (8) Another type of mortgage loan having terms substantially similar to
  those described in one or more of the preceding paragraphs numbered (1)
  through (7) as described in the related Prospectus Supplement.
 
  If provided in the related Prospectus Supplement, certain of the Mortgage
Pools may contain Single Family and Multifamily Loans secured by junior liens,
and the related senior liens ("Senior Liens") may not 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,
 
                                      22
<PAGE>
 
the related Prospectus Supplement will describe the Equity Participation and
the method or methods by which distributions in respect thereof will be made
to such holders.
 
  Certain information, including information regarding loan-to-value ratios
(each, a "Loan-to-Value Ratio") at origination of the Mortgage Loans
underlying each series of Certificates, will be supplied in the related
Prospectus Supplement. In the case of most Mortgage Loans, the "Loan-to-Value
Ratio" at origination is defined generally as the ratio, expressed as a
percentage, of the principal amount of the Mortgage Loan at origination (or,
if appropriate, at the time of an appraisal subsequent to origination), plus,
in the case of a Mortgage Loan secured by a junior lien, the outstanding
principal balance of the related Senior Liens, to the Value of the related
Mortgaged Property. Unless otherwise specified in the related Prospectus
Supplement, the "Value" of a Mortgaged Property securing a Single Family or
Multifamily Mortgage Loan will generally be equal to the lesser of (x) the
appraised value determined in an appraisal obtained at origination of such
Mortgage Loan, if any, or, if the related Mortgaged Property has been
appraised subsequent to origination, the value determined in such subsequent
appraisal and (y) the sales price for the related Mortgaged Property (except
in certain circumstances in which there has been a subsequent appraisal). In
the case of certain refinanced, modified or converted Single Family or
Multifamily Loans, unless otherwise specified in the related Prospectus
Supplement, the "Value" of the related Mortgaged Property will be equal to the
lesser of (x) the appraised value of the related Mortgaged Property determined
at origination or in an appraisal, if any, obtained at the time of
refinancing, modification or conversion and (y) the sales price of the related
Mortgage Property or, if the Mortgage Loan is not a rate and term refinance
Mortgage Loan and if the Mortgaged Property was owned for a relatively short
period of time prior to refinancing, modification or conversion, the sum of
the sales price of the related Mortgaged Property plus the added value of any
improvements. Certain Mortgage Loans which are subject to negative
amortization will have Loan-to-Value Ratios which will increase after
origination as a result of such negative amortization. Unless otherwise
specified in the related Prospectus Supplement, for purposes of calculating
the Loan-to-Value Ratio of a Contract relating to a new Manufactured Home, the
"Value" is no greater than the sum of a fixed percentage of the list price of
the unit actually billed by the manufacturer to the dealer (exclusive of
freight to the dealer site), including "accessories" identified in the invoice
(the "Manufacturer's Invoice Price"), plus the actual cost of any accessories
purchased 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
 
                                      23
<PAGE>
 
adjustment period. If specified in the related Prospectus Supplement, upon any
conversion, the Company, the related Master Servicer, the applicable Seller or
a third party will purchase the converted Mortgage Loan as and to the extent
set forth in the related Prospectus Supplement. Alternatively, if specified in
the related Prospectus Supplement, the Company or the related Master Servicer
(or another party specified therein) may agree to act as remarketing agent
with respect to such converted Mortgage Loans and, in such capacity, to use
its best efforts to arrange for the sale of converted Mortgage Loans under
specified conditions. Upon the failure of any party so obligated to purchase
any such converted Mortgage Loan, the inability of any remarketing agent to
arrange for the sale of the converted Mortgage Loan and the unwillingness of
such remarketing agent to exercise any election to purchase the converted
Mortgage Loan for its own account, the related Mortgage Pool will thereafter
include both fixed rate and adjustable rate Mortgage Loans.
 
  If provided for in the related Prospectus Supplement, certain of the
Mortgage Loans may be subject to temporary buydown plans ("Buydown Mortgage
Loans") pursuant to which the monthly payments made by the Mortgagor during
the early years of the Mortgage Loan (the "Buydown Period") will be less than
the scheduled monthly payments on the Mortgage Loan, the resulting difference
to be made up from (i) an amount (such amount, exclusive of investment
earnings thereon, being hereinafter referred to as "Buydown Funds")
contributed by the seller of the Mortgaged Property or another source and
placed in a custodial account (the "Buydown Account"), (ii) if the Buydown
Funds are contributed on a present value basis, investment earnings on such
Buydown Funds or (iii) additional buydown funds to be contributed over time by
the Mortgagor's employer or another source. See "Description of the
Certificates--Certificate Account." Generally, the Mortgagor under each
Buydown Mortgage Loan will be qualified at the applicable lower monthly
payment. Accordingly, the repayment of a Buydown Mortgage Loan is dependent on
the ability of the Mortgagor to make larger level monthly payments after the
Buydown Funds have been depleted and, for certain Buydown Mortgage Loans,
during the Buydown Period.
 
  The Prospectus Supplement for each series of Certificates will contain
information as to the type of Mortgage Loans that will be included in the
related Mortgage Pool. Each Prospectus Supplement applicable to a series of
Certificates will include certain information, generally as of the Cut-off
Date and to the extent then available to the Company, on an approximate basis,
as to (i) the aggregate principal balance of the Mortgage Loans, (ii) the type
of property securing the Mortgage Loans, (iii) the original or modified terms
to maturity of the Mortgage Loans, (iv) the range of principal balances of the
Mortgage Loans at origination or modification, (v) the earliest origination or
modification date and latest maturity date of the Mortgage 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
 
                                      24
<PAGE>
 
principally of its contractual servicing obligations under the related Pooling
Agreement (including its obligation to enforce certain purchase and other
obligations of Subservicers and Sellers, as more fully described herein under
"--Representations by Sellers" below, "Servicing of Mortgage Loans--
Subservicers," and "Description of the Certificates--Assignment of Trust Fund
Assets," and, if and to the extent set forth in the related Prospectus
Supplement, its obligation to make certain cash advances in the event of
delinquencies in payments on or with respect to the Mortgage Loans as
described herein under "Description of the Certificates--Advances") or
pursuant to the terms of any Mortgage Securities.
 
UNDERWRITING STANDARDS
 
  Mortgage Loans to be included in a Mortgage Pool will have been purchased by
the Company, either directly or indirectly from Sellers. Such Mortgage Loans,
as well as Mortgage Loans underlying Mortgage Securities, will generally have
been originated or acquired in accordance with underwriting standards
acceptable to the Company or alternative underwriting criteria. The
underwriting standards for the Mortgage Loans included in each Mortgage Pool
are described below and in the related Prospectus Supplement. However, in some
cases, particularly those involving Unaffiliated Sellers, the Company may not
be able to establish the underwriting standards used in the origination of the
related Mortgage Loans. In those cases, the related Prospectus Supplement will
include a statement to such effect and will reflect what, if any, re-
underwriting of the related Mortgage Loans was done by the Company or any of
its affiliates.
 
  Unless otherwise specified in the related Prospectus Supplement, the
underwriting standards to be used in originating the Mortgage Loans are
primarily intended to assess the creditworthiness of the Mortgagor, the value
of the Mortgaged Property and the adequacy of such property as collateral for
the Mortgage Loan.
 
  The primary considerations in underwriting a Single Family Loan or Contract
are the Mortgagor's employment stability and whether the Mortgagor has
sufficient monthly income available (i) to meet the Mortgagor's monthly
obligations on the proposed Mortgage Loan (generally determined on the basis
of the monthly payments due in the year of origination) and other expenses
related to the home (such as property taxes and hazard insurance) and (ii) to
meet monthly housing expenses and other financial obligations and monthly
living expenses. However, the Loan-to-Value Ratio of the Mortgage Loan is
another critical factor. In addition, a Mortgagor's credit history and
repayment ability, as well as the type and use of the Mortgaged Property, are
also considerations.
 
  In the case of the Multifamily Loans, lenders typically look to the Debt
Service Coverage Ratio of a loan as an important measure of the risk of
default on such a loan. Unless otherwise defined in the related 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.
 
 
                                      25
<PAGE>
 
  It is expected that each prospective Mortgagor will complete a mortgage loan
application that includes information with respect to the applicant's
liabilities, income, credit history, employment history and personal
information. One or more credit reports on each applicant from national credit
reporting companies will generally be required. The report typically contains
information relating to such matters as credit history with local and national
merchants and lenders, installment debt payments and any record of defaults,
bankruptcies, repossessions, or judgments. In the case of a Multifamily Loan,
the Mortgagor will also be required to provide certain information regarding
the related Multifamily Property, including a current rent roll and operating
income statements (which may be pro forma and unaudited). In addition, the
originator will generally also consider the location of the Multifamily
Property, the availability of competitive lease space and rental income of
comparable properties in the relevant market area, the overall economy and
demographic features of the geographic area and the Mortgagor's prior
experience in owning and operating properties similar to the Multifamily
Properties.
 
  Unless otherwise specified in the related Prospectus Supplement, Mortgaged
Properties will be appraised by licensed appraisers. The appraiser will
generally address neighborhood conditions, site and zoning status and
condition and valuation of improvements. In the case of Single Family
Properties, the appraisal report will generally include a reproduction cost
analysis (when appropriate) based on the current cost of constructing a
similar home and a market value analysis based on recent sales of comparable
homes in the area. With respect to Multifamily Properties, the appraisal must
specify whether an income analysis, a market analysis or a cost analysis was
used. An appraisal employing the income approach to value analyzes a
property's projected net cash flow, capitalization and other operational
information in determining the property's value. The market approach to value
analyzes the prices paid for the purchase of similar properties in the
property's area, with adjustments made for variations between those other
properties and the property being appraised. The cost approach to value
requires the appraiser to make an estimate of land value and then determine
the current cost of reproducing the improvements less any accrued
depreciation. In any case, the value of the property being financed, as
indicated by the appraisal, must be such that it currently supports, and is
anticipated to support in the future, the outstanding loan balance. Unless
otherwise specified in the related Prospectus Supplement, all appraisals are
required to conform to the Uniform Standards of Professional Appraisal
Practice and the Financial Institutions Reform, Recovery and Enforcement Act
of 1989 ("FIRREA") and must be on forms acceptable to the Federal National
Mortgage Association ("Fannie Mae") and/or the Federal Home Loan Mortgage
Corporation ("FHLMC").
 
FEDERAL HOME LOAN MORTGAGE CORPORATION ("FREDDIE MAC")
 
  Notwithstanding the foregoing, Loan-to-Value Ratios will not necessarily
constitute an accurate measure of the risk of liquidation loss in a pool of
Mortgage Loans. For example, the value of a Mortgaged Property as of the date
of initial issuance of the related series of Certificates may be less than the
Value 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
 
                                      26
<PAGE>
 
property, if agents or employees of the lender have become sufficiently
involved in the operations of the borrower, regardless of whether or not the
environmental damage or threat was caused by the borrower or a prior owner. A
lender also risks such liability on foreclosure of the mortgage. See "Certain
Legal Aspects of Mortgage Loans--Environmental Legislation".
 
  With respect to any FHA Loan the Mortgage Loan Seller will be required to
represent that it has complied with the applicable underwriting policies of
the FHA. See "Primary Mortgage Insurance, Hazard Insurance; Claims
Thereunder--FHA Insurance".
 
  To the extent available, the related Prospectus Supplement will include
delinquency and foreclosure experience for the applicable Seller(s) and/or
Master Servicer.
 
QUALIFICATIONS OF ORIGINATORS AND SELLERS
 
  Unless otherwise specified in the related Prospectus Supplement, each
Mortgage Loan will be originated, directly or through mortgage brokers and
correspondents, by a savings and loan association, savings bank, commercial
bank, credit union, insurance company, or similar institution which is
supervised and examined by a federal or state authority, or by a mortgagee
approved by the Secretary of Housing and Urban Development pursuant to
sections 203 and 211 of the National Housing Act of 1934, as amended (the
"Housing Act"). Except with respect to Designated Seller Transactions or
unless otherwise specified in the related Prospectus Supplement, each Seller
must satisfy certain criteria as to financial stability evaluated on a case-
by-case basis by the Company. These criteria include, but are not limited to
requirements that each Seller must (i) be properly licensed to originate and
sell loans; (ii) have been conducting business for a pre-determined time
period; (iii) meet minimum net worth standards; (iv) maintain insurance at
pre-determined levels of coverage; and (v) be in "good standing" with
governmental licensing and revenue collection agencies.
 
REPRESENTATIONS BY SELLERS
 
  Unless otherwise specified in the related Prospectus Supplement, each Seller
will have made representations and warranties in respect of the Mortgage Loans
and/or Mortgage Securities sold by such Seller and evidenced by a series of
Certificates. In the case of Mortgage Loans, such representations and
warranties will generally include, among other things, that as to each such
Mortgage Loan: (i) any required hazard and primary mortgage insurance policies
were effective at the origination of such Mortgage Loan, and each such policy
remained in effect on the date of purchase of such Mortgage Loan from the
Seller by or on behalf of the Company; (ii) with respect to each Mortgage Loan
other than a Contract, either (A) a title insurance policy insuring (subject
only to permissible title insurance exceptions) the lien status of the
Mortgage was effective at the origination of such Mortgage Loan and such
policy remained in effect on the date of purchase of the Mortgage Loan from
the Seller by or on behalf of the Company or (B) if the Mortgaged 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
 
                                      27
<PAGE>
 
Security. In the event of a breach of a Seller's representation or warranty
that materially adversely affects the interests of the Certificateholders in a
Mortgage Loan or Mortgage Security, unless otherwise specified in the related
Prospectus Supplement, the related Seller will be obligated to cure the breach
or repurchase or, if permitted, replace such Mortgage Loan or Mortgage
Security as described below. However, there can be no assurance that a Seller
will honor its obligation to repurchase or, if permitted, replace any Mortgage
Loan or Mortgage Security as to which such a breach of a representation or
warranty arises.
 
  All of the representations and warranties of a Seller in respect of a
Mortgage Loan or Mortgage Security will have been made as of the date on which
such Mortgage Loan or Mortgage Security was purchased from the Seller by or on
behalf of the Company; the date as of which such representations and
warranties were made will be a date prior to the date of initial issuance of
the related series of Certificates or, in the case of a Designated Seller
Transaction, will be the date of closing of the related sale by the applicable
Seller. A substantial period of time may have elapsed between the date as of
which the representations and warranties were made and the later date of
initial issuance of the related series of Certificates. Accordingly, the
Seller's purchase obligation (or, if specified in the related Prospectus
Supplement, limited replacement option) described below will not arise if,
during the period commencing on the date of sale of a Mortgage Loan or
Mortgage Security by the Seller, an event occurs that would have given rise to
such an obligation had the event occurred prior to sale of the affected
Mortgage Loan or Mortgage Security, as the case may be. Unless otherwise
specified in the related Prospectus Supplement, the only representations and
warranties to be made for the benefit of holders of Certificates in respect of
any related Mortgage Loan or Mortgage Security relating to the period
commencing on the date of sale of such Mortgage Loan or Mortgage Security by
the Seller to or on behalf of the Company will be certain limited
representations of the Company and the Master Servicer described under
"Description of the Certificates--Assignment of Trust Fund Assets" below.
 
  The Company will assign to the Trustee for the benefit of the holders of the
related series of Certificates all of its right, title and interest in each
agreement by which it purchased a Mortgage Loan or Mortgage Security from a
Seller insofar as such agreement relates to the representations and warranties
made by such Seller in respect of such Mortgage Loan or Mortgage Security and
any remedies provided for with respect to any breach of such representations
and warranties. If a Seller cannot cure a breach of any representation or
warranty made by it in respect of a Mortgage Loan or Mortgage Security which
materially and adversely affects the interests of the Certificateholders
therein within a specified period after having discovered or received notice
of such breach, then, unless otherwise specified in the related Prospectus
Supplement, such Seller will be obligated to purchase such Mortgage Loan or
Mortgage Security at a price (the "Purchase Price") set forth in the related
Pooling Agreement which Purchase Price will generally be equal to the
principal balance thereof as of the date of purchase plus accrued and unpaid
interest through or about the date of purchase at the related Mortgage Rate or
pass-through rate, as applicable (net of any portion of such interest payable
to such Seller in respect of master servicing compensation, special servicing
compensation or subservicing compensation, as applicable, and the Spread, if
any).
 
  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
 
                                      28
<PAGE>
 
Account by the Master Servicer in the month of substitution for distribution
to the Certificateholders), (ii) have a Mortgage Rate and a Net Mortgage Rate
not less than (and not more than one percentage point greater than) the
Mortgage Rate and Net Mortgage Rate, respectively, of the Deleted Mortgage
Loan as of the date of substitution, (iii) have a Loan-to-Value Ratio at the
time of substitution no higher than that of the Deleted Mortgage Loan at the
time of substitution, (iv) have a remaining term to maturity not greater than
(and not more than one year less than) that of the Deleted Mortgage Loan, (v)
comply with all of the representations and warranties made by such Affiliated
Seller as of the date of substitution, and (vi) be covered under a primary
insurance policy if such Mortgage Loan has a Loan-to-Value Ratio greater than
80%. The related purchase agreement may include additional requirements
relating to ARM Loans or other specific types of Mortgage Loans, or additional
provisions relating to meeting the foregoing requirements on an aggregate
basis where a number of substitutions occur contemporaneously. Unless
otherwise specified in the related Prospectus Supplement, an Unaffiliated
Seller will have no option to substitute for a Mortgage Loan that it is
obligated to repurchase in connection with a breach of a representation and
warranty, and neither an Affiliated Seller nor an Unaffiliated Seller will
have any option to substitute for a Mortgage Security that it is obligated to
repurchase in connection with a breach of a representation and warranty.
 
  The Master Servicer will be required under the applicable Pooling Agreement
to use reasonable efforts to enforce this purchase or substitution obligation
for the benefit of the Trustee and the Certificateholders, following such
practices it would employ in its good faith business judgment and which are
normal and usual in its general mortgage servicing activities; provided,
however, that this purchase or substitution obligation will not become an
obligation of the Master Servicer in the event the applicable Seller fails to
honor such obligation. In instances where a Seller is unable, or disputes its
obligation, to purchase affected Mortgage Loans and/or Mortgage Securities,
the Master Servicer, employing the standards set forth in the preceding
sentence, may negotiate and enter into one or more settlement agreements with
such Seller that could provide for, among other things, the purchase of only a
portion of the affected Mortgage Loans and/or Mortgage Securities. Any such
settlement could lead to losses on the Mortgage Loans and/or Mortgage
Securities which would be borne by the related Certificates. In accordance
with the above described practices, the Master Servicer will not be required
to enforce any purchase obligation of a Seller arising from any
misrepresentation by the Seller, if the Master Servicer determines in the
reasonable exercise of its business judgment that the matters related to such
misrepresentation did not directly cause or are not likely to directly cause a
loss on the related Mortgage Loan or Mortgage Security. If the Seller fails to
repurchase and no breach of any other party's representations has occurred,
the Seller's purchase obligation will not become an obligation of the Company
or any other party. In the case of a Designated Seller Transaction where the
Seller fails to repurchase a Mortgage Loan or Mortgage Security and neither
the Company nor any other entity has assumed the representations and
warranties, such repurchase obligation of the Seller will not become an
obligation of the Company or any other party. Unless otherwise specified in
the related Prospectus Supplement, the foregoing obligations will constitute
the sole remedies available to Certificateholders or the Trustee for a breach
of any representation by a Seller or for any other event giving rise to such
obligations as described above.
 
  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.
 
                                      29
<PAGE>
 
                          SERVICING OF MORTGAGE LOANS
 
GENERAL
 
  The Mortgage Loans and Mortgage Securities included in each Mortgage Pool
will be serviced and administered pursuant to a Pooling Agreement. Forms of
Pooling Agreements have been filed as an exhibit to the Registration Statement
of which this Prospectus is a part. However, the provisions of each Pooling
Agreement will vary depending upon the nature of the related Mortgage Pool.
The following summaries describe the material servicing-related provisions
that may appear in a Pooling Agreement for a Mortgage Pool that includes
Mortgage Loans. The related Prospectus Supplement will describe any servicing-
related provision of such a Pooling Agreement that materially differs from the
description thereof contained in this Prospectus and, if the related Mortgage
Pool includes Mortgage Securities, will summarize all of the material
provisions of the related Pooling Agreement that govern the administration of
such Mortgage Securities and identify the party responsible for such
administration. The summaries herein do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all of the
provisions of the related Pooling Agreement and the description of such
provisions in the related Prospectus Supplement.
 
  With respect to any series of Certificates as to which the related Mortgage
Pool includes Mortgage Securities, the servicing and administration of the
Mortgage Loans underlying such Mortgage Securities will be pursuant to the
terms of such Mortgage Securities. It is expected that Mortgage Loans
underlying any Mortgage Securities in a Mortgage Pool would be serviced and
administered generally in the same manner as Mortgage Loans included in a
Mortgage Pool, however, there can be no assurance that such will be the case,
particularly if such Mortgage Securities are issued by an entity other than
the Company or any of its affiliates. The related Prospectus Supplement will
describe any material differences between the servicing described below and
the servicing of Mortgage Loans underlying the Mortgage Securities in any
Mortgage Pool.
 
THE MASTER SERVICER
 
  The master servicer (the "Master Servicer"), if any, for a series of
Certificates will be named in the related Prospectus Supplement and may be ICI
Funding or another affiliate of the Company. The Master Servicer is generally
required to maintain a fidelity bond and errors and omissions policy with
respect to its officers and employees and other persons acting on behalf of
the Master Servicer in connection with its activities under a Pooling
Agreement.
 
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
 
                                      30
<PAGE>
 
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 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
 
                                      31
<PAGE>
 
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 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
 
                                      32
<PAGE>
 
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).
 
  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."
 
                                      33
<PAGE>
 
  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.
 
  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
 
                                      34
<PAGE>
 
Revenue Service grants an extension of time to sell such property or (ii) the
Trustee receives an opinion of independent counsel to the effect that the
holding of the property by the Trust Fund for more than two years after its
acquisition will not result in the imposition of a tax on the Trust Fund or
cause the Trust Fund to fail to qualify as a REMIC under the Code at any time
that any Certificate is outstanding. Subject to the foregoing and any other
tax-related constraints, the Master Servicer will generally be required to
solicit bids for any Mortgaged Property so acquired in such a manner as will
be reasonably likely to realize a fair price for such property. Unless
otherwise provided in the related Prospectus Supplement, if title to any
Mortgaged Property is acquired by a Trust Fund as to which a REMIC election
has been made, the Master Servicer will also be required to ensure that the
Mortgaged Property is administered so that it constitutes "foreclosure
property" within the meaning of Code Section 86OG(a)(8) at all times, that the
sale of such property does not result in the receipt by the Trust Fund of any
income from non-permitted assets as described in Code Section 86OF(a)(2)(B),
and that the Trust Fund does not derive any "net income from foreclosure
property" within the meaning of Code Section 86OG(c)(2), with respect to such
property.
 
  If Liquidation Proceeds collected with respect to a defaulted Mortgage Loan
are less than the outstanding principal balance of the defaulted Mortgage Loan
plus interest accrued thereon plus the aggregate amount of reimbursable
expenses incurred by the Master Servicer with respect to such Mortgage Loan,
and the shortfall is not covered under any applicable instrument or fund
constituting credit enhancement, the Trust Fund will realize a loss in the
amount of such difference. The Master Servicer will be entitled to reimburse
itself from the Liquidation Proceeds recovered on any defaulted Mortgage Loan,
prior to the distribution of such Liquidation Proceeds to Certificateholders,
amounts that represent unpaid servicing compensation in respect of the
Mortgage Loan, unreimbursed servicing expenses incurred with respect to the
Mortgage Loan and any unreimbursed advances of delinquent payments made with
respect to the Mortgage Loan. If so provided in the related Prospectus
Supplement, the applicable form of credit enhancement may provide for
reinstatement subject to certain conditions in the event that, following the
final liquidation of a Mortgage Loan and a draw under such credit enhancement,
subsequent recoveries are received. In addition, if a gain results from the
final liquidation of a defaulted Mortgage Loan or an REO Mortgage Loan which
is not required by law to be remitted to the related Mortgagor, the Master
Servicer will not be entitled to retain such gain as additional servicing
compensation unless the related Prospectus Supplement provides otherwise. For
a description of the Master Servicer's (or other specified person's)
obligations to maintain and make claims under applicable forms of credit
enhancement and insurance relating to the Mortgage Loans, see "Description of
Credit Enhancement" and "Primary Mortgage Insurance, Hazard Insurance; Claims
Thereunder."
 
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES; SPREAD
 
  The principal servicing compensation to be paid to the Master Servicer in
respect of its master servicing activities for a series of Certificates will
be equal to the percentage per annum described in the related Prospectus
Supplement (which may vary under certain circumstances) of the outstanding
principal balance of each Mortgage Loan, and such compensation will be
retained by it on a monthly or other periodic basis from collections of
interest on such Mortgage Loan in the related Trust Fund at the time such
collections are deposited into the applicable Certificate Account. If so
specified in the related Prospectus Supplement, the Master Servicer will
retain all Prepayment Premiums, assumption fees and late payment charges, to
the extent collected from Mortgagors, and any benefit which may accrue as a
result of the investment of funds in the applicable Certificate Account. Any
additional servicing compensation will be described in the related Prospectus
Supplement. Any Subservicer will receive a portion of the Master Servicer's
compensation as its sub-servicing compensation.
 
  In addition to amounts payable to any Subservicer, the Master Servicer will
pay or cause to be paid certain ongoing expenses associated with each Trust
Fund and incurred by it in connection with its responsibilities under the
Pooling Agreement, including, if so specified in the related Prospectus
Supplement, payment of any fee or other amount payable in respect of any
alternative credit enhancement arrangements, payment of the fees and
disbursements of the Trustee, any custodian appointed by the Trustee and the
Certificate Registrar, and payment of expenses incurred in enforcing the
obligations of Subservicers and Sellers. The Master Servicer will be entitled
to reimbursement of expenses incurred in enforcing the obligations of
Subservicers and Sellers under certain
 
                                      35
<PAGE>
 
limited circumstances. In addition, the Master Servicer will be entitled to
reimbursements for certain expenses incurred by it in connection with
Liquidated Mortgage Loans and in connection with the restoration of Mortgaged
Properties, such right of reimbursement being prior to the rights of
Certificateholders to receive any related Liquidation Proceeds or Insurance
Proceeds. If and to the extent so provided in the related Prospectus
Supplement, the Master Servicer will be entitled to receive interest on
amounts advanced to cover such reimbursable expenses for the period that such
advances are outstanding at the rate specified in such Prospectus Supplement,
and the Master Servicer will be entitled to payment of such interest
periodically from general collections on the Mortgage Loans in the related
Trust Fund prior to any payment to Certificateholders or as otherwise provided
in the related Pooling Agreement and described in such Prospectus Supplement.
 
  The Prospectus Supplement for a series of Certificates will specify whether
there will be any Spread retained. Any such Spread will be a specified portion
of the interest payable on each Mortgage Loan in a Mortgage Pool and will not
be part of the related Trust Fund. Any such Spread will be established on a
loan-by-loan basis and the amount thereof with respect to each Mortgage Loan
in a Mortgage Pool will be specified on an exhibit to the related Pooling
Agreement. Any partial recovery of interest in respect of a Mortgage Loan will
be allocated between the owners of any Spread and the holders of classes of
Certificates entitled to payments of interest as provided in the related
Prospectus Supplement and the applicable Pooling Agreement.
 
  If and to the extent provided in the related Prospectus Supplement, the
Master Servicer may be required to apply a portion of the servicing
compensation otherwise payable to it in respect of any period to any
Prepayment Interest Shortfalls resulting from Mortgagor prepayments during
such period. See "Yield Considerations."
 
EVIDENCE AS TO COMPLIANCE
 
  Each Pooling Agreement will provide that on or before a specified date in
each year, beginning the first such date that is at least a specified number
of months after the Cut-off Date, a firm of independent public accountants
will furnish a statement to the Company and the Trustee to the effect that, on
the basis of an examination by such firm conducted substantially in compliance
with the Uniform Single Attestation Program for Mortgage Bankers or the Audit
Program for Mortgages serviced for Freddie Mac, the servicing of mortgage
loans under agreements (including the related Pooling Agreement) substantially
similar to each other was conducted in compliance with such agreements except
for such significant exceptions or errors in records that, in the opinion of
the firm, the Uniform Single Attestation Program for Mortgage Bankers or the
Audit Program for Mortgages serviced for Freddie Mac requires it to report. In
rendering its statement such firm may rely, as to the matters relating to the
direct servicing of mortgage loans by Subservicers, upon comparable statements
for examinations conducted substantially in compliance with the Uniform Single
Attestation Program for Mortgage Bankers or the Audit Program for Mortgages
serviced for Freddie Mac (rendered within one year of such statement) of firms
of independent public accountants with respect to those Subservicers which
also have been the subject of such an examination.
 
  Each Pooling Agreement will also provide for delivery to the Trustee, on or
before a specified date in each year, of an annual statement signed by one or
more officers of the Master Servicer to the effect that, to the best knowledge
of each such officer, the Master Servicer has fulfilled in all material
respects its obligations under the Pooling Agreement throughout the preceding
year or, if there has been a material default in the fulfillment of any such
obligation, such statement shall specify each such known default and the
nature and status thereof. Such statement may be provided as a single form
making the required statements as to more than one Pooling Agreement.
 
  Unless otherwise specified in the related Prospectus Supplement, copies of
the annual accountants' statement and the annual statement of officers of a
Master Servicer may be obtained by Certificateholders without charge upon
written request to the Master Servicer at the address of the Master Servicer
set forth under "The Master Servicer; the Sub-Servicer" in the Prospectus
Supplement. Such requests should be sent to the attention of the President of
the Master Servicer.
 
 
                                      36
<PAGE>
 
                        DESCRIPTION OF THE CERTIFICATES
 
GENERAL
 
  The Certificates will be issued in series. Each series of Certificates (or,
in certain instances, two or more series of Certificates) will be issued
pursuant to a Pooling Agreement, similar to one of the forms filed as an
exhibit to the Registration Statement of which this Prospectus is a part. Each
Pooling Agreement will be filed with the Securities and Exchange Commission as
an exhibit to a Current Report on Form 8-K. The following summaries (together
with additional summaries under "The Pooling Agreement" below) describe the
material provisions relating to the Certificates common to each Pooling
Agreement. The summaries do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, all of the provisions of the
Pooling Agreement for each Trust Fund and the related Prospectus Supplement.
Wherever particular sections or defined terms of the Pooling Agreement are
referred to herein, such sections or defined terms are thereby incorporated
herein by reference.
 
  Unless otherwise specified in the related Prospectus Supplement,
Certificates of each series covered by a particular Pooling Agreement will
evidence specified beneficial ownership interests in a separate Trust Fund
created pursuant to such Pooling Agreement. A Trust Fund will consist of, to
the extent provided in the Pooling Agreement: (i) such Mortgage Loans (and the
related mortgage documents) or interests therein (including any Mortgage
Securities) underlying a particular series of Certificates as from time to
time are subject to the Pooling Agreement, exclusive of, if specified in the
related Prospectus Supplement, any Spread or other interest retained by the
Company or any of its affiliates with respect to each such Mortgage Loan; (ii)
such assets including, without limitation, all payments and collections in
respect of the Mortgage Loans or Mortgage Securities due after the related
Cut-off Date, as from time to time are identified as deposited in respect
thereof in the related Certificate Account as described below; (iii) any
property acquired in respect of Mortgage Loans in the Trust Fund, whether
through foreclosure of such Mortgage Loans or by deed in lieu of foreclosure
or otherwise; (iv) hazard insurance policies, Primary Insurance Policies and
FHA insurance policies, if any, maintained in respect of Mortgage Loans in the
Trust Fund and certain proceeds of such policies; (v) certain rights of the
Company under any Mortgage Loan Purchase Agreement, including in respect of
any representations and warranties therein; and (vi) any combination, as and
to the extent specified in the related Prospectus Supplement, of a Letter of
Credit, Purchase Obligation, Mortgage Pool Insurance Policy, Special Hazard
Insurance Policy or Bankruptcy Bond as described under "Description of Credit
Enhancement." To the extent that any Trust Fund includes certificates of
interest or participations in Mortgage Loans, the related Prospectus
Supplement will describe the material terms and conditions of such
certificates or participations.
 
  If provided in the related Prospectus Supplement, the original principal
amount of a series of Certificates may exceed the principal balance of the
Mortgage Loans or Mortgage Securities initially being delivered to the
Trustee. Cash in an amount equal to such difference will be deposited into a
separate trust account (the "Pre-Funding Account") maintained with the
Trustee. During the period set forth in the related Prospectus Supplement,
amounts on deposit in the Pre-Funding Account may be used to purchase
additional Mortgage Loans or Mortgage Securities for the related Trust Fund,
which Mortgage Loans will generally be underwritten to the same standards as
the Mortgage Loans initially included in the Trust Fund. Any amounts remaining
in the Pre-Funding Account at the end of such period will be distributed as a
principal prepayment to the holders of the related series of Certificates at
the time and in the manner set forth in the related Prospectus Supplement. A
Pre-Funding Account will be required to be maintained as an Eligible Account,
all amounts therein will be required to be invested in Permitted Investments
and the amount held therein shall at no time exceed 25% of the aggregate
outstanding principal of the Certificates. The related agreement providing for
the transfer of additional Mortgage Loans will provide that all such transfers
must be made within 9 months (as to amounts representing proceeds from the
sale of the Certificates) or 12 months (as to amounts representing principal
collections on the Mortgage Loans) after the Closing Date, and that amounts to
be set aside to fund such transfers (whether in a Pre-Funding Account or
otherwise) and not so applied within the required period of time will be
deemed to be principal prepayments and applied in the manner set forth in such
Prospectus Supplement.
 
 
                                      37
<PAGE>
 
  The Company will be required to provide data regarding any additional
Mortgage Loans or Mortgage Securities to the Rating Agencies and the credit
support provider, if any, sufficiently in advance of the scheduled transfer to
permit review by such parties. Transfer of any additional Mortgage Loans or
Mortgage Securities will be further conditioned upon confirmation by the
Rating Agencies that the addition of such Mortgage Loans to the Trust Fund
will not result in the downgrading of the Certificates or, in the case of a
series guaranteed or supported by a credit support provider, will not
adversely affect the capital requirements of such credit support provider.
Additionally, a legal opinion to the effect that the conditions to the
transfer of the additional Mortgage Loans or Mortgage Securities have been
satisfied will be required. If a Trust Fund includes a Pre-Funding Account and
the principal balance of additional Mortgage Loans delivered to the Trust Fund
during the Pre-Funding Period is less than the Pre-Funded Amount, the
Certificateholders will receive a prepayment of principal as and to the extent
described in the related Prospectus Supplement. Any such principal prepayment
may adversely affect the yield to maturity of the applicable Certificates.
 
  Each series of Certificates may consist of any one or a combination of the
following: (i) a single class of Certificates; (ii) two or more classes of
Certificates, one or more classes of which will be senior ("Senior
Certificates") in right of payment to one or more of the other classes
("Subordinate Certificates"), and as to which certain classes of Senior (or
Subordinate) Certificates may be senior to other classes of Senior (or
Subordinate) Certificates, as described in the respective Prospectus
Supplement (any such series, a "Senior/Subordinate Series"); (iii) two or more
classes of Certificates, one or more classes ("Strip Certificates") of which
will be entitled to (a) principal distributions, with disproportionate,
nominal or no interest distributions or (b) interest distributions, with
disproportionate, nominal or no principal distributions; (iv) two or more
classes of Certificates which differ as to the timing, sequential order, rate,
pass-through rate or amount of distributions of principal or interest or both,
or as to which distributions of principal or interest or both on any such
class may be made upon the occurrence of specified events, in accordance with
a schedule or formula (including "planned amortization classes" and "targeted
amortization classes"), or on the basis of collections from designated
portions of the Mortgage Pool, and which classes may include one or more
classes of Certificates ("Accrual Certificates") with respect to which certain
accrued interest will not be distributed but rather will be added to the
principal balance thereof on each Distribution Date for the period described
in the related Prospectus Supplement; or (v) other types of classes of
Certificates, as described in the related Prospectus Supplement. As to each
series, all Certificates offered hereby (the "Offered Certificates") will be
rated in one of the four highest rating categories by one or more Rating
Agencies. Credit support for the Offered Certificates of each series may be
provided by a Mortgage Pool Insurance Policy, Special Hazard Insurance Policy,
Bankruptcy Bond, Letter of Credit, Purchase Obligation or Reserve Fund as
described under "Description of Credit Enhancement," by the subordination of
one or more other classes of Certificates as described under "Description of
Credit Enhancement--Subordinate Certificates" or by any combination of the
foregoing.
 
  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
 
                                      38
<PAGE>
 
any registration of exchange or transfer of Offered Certificates, but the
Trustee may require payment of a sum sufficient to cover any tax or other
governmental charge. The term "Certificateholder" or "Holder" as used herein
refers to the entity whose name appears on the records of the Certificate
Registrar (consisting of or including the "Certificate Register") as the
registered holder of a Certificate, except as otherwise indicated in the
related Prospectus Supplement.
 
  If so specified in the related Prospectus Supplement, specified classes of a
series of Certificates will be initially issued through the book-entry
facilities of The Depository Trust Company ("DTC"). As to any such class of
Certificates ("DTC Registered Certificates"), the record Holder of such
Certificates will be DTC's nominee. DTC is a limited-purpose trust company
organized under the laws of the State of New York, which holds securities for
its participating organizations ("Participants") and facilitates the clearance
and settlement of securities transactions between Participants through
electronic book-entry changes in the accounts of Participants. Participants
include securities brokers and dealers, banks, trust companies and clearing
corporations and may include certain other organizations. Other institutions
that are not Participants but clear through or maintain a custodial
relationship with Participants (such institutions, "Intermediaries") have
indirect access to DTC's clearance system.
 
  Unless otherwise specified in the related Prospectus Supplement, no person
acquiring an interest in any DTC Registered Certificates (each such person, a
"Beneficial Owner") will be entitled to receive a Certificate representing
such interest in registered, certificated form, unless either (i) DTC ceases
to act as depository in respect thereof and a successor depository is not
obtained, or (ii) the Company elects in its sole discretion to discontinue the
registration of such Certificates through DTC. Prior to any such event,
Beneficial Owners will not be recognized by the Trustee or the Master Servicer
as Holders of the related Certificates for purposes of the related Pooling
Agreement, and Beneficial Owners will be able to exercise their rights as
owners of such Certificates only indirectly through DTC, Participants and
Intermediaries. Any Beneficial Owner that desires to purchase, sell or
otherwise transfer any interest in DTC Registered Certificates may do so only
through DTC, either directly if such Beneficial Owner is a Participant or
indirectly through Participants and, if applicable, Intermediaries. Pursuant
to the procedures of DTC, transfers of the beneficial ownership of any DTC
Registered Certificates will be required to be made in minimum denominations
specified in the related Prospectus Supplement. The ability of a Beneficial
Owner to pledge DTC Registered Certificates to persons or entities that are
not Participants in the DTC system, or to otherwise act with respect to such
Certificates, may be limited because of the lack of physical certificates
evidencing such Certificates and because DTC may act only on behalf of
Participants.
 
  Distributions in respect of the DTC Registered Certificates will be
forwarded by the Trustee or other specified person to DTC, and DTC will be
responsible for forwarding such payments to Participants, each of which will
be responsible for disbursing such payments to the Beneficial Owners it
represents or, if applicable, to Intermediaries. Accordingly, Beneficial
Owners may experience delays in the receipt of payments in respect of their
Certificates. Under DTC's procedures, DTC will take actions permitted to be
taken by Holders of any class of DTC Registered Certificates under the Pooling
Agreement only at the direction of one or more 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
 
                                      39
<PAGE>
 
principal and interest received on or with respect to such Mortgage Loans or
Mortgage Securities after the Cut-off Date, other than principal and interest
due on or before the Cut-off Date. If specified in the related Prospectus
Supplement, the Company or any of its affiliates may retain the Spread, if
any, for itself or transfer the same to others. The Trustee will, concurrently
with such assignment, deliver the Certificates of such series to or at the
direction of the Company in exchange for the Mortgage Loans and/or Mortgage
Securities in the related Trust Fund. Each Mortgage Loan will be identified in
a schedule appearing as an exhibit to the related Pooling Agreement. Such
schedule will include, among other things, information as to the principal
balance of each Mortgage Loan in the related Trust Fund as of the Cut-off
Date, as well as information respecting the Mortgage Rate, the currently
scheduled monthly payment of principal and interest, the maturity of the
Mortgage Note and the Loan-to-Value Ratio at origination or modification
(without regard to any secondary financing).
 
  In addition, unless otherwise specified in the related Prospectus
Supplement, the Company will, as to each Mortgage Loan (other than Mortgage
Loans underlying any Mortgage Securities and other than Contracts), deliver,
or cause to be delivered, to the related Trustee (or to the custodian
described below) the Mortgage Note endorsed, without recourse, either in blank
or to the order of such Trustee (or its nominee), the Mortgage with evidence
of recording indicated thereon (except for any Mortgage not returned from the
public recording office), an assignment of the Mortgage in blank or to the
Trustee (or its nominee) in recordable form, together with any intervening
assignments of the Mortgage with evidence of recording thereon (except for any
such assignment not returned from the public recording office), and, if
applicable, any riders or modifications to such Mortgage Note and Mortgage,
together with certain other documents at such times as set forth in the
related Pooling Agreement. Such assignments may be blanket assignments
covering Mortgages on Mortgaged Properties located in the same county, if
permitted by law. Notwithstanding the foregoing, a Trust Fund may include
Mortgage Loans where the original Mortgage Note is not delivered to the
Trustee if the Company delivers, or causes to be delivered, to the related
Trustee (or the custodian) a copy or a duplicate original of the Mortgage
Note, together with an affidavit certifying that the original thereof has been
lost or destroyed. In addition, if the Company cannot deliver, with respect to
any Mortgage Loan, the Mortgage or any intervening assignment with evidence of
recording thereon concurrently with the execution and delivery of the related
Pooling Agreement because of a delay caused by the public recording office,
the Company will deliver, or cause to be delivered, to the related Trustee (or
the custodian) a true and correct photocopy of such Mortgage or assignment as
submitted for recording. The Company will deliver, or cause to be delivered,
to the related Trustee (or the custodian) such Mortgage or assignment with
evidence of recording indicated thereon after receipt thereof from the public
recording office. If the Company cannot deliver, with respect to any Mortgage
Loan, the Mortgage or any intervening assignment with evidence of recording
thereon concurrently with the execution and delivery of the related Pooling
Agreement because such Mortgage or assignment has been lost, the Company will
deliver, or cause to be delivered, to the related Trustee (or the custodian) a
true and correct photocopy of such Mortgage or assignment with evidence of
recording thereon. Assignments of the Mortgage Loans to the Trustee (or its
nominee) will be recorded in the appropriate public recording office, except
in states where, in the opinion of counsel acceptable to the Trustee, such
recording is not required to protect the Trustee's interests in the Mortgage
Loan against the claim of any subsequent transferee or any successor to or
creditor of the Company or the originator of such Mortgage Loan, or except as
otherwise specified in the related Prospectus Supplement as to any series of
Certificates. In addition, unless specified in the related Prospectus
Supplement, the Company will, as to each 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).
 
                                      40
<PAGE>
 
  The Trustee (or the custodian hereinafter referred to) will hold such
documents in trust for the benefit of the related Certificateholders, and
generally will review such documents within 90 days after receipt thereof in
the case of documents delivered concurrently with the execution and delivery
of the related Pooling Agreement, and within the time period specified in the
related Pooling Agreement in the case of all other documents delivered. Unless
otherwise specified in the related Prospectus Supplement, if any such document
is found to be missing or defective in any material respect, the Trustee (or
such custodian) will be required to promptly so notify the Master Servicer,
the Company, and the related Seller. If the related Seller does not cure the
omission or defect within a specified period after notice is given thereto by
the Trustee, and such omission or defect materially and adversely affects the
interests of Certificateholders in the affected Mortgage Loan or Mortgage
Security, then, unless otherwise specified in the related Prospectus
Supplement, the related Seller will be obligated to purchase such Mortgage
Loan or Mortgage Security from the Trustee at its Purchase Price (or, if and
to the extent it would otherwise be permitted to do so for a breach of
representation and warranty as described under "The Mortgage Pools--
Representations of Sellers," to substitute for such Mortgage Loan or Mortgage
Security). The Trustee will be obligated to enforce this obligation of the
Seller to the extent described above under "The Mortgage Pools--
Representations by Sellers," but there can be no assurance that the applicable
Seller will fulfill its obligation to purchase (or substitute for) the
affected Mortgage Loan or Mortgage Security as described above. Unless
otherwise specified in the related Prospectus Supplement, neither the Master
Servicer nor the Company will be obligated to purchase or substitute for such
Mortgage Loan or Mortgage Security if the Seller defaults on its obligation to
do so. Unless otherwise specified in the related Prospectus Supplement, this
purchase or substitution obligation constitutes the sole remedy available to
the related Certificateholders and the related Trustee for omission of, or a
material defect in, a constituent document. Any affected Mortgage Loan or
Mortgage Security not so purchased or substituted for shall remain in the
related Trust Fund.
 
  The Trustee will be authorized at any time to appoint one or more custodians
pursuant to a custodial agreement to hold title to the Mortgage Loans and/or
Mortgage Securities in any Mortgage Pool, and to maintain possession of and,
if applicable, to review, the documents relating to such Mortgage Loans and/or
Mortgage Securities, in any case as the agent of the Trustee. The identity of
any such custodian to be appointed on the date of initial issuance of the
Certificates will be set forth in the related Prospectus Supplement. Any such
custodian may be an affiliate of the Company or the Master Servicer.
 
  With respect to the Mortgage Loans in a Mortgage Pool, except in the case of
a Designated Seller Transaction or as to Mortgage Loans underlying any
Mortgage Securities or unless otherwise specified in the related Prospectus
Supplement, the Company will make certain representations and warranties as to
the types and geographical concentrations of such Mortgage Loans and as to the
accuracy, in all material respects, of certain identifying information
furnished to the related Trustee in respect of each such Mortgage Loan (e.g.,
original Loan-to-Value Ratio, principal balance as of the Cut-off Date,
Mortgage Rate and maturity). Upon a breach of any such representation which
materially and adversely affects the interests of the Certificateholders in a
Mortgage Loan, the Company will be obligated to cure the breach in all
material respects, to purchase the Mortgage Loan at its Purchase Price or,
unless otherwise specified in the related Prospectus Supplement, to substitute
for such Mortgage Loan a Qualified Substitute Mortgage Loan in accordance with
the provisions for such substitution by Affiliated Sellers as described above
under "The Mortgage Pools--Representations by Sellers." However, the Company
will not be required to repurchase or substitute for any Mortgage Loan in
connection with a breach of a representation and warranty if the 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
 
                                      41
<PAGE>
 
Servicer will make certain representations and warranties regarding its
authority to enter into, and its ability to perform its obligations under, the
Pooling Agreement.
 
CERTIFICATE ACCOUNT
 
  General. The Master Servicer and/or the Trustee will, as to each Trust Fund,
establish and maintain or cause to be established and maintained one or more
separate accounts for the collection of payments on the related Mortgage Loans
and/or Mortgage Securities constituting such Trust Fund (collectively, the
"Certificate Account"), which will be established so as to comply with the
standards of each Rating Agency that has rated any one or more classes of
Certificates of the related series. A Certificate Account may be maintained
either as an interest-bearing or a non-interest-bearing account, and the funds
held therein may be held as cash or invested in United States government
securities and other investment grade obligations specified in the related
Pooling Agreement ("Permitted Investments"). Such Permitted Investments will,
however, consist of investments only to the extent that such investments would
not require registration of a Trust Fund as an investment company under the
Investment Company Act of 1940, as amended. Unless otherwise provided in the
related Prospectus Supplement, any interest or other income earned on funds in
the Certificate Account will be paid to the related Master Servicer or Trustee
as additional compensation. If permitted by such Rating Agency or Agencies and
so specified in the related Prospectus Supplement, a Certificate Account may
contain funds relating to more than one series of mortgage pass-through
certificates and may contain other funds representing payments on mortgage
loans owned by the related Master Servicer or serviced by it on behalf of
others.
 
  Deposits. Unless otherwise provided in the related Pooling Agreement and
described in the related Prospectus Supplement, the related Master Servicer,
Trustee or Special Servicer will be required to deposit or cause to be
deposited in the Certificate Account for each Trust Fund within a certain
period following receipt (in the case of collections and payments), the
following payments and collections received, or advances made, by the Master
Servicer, the Trustee or any Special Servicer subsequent to the Cut-off Date
with respect to the Mortgage Loans and/or Mortgage Securities in such Trust
Fund (other than payments due on or before the Cut-off Date):
 
    (i) all payments on account of principal, including principal
  prepayments, on the Mortgage Loans;
 
    (ii) all payments on account of interest on the Mortgage Loans, including
  any default interest collected, in each case net of any portion thereof
  retained by the Master Servicer, any Special Servicer or Sub-Servicer as
  its servicing compensation or as compensation to the Trustee, and further
  net of any Spread;
 
    (iii) all payments on the Mortgage Securities;
 
    (iv) all proceeds received under any hazard, title, primary mortgage, FHA
  or other insurance policy that provides coverage with respect to a
  particular Mortgaged Property or the related Mortgage Loan other than
  proceeds applied to the restoration of the property or released to the
  related borrower in accordance with the customary servicing practices of
  the Master Servicer (or, if applicable, a Special Servicer) and/or the
  terms and conditions of the related Mortgage (collectively, "Insurance
  Proceeds") and all other amounts received and retained in connection with
  the liquidation of defaulted Mortgage Loans or property acquired in respect
  thereof, by foreclosure or otherwise ("Liquidation Proceeds"), together
  with the net operating income (less reasonable reserves for future
  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
 
                                      42
<PAGE>
 
  Seller or any other person pursuant to the terms of the related Pooling
  Agreement as described under "The Mortgage Pools--Representations by
  Sellers," "Servicing of Mortgage Loans--Realization Upon and Sale of
  Defaulted Mortgage Loans," "--Assignment of Trust Fund Assets" above, "The
  Pooling Agreement-- Termination; Retirement of Certificates" and "Purchase
  Obligations" (all of the foregoing, also "Liquidation Proceeds");
 
    (ix) any amounts paid by the Master Servicer to cover Prepayment Interest
  Shortfalls arising out of the prepayment of Mortgage Loans as described
  under "Servicing of Mortgage Loans--Servicing and Other Compensation and
  Payment of Expenses; Spread";
 
    (x) to the extent that any such item does not constitute additional
  servicing compensation to the Master Servicer or a Special Servicer, any
  payments on account of modification or assumption fees, late payment
  charges, Prepayment Premiums or Equity Participations on the Mortgage
  Loans;
 
    (xi) any amount required to be deposited by the Master Servicer or the
  Trustee in connection with losses realized on investments for the benefit
  of the Master Servicer or the Trustee, as the case may be, of funds held in
  the Certificate Account; and
 
    (xii) any other amounts required to be deposited in the Certificate
  Account as provided in the related Pooling Agreement and described herein
  or in the related Prospectus Supplement.
 
  With respect to each Buydown Mortgage Loan, the Master Servicer will be
required to deposit the related Buydown Funds provided to it in a Buydown
Account which will comply with the requirements set forth herein with respect
to the Certificate Account. Unless otherwise specified in the related
Prospectus Supplement, the terms of all Buydown Mortgage Loans provide for the
contribution of Buydown Funds in an amount equal to or exceeding either (i)
the total payments to be made from such funds pursuant to the related buydown
plan or (ii) if such Buydown Funds are to be deposited on a discounted basis,
that amount of Buydown Funds which, together with investment earnings thereon
at a rate as will support the scheduled level of payments due under the
Buydown Mortgage Loan. Neither the Master Servicer nor the Company will be
obligated to add to any such discounted Buydown Funds any of its own funds
should investment earnings prove insufficient to maintain the scheduled level
of payments. To the extent that any such insufficiency is not recoverable from
the Mortgagor or, in an appropriate case, from the Seller, distributions to
Certificateholders may be affected. With respect to each Buydown Mortgage
Loan, the Master Servicer will be required monthly to withdraw from the
Buydown Account and deposit in the Certificate Account as described above the
amount, if any, of the Buydown Funds (and, if applicable, investment earnings
thereon) for each Buydown Mortgage Loan that, when added to the amount due
from the Mortgagor on such Buydown Mortgage Loan, equals the full monthly
payment which would be due on the Buydown Mortgage Loan if it were not subject
to the buydown plan. The Buydown Funds will in no event be a part of the
related Trust Fund.
 
  If the Mortgagor on a Buydown Mortgage Loan prepays such Mortgage Loan in
its entirety during the Buydown Period, the Master Servicer will be required
to withdraw from the Buydown Account and remit 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
 
                                      43
<PAGE>
 
Insurance Policy (the "Pool Insurer") or any other insurer), the Master
Servicer will be required to withdraw from the Buydown Account the Buydown
Funds and all investment earnings thereon, if any, and either deposit the same
in the Certificate Account or, alternatively, pay the same to the Primary
Insurer or the Pool Insurer, as the case may be, if the Mortgaged Property is
transferred to such insurer and such insurer pays all of the loss incurred in
respect of such default.
 
  Withdrawals. Unless otherwise provided in the related Pooling Agreement and
described in the related Prospectus Supplement, a Master Servicer, Trustee or
Special Servicer may make withdrawals from the Certificate Account for each
Trust Fund for any of the following purposes:
 
    (i) to make distributions to the related Certificateholders on each
  Distribution Date;
 
    (ii) to reimburse the Master Servicer or any other specified person for
  unreimbursed amounts advanced by it as described under "--Advances" below
  in respect of Mortgage Loans in the Trust Fund, such reimbursement to be
  made out of amounts received which were identified and applied by the
  Master Servicer as late collections of interest (net of related servicing
  fees) on and principal of the particular Mortgage Loans with respect to
  which the advances were made or out of amounts drawn under any form of
  credit enhancement with respect to such Mortgage Loans;
 
    (iii) to reimburse the Master Servicer or a Special Servicer for unpaid
  servicing fees earned by it and certain unreimbursed servicing expenses
  incurred by it with respect to Mortgage Loans in the Trust Fund and
  properties acquired in respect thereof, such reimbursement to be made out
  of amounts that represent Liquidation Proceeds and Insurance Proceeds
  collected on the particular Mortgage Loans and properties, and net income
  collected on the particular properties, with respect to which such fees
  were earned or such expenses were incurred or out of amounts drawn under
  any form of credit enhancement with respect to such Mortgage Loans and
  properties;
 
    (iv) to reimburse the Master Servicer or any other specified person for
  any advances described in clause (ii) above made by it and any servicing
  expenses referred to in clause (iii) above incurred by it which, in the
  good faith judgment of the Master Servicer or such other person, will not
  be recoverable from the amounts described in clauses (ii) and (iii),
  respectively, such reimbursement to be made from amounts collected on other
  Mortgage Loans in the Trust Fund or, if and to the extent so provided by
  the related Pooling Agreement and described in the related Prospectus
  Supplement, only from that portion of amounts collected on such other
  Mortgage Loans that is otherwise distributable on one or more classes of
  Subordinate Certificates of the related series;
 
    (v) if and to the extent described in the related Prospectus Supplement,
  to pay the Master Servicer, a Special Servicer or another specified entity
  (including a provider of credit enhancement) interest accrued on the
  advances described in clause (ii) above made by it and the servicing
  expenses described in clause (iii) above incurred by it while such remain
  outstanding and unreimbursed;
 
    (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 the 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";
 
                                      44
<PAGE>
 
    (x) to pay the Master Servicer or the Trustee, as additional
  compensation, interest and investment income earned in respect of amounts
  held in the Certificate Account;
 
    (xi) to pay (generally from related income) for costs incurred in
  connection with the operation, management and maintenance of any Mortgaged
  Property acquired by the Trust Fund by foreclosure or otherwise;
 
    (xii) if one or more elections have been made to treat the Trust Fund or
  designated portions thereof as a REMIC, to pay any federal, state or local
  taxes imposed on the Trust Fund or its assets or transactions, as and to
  the extent described under "Federal Income Tax Consequences--REMICS--
  Prohibited Transactions and Other Possible REMIC Taxes";
 
    (xiii) to pay for the cost of an independent appraiser or other expert in
  real estate matters retained to determine a fair sale price for a defaulted
  Mortgage Loan or a property acquired in respect thereof in connection with
  the liquidation of such Mortgage Loan or property;
 
    (xiv) to pay for the cost of various opinions of counsel obtained
  pursuant to the related Pooling Agreement for the benefit of the related
  Certificateholders;
 
    (xv) to pay to itself, the Company, a Seller or any other appropriate
  person all amounts received with respect to each Mortgage Loan purchased,
  repurchased or removed from the Trust Fund pursuant to the terms of the
  related Pooling Agreement and not required to be distributed as of the date
  on which the related Purchase Price is determined;
 
    (xvi) to make any other withdrawals permitted by the related Pooling
  Agreement and described in the related Prospectus Supplement; and
 
    (xvii) to clear and terminate the Certificate Account upon the
  termination of the Trust Fund.
 
DISTRIBUTIONS
 
  Distributions on the Certificates of each series will be made by or on
behalf of the related Trustee or Master Servicer on each Distribution Date as
specified in the related Prospectus Supplement from the Available Distribution
Amount for such series and such Distribution Date. Unless otherwise provided
in the related Prospectus Supplement, the "Available Distribution Amount" for
any series of Certificates and any Distribution Date will refer to the total
of all payments or other collections (or advances in lieu thereof) on, under
or in respect of the Mortgage Loans and/or Mortgage Securities and any other
assets included in the 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
 
                                      45
<PAGE>
 
and surrender of such Certificates at the location specified in the notice to
Certificateholders of such final distribution.
 
DISTRIBUTIONS OF INTEREST AND PRINCIPAL ON THE CERTIFICATES
 
  Each class of Certificates of each series (other than certain classes of
Strip Certificates and certain REMIC Residual Certificates that have no Pass-
Through Rate) may have a different Pass-Through Rate, which may be fixed,
variable or adjustable, or any combination of two or more such rates. The
related Prospectus Supplement will specify the Pass-Through Rate or, in the
case of a variable or adjustable Pass-Through Rate, the method for determining
the Pass-Through Rate, for each class. Unless otherwise specified in the
related Prospectus Supplement, interest on the Certificates of each series
will be calculated on the basis of a 360-day year consisting of twelve 30-day
months.
 
  Distributions of interest in respect of the Certificates of any class (other
than any class of Certificates that will be entitled to distributions of
accrued interest commencing only on the Distribution Date, or under the
circumstances, specified in the related Prospectus Supplement ("Accrual
Certificates"), and other than any class of Strip Certificates or REMIC
Residual Certificates that is not entitled to any distributions of interest)
will be made on each Distribution Date based on the Accrued Certificate
Interest for such class and such Distribution Date, subject to the sufficiency
of the portion of the Available Distribution Amount allocable to such class on
such Distribution Date. Prior to the time interest is distributable on any
class of Accrual Certificates, the amount of Accrued Certificate Interest
otherwise distributable on such class will be added to the principal balance
thereof on each Distribution Date. With respect to each class of Certificates
(other than certain classes of Strip Certificates and REMIC Residual
Certificates), "Accrued Certificate Interest" for each Distribution Date will
be equal to interest at the applicable Pass-Through Rate accrued for a
specified period (generally one month) on the outstanding principal balance
thereof immediately prior to such Distribution Date. Unless otherwise provided
in the related Prospectus Supplement, Accrued Certificate Interest for each
Distribution Date on Strip Certificates entitled to distributions of interest
will be similarly calculated except that it will accrue on a notional amount
that is either (i) based on the principal balances of some or all of the
Mortgage Loans and/or Mortgage Securities in the related Trust Fund or (ii)
equal to the principal balances of one or more other classes of Certificates
of the same series. Reference to such a notional amount with respect to a
class of Strip Certificates is solely for convenience in making certain
calculations and does not represent the right to receive any distribution of
principal. If so specified in the related Prospectus Supplement, the amount of
Accrued Certificate Interest that is otherwise distributable on (or, in the
case of Accrual Certificates, that may otherwise be added to the principal
balance of) one or more classes of the Certificates of a series will be
reduced to the extent that any Prepayment Interest Shortfalls, as described
under "Yield Considerations", exceed the amount of any sums (including, if and
to the extent specified in the related Prospectus Supplement, the Master
Servicer's servicing compensation) that are applied to offset such shortfalls.
The particular manner in which such shortfalls will be allocated among some or
all 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
 
                                      46
<PAGE>
 
formula or other provisions applicable to the determination thereof (including
distributions among multiple classes of Senior Certificates or Subordinate
Certificates), shall be as set forth in the related Prospectus Supplement.
Distributions of principal with respect to one or more classes of Certificates
may be made at a rate that is faster (and, in some cases, substantially
faster) than the rate at which payments or other collections of principal are
received on the Mortgage Loans and/or Mortgage Securities in the related Trust
Fund, may not commence until the occurrence of certain events, such as the
retirement of one or more other classes of Certificates of the same series, or
may be made at a rate that is slower (and, in some cases, substantially
slower) than the rate at which payments or other collections of principal are
received on such Mortgage Loans and/or Mortgage Securities. In addition,
distributions of principal with respect to one or more classes of Certificates
may be made, subject to available funds, based on a specified principal
payment schedule and, with respect to one or more classes of Certificates, may
be contingent on the specified principal payment schedule for another class of
the same series and the rate at which payments and other collections of
principal on the Mortgage Loans and/or Mortgage Securities in the related
Trust Fund are received.
 
DISTRIBUTIONS ON THE CERTIFICATES IN RESPECT OF PREPAYMENT PREMIUMS OR IN
RESPECT OF EQUITY PARTICIPATIONS
 
  If so provided in the related Prospectus Supplement, Prepayment Premiums or
payments in respect of Equity Participations received on or in connection with
the Mortgage Assets in any Trust Fund will be distributed on each Distribution
Date to the holders of the class of Certificates of the related series
entitled thereto in accordance with the provisions described in such
Prospectus Supplement. "Equity Participations" are financial participations in
the equity portions of mortgage pools.
 
ALLOCATION OF LOSSES AND SHORTFALLS
 
  The amount of any losses or shortfalls in collections on the Mortgage Loans
and/or Mortgage Securities in any Trust Fund (to the extent not covered or
offset by draws on any reserve fund or under any instrument of credit
enhancement) will be allocated among the respective classes of Certificates of
the related series in the priority and manner, and subject to the limitations,
specified in the related Prospectus Supplement. As described in the related
Prospectus Supplement, such allocations may result in reductions in the
entitlements to interest and/or principal balances of one or more such classes
of Certificates, or may be effected simply by a prioritization of payments
among such classes of Certificates.
 
ADVANCES
 
  If and to the extent provided in the related Prospectus Supplement, and
subject to any limitations specified therein, the related Master Servicer may
be obligated to advance, or have the option of advancing, on or before each
Distribution Date, from its or their own funds or from excess funds held in
the related Certificate Account that are not part of the Available
Distribution Amount for the related series of Certificates for such
Distribution Date, an amount up to the aggregate of any payments of principal
(other than the principal portion of any Balloon Payments) and interest that
were due on or in respect of such 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
 
                                      47
<PAGE>
 
includes one or more classes of Subordinate Certificates, collections on other
Mortgage Loans in the related Trust Fund that would otherwise be distributable
to the holders of one or more classes of such Subordinate Certificates. No
advance will be required to be made by the Master Servicer if, in the good
faith judgment of the Master Servicer, such advance would not be recoverable
from Related Proceeds or another specifically identified source (any such
advance, a "Nonrecoverable Advance"); and, if previously made by a Master
Servicer, a Nonrecoverable Advance will be reimbursable from any amounts in
the related Certificate Account prior to any distributions being made to the
related series of Certificateholders.
 
  If advances have been made from excess funds in a Certificate Account, the
Master Servicer that advanced such funds will be required to replace such
funds in the Certificate Account on any future Distribution Date to the extent
that funds then in the Certificate Account are insufficient to permit full
distributions to Certificateholders on such date. If so specified in the
related Prospectus Supplement, the obligation of a Master Servicer to make
advances may be secured by a cash advance reserve fund or a surety bond. If
applicable, information regarding the characteristics of, and the identity of
any obligor on, any such surety bond, will be set forth in the related
Prospectus Supplement.
 
  If any person other than the Master Servicer has any obligation to make
advances as described above, the related Prospectus Supplement will identify
such person.
 
  If and to the extent so provided in the related Prospectus Supplement, any
entity making advances will be entitled to receive interest thereon for the
period that such advances are outstanding at the rate specified in such
Prospectus Supplement, and such entity will be entitled to payment of such
interest periodically from general collections on the Mortgage Loans in the
related Trust Fund prior to any payment to Certificateholders or as otherwise
provided in the related Pooling Agreement and described in such Prospectus
Supplement.
 
  As specified in the related Prospectus Supplement with respect to any series
of Certificates as to which the Trust Fund includes Mortgage Securities, the
advancing obligations with respect to the underlying Mortgage Loans will be
pursuant to the terms of such Mortgage Securities, as may be supplemented by
the terms of the applicable Pooling Agreement, and may differ from the
provisions described above.
 
REPORTS TO CERTIFICATEHOLDERS
 
  With each distribution to Certificateholders of a particular class of
Offered Certificates, the related Master Servicer or Trustee will forward or
cause to be forwarded to each holder of record of such class of Certificates a
statement or statements with respect to the related Trust Fund setting forth
the information specifically described in the related Pooling Agreement, which
generally will include the following as applicable except as otherwise
provided therein:
 
    (i) the amount, if any, of such distribution allocable to principal;
 
    (ii) the amount, if any, of such distribution allocable to interest;
 
    (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;
 
 
                                      48
<PAGE>
 
    (viii) the number and aggregate principal balance of any Mortgage Loans
  in the related Mortgage Pool in respect of which (A) one scheduled payment
  is delinquent, (B) two scheduled payments are delinquent, (C) three or more
  scheduled payments are delinquent and (D) foreclosure proceedings have been
  commenced;
 
    (ix) the book value of any real estate acquired by such Trust Fund
  through foreclosure or grant of a deed in lieu of foreclosure;
 
    (x) the balance of the Reserve Fund, if any, at the close of business on
  such Distribution Date;
 
    (xi) the amount of coverage under any Letter of Credit or Mortgage Pool
  Insurance Policy covering default risk as of the close of business on the
  applicable Determination Date and a description of any credit enhancement
  substituted therefor;
 
    (xii) the Special Hazard Amount, Fraud Loss Amount and Bankruptcy Amount
  as of the close of business on the applicable Distribution Date and a
  description of any change in the calculation of such amounts;
 
    (xiii) in the case of Certificates benefiting from alternative credit
  enhancement arrangements described in a Prospectus Supplement, the amount
  of coverage under such alternative arrangements as of the close of business
  on the applicable Determination Date; and
 
    (xiv) with respect to any series of Certificates as to which the Trust
  Fund includes Mortgage Securities, certain additional information as
  required under the related Pooling Agreement and specified in the related
  Prospectus Supplement.
 
  In the case of information furnished pursuant to subclauses (i)-(iii) above,
the amounts will be expressed as a dollar amount per minimum denomination of
the relevant class of Offered Certificates or per a specified portion of such
minimum denomination. In addition to the information described above, reports
to Certificateholders will contain such other information as is set forth in
the applicable Pooling Agreement, which may include, without limitation,
prepayments, reimbursements to Subservicers and the Master Servicer and losses
borne by the related Trust Fund.
 
  In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer or Trustee will furnish a report to each
holder of record of a class of Offered Certificates at any time during such
calendar year which, among other things, will include information as to the
aggregate of amounts reported pursuant to subclauses (i)-(iii) above for such
calendar year or, in the event such person was a holder 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
 
                                      49
<PAGE>
 
there was fraud in the origination of such Mortgage Loans (any such loss, a
"Fraud Loss"). Unless otherwise specified in the related Prospectus
Supplement, Defaulted Mortgage Losses, Special Hazard Losses, Bankruptcy
Losses and Fraud Losses in excess of the amount of coverage provided therefor
and losses occasioned by war, civil insurrection, certain governmental
actions, nuclear reaction and certain other risks ("Extraordinary Losses")
will not be covered. To the extent that the credit support for the Offered
Certificates of any series is exhausted, the holders thereof will bear all
further risks of loss not otherwise insured against.
 
  As set forth below and in the applicable Prospectus Supplement, (i) coverage
with respect to Defaulted Mortgage Losses may be provided by one or more of a
Letter of Credit or a Mortgage Pool Insurance Policy, (ii) coverage with
respect to Special Hazard Losses may be provided by one or more of a Letter of
Credit or a Special Hazard Insurance Policy (any instrument, to the extent
providing such coverage, a "Special Hazard Instrument"), (iii) coverage with
respect to Bankruptcy Losses may be provided by one or more of a Letter of
Credit or a Bankruptcy Bond and (iv) coverage with respect to Fraud Losses may
be provided by one or more of a Letter of Credit, Mortgage Pool Insurance
Policy or mortgage repurchase bond. In addition, if provided in the applicable
Prospectus Supplement, in lieu of or in addition to any or all of the
foregoing arrangements, credit enhancement may be in the form of a Reserve
Fund to cover such losses, in the form of subordination of one or more classes
of Subordinate Certificates to provide credit support to one or more classes
of Senior Certificates, or in the form of a specified entity's agreement to
repurchase certain Mortgage Loans or fund certain losses pursuant to a
Purchase Obligation, which obligations may be supported by a Letter of Credit,
surety bonds or other types of insurance policies, certain other secured or
unsecured corporate guarantees or in such other form as may be described in
the related Prospectus Supplement, or in the form of a combination of two or
more of the foregoing. The credit support may be provided by an assignment of
the right to receive certain cash amounts, a deposit of cash into a Reserve
Fund or other pledged assets, or by banks, insurance companies, guarantees or
any combination thereof identified in the applicable Prospectus Supplement.
 
  The amounts and type of credit enhancement arrangement as well as the
provider thereof, if applicable, with respect to the Offered Certificates of
each series will be set forth in the related Prospectus Supplement. To the
extent provided in the applicable Prospectus Supplement and the Pooling
Agreement, the credit enhancement arrangements may be periodically modified,
reduced and substituted for based on the aggregate outstanding principal
balance of the Mortgage Loans covered thereby. See "Description of Credit
Enhancement--Reduction or Substitution of Credit Enhancement." If specified in
the applicable Prospectus Supplement, credit support for the Offered
Certificates of one series may cover the Offered Certificates of one or more
other series.
 
  The descriptions of any insurance policies or bonds described in this
Prospectus or any Prospectus Supplement and the coverage thereunder, while
setting forth the material terms thereof, do not purport to be complete and
are qualified in their entirety by reference to the actual forms of such
policies, copies of which are available upon request.
 
  In general, references to "Mortgage Loans" under this "Description of Credit
Enhancement" section are to Mortgage Loans in a Trust Fund. However, if so
provided in the Prospectus Supplement for a series of Certificates, any
Mortgage Securities included in the related Trust Fund and/or the related
underlying Mortgage Loans may be covered by one or more of the types of credit
support described herein. The related Prospectus Supplement will specify, as
to each such form of credit support, the information indicated below with
respect thereto.
 
SUBORDINATE CERTIFICATES
 
  If so specified in the related Prospectus Supplement, one or more classes of
Certificates of a series may be Subordinate Certificates. To the extent
specified in the related Prospectus Supplement, the rights of the holders of
Subordinate Certificates to receive distributions from the Certificate Account
on any Distribution Date will be subordinated to the corresponding rights of
the holders of Senior Certificates. If so provided in the related Prospectus
Supplement, the subordination of a class may apply only in the event of (or
may be limited to) certain types of losses or shortfalls. The related
Prospectus Supplement will set forth information concerning the manner
 
                                      50
<PAGE>
 
and amount of subordination provided by a class or classes of Subordinate
Certificates in a series and the circumstances under which such subordination
will be available. The Offered Certificates of any series may include one or
more classes of Subordinate Certificates.
 
  If the Mortgage Loans and/or Mortgage Securities in any Trust Fund are
divided into separate groups, each supporting a separate class or classes of
Certificates of the related series, credit enhancement may be provided by
cross-support provisions requiring that distributions be made on Senior
Certificates evidencing interests in one group of Mortgage Loans and/or
Mortgage Securities prior to distributions on Subordinate Certificates
evidencing interests in a different group of Mortgage Loans and/or Mortgage
Securities within the Trust Fund. The Prospectus Supplement for a series that
includes a cross-support provision will describe the manner and conditions for
applying such provisions.
 
LETTER OF CREDIT
 
  If any component of credit enhancement as to the Offered Certificates of any
series is to be provided by a letter of credit (the "Letter of Credit"), a
bank (the "Letter of Credit Bank") will deliver to the related Trustee an
irrevocable Letter of Credit. The Letter of Credit may provide direct coverage
with respect to the Mortgage Loans or, if specified in the related Prospectus
Supplement, support an entity's obligation pursuant to a Purchase Obligation
to make certain payments to the related Trustee with respect to one or more
components of credit enhancement. The Letter of Credit Bank, as well as the
amount available under the Letter of Credit with respect to each component of
credit enhancement, will be specified in the applicable Prospectus Supplement.
If so specified in the related Prospectus Supplement, the Letter of Credit may
permit draws only in the event of certain types of losses and shortfalls. The
Letter of Credit may also provide for the payment of advances which the Master
Servicer would be obligated to make with respect to delinquent monthly
mortgage payments. The amount available under the Letter of Credit will, in
all cases, be reduced to the extent of the unreimbursed payments thereunder
and may otherwise be reduced as described in the related Prospectus
Supplement. The Letter of Credit will expire on the expiration date set forth
in the related Prospectus Supplement, unless earlier terminated or extended in
accordance with its terms.
 
MORTGAGE POOL INSURANCE POLICIES
 
  Any mortgage pool insurance policy (a "Mortgage Pool Insurance Policy")
obtained by the Company for each Trust Fund will be issued by the Pool Insurer
named in the applicable Prospectus Supplement. Each Mortgage Pool Insurance
Policy will, subject to the limitations described below, cover Defaulted
Mortgage Losses in an amount equal to a percentage specified in the applicable
Prospectus Supplement of the aggregate principal balance of the Mortgage Loans
on the Cut-off Date. As set forth under "--Maintenance of Credit 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
 
                                      51
<PAGE>
 
accrued and unpaid interest at the applicable Mortgage Rate to the date of
purchase and certain expenses incurred by the Master Servicer, Special
Servicer or Subservicer on behalf of the related Trustee and
Certificateholders, or (b) to pay the amount by which the sum of the principal
balance of the defaulted Mortgage Loan plus accrued and unpaid interest at the
Mortgage Rate to the date of payment of the claim and the aforementioned
expenses exceeds the proceeds received from an approved sale of the Mortgaged
Property, in either case net of certain amounts paid or assumed to have been
paid under any related Primary Insurance Policy. Certificateholders will
experience a shortfall in the amount of interest payable on the related
Certificates in connection with the payment of claims under a Mortgage Pool
Insurance Policy because the Pool Insurer is only required to remit unpaid
interest through the date a claim is paid rather than through the end of the
month in which such claim is paid. In addition, the Certificateholders will
also experience losses with respect to the related Certificates in connection
with payments made under a Mortgage Pool Insurance Policy to the extent that
the Master Servicer expends funds to cover unpaid real estate taxes or to
repair the related Mortgaged Property in order to make a claim under a
Mortgage Pool Insurance Policy, as those amounts will not be covered by
payments under such policy and will be reimbursable to the Master Servicer
from funds otherwise payable to the Certificateholders. If any Mortgaged
Property securing a defaulted Mortgage Loan is damaged and proceeds, if any
(see "--Special Hazard Insurance Policies" below for risks which are not
covered by such policies), from the related hazard insurance policy or
applicable Special Hazard Instrument are insufficient to restore the damaged
property to a condition sufficient to permit recovery under the Mortgage Pool
Insurance Policy, the Master Servicer is not required to expend its own funds
to restore the damaged property unless it determines (x) that such restoration
will increase the proceeds to one or more classes of Certificateholders on
liquidation of the Mortgage Loan after reimbursement of the Master Servicer
for its expenses and (y) that such expenses will be recoverable by it through
Liquidation Proceeds or Insurance Proceeds.
 
  Unless otherwise specified in the related Prospectus Supplement, a Mortgage
Pool Insurance Policy (and certain Primary Insurance Policies) will likely not
insure against loss sustained by reason of a default arising from, among other
things, (i) fraud or negligence in the origination or servicing of a Mortgage
Loan, including misrepresentation by the Mortgagor, the Seller or other
persons involved in the origination thereof, or (ii) failure to construct a
Mortgaged Property in accordance with plans and specifications. Depending upon
the nature of the event, a breach of representation made by a Seller may also
have occurred. Such a breach, if it materially and adversely affects the
interests of Certificateholders and cannot be cured, would give rise to a
purchase obligation on the part of the Seller, as more fully described under
"The Mortgage Pools--Representations by Sellers." However, such an event would
not give rise to a breach of a representation and warranty or a purchase
obligation on the part of the Company or Master Servicer.
 
  The original amount of coverage under each Mortgage Pool Insurance Policy
will be reduced over the life of the related series of Certificates by the
aggregate dollar amount of claims paid less the aggregate of the net amounts
realized by the Pool Insurer upon disposition of all foreclosed properties.
The amount of claims paid includes certain expenses incurred by the Master
Servicer, Special Servicer or Subservicer as 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
 
                                      52
<PAGE>
 
significantly less than full replacement cost of such losses. Further, no
coverage in respect of Special Hazard Losses, Fraud Losses or Bankruptcy
Losses will cover all risks, and the amount of any such coverage will be
limited. See "--Special Hazard Insurance Policies" below. As a result, certain
hazard risks will not be insured against and will therefore be borne by the
related Certificateholders.
 
SPECIAL HAZARD INSURANCE POLICIES
 
  Any insurance policy covering Special Hazard Losses (a "Special Hazard
Insurance Policy") obtained by the Company for a Trust Fund will be issued by
the insurer named in the applicable Prospectus Supplement. Each Special Hazard
Insurance Policy will, subject to limitations described below, protect holders
of the related series of Certificates from (i) losses due to direct physical
damage to a Mortgaged Property other than any loss of a type covered by a
hazard insurance policy or a flood insurance policy, if applicable, and (ii)
losses from partial damage caused by reason of the application of the co-
insurance clauses contained in hazard insurance policies ("Special Hazard
Losses"). See "Primary Mortgage Insurance, Hazard Insurance; Claims
Thereunder." However, a Special Hazard Insurance Policy will not cover losses
occasioned by war, civil insurrection, certain governmental actions, errors in
design, faulty workmanship or materials (except under certain circumstances),
nuclear reaction, chemical contamination, waste by the Mortgagor and certain
other risks. Aggregate claims under a Special Hazard Insurance Policy will be
limited to the amount set forth in the related Prospectus Supplement and will
be subject to reduction as described in such related Prospectus Supplement. A
Special Hazard Insurance Policy will provide that no claim may be paid unless
hazard and, if applicable, flood insurance on the property securing the
Mortgage Loan has been kept in force and other protection and preservation
expenses have been paid by the Master Servicer.
 
  Subject to the foregoing limitations, a Special Hazard Insurance Policy will
provide that, where there has been damage to property securing a foreclosed
Mortgage Loan (title to which has been acquired by the insured) and to the
extent such damage is not covered by the hazard insurance policy or flood
insurance policy, if any, maintained by the Mortgagor or the Master Servicer,
Special Servicer or the Subservicer, the insurer will pay the lesser of (i)
the cost of repair or replacement of such property or (ii) upon transfer of
the property to the insurer, the unpaid principal balance of such Mortgage
Loan at the time of acquisition of such property by foreclosure or deed in
lieu of foreclosure, plus accrued interest at the Mortgage Rate to the date of
claim settlement and certain expenses incurred by the Master Servicer, Special
Servicer or Subservicer with respect to such property. If the property is
transferred to a third party in a sale approved by the issuer of the Special
Hazard Insurance Policy (the "Special Hazard Insurer"), the amount that the
Special Hazard Insurer will pay will be the amount under (ii) above reduced by
the net proceeds of the sale of the property. No claim may be validly
presented under the Special Hazard Insurance Policy unless hazard insurance on
the property securing a defaulted Mortgage Loan has been kept in force and
other reimbursable protection, preservation and foreclosure expenses have been
paid (all of which must be approved in advance by the Special Hazard Insurer).
If the unpaid principal balance plus accrued interest and certain expenses is
paid by the insurer, the amount of further coverage under the related Special
Hazard Insurance Policy will be reduced by such amount less any net proceeds
from the sale of the property. Any amount paid as the cost of repair of the
property will further reduce coverage by such amount. Restoration of the
property with the proceeds described under (i) above will satisfy the
condition under each Mortgage Pool Insurance Policy that the property be
restored 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
 
                                      53
<PAGE>
 
Instrument other than a Special Hazard Insurance Policy or by means of the
special hazard representation of the Company.
 
BANKRUPTCY BONDS
 
  In the event of a personal bankruptcy of a Mortgagor, it is possible that
the bankruptcy court may establish the value of the Mortgaged Property of such
Mortgagor at an amount less than the then outstanding principal balance of the
Mortgage Loan secured by such Mortgaged Property (a "Deficient Valuation").
The amount of the secured debt could then be reduced to such value, and, thus,
the holder of such Mortgage Loan would become an unsecured creditor to the
extent the outstanding principal balance of such Mortgage Loan exceeds the
value assigned to the Mortgaged Property by the bankruptcy court. In addition,
certain other modifications of the terms of a Mortgage Loan can result from a
bankruptcy proceeding, including a reduction in the amount of the Monthly
Payment on the related Mortgage Loan (a "Debt Service Reduction"; Debt Service
Reductions and Deficient Valuations, collectively referred to herein as
Bankruptcy Losses). See "Certain Legal Aspects of Mortgage Loans and Related
Matters--Anti-Deficiency Legislation and Other Limitations on Lenders." Any
Bankruptcy Bond to provide coverage for Bankruptcy Losses for proceedings
under the Federal Bankruptcy Code obtained by the Company for a Trust Fund
will be issued by an insurer named in the applicable Prospectus Supplement.
The level of coverage under each Bankruptcy Bond will be set forth in the
applicable Prospectus Supplement.
 
RESERVE FUNDS
 
  If so provided in the related Prospectus Supplement, the Company will
deposit or cause to be deposited in an account (a "Reserve Fund") any
combination of cash, one or more irrevocable letters of credit or one or more
Permitted Investments in specified amounts, or any other instrument
satisfactory to the relevant Rating Agency or Agencies, which will be applied
and maintained in the manner and under the conditions specified in such
Prospectus Supplement. In the alternative or in addition to such deposit, to
the extent described in the related Prospectus Supplement, a Reserve Fund may
be funded through application of all or a portion of amounts otherwise payable
on any related Subordinate Certificates, from the Spread or otherwise. To the
extent that the funding of the Reserve Fund is dependent on amounts otherwise
payable on related Subordinate Certificates, Spread or other cash flows
attributable to the related Mortgage Loans or on reinvestment income, the
Reserve Fund may provide less coverage than initially expected if the cash
flows or reinvestment income on which such funding is dependent are lower than
anticipated. In addition, with respect to any series of Certificates as to
which credit enhancement includes a Letter of Credit, if so specified in the
related Prospectus Supplement, under certain circumstances the remaining
amount of the Letter of Credit may be drawn by the Trustee and deposited in a
Reserve Fund. Amounts in a Reserve Fund may be distributed to
Certificateholders, or applied to reimburse the Master Servicer for
outstanding advances, or may be used for other purposes, in the manner and to
the extent specified in the related Prospectus Supplement. Unless otherwise
provided in the related Prospectus Supplement, any such Reserve Fund will not
be deemed to be part of the related Trust Fund. If set forth in the related
Prospectus Supplement, a Reserve Fund may provide coverage to more than one
series of Certificates.
 
  In connection with the establishment of any Reserve Fund, unless otherwise
specified in the related Prospectus Supplement, the Reserve Fund will be
structured so that the Trustee will have a perfected security interest for the
benefit of the Certificateholders in the assets in the Reserve Fund. However,
to the extent 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.
 
 
                                      54
<PAGE>
 
MAINTENANCE OF CREDIT ENHANCEMENT
 
  To the extent that the applicable Prospectus Supplement does not expressly
provide for alternative credit enhancement arrangements in lieu of some or all
of the arrangements mentioned below, the following paragraphs shall apply.
 
  If a Letter of Credit or alternate form of credit enhancement has been
obtained for a series of Certificates, the Master Servicer will be obligated
to exercise reasonable efforts to keep or cause to be kept such Letter of
Credit (or an alternate form of credit support) in full force and effect
throughout the term of the applicable Pooling Agreement, unless coverage
thereunder has been exhausted through payment of claims or otherwise, or
substitution therefor is made as described below under "--Reduction or
Substitution of Credit Enhancement." Unless otherwise specified in the
applicable Prospectus Supplement, if a Letter of Credit obtained for a series
of Certificates is scheduled to expire prior to the date the final
distribution on such Certificates is made and coverage under such Letter of
Credit has not been exhausted and no substitution has occurred, the Trustee
will draw the amount available under the Letter of Credit and maintain such
amount in trust for such Certificateholders.
 
  If a Mortgage Pool Insurance Policy has been obtained for a series of
Certificates, the Master Servicer will be obligated to exercise reasonable
efforts to keep such Mortgage Pool Insurance Policy (or an alternate form of
credit support) in full force and effect throughout the term of the applicable
Pooling Agreement, unless coverage thereunder has been exhausted through
payment of claims or until such Mortgage Pool Insurance Policy is replaced in
accordance with the terms of the applicable Pooling Agreement. Unless
otherwise provided in the related Prospectus Supplement, the Master Servicer
will agree to pay the premiums for each Mortgage Pool Insurance Policy on a
timely basis. In the event the Pool Insurer ceases to be a Qualified Insurer
(such term being defined to mean a private mortgage guaranty insurance company
duly qualified as such under the laws of the state of its incorporation and
each state having jurisdiction over the insurer in connection with the
Mortgage Pool Insurance Policy and approved as an insurer by Freddie Mac,
Fannie Mae or any successor entity) because it ceases to be qualified under
any such law to transact such insurance business or coverage is terminated for
any reason other than exhaustion of such coverage, the Master Servicer will
use reasonable efforts to obtain from another Qualified Insurer a replacement
insurance policy comparable to the Mortgage Pool Insurance Policy with a total
coverage equal to the then outstanding coverage of such Mortgage Pool
Insurance Policy, provided that, if the cost of the replacement policy is
greater than the cost of such Mortgage Pool Insurance Policy, the coverage of
the replacement policy will, unless otherwise agreed to by the Company, be
reduced to a level such that its premium rate does not exceed the premium rate
on such Mortgage Pool Insurance Policy. In the event that the Pool Insurer
ceases to be a Qualified Insurer because it ceases to be approved as an
insurer by Freddie Mac, Fannie Mae or any successor entity, the Master
Servicer will be obligated to review, not less often than monthly, the
financial condition of the Pool Insurer with a view toward determining whether
recoveries under the Mortgage Pool Insurance Policy are jeopardized for
reasons related to the financial condition of the Pool Insurer. If the Master
Servicer determines that recoveries are so jeopardized, it will be obligated
to exercise its best reasonable efforts to obtain from another Qualified
Insurer a replacement insurance policy as described above, subject to the same
cost limit. Any losses associated with any reduction or withdrawal in rating
by an applicable Rating Agency shall be borne by the related
Certificateholders.
 
  In lieu of the Master Servicer's obligation to maintain a Letter of Credit
or Mortgage Pool Insurance Policy as provided above, the Master Servicer may
obtain a substitute Letter of Credit, Mortgage Pool Insurance Policy or an
alternate form of credit enhancement. If the Master Servicer obtains such a
substitute Letter of Credit or Mortgage Pool Insurance Policy, it will
maintain and keep such Letter of Credit, Mortgage Pool Insurance Policy or
alternate form of credit enhancement in full force and effect as provided
herein. Prior to its obtaining any substitute Letter of Credit, Mortgage Pool
Insurance Policy or alternate form of credit enhancement, the Master Servicer
will obtain written confirmation from the Rating Agency or Agencies that rated
the related series of Certificates that the substitution of such Mortgage Pool
Insurance Policy, Letter of Credit, or alternate form of credit enhancement
for the existing credit enhancement will not adversely affect the then-current
ratings assigned to such Certificates by such Rating Agency or Agencies.
 
 
                                      55
<PAGE>
 
  If a Special Hazard Instrument has been obtained for a series of
Certificates, the Master Servicer will also be obligated to exercise
reasonable efforts to maintain and keep such Special Hazard Instrument in full
force and effect throughout the term of the applicable Pooling Agreement,
unless coverage thereunder has been exhausted through payment of claims or
otherwise or substitution therefor is made as described below under "--
Reduction or Substitution of Credit Enhancement." If the Special Hazard
Instrument takes the form of a Special Hazard Insurance Policy, such policy
will provide coverage against risks of the type described herein under
"Description of Credit Enhancement--Special Hazard Insurance Policies." The
Master Servicer may obtain a substitute Special Hazard Instrument for the
existing Special Hazard Instrument if prior to such substitution the Master
Servicer obtains written confirmation from the Rating Agency or Agencies that
rated the related Certificates that such substitution shall not adversely
affect the then-current ratings assigned to such Certificates by such Rating
Agency or Agencies.
 
  If a Bankruptcy Bond has been obtained for a series of Certificates, the
Master Servicer will be obligated to exercise reasonable efforts to maintain
and keep such Bankruptcy Bond in full force and effect throughout the term of
the Pooling Agreement, unless coverage thereunder has been exhausted through
payment of claims or substitution therefor is made as described below under
"--Reduction or Substitution of Credit Enhancement." The Master Servicer may
obtain a substitute Bankruptcy Bond or other credit enhancement for the
existing Bankruptcy Bond if prior to such substitution the Master Servicer
obtains written confirmation from the Rating Agency or Agencies that rated the
related Certificates that such substitution shall not adversely affect the
then-current ratings assigned to such Certificates by such Rating Agency or
Agencies. See "--Bankruptcy Bonds" above.
 
  The Master Servicer, on behalf of itself, the Trustee and
Certificateholders, will provide the Trustee information required for the
Trustee to draw under the Letter of Credit and will present claims to the
provider of any Purchase Obligation, to each Pool Insurer, to the issuer of
each Special Hazard Insurance Policy or other Special Hazard Instrument, to
the issuer of each Bankruptcy Bond and, in respect of defaulted Mortgage Loans
for which there is no Subservicer, to each Primary Insurer and take such
reasonable steps as are necessary to permit recovery under such Letter of
Credit, Purchase Obligation, insurance policies or comparable coverage
respecting defaulted Mortgage Loans or Mortgage Loans which are the subject of
a bankruptcy proceeding. Additionally, the Master Servicer will present such
claims and take such steps as are reasonably necessary to provide for the
performance by the provider of the Purchase Obligation of its Purchase
Obligation. As set forth above, all collections by the Master Servicer under
any Purchase Obligation, any Mortgage Pool Insurance Policy, any Primary
Insurance Policy or any Bankruptcy Bond and, where the related property has
not been restored, any Special Hazard Instrument, are to be deposited in the
related Certificate Account, subject to withdrawal as described above. All
draws under any Letter of Credit are also to be deposited in the related
Certificate Account. In those cases in which a Mortgage Loan is serviced by a
Subservicer, the Subservicer, on behalf of itself, the Trustee and the
Certificateholders will present claims to the Primary Insurer, and all
collections thereunder shall initially be deposited in a subservicing account
that generally meets the requirements for the Certificate Account prior to
being delivered to the Master Servicer for deposit in the related Certificate
Account.
 
  If any property securing a defaulted Mortgage Loan is damaged and proceeds,
if any, from the related hazard insurance policy or any applicable Special
Hazard Instrument are insufficient to restore the damaged property to a
condition sufficient to permit recovery under any Letter of Credit, Mortgage
Pool Insurance Policy or any related Primary Insurance Policy, the Master
Servicer is not required to expend its own funds to restore the damaged
property unless it determines (i) that such restoration will increase the
proceeds to one or more classes of Certificateholders on liquidation of the
Mortgage Loan after reimbursement of the Master Servicer for its expenses and
(ii) that such expenses will be recoverable by it through Liquidation 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
 
                                      56
<PAGE>
 
preceding sentence) as it deems necessary or advisable to realize upon the
defaulted Mortgage Loan and in the event such determination has been
incorrectly made, is entitled to reimbursement of its expenses in connection
with such restoration.
 
REDUCTION OR SUBSTITUTION OF CREDIT ENHANCEMENT
 
  Unless otherwise specified in the Prospectus Supplement, the amount of
credit support provided pursuant to any form of credit enhancements
(including, without limitation, a Mortgage Pool Insurance Policy, Special
Hazard Insurance Policy, Bankruptcy Bond, Letter of Credit, Reserve Fund,
Purchase Obligation, or any alternative form of credit enhancement) may be
reduced under certain specified circumstances. In most cases, the amount
available pursuant to any form of credit enhancement will be subject to
periodic reduction in accordance with a schedule or formula on a
nondiscretionary basis pursuant to the terms of the related Pooling Agreement.
Additionally, in most cases, such form of credit support (and any replacements
therefor) may be replaced, reduced or terminated, and the formula used in
calculating the amount of coverage with respect to Bankruptcy Losses, Special
Hazard Losses or Fraud Losses may be changed, without the consent of the
Certificateholders, upon the written assurance from each applicable Rating
Agency that the then-current rating of the related series of Certificates will
not be adversely affected. Furthermore, in the event that the credit rating of
any obligor under any applicable credit enhancement is downgraded, the credit
rating(s) of the related series of Certificates may be downgraded to a
corresponding level, and, unless otherwise specified in the related Prospectus
Supplement, the Master Servicer will not be obligated to obtain replacement
credit support in order to restore the rating(s) of the related series of
Certificates. The Master Servicer will also be permitted to replace such
credit support with other credit enhancement instruments issued by obligors
whose credit ratings are equivalent to such downgraded level and in lower
amounts which would satisfy such downgraded level, provided that the then-
current rating(s) of the related series of Certificates are maintained. Where
the credit support is in the form of a Reserve Fund, a permitted reduction in
the amount of credit enhancement will result in a release of all or a portion
of the assets in the Reserve Fund to the Company, the Master Servicer or such
other person that is entitled thereto. Any assets so released will not be
available for distributions in future periods.
 
                             PURCHASE OBLIGATIONS
 
  With respect to certain types of Mortgage Loans to be included in any
Mortgage Pool, if specified in the related Prospectus Supplement, the Mortgage
Loans may be sold subject to a Purchase Obligation as described below that
would become applicable on a specified date or upon the occurrence of a
specified event. For example, with respect to certain types of ARM Loans as to
which the Mortgage Rate is fixed for the first five years, a Purchase
Obligation may apply on the first date that the Mortgage Rate of such Mortgage
Loan is adjusted, and such obligation may apply to the Mortgage Loans or to
the related Certificates themselves, or to a corresponding Purchase Obligation
of the Company or another person as specified in the related Prospectus
Supplement. With respect to any Purchase Obligation, such obligation will be
an obligation of an entity (which may include a bank or other financial
institution or an insurance company) specified in the related Prospectus
Supplement, and an instrument evidencing such obligation (a "Purchase
Obligation") shall be delivered to the related Trustee for the benefit of the
Certificateholders to the related series.
 
  The specific terms and conditions applicable to any Purchase Obligation will
be described in the related Prospectus Supplement, including the purchase
price, the timing of and any limitations and conditions to any such purchase.
Any Purchase Obligation will be payable solely to the Trustee for the benefit
of the Certificateholders of the related series and will be nontransferable.
Unless otherwise provided in the related Prospectus Supplement, each Purchase
Obligation will be a general unsecured obligation of the provider thereof, and
prospective purchasers of Offered Certificates must look solely to the credit
of such entity for payment under the Purchase Obligation.
 
 
                                      57
<PAGE>
 
                 PRIMARY MORTGAGE INSURANCE, HAZARD INSURANCE;
                               CLAIMS THEREUNDER
 
GENERAL
 
  Each Mortgage Loan will be required to be covered by a hazard insurance
policy (as described below) and, if required as described below, a Primary
Insurance Policy. The following is only a brief description of certain
insurance policies and does not purport to summarize or describe all of the
provisions of these policies. Such insurance is subject to underwriting and
approval of individual Mortgage Loans by the respective insurers. The
descriptions of any insurance policies described in this Prospectus or any
Prospectus Supplement and the coverage thereunder, while setting forth the
material terms thereof, do not purport to be complete and are qualified in
their entirety by reference to such forms of policies, sample copies of which
are available upon request.
 
PRIMARY MORTGAGE INSURANCE POLICIES
 
  Unless otherwise specified in the related Prospectus Supplement, (i) each
Single Family Loan having a Loan-to-Value Ratio at origination of over 80% is
required by the Company to be covered by a primary mortgage guaranty insurance
policy (a "Primary Insurance Policy") insuring against default on such
Mortgage Loan as to at least the principal amount thereof exceeding 75% of the
Value of the related Mortgaged Property at origination of the Mortgage Loan,
unless and until the principal balance of the Mortgage Loan is reduced to a
level that would produce a Loan-to-Value Ratio equal to or less than at least
80%, and (ii) the Company will represent and warrant that, to the best of the
Company's knowledge, such Mortgage Loans are so covered. However, the
foregoing standard may vary significantly depending on the characteristics of
the Mortgage Loans and the applicable underwriting standards. A Mortgage Loan
will not be considered to be an exception to the foregoing standard if no
Primary Insurance Policy was obtained at origination but the Mortgage Loan has
amortized to below an 80% Loan-to-Value Ratio level as of the applicable Cut-
off Date. Mortgage Loans which are subject to negative amortization will only
be covered by a Primary Insurance Policy if such coverage was so required upon
their origination, notwithstanding that subsequent negative amortization may
cause such Mortgage Loan's Loan-to-Value Ratio (based on the then-current
balance) to subsequently exceed the limits which would have required such
coverage upon their origination. Multifamily Loans will not be covered by a
Primary Insurance Policy, regardless of the related Loan-to-Value Ratio.
 
  While the terms and conditions of the Primary Insurance Policies issued by
one primary mortgage guaranty insurer (a "Primary Insurer") will differ from
those in Primary Insurance Policies issued by other Primary Insurers, each
Primary Insurance Policy will in general provide substantially the following
coverage. The amount of the loss as calculated under a Primary Insurance
Policy covering a Mortgage Loan (herein referred to as the "Loss") will
generally consist of the unpaid principal amount of such Mortgage Loan and
accrued and unpaid interest thereon and reimbursement of certain expenses,
less (i) rents or other payments collected or received by the insured (other
than the proceeds of hazard insurance) that are derived from the related
Mortgaged Property, (ii) hazard insurance proceeds in excess of the amount
required to restore such Mortgaged Property and which have not been applied to
the payment of the Mortgage Loan, (iii) amounts expended but not approved by
the Primary Insurer, (iv) claim payments previously made on such Mortgage Loan
and (v) unpaid premiums and certain other amounts.
 
  The Primary Insurer will generally be required to pay either: (i) the
insured percentage of the Loss; (ii) the entire amount of the Loss, after
receipt by the Primary Insurer of good and merchantable title to, and
possession of, the Mortgaged Property; or (iii) at the option of the Primary
Insurer under certain Primary Insurance Policies, the sum of the delinquent
monthly payments plus any advances made by the insured, both to the date of
the claim payment and, thereafter, monthly payments in the amount that would
have become due under the Mortgage Loan if it had not been discharged plus any
advances made by the insured until the earlier of (a) the date the Mortgage
Loan would have been discharged in full if the default had not occurred or (b)
an approved sale.
 
 
                                      58
<PAGE>
 
  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."
 
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
 
                                      59
<PAGE>
 
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).
 
  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
 
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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, will be a Seller and may act as Master
Servicer with respect to a Mortgage Pool. ICI Funding is a mortgage banking
conduit that acquires conventional one- to four-family residential mortgage
loans nationwide and has, from time to time, acquired condominium conversion
loans. ICI Funding is a non-consolidating subsidiary of ICMH. ICI Funding
primarily acquires mortgage loans from approved correspondents.
   
  Prior to November 1995, ICI Funding was a division of ICII. In November
1995, ICII restructured its operations pursuant to which ICI Funding became a
separate corporation and ICII contributed, among other things, all of the
outstanding nonvoting preferred stock of ICI Funding, which represents 99% of
the economic interest in ICI Funding, to ICMH, in exchange for approximately
10% of the common stock of ICMH. The common stock of ICI Funding was retained
by ICII until March 1997 when it was distributed to certain officers and/or
directors of ICI Funding who are also officers and/or directors of ICMH.     
   
  At March 31, 1997, ICI Funding had approximately 115 employees. ICI
Funding's executive offices are located at 20371 Irvine Avenue, Santa Ana
Heights, California 92707, and its telephone number is (714) 556-0122.     
 
                    IMPERIAL CREDIT MORTGAGE HOLDINGS, INC.
 
  ICMH is a publicly traded, recently formed specialty finance company which
operates three businesses: (1) long-term investment operations, (2) conduit
operations, and (3) warehouse lending operations. The long-term investment
operations is a recently-created business that invests primarily in
nonconforming residential mortgage loans and securities backed by such loans.
The conduit operations, conducted by ICI Funding, primarily purchases and
sells or securitizes non-conforming mortgage loans, and the warehouse lending
operations provides short-term lines of credit to originators of mortgage
loans. These two businesses include certain ongoing operations contributed to
the Company by Imperial Credit Industries, Inc. ("ICII"), a leading specialty
finance
 
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<PAGE>
 
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, while setting forth
the material provisions that may be included in a Pooling Agreement, do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all of the provisions of the Pooling Agreement for each
series of Certificates and the description of such provisions in the related
Prospectus Supplement. As used herein with respect to any series, the term
"Certificate" refers to all of the Certificates of that series, whether or not
offered hereby and by the related Prospectus Supplement, unless the context
otherwise requires. The Company will provide a copy of the Pooling Agreement
(without exhibits) that relates to any series of Certificates without charge
upon written request of a holder of a Certificate of such series addressed to
it at its principal executive offices specified herein under "The Company."
 
CERTAIN MATTERS REGARDING THE MASTER SERVICER AND THE COMPANY
 
  The Pooling Agreement for each series of Certificates will provide that the
Master Servicer may not resign from its obligations and duties thereunder
except upon a determination that performance of such duties is no longer
permissible under applicable law or except (a) in connection with a permitted
transfer of servicing or (b) upon appointment of a successor servicer
reasonably acceptable to the Trustee and upon receipt by the Trustee of a
letter from each Rating Agency generally to the effect that such resignation
and appointment will not, in and of itself, result in a downgrading of the
Certificates. No such resignation will become effective until the Trustee or a
successor servicer has assumed the Master Servicer's obligations and duties
under the Pooling Agreement.
 
  Each Pooling Agreement will also provide that, except as set forth below,
neither the Master Servicer, the Company, nor any director, officer, employee
or agent of the Master Servicer or the Company will be under any liability to
the Trust Fund or the Certificateholders for any action taken or for
refraining from the taking of any action in good faith pursuant to the Pooling
Agreement, or for errors in judgment; provided, however, that neither the
Master Servicer, the Company, nor any such person will be protected against
any liability which would
 
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<PAGE>
 
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 Fannie Mae or Freddie Mac and (ii) such merger, consolidation or succession
does not adversely affect the then-current ratings of the classes of
Certificates of the related series that have been rated. In addition,
notwithstanding the prohibition on its resignation, the Master Servicer may
assign its rights under a Pooling Agreement to any person to whom the Master
Servicer is transferring a substantial portion of its mortgage servicing
portfolio, provided clauses (i) and (ii) above are satisfied and such person
is reasonably satisfactory to the Company and the Trustee. In the case of any
such assignment, the Master Servicer will be released from its obligations
under such Pooling Agreement, exclusive of liabilities and obligations
incurred by it prior to the time of such assignment.
 
EVENTS OF DEFAULT
 
  Events of Default under the Pooling Agreement in respect of a series of
Certificates, unless otherwise specified in the Prospectus Supplement, will
include, without limitation, (i) any failure by the Master Servicer to make a
required deposit to the Certificate Account or, if the Master Servicer is so
required, to distribute to the holders of any class of Certificates of such
series any required payment which continues unremedied for five days after the
giving of written notice of such failure to the Master Servicer by the Trustee
or the Company, or to the Master Servicer, the Company and the Trustee by the
holders of Certificates evidencing not less than 25% of the aggregate
undivided interests (or, if applicable, voting rights) in the related Trust
Fund; (ii) any failure by the Master Servicer duly to observe or perform in
any material respect any other of its covenants or agreements in the Pooling
Agreement with respect to such series of Certificates which continues
unremedied for 30 days (15 days in the case of a failure to pay the premium
for any insurance policy which is required to be maintained under the Pooling
Agreement) after the giving of written notice of such failure to the Master
Servicer by the Trustee or the Company, or to the Master Servicer, the Company
and the Trustee by the holders of Certificates evidencing not less than 25% of
the aggregate undivided interests (or, if applicable, voting rights) in the
related Trust Fund; and (iii) certain events of insolvency, readjustment of
debt, marshalling of assets and liabilities or similar proceedings regarding
the Master Servicer and certain actions by the Master Servicer indicating its
insolvency or inability to pay its obligations. A default pursuant to the
terms of any Mortgage Securities included in any Trust Fund will not
constitute an Event of Default under the related Pooling Agreement.
 
 
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<PAGE>
 
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 Fannie Mae- or Freddie Mac-approved mortgage servicing
institution with a net worth of at least $10,000,000 to act as successor to
the Master Servicer under the Pooling Agreement (unless otherwise set forth in
the Pooling Agreement). Pending such appointment, the Trustee is obligated to
act in such capacity. The Trustee and such successor may agree upon the
servicing compensation to be paid, which in no event may be greater than the
compensation to the initial Master Servicer under the Pooling Agreement.
 
  No Certificateholder will have any right under a Pooling Agreement to
institute any proceeding with respect to such Pooling Agreement unless such
holder previously has given to the Trustee written notice of default and the
continuance thereof and unless the holders of Certificates evidencing not less
than 25% of the aggregate undivided interests (or, if applicable, voting
rights) in the related Trust Fund have made written request upon the Trustee
to institute such proceeding in its own name as Trustee thereunder and have
offered to the Trustee reasonable indemnity and the Trustee for 60 days after
receipt of such request and indemnity has neglected or refused to institute
any such proceeding. However, the Trustee will be under no obligation to
exercise any of the trusts or powers vested in it by the Pooling Agreement or
to institute, conduct or defend any litigation thereunder or in relation
thereto at the request, order or direction of any of the holders of
Certificates covered by such Pooling Agreement, unless such Certificateholders
have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which may be incurred therein or thereby.
 
  The holders of Certificates representing at least 66% of the aggregate
undivided interests (or, if applicable, voting rights) evidenced by those
Certificates affected by a default or Event of Default may waive such default
or Event of Default (other than a failure by the Master Servicer to make an
advance); provided, however, that (a) a default or Event of Default under
clause (i) under "--Events of Default" above may be waived only by all of the
holders of Certificates affected by such default or Event of Default and (b)
no waiver shall reduce in any manner the amount of, or delay the timing of,
payments received on Mortgage Loans which are required to be distributed to,
or otherwise materially adversely affect, any non-consenting
Certificateholder.
 
AMENDMENT
 
  Each Pooling Agreement may be amended by the parties thereto, without the
consent of any of the holders of Certificates covered by such Pooling
Agreement, (i) to cure any ambiguity, (ii) to correct or supplement any
provision therein which may be inconsistent with any other provision therein
or to correct any error, (iii) to change the timing and/or nature of deposits
in the Certificate Account, provided that (A) such change would not adversely
affect in any material respect the interests of any Certificateholder, as
evidenced by an opinion of counsel, and (B) such change would not adversely
affect the then-current rating of any rated classes of Certificates, as
evidenced by a letter from each applicable Rating Agency, (iv) if a REMIC
election has been made with respect to the related Trust Fund, to modify,
eliminate or add to any of its provisions (A) to such extent as shall be
necessary to maintain the qualification of the Trust Fund as a REMIC or to
avoid or minimize the risk of imposition of any tax on the related Trust Fund,
provided that the Trustee has received an opinion of counsel to the effect
that (1) such action is necessary or desirable to maintain such qualification
or to avoid or minimize such risk, and (2) such action will not adversely
affect in any material respect the interests of any
 
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<PAGE>
 
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 "Federal Income Tax Consequences" below) from the Trust Fund
for such series of all remaining Mortgage Loans, REO Properties and/or
Mortgage Securities. In addition to the foregoing, the Master Servicer or the
Company will have the option to purchase, in whole but not in part, the
Certificates specified in the related Prospectus Supplement in the manner set
forth in the related Prospectus Supplement. Upon the purchase of such
Certificates or at any time thereafter, at the option of the Master Servicer
or the Company, the assets of the Trust Fund may be sold, thereby effecting a
retirement of the Certificates and the termination of the Trust Fund, or the
Certificates so purchased may be held or resold by the Master Servicer or the
Company. In no event, however, will the trust created by the Pooling Agreement
continue beyond the expiration of 21 years from the death of the survivor of
certain persons named in such Pooling Agreement. Written notice of termination
of the Pooling Agreement will be given to each Certificateholder, and the
final distribution will be made only upon surrender and cancellation of the
Certificates at an office or agency appointed by the Trustee which will be
specified in the notice of termination. If the Certificateholders are
permitted to terminate the trust under the applicable Pooling Agreement, a
penalty may be imposed upon the Certificateholders based upon the fee that
would be foregone by the Master Servicer because of such termination.
 
 
                                      65
<PAGE>
 
  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. The foregoing is subject to the provision that if a REMIC
election has been made, the termination of the related Trust Fund will be
effected only in connection with a "qualified liquidation" within the meaning
of Section 860F(a)(4) of the Code.
 
THE TRUSTEE
 
  The Trustee under each Pooling Agreement will be named in the related
Prospectus Supplement. The commercial bank, national banking association,
banking corporation or trust company that serves as Trustee may have typical
banking relationships with the Company and its affiliates.
 
LIMITATIONS ON THE DUTIES OF THE TRUSTEE
 
  The Trustee for each series of Certificates will make no representation as
to the validity or sufficiency of the related Pooling Agreement, the
Certificates or any underlying Mortgage Loan, Mortgage Security or related
document and will not be accountable for the use or application by or on
behalf of any Master Servicer or Special Servicer of any funds paid to the
Master Servicer or Special Servicer in respect of the Certificates or the
underlying Mortgage Loans or Mortgage Securities, or any funds deposited into
or withdrawn from the Certificate Account for such series or any other account
by or on behalf of the Master Servicer or Special Servicer. If no Event of
Default has occurred and is continuing, the Trustee for each series of
Certificates will be required to perform only those duties specifically
required under the related Pooling Agreement. However, upon receipt of any of
the various certificates, reports or other instruments required to be
furnished to it pursuant to the related Pooling Agreement, a Trustee will be
required to examine such documents and to determine whether they conform to
the requirements of such agreement.
 
CERTAIN MATTERS REGARDING THE TRUSTEE
 
  As and to the extent described in the related Prospectus Supplement, the
fees and normal disbursements of any Trustee may be the expense of the related
Master Servicer or other specified person or may be required to be borne by
the related Trust Fund.
 
  Unless otherwise specified in the related Prospectus Supplement, the Trustee
for each series of Certificates will be entitled to indemnification, from
amounts held in the Certificate Account for such series, for any loss,
liability or expense incurred by the Trustee in connection with the Trustee's
acceptance or administration of its trusts under the related Pooling
Agreement; provided, however, that such indemnification will not extend to any
loss liability or expense incurred by reason of willful misfeasance, bad faith
or gross negligence on the part of the Trustee in the performance of its
obligations and duties thereunder, or by reason of its reckless disregard of
such obligations or duties.
 
  Unless otherwise specified in the related Prospectus Supplement, the Trustee
for each series of Certificates will be entitled to execute any of its trusts
or powers under the related Pooling Agreement or perform any of this duties
thereunder either directly or by or through agents or attorneys, and the
Trustee will not be responsible for
 
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<PAGE>
 
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.
 
  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
 
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<PAGE>
 
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 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."
 
 
                                      68
<PAGE>
 
  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 accompanied by
 
                                      69
<PAGE>
 
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
 
                                      70
<PAGE>
 
is located. Mortgages, deed of trust and deeds to secure debt are herein
collectively referred to as "mortgages". A mortgage creates a lien upon, or
grants a title interest in, the real property covered thereby, and represents
the security for the repayment of the indebtedness customarily evidenced by a
promissory note. The priority of the lien created or interest granted will
depend on the terms of the mortgage and, in some cases, on the terms of
separate subordination agreements or intercreditor agreements with others that
hold interests in the real property, the knowledge of the parties to the
mortgage and, generally, the order of recordation of the mortgage in the
appropriate public recording office. However, the lien of a recorded mortgage
will generally be subordinate to later arising liens for real estate taxes and
assessments and other charges imposed under governmental police powers.
 
  Types of Mortgage Instruments. There are two parties to a mortgage: a
mortgagor (the borrower and usually the owner of the subject property) and a
mortgagee (the lender). In contrast, a deed of trust is a three-party
instrument, among a trustor (the equivalent of a borrower), a trustee to whom
the real property is conveyed, and a beneficiary (the lender) for whose
benefit the conveyance is made. Under a deed of trust, the trustor grants the
property, irrevocably until the debt is paid, in trust and generally with a
power of sale, to the trustee to secure repayment of the indebtedness
evidenced by the related note. A deed to secure debt typically has two
parties. The borrower, or grantor, conveys title to the real property to the
grantee, or lender, generally with a power of sale, until such time as the
debt is repaid. In a case where the borrower is a land trust, there would be
an additional party because legal title to the property is held by a land
trustee under a land trust agreement for the benefit of the borrower. At
origination of a mortgage loan involving a land trust, the borrower executes a
separate undertaking to make payments on the mortgage note. The mortgagee's
authority under a mortgage, the trustee's authority under a deed of trust and
the grantee's authority under 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
 
                                      71
<PAGE>
 
have a first priority security interest in the Manufactured Home securing a
Contract. As manufactured homes have become larger and often have been
attached to their sites without any apparent intention by the borrowers to
move them, courts in many states have held that manufactured homes may, under
certain circumstances, become subject to real estate title and recording laws.
As a result, a security interest in a manufactured home could be rendered
subordinate to the interests of other parties claiming an interest in the home
under applicable state real estate law. In order to perfect a security
interest in a manufactured home under real estate laws, the holder of the
security interest must file either a "fixture filing" under the provisions of
the UCC or a real estate mortgage under the real estate laws of the state
where the home is located. These filings must be made in the real estate
records office of the county where the home is located. Generally, Contracts
will contain provisions prohibiting the obligor from permanently attaching the
Manufactured Home to its site. So long as the obligor does not violate this
agreement, a security interest in the Manufactured Home will be governed by
the certificate of title laws or the UCC, and the notation of the security
interest on the certificate of title or the filing of a UCC financing
statement will be effective to maintain the priority of the security interest
in the Manufactured Home. If, however, a Manufactured Home is permanently
attached to its site, other parties could obtain an interest in the
Manufactured Home that is prior to the security interest originally retained
by the Seller and transferred to the Company.
 
  The Company will assign or cause to be assigned a security interest in the
Manufactured Homes to the Trustee, on behalf of the Certificateholders. Unless
otherwise specified in the related Prospectus Supplement, neither the Company,
the Master Servicer nor the Trustee will amend the certificates of title to
identify the Trustee, on behalf of the Certificateholders, as the new secured
party and, accordingly, the Company or the Seller will continue to be named as
the secured party on the certificates of title relating to the Manufactured
Homes. In most states, such assignment is an effective conveyance of such
security interest without amendment of any lien noted on the related
certificate of title and the new secured party succeeds 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
 
                                      72
<PAGE>
 
title or it will receive notice as a result of its lien noted thereon and
accordingly will have an opportunity to require satisfaction of the related
manufactured housing conditional sales contract before release of the lien.
Under each related Pooling Agreement, the Master Servicer will be obligated to
take such steps, at the Master Servicer's expense, as are necessary to
maintain perfection of security interests in the Manufactured Homes.
 
  Under the laws of most states, liens for repairs performed on a Manufactured
Home take priority even over a perfected security interest. The Company will
obtain the representation of the related Seller that it has no knowledge of
any such liens with respect to any Manufactured Home securing a Contract.
However, such liens could arise at any time during the term of a Contract. No
notice will be given to the Trustee or Certificateholders in the event such a
lien arises.
 
FORECLOSURE ON MORTGAGES
 
  Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale under a specific provision in the deed of trust which
authorizes the trustee to sell the property upon any default by the borrower
under the terms of the note or deed of trust. In addition to any notice
requirements contained in a deed of trust, in some states, the trustee must
record a notice of default and send a copy to the borrower trustor and to any
person who has recorded a request for a copy of notice of default and notice
of sale. In addition, the trustee must provide notice in some states to any
other individual having an interest of record in the real property, including
any junior lienholders. If the deed of trust is not reinstated within a
specified period, a notice of sale must be posted in a public place and, in
most states, published for a specific period of time in one or more
newspapers. In addition, some state laws require that a copy of the notice of
sale be posted on the property and sent to all parties having an interest of
record in the real property.
 
  Foreclosure of a mortgage is generally accomplished by judicial action.
Generally, the action is initiated by the service of legal pleadings upon all
parties having an interest of record in the real property. 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
 
                                      73
<PAGE>
 
senior mortgagees prior to or at the time of the foreclosure sale or undertake
the obligation to make payments on the senior mortgages in the event the
mortgagor is in default thereunder, in either event adding the amounts
expended to the balance due on the junior loan, and may be subrogated to the
rights of the senior mortgagees. In addition, in the event that the
foreclosure of a junior mortgage triggers the enforcement of a "due-on-sale"
clause, the junior mortgagee may be required to pay the full amount of the
senior mortgages to the senior mortgagees. Accordingly, with respect to those
Single Family and Multifamily Loans which are junior mortgage loans, if the
lender purchases the property, the lender's title will be subject to all
senior liens and claims and certain governmental liens. The proceeds received
by the referee or trustee from the sale are applied first to the costs, fees
and expenses of sale and then in satisfaction of the indebtedness secured by
the mortgage or deed of trust under which the sale was conducted. Any
remaining proceeds are generally payable to the holders of junior mortgages or
deeds of trust and other liens and claims in order of their priority, whether
or not the borrower is in default. Any additional proceeds are generally
payable to the mortgagor or trustor. The payment of the proceeds to the
holders of junior mortgages may occur in the foreclosure action of the senior
mortgagee or may require the institution of separate legal proceeds.
 
  In foreclosure, courts have imposed general equitable principles. The
equitable principles are generally designed to relieve the borrower from the
legal effect of its defaults under the loan documents. Examples of judicial
remedies that have been fashioned include judicial requirements that the
lender undertake affirmative and expensive actions to determine the causes for
the borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's judgment and have required that lenders reinstate loans or recast
payment schedules in order to accommodate borrowers who are suffering from
temporary financial disability. In other cases, courts have limited the right
of a lender to foreclose if the default under the mortgage instrument is not
monetary, such as the borrower's failure to adequately maintain the property
or the borrower's execution of a second mortgage or deed of trust affecting
the property. Finally, some courts have been faced with the issue of whether
or not federal or state constitutional provisions reflecting due process
concerns for adequate notice require that borrowers under deeds of trust or
mortgages receive notices in addition to the statutorily-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
 
                                      74
<PAGE>
 
maintaining possession of the manufactured home on the location where the
occupants were residing. Various factors may affect whether the manufactured
home is physically removed or left on location, such as the nature and term of
the lease of the site on which it is located and the condition of the unit. In
many cases, leaving the manufactured home on location is preferable, in the
event that the home is already set up, because the expenses of retaking and
redelivery will be saved. However, in those cases where the home is left on
location, expenses for site rentals will usually be incurred.
 
  (ii) Once repossession has been achieved, preparation for the subsequent
disposition of the manufactured home can commence. The disposition may be by
public or private sale provided the method, manner, time, place and terms of
the sale are commercially reasonable.
 
  (iii) Sale proceeds are to be applied first to repossession expenses
(expenses incurred in retaking, storage, preparing for sale to include
refurbishing costs and selling) and then to satisfaction of the indebtedness.
While some states impose prohibitions or limitations on deficiency judgments
if the net proceeds from resale do not cover the full amount of the
indebtedness, the remainder may be sought from the debtor in the form of a
deficiency judgement in those states that do not prohibit or limit such
judgments. The deficiency judgment is a personal judgment against the debtor
for the shortfall. Occasionally, after resale of a manufactured home and
payment of all expenses and indebtedness, there is a surplus of funds. In that
case, the UCC requires the party suing for the deficiency judgment to remit
the surplus to the debtor. Because the defaulting owner of a manufactured home
generally has very little capital or income available following repossession,
a deficiency judgment may not be sought in many cases or, if obtained, will be
settled at a significant discount in light of the defaulting owner's strained
financial condition.
 
  Louisiana Law. Any contract secured by a manufactured home located in
Louisiana will be governed by Louisiana law rather than Article 9 of the UCC.
Louisiana laws provide similar mechanisms for perfection and enforcement of
security interests in manufactured housing used as collateral for an
installment sale contract or installment loan agreement.
 
  Under Louisiana law, a manufactured home that has been permanently affixed
to real estate will nevertheless remain subject to the motor vehicle
registration laws unless the obligor and any holder of a security interest in
the property execute and file in the real estate records for the parish in
which the property 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
 
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the property encumbered by a mortgage has been sold in accordance with a
properly conducted foreclosure and foreclosure sale, those having interests
that are subordinate to that of the foreclosing lender have an equity of
redemption and may redeem the property by paying the entire debt with
interest. Those having an equity of redemption must generally be made parties
and joined in the foreclosure proceeding in order for their equity of
redemption to be terminated.
 
  The equity of redemption is a common-law (non-statutory) right which should
be distinguished from post-sale statutory rights of redemption. In some
states, after sale pursuant to a deed of trust or foreclosure of a mortgage,
the borrower and foreclosed junior lienholders are given a statutory period in
which to redeem the property. In some states, statutory redemption may occur
only upon payment of the foreclosure sale price. In other states, redemption
may be permitted if the former borrower pays only a portion of the sums due.
The effect of a statutory right of redemption is to diminish the ability of
the lender to sell the foreclosed property because the exercise of a right of
redemption would defeat the title of any purchase through a foreclosure.
Consequently, the practical effect of the redemption right is to force the
lender to maintain the property and pay the expenses of ownership until the
redemption period has expired. In some states, a post-sale statutory right of
redemption may exist following a judicial foreclosure, but not following a
trustee's sale under a deed of trust.
 
  Manufactured Homes. While state laws do not usually require notice to be
given to debtors prior to repossession, many states do require delivery of a
notice of default and of the debtor's right to cure defaults before
repossession. The law in most states also requires that the debtor be given
notice of sale prior to the resale of the home so that the owner may redeem at
or before resale. In addition, the sale must comply with the requirements of
the UCC.
 
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
 
  Single Family Loans and Multifamily Loans. Certain states have imposed
statutory prohibitions which limit the remedies of a beneficiary under a deed
of trust or a mortgagee under a mortgage. In some states including California,
statutes limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against the borrower following foreclosure. A deficiency
judgment is a personal judgment against the former borrower equal in most
cases to the difference between the net amount realized upon the public sale
of the real property and the amount due to the lender. In the case of a
Mortgage Loan secured by a property owned by a trust where the Mortgage Note
is executed on behalf of the trust, a deficiency judgment against the trust
following foreclosure or sale under a deed of trust, even if obtainable under
applicable law, may be of little 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
 
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example, under the federal Bankruptcy Code, as amended from time to time
(Title 11 of the United States Code) (the "Bankruptcy Code"), virtually all
actions (including foreclosure actions and deficiency judgment proceedings) to
collect a debt are automatically stayed upon the filing of the bankruptcy
petition and, often, no interest or principal payments are made during the
course of the bankruptcy case. The delay and the consequences thereof caused
by such automatic stay can be significant. Also, under the Bankruptcy Code,
the filing of a petition in a bankruptcy by or on behalf of a junior lienor
may stay the senior lender from taking action to foreclose out of such junior
lien. Moreover, with respect to federal bankruptcy law, a court with federal
bankruptcy jurisdiction may permit a debtor through his or her Chapter 11 or
Chapter 13 rehabilitative plan to cure a monetary default in respect of a
mortgage loan on a debtor's residence by paying arrearage within a reasonable
time period and reinstating the original mortgage loan payment schedule even
though the lender accelerated the mortgage loan and final judgment of
foreclosure had been entered in state court (provided no sale of the residence
had yet occurred) prior to the filing of the debtor's petition. Some courts
with federal bankruptcy jurisdiction have approved plans, based on the
particular facts of the reorganization case, that effected the curing of a
mortgage loan default by paying arrearage over a number of years.
 
  Courts with federal bankruptcy jurisdiction have also indicated that the
terms of a mortgage loan secured by property of the debtor may be modified.
These courts have allowed modifications that include reducing the amount of
each monthly payment, changing the rate of interest, altering the repayment
schedule, forgiving all or a portion of the debt and reducing the lender's
security interest to the value of the residence, thus leaving the lender a
general unsecured creditor for the difference between the value of the
residence and the outstanding balance of the loan. Generally, however, the
terms of a mortgage loan secured only by a mortgage on real property that is
the debtor's principal residence may not be modified pursuant to a plan
confirmed pursuant to Chapter 13 except with respect to mortgage payment
arrears, which may be cured within a reasonable time period.
 
  In the case of income-producing multifamily properties, federal bankruptcy
law may also have the effect of interfering with or affecting the ability of
the secured lender to enforce the borrower's assignment of rents and leases
related to the mortgaged property. Under Section 362 of the Bankruptcy Code,
the lender will be stayed from enforcing the assignment, and the legal
proceedings necessary to resolve the issue could be time-consuming, with
resulting delays in the lender's receipt of the rents.
 
  Certain tax liens arising under the Internal Revenue Code of 1986, as
amended, may in certain circumstances provide priority over the lien of a
mortgage or deed of trust. In addition, substantive requirements are imposed
upon mortgage lenders in connection with the origination and the servicing of
single 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
 
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the holders of a junior deed of trust or a junior mortgage are subordinate in
lien priority and in payment priority to those of the holder of the senior
mortgage or deed of trust, including the prior rights of the senior mortgagee
or beneficiary to receive and apply hazard insurance and condemnation proceeds
and, upon default of the mortgagor, to cause a foreclosure on the property.
Upon completion of the foreclosure proceedings by the holder of the senior
mortgage or the sale pursuant to the deed of trust, the junior mortgagee's or
junior beneficiary's lien will be extinguished unless the junior lienholder
satisfies the defaulted senior loan or asserts its subordinate interest in a
property in foreclosure proceedings. See "--Foreclosure on Mortgages" above.
 
  Furthermore, the terms of the junior mortgage or deed of trust are
subordinate to the terms of the senior mortgage or deed of trust. In the event
of a conflict between the terms of the senior mortgage or deed of trust and
the junior mortgage or deed of trust, the terms of the senior mortgage or deed
of trust will govern generally. Upon a failure of the mortgagor or trustor to
perform any of its obligations, the senior mortgagee or beneficiary, subject
to the terms of the senior mortgage or deed of trust, may have the right to
perform the obligation itself. Generally, all sums so expended by the
mortgagee or beneficiary become part of the indebtedness secured by the
mortgage or deed of trust. To the extent a senior mortgagee expends such sums,
such sums will generally have priority over all sums due under the junior
mortgage.
 
CONSUMER PROTECTION LAWS WITH RESPECT TO CONTRACTS
 
  Numerous federal and state consumer protection laws impose substantial
requirements upon creditors involved in consumer finance. These laws include
the federal Truth-in-Lending Act, Regulation "Z", the Equal Credit Opportunity
Act, Regulation "B", the Fair Credit Reporting Act, and related statutes.
These laws can impose specific statutory liabilities upon creditors who fail
to comply with their provisions. In some cases, this liability may affect an
assignee's ability to enforce a contract.
 
  Manufactured housing contracts often contain provisions obligating the
obligor to pay late charges if payments are not timely made. In certain cases,
federal and state law may specifically limit the amount of late charges that
may be collected. Unless otherwise provided in the related Prospectus
Supplement, under the related Pooling Agreement, late charges will be retained
by the Master Servicer as additional servicing compensation, and any inability
to collect these amounts will not affect payments to Certificateholders.
 
  Courts have imposed general equitable principles upon repossession and
litigation involving deficiency balances. These equitable principles are
generally designed to relieve a consumer from the legal consequences of a
default.
 
  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.
 
 
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<PAGE>
 
ENVIRONMENTAL LEGISLATION
 
  Certain states impose a statutory lien for associated costs on property that
is the subject of a cleanup action by the state on account of hazardous wastes
or hazardous substances released or disposed of on the property. Such a lien
will generally have priority over all subsequent liens on the property and, in
certain of these states, will have priority over prior recorded liens
including the lien of a mortgage. In addition, under federal environmental
legislation and under state law in a number of states, a secured party which
takes a deed in lieu of foreclosure or acquires a mortgaged property at a
foreclosure sale or becomes involved in the operation or management of a
property so as to be deemed an "owner" or "operator" of the property may be
liable for the costs of cleaning up a contaminated site. Although such costs
could be substantial, it is unclear whether they would be imposed on a lender
(such as a Trust Fund) secured by residential real property. In the event that
title to a Mortgaged Property securing a Mortgage Loan in a Trust Fund was
acquired by the Trust Fund and cleanup costs were incurred in respect of the
Mortgaged Property, the holders of the Offered Certificates of the related
series might realize a loss if such costs were required to be paid by the
Trust Fund.
 
ENFORCEABILITY OF CERTAIN PROVISIONS
 
  Transfer of Single Family Properties and Multifamily Properties. Unless the
related Prospectus Supplement indicates otherwise, the Single Family Loans and
Multifamily Loans generally contain due-on-sale clauses. These clauses permit
the lender to accelerate the maturity of the loan if the borrower sells,
transfers or conveys the property. The enforceability of these clauses has
been the subject of legislation or litigation in many states, and in some
cases the enforceability of these clauses was limited or denied. However, the
Garn-St Germain Depository Institutions Act of 1982 (the "Garn-St Germain
Act") preempts state constitutional, statutory and case law that prohibits the
enforcement of due-on-sale clauses and permits lenders to enforce these
clauses in accordance with their terms, subject to certain limited exceptions.
The Garn-St Germain Act does "encourage" lenders to permit assumption of loans
at the original rate of interest or at some other rate less than the average
of the original rate and the market rate.
 
  The Garn-St Germain Act also sets forth nine specific instances in which a
mortgage lender covered by the Garn-St Germain Act may not exercise a due-on-
sale clause, notwithstanding the fact that a transfer of the property may have
occurred. These include intra-family transfers, certain transfers by operation
of law, leases of fewer than three years and the creation of a junior
encumbrance. Regulations promulgated under the Garn-St Germain Act also
prohibit the imposition of a prepayment penalty upon the acceleration of a
loan pursuant to a due-on-sale clause.
 
  The inability to enforce a due-on-sale clause may result in a mortgage loan
bearing an interest rate below the current market rate being assumed by the
buyer rather than being paid off, which may have an impact upon the average
life of the Mortgage Loans and the number of Mortgage Loans which may be
outstanding until maturity.
 
  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.
 
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<PAGE>
 
Consequently, in some cases the Master Servicer may be prohibited from
enforcing a due-on-sale clause in respect of certain Manufactured Homes.
 
  Late Payment Charges and Prepayment Restrictions. Notes and mortgages, as
well as manufactured housing conditional sales contracts and installment loan
agreements, may contain provisions that obligate the borrower to pay a late
charge or additional interest if payments are not timely made, and in some
circumstances, may prohibit prepayments for a specified period and/or
condition prepayments upon the borrower's payment of prepayment fees or yield
maintenance penalties. In certain states, there are or may be specific
limitations upon the late charges which a lender may collect from a borrower
for delinquent payments. Certain states also limit the amounts that a lender
may collect from a borrower as an additional charge if the loan is prepaid. In
addition, the enforceability of provisions that provide for prepayment fees or
penalties upon an involuntary prepayment is unclear under the laws of many
states.
 
SUBORDINATE FINANCING
 
  When the mortgagor encumbers mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the mortgagor
may have difficulty servicing and repaying multiple loans. In addition, if the
junior loan permits recourse to the mortgagor (as junior loans often do) and
the senior loan does not, a mortgagor may be more likely to repay sums due on
the junior loan than those on the senior loan. Second, acts of the senior
lender that prejudice the junior lender or impair the junior lender's security
may create a superior equity in favor of the junior lender. For example, if
the mortgagor and the senior lender agree to an increase in the principal
amount of or the interest rate payable on the senior loan, the senior lender
may lose its priority to the extent an existing junior lender is harmed or the
mortgagor is additionally burdened. Third, if the mortgagor defaults on the
senior loan and/or any junior loan or loans, the existence of junior loans and
actions taken by junior lenders can impair the security available to the
senior lender and can interfere with or delay the taking of action by the
senior lender. Moreover, the bankruptcy of a junior lender may operate to stay
foreclosure or similar proceeds by the senior lender.
 
APPLICABILITY OF USURY LAWS
 
  Title V of the Depository Institutions Deregulation and Monetary Control Act
of 1980, enacted in March 1980 ("Title V"), provides that state usury
limitations shall not apply to certain types of residential first mortgage
loans originated by certain lenders after March 31, 1980. A similar federal
statute was in effect with respect to mortgage loans made during the first
three months of 1980. The Office of Thrift Supervision is authorized to issue
rules and regulations and to publish interpretations governing implementation
of Title V. The statute authorized any state to reimpose interest rate limits
by adopting, before April 1, 1983, a law or constitutional provision which
expressly rejects application of the federal law. In addition, even where
Title V is not so rejected, any state is authorized by the law to adopt a
provision limiting discount points or other charges on mortgage loans covered
by Title V, Certain states have taken action to reimpose interest rate limits
or to limit discount points or other charges.
 
  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.
 
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<PAGE>
 
  As indicated above under "The Mortgage Pools-Representations by Sellers,"
each Seller of a Mortgage Loan will have represented that such Mortgage Loan
was originated in compliance with then applicable state laws, including usury
laws, in all material respects. However, the Mortgage Rates on the Mortgage
Loans will be subject to applicable usury laws as in effect from time to time.
 
ALTERNATIVE MORTGAGE INSTRUMENTS
 
  Alternative mortgage instruments, including adjustable rate mortgage loans
and early ownership mortgage loans, originated by non-federally chartered
lenders have historically been subjected to a variety of restrictions. Such
restrictions differed from state to state, resulting in difficulties in
determining whether a particular alternative mortgage instrument originated by
a state-chartered lender was in compliance with applicable law. These
difficulties were alleviated substantially as a result of the enactment of
Title VIII of the Garn-St Germain Act ("Title VIII"). Title VIII provides
that, notwithstanding any state law to the contrary, state-chartered banks may
originate alternative mortgage instruments in accordance with regulations
promulgated by the Comptroller of the Currency with respect to origination of
alternative mortgage instruments by national banks, state-chartered credit
unions may originate alternative mortgage instruments in accordance with
regulations promulgated by the National Credit Union Administration with
respect to origination of alternative mortgage instruments by federal credit
unions, and all other non-federally chartered housing creditors, including
state-chartered savings and loan associations, state-chartered savings banks
and mutual savings banks and mortgage banking companies, may originate
alternative mortgage instruments in accordance with the regulations
promulgated by the Federal Home Loan Bank Board, predecessor to the Office of
Thrift Supervision, with respect to origination of alternative mortgage
instruments by federal savings and loan associations. Title VIII provides that
any state may reject applicability of the provisions of Title VIII by
adopting, prior to October 15, 1985, a law or constitutional provision
expressly rejecting the applicability of such provisions. Certain states have
taken such action.
 
FORMALDEHYDE LITIGATION WITH RESPECT TO CONTRACTS
 
  A number of lawsuits are pending in the United States alleging personal
injury from exposure to the chemical formaldehyde, which is present in many
building materials, including such components of manufactured housing as
plywood flooring and wall paneling. Some of these lawsuits are pending against
manufacturers of manufactured housing, suppliers of component parts, and
related persons in the distribution process. The Company is aware of a limited
number of cases in which plaintiffs have won judgments in these lawsuits.
 
  Under the FTC Rule, which is described above under "Consumer Protection
Laws", the holder of any Contract secured by a Manufactured Home with respect
to which a formaldehyde claim has been successfully asserted may be liable to
the obligor for the amount paid by the obligor on the related Contract and may
be unable to collect amounts still due under the Contract. In the event an
obligor is successful in asserting such a claim, the related
Certificateholders could suffer a loss if (i) the related Seller fails or
cannot be required to repurchase the affected Contract for a breach of
representation and warranty and (ii) the Master Servicer or the Trustee were
unsuccessful in asserting any claim of contribution or subrogation on behalf
of the Certificateholders against the manufacturer or other persons who were
directly liable to the plaintiff for the 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
 
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Mortgagor's active duty status, unless a court orders otherwise upon
application of the lender. The Relief Act applies to individuals who are
members of the Army, Navy, Air Force, Marines, National Guard, Reserves, Coast
Guard, and officers of the U.S. Public Health Service assigned to duty with
the military. Because the Relief Act applies to Mortgagors who enter military
service (including reservists who are called to active duty) after origination
of the related Mortgage Loan, no information can be provided as to the number
of loans that may be affected by the Relief Act. Application of the Relief Act
would adversely affect, for an indeterminate period of time, the ability of
the Master Servicer to collect full amounts of interest on certain of the
Mortgage Loans. Any shortfall in interest collections resulting from the
application of the Relief Act or similar legislation or regulations, which
would not be recoverable from the related Mortgage Loans, would result in a
reduction of the amounts distributable to the holders of the related
Certificates, and would not be covered by advances or, unless otherwise
specified in the related Prospectus Supplement, by any Letter of Credit or any
other form of credit enhancement provided in connection with the related
series of Certificates. In addition, the Relief Act imposes limitations that
would impair the ability of the Master Servicer to foreclose on an affected
Mortgage Loan or enforce rights under a Contract during the Mortgagor's period
of active duty status, and, under certain circumstances, during an additional
three month period thereafter. Thus, in the event that the Relief Act or
similar legislation or regulations applies to any Mortgage Loan which goes
into default, there may be delays in payment and losses on the related
Certificates in connection therewith. Any other interest shortfalls, deferrals
or forgiveness of payments on the Mortgage Loans resulting from similar
legislation or regulations may result in delays in payments or losses to
Certificate holders of the related series.
 
                        FEDERAL INCOME TAX CONSEQUENCES
 
GENERAL
   
  The following general discussion of the anticipated material federal income
tax consequences of the purchase, ownership and disposition of the
Certificates offered hereunder, to the extent it relates to matters of law or
legal conclusions with respect thereto, represents the opinion of counsel to
the Company with respect to that series on the material matters associated
with such consequences, subject to any qualifications set forth herein. This
discussion has been prepared with the advice of O'Melveny & Myers LLP, special
tax counsel to the Company. This discussion is directed solely to
Certificateholders that hold the Certificates as capital assets within the
meaning of Section 1221 of the Internal Revenue Code of 1986 (the "Code") and
does not purport to discuss all federal income tax consequences that may be
applicable to particular categories of investors, some of which (such as
banks, insurance companies and foreign investors) may be subject to special
rules. Further, the authorities on which this discussion, and the opinion
referred to below, are based are subject to change or differing
interpretations, which could apply retroactively. Taxpayers and preparers of
tax returns (including those filed by any REMIC or other issuer) should be
aware that under applicable Treasury regulations a provider of advice on
specific issues of law is not considered an income tax return preparer unless
the advice (i) is given with respect to events that have occurred at the time
the advice is rendered and is not given with respect to the consequences of
contemplated actions, and (ii) is directly relevant to the determination of an
entry on a tax return. Prospective investors should note that no rulings have
been or will be sought from the "Internal Revenue Service" (the "IRS") with
respect to any of the federal income tax consequences discussed below, and no
assurance can be given the IRS will not take a contrary position. Accordingly,
taxpayers should consult their own tax advisors and tax return preparers
regarding the preparation of any item on a tax return, even where the
anticipated tax treatment has been discussed herein. 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
 
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<PAGE>
 
specified party (the "REMIC Administrator") will elect to have treated as a
real estate mortgage investment conduit ("REMIC") under Sections 860A through
86OG (the "REMIC Provisions") of the Code and (ii) certificates ("Grantor
Trust Certificates") representing interests in a Trust Fund ("Grantor Trust
Fund") as to which no such election will be made. The Prospectus Supplement
for each series of Certificates will indicate whether a REMIC election (or
elections) will be made for the related Trust Fund and, if such an election is
to be made, will identify all "regular interests" and "residual interests" in
the REMIC. For purposes of this tax discussion, references to a
"Certificateholder" or a "holder" are to the beneficial owner of a
Certificate.
 
  The following discussion is based in part upon the rules governing original
issue discount that are set forth in Sections 1271-1273 and 1275 of the Code
and in the Treasury regulations issued thereunder (the "OID Regulations"), and
in part upon the REMIC Provisions and the Treasury regulations issued
thereunder (the "REMIC Regulations"). The OID Regulations do not adequately
address certain issues relevant to, and in some instances provide that they
are not applicable to, securities such as the Certificates.
 
REMICS
   
  Classification of REMICS. Prior to the sale of each series of REMIC
Certificates, O'Melveny & Myers LLP, special tax counsel to the Company, will
have delivered its opinion generally to the effect that, assuming the making
of appropriate elections and compliance with all provisions of the related
Pooling and Servicing Agreement, the related Trust Fund (or each applicable
portion thereof) will qualify as a REMIC and the REMIC Certificates offered
with respect thereto will be considered to evidence ownership of "regular
interests" ("REMIC Regular Certificates") or "residual interests" ("REMIC
Residual Certificates") in that REMIC within the meaning of the REMIC
Provisions. Such opinion will be filed with the Commission either as an
exhibit to the Registration Statement of which the Prospectus Supplement is a
part or in a Current Report on Form 8-K.     
 
  If an entity electing to be treated as a REMIC fails to comply with one or
more of the ongoing requirements of the Code for such status during any
taxable year, the Code provides that the entity will not be treated as a REMIC
for such year and thereafter. In that event, such entity may be taxable as a
corporation under Treasury regulations, and the related REMIC Certificates may
not be accorded the status or given the tax treatment described below.
Although the Code authorizes the Treasury Department to issue regulations
providing relief in the event of an inadvertent termination of REMIC status,
no such regulations have been issued. Any such relief, moreover, may be
accompanied by sanctions, such as the imposition of a corporate tax on all or
a portion of the Trust Fund's income for the period in which the requirements
for such status are not satisfied. The Pooling and Servicing Agreement with
respect to each REMIC will include provisions designed to maintain the Trust
Fund's status as a REMIC under the REMIC Provisions. It is not anticipated
that the status of any Trust Fund as a REMIC will be terminated.
   
  Characterization of Investments in REMIC Certificates. In general, the REMIC
Certificates will be "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
"real 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.     
 
                                      83
<PAGE>
 
  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,
O'Melveny & Myers LLP, special tax 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
"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
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
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
 
                                      84
<PAGE>
 
representation that the Mortgage Loans will in fact prepay at a rate
conforming to the Prepayment Assumption or at any other rate.
 
  The original issue discount, if any, on a REMIC Regular Certificate will be
the excess of its stated redemption price at maturity over its issue price.
The issue price of a particular class of REMIC Regular Certificates will be
the first cash price at which a substantial amount of REMIC Regular
Certificates of that class is sold (excluding sales to bond houses, brokers
and underwriters). If less than a substantial amount of a particular class of
REMIC Regular Certificates is sold for cash on or prior to the date of their
initial issuance (the "Closing Date"), the issue price for such class will be
the fair market value of such class on the Closing Date. Under the OID
Regulations, the stated redemption price of a REMIC Regular Certificate is
equal to the total of all payments to be made on such Certificate other than
"qualified stated interest." "Qualified stated interest" includes interest
that is unconditionally payable at least annually at a single fixed rate, or
at a "qualified floating rate," an "objective rate," a combination of a single
fixed rate and one or more "qualified floating rates" or one "qualified
inverse floating rate," or a combination of "qualified floating rates" that
does not operate in a manner that accelerates or defers interest payments on
such REMIC Regular Certificate.
 
  In the case of REMIC Regular Certificates bearing adjustable interest rates,
the determination of the total amount of original issue discount and the
timing of the inclusion thereof will vary according to the characteristics of
such REMIC Regular Certificates. If the original issue discount rules apply to
such Certificates, the related Prospectus Supplement will describe the manner
in which such rules will be applied with respect to those Certificates in
preparing information returns to the Certificateholders and the Internal
Revenue Service (the "IRS").
 
  Certain classes of the REMIC Regular Certificates may provide for the first
interest payment with respect to such Certificates to be made more than one
month after the date of issuance, a period which is longer than the subsequent
monthly intervals between interest payments. Assuming the "accrual period" (as
defined below) for original issue discount is each monthly period that ends on
a Distribution Date, in some cases, as a consequence of this "long first
accrual period," some or all interest payments may be required to be included
in the stated redemption price of the REMIC Regular Certificate and accounted
for as original issue discount. Because interest on REMIC Regular Certificates
must in any event be accounted for under an accrual method, applying this
analysis would result in only a slight difference in the timing of the
inclusion in income of the yield on the REMIC Regular Certificates.
 
  In addition, if the accrued interest to be paid on the first Distribution
Date is computed with respect to a period that begins prior to the Closing
Date, a portion of the purchase price paid for a REMIC Regular Certificate
will reflect such accrued interest. In such cases, information returns to the
Certificateholders and the IRS will be based on the position that the portion
of the purchase price paid for the interest accrued with respect to periods
prior to the Closing Date is treated as part of the overall cost of such REMIC
Regular Certificate (and not as a separate asset the cost of which is
recovered entirely out of interest received on the next Distribution Date) and
that portion of the interest paid on the first Distribution Date in excess of
interest accrued for a number of days corresponding to the number of days from
the Closing Date to the first Distribution Date should be included in the
stated redemption price of such REMIC Regular Certificate. However, the OID
Regulations state that all or some portion of such accrued interest may be
treated as a separate asset the cost of which is recovered entirely out of
interest paid on the first Distribution Date. It is unclear how an election to
do so would be made under the OID Regulations and whether such an election
could be made unilaterally by a Certificateholder.
 
  Notwithstanding the general definition of original issue discount, original
issue discount on a REMIC Regular Certificate will be considered to be de
minimis if it is less than 0.25% of the stated redemption price of the REMIC
Regular Certificate multiplied by its weighted average life. For this purpose,
the weighted average life of the REMIC Regular Certificate is computed as the
sum of the amounts determined, as to each 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
 
                                      85
<PAGE>
 
amount of the payment, and the denominator of which is the stated redemption
price at maturity of such REMIC Regular Certificate. Under the OID
Regulations, original issue discount of only a de minimis amount (other than
de minimis original issue discount attributable to a so-called "teaser"
interest rate or an initial interest holiday) will be included in income as
each payment of stated principal is made, based on the product of the total
amount of such de minimis original issue discount and a fraction, the
numerator of which is the amount of such principal payment and the denominator
of which is the outstanding stated principal amount of the REMIC Regular
Certificate. The OID Regulations also would permit a Certificateholder to
elect to accrue de minimis original issue discount into income currently based
on a constant yield method. See "Taxation of Owners of REMIC Regular
Certificates-Market Discount" for a description of such election under the OID
Regulations.
 
  If original issue discount on a REMIC Regular Certificate is in excess of a
de minimis amount, the holder of such Certificate must include in ordinary
gross income the sum of the "daily portions" of original issue discount for
each day during its taxable year on which it held such REMIC Regular
Certificate, including the purchase date but excluding the disposition date.
In the case of an original holder of a REMIC Regular Certificate, the daily
portions of original issue discount will be determined as follows.
 
  As to each "accrual period," that is, unless otherwise stated in the related
Prospectus Supplement, each period that ends on a date that corresponds to a
Distribution Date and begins on the first day following the immediately
preceding accrual period (or in the case of the first such period, begins on
the Closing Date), a calculation will be made of the portion of the original
issue discount that accrued during such accrual period. The portion of
original issue discount that accrues in any accrual period will equal the
excess, if any, of (i) the sum of (A) the present value, as of the end of the
accrual period, of all of the distributions remaining to be made on the REMIC
Regular Certificate, if any, in future periods and (B) the distributions made
on such REMIC Regular Certificate during the accrual period of amounts
included in the stated redemption price, over (ii) the adjusted issue price of
such REMIC Regular Certificate at the beginning of the accrual period. The
present value of the remaining distributions referred to in the preceding
sentence will be calculated (i) assuming that distributions on the REMIC
Regular Certificate will be received in future periods based on the Mortgage
Loans being prepaid at a rate equal to the Prepayment Assumption and (ii)
using a discount rate equal to the original yield to maturity of the
Certificate. For these purposes, the original yield to maturity of the
Certificate will be calculated based on its issue price and assuming that
distributions on the Certificate will be made in all accrual periods based on
the Mortgage Loans being prepaid at a rate equal to the Prepayment Assumption.
The adjusted issue price of a REMIC Regular Certificate at the beginning of
any accrual period will equal the issue price of such Certificate, increased
by the aggregate amount of original issue discount that accrued with respect
to such Certificate in prior accrual periods, and reduced by the amount of any
distributions made on such REMIC Regular Certificate in prior accrual periods
of amounts included in the stated redemption price. The original issue
discount accruing during any accrual period, computed as described above, will
be allocated ratably to each day during the accrual period to determine the
daily portion of original issue discount for such day.
 
  A subsequent purchaser of a REMIC Regular Certificate that purchases such
Certificate at a cost (excluding any portion of such cost attributable to
accrued qualified stated interest) less than its remaining stated redemption
price will also be required to include in gross income the daily portions of
any original issue discount with respect to such Certificate. However, each
such daily portion will be reduced, if such cost is in excess of its "adjusted
issue price," in proportion to the ratio such excess bears to the aggregate
original issue discount remaining to be accrued on such REMIC Regular
Certificate. The adjusted issue price of a REMIC Regular Certificate on any
given day equals the sum of (i) the adjusted issue price (or, in the case of
the first accrual period, the issue price) of such Certificate at the
beginning of the accrual period which includes such day and (ii) the daily
portions of original issue discount for all days during such accrual period
prior to such day.
   
  Market Discount. A Certificateholder that purchases a REMIC Regular
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     
 
                                      86
<PAGE>
 
Certificateholder generally will be required to allocate the portion of each
such distribution representing stated redemption price first to accrued market
discount not previously included in income, and to recognize ordinary income
to that extent. A Certificateholder may elect to include market discount in
income currently as it accrues rather than including it on a deferred basis in
accordance with the foregoing. If made, such election will apply to all market
discount bonds acquired by such Certificateholder on or after the first day of
the first taxable year to which such election applies. In addition, the OID
Regulations permit a Certificateholder to elect to accrue all interest,
discount (including de minimis market or original issue discount) and premium
in income as interest, based on a constant yield method. If such an election
were made with respect to a REMIC Regular Certificate with market discount,
the Certificateholder would be deemed to have made an election to include
currently market discount in income with respect to all other debt instruments
having market discount that such Certificateholder acquires during the taxable
year of the election or thereafter, and possibly previously acquired
instruments. Similarly, a Certificateholder that made this election for a
Certificate that is acquired at a premium would be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such Certificateholder owns or acquires. See
"Taxation of Owners of REMIC Regular Certificates--Premium" below. Each of
these elections to accrue interest, discount and premium with respect to a
Certificate on a constant yield method or as interest would be irrevocable.
 
  However, market discount with respect to a REMIC Regular Certificate will be
considered to be de minimis for purposes of Section 1276 of the Code if such
market discount is less than 0.25% of the remaining stated redemption price of
such REMIC Regular Certificate multiplied by the number of complete years to
maturity remaining after the date of its purchase. In interpreting a similar
rule with respect to original issue discount on obligations payable in
installments, the OID Regulations refer to the weighted average maturity of
obligations, and it is likely that the same rule will be applied with respect
to market discount, presumably taking into account the Prepayment Assumption.
If market discount is treated as de minimis under this rule, it appears that
the actual discount would be treated in a manner similar to original issue
discount of a de minimis amount. See "Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" above. Such treatment would result in
discount being included in income at a slower rate than discount would be
required to be included in income using the method described above.
 
  Section 1276(b)(3) of the Code specifically authorizes the Treasury
Department to issue regulations providing for the method for accruing market
discount on debt instruments, the principal of which is payable in more than
one installment. Until regulations are issued by the Treasury Department,
certain rules described in the Committee Report apply. The Committee Report
indicates that in each accrual period market discount on REMIC Regular
Certificates should accrue, at the Certificateholder's option: (i) on the
basis of a constant yield method, (ii) in the case of a REMIC Regular
Certificate issued without original issue discount, in an amount that bears
the same ratio to the total remaining market discount as the stated interest
paid in the accrual period bears to the total amount of stated interest
remaining to be paid on the REMIC Regular Certificate as of the beginning of
the accrual period, or (iii) in the case of a REMIC Regular Certificate issued
with original issue discount, in an amount that bears the same ratio to the
total remaining market discount as the original issue discount accrued in the
accrual period bears to the total original issue discount remaining on the
REMIC Regular Certificate at the beginning of the accrual period. Moreover,
the Prepayment Assumption used in calculating the accrual of original issue
discount is also used in calculating the accrual of market discount. Because
the regulations referred to in this paragraph have not been issued, it is not
possible to predict what effect such regulations might have on the tax
treatment of a REMIC Regular Certificate purchased at a discount in the
secondary market.
 
  To the extent that REMIC Regular Certificates provide for monthly or other
periodic distributions throughout their term, the effect of these rules may be
to require market discount to be includible in income at a rate that is not
significantly slower than the rate at which such discount would accrue if it
were original issue discount. Moreover, in any event a holder of a REMIC
Regular Certificate generally will be required to treat a portion of any gain
on the sale or exchange of such Certificate as ordinary income to the extent
of 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.
 
                                      87
<PAGE>
 
  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
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, holders of REMIC Regular
Certificates that acquire such Certificates in connection with a trade or
business should be allowed to deduct, as ordinary losses, any losses sustained
during a taxable year in which their Certificates become wholly or partially
worthless as the result of one or more realized losses on the Mortgage Loans.
However, it appears that a noncorporate holder that does not acquire a REMIC
Regular Certificate in connection with a trade or business will not be
entitled to deduct a loss under Section 166 of the Code until such holder's
Certificate becomes wholly worthless (i.e., until its outstanding principal
balance has been reduced to zero) and that the loss will be characterized as a
short-term capital loss.     
 
  Each holder of a REMIC Regular Certificate will be required to accrue
interest and original issue discount with respect to such Certificate, without
giving effect to any reductions in distributions attributable to defaults or
delinquencies on the Mortgage Loans or the Underlying Certificates until it
can be established that any such reduction ultimately will not be recoverable.
As a result, the amount of taxable income reported in any period by the holder
of a REMIC Regular Certificate could exceed the amount of economic income
actually realized by the holder in such period. Although the holder of a REMIC
Regular Certificate eventually will recognize a loss or reduction in income
attributable to previously accrued and included income that as the result of a
realized loss ultimately will not be realized, the law is unclear with respect
to the timing and character of such loss or reduction in income.
 
 Taxation of Owners of REMIC Residual Certificates
 
  General. As residual interests, the REMIC Residual Certificates will be
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
 
                                      88
<PAGE>
 
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.
 
  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
 
                                      89
<PAGE>
 
initially rather than sold, the REMIC Administrator may be required to
estimate the fair market value of such interests in order to determine the
basis of the REMIC in the Mortgage Loans and other property held by the REMIC.
 
  Subject to possible application of the de minimis rules, the method of
accrual by the REMIC of original issue discount income and market discount
income with respect to Mortgage Loans that it holds will be equivalent to the
method for accruing original issue discount income for holders of REMIC
Regular Certificates (that is, under the constant yield method taking into
account the Prepayment Assumption). However, a REMIC that acquires loans at a
market discount must include such market discount in income currently, as it
accrues, on a constant yield basis. See "--Taxation of Owners of REMIC Regular
Certificates" above, which describes a method for accruing such discount
income that is analogous to that required to be used by a REMIC as to Mortgage
Loans with market discount that it holds.
 
  A Mortgage Loan will be deemed to have been acquired with discount (or
premium) to the extent that the REMIC's basis therein, determined as described
in the preceding paragraph, is less than (or greater than) its stated
redemption price. Any such discount will be includible in the income of the
REMIC as it accrues, in advance of receipt of the cash attributable to such
income, under a method similar to the method described above for accruing
original issue discount on the REMIC Regular Certificates. It is anticipated
that each REMIC will elect under Section 171 of the Code to amortize any
premium on the Mortgage Loans. Premium on any Mortgage Loan to which such
election applies may be amortized under a constant yield method, presumably
taking into account a Prepayment Assumption. Further, such an election would
not apply to any Mortgage Loan originated on or before September 27, 1985.
Instead, premium on such a Mortgage Loan should be allocated among the
principal payments thereon and be deductible by the REMIC as those payments
become due or upon the prepayment of such Mortgage Loan.
 
  A REMIC will be allowed deductions for interest (including original issue
discount) on the REMIC Regular Certificates (including any other class of
REMIC Certificates constituting "regular interests" in the REMIC not offered
hereby) equal to the deductions that would be allowed if the REMIC Regular
Certificates (including any other class of REMIC Certificates constituting
"regular interests" in the REMIC not offered hereby) were indebtedness of the
REMIC. Original issue discount will be considered to accrue for this purpose
as described above under "--Taxation of Owners of REMIC Regular Certificates--
Original Issue Discount," except that the de minimis rule and the adjustments
for subsequent holders of REMIC Regular Certificates (including any other
class of REMIC Certificates constituting "regular interests" in the REMIC not
offered hereby) described therein will not apply.
 
  If a class of REMIC Regular Certificates is issued at a price in excess of
the stated redemption price of such class (such excess "Issue Premium"), the
net amount of interest deductions that are allowed the REMIC in each taxable
year with respect to the REMIC Regular Certificates of such class will be
reduced by an amount equal to the portion of the Issue Premium that is
considered to be amortized or repaid in that year. Although the matter is not
entirely certain, it is likely that Issue Premium would be amortized under a
constant yield method in a manner analogous to the method of accruing original
issue discount described above under "--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount."
 
  As a general rule, the taxable income of a REMIC will be determined in the
same manner as if the REMIC were an individual having the calendar year as its
taxable year and using the accrual method of accounting. However, no item of
income, gain, loss or deduction allocable to a prohibited transaction will be
taken into account. See "--Prohibited Transactions Tax and Other Taxes" below.
Further, the limitation on miscellaneous itemized deductions imposed on
individuals by Section 67 of the Code (which allows such deductions only to
the extent they exceed in the aggregate two percent of the taxpayer's adjusted
gross income) will not be applied at the REMIC level so that the REMIC will be
allowed deductions for servicing, administrative and other non-interest
expenses in determining its taxable income. All such expenses will be
allocated as a separate item to the holders of REMIC Certificates, subject to
the limitation of Section 67 of the Code. See "--Possible Pass-
 
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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
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,
 
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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.
 
  Recently enacted provisions governing the relationship between excess
inclusions and the alternative minimum tax provide that (i) the alternative
minimum taxable income of a taxpayer is based on the taxpayer's regular
taxable income computed without regard to the rule that taxable income cannot
be less than the amount of excess inclusions, (ii) the alternative minimum
taxable income of a taxpayer for a taxable year cannot be less than the amount
of excess inclusions for that year, and (iii) the amount of any alternative
minimum tax net operating loss is computed without regard to any excess
inclusions. While these provisions are generally effective for tax years
beginning after December 31, 1996, a taxpayer may elect to have these
provisions apply only with respect to tax years beginning after August 20,
1996.
       
  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
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      
 
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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. Certain recently promulgated regulations (the "Mark-
to-Market Regulations"), relating to the requirement that a securities dealer
mark to market securities held for sale to customers, may have particular
relevance for prospective purchasers of a REMIC Residual Certificate. This
mark-to-market requirement applies generally to all securities owned by a
dealer, except to the extent that the dealer has specifically identified a
security as held for investment. The 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.     
 
  Possible Pass-Through of Miscellaneous Itemized Deductions. Fees and
expenses of a REMIC generally will be allocated to the holders of the related
REMIC Residual Certificates. The applicable Treasury regulations indicate,
however, that in the case of a REMIC that is similar to a single class grantor
trust, all or a portion of such fees and expenses should be allocated to the
holders of the related REMIC Regular Certificates. Unless otherwise stated in
the related Prospectus Supplement, such fees and expenses will be allocated to
holders of the related REMIC Residual Certificates in their entirety and not
to the holders of the related REMIC Regular Certificates.
 
  With respect to REMIC Residual Certificates or REMIC Regular Certificates
the holders of which receive an allocation of fees and expenses in accordance
with the preceding discussion, if any holder thereof is an individual, estate
or trust, or a "pass-through entity" beneficially owned by one or more
individuals, estates or trusts, (i) an amount equal to such individual's,
estate's or trust's share of such fees and expenses will be added to the gross
income of such holder and (ii) such individual's, estate's or trust's share of
such fees and expenses will be treated as a miscellaneous itemized deduction
allowable subject to the limitation of Section 67 of the Code, which permits
such deductions only to the extent they exceed in the aggregate two percent of
a taxpayer's adjusted gross income. In addition, Section 68 of the Code
provides that the amount of itemized deductions otherwise allowable for an
individual whose adjusted gross income exceeds a specified amount will be
reduced by the lesser of (i) 3% of the excess of the individual's adjusted
gross income over such amount or (ii) 80% of the amount of itemized deductions
otherwise allowable for the taxable year. The amount of additional taxable
income reportable by REMIC Certificateholders that are subject to the
limitations of either Section 67 or Section 68 of the Code may be substantial.
Furthermore, in determining the alternative minimum taxable income of such a
holder of a REMIC Certificate that is an individual, estate or trust, or a
"pass-through entity" beneficially owned by one or more individuals, estates
or trusts, no deduction will be allowed for such holder's allocable portion of
servicing fees and other miscellaneous itemized deductions of the REMIC, even
though an amount equal to the amount of such fees and other deductions will be
included in such holder's gross income. Accordingly, such REMIC Certificates
may not be appropriate investments for individuals, estates, or trusts, or
pass-through entities beneficially owned by one or more individuals, estates
or trusts. Such prospective investors should carefully consult with their own
tax advisors prior to making an investment in such Certificates.
 
  Sales of REMIC Certificates. If a REMIC Certificate is sold, the selling
Certificateholder will recognize gain or loss equal to the difference between
the amount realized on the sale and its adjusted basis in the REMIC
 
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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 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.
 
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<PAGE>
 
  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 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
 
                                      95
<PAGE>
 
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 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
 
                                      96
<PAGE>
 
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. Interest, including original issue
discount, distributable to REMIC Regular Certificateholders who are
nonresident aliens, foreign corporations, or other persons who are not "U.S.
Persons", as defined below, will be considered "portfolio interest" and,
therefore, generally will not be subject to 30% United States withholding,
provided that such person (i) is not a "10 percent shareholder" within the
meaning of Code Section 871(h)(3)(B), or a controlled foreign corporation
described in Code Section 881(c)(3)(C) and (ii) provides the Trustee, or the
person who would otherwise be required to withhold tax from such distributions
under Code Section 1441 or 1442, with an appropriate statement, signed under
penalties of perjury, identifying the beneficial owner and stating, among
other things, that the beneficial owner of the REMIC Regular Certificate is
not a U.S. Person. If such statement, or any other required statement, is not
provided, 30% withholding will apply unless reduced or eliminated pursuant to
an applicable tax treaty or unless the interest on the REMIC Regular
Certificate is effectively connected with the conduct of a trade or business
within the United States by such person. In the latter case, such person will
be subject to United States federal income tax at regular rates. For these
purposes, "U.S. Person" means (i) 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 (ii) an
estate or trust whose income from sources without the United States is
includible in gross income for United States federal income tax purposes
regardless of its connection with the conduct of a trade or business within
the United States. For years beginning before January 1, 1997, "U.S. Person"
shall include a trust whose income is includible in gross income for United
States federal income taxation regardless     
 
                                      97
<PAGE>
 
   
of source, in lieu of trusts described in (ii) above, unless the trust elects
to have its United States status determined under criteria set forth under
(ii) above for tax years ending after August 20, 1996. Investors who are not
U.S. Persons should consult their own tax advisors regarding the specific tax
consequences to them of owning a REMIC Regular Certificate.     
       
       
  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, O'Melveny & Myers LLP, special tax counsel to the
Company, will deliver its opinion to the effect that assuming compliance with
all provisions of the related Pooling and Servicing Agreement, the related
Grantor Trust Fund will be classified as a grantor trust under subpart E, part
I of subchapter J of the Code and not as a partnership or an association
taxable as a corporation. Accordingly, each holder of a Grantor Trust
Certificate generally will be treated as the owner of an interest in the
Mortgage Loans included in the Grantor Trust Fund.     
 
  For purposes of the following discussion, a Grantor Trust Certificate
representing an undivided equitable ownership interest in the principal of the
Mortgage Loans constituting the related Grantor Trust Fund, together with
interest thereon at a pass-through rate, will be referred to as a "Grantor
Trust Fractional Interest Certificate." A Grantor Trust Certificate
representing ownership of all or a portion of the difference between interest
paid on the Mortgage Loans constituting the related Grantor Trust Fund (net of
normal administration fees and any Spread) and interest paid to the holders of
Grantor Trust Fractional Interest Certificates issued with respect to such
Grantor Trust Fund will be referred to as a "Grantor Trust Strip Certificate."
A Grantor Trust Strip Certificate may also evidence a nominal ownership
interest in the principal of the Mortgage Loans constituting the related
Grantor Trust Fund.
 
  Characterization of Investments in Grantor Trust Certificates
   
  Grantor Trust Fractional Interest Certificates. In the case of Grantor Trust
Fractional Interest Certificates, unless otherwise disclosed in the related
Prospectus Supplement and subject to the discussion below with respect to
Buydown Mortgage Loans, special tax counsel to the Company will deliver an
opinion that, in general, Grantor Trust Fractional Interest Certificates will
represent interests in (i) "loans . . . secured by an interest in real
property" within the meaning of Section 7701(a)(19)(C)(v) of the Code; (ii)
"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 (iii)
"real estate assets" within the meaning of Section 856(c)(5)(A) of the Code.
In addition, special tax counsel to the Company will deliver an opinion that
interest on Grantor Trust Fractional Interest Certificates will to the same
extent be considered "interest on obligations secured by mortgages on real
property or on interests in real property" within the meaning of Section
856(c)(3)(B) of the Code.     
 
  The assets constituting certain Grantor Trust Funds may include Buydown
Mortgage Loans. The characterization of an investment in Buydown Mortgage
Loans will depend upon the precise terms of the related Buydown Agreement, but
to the extent that such Buydown Mortgage Loans are secured by a bank account
or other personal property, they may not be treated in their entirety as
assets described in the foregoing sections of the Code. No directly applicable
precedents exist with respect to the federal income tax treatment or the
characterization of investments in Buydown Mortgage Loans. Accordingly,
holders of Grantor Trust Certificates should consult their own tax advisors
with respect to the characterization of investments in Grantor Trust
Certificates representing an interest in a Grantor Trust Fund that includes
Buydown Mortgage Loans.
 
  Grantor Trust Strip Certificates. Even if Grantor Trust Strip Certificates
evidence an interest in a Grantor Trust Fund consisting of Mortgage Loans that
are "loans . . . secured by an interest in real property" within the
 
                                      98
<PAGE>
 
   
meaning of Section 7701(a)(19)(C)(v) 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 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.
 
                                      99
<PAGE>
 
  If Stripped Bond Rules Apply. If the stripped bond rules apply, each 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 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
 
                                      100
<PAGE>
 
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
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.
 
 
                                      101
<PAGE>
 
  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.
 
  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
 
                                      102
<PAGE>
 
holder may reasonably request from time to time with respect to original issue
discount accruing on Grantor Trust Fractional Interest Certificates. See
"Grantor Trust Reporting" below.
 
  Market Discount. If the stripped bond rules do not apply to the Grantor
Trust Fractional Interest Certificate, a Certificateholder may be subject to
the market discount rules of Sections 1276 through 1278 of the Code to the
extent an interest in a Mortgage Loan is considered to have been purchased at
a "market discount," that is, in the case of a Mortgage Loan issued without
original issue discount, at a purchase price less than its remaining stated
redemption price (as defined above, or in the case of a Mortgage Loan issued
with original issue discount, at a purchase price less than its adjusted issue
price (as defined above). If market discount is in excess of a de minimis
amount (as described below), the holder generally will be required to include
in income in each month the amount of such discount that has accrued (under
the rules described in the next paragraph) through such month that has not
previously been included in income, but limited, in the case of the portion of
such discount that is allocable to any Mortgage Loan, to the payment of stated
redemption price on such Mortgage Loan that is received by (or, in the case of
accrual basis Certificateholders, due to) the Trust Fund in that month. A
Certificateholder may elect to include market discount in income currently as
it accrues (under a constant yield method based on the yield of the
Certificate to such holder) rather than including it on a deferred basis in
accordance with the foregoing. If made, such election will apply to all market
discount bonds acquired by such Certificateholder during or after the first
taxable year to which such election applies. In addition, the OID Regulations
would permit a Certificateholder to elect to accrue all interest, discount
(including de minimis market or original issue discount) and premium in income
as interest, based on a constant yield method. If such an election were made
with respect to a Mortgage Loan with market discount, the Certificateholder
would be deemed to have made an election to include currently market discount
in income with respect to all other debt instruments having market discount
that such Certificateholder acquires during the taxable year of the election
and thereafter, and possibly previously acquired instruments. Similarly, a
Certificateholder that made this election for a Certificate acquired at a
premium would be deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that such
Certificateholder owns or acquires. See "--REMICs--Taxation of Owners of REMIC
Regular Certificates--Premium" below. Each of these elections to accrue
interest, discount and premium with respect to a Certificate on a constant
yield method or as interest is irrevocable.
 
  Section 1276(b)(3) of the Code authorized the Treasury Department to issue
regulations providing for the method for accruing market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury Department, certain
rules described in the Committee Report will apply. Under those rules, in each
accrual period market discount on the Mortgage Loans should accrue, at the
Certificateholder's option: (i) on the basis of a constant yield method, (ii)
in the case of a Mortgage Loan issued without original issue discount, in an
amount that bears the same ratio to the total remaining market discount as the
stated interest paid in the accrual period bears to the total stated interest
remaining to be paid on the Mortgage Loan as of the beginning of the accrual
period, or (iii) in the case of a Mortgage Loan issued with original issue
discount, in an amount that bears the same ratio to the total remaining market
discount as the original issue discount accrued in the accrual period bears to
the total original issue discount remaining at the beginning of the accrual
period. The prepayment assumption, if any, used in calculating the accrual of
original issue discount is to be used in calculating the accrual of market
discount. The effect of using a prepayment assumption could be to accelerate
the reporting of such discount income. Because the regulations referred to in
this paragraph have not been issued, it is not possible to predict what effect
such regulations might have on the tax treatment of a Mortgage Loan purchased
at a discount in the secondary market.
 
  Because the Mortgage Loans will provide for periodic payments of stated
redemption price, such discount may be required to be included in income at a
rate that is not significantly slower than the rate at which such discount
would be included in income if it were original issue discount.
 
  Market discount with respect to Mortgage Loans generally will be considered
to be de minimis if it is less than 0.25% of the stated redemption price of
the Mortgage Loans multiplied by the number of complete years to maturity
remaining after the date of its purchase. In interpreting a similar rule with
respect to original issue
 
                                      103
<PAGE>
 
discount on obligations payable in installments, the OID Regulations refer to
the weighted average maturity of obligations, and it is likely that the same
rule will be applied with respect to market discount, presumably taking into
account the prepayment assumption used, if any. The effect of using a
prepayment assumption could be to accelerate the reporting of such discount
income. If market discount is treated as de minimis under the foregoing rule,
it appears that actual discount would be treated in a manner similar to
original issue discount of a de minimis amount. See "--Taxation of Owners of
Grantor Trust Fractional Interest Certificates--If Stripped Bond Rules Do Not
Apply."
 
  Further, under the rules described in "--REMICs--Taxation of Owners of REMIC
Regular Certificates-- Market Discount," below, any discount that is not
original issue discount and exceeds a de minimis amount may require the
deferral of interest expense deductions attributable to accrued market
discount not yet includible in income, unless an election has been made to
report market discount currently as it accrues. This rule applies without
regard to the origination dates of the Mortgage Loans.
 
  Premium. If a Certificateholder is treated as acquiring the underlying
Mortgage Loans at a premium, that is, at a price in excess of their remaining
stated redemption price, such Certificateholder may elect under Section 171 of
the Code to amortize using a constant yield method the portion of such premium
allocable to Mortgage Loans originated after September 27, 1985. Amortizable
premium is treated as an offset to interest income on the related debt
instrument, rather than as a separate interest deduction. However, premium
allocable to Mortgage Loans originated before September 28, 1985 or to
Mortgage Loans for which an amortization election is not made, should be
allocated among the payments of stated redemption price on the Mortgage Loan
and be allowed as a deduction as such payments are made (or, for a
Certificateholder using the accrual method of accounting, when such payments
of stated redemption price are due).
 
  It is unclear whether a prepayment assumption should be used in computing
amortization of premium allowable under Section 171 of the Code. If premium is
not subject to amortization using a prepayment assumption and a Mortgage Loan
prepays in full, the holder of a Grantor Trust Fractional Interest Certificate
acquired at a premium should recognize a loss, equal to the difference between
the portion of the prepaid principal amount of the Mortgage Loan that is
allocable to the Certificate and the portion of the adjusted basis of the
Certificate that is allocable to the Mortgage Loan. If a prepayment assumption
is used to amortize such premium, it appears that such a loss would be
unavailable. Instead, if a prepayment assumption is used, a prepayment should
be treated as a partial payment of the stated redemption price of the Grantor
Trust Fractional Interest Certificate and accounted for under a method similar
to that described for taking account of original issue discount on REMIC
Regular Certificates. See "REMICs--Taxation of Owners of REMIC Regular
Certificates-- Original Issue Discount." It is unclear whether any other
adjustments would be required to reflect differences between the prepayment
assumption used, and the actual rate of prepayments.
 
  Taxation of Owners of Grantor Trust Strip Certificates. The "stripped
coupon" rules of Section 1286 of the Code will apply to the Grantor Trust
Strip Certificates. Except as described above in "--Taxation of Owners of
Grantor Trust Fractional Interest Certificates-If Stripped Bond Rules Apply,"
no regulations or published rulings under Section 1286 of the Code have been
issued and some uncertainty exists as to how it will be applied to securities
such as the Grantor Trust Strip Certificates. Accordingly, holders of Grantor
Trust Strip Certificates should consult their own tax advisors concerning the
method to be used in reporting income or loss with respect to such
Certificates.
 
  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
 
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of such holder's adjusted basis in such Grantor Trust Strip Certificate at the
beginning of such month and the yield of such Grantor Trust Strip Certificate
to such holder. Such yield would be calculated based on the price paid for
that Grantor Trust Strip Certificate by its holder and the payments remaining
to be made thereon at the time of the purchase, plus an allocable portion of
the servicing fees and expenses to be paid with respect to the Mortgage Loans.
See "--Taxation of Owners of Grantor Trust Fractional Interest Certificates--
If Stripped Bond Rules Apply" above.
 
  As noted above, Section 1272(a)(6) of the Code requires that a prepayment
assumption be used in computing the accrual of original issue discount with
respect to certain categories of debt instruments, and that adjustments be
made in the amount and rate of accrual of such discount when prepayments do
not conform to such prepayment assumption. Regulations could be adopted
applying those provisions to the Grantor Trust Strip Certificates. It is
unclear whether those provisions would be applicable to the Grantor Trust
Strip Certificates or whether use of a prepayment assumption may be required
or permitted in the absence of such regulations. It is also uncertain, if a
prepayment assumption is used, whether the assumed prepayment rate would be
determined based on conditions at the time of the first sale of the Grantor
Trust Strip Certificate or, with respect to any subsequent holder, at the time
of purchase of the Grantor Trust Strip Certificate by that holder.
 
  The accrual of income on the Grantor Trust Strip Certificates will be
significantly slower if a prepayment assumption is permitted to be made than
if yield is computed assuming no prepayments. In the absence of statutory or
administrative clarification, it currently is intended to base information
returns or reports to the IRS and Certificateholders on the Prepayment
Assumption disclosed in the related Prospectus Supplement and on a constant
yield computed using a representative initial offering price for each class of
Certificates. However, neither the Company, the Master Servicer nor the
Trustee will make any representation that the Mortgage Loans will in fact
prepay at a rate conforming to the Prepayment Assumption or at any other rate
and Certificateholders should bear in mind that the use of a representative
initial offering price will mean that such information returns or reports,
even if otherwise accepted as accurate by the IRS, will in any event be
accurate only as to the initial Certificateholders of each series who bought
at that price. Prospective purchasers of the Grantor Trust Strip Certificates
should consult their own tax advisors regarding the use of the Prepayment
Assumption.
 
  It is unclear under what circumstances, if any, the prepayment of a Mortgage
Loan will give rise to a loss to the holder of a Grantor Trust Strip
Certificate. If a Grantor Trust Strip Certificate is treated as a single
instrument (rather than an interest in discrete mortgage loans) and the effect
of prepayments is taken into account in computing yield with respect to such
Grantor Trust Strip Certificate, it appears that no loss may be available as a
result of any particular prepayment unless prepayments occur at a rate faster
than the Prepayment Assumption. However, if a Grantor Trust Strip Certificate
is treated as an interest in discrete Mortgage Loans, or if the Prepayment
Assumption is not used, then when a Mortgage Loan is prepaid, the holder of a
Grantor Trust Strip Certificate should be able to recognize a loss equal to
the portion of the adjusted issue price of the Grantor Trust Strip Certificate
that is allocable to such Mortgage Loan.
   
  Possible Application of 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 the special rules applicable to such debt investments (the
"Contingent Payment 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 Regulations were to apply, the holder of a Grantor
Trust Strip Certificate would be required to apply a " noncontingent bond
method." Under that method, the issuer of a Grantor Trust Strip Certificate
would determine a projected payment schedule with respect to such Grantor
Trust Strip Certificate. Holders of Grantor Trust Strip Certificates would be
bound by the issuer's projected payment schedule, which would consist of all
noncontingent payments and a projected amount for each contingent payment
based on the     
 
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<PAGE>
 
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 Regulations 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
 
                                      106
<PAGE>
 
comparable information to the Service as and when required by law to do so.
Because the rules for accruing discount and amortizing premium with respect to
the Grantor Trust Certificates are uncertain in various respects, there is no
assurance the Service will agree with the Trustee's information reports of
such items of income and expense. Moreover, such information reports, even if
otherwise accepted as accurate by the Service, will in any event be accurate
only as to the initial Certificateholders that bought their Certificates at
the representative initial offering price used in preparing such reports.
 
  Backup Withholding. In general, the rules described in "--REMICS--Backup
Withholding with Respect to REMIC Certificates" will also apply to Grantor
Trust Certificates.
 
  Foreign Investors. In general, the discussion with respect to REMIC Regular
Certificates in "REMICS-- Foreign Investors in REMIC Certificates--REMIC
Regular Certificates" applies to Grantor Trust Certificates except that
Grantor Trust Certificates will, unless otherwise disclosed in the related
Prospectus Supplement, be eligible for exemption from U.S. withholding tax,
subject to the conditions described in such discussion, only to the extent the
related Mortgage Loans were originated after July 18, 1984.
 
  To the extent that interest on a Grantor Trust Certificate would be exempt
under Sections 871(h)(1) and 881(c) of the Code from United States withholding
tax, and the Grantor Trust Certificate is not held in connection with a
Certificateholder's trade or business in the United States, such Grantor Trust
Certificate will not be subject to United States estate taxes in the estate of
a non-resident alien individual.
 
                       STATE AND OTHER TAX CONSEQUENCES
 
  In addition to the federal income tax consequences described in "Federal
Income Tax Consequences", potential investors should consider the state and
local tax consequences of the acquisition, ownership, and disposition of the
Certificates offered hereunder. State tax law may differ substantially from
the corresponding federal tax law, and the discussion above does not purport
to describe any aspect of the tax laws of any state or other jurisdiction.
Therefore, prospective investors should consult their own tax advisors with
respect to the various tax consequences of investments in the certificates
offered hereunder.
 
                             ERISA CONSIDERATIONS
 
  The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code impose certain requirements on employee benefit plans and on
certain other retirement plans and arrangements, including individual
retirement accounts and annuities, Keogh plans and collective investment funds
and separate accounts (and, as applicable, insurance company general accounts)
in which such plans, accounts or arrangements are invested that are subject to
the fiduciary responsibility provisions of ERISA and Section 4975 of the Code
("Plans") and on persons who are fiduciaries with respect to such Plans in
connection with the investment of Plan assets. Certain employee benefit plans,
such as governmental plans (as defined in ERISA Section 3(32)), and, if no
election has been made under Section 410(d) of the Code, church plans (as
defined in Section 3(33) of ERISA) are not subject to ERISA requirements.
Accordingly, assets of such plans may be invested in Offered Certificates
without regard to the ERISA considerations described below, subject to the
provisions of other applicable federal and state law. Any such plan which is
qualified and exempt from taxation under Sections 401(a) and 501(a) of the
Code, however, is subject to the prohibited transaction rules set forth in
Section 503 of the Code.
 
  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
 
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<PAGE>
 
Interest that participate in a prohibited transaction may be subject to an
excise tax imposed pursuant to Section 4975 of the Code or a penalty imposed
pursuant to Section 502(i) of ERISA, unless a statutory or administrative
exemption is available. These prohibited transactions generally are set forth
in Section 406 of ERISA and Section 4975 of the Code.
 
PLAN ASSET REGULATIONS
 
  A Plan's investment in Offered Certificates may cause the underlying
Mortgage Loans, interests therein, Mortgage Securities or Contracts and other
assets included in a related Trust Fund to be deemed assets of such Plan.
Section 2510.3-101 of the regulations of the United States Department of Labor
(the "DOL") provides that when a Plan acquires an equity interest in an
entity, the Plan's assets include both such equity interest and an undivided
interest in each of the underlying assets of the entity, unless certain
exceptions not applicable here apply, or unless the equity participation in
the entity by "benefit plan investors" (i.e., Plans and certain employee
benefit plans not subject to ERISA) is not "significant", both as defined
therein. For this purpose, in general, equity participation by benefit plan
investors will be "significant" on any date if 25% or more of the value of any
class of equity interests in the entity is held by benefit plan investors.
Equity participation in a Trust Fund will be significant on any date if
immediately after the most recent acquisition of any Certificate, 25 % or more
of any class of Certificates is held by benefit plan investors.
 
  Any person who has discretionary authority or control respecting the
management or disposition of Plan assets, and any person who provides
investment advice with respect to such assets for a fee, is a fiduciary of the
investing Plan. If the Mortgage Loans, interests therein, Mortgage Securities
or Contracts and other assets included in a Trust Fund constitute Plan assets,
then any party exercising management or discretionary control regarding those
assets, such as the Master Servicer, any SubServicer, any Special Servicer,
the Trustee, the obligor under any credit enhancement mechanism, or certain
affiliates thereof may be deemed to be a Plan "fiduciary" and thus subject to
the fiduciary responsibility provisions and prohibited transaction provisions
of ERISA and the Code with respect to the investing Plan. In addition, if the
Mortgage Loans and other assets included in a Trust Fund constitute Plan
assets, the purchase of Certificates by a Plan, as well as the operation of
the Trust Fund, may constitute or involve a prohibited transaction under ERISA
or the Code.
 
  The DOL has issued an administrative exemption, Prohibited Transaction Class
Exemption 83-1 ("PTCE 83-1"), which generally exempts from the prohibited
transaction provisions of Section 406(a) of ERISA, and from the excise taxes
imposed by Sections 4975(a) and (b) of the Code by reason of
Section 4975(c)(1)(A), (B), (C) and (D) of the Code, certain transactions
involving residential mortgage pool investment trusts relating to the
purchase, sale and holding of certificates in the initial issuance of
certificates and the servicing and operation of mortgage pools consisting of
mortgage loans secured by first or second mortgages or deeds of trust in
single-family residential property. PTCE 83-1 permits, subject to certain
general and specific conditions, transactions which might otherwise be
prohibited between Plans and Parties in Interest with respect to those Plans,
related to the origination, maintenance and termination of mortgage pools
consisting of mortgage loans secured by first or second mortgages or deeds of
trust on single-family residential property and the acquisition and holding of
certain mortgage pool pass-through certificates representing interests in such
mortgage pools by Plans, whether or not the Plan's assets would be deemed to
include an ownership interest in the mortgage loans in the mortgage pool. PTCE
83-1 defines the term "mortgage pool" as "an investment pool the corpus of
which (1) is held in trust; and (2) consists solely of (a) interest bearing
obligations secured by either first or second mortgages or deeds of trust on
single-family, non-farm residential property; (b) property which had secured
such obligations and which has been acquired by foreclosure; and (c)
undistributed cash.
 
  The Company anticipates that each pool of Mortgage Loans (other than pools
including MultiFamily Loans, interests in Mortgage Loans, Mortgage Securities
or Contracts) (such Mortgage Loans eligible under PTCE 83-1, "Eligible
Mortgage Loans") will be a "mortgage pool" within the meaning of PTCE 83-1.
The term "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
 
                                      108
<PAGE>
 
believes that, for purposes of PTCE 83-1, the term "mortgage pool pass-through
certificate" would include: (i) Offered Certificates representing interests in
a Trust Fund consisting of Eligible Mortgage Loans issued in a series
consisting of only a single class of Certificates; (ii) Senior Certificates
representing interests in a Trust Fund consisting of Eligible Mortgage Loans
issued in a series in which there is only one class of Senior Certificates;
provided that the Certificates described in clauses (i) and (ii) evidence the
beneficial ownership of a specified portion of both future interest payments
(greater than 0%) and future principal payments (greater than 0%) on the
Eligible Mortgage Loans. It is not clear whether other types of Offered
Certificates that may be offered hereunder would be "mortgage pass-through
certificates" for purposes of PTCE 83-1, including but not limited to: (a) a
class of Offered Certificates that evidences the beneficial ownership of
interest payments only or principal payments only, or disproportionate
interest or principal payments, or nominal principal or interest payments,
such as the Strip Certificates; or (b) Offered Certificates in a series
including classes of Certificates which differ as to timing, sequential order,
pass-through rate or amount of distributions of principal or interest or both,
or as to which distributions of principal or interest or both on any class may
be made upon the occurrence of specified events, in accordance with a schedule
or formula, or on the basis of collections from designated portions of the
Mortgage Pool; or (c) Accrual Certificates; or (d) Offered Certificates
evidencing an interest in a Trust Fund as to which two or more REMIC elections
have been made; or (e) a series including other types of multiple classes.
Accordingly, until further clarification by the DOL, Plans should not purchase
Offered Certificates representing interests as described in the immediately
preceding sentence based upon the availability of PTCE 83-1. It should be
noted that in promulgating PTCE 83-1 and its predecessor, the DOL did not have
under its consideration interests in pools of the exact nature described
herein. PTCE 83-1 is not available for mortgage pools consisting of Multi-
Family Loans, interests in Mortgage Loans, Mortgage Securities or Contracts.
PTCE 83-1 is not available for Certificates that are subordinate to any other
class of Certificates of the same series.
 
  PTCE 83-1 sets forth three general conditions which must be satisfied for
any transaction involving the purchase, sale and holding of "mortgage pool
pass-through certificates" and the servicing and operation of the "mortgage
pool" to be eligible for exemption: (1) the maintenance of a system of
insurance or other protection for the pooled mortgage loans and property
securing such loans, and for indemnifying certificateholders against
reductions in pass-through payments due to property damage or defaults in loan
payments in an amount not less than the greater of one percent of the
aggregate principal balance of all covered pooled mortgages, or the principal
balance of the largest covered mortgage; (2) the pool trustee must not be an
affiliate of the pool sponsor; and (3) the amount of the payment retained by
the pool sponsor together with other funds inuring to its benefit must be
limited to not more than adequate consideration for forming the mortgage pools
plus reasonable compensation for services provided by the pool sponsor to the
mortgage pool. PTCE 83-1 also imposes additional specific conditions for
certain types of transactions involving an investing Plan and for situations
in which the Parties in Interest are fiduciaries.
 
  The Prospectus Supplement with respect to a series will set forth whether
the Trustee in respect of such series is affiliated with the Company. Unless
otherwise provided in the Prospectus Supplement with respect to a series, the
Company believes that it will receive total compensation for forming and
providing services to the Mortgage Pools which will not be more than adequate
consideration. If the credit support with respect to a series of Certificates
constitutes a system of insurance or other protection within the meaning of
PTCE 83-1 and if it is maintained in an amount not less than the greater of
one percent of the aggregate principal balance of the Mortgage Loans or the
principal balance of the largest Mortgage Loan, then the Company believes the
first general condition referred to above will be satisfied. Each Plan
fiduciary responsible for making the investment decision whether to purchase
and to hold Offered Certificates must make its own determination as to whether
(i) the Offered Certificates constitute "mortgage pool pass-through
certificates" for purposes of PTCE 83-1, (ii) the first and third general
conditions will be satisfied, and (iii) the specific conditions not discussed
herein, of PTCE 83-1 have been satisfied.
 
  Any Plan fiduciary which proposes to cause a Plan to purchase Offered
Certificates should consult with its counsel with respect to the potential
applicability of ERISA and the Code to such investment and the availability
 
                                      109
<PAGE>
 
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.
 
TAX EXEMPT INVESTORS
 
  A Plan that is exempt from federal income taxation pursuant to Section 501
of the Code (a "Tax Exempt Investor") nonetheless will be subject to federal
income taxation to the extent that its income is "unrelated business taxable
income" ("UBTI") within the meaning of Section 512 of the Code. All "excess
inclusions" of a REMIC allocated to a REMIC Residual Certificate held by a
Tax-Exempt Investor will be considered UBTI and thus will be subject to
federal income tax. See "Federal Income Tax Consequences--Taxation of Owners
of REMIC Residual Certificates--Excess Inclusions."
 
CONSULTATION WITH COUNSEL
 
  Any fiduciary or other Plan investor that proposes to acquire or hold
Certificates on behalf of or with Plan Assets of any Plan should consult with
its counsel with respect to the potential applicability of the fiduciary
responsibility provisions of ERISA and the prohibited transaction provisions
of ERISA and the Code to the proposed investment and the availability of PTCE
83-1 or any other prohibited transaction exemption.
 
                           LEGAL INVESTMENT MATTERS
 
  Each class of Certificates offered hereby and by the related Prospectus
Supplement will be rated at the date of issuance in one of the four highest
rating categories by at least one Rating Agency. Unless otherwise specified in
the related Prospectus Supplement, each such class that is rated in one of the
two highest rating categories by at least one Rating Agency will constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"), and, as such, will be legal investments for
persons, trusts, corporations, partnerships, associations, business trusts and
business entities (including depository institutions, life insurance companies
and pension funds) created pursuant to or existing under the laws of the
United States or of any State whose authorized investments are subject to
state regulation to the same extent that, under applicable law, obligations
issued by or guaranteed as to principal and interest by the United States or
any agency or instrumentality thereof constitute legal investments for such
entities. Under SMMEA, if a State enacted legislation on or prior to October
3, 1991 specifically limiting the legal investment authority of any such
entities with respect to "mortgage related securities," such securities will
constitute legal investments for entities subject to such legislation only to
the extent provided therein. Certain States have enacted legislation which
overrides the preemption provisions of SMMEA. SMMEA provides, however, that in
no event will the enactment of any such legislation affect the validity of any
contractual commitment to purchase, hold or invest in "mortgage related
securities," or require the sale or other disposition of such securities, so
long as such contractual commitment was made or such securities acquired prior
to the enactment of such legislation.
 
  SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal with "mortgage
related securities" without limitation as to the percentage of their assets
represented thereby, federal credit unions may invest in such securities, and
national banks may purchase such securities for their own account without
regard to the limitations generally applicable to investment securities set
forth in
 
                                      110
<PAGE>
 
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.
 
  The predecessor to the Office of Thrift Supervision ("OTS") issued a
bulletin, entitled, "Mortgage Derivative Products and Mortgage Swaps", which
is applicable to thrift institutions regulated by the OTS. The bulletin
established guidelines for the investment by savings institutions in certain
"high-risk" mortgage derivative securities and limitations on the use of such
securities by insolvent, undercapitalized or otherwise "troubled"
institutions. According to the bulletin, such "high-risk" mortgage derivative
securities include securities having certain specified characteristics, which
may include certain classes of Offered Certificates. In addition, the National
Credit Union Administration has issued regulations governing federal credit
union investments which prohibit investment in certain specified types of
securities, which may include certain classes of Offered Certificates. Similar
policy statements have been issued by regulators having jurisdiction over
other types of depository institutions.
 
  Certain classes of Certificates offered hereby, including any class that is
not rated in one of the two highest rating categories by at least one Rating
Agency, will not constitute "mortgage related securities" for purposes of
SMMEA. Any such class of Certificates will be identified in the related
Prospectus Supplement. Prospective investors in such classes of Certificates,
in particular, should consider the matters discussed in the following
paragraph.
 
  There may be other restrictions on the ability of certain investors either
to purchase certain classes of Offered Certificates or to purchase any class
of Offered Certificates representing more than a specified percentage of the
investors' assets. The Company will make no representations as to the proper
characterization of any class of Offered Certificates for legal investment or
other purposes, or as to the ability of particular investors to purchase any
class of Certificates under applicable legal investment restrictions. These
uncertainties may adversely affect the liquidity of any class of Certificates.
Accordingly, all investors whose investment activities are subject to legal
investment laws and regulations, regulatory capital requirements or review by
regulatory authorities should consult with their own legal advisors in
determining whether and to what extent the Offered Certificates of any class
thereof constitute legal investments or are subject to investment, capital or
other restrictions, and, if applicable, whether SMMEA has been overridden in
any jurisdiction relevant to such investor.
 
                                USE OF PROCEEDS
 
  Unless otherwise specified in the related Prospectus Supplement,
substantially all of the net proceeds to be received from the sale of
Certificates will be applied by the Company to finance the purchase of, or to
repay short-term loans incurred to finance the purchase of, the Mortgage Loans
and/or Mortgage Securities in the respective Mortgage Pools. The 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.
 
                                      111
<PAGE>
 
                            METHODS OF DISTRIBUTION
 
  The Certificates offered hereby and by the related Prospectus Supplements
will be offered in series through one or more of the methods described below.
The Prospectus Supplement prepared for each series will describe the method of
offering being utilized for that series and will state the net proceeds to the
Company from such sale.
 
  The Company intends that Offered Certificates will be offered through the
following methods from time to time and that offerings may be made
concurrently through more than one of these methods or that an offering of the
Offered Certificates of a particular series may be made through a combination
of two or more of these methods. Such methods are as follows:
 
    1. By negotiated firm commitment or best efforts underwriting and public
  re-offering by underwriters;
 
    2. By placements by the Company with institutional investors through
  dealers; and
 
    3. By direct placements by the Company with institutional investors.
 
  If underwriters are used in a sale of any Offered Certificates (other than
in connection with an underwriting on a best efforts basis), such Certificates
will be acquired by the underwriters for their own account and may be resold
from time to time in one or more transactions, including negotiated
transactions, at fixed public offering prices or at varying prices to be
determined at the time of sale or at the time of commitment therefor. Such
underwriters may be broker-dealers affiliated with the Company whose
identities and relationships to the Company will be as set forth in the
related Prospectus Supplement. The managing underwriter or underwriters with
respect to the offer and sale of the Offered Certificates of a particular
series will be set forth on the cover of the Prospectus Supplement relating to
such series and the members of the underwriting syndicate, if any, will be
named in such Prospectus Supplement.
 
  In connection with the sale of the Offered Certificates, underwriters may
receive compensation from the Company or from purchasers of such Certificates
in the form of discounts, concessions or commissions. Underwriters and dealers
participating in the distribution of the Offered Certificates may be deemed to
be underwriters in connection with such Certificates, and any discounts or
commissions received by them from the Company and any profit on the resale of
Offered Certificates by them may be deemed to be underwriting discounts and
commissions under the Securities Act.
 
  It is anticipated that the underwriting agreement pertaining to the sale of
Offered Certificates of any series will provide that the obligations of the
underwriters will be subject to certain conditions precedent, that the
underwriters will be obligated to purchase all such Certificates if any are
purchased (other than in connection with an underwriting on a best efforts
basis) and that, in limited circumstances, the Company will indemnify the
several underwriters and the underwriters will indemnify the Company against
certain civil liabilities, including liabilities under the Securities Act or
will contribute to payments required to be made in respect thereof.
 
  The Prospectus Supplement with respect to any series offered by placements
through dealers will contain information regarding the nature of such offering
and any agreements to be entered into between the Company and purchasers of
Offered Certificates of such series.
 
  The Company anticipates that the Certificates offered hereby will be sold
primarily to institutional investors or sophisticated non-institutional
investors. Purchasers of Offered Certificates, including dealers, may,
depending on the facts and circumstances of such purchases, be deemed to be
"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.
 
                                      112
<PAGE>
 
                                 LEGAL MATTERS
 
  Unless otherwise specified in the related Prospectus Supplement, certain
legal matters in connection with the Certificates of each series will be
passed upon for the Company by Freshman, Marantz, Orlanski, Cooper & Klein, a
law corporation, Beverly Hills, California.
 
                             FINANCIAL INFORMATION
 
  A new Trust fund will be formed with respect to each series of Certificates,
and no Trust Fund will engage in any business activities or have any assets or
obligations prior to the issuance of the related series of Certificates.
Accordingly, no financial statements with respect to any Trust Fund will be
included in this Prospectus or in the related Prospectus Supplement.
 
                                    RATING
 
  It is a condition to the issuance of any class of Offered Certificates that
they shall have been rated not lower than investment grade, that is, in one of
the four highest rating categories, by at least one Rating Agency.
 
  Ratings on mortgage pass-through certificates address the likelihood of
receipt by the holders thereof of all collections on the underlying mortgage
assets to which such holders are entitled. These ratings address the
structural, legal and issuer-related aspects associated with such
certificates, the nature of the underlying mortgage assets and the credit
quality of the guarantor, if any. Ratings on mortgage pass-through
certificates do not represent any assessment of the likelihood of principal
prepayments by borrowers or of the degree by which such prepayments might
differ from those originally anticipated. As a result, Certificateholders
might suffer a lower than anticipated yield, and, in addition, holders of
stripped interest certificates in extreme cases might fail to recoup their
initial investments.
 
                                      113
<PAGE>
 
                         INDEX OF PRINCIPAL DEFINITIONS
 
<TABLE>   
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                    <C>
Accrual Certificates.................................................. 6, 38, 46
Accrued Certificate Interest..........................................        46
Affiliated Sellers....................................................        20
ARM Loans.............................................................        21
Available Distribution Amount.........................................        45
Balloon Loans.........................................................        22
Balloon Payment.......................................................        22
Bankruptcy Code.......................................................        77
Bankruptcy Loss.......................................................        49
Beneficial Owner......................................................        39
Buydown Account.......................................................    13, 24
Buydown Agreement.....................................................        43
Buydown Funds.........................................................    13, 24
Buydown Mortgage Loans................................................    13, 24
Buydown Period........................................................    13, 24
CERCLA................................................................        26
Certificate...........................................................        62
Certificate Account...................................................        42
Certificate Register..................................................        39
Certificate Registrar.................................................        38
Certificateholder.....................................................        39
Certificateholders....................................................         1
Certificates..........................................................      1, 5
Closing Date..........................................................        85
Code..................................................................     6, 82
Commission............................................................         3
Committee Report......................................................        84
Company...............................................................      1, 5
Contracts.............................................................        19
Contributions Tax.....................................................        95
Convertible Mortgage Loan.............................................        23
Debt Service Coverage Ratio...........................................        25
Debt Service Reduction................................................        54
Defaulted Mortgage Loss...............................................        49
Deferred Interest.....................................................        21
Deficient Valuation...................................................        54
Deleted Mortgage Loan.................................................        28
Designated Seller Transaction.........................................        20
Determination Date....................................................        45
Distribution Date.....................................................         8
DOL...................................................................       108
DTC...................................................................        39
DTC Registered Certificates...........................................        39
Due Period............................................................        47
Eligible Mortgage Loans...............................................       108
Equity Participation..................................................    22, 47
ERISA.................................................................   10, 107
Exchange Act..........................................................         3
</TABLE>    
 
                                      114
<PAGE>
 
<TABLE>   
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                     <C>
Extraordinary Losses...................................................       50
Fannie Mae.............................................................       26
FDIC...................................................................       20
FHA....................................................................       20
FHA Loans..............................................................       20
FHLMC..................................................................       26
FIRREA.................................................................       26
Fraud Loss.............................................................       50
Freddie Mac............................................................       26
FTC Rule...............................................................       78
Garn-St Germain Act....................................................       79
Grantor Trust Certificates.............................................   11, 83
Grantor Trust Fractional Interest Certificate..........................       98
Grantor Trust Fund.....................................................       83
Grantor Trust Strip Certificate........................................       98
Holder.................................................................       39
Housing Act............................................................       27
HUD....................................................................       60
ICAI...................................................................       62
ICI Funding............................................................    5, 61
ICII...................................................................       61
ICMH...................................................................        5
Index..................................................................       21
Insurance Proceeds.....................................................       42
Intermediaries.........................................................       39
Internal Revenue Service...............................................       82
IRS....................................................................   82, 85
Issue Premium..........................................................       90
Letter of Credit.......................................................       51
Letter of Credit Bank..................................................       51
Liquidated Mortgage Loan...............................................       34
Liquidation Proceeds...................................................   42, 43
Loan-to-Value Ratio....................................................       23
Lock-out Expiration Date...............................................       22
Lock-out Period........................................................       22
Loss...................................................................       58
Manufactured Homes.....................................................       19
Manufacturer's Invoice Price...........................................       23
Mark-to-Market Regulations.............................................       93
Master Servicer........................................................ 1, 5, 30
Mortgage Loans......................................................... 1, 7, 50
Mortgage Notes.........................................................       19
Mortgage Pool..........................................................     1, 7
Mortgage Rate..........................................................       21
Mortgage Securities....................................................    7, 20
Mortgaged Property.....................................................        7
Mortgages..............................................................       19
Multifamily Loans......................................................       19
Multifamily Properties.................................................       19
</TABLE>    
 
                                      115
<PAGE>
 
<TABLE>   
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                     <C>
Net Mortgage Rate......................................................       67
Net Operating Income...................................................       25
Nonrecoverable Advance.................................................       48
Note Margin............................................................       21
Offered Certificates................................................... 1, 5, 38
OID Regulations........................................................       83
OTS....................................................................      111
Participants...........................................................       39
Parties in Interest....................................................      107
Pass-Through Rate......................................................        6
Permitted Investments..................................................       42
Plan...................................................................       10
Policy Statement.......................................................      111
Pool Insurer...........................................................       44
Pooling Agreement...................................................... 1, 6, 62
Pre-Funding Account....................................................       37
Prepayment Assumption..................................................  84, 101
Prepayment Interest Shortfall..........................................       68
Prepayment Penalty.....................................................       22
Primary Insurance Policy...............................................       58
Primary Insurer........................................................       58
Prohibited Transactions Tax............................................       95
Prospectus Supplement..................................................        1
PTCE 83-1..............................................................      108
Purchase Obligation....................................................       57
Purchase Price.........................................................       28
Qualified Substitute Mortgage Loan.....................................       28
Rating Agency..........................................................       10
Realized Losses........................................................       49
Record Date............................................................       45
Related Proceeds.......................................................       47
Relief Act.............................................................       81
REMIC.................................................................. 1, 6, 83
REMIC Administrator....................................................       83
REMIC Certificates.....................................................       82
REMIC Provisions.......................................................       83
REMIC Regular Certificates.............................................   11, 83
REMIC Regulations......................................................       83
REMIC Residual Certificates............................................   11, 83
REO Mortgage Loan......................................................       34
REO Property...........................................................       32
Reports to Certificateholders..........................................        3
Reserve Fund...........................................................       54
RTC....................................................................       20
Securities Act.........................................................        3
Seller.................................................................        7
Sellers................................................................    1, 20
Senior Certificates....................................................    6, 38
Senior Liens...........................................................       22
Senior/Subordinate Series..............................................       38
</TABLE>    
 
                                      116
<PAGE>
 
<TABLE>   
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                      <C>
Servicing Standard......................................................      30
Single Family Loans.....................................................      19
Single Family Property..................................................      19
SMMEA................................................................... 10, 110
Special Hazard Instrument...............................................      50
Special Hazard Insurance Policy.........................................      53
Special Hazard Insurer..................................................      53
Special Hazard Loss.....................................................      49
Special Hazard Losses...................................................      53
Special Servicer........................................................   5, 33
Spread..................................................................       5
Strip Certificates......................................................   6, 38
Subordinate Certificates................................................   6, 38
Subservicer.............................................................      32
Subservicers............................................................      24
Tax Exempt Investor.....................................................     110
Tiered REMICs...........................................................      84
Title V.................................................................      80
Title VIII..............................................................      81
Trust Fund..............................................................    1, 5
Trustee.................................................................       5
UBTI....................................................................     110
Unaffiliated Sellers....................................................      20
United States person....................................................      97
Value...................................................................      23
</TABLE>    
 
                                      117
<PAGE>
 
                                    PART II
                     INFORMATION NOT REQUIRED IN PROSPECTUS


ITEM 14.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

     The expenses expected to be incurred in connection with the issuance and
distribution of the Certificates being registered, other than underwriting
compensation, are as set forth below.  All such expenses, except for the filing
fee, are estimated.

<TABLE>
     <S>                                         <C>
     Filing Fee for Registration Statement....   $  212,121
     Legal Fees and Expenses..................      375,000
     Accounting Fees and Expenses.............      160,000
     Trustee's Fees and Expenses
          (including counsel fees)...........        75,000
     Printing and Engraving Fees.............       125,000
     Rating Agency Fees......................       250,000
     Miscellaneous...........................        12,500
                                                 ----------
     Total...................................    $1,209,621
                                                 ==========
</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.  The
Registrant does not maintain liability insurance for its officers or directors.
<PAGE>
 
ITEM 16.  EXHIBITS.

Exhibits
<TABLE> 
<C>      <C>     <S>   
*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 O'Melvery & Myers LLP with respect to certain tax 
               matters. 
23.1   --      Consent of Freshman, Marantz, Orlanski, Cooper & Klein 
               (included as part of Exhibit 5.1).
23.2   --      Consent of O'Melvery & Myers LLP (included as part of Exhibit 
               8.1).
24.1   --      Power of Attorney (included in signature page to the 
               Registration Statement).
</TABLE>
- ---------------------
* Incorporated by reference from the Registration Statement on Form S-3
  (File No. 333-8439).


ITEM 17.  UNDERTAKINGS.

A.   Undertakings Pursuant to Rule 415 and Item 512(a) of Regulation S-K.

     The Registrant hereby undertakes:

     (a)(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933, (ii) to
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement, and (iii) to include
any material information with respect to the plan of distribution not previously
disclosed in this Registration Statement or any material change to such
information in this Registration Statement; provided, however, that subparts (i)
and (ii) of this section do not apply if the information required to be included
in the post-effective amendment by those subparts is contained in periodic
reports filed by the Registrant with the Securities and Exchange Commission
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this Registration Statement.

     (2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

     (3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.

     (b) That, for the purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in this Registration Statement shall be deemed to be a new
registration statement relating 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.
<PAGE>
 
     (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.
<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 11th day of July, 1997.

                                              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.

<TABLE> 
<CAPTION> 
Signature                 Title                                Date
- ---------                 -----                                ----
<S>                       <C>                                  <C> 

/s/ William Ashmore       Director, Chairman of the Board,     July 11, 1996
- ---------------------     Chief Executive Officer
William Ashmore           (Principal Executive Officer)


/s/ Blaine Ung            Director                             July 11, 1996
- ---------------------
Blaine Ung


/s/ Richard Johnson       Director and Chief Financial         July 11, 1996
- ---------------------     Officer (Principal Financial 
Richard Johnson           Officer and Principal Accounting
                          Officer)
</TABLE> 

<PAGE>
 
                  [LETTERHEAD OF FRESHMAN, MARANTZ, ORLANSKI,
                                COOPER & KLEIN]


                                 July 11, 1997



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 certifications of officers of the Registrant
or public officials.  We have assumed the authenticity of all documents
submitted to 
<PAGE>
 
ICIFC Secured Assets Corp.
Page 2

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.

          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.
<PAGE>
 
ICIFC Secured Assets Corp.
Page 3

          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", without admitting that we are "experts" within the 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
 

<PAGE>
 
                                                                  
                                                               EXHIBIT 8.1     
                     
                  [LETTERHEAD OF O'MELVENY & MYERS LLP]     
                                 
                              July 11th 1997     
 
<TABLE>   
<S>                          <C>
Writer's Direct Dial Number  Our File Number
(212) 326-2193                    057240-057
</TABLE>    
   
ICIFC Secured Assets Corp.     
   
20371 Irvine Avenue     
   
Suite 200     
   
Santa Ana Heights, CA 92707     
     
  RE:ICIFC Secured Assets Corp.     
     
  Mortgage Pass-Through Certificates     
     
  Registration Statement on Form S-3     
   
Ladies and Gentlemen:     
   
  We have acted as special tax 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 Services 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 certifications 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.     
   
  In rendering this opinion letter, we express no opinion as to the laws of
any jurisdiction other than the United States Internal Revenue Code of 1986,
as amended (the "Code"), nor do we express any opinion, either implicitly or
otherwise, or 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.     
   
  Based on the foregoing, we are of the opinion that the description of the
federal income tax consequences appearing under the heading "Federal Income
Tax Consequences" in the prospectus contained in the Registration Statement,
while not purporting to discuss all possible federal income tax consequences
of an investment in the Certificates, is accurate with respect to those tax
consequences which are discussed.     
   
  The opinion set forth above is based on relevant provisions of the Code,
Treasury Regulations thereunder, and interpretations of the foregoing as
expressed in court decisions, administrative determinations, and legislative
history as of the date hereof. These provisions and interpretations are
subject to change, which may or may not be retroactive in effect, that might
result in modifications of our opinion.     
   
  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
"Federal Income Tax Consequences", without admitting that we are "experts"
within the 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/ O'Melveny & Myers LLP     


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